This appeal raises two questions of apparent first impression as to the interpretation of § 1113 of the Bankruptcy Code. The first is whether a debtor in a Chapter 11 case can reject a collective bargaining agreement even after it has sold virtually all of its assets. The bankruptcy court held that § 1113 did not permit rejection following such a sale. The second is whether the court’s denial of a debtor’s application for leave to reject its collective bargaining agreement results, ipso facto, in an assumption of such agreement. The bankruptcy court held that it does not.
The union appeals from the bankruptcy court’s ruling on the second issue. Debtor and the Official Unsecured Creditors’ Committee cross-appeal from the bankruptcy court’s ruling on the first. We reverse the bankruptcy court decision regarding rejection and remand for further proceedings in accordance with this decision. We affirm the bankruptcy court’s decision regarding the effect of a denial of an application for leave to reject.
FACTS and PROCEDURAL HISTORY
Family Snacks, Inc. (“Debtor”) produces and distributes potato chips and other snack foods. On August 1, 1998, Debtor entered into a collective bargaining agreement (“CBA”) with United Food & Commercial Workers Local 211 (“the union”). The CBA was to remain in effect for five years and provided that Debtor would pay certain of its union employees’ medical and dental expenses. In late 1999 and early 2000, Debtor was in serious financial difficulty and fell behind in its payments of these expenses. Shortly before filing for bankruptcy, these unpaid employee medical and dental expenses totaled approximately $491,000. 1
On February 14, 2000, Debtor filed a Chapter 11 bankruptcy petition. It was clear from the beginning that Debtor could not rehabilitate itself. For over six months, Debtor had been attempting to sell this increasingly financially distressed company, with little success. Matters were so bleak that for a time the company shut down. Nonetheless, one purchaser was willing to sign a letter of intent to purchase, and on February 25, 2000, Debt- or moved for expedited hearing and bankruptcy court approval to carry out a sale of virtually all of its assets under § 363 of the Bankruptcy Code. Concurrently therewith, Debtor moved for an order allowing the purchaser to assume or reject executo-ry contracts and leases, including the CBA, as selected by the purchaser. The letter of intent specifically required that the assets would be sold free and clear of certain liabilities, including any arising under union contracts. It was Debtor’s position that the value of the assets of the company could be maximized only if its assets were sold on a going concern basis. The bankruptcy court granted expedited hearing and approved a sale pursuant to the letter of intent and set auction procedures, with the auction to occur on March 13.
The union filed an objection to the sale. It also objected to Debtor’s motion to assume or reject executory contracts. The union argued that a sale free and clear of Debtor’s obligations under the CBA violated § 1113 and that no sale could occur until Debtor had taken steps to bargain with the union. The union sought to delay the sale until such negotiations could take place or to have payment of unpaid prepet-ition employee medical and dental expenses under the CBA made a condition of *888 the sale. In essence, the union’s position was that, no matter how exigent the circumstances, no sale could take place before Debtor dealt with the prepetition claims Debtor had incurred under the CBA. Debtor responded that the court should approve the sale, since failing to do so would dramatically reduce the amount available to pay creditors.
The first purchaser was unable to arrange financing and withdrew its offer. A new purchaser stepped in, however. The new Purchase Agreement continued to specifically provide that the assets would be sold free and clear of Debtor’s liabilities under the CBA. On March 22, 2000, over the union’s objections, the bankruptcy court issued its order approving the sale to the new purchaser. The court declined to condition the sale on the purchaser’s assumption of the CBA. No appeal was taken from that order and the sale closed on March 29, 2000. The next day the purchaser began operations. It did not assume the CBA. Rather, it hired virtually all union members under terms of a new CBA with the new purchaser that were similar (though not identical) to those in the CBA with Debtor. The purchaser also paid all employees’ postpetition medical and dental claims. Thus, as a result of the sale and the Debtor’s and the purchaser’s actions, all postpetition obligations to union members were fully paid. This left the dispute over the unpaid prepetition medical and dental expenses due under the CBA.
The union had made a motion to have the union employees’ prepetition medical and dental expenses treated as an administrative expense. On April 5, when that motion came on for hearing, the bankruptcy judge recused himself from deciding it and a second bankruptcy judge stepped in. By way of order dated April 24, that judge held, without ruling on the merits, that Debtor should be allowed time to negotiate with the union. On April 13, in accordance with § 1113(b)(1)(A) of the Bankruptcy Code, the Debtor had already sent a letter to the union in which it purported to modify the CBA by termination. Debtor noted that, having divested itself of substantially all of its assets, it was not possible to assume the CBA and “thus, the only modification of the CBA that is viable is the termination of that agreement....” Debtor further advised that it intended to file a Chapter 11 plan to deal with its remaining assets and liabilities and to make distributions to creditors in accordance with the priorities established in the Bankruptcy Code. Specifically, Debtor committed to treat union members’ prepet-ition medical and dental expenses as fourth priority expenses under § 507(a)(4) in the plan.
The union rejected Debtor’s proposal for termination. The parties continued to negotiate, but were unable to reach an agreement. Thus, on May 1, 2000, Debtor filed an application for leave to reject the CBA. The Official Unsecured Creditors’ Committee joined in the application. The bankruptcy court heard Debtor’s application for leave to reject, along with the union’s still pending motion for an order determining that the unpaid prepetition medical and dental expenses be treated as an administrative expense.
In an order dated June 8, 2000, from which this appeal is taken, the bankruptcy court denied Debtor’s application to reject the CBA. The court reasoned that Debtor could not comply with § 1113(b)(1)(A) by showing that rejection was “necessary to permit the reorganization of the debtor.” The court construed this language as requiring a debtor to show both that it was reorganizing “with a view to the long run success of the debtor’s business” and that “it could emerge from its reorganization as an economically viable operation.” While the court appeared to accept the proposition that a debtor who is selling its assets as a going concern may take advantage of § 1113, the court confined § 1113 to instances in which the debtor applied for leave to reject under § 1113 before any asset sale:
*889 Since Family Snacks is not reorganizing, and since, in any event, it now has no employees, rejection of the CBA is not necessary for its reorganization. For this reason, Family Snacks’ motion to reject must be denied.
Debtor and the Official Unsecured Creditors’ Committee (“Appellees”) cross-appeal from this portion of the decision.
The bankruptcy court then dealt with the union’s arguments that Debtor had impliedly assumed the contract at the point of sale or, alternatively, that the CBA had been assumed as a matter of law as a result of the court’s ruling on Debtor’s application to reject. The court ruled that the first argument, that assumption occurred at the time of sale, was foreclosed by the March 22 order allowing the sale, from which no appeal had been taken. The union does not explicitly challenge this portion of the bankruptcy court’s order. 2 The union does, however, urge that the bankruptcy court erred when it ruled that denial of an application for rejection did not result, ipso facto, in an assumption of the CBA. Here, the court reasoned, in part, that whether covered by § 1113 or § 365, a debtor must take some affirmative action to assume or reject a CBA, and it is only the debtor -who can take such action.
In light of its decision that assumption had not yet occurred, the bankruptcy court then determined that the union’s motion to treat the unpaid prepetition medical and dental expenses as an administrative expense was still not ripe for decision and denied the union’s motion for administrative expense treatment without prejudice.
ISSUES
The parties raise two issues on appeal. First, was the bankruptcy court correct in concluding that rejection was not an option once an asset sale had occurred because there was no longer a “reorganization” to be facilitated by such rejection? The second issue is whether the bankruptcy court correctly held that no assumption occurred ipso facto as a result of the court’s order denying Debtor’s motion to reject.
STANDARD OF REVIEW
The appellate court reviews a bankruptcy court’s conclusions of law
de novo
and its findings of fact for clear error.
See Merchants Nat’l Bank of Winona v. Moen (In re Moen),
DISCUSSION
A. Rejection Following an Asset Sale
We first address Appellees’ contention that the bankruptcy court erred in its ruling that, as a matter of law, once the asset sale occurred, Debtor could not commence the process of rejection under § 1113. The court reasoned that § 1113 restricts a debtor to modifications that are necessary to the reorganization of the debtor and proposals must be made with a view towards the long term continuation of the business. Because Debtor had closed its doors, the court held it could not meet this threshold requirement. Because Debtor had already sold its assets, it also could not establish that rejection was necessary to facilitate the sale of the business on a going concern basis. Thus, in a liquidating Chapter 11 case, the court found, rejection is not an available alternative unless a debtor complies with § 1113 before it accomplishes a sale of all its assets. We find this reading of the statutory language too narrow, and we reverse.
Generally speaking, § 1113 governs the rejection or modification of a CBA by a Chapter 11 trustee or debtor-in-possession.
See
11 U.S.C. § 1113(a) (1994) (“The debtor in possession, or the trustee ... may assume or reject a collective bargaining agreement only in accordance with the provisions of this section.”). This section has its roots in the Supreme Court’s decision in
NLRB v. Bildisco & Bildisco,
Section 1113 contains detailed substantive and procedural requirements with which a debtor must comply to modify or reject a CBA. Specifically, § 1113(c)(1) provides the criteria a court must use in evaluating the debtor-in-possession’s application to reject a CBA:
(c) The court shall approve an application for rejection of a collective bargaining agreement only if the court finds that—
(1) the trustee has, prior to the hearing, made a proposal that fulfills the requirements of subsection (b)(1);
(2) the authorized representative of the employees has refused to accept such proposal without good cause; and
(3) the balance of the equities clearly favors rejection of such agreement.
11 U.S.C. § 1113(c) (1994) (emphasis added). Section 1113(b)(1), which is cross-referenced in Subsection (c)(1), sets out the requirements for making a valid proposal to modify:
(b)(1) Subsequent to filing a petition and prior to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession or trustee ... shall
(A) make a proposal to the authorized representative of the employees covered by such agreement, 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 pemit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably; and
(B) provide ... the representative of the employees with such relevant information as is necessary to evaluate the proposal.
11 U.S.C. § 1113(b)(1) (1994) (emphasis added). Nowhere in § 1113 is there any indication as to when a debtor must take action to reject a CBA. Timing is addressed, however, in Subsection (b)(2) which requires the trustee or debtor-in-possession to meet with the union representative and “confer in good faith in attempting to reach mutually satisfactory modifications” of the CBA between the time the debtor makes the proposal and the hearing date. 11 U.S.C. § 1113(b)(2) (1994). Subsection (d) further enumerates timing requirements once such an application is made, providing that a hearing shall be held within fourteen days of the filing of the application and that the bankruptcy court must rule on an application for rejection within thirty days after the hearing. See 11 U.S.C. § U13(d)(l)-(2) (1994). Subsection (e) allows for interim modifications by court order where “essential to the continuation of the debtor’s business, or in order to avoid irreparable damage to the estate....” 11 U.S.C. § 1113(e). And Subsection (f), specifically overruling the controversial portion of Bildisco, provides: “No provision of this title shall be construed to permit a trustee to unilaterally eliminate or alter any provision of a collective bargaining agreement prior to compliance with the provisions of this section.” 11 U.S.C. § 1113(f) (1994).
Section 1113 is certainly “not a masterpiece of draftsmanship.”
In re American Provision,
As a consequence, courts differ in their application and interpretation of § 1113. They do, however, seem to agree that an application to reject a CBA under § 1113 is judged against a nine factor test first articulated in
In re American Provision Co.,
The third factor, “necessary to permit the reorganization of the debtor,” which was central to the bankruptcy court’s decision, has been at the root of numerous *893 disputes as to interpretation. The primary dispute arises in the context of how to interpret the word “necessary.” Basically, courts differ as to whether “necessary” is synonymous with “essential” or has a more flexible meaning.
On the one side is the Third Circuit and its decision in
Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of America,
On the other side is the Second Circuit and its decision in
Truck Drivers Local 807 v. Carey Transportation, Inc.,
However, each court that has addressed the meaning of the phrase “reorganization of the debtor,” as found in § 1113(b)(1)(A), has held or assumed that § 1113 applies in a case where the debtor will not be engaged in business because it is selling its assets. Initially this might seem questionable since, overall, the language and scheme of things suggests Congress was concentrating on the classic form of reorganization where the debtor restructures its debts and continues in business.
See In re Ionosphere Clubs, Inc.,
The bankruptcy court never reached the question of which standard to apply when deciding whether rejection was “necessary” because it interpreted “reorganization” narrowly. The court provided little guidance for its decision, but did reference
In re Mile Hi Metal Systems, Inc.,
We begin by noting that this precise question, whether a debtor must comply with § 1113 before it sells its assets, appears to be one of first impression. We find no case directly on point as to this issue of timing under § 1113. 6 The bank *895 ruptcy court’s reliance on Almac’s and Mile Hi, therefore, was misplaced. Those cases dealt with the meaning of “necessary,” not the meaning of “reorganization of the debtor.” When they used language regarding the long term future of the business, they did so to make clear that they were not adopting the more narrow, minimally needed to avoid liquidation, test adopted in Wheeling-Pittsburgh. Neither case involved a debtor who was liquidating. 7 For the reasons set forth below, we find that the court, based on apparent misreading of inapplicable cases, too narrowly read the word “reorganization” and erred when it equated reorganization as used in § 1113 with rehabilitation of the debtor.
As a threshold matter, Congress used the word “reorganization,” not the more narrow term “rehabilitation,” in § 1113(b)(1)(A). While “reorganization” is not a statutorily defined term, it is generally understood to include all types of debt adjustment, including a sale of assets, piecemeal or on a going concern basis, under § 363 followed by a plan of reorganization which distributes the proceeds of the sale to creditors in accordance with the Bankruptcy Code’s priority scheme.
See, e.g.,
11 U.S.C. § 1123(b)(4) (1994) (stating that a plan may “provide for the sale of all or substantially all of the property of the estate, and the distribution of the proceeds of such sale among holders of claims or interests”);
In re Timbers of Inwood, Forest Assocs., Ltd.,
In addition, we note that the bankruptcy court’s conclusion that there is a time limit on when in the reorganization process a debtor must reject a CBA (i.e., it must be made before rather than after an asset sale) is not supported by any language found in § 1113. As previously not
*896
ed, there is nothing in the language of § 1113 that dictates when an application to reject must be made.
See generally In re Moline Corp.,
Moreover, and most importantly, identical wording in § 1114 of the Bankruptcy Code has been interpreted to include a situation where the debtor first seeks to reject after it has sold its assets. Section 1114 was enacted in 1988 and deals with retiree benefits, including those found in a union bargaining agreement. It allows a Chapter 11 debtor to modify retiree benefits under the same test set forth in § 1113: if “necessary to permit the reorganization of the debtor.” 11 U.S.C. § 1114(g)(3) (1994). In
In re Ionosphere Clubs, Inc.,
If the motion to modify or terminate the benefits is not heard before any possibility of reorganization is lost, then according to the Retiree Committee, the trustee would be unable to meet this “necessary to” test and would, thereafter, have forfeited any opportunity to modify retiree benefits in any way. This Court cannot find that Congress intended such an anomalous result. Under the circumstances of this case, the only meaningful interpretation of “necessary to permit the reorganization” that is consistent with fair and equitable treatment of retirees and all other creditors is one that does not encourage the Trustee or the Creditors’ Committee to seek to convert the case from Chapter 11 to Chapter 7 solely to preserve the possibility of some recovery for general unsecured creditors. In other words, in this liquidating case, “necessary to permit the reorganization” must be interpreted to mean “necessary to accommodate confirmation of a Chapter 11 plan.”
Ionosphere,
The union seeks to confíne Ionosphere to its facts, i.e., to a case where the debtor was selling its assets off piecemeal. When a debtor is selling on a going concern basis, the union urges, Ionosphere should not apply because the only meaningful time the court can make a decision on rejection is prior to the sale. We see no basis for such a distinction, unless it is to give the union veto power over a going concern sale which, as we know from experience, is often the best way to reap the greatest benefit for all creditors. Section 1113 was never intended to give unions such power. Its sole purpose is to keep a debtor from unilaterally rejecting a CBA and to plainly articulate the rules for going about rejection. If, as Ionosphere concluded, a debtor who is liquidating piecemeal should not be forced into Chapter 7 in order to preserve its assets for equitable distribution to all creditors, the same is true for a debtor who is selling its assets on a going concern basis.
We further note that there are practical problems with the union’s position that negotiations for rejection must occur before a sale. Many times § 363 asset sales occur on a very expedited basis in Chapter 11, and, at times, the court authorizes a sale by auction. Purchasers often are willing to purchase only if the sale can be closed with lightning speed. In an auction setting, for sure, negotiations for rejection would be virtually impossible. In certain factual settings, the union’s position would make it impossible for a debtor to accept the highest and best offer for its assets and would precipitate the loss of potential purchasers to the detriment of all other creditors. It is difficult to accept the argument that § 1113 was designed to give a union the power to so strangle a debtor’s attempts to reorganize through liquidation.
Thus, while we find no case directly on point, we conclude that “necessary to permit the reorganization of the debtor” means necessary to accommodate confirmation of a Chapter 11 plan. We see no principled reason to limit a debtor’s right to reject a CBA to a case where the application to reject comes before an asset sale. Certainly, if it is appropriate to permit rejection in the context of a § 363 asset sale when the debtor will no longer be in business, as the cases uniformly hold and the union appears to concede, it ought not matter when the decision on rejection is made.
The union’s argument-that the asset sale constitutes the debtor’s “reorganization” — too narrowly reads the language of § 1113(b)(1)(A). The union cites several eases for the proposition that because an asset sale effectively represents a plan of reorganization, the debtor must satisfy the requirements of § 1113 at the time of or in conjunction with that asset sale.
See, e.g., In re Maxwell Newspapers,
The Debtor was not required to reject the CBA prior to or in conjunction with the asset sale under § 1113. That is to say, exactly when a debtor satisfies the “necessary to permit the reorganization” element does not hinge on the consummation of the asset sale but rather on the confirmation of the actual plan of reorganization to distribute the proceeds of that asset sale. In this case, at the time the sale closed, Debtor had not yet proposed its plan of reorganization. Under the terms of the statute, Debtor will still ultimately have to show that rejection of the CBA is necessary to obtain a confirmable Chapter 11 plan. Because the Debtor can make that showing before, at, or after the asset sale, and thereby satisfy the requirements for rejection of the CBA, § 1113 should not be read to preclude the Debtor from doing so after the § 363 asset sale in this case.
Finally, we reject the union’s contention that our construction of the statute renders meaningless the protections provided union members in § 1113. According to the union, our construction of § 1113(b)(1)(A) allows a debtor undertaking a going concern sale to ignore its obligations under § 1113 until after it has sold its assets. We disagree. In order to reject a CBA a debtor must prove that it has met each of the nine American
Provision
factors, including specifically that it is acting in good faith and that the balance of equities favors rejection.
See Lady H,
Accordingly, we reverse and remand to allow the bankruptcy court to make the findings necessary to determine whether Debtor is entitled to reject its CBA.
10
See Buhrke,
B. Automatic Assumption Upon Denial of the Application to Reject
The second issue on appeal, which we also find to be one of apparent first impression, 11 is whether the bankruptcy court correctly held that no assumption occurred automatically upon the bankruptcy court’s denial of Debtor’s application to reject. The bankruptcy court rejected the union’s *899 argument that assumption occurs upon the bankruptcy court’s denial of a debtor’s motion to reject, reasoning that assumption may not be implied and that, instead, assumption of the CBA by a debtor required affirmative action by way of a motion seeking assumption. The issue is important because the parties seem to agree that, if assumption occurred, the union employees’ claims for prepetition medical and dental expenses will be elevated from unsecured prepetition claims, subject at most to fourth priority under § 507(a)(4), to first priority administrative expenses under §§ 365(b)(1), 365(g)(1), 503(b)(1), and 507(a)(1). In that case, the Debtor is unlikely to have enough money to pay administrative expenses and will not be able to confirm a plan. Given the importance of this issue, which may arise once again on remand, we reach it on appeal.
1. Incorporation of § 365 Into § 1113
Section 1113 provides the “debtor in possession, or the trustee ... may assume or reject a collective bargaining agreement only in accordance with the provisions of this section.” 11 U.S.C. § 1113(a) (1994). The union asserts this plainly means that § 1113 trumps all other Bankruptcy Code sections with respect to both assumption and rejection and that Congress could have, and indeed would have, specifically incorporated other Code sections into § 1113 by reference had it wanted them to apply. However, aside from this single use of the word “assume,” § 1113 provides no guidance for what procedure is to be used to assume a CBA, nor against what standards a debtor’s attempt to assume should be judged. Rather, § 1113 is entitled “Rejection of Collective Bargaining Agreements” and sets forth detailed requirements relating solely to a debtor’s rejection action.
We recognize that as a general rule, fundamental rules of statutory construction require us to adhere to the plain meaning of the statute and give meaning to every word in the statutory provision.
See, e.g., Negonsott v. Samuels,
Given the lack of clarity in this specific provision, we must look to other provisions in the Bankruptcy Code for clarification.
See United Sav. Ass’n v. Timbers of Inwood Forest Assocs., Ltd.,
We conclude that given the ambiguity in § 1113, § 365(b), coupled with Fed. R.Bankr.P. 6006 12 which provides that a proceeding to require a debtor to assume an executory contract is governed by Fed. R.Bankr.P. 9014, 13 governs the procedure for assumption of a CBA. 14 In comparable settings, the courts have so held.
For example, in
American Flint Glass Workers Union v. Anchor Resolution Corp.,
*901 there remains the argument that Anchor’s non-adherence to the Code § 1113 route as to the AFU CBAs leaves it liable despite Code § 365(k)’s plain language. Code § 1113(a) reads:
The debtor in possession ... may assume or reject a collective bargaining agreement only in accordance with the provisions of this section.
Accordingly, the argument goes, Code § 1113 and not § 365 is the governing provision here. That contention rests on an extraordinarily thin reed: that the mere presence of the word “assume” in Code § 1113(a) requires the application of that provision even where no modification or rejection of a CBA has occurred. But that argument is at odds with the plain reading of Code § 1113, which (like the specific prohibition in Code § 1113(f)) speaks only to what must be done by a party in bankruptcy to change — or to free itself entirely from — the terms of a CBA.... It is surely no accident that Code § 1113 is entitled “Rejection of Collective Bargaining Agreements,” although we of course recognize that such legislative captions are not part of the statute itself. We are persuaded that Code § 365 and not Code § 1113 is the applicable provision in the circumstances here.
Id. at 82 (internal citations omitted).
Similarly, in
Massachusetts Air Conditioning and Heating Corp. v. McCoy,
Thus, given the plain language of § 1113(b) — (f) (directed in operation solely to termination or alteration of collective bargaining agreements), and the remedial purpose behind its enactment (directed to securing special procedures before a collective bargaining agreement may be rejected or modified), I find that the use of the term assumption in § 1113(a) was at most sloppy legislative drafting. The reference to assumption appears simply to call out the character of rejection by identifying it with its opposite. Otherwise, assumption plays no part in the purpose or operation of § 1113. Section 1113 is designed to provide additional procedural requirements for rejection or modification of collective bargaining agreements, and only to that degree supercedes and supplements the provisions in § 365.
By contrast, assumption of collective bargaining agreements continues to be governed by the provisions for executory contracts under § 365. Nothing in § 1113’s plain language or legislative history indicates that Congress intended to alter Bildisco’s holding that collective bargaining agreements are executory contracts. Because § 1113 speaks only to rejection, assumption of a collective bargaining agreement — like any other executory contract — remains within the province of § 365.
Id.
at 663 (internal citations omitted).
See also Adventure Resources, Inc. v. Holland,
This line of authority, which looks to § 365 as the provision governing assumption of a CBA, best makes sense of the ambiguities regarding assumption in § 1113.
15
If a debtor seeks to assume a
*902
CBA, it must comply with the dictates of § 365.
See In re Gateway Apparel, Inc.,
2. Assumption by Inaction or Denial of a Motion to Reject
The union disagrees and suggests that a CBA can be assumed impliedly under both § 1113 and § 365 when a debtor fails to act or, alternatively, that a debtor automatically assumes the CBA upon the court’s denial of its motion to reject. This argument is flawed for two reasons. First, with rare exception, the case authorities referenced by the union deal with a wholly different legal question, one the union specifically disclaims relying upon. Second, to suggest that failed rejection ipso facto amounts to assumption severely misconstrues the nature of rejection of an execu-tory contract.
a. Assumption by Inaction
We first consider the cases cited by the union for the proposition that assumption may be implied from a debtor’s failure to apply for rejection coupled with continuation of the business. Almost all of these cases discuss the issue of whether § 1113(f), which prohibits a debtor’s unilateral rejection of the CBA, entitles unpaid union employees’ expenses to superpriority treatment. See 11 U.S.C. § 1113(f) (“No provision of this title shall be construed to permit a trustee to unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with the provisions of this section.”). Two lines of authority have developed on this issue.
The first stems from the Sixth Circuit’s decision in
In re Unimet Corp.,
In what has become the majority position, the second line, by contrast, reasons that § 1113 meshes with the priority scheme in § 507.
In re Ionosphere Clubs, Inc.,
Neither line of cases is relevant to our decision here. We do not even need to reach this issue of priority treatment of the union employees’ unpaid medical and dental expenses because the union has specifically disclaimed resting its argument on § 1113(f). It has not suggested Debtor unilaterally modified the CBA, nor has it asserted any claim to superpriority treatment of its claims under § 1113(f). Presumably it has not done so because it likely could not establish the elements for unilateral rejection 17 or because it believed that we were unlikely to follow the older, now minority, Unimet view. In short, its citation to this line of authorities is not helpful.
Rather, the union maintains that we should follow the Fourth Circuit’s decision in
Adventure Resources, Inc. v. Holland,
As a threshold matter, we think the concept of implied assumption of an executory contract is fatally flawed. A debtor may breach a contract by inaction, namely by failing to abide by its terms, or unilaterally modify or terminate a CBA under Section 1113, namely by failing to reject while taking advantage of workers (under one line of authority), but it cannot assume an executory contract by inaction. Implied assumption has no place in the law of executory contracts. Indeed, Section 365(d) presumes nonassumption by inaction, except in certain specified cases, such as nonresidential real property leases.
See
11 U.S.C. § 365(d)(4) (1994). We find the
Adventure Resources
decision inconsistent with the explicit requirement under § 365 that a debtor may assume an executory contract only upon a motion.
See U.S. on Behalf of Postal Serv. v. Dewey Freight Sys., Inc.,
Moreover, regardless of whether the court in
Adventure Resources
correctly determined that assumption may occur without the requisite motion by the debtor, the case is factually distinguishable from the facts this case. Unlike the debtors in
Adventure Resources,
the Debtor here did not “continue to reap the benefits of its bargain without concern that the nondebt- or party will be made whole for the debt- or’s unfulfilled prepetition obligations.”
Adventure Resources,
b. Assumption as a Result of Denial of a Motion to Reject
Next we address the union’s contention that even if assumption by inaction is not permissible, then certainly assumption follows ipso facto when a debtor applies to reject the CBA and the bankruptcy court denies that application. More precisely, the union’s argument here is that because assumption represents the flip-side of rejection, if a debtor tries to reject and loses, the end result must be assumption. To support its argument, the union cites the Lady H Coal and In re Moline cases.
In
Lady H,
the court considered the debtor’s application to reject its CBA in conjunction with a sale of substantially all of its assets.
See Lady H,
Finding no case law directly on point, we treat this second issue as one of first impression. We begin with the widely-accepted premise that rejection represents “a bankruptcy estate’s decision not to assume.” Michael T. Andrew,
Executory Contracts in Bankruptcy: Understanding “Rejection,
” 59 U.Colo.L.Rev. 845, 848 (1988) [hereinafter Andrew]. The debtor’s decision to reject (or not to assume) “giv[es] rise to a presumption that the debtor has ‘breached’ ” or “will not perform its obligations.” Andrew, 59 U.Colo. L.Rev. at 881, 931 (“ ‘Rejection,’ although it requires a formal act and court approval in a reorganization case, is still the same concept: it is the estate’s (formal) determination not to assume the contract or lease, and its occurrence triggers the ancillary rule that a ‘breach’ of the debtor’s obligations will be deemed to have occurred as of the commencement of bankruptcy, thus permitting a claim by the non-debtor.”). Accordingly, it logically follows that the debtor’s failure to take affirmative steps to assume or to reject an executory contract or unexpired lease in a reorganization case results in that contract or lease “ridfing] through” the bankruptcy case unaffected. Andrew, 59 U.Colo.L.Rev. at 881.
See generally In re Texaco, Inc.,
Accordingly, accepting Andrew’s definition, a request to reject is the antithesis of a request for assumption, not merely its flip-side. In seeking to reject, or actually rejecting, the CBA, a debtor makes clear its intention not to assume. Coupled with well-established case law that a debtor must seek assumption by court order, this understanding of the meaning of rejection undermines the union’s argument that denial of a debtor’s motion to reject results in assumption. In short, we reject the union’s argument. A debtor who seeks one form of relief — rejection of the CBA— should not end up with precisely the opposite — assumption of the CBA.
The union’s argument also carries with it a litany of practical problems. For example, automatic assumption would yield unpredictably; creditors and other interested parties would not know whether to support or oppose the debtor’s motion to reject. Moreover, because none of the procedural rules governing when a debtor may or must seek assumption or when a creditor may force a debtor’s decision to assume or reject would apply, a debtor would likely put off dealing with the CBA entirely, leaving union employees hanging. Further, the parties seem to agree that in this case the Debtor cannot cure prepetition defaults so as to meet a threshold requirement for assumption.
We agree with the bankruptcy court that when a court denies a motion to reject, the inevitable result is not assumption. There is a fundamental difference under § 1113 between the CBA remaining in effect upon denial of a debtor’s motion to reject and the debtor’s actual assumption of the CBA. Section 1113(f), as construed by the cases arising under that provision, clearly provides that the CBA remains in effect until rejected.
See, e.g., In re Manor Oak Skilled Nursing Facilities,
201
B.R. 348, 350
(Bankr.W.D.N.Y.1996) (stating that “all aspects of a collective bargaining agreement remain in effect and binding until rejection occurs”).
19
But
*907
the notion that the CBA remains operative during the course of the bankruptcy prior to rejection is wholly separate and distinct from the notion that the debtor has affirmatively assumed the CBA and undertaken all of the obligations that accompany such a decision under § 365. The debtor alone determines whether and when within the course of the bankruptcy case to seek assumption of the CBA under § 365 or rejection of that agreement under § 1113. Moreover, it seems that a denial of a rejection application could no doubt be followed, not by assumption, but by a renewed motion to reject under changed circumstances. And, finally, as the bankruptcy court correctly pointed out, there may be good reason for a liquidating debtor to defer making a decision about the CBA until after the asset sale, because assuming a CBA before conversion to a Chapter 7 may seriously disadvantage other unsecured creditors.
See In re Rufener,
ACCORDINGLY, we reverse the decision of the bankruptcy court on the issue of whether the debtor can reject the CBA after the § 363 asset sale and remand for further action consistent with this opinion. We affirm on the issue of whether assumption occurred as a result of the bankruptcy court’s denial of the application to reject.
Notes
. This number represents an estimate by the union. In addition, on the date of filing, Debtor was in arrears in paying approximately $600,000 in medical and dental expenses for employees represented by other unions and for non-union employees. The parties agree that if the union’s claim to administrative expense status for its members' prepetition medical and dental expenses succeeds, the claims of Debtor's other employees, as well as the claims of all other prepetition unsecured creditors, will almost certainly receive no distribution at all.
. The union does make reference to this issue at several points in its appellate briefs but it nowhere addresses the question of whether the March 22 order created the law of the case on this specific question. Such passing references without more substantial development and argument do not bring the issue properly before the appellate court.
See, e.g., United States
v.
Panet-Collazo,
. Section 8(d) of the NLRA, 29 U.S.C. § 158(d) (1994), prohibits either party to a labor contract from unilaterally changing its terms and conditions during the life of the agreement.
. The bankruptcy court in
In re Ionosphere Clubs, Inc.,
. The court also cited
Carpenters Health & Welfare Trust Funds for California v. Robertson (In re Rufener Construction, Inc.),
. The courts in two cases
assume
a debtor may proceed with the requirements of § 1113 for modification of the CBA post-asset sale.
See In re The Lady H Coal Co., Inc.,
Likewise, in
Lady H,
the debtor sought to reject its CBA and proceed with a sale of substantially all of its assets free and clear of any interest or liabilities under that CBA.
See
*895
Lady H,
. The union refers us to a number of additional cases for the proposition that "reorganization” as used in § 1113(b)(1)(A) has been interpreted to mean emergence from bankruptcy as a viable, ongoing enterprise.
See Truck Drivers Local 807 v. Carey Transp., Inc.,
. A debtor may not, however, fail to take steps to rejecL the CBA under § 1113 and, at the same time, fail to comply with the terms of the CBA. A debtor remains bound by the terms of the CBA until it takes affirmative steps to reject that agreement.
See In re Manor Oak Skilled Nursing Facilities,
. The union has suggested that the decision in
Maxwell Newspapers
overruled
Ionosphere. Compare In re Maxwell Newspapers, Inc.,
. We reject Appellees’ argument that remand is not necessary because the union conceded all other issues. Appellees point to the transcript of (he May 11, 2000 hearing on the Debtor's Application for Leave to Reject. While the subject was touched upon, diere was no unequivocal waiver with respect to the other eight American Provision factors. In fact, Appellant has provided us with a memorandum it filed with the bankruptcy court in which it argued that several of the other eight factors had not been established.
. We acknowledge that in
Lady H,
the court denied tire debtor's application to reject the CBA and proceeded to grant the union employees' benefit claims administrative expense status.
See Lady H,
. Federal Rule of Bankruptcy Procedure 6006 provides in relevant part that a "proceeding to assume, reject, or assign an execu-tory contract or unexpired lease, other than as part of a plan, is governed by Rule 9014.” Fed.R.Bankr.P. 6006(a).
. Federal Rule of Bankruptcy Procedure 9014 provides in relevant part that "[i]n a contested matter in a case under the Code not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought.” Fed.R.Bankr.P. 9014.
. The union argues that § 1113 governs the procedure for assumption of a CBA, while § 365 governs the effect of that assumption, specifically claiming that § 365 requires union employees’ unpaid medical and dental expenses to be treated as administrative expenses upon the debtor's assumption of the CBA. As discussed infra in this opinion, this particular argument finds no support in the wording of § 1113 or § 365, or in the case law.
In addition, we underscore that the extent of our decision here is only that § 365(b) governs the debtor’s assumption of the CBA. We do not take up the issue of whether other pieces of § 365 are imported in to § 1113 as well, though we acknowledge that courts have struggled with such issues. For example, courts disagree as to whether § 1113 displaces § 365(g), in other words, whether the debtor’s rejection of the CBA gives the union employees a claim for damages.
See
Keating, 35 Wm.
&
Mary L.Rev. at 534-35 ("Some courts hold that because section 1113, unlike section 365, does not specifically provide that rejection gives rise to a claim then no claim for rejection exists. Further, these courts contend that allowing union workers a claim based on the rejection of their labor contract would defeat the purpose of section 1113.... Other courts have held that section 1113 was not meant to displace completely the provisions of section 365 as applied to collective bargaining agreements, but merely to supplement the Code’s more general rules on the assumption or rejection of executory contracts. Accordingly, these courts hold that the rules of sections 365(g) and 502(g), which applied before the enactment of section 1113, should continue to govern these rejection cases, because the rules of section 365(g) and 502(g) are not inconsistent with the provisions of section 1113.”).
Compare In re Blue Diamond Coal Co.,
More generally, courts have also found § 1113's relationship with other Bankruptcy Code provisions unclear.
See, e.g., Jones Truck Lines, Inc.
v.
Central States, Southeast & Southwest Areas Pension Fund (In re Jones Truck Lines, Inc.),
. As the Appellees correctly point out, Congress could have expressly indicated, as it has *902 done in other Code provisions, that § 1113 was not to be read in conjunction with or subject to the provisions of § 365. See 31 U.S.C. § 1167 (1994) (j‘Notwithstanding section 365 of this title, neither the court nor the trustee may change the wages or working conditions of employees of the debtor established by a collective bargaining agreement that is subject to the Railway Labor Act except in accordance with section 6 of such Act.”) (emphasis added).
. The union asserts that since the parties can modify the CBA consensually under the provisions of the NLRA, they should be able to agree to the debtor’s assumption of the CBA consensually. This assumes that the assumption of the CBA affects only the debtor and the union employees covered by the CBA and overlooks the very important fact that assumption of a CBA in the bankruptcy context dramatically affects other parties as well, namely, creditors and non-union employees. Indeed, the union acknowledges that the Debtor's actions with respect to assumption or rejection of the CBA and the accompanying treatment of the union employees’ unpaid pre-petition medical and dental expenses bear directly on the final distributions to creditors under the plan.
. The union surely recognizes that Debtor acted promptly to reject the CBA and either paid its post-petition obligations under the CBA or ensured that such payments would be made by the asset purchaser.
. As support for its reading of
Adventure Resources,
the union also refers us to the following language in
In re Moline Corp.,
. Of course, a debtor does not escape its liabilities and obligations under the CBA simply by failing to take steps to assume or reject that contract during the course of the bankruptcy case. As discussed
supra,
if a debtor fails to assume or reject the CBA or delays in making such a decision and the CBA effectively "rides through” the bankruptcy process, there are several possible consequences. For example, the CBA will be treated as an executory contract under § 365, rather than § 1113, in a Chapter 11 case which is converted to a Chapter 7 case.
See, e.g., Carpenters Health & Welfare Tiust Funds for California v. Robertson (In re Rufener Constr., Inc.),