## Facts

- Carey Transportation, Inc. operated bus service between New York City and two New York airports (JFK and LaGuardia).
- Carey was party to collective-bargaining agreements (CBA) with Truck Drivers Local 807, the union representing Carey’s drivers and certain other employees.
- Carey experienced significant financial distress, with high operating costs driven largely by labor costs under the CBA.
- Carey also lost riders following a union strike and did not fully regain its prior ridership levels, leaving revenues depressed.
- Before filing, Carey implemented companywide cost-saving measures and sought concessions from multiple constituencies while continuing to negotiate with the union.
- Carey anticipated that, based on its cash flow, essential vendors would stop providing goods and services within roughly 30 days if costs were not reduced.
- On April 4, 1985, Carey filed a voluntary Chapter 11 petition and continued operating as debtor in possession.
- Post-petition, Carey submitted a proposal to the union seeking modifications to wages, benefits, and work rules, aiming for substantial annual savings (about $1.8 million per year over three years).
- The union rejected Carey’s proposal. The parties continued exchanging proposals and information, including a union counterproposal that produced materially less savings than Carey sought.
- Carey filed an application under 11 U.S.C. § 1113(c) seeking authority to reject the CBA, supported by financial projections and testimony that the union did not materially rebut.

## Issues

1. Whether the debtor satisfied 11 U.S.C. § 1113(b)–(c) by making a proposal based on the most complete and reliable information available that contained only modifications necessary to permit reorganization and that treated affected parties fairly and equitably.
2. Whether the debtor provided the union with the relevant information needed to evaluate the proposal and met with the union at reasonable times and in good faith to reach mutually satisfactory modifications.
3. Whether the union refused to accept the debtor’s proposal without good cause and whether the balance of the equities clearly favored rejection of the CBA.

## Decision

- The bankruptcy court granted Carey’s § 1113 application and authorized rejection of the CBA with Local 807.
- The court credited Carey’s largely unrebutted financial evidence showing continuing losses, tight liquidity, and a near-term risk that vendors would discontinue support absent major labor-cost reductions.
- The court found Carey’s proposed modifications were necessary to permit reorganization, meaning they were reasonably required to achieve a workable reorganization and not limited to the smallest change that would avoid immediate shutdown.
- The court determined the proposal treated affected parties fairly and equitably because Carey pursued cost reductions beyond union labor, including measures affecting management and other stakeholders, rather than placing the full burden on represented employees.
- The court found Carey provided sufficient information for evaluation and negotiated both before and after the petition, including during the § 1113 proceedings.
- The court concluded the union’s refusal lacked good cause in light of the demonstrated financial need and the absence of an alternative proposal that would meet the debtor’s demonstrated savings requirements.
- The court held the balance of equities clearly favored rejection because denial would likely prevent a feasible reorganization and increase the likelihood of liquidation, while rejection preserved a meaningful chance to continue operations and retain jobs.

## Legal Principles

- Under 11 U.S.C. § 1113, a debtor may reject a collective-bargaining agreement only if it proves each statutory element, including a qualifying proposal, disclosure of relevant information, good-faith negotiations, lack of good-cause refusal, and a balance of equities that clearly favors rejection.
- “Necessary” modifications under § 1113 are not limited to changes required to avoid immediate liquidation; they may include changes reasonably required to permit a successful reorganization and a confirmable plan.
- “Fair and equitable” treatment requires an allocation of sacrifice that is reasonable in light of the debtor’s condition; the statute does not require identical concessions from every constituency, but it does prohibit placing a disproportionate burden on union labor without justification.
- A debtor must provide the union with the information needed to evaluate the proposal and must meet and confer at reasonable times in a genuine effort to reach agreement.
- In assessing “good cause” and the balance of equities, the court considers the debtor’s financial showing, the realism of the parties’ bargaining positions, and the practical consequences of approval versus denial for employees, creditors, and the estate.

## Conclusion

In re Carey Transportation, Inc. held that Carey could reject its CBA under § 1113 because it presented a substantiated proposal for cost-saving modifications necessary for reorganization, shared burdens across constituencies, negotiated and disclosed information in good faith, and showed the union’s refusal was not justified and that rejection offered a better outcome than the likely alternative of failed reorganization and liquidation.


In re Carey Transportation, Inc., 50 Bankr. 203 (1985)