## Facts

- Lady H Coal Co., Inc., a unionized coal-mining operator, filed for Chapter 11 and continued operating as debtor-in-possession.
- Most production and maintenance employees were represented by the United Mine Workers of America (UMWA) under a collective bargaining agreement (CBA).
- Due to financial distress and operating losses, the debtor pursued a sale of substantially all operating assets as the core of its reorganization strategy.
- The debtor hired a broker to market the assets but did not inform the UMWA that a sale process was underway and did not prioritize buyers willing to assume the CBA.
- The debtor negotiated a transaction with A.T. Massey Coal Company, Inc., a nonunion operator; the letter of intent and proposed terms did not require assumption of the CBA.
- The debtor did not meaningfully press Massey to assume the CBA or to bargain with the UMWA during the negotiation and marketing process.
- After the deal structure was largely set, the debtor presented the UMWA with proposed CBA modifications tied to making the sale feasible; the union rejected the concessions.
- The debtor filed a plan of reorganization based on the sale and moved under 11 U.S.C. § 1113 to reject the CBA, along with related injunctive relief.

## Issues

1. Whether the debtor satisfied 11 U.S.C. § 1113’s requirements to reject the CBA in connection with a sale-based Chapter 11 plan.
2. Whether the debtor made a proposal based on the most complete and reliable information available, negotiated in good faith, and proved rejection was necessary to permit reorganization rather than to accommodate a preferred purchaser.
3. Whether the statutory fairness requirements and the balance of equities clearly favored rejection.

## Decision

- The court denied the debtor’s § 1113 motion to reject the CBA and denied related injunctive relief.
- The court found the debtor failed to carry its burden on § 1113’s necessity, good-faith bargaining, and equities requirements.
- The court concluded the debtor’s sale process and timing effectively presented the union with a late-stage demand driven by the purchaser’s nonassumption position, not a genuine bargaining process aimed at preserving the CBA where feasible.

## Legal Principles

- A debtor may reject a collective bargaining agreement under 11 U.S.C. § 1113 only if it proves, among other elements, that:
  - it made a proposal based on the most complete and reliable information available;
  - the proposal is necessary to permit reorganization;
  - the proposal treats the debtor, creditors, and affected parties fairly and equitably;
  - the union refused the proposal without good cause; and
  - the balance of the equities clearly favors rejection.
- “Necessary” under § 1113 requires more than showing a transaction is improved by rejection; the debtor must show rejection is essential to reorganization rather than a product of a deal structured to avoid the CBA.
- Good-faith bargaining requires timely, meaningful engagement with the union; approaching the union only after committing to a nonunion transaction may support denial of § 1113 relief.
- When a reorganization plan depends on an asset sale, the court may examine how the sale process was designed and conducted in evaluating § 1113 compliance, including whether union-compatible alternatives were reasonably pursued.

## Conclusion

The court refused to authorize rejection of the UMWA collective bargaining agreement because the debtor structured and negotiated a nonunion sale without early, meaningful union engagement and did not prove that rejecting the CBA was necessary for reorganization or that the equities clearly favored shifting the transaction’s burdens onto union employees.


In re Lady H Coal Co., Inc., 193 B.R. 233 (Bankr. S.D.W. Va. 1996)