U.S. Third Circuit - The FindLaw 3rd Circuit Court of Appeals Opinion Summaries Blog

Trump Casino Can Escape Union Contracts in Bankruptcy, 3rd Cir. Rules

While Donald Trump campaigns to 'make America great again,' the Atlantic City casinos bearing his name have been doing anything but great. Trump casinos, hotels, and resorts have filed for bankruptcy no less than four times. The Trump Taj Mahal Casino first went into Chapter 11 in 1991, then again in September of 2014.

That most recent bankruptcy led to a protracted battle with the casino's union workers, who lost their bid to hold the Taj Mahal to its contracts last Friday, when the Third Circuit ruled that the bankruptcy code allowed debtors to escape their collective bargaining agreements.

Icahn Break This Contract?

First, despite the fact that his name is all over the casino, Trump's involvement with the Trump Taj Mahal is minimal. The casino came under the control of billionaire investor Carl Icahn, who bought up its shares in an earlier Taj Mahal bankruptcy. The Donald even once sued to have his name taken off the struggling casino. (He later changed his mind.)

In 2014, as Atlantic City's gaming boom continued to go bust, the Trump Taj Mahal declared bankruptcy and sought to get out of its union contracts through chapter 11. Paying the agreed upon healthcare and benefits would sink the casino, Icahn argued.

The unionized workers, of course, disagreed. UNITE HERE Local 54, representing more than a third of the casino's employees, appealed a bankruptcy court ruling that allowed the Taj Mahal to escape its collective bargaining agreement.

Expired CBAs Can't Escape Sec. 1113

As the Third Circuit notes, the Taj Mahal conflict highlights "two potentially conflicting provisions of federal law." On one hand, Bankruptcy Code sec. 1113 allows Chapter 11 debtors to "reject" collective bargaining agreements. On the other, The National Labor Relations Act prohibits employers from unilaterally changing those agreements. Even when those agreements expire, the NLRA requires that they stay in place until a new contract is negotiated.

Here, Local 54's contract expired on September 14th, 2014, just five days after the Taj Mahal Casino filed for Chapter 11.

The Third Circuit noted that bankruptcy courts were divided on how it effects expired collective bargaining agreements. But that in and of itself doesn't render the statute ambiguous. Section 1113 quite clearly states that a debtor may "reject a collective bargaining agreement," under specific circumstances, the court found. That is not limited to "executory" or "unexpired" CBAs either, according to the Third Circuit.

Allowing Taj Mahal to discharge the expired CBA would also align with the section's legislative history, the court found. Section 1113 was passed to overturn part of the Supreme Court's ruling in NLRB v. Bildisco & Bildisco and ensure that CBAs could not be unilaterally changed without bankruptcy approval. But they can be altered, so long as conditions meet the exacting requirements of the statute, as Taj Mahal's did here.

The ruling is a victory for Icahn, who had argued that maintaining the current union contracts would result in the casino's liquidation. Union officials, however, noted that the Icahn continues to make hundreds of millions of dollars from his boardwalk casinos, the Wall Street Journal notes.

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