                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-20-2004

In Re: Allegheny
Precedential or Non-Precedential: Precedential

Docket No. 03-2085




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Recommended Citation
"In Re: Allegheny " (2004). 2004 Decisions. Paper 276.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/276


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                   PRECEDENTIAL
                                         On Appeal from the United States
  UNITED STATES COURT OF
                                                    District Court
         APPEALS
                                      for the Western District of Pennsylvania
   FOR THE THIRD CIRCUIT
                                            (D.C. Civil No. 01-cv-01714)
                                        District Judge: Honorable Donald E.
       _______________
                                                       Ziegler
                                                   _____________
     Nos. 03-2085, 03-2193
      _______________
                                             Argued: March 22, 2004
 IN RE: ALLEGHENY HEALTH,
                                      Before: FUENTES, SMITH and JOHN
         EDUCATION
                                      R. GIBSON,* Circuit Judges.
AND RESEARCH FOUNDATION;
 ALLEGHENY UNIVERSITY OF
                                            (Filed: September 20, 2004)
    THE HEALTH SCIENCES;
   ALLEGHENY UNIVERSITY
                                      For Appellee/Cross Appellant:
     MEDICAL PRACTICES;
                                      Beverly W. Manne (ARGUED)
   ALLEGHENY HOSPITALS;
                                      Tucker Arensberg
CENTENNIAL AND ALLEGHENY
                                      1500 One PPG Place
UNIVERSITY HOSPITALS-EAST
                                      Pittsburgh, PA 15222
    TENET HEALTHSYSTEM
                                      Raymond W. Thomas
     PHILADELPHIA, INC.,
                                      Richard S. Zuniga
                                      Hill, Farrer & Burrill
     Appellant in No. 03-2193
                                      300 South Grand Avenue
                                      37th Floor
              v.
                                      Los Angeles, CA 90071
 NATIONAL UNION OF HOSPITAL
                                      For Appellant/Cross Appellee:
        AND HEALTH
                                      Gail Lopez-Henriquez (ARGUED)
CARE EMPLOYEES, AFSCME, AFL-
                                      Freedman & Lorry
            CIO,
                                      400 Market Street
       DISTRICT 1199C,
                                      9th Floor
                                      Philadelphia, PA 19106
      Appellant in No. 03-2085

 WILLIAM J. SHARFFENBERGER,
                                            *The Honorable John R. Gibson,
                      Trustee         United States Court of Appeals for the
                                      Eighth Circuit, sitting by designation.

                                  1
      _______________________                      bargaining agreements. Tenet purchased
                                                   substantially all the assets of these
      OPINION OF THE COURT                         hospitals in a transaction approved by the
      _______________________                      bankruptcy court 3 under 11 U.S.C. §§ 105,
                                                   363 and 365 (2000). Tenet and District
JOHN R. GIBSON, Circuit Judge:                     1199C now contest whether Tenet is
                                                   bound to pay sick leave benefits under the
        District 1199C of the National             collective bargaining agreements between
Union of Hospital and Health Care                  District 1199C and Allegheny.
Employees and Tenet HealthSystem
                                                           After Allegheny filed bankruptcy,
Philadelphia, Inc., each appeal from the
                                                   Tenet and Allegheny entered an agreement
district court's 1 order vacating an
                                                   for Tenet to purchase Allegheny's assets
arbitration order in part and dismissing
                                                   and, later, an amendment to the agreement,
Tenet's suit to vacate the other part of the
                                                   with a closing date of November 10,
arbitration order. We will affirm in part
                                                   1998.4       Under the asset purchase
and remand in part for entry of judgment
                                                   agreement, Tenet assumed some liabilities
in favor of District 1199C.
                                                   of Allegheny and disclaimed other
        This case arises at the intersection       liabilities, which remained the obligation
of the bankruptcy and labor laws. The suit         of the bankruptcy estate. In particular, the
was filed as an adversary proceeding in the        agreement contained a list of "Assumed
Chapter 11 bankruptcy of Allegheny                 Contracts" in Schedule 2.01(e), which
H ealt h , Educ ation and R esearc h               Allegheny, as debtor-in-possession, would
Foundation and related entities,2 which            assume and assign to Tenet.            The
owned a number of hospitals in                     collective bargaining agreements between
Philadelphia. Employees at four of the             Allegheny and District 1199C were listed
hospitals were represented by District             on Schedule 2.01(e). 5 The asset purchase
1199C and were covered by collective

                                                          3
                                                          The Honorable M. Bruce
       1
       The Honorable Donald E. Ziegler,            McCullough, Bankruptcy Judge for the
United States District Judge for the               Western District of Pennsylvania.
Western District of Pennsylvania.
                                                          4
                                                        The sale actually closed on
       2
        The related entities are Allegheny         November 11, 1998.
University of the Health Sciences,
                                                          5
Allegheny University Medical Practices,                    We have searched the record in
Allegheny Hospitals, Centennial, and               vain for a copy of the elusive Schedule
Allegheny University Hospitals-East. We            2.01(e). The asset purchase agreement is
will refer to the debtors collectively as          reproduced in the record with a note
"Allegheny."                                       stating that schedules are attached to the

                                               2
agreement defined "Assumed Liabilities"             Sellers arising on or after the Closing Date
as including (inter alia) "all obligations of       with respect to any period commencing on
                                                    the Closing Date under the Assumed
                                                    Contracts." Conversely, the asset purchase
                                                    agreement contained a list of "Excluded
amended agreement, but they are not. The
                                                    Liabilities" for which Tenet would not
bankruptcy court stated that District
                                                    become liable; one item excluded was
1199C's collective bargaining agreements
                                                    "liabilities or obligations arising from any
were on the schedule: "Unfortunately for
                                                    Assumed Contract before the Closing Date
Tenet, the Court concludes that the
                                                    or resulting from any breach or default
[collective bargaining agreements] are
                                                    prior to the Closing Date of any Assumed
'Assumed Contracts' within the meaning of
                                                    Contracts or other Assumed Liabilities . .
the [asset purchase agreement], which
                                                    . ." The asset purchase agreement also
conclusion is dictated because (a)
                                                    contained a section labeled, "5.03,
'Assumed Contracts' is defined in the
                                                    Employee Matters," in which Tenet agreed
[asset purchase agreement] as 'the
                                                    to bargain w ith unio ns cu rrently
Contracts described in Schedule 2.01(e) as
                                                    representing Allegheny's employees but
the same may be amended by Buyer [(i.e.,
                                                    with the following proviso: "Employees
Tenet)] as permitted by the Court,' and (b)
                                                    employed under written Contracts will not
the [collective bargaining agreements] are
                                                    be offered employment pursuant to this
described as Assumed Contracts in the
                                                    Section, but employment of such
initial Schedule 2.01(e), the Amended
                                                    employees shall be governed by the terms
Schedule 2.01(e), and the Second
                                                    of the Assumed Contracts, if any, relating
Amended Schedule 2.01(e)."            Tenet
                                                    to such employees."
HealthSystem Philadelphia, Inc. v. Nat'l
Union of Hosp. & Health Care Employees,                     Allegheny moved in the bankruptcy
AFSCME, AFL-CIO, District 1199C (In re              court for an order approving the asset
Allegheny Health, Educ. and Research                purchase agreement under 11 U.S.C. §§
Found.), 265 B.R. 88, 102 (Bankr. E.D.              105, 363, and 365.         District 1199C
Pa. 2001) (citations omitted). Tenet does           received notice of the motion and the
not dispute this statement of a key fact.           hearing on the motion. In two sale orders
Moreover, District 1199C attached to its            dated October 1 and 30, 1998, the
reply brief Tenet's proposed schedule of            bankruptcy court approved the asset
executory contracts to be assigned to Tenet         purchase and assignment of the assumed
as part of the asset purchase agreement,            contracts to Tenet and ordered the non-
which includ es sev eral co llective                debtor parties to the assumed contracts to
bargaining agreements. Therefore, we can            assert any claims for existing defaults
only assume that the District 1199C                 against Allegheny in the bankruptcy or
collective bargaining agreements are                else to be barred from asserting the claims.
indeed found on the relevant Schedule               The sale closed on November 11, 1998.
2.01(e).

                                                3
       After the sale closed, Tenet and              November 11, 1998, and to pay employees
District 1199C took opposing positions               sick leave for the first day of each absence.
about what the terms of employment
                                                             Tenet notified Allegheny's trustee
would be for District 1199C members.
                                                     that it considered Allegheny liable to
Tenet offered to credit the members with
                                                     indemnify Tenet under the asset purchase
40 hours of accrued sick leave, which it
                                                     agreement for the cost of the arbitration
later conditioned upon District 1199C
                                                     award. The asset purchase agreement
agreeing to eliminate leave pay
                                                     provided that Allegheny would indemnify
prospectively for the first day of any
                                                     Tenet against any loss due to excluded
absence. District 1199C rejected the
                                                     liabilities, and Tenet contended that the
prospective elimination of pay for the first
                                                     liability for accrued sick leave was an
day of an absence, and Tenet responded by
                                                     excluded liability.
refusing to credit members with any
accrued sick leave.                                          Tenet then brought this suit in the
                                                     bankruptcy court. Count I sought vacatur
        District 1199C filed a grievance
                                                     of the arbitration award on the grounds
accusing Tenet of refusing to abide by the
                                                     that the dispute was not arbitrable and that
terms of the collective bargaining
                                                     it fell within the exclusive jurisdiction of
agreements. The grievance proceeded to
                                                     the bankruptcy court. For convenience's
arbitration on the following questions:
                                                     sake, we will refer to the part of Count I
"Did the Employer violate the collective
                                                     concerning the accrued sick leave
bargaining agreements by refusing to pay
                                                     obligation as Count IA and the part
employees sick leave starting with the first
                                                     concerning the prospective sick leave
day of absence and by refusing to pay
                                                     obligation as Count IB.6 Count II sought
employees accumulated sick leave? If so,
                                                     indemnity from the Allegheny bankruptcy
what shall be the remedy?"              Tenet
maintained the position that the grievance
was not arbitrable, but it participated in the
                                                            6
hearing, preserving its objection for                         The prayer for relief in the First
judicial review. The arbitrator observed             Amended Complaint does not explicitly
that the issue of arbitrability was reserved         ask for relief from the award of
for judicial determination and that his              prospective sick leave under the collective
powers were limited to interpreting the              bargaining agreements. However, Tenet
collective bargaining agreements signed by           characterizes its suit as seeking vacatur of
Allegheny and District 1199C.              He        the arbitrator's prospective sick leave
concluded that those agreements provided             ruling, the bankruptcy court so considered
for accrued sick leave and payment for the           it, and District 1199C does not object.
first day of leave, as requested by District         There is a general prayer for relief which
1199C. Accordingly, he ordered Tenet to              could be broad enough to include relief
pay sick leave that had accumulated before           from the award of prospective relief, and
                                                     we will so treat it.

                                                 4
estate for $4,500,000, which Tenet                assigning all of the obligations, in which
estimated as the cost to it of complying          case Allegheny as debtor-in-possession
with the arbitrator's award. District 1199C       would remain liable for the obligations.
counterclaimed, seeking enforcement of            Id. at 113-14.
the arbitration award, both as to accrued
                                                          Notwithstanding the common law,
and prospective sick leave obligations.
                                                  the bankruptcy court acknowledged that 11
        The bankruptcy court held that the        U.S.C. § 1113 governs rejection of
terms of the asset purchase agreement             collective bargaining agreements by a
were binding on District 1199C by                 debtor-in-possession. The bankruptcy
collateral estoppel because "the Union,           court considered the partial assignment of
although it received notice of the [asset         the collective bargaining agreements in
purchase agreement] and the hearings to           connection with the sale of Allegheny's
approve the same, failed to object at such        assets to be a possible violation of 11
hearings to the Court's approval of the           U.S.C. § 1113(f) by Allegheny (not by
[asset purchase agreement] and, in                Tenet). 265 B.R. at 116-17. However, the
particular, to the Court's approval of            bankruptcy court held that this possible
Tenet's incomplete assumption [of the             violation of § 1113(f) would not render
collective bargaining agreements]." Tenet         Tenet liable for the accrued sick leave
HealthSystem Philadelphia, Inc. v. Nat'l          because District 1199C did not raise a §
Union of Hosp. & Health Care Employees,           1113 objection when the court was
AFSCME, AFL-CIO, District 1199C (In re            deciding whether to approve the asset
Allegheny Health, Educ. and Research              purchase agreement, and even if District
Found.), 265 B.R. 88, 112 (Bankr. E.D.            1199C had objected, the appropriate relief
Pa. 2001). The bankruptcy court construed         would not have been to impose such
the asset purchase agreement to include a         liability on Tenet. Id. at 117.
partial assignment of the District 1199C
                                                          The bankruptcy court found that
collective bargaining agreements to Tenet.
                                                  under the asset purchase agreement, Tenet
District 1199C argued that the asset
                                                  assumed the collective bargaining
purchase agreement could not have
                                                  agreements, but only the obligations that
contemplated a partial assignment, because
                                                  arose after November 10, 1998. Id. at 105.
a partial assignment would not have been
                                                  Therefore, Tenet was not liable for the
legal. The court reasoned that under the
                                                  accrued sick leave obligation, but it was
common law of assignment of contracts,
                                                  liable for the prospective sick leave
the assignor and assignee can divide
                                                  obligation. Id. at 118. Accordingly, the
among themselves responsibility for
                                                  bankruptcy court granted Tenet summary
performing the duties to the obligee. The
                                                  judgment as to Count IA, vacating the
bankruptcy court held that Allegheny
                                                  arbitration award of accrued sick leave
could assign the benefits of the collective
                                                  benefits. Id. at 94. As to Count IB, which
bargaining agreements to Tenet without
                                                  sought vacatur of the award of prospective

                                              5
leave benefits, the bankruptcy court held         and 1291 (2000). Because this case was
that Tenet had assumed liability under the        decided on summary judgment, it involves
asset purchase agreement for the                  only questions of law, which we review de
prospective sick leave obligation. This           novo. American Flint Glass Workers
being so, the bankruptcy court reasoned           Union v. Anchor Resolution Corp., 197
that Tenet's indemnity claim was                  F.3d 76, 80 (3d Cir. 1999).
unfounded and should not result in
                                                         As a threshold matter, District
recovery from the bankruptcy estate. The
                                                  1199C contends that the bankruptcy court
court reasoned that if the claim could not
                                                  lacked core subject matter jurisdiction, but
affect the bankruptcy esta te, the
                                                  appears to concede that the bankruptcy
bankruptcy court therefore lacked subject
                                                  court had non-core, or "related to,"
matter jurisdiction over Count IB. Id. at
                                                  jurisdiction.7 A bankruptcy court may hear
118-19. On this reasoning, the court
dismissed Count IB. Id.
                                                         7
        The resolution of Count II, the                    Whether or not District 1199C
indemnity count, followed from the                concedes the existence of "related to"
resolution of Count I. As to the part of          jurisdiction, such jurisdiction exists
Count II seeking indemnity for the accrued        because Tenet names the trustee as
leave obligation, the bankruptcy court            defendant in Count II, seeking contractual
dismissed Tenet's claim without prejudice         indemnification for District 1199C's claim
as moot, because the court's holding on           against it. See Copelin v. Spirco, Inc., 182
Count IA eradicated Tenet's claim for             F .3d 174 , 179 ( 3d Cir . 1 9 9 9)
indemnification. Id. at 127. As to the part       ("[J]urisdiction is a threshold issue
of Count II seeking indemnification for the       determined by speculating whether the
prosp ective leave oblig ation, th e              ultimate outcome of the litigation could
bankruptcy court reasoned that since Tenet        conceivably affect the bankrupt estate.").
assumed the prospective obligation, the           A defendant's assertion of a claim for
bankruptcy estate was not liable for it;          indemnity against a debtor does not always
accordingly, the bankruptcy court entered         result in "related to" jurisdiction over the
summary judgment for the trustee and              claim against the defendant. See Pacor,
against Tenet on that part of Count II. Id.       Inc. v. Higgins, 743 F.2d 984, 994-96 (3d
at 128.                                           Cir. 1984) (no "related to" jurisdiction for
                                                  products liability claim in which defendant
      The district court affirmed the
                                                  had impleaded debtor that manufactured
bankruptcy court. Both District 1199C
                                                  product), overruled on another ground,
and Tenet appeal.
                                                  Things Remembered, Inc. v. Petrarca, 516
                    I.                            U.S. 124, 129 (1995); In re Federal-Mogul
                                                  Global, Inc., 300 F.3d 368, 379-84 (3d Cir.
       Appellate jurisdiction over this
                                                  2002), cert. denied, 537 U.S. 1148 (2003).
appeal is founded on 28 U.S.C. §§ 158(d)
                                                  However, in this case the outcome of the

                                              6
both core and non-core matters, see 28                   the suit was a core proceeding because it
U.S.C. §§ 157(b) and (c), and "[w]hether a               required the court to interpret and give
particular proceeding is core represents a               effect to its previous sale orders. See In re
question wholly separate from that of                    Marcus Hook, 943 F.2d at 267 (motion to
subject-matter jurisdiction." In re                      enforce bankruptcy sale order is core
                                                         proceeding).
Marcus Hook Dev. Park, Inc., 943 F.2d
261, 266 (3d Cir. 1991). The significance                        However, we must conclude that
of the distinction between core and non-                 the bankruptcy court erred in determining
core jurisdiction is that in core proceedings            that it had no jurisdiction over Tenet's
the bankruptcy court can enter a final                   Count IB to vacate the arbitration award
j u d g m e n t , w h e r e a s i n n o n -c o r e       concerning the prospective sick leave
proceedings the bankruptcy court's power                 obligation or over District 1199C's
is limited to submitting proposed findings               counterclaim to enforce that part of the
of fact and conclusions of law to the                    arbitration award. The bankruptcy court
district court for entry of a final order after          reasoned:
de novo review (unless the parties consent
                                                                [I]f, and to the extent that,
to adjudication by the bankruptcy judge).
                                                                the Sales Orders and the
Id.; 28 U.S.C. §§ 157(b) and (c). Because
                                                                [asset purchase agreement]
the district court considered this case
                                                                are construed such that
under both the standard appropriate for
                                                                Tenet . . . assumed liability
appeals of core-matter decisions and the de
                                                                for the Sick Leave
novo standard, in the alternative, District
                                                                Obligations, then (a) such
1199C's argument about the core/non-core
                                                                liability is not that of . . . the
distinction has little practical import in this
                                                                Trustee and the instant
case.       However, in order to clarify
                                                                debtor's bankruptcy estate,
procedure on remand, we hold that the
                                                                (b) Tenet cannot recover on
bankruptcy court correctly determined that
                                                                a claim for indemnification
                                                                against the instant debtor's
                                                                bankruptcy estate, and (c)
suit between District 1199C and Tenet
                                                                the debtor's bankruptcy
could have an immediate effect on the
                                                                estate thus cannot
bankruptcy estate since Tenet's indemnity
                                                                conceivably be impacted by
claim, if it is meritorious at all, has already
                                                                the outcome of litigation
matured. The asset purchase agreement
                                                                regarding whethe r the
requires Allegheny to defend Tenet or else
                                                                Arbitration Award should be
pay for its defense of third-party claims
                                                                set aside or enforced.
covered by the indemnity agreement, and
Tenet has already made demand on
Allegheny to defend it against District
                                                         265 B.R. at 97. In other words, the court
1199C's claim on the arbitration award.

                                                     7
reasoned that if the court decided to               a Better Env't, 523 U.S. 83, 88-102 (1998).
interpret the asset purchase agreement to            Because the bankruptcy court correctly
place responsibility on Tenet for the               determined that Tenet's suit to vacate the
prospective leave obligation, then                  arbitration award and District 1199C's
Allegheny could not be liable to indemnify          counterclaim to enforce it required the
Tenet and the claim for prospective leave           court to interpret and enforce the sale
would not have any potential to affect              orders, 265 B.R. at 96, it was error then to
Allegheny's estate. If the claim could have         hold that jurisdiction disappeared once the
no effect on the estate, there should be no         court construed the asset purchase
bankruptcy jurisdiction.       Accordingly,         agreement and sale orders to bind Tenet to
when the court decided that Tenet had               the collective bargaining agreement. The
assumed liability for the prospective sick          bankruptcy court had subject matter
leave obligation, it held:                          jurisdiction over the entire suit and
                                                    counterclaim.
       [B]ecause the Sales Orders
       do not operate to preclude                                       II.
       the Union from pursuing
                                                            On the merits, District 1199C
       Tenet for payment of the
                                                    argues that Tenet is bound by the
       Prospective Sick Leave
                                                    collective bargaining agreements in their
       Obligation, the Court lacks
                                                    entirety because Tenet assumed them in
       even noncore subject matter
                                                    the asset purchase agreement with
       jurisdiction over Tenet's 1st
                                                    Allegh en y, notwithstand ing T enet's
       Count and the Union's
                                                    attempt to limit its liabilities under that
       counterclaim to the extent
                                                    agreement. District 1199C argues that this
       that the same seek to set
                                                    obligation follows from our opinion in
       a si de or enforce the
                                                    American Flint Glass Workers Union v.
       Arbitration Award as it
                                                    Anchor Resolution Corp., 197 F.3d 76 (3d
       pertains to the Prospective
                                                    Cir. 1997), which District 1199C interprets
       Sick Leave Obligation.
                                                    to mean that a party that assumes any part
                                                    of a contract's obligations automatically
                                                    assumes all of them.
265 B.R. at 118. Thus, the bankruptcy
court's holding that it lacked jurisdiction                 This is a misreading of American
was based on its resolution of the merits of        Flint Glass. American Flint Glass held
the claim.                                          that in order to effect a novation by
                                                    operation of law under 11 U.S.C. § 365(k),
        The existence of subject matter
                                                    a bankruptcy debtor-in-possession must
jurisdiction is determined before, not after,
                                                    assign the old contract cum onere, with all
adjudication of the merits and depends on
                                                    rights and obligations intact. Id. at 80. A
the nature, not the validity, of the
                                                    partial assignment does not suffice to
plaintiff's claim. See Steel Co. v. Cit. for

                                                8
effect a novation, releasing the original          we interpret American Flint Glass to bind
obligor from its duties under the contract.        Tenet to terms of the collective bargaining
The result in American Flint Glass of the          agreement that it was not willing to
employer-debtor's attempt to make a                assume, we will have "disenfranchise[d]"
partial assignment was that the debtor             the Union by allowing the successor
remained liable for the entire collective          employer to discard burdensome terms
bargaining agreement. The decision in              without bargaining. We do nothing of the
American Flint Glass bound the debtor              kind. To the extent that Tenet has been
only; it did not hold that the partial-            able to enjoy the benefits of the collective
assignee became obliged to perform duties          bargaining agreements without having to
it never agreed to undertake and which it          pay for sick leave that accrued under them,
expressly disavowed in the asset purchase          District 1199C has itself to blame. The
agreement. Therefore, American Flint               division of responsibility between Tenet
Glass might be authority for holding               and Allegheny was ordained by the asset
Allegheny liable on the collective                 purchase agreement. At the time the
bargaining agreements, but it does not             bankruptcy court was considering the
provide authority for holding Tenet liable         motion to approve the asset purchase
for the parts of the collective bargaining         agreement, District 1199C neither objected
agreements that it declined to assume.8            to the pr opose d agreeme nt n or
                                                   affirmatively endorsed it.          Deciding
       District 1199C argues that unless
                                                   whether District 1199C became bound by
                                                   the terms of the asset purchase agreement
       8                                           under such circumstances would require us
         American Flint Glass also held
                                                   to consider difficult questions of
that when a debtor-in-possession makes a
                                                   bankruptcy and labor law. However this
partial assignment of a collective
                                                   inquiry has been rendered unnecessary
bargaining agreement in connection with
                                                   because in the briefs before us, District
a sale of substantially all its assets, this
                                                   1199C has conceded that the asset
amounts to an attempt to reject the
                                                   purchase agreement binds it.             The
collective bargaining agreement, and
                                                   bankruptcy court held, "[T]he Sales
compliance with 11 U.S.C. § 1113 is
                                                   Orders, which approved the [asset
required. Under § 1113, before a debtor-
                                                   purchase agreement] . . . are final orders,
in-possession can reject a labor
                                                   which fact, when coupled with the notice
agreement, there must be negotiations
                                                   to the Union as just described, means that,
and a hearing. §§ 1113(b), (c), and (d).
                                                   by virtue of collateral estoppel . . . the
In American Flint Glass there was no
                                                   Union can no longer press, and the Court
attempt to comply with § 1113. The
                                                   is not now free to entertain, collateral
remedy was that the debtor remained
                                                   attacks upon said orders . . . ." 265 B.R. at
liable under the collective bargaining
                                                   112. District 1199C does not contest this
agreement, not that the assignee became
                                                   holding that it is bound by the terms of the
liable. 197 F.3d at 82.

                                               9
asset purchase agreement, as enshrined in                               A.
the sale orders:
                                                           The asset purchase agreement
       [T]he Union is not objecting                excludes from Tenet's obligations any
       to the approval of the [asset               liability for "liabilities or obligations
       purchase agreement] or                      arising from any Assumed Contract before
       seeking to make a collateral                the Closing Date."      Conversely, Tenet
       attack upon it. Rather, the                 assumed Allegheny's obligations "arising
       Union is arguing that the                   on or after the Closing Date with respect to
       [asset purchase agreement]                  any period commencing on the Closing
       did not, and should not be                  Date under the Assumed Contracts." The
       construed as if it did,                     collective bargaining agreements provide
       establish an incomplete                     for the accrual of leave upon completion
       assumption of the collective                of specified periods of employment; the
       bargaining agreements.                      leave accumulates and is then available for
                                                   employees to use in case of illness or
                                                   injury. Most of the collective bargaining
Thus, District 1199C does not dispute that         agreements provide that the employees
it is bound by the asset purchase                  who retire will be paid for some
agreement; instead, it only argues about           accumulated sick leave.
how to interpret the asset purchase
                                                           District 1199C contends that the
agreement. We will therefore assume that
                                                   asset purchase agreement's exclusion of
the asset purchase agreement is binding on
                                                   "liabilities or obligations arising from any
both Tenet and District 1199C.
                                                   Assumed Contract before the Closing
                   III.                            Date" does not exclude accrued sick leave
                                                   claims because the employees did not have
       We now turn to the proper
                                                   a claim for the accrued sick leave until
interpretation of the asset purchase
                                                   they became sick or retired and tried to use
agreement. Tenet says the asset purchase
                                                   the leave. Our review of the collective
agreement excludes liability for the
                                                   bargaining agreements shows that once the
accrued sick leave and allows Tenet to set
                                                   employees had accumulated sick leave,
the initial terms of employment and to
                                                   they had a right to the leave, albeit a right
bargain with District 1199C for a new
                                                   contingent on future illness, injury or
collective bargaining agreement. District
                                                   retirement. A contingent obligation is,
1199C says the asset purchase agreement
                                                   nonetheless, an obligation. See Avellino
does not exclude liability for accrued sick
                                                   & Bienes v. M. Frenville Co. (In re M.
leave and requires Tenet to abide by the
                                                   Frenville Co.), 744 F.2d 332, 336 & n.7
collective bargaining agreements with
                                                   (3d Cir. 1984). The accrued sick leave
regard to prospective sick leave
                                                   obligation was an obligation arising before
obligations.
                                                   the closing date.

                                              10
         District 1199C also argues that                    Tenet argues that this obvious
Allegheny was not in default on the                  conclusion is rendered problematic by
accrued sick leave and was not liable to             language in section 5.03 of the asset
pay such amounts as "cure" under 11                  purchase agreement, in which Tenet
U.S.C. § 365(b). This may be true, but we            agreed that it would bargain with unions
are determining Tenet and Allegheny's                representing employees of Allegheny.
contractual division of liabilities in the           Section 5.03 provided:
asset purchase agreement, not ascertaining
                                                           Subject to the foregoing and
what their statutory liabilities would be in
                                                           subject to the right of
the absence of such a contract. We
                                                           [Tenet] to set the initial
therefore interpret the asset purchase
                                                           terms and conditions of
agreement to exclude from Tenet's
                                                           e mploym e n t of u nio n
liabilities the obligation to pay for sick
                                                           employees, Bu yer will
leave that accrued before the closing date.
                                                           recognize all existing unions
                     B.                                    at the Hospitals and will
                                                           bargain in good faith the
        Tenet claims that the asset purchase
                                                           subse que nt terms a nd
agreement does not purport to bind Tenet
                                                           conditions of employment
to the terms of the District 1199C
                                                           for emp loyees in th e
collective bargaining agreements, but
                                                           bargaining units represented
leaves Tenet free to set initial terms of
                                                           by those unions, to the
employment and to bargain for new
                                                           extent required by law.
collective bargaining agreements. In the
                                                           Employees employed under
definition of "assumed liabilities," Tenet
                                                           written Contracts will not be
agreed to be responsible for "all
                                                           o f f e r e d e m p lo ym e n t
obligations of Sellers arising on or after
                                                           pursuant to this Section, but
the Closing Date with respect to any
                                                           e m p l o ym e n t o f s u c h
period commencing on the Closing Date
                                                           e m ployees shall b e
under the Assumed Contracts."           The
                                                           governed by the terms of the
District 1199C collective bargaining
                                                           Assumed Contracts, if any,
agreements were included in the list of
                                                           relating to such employees.
assumed contracts. See note 5, supra.
Inclusion of the District 1199C collective           Thus, Tenet agreed to bargain with union
bargaining agreements as "assumed                    employees generally, but employees
contracts" would seem to be conclusive               covered by a written contract were taken
evidence that Tenet indeed assumed them              out of the class of employees with whom
(with respect to obligations that accrued            Tenet agreed to bargain. This exemption
after the closing date, that is), not that it        makes sense, since employees who already
reserved the right to set them aside and             had a contract would presumably have
bargain for new terms.                               nothing left to bargain over.       This

                                                11
exemption would seem to apply to the              would not necessarily have had a "written
District 1199C employees, who were                Contract" with Tenet. Those unions would
covered by an "Assumed Contract," and             still have to bargain with Tenet. The
who therefore had no need to bargain for a        District 1199C collective bargaining
new contract.                                     agreements, however, were expressly
                                                  assumed by Tenet. They were "written
       However, Tenet argues that the
                                                  Contracts" to which Tenet became a party.
exemption for "written Contracts" should
                                                  Thus, it still makes sense for section 5.03
not apply to District 1199C's collective
                                                  to exempt District 1199C from the need to
bargaining agreements. Tenet contends
                                                  bargain even if all the unions did have
that "all employees in bargaining units
                                                  collective bargaining agreements with
represented by unions at [Allegheny] were
                                                  Allegheny.
covered by written collective bargaining
agreements." Tenet argues that if "written                 In sum, we reject Tenet's argument
collective bargaining agreements" were            that the asset purchase agreement did not
synonymous with "written Contracts"               bind it to performance of District 1199C's
under section 5.03, then there would only         coll e c tive b a r g a i n in g a g r e e m e n ts
be one class of employees, those covered          prospectively, beginning on the closing
by written contracts. It contends that            date.
under such a reading, the part of section
                                                                         IV.
5.03 agreeing to bargain would not apply
to anybody, which is an absurd                            In accordance with the foregoing
interpretation of the asset purchase              opinion, we will affirm the judgment of
agreement.                                        the district court entering summary
                                                  judgment for Tenet on its claim to vacate
       Tenet's assertion that all union
                                                  the arbitrator's award of accrued sick leave
employees were covered by written
                                                  benefits and entering judgment against
collective bargaining agreements is
                                                  District 1199C on its suit to enforce that
unsupported by citation to the record. But
                                                  part of the award. We will reverse the
even if all unions had contracts with
                                                  dismissal of District 1199C's claim to
Allegheny, Tenet does not allege that it
                                                  enforce the arbitration award with regard
assumed all those collective bargaining
                                                  to the prospective sick leave obligation
agreements. Since a successor employer is
                                                  and the dismissal of Tenet's suit to vacate
n o t a u t omatically bound by i ts
                                                  that part of the arbitration award. We will
pred ec esso r's collective bargaining
                                                  remand with instructions to the bankruptcy
agreements, see NLRB v. Burns Int'l Sec.
                                                  court to enter judgment in favor of District
Servs., Inc., 406 U.S. 272, 281-91 (1972);
                                                  1199C on its claim to enforce the award of
Ameristeel Corp. v. Int'l Bhd. of
                                                  prospective benefits and against Tenet on
Teamsters, 267 F.3d 264, 273-77 (3d Cir.
                                                  its claim to vacate the award of
2001), unions that had a collective
                                                  prospective benefits.
bargaining agreement with Allegheny

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