

                United States Court of Appeals
                    For the First Circuit
                                         

No. 96-1010

          UNITED FOOD AND COMMERCIAL WORKERS UNION, 
                     LOCAL 328, AFL-CIO,

                     Plaintiff-Appellant,

                              v.

                    ALMAC'S INC., et al.,

                    Defendants-Appellees.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF RHODE ISLAND

           [Hon. Mary M. Lisi, U.S. District Judge]                                                              

                                         

                            Before

                     Lynch, Circuit Judge,                                                     

                Coffin, Senior Circuit Judge,                                                        

                and Cummings,* Circuit Judge.                                                        

                                         

Warren  H.  Pyle,  with  whom Angoff,  Goldman,  Manning,  Pyle  &amp;                                                                              
Wanger, P.C. was on brief, for appellant.                    
Joel  D. Applebaum, with  whom Pepper,  Hamilton &amp;  Scheetz was on                                                                       
brief, for appellee.

                                         

                        July 24, 1996
                                         

                                            

*Of the Seventh Circuit, sitting by designation.

      LYNCH, Circuit  Judge.  This  case raises  an important                  LYNCH, Circuit  Judge.                                       

issue  at  the intersection  of  federal  bankruptcy law  and

federal labor policy.   Almac's, Inc., a  New England grocery

store chain that employed over 3000 people petitioned in 1993

for reorganization  under Chapter 11 of  the Bankruptcy Code,

11 U.S.C.    1101 et  seq.  Over  the objection of  the union                                      

representing the employees, the  bankruptcy court in a series

of emergency interim orders allowed the debtor  to reduce the

employees' wages  by nine  to fifteen  percent  for almost  a

year.   The employees claim  to have lost  over $9,630,000 in

wages, but  these  emergency  interim  modifications  to  the

collective  bargaining  agreement  permitted the  company  to

survive  and  ultimately  to   reorganize  into  a  successor

company.   The union  ultimately agreed  to a  new collective

bargaining  agreement with  the  successor company.   But  it

sought  the   $9,630,000  lost  in  the   interim  in  wages,

characterizing  the  interim  modifications  as   a  "partial

rejection"   of  an   executory   contract  (the   bargaining

agreement)  within the meaning of  11 U.S.C.   365.   We hold

that   Congress  did   not  intend   for  emergency   interim

modifications ordered under 11 U.S.C.   1113(e) to be treated

as  "rejections"  of  the  collective  bargaining  agreement.

Accordingly, the union and its  members are not entitled here

to their lost wages and we affirm.

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                              I

      Local 328,United Food and CommercialWorkers Union, AFL-

CIO ("Local  328") and Almac's, Inc.  ("Almacs") were parties

to a collective bargaining agreement covering the period June

7, 1993 to  June 1,  1996 (the "Agreement").   The  Agreement

delineated  the   wages,  benefits,   and  other   terms  and

conditions  of  employment for  approximately  three thousand

Almacs  employees  in Rhode  Island  and  Massachusetts.   On

August 6, 1993, shortly after the Agreement went into effect,

Almacs petitioned for reorganization  under Chapter 11 of the

Bankruptcy Code.   In October 1993, after reducing  the wages

and benefits of unrepresented  employees, Almacs moved  under

section  1113(e) to  implement interim  modifications to  the

wages and benefits of employees covered by the Agreement.

      The  bankruptcy   court  found   that  "the   requested

modifications [were]  not  only essential  to  the  continued

operations  of Almac's,  but [were]  vital to  any hope  of a

successful reorganization."   It granted Almacs'  request for

both  a  fifteen  percent  reduction  in  the  wages  of  all

employees covered by  the Agreement and a reduction  in wages

and benefits for  employees who had been  downgraded to part-

time  positions.   This  modification  was  effective through

December 31, 1993.

      Almacs  requested  and received  consecutive extensions

to  the modification,  although  the court  reduced the  wage

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modification from fifteen percent  to twelve percent and then

to nine percent of the wages originally in effect.  The court

periodically   granted    modifications   effective   through

September 30,  1994.  Throughout this time  period, Local 328

and Almacs were involved in negotiations over the fate of the

Agreement.   Almacs never filed an  application under section

1113(b) to reject the Agreement.

      Following  each modification  order, Local  328 and two

employees, as class representatives for the Almacs employees,

filed claims for the difference between the modified wage and

benefit  rates and those  provided under the  Agreement.  The

total amount  ultimately claimed  was "at least  $9,630,000."

Although from the  face of  the claims it  appears that  they

were  initially  pressed  as  administrative  expense claims,

Local  328  later  agreed  to  assert  them  only as  general

unsecured claims.  Local  328 does not now purport  to assert

an administrative claim.

      Almacs objected  to the  claims of  Local  328 and  the

class representatives.  After a hearing  on October 21, 1994,

the bankruptcy court sustained Almacs' objections.  Local 328

and the  employee claimants appealed to  the district court.1

                                                    

1.  After Local 328  filed the  notice of appeal,  a plan  of
reorganization was  ratified by the creditor  groups and then
approved  by the bankruptcy court on November 8, 1994.  Under
the  plan, Almacs'  assets would  be sold  to a  newly formed
company, New Almac's, Inc. ("New Almacs").  New  Almacs would
continue  to operate Almacs' business.  Local 328 had entered
into a  new collective  bargaining agreement with  New Almacs

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The district  court affirmed,  reasoning that the  only basis

for  recognizing   a   claim  would   require   viewing   the

modifications to  the Agreement  as amounting to  a rejection

and hence  a breach  of  an executory  contract, but  because

interim   wage  modifications   under  section   1113(e)  are

"judicially sanctioned,  no breach occurs, and,  as a result,

no viable claim arises."2   Local 328 has appealed  from that

decision.

                              II

      The bankruptcy court's order  is subject to independent

review  here, and we accept  all bankruptcy court findings of

fact unless "clearly erroneous" and review rulings  of law de                                                                         

novo.  In re  LaRoche, 969 F.2d 1299,  1301 (1st Cir.  1992).                                 

Because  there  was no  appeal  from  the bankruptcy  court's

interim  orders, we accept  that court's findings  of fact in

                                                    

which   took   effect   upon   approval  of   the   plan   of
reorganization.
      In  connection  with  the  approval   of  the  plan  of
reorganization,  Local  328  and  Almacs  stipulated  to  the
rejection  of the  (original) Agreement  by Almacs.   In  the
stipulation, Local 328 waived any claim  for damages based on
this consensual rejection of the Agreement, but preserved the
issue raised in this  appeal.  No petition for  rejection was
submitted to the court.

2.  The district  court also reasoned that  Local 328's claim
could  not  be sustained  because it  would  have to  be paid
before  a  plan of  reorganization  could  be approved  under
section  1129(a)(9)(A), thus  putting  the  employer  into  a
Catch-22  situation.    Both parties  agree  that  this is  a
correct   statement  of   the  law   only  with   respect  to
administrative expense claims.   Local 328 does not  argue on
appeal that it has an administrative claim.

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support of  those orders as  final and  deem there  to be  no

questions   about  whether  those   orders  were   issued  in

conformance with  the statute  or about  the duration  of the

emergency conditions.

      At  the outset,  it is  important to  note the  precise

nature of Local 328's claim.  Local 328 argues on appeal that

it   has   a   general   unsecured  claim,   based   on   the

characterization of  the  interim modifications  as  "partial

rejections" of the Agreement.  Local 328 does not assert here                                                             

a  claim for  administrative expenses  under section  503 for

wages  for post-petition work.   Nor does Local  328 assert a

claim  based on  the  consensual rejection  of the  Agreement

while  its  appeal  of  this  issue  was  pending  before the

district court.  Finally,  Local 328 does not argue  that the

bankruptcy  court  lacked  authority  to  order  the  interim

modifications.

                             III

      A brief  review of  the context  in which section  1113

was enacted is helpful to understand Local 328's  argument on

appeal.   Under section 365 of the Bankruptcy Code, a trustee

(or  the  debtor-in-possession) has  the  choice, subject  to

court approval, of either  assuming or rejecting an executory

contract.     The   rejection   of   an  executory   contract

"constitutes  a breach  of such  contract  . .  . immediately

before the date of the filing  of the petition."  11 U.S.C.  

                             -6-                                         -6-

365(g)(1).    In 1984,  the Supreme  Court issued  a decision

interpreting  section  365,  one  portion  of which  prompted

Congress  to enact section 1113  of the Bankruptcy  Code.  In

NLRB v. Bildisco &amp; Bildisco, 465 U.S. 513 (1984), the Supreme                                       

Court   held  that  collective   bargaining  agreements  were

executory contracts for purposes of section 365, but that due

to  the special nature of such agreements, the rejection of a

collective  bargaining  agreement  should  be governed  by  a

standard more strict than  that applicable to other kinds  of

contracts.   See id. at 522 &amp;  n.6, 526.  The Court suggested                                

that the rejection of a collective bargaining agreement would

result in  a general  unsecured claim against  the bankruptcy

estate.  Id. at 530-31 &amp; n.12; see also In re Continental Air                                                                         

Lines  Corp., 901  F.2d 1259,  1265 (5th  Cir. 1990).   These                        

holdings  were not  what motivated  the enactment  of section

1113.

      Congress's primary  concern  in enacting  section  1113

was with one  of the  Court's other holdings  in Bildisco  --                                                                     

that  a debtor  did not  commit an  unfair labor  practice by

making  unilateral changes  to  the terms  and conditions  of

employment,   prior  to   formally  rejecting   a  collective

bargaining  agreement,  because the  agreement was  no longer

enforceable upon  the filing of  a bankruptcy petition.   465

U.S. at  534.  Under  section 1113,  a collective  bargaining

agreement remains in effect after the filing of a petition in

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bankruptcy.  A trustee may not make unilateral changes in the

terms or  conditions  of a  collective  bargaining  agreement

unless  the  court  fails  to  rule  on  an  application  for

rejection  within the  required  time  frame.   11  U.S.C.   

1113(d)(2) &amp; (f).

      Congress recognized  in enacting  section 1113(e)  that

on occasion a  debtor may require  emergency relief from  the

collective   bargaining   agreement   prior   to   rejection,

assumption  or  agreed-upon  modification of  the  agreement.

Section 1113(e) thus provides:

      If   during   a   period   when  the   collective
      bargaining agreement  continues in effect, and if
      essential  to the  continuation  of the  debtor's
      business,  or  in  order  to  avoid   irreparable
      damage  to the  estate, the  court, after  notice
      and  a  hearing,  may  authorize  the trustee  to
      implement   interim   changes   in   the   terms,
      conditions,   wages,  benefits,   or  work  rules
      provided  by  a collective  bargaining agreement.
      Any  hearing   under  this   paragraph  shall  be
      scheduled in  accordance  with the  needs of  the
      trustee.    The implementation  of  such  interim
      changes  shall  not  render  the application  for
      rejection moot.

11  U.S.C.    1113(e).3   Local 328  claims that  the interim

                                                    

3.  The other provisions of section 1113 codify the standards
that must be met before a collective bargaining agreement may
be rejected.    In  Bildisco, the  Supreme  Court  held  that                                        
rejection of a collective bargaining agreement was  permitted
if  the  "debtor  can  show  that  the  collective-bargaining
agreement  burdens  the   estate,  and  that   after  careful
scrutiny,  the equities  balance  in favor  of rejecting  the
labor contract."   465 U.S. at 526.  The Court also held that
"[b]efore  acting  on  a  petition  to  modify  or  reject  a
collective-bargaining agreement  . .  . the  Bankruptcy Court
should be  persuaded that  reasonable efforts to  negotiate a
voluntary  modification have been made  and are not likely to

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modifications permitted  by the statute should  be treated as

partial  rejections of  the collective  bargaining agreement.

From  this, it  argues it  is entitled  to rejection  damages

under section 365.

      We note first that  even were we to accept  Local 328's

premise that  the interim modifications constitute  a partial

rejection,  section  1113,  which governs  the  rejection  of

collective bargaining agreements, is silent as to  how such a

rejection  should be  treated  under section  365.4   Indeed,

courts  have  divided over  whether  a claim  for  damages is

permitted  at  all  after   the  rejection  of  a  collective

bargaining  agreement under  section  1113.    Compare  Truck                                                                         

Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 93 (2d                                                    

                                                    

produce  a prompt  and satisfactory  solution."   Id.   Under                                                                 
section 1113, before filing a petition to reject a bargaining
agreement,  the debtor  must  make a  proposal to  the union,
"based  on  the   most  complete  and  reliable   information
available at the  time of such  proposal, which provides  for
those  necessary modifications in  the employees benefits and
protections that  are necessary to permit  the reorganization
of  the debtor and assures that all creditors, the debtor and
all  of   the  affected   parties  are  treated   fairly  and
equitably," and  must provide the union  with the information
necessary to evaluate the proposal.   11 U.S.C.   1113(b)(1).
A court  may approve an  application for rejection  only upon
finding  that the  debtor or  trustee  has made  the required
proposal,  that  the union  refused  to  accept the  proposal
without good cause, and that the "balance of equities clearly
favors rejection  of [the] agreement."   11 U.S.C.   1113(c).
Because  Almacs  never filed  an  application  to reject  the
Agreement, these provisions were not invoked.

4.  Because the  relevant language of section  365(g) has not
changed  since  Bildisco,  collective  bargaining  agreements                                    
would appear  still to  be subject to  the section's  general
provisions.

                             -9-                                         -9-

Cir. 1987) (in balancing the equities to determine whether an

employer was  permitted  to reject  a  collective  bargaining

agreement under section 1113, one factor to consider was "the

possibility  and likely  effect  of any  employee claims  for

breach of contract if rejection  is approved"); In re Maxwell                                                                         

Newspapers, Inc., 146 B.R. 920, 934 (Bankr. S.D.N.Y.) (same),                            

rev'd on  other grounds,  149 B.R.  334 (S.D.N.Y.), aff'd  in                                                                         

part  and rev'd in  part, 981 F.2d  85 (2d Cir.  1992); In re                                                                         

Texas Sheet  Metals, Inc., 90  B.R. 260, 272-73  (Bankr. S.D.                                     

Tex. 1988) (same); and In re Moline Corp., 144 B.R. 75, 78-79                                                     

(Bankr.   N.D.  Ill.   1992)  (making  same   assumption  and

suggesting  that because  section  1113  says  nothing  about

effect of assumption or  rejection, "[section] 365 must apply

to fill  in the gap") with  In re Blue Diamond  Coal Co., 147                                                                    

B.R. 720,  727-28 (Bankr. E.D.  Tenn. 1992), aff'd,  160 B.R.                                                              

574, 576-77  (E.D. Tenn.  1993) (rejecting claim  for damages

based on the rejection of a collective bargaining agreement).

Cf. Mass. Air Conditioning &amp; Heating Corp. v. McCoy, 196 B.R.                                                               

659  (D.  Mass.  1996) (assumption  of  collective bargaining

agreement governed by section 365).

      We do  not reach that  question here,  however, because

we  hold that the language  and structure of  section 1113 do

not  permit  interim  changes  authorized  thereunder  to  be

construed as "rejections" for purposes of section 365(g).

                             -10-                                         -10-

      We turn to the unambiguous text of  the statute, giving

effect to its  plain meaning.   See Lomas  Mortgage, Inc.  v.                                                                     

Louis,  82  F.3d  1, 3  (1st  Cir.  1996).   Section  1113(e)                 

provides that the trustee may implement "interim changes" and

that "interim  changes shall  not render the  application for

rejection  moot."     Section   1113(e)  clearly   speaks  of

"rejection" and  "interim changes" as two  different types of

actions.  By choosing a different word, "change," to describe

the interim action, Congress  surely intended for that action

not  to  have  the  consequences  that would  follow  from  a               

"rejection."    Indeed,  section  1113(e)  is  explicit  that

"implementation of such interim  changes shall not render the

application for  rejection moot."  That  "interim changes" do

not   moot  a   "rejection"  establishes   that  the   former

constitutes relief different from the latter.                                        

      The framework of section 1113  also shows that "interim

changes"  are not  the same  species as  a "rejection."   The

statute,  by  setting forth  the  procedures  to be  followed

before  a   debtor-in-possession  "may  assume  or  reject  a

collective  bargaining agreement,"  11 U.S.C.    1113(a),  or

"reach   mutually   satisfactory   modifications    of   such

agreement,"  11 U.S.C.   1113(b)(2), contemplates three final

actions  that  may be  taken  with  respect to  a  particular

collective bargaining  agreement.  "Rejection"  of the  whole

agreement is one of these final actions.  

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      Each of  the extensive  provisions regarding  rejection

suggests  that  a  collective  bargaining  agreement is  only

"rejected" once,  in its  entirety, not  in bits  and pieces.

This is because the debtor must make a proposal to modify the

agreement and meet with  the union representatives to attempt

to  reach  consensus  before   "seeking  rejection  of  [the]

collective  bargaining  agreement."   11  U.S.C.     1113(b).

Further,  the  court   must  make  certain  findings   before

approving a petition for rejection.  Id.   1113(c).  Whatever                                                    

the  effects  of the  rejection  of  a collective  bargaining

agreement  under  section  1113,  rejection is  an  act  that

involves  a   final  repudiation  of  the  entire  agreement.

Interim  changes under  section 1113(e),  on the  other hand,                   

are, by  definition, not  final.   They only  are implemented

pending  the  final   act  of  assumption,  modification   or

rejection, while  the  agreement still  remains otherwise  in

effect.

      Finally,  by  providing  different  standards  for  the

approval  of "rejections"  and  "interim  changes,"  Congress

clearly intended not to treat the latter as merely a category

of the former.  The  standards governing rejections have both

a procedural  component and a substantive  component.  Before

the  debtor  may  even  file   an  application  to  reject  a

bargaining agreement,  it must make  a proposal to  the union

for modifications to the contract, and the application cannot

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be  approved  unless  the  union has  rejected  the  proposal

without good  cause.  11 U.S.C.    1113(b)(1) &amp;  (c)(2).  The

debtor  must also negotiate with  the union in  an attempt to

reach mutually satisfactory modifications.  Id.   1113(b)(2).                                                           

The substantive  component requires that the debtor's initial

proposal  encompass only  those  modifications "necessary  to

permit the reorganization  of the debtor."  Id.   1113(b)(1).                                                           

Because a plan of  reorganization may not be confirmed  if it

is  likely to  be followed  by liquidation  or the  "need for

further  financial  reorganization," id.     1129(a)(11), the                                                    

modifications  are  proposed  with  a view  to  the  long-run

success of the debtor's business.  

      The  standards  for  "interim changes,"  on  the  other

hand,  deal with the short  term.  Only  the basic procedural

safeguards,  "notice  and  a  hearing," are  required.    The

substantive standard  is that the changes  must be "essential

to  the  continuation  of  the  debtor's  business."   Id.                                                                         

1113(e).   This language suggests that  "interim changes" are

only permitted  under emergency  conditions, when the  debtor

otherwise  would  likely collapse.    See  In  re Salt  Creek                                                                         

Freightways, 46 B.R.  347, 350  (Bankr. D. Wy.  1985); In  re                                                                         

Almac's, Inc., 159 B.R.  665, 666 (Bankr. D.R.I. 1993).   The                         

scope  of   "interim  changes"  is  more   limited  than  the

modifications "necessary for reorganization."  See Martha  S.                                                              

West,  Life After  Bildisco:   Section 1113  and the  Duty to                                                                         

                             -13-                                         -13-

Bargain  in  Good Faith,  47 Ohio  St.  L.J. 65,  146 (1985).                                   

Because "interim  changes" are  ordered to ensure  the short-

term viability of the  debtor, they do not dictate  the final

decision to  assume, reject  or mutually modify  the original

collective bargaining agreement.

      If Congress  had intended the  result Local  328 urges,

it could  easily have  provided so  by inserting an  explicit

provision allowing for a  claim, by calling "interim changes"

"partial rejections,"  or by using other  language from which

it could be definitively inferred that "interim changes" were

"rejections"  subject  to  the  consequences   delineated  in

section 365.   The language  Congress actually used  does not

suggest  this treatment.   There is  simply no  evidence that

Congress  intended  "interim  changes"  to  be  the  same  as

"rejection."

      Local 328 argues that not  treating the section 1113(e)

changes  here as a  rejection would  lead to  an unreasonable

outcome because the modifications  in this case had the  same

effect  as  a rejection.    See  Massachusetts v.  Blackstone                                                                         

Valley  Elec. Co., 67 F.3d 981, 986 (1st Cir. 1995) ("[P]lain                             

meaning  must  govern  [a statute's]  application,  unless  a

palpably  unreasonable  outcome  would  result.").    Without

adopting Local 328's premise, we  conclude that the result we

reach is far from unreasonable.  Congress could  have thought

the   denial  of   a   remedy  to   compensate  for   interim

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modifications was a reasonable quid pro quo to the debtor, in                                                       

exchange for  the protective benefits that  flow to employees

from allowing  the collective bargaining  agreement to remain

in effect  following the  filing  of a  Chapter 11  petition.

Before Congress enacted section  1113, a debtor was permitted

to make  unilateral modifications to a  collective bargaining

agreement  after filing  a  petition in  bankruptcy and  such

modification  did  not constitute  an unfair  labor practice.

Bildisco,  465 U.S.  at  534.    In  section  1113,  Congress                    

provided   that   collective   bargaining    agreements   are

enforceable against the debtor after the filing of a petition

for  reorganization.   11  U.S.C.    1113(c),  (e) &amp;  (f);  5

Collier on Bankruptcy   1113.01[4][b],  at 1113-14 to 1113-15                                 

(Lawrence P. King ed., 15th ed.  1995).  In exchange for this

heightened   protection,   Congress  could   reasonably  have

required employees to accept  decreased wages and benefits in

an  emergency  before  any  final action  on  the  collective

bargaining  agreement  is taken,  without  providing for  the

employees  to recover all or  part of the  wages and benefits

lost in the interim reductions.

      The interim changes authorized  by the bankruptcy court

under  section  1113(e)  were  not,  in  and  of  themselves,

"rejections"  of  the Agreement  within  the  meaning of  the

Bankruptcy Code.

      Affirmed.                           

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