## Facts

- Wheeling-Pittsburgh Steel Corporation, operating as a Chapter 11 debtor-in-possession, employed production and maintenance workers represented by the United Steelworkers of America.
- The parties were bound by coordinated collective-bargaining agreements that included prior concessions and profit-sharing features.
- From 1982 to 1985, the company’s financial condition worsened; it sought four separate labor-cost reductions.
- The union agreed to three rounds of concessions but refused a fourth without contemporaneous concessions from banks and other creditors.
- After filing for Chapter 11, the company moved under 11 U.S.C. § 1113 to reject the collective-bargaining agreements and proposed substantial wage and benefit reductions.
- The proposal did not include a restoration (“snap-back”) mechanism if the company’s financial condition improved.
- After a four-day evidentiary hearing, the bankruptcy court authorized rejection; the company implemented unilateral reductions, and the union later struck.
- The district court affirmed, treating the bankruptcy court’s construction of § 1113 as largely factual and reviewing it for clear error.
- While an appeal was pending, the parties reached a partial settlement, but disputes affecting a subset of employees (including plant guards) remained unresolved.

## Issues

1. Whether “necessary to permit the reorganization” under 11 U.S.C. § 1113(b)(1)(A) requires that proposed contract modifications be essential (not merely helpful) to reorganization.
2. Whether the company’s proposal satisfied § 1113’s requirement that affected parties, the debtor, and creditors be treated fairly and equitably.
3. Whether the district court used the wrong standard of review by deferring to the bankruptcy court’s legal interpretation of § 1113.
4. Whether the appeal was moot in light of the parties’ partial settlement.

## Decision

- The Third Circuit held the appeal was not moot because unresolved disputes remained and the § 1113 rejection order continued to affect employees.
- The court ruled that interpretation of § 1113’s statutory standards (including “necessary”) is a legal question subject to de novo appellate review; the district court erred by using a clearly erroneous standard for that legal issue.
- The court held the bankruptcy court applied an overly permissive reading of “necessary,” effectively allowing modifications that were advantageous rather than indispensable to reorganization.
- The court concluded the record did not support findings that the proposal met § 1113’s “necessary” and “fair and equitable” requirements, emphasizing the long-term burden placed on employees without a restoration mechanism.
- The Third Circuit vacated the district court’s judgment affirming authorization to reject the agreements and remanded for further proceedings consistent with its interpretation of § 1113.

## Legal Principles

- Under 11 U.S.C. § 1113, a debtor seeking to reject a collective-bargaining agreement must show that proposed modifications are necessary to permit reorganization; “necessary” demands an essential, narrowly tailored showing, not mere desirability.
- A § 1113 proposal must assure fair and equitable treatment of creditors, the debtor, and affected parties, requiring scrutiny of whether sacrifices are proportionately allocated among constituencies.
- Open-ended, long-term employee concessions may fail § 1113 where the proposal lacks mechanisms that tie give-backs to the reorganization period or provide employees a defined opportunity to share in recovery.
- Appellate review is de novo for statutory interpretation under § 1113, while underlying factual findings remain subject to clear-error review.
- Partial settlement does not moot an appeal where the challenged order continues to have operative effects and unresolved controversies remain.

## Conclusion

The Third Circuit required a strict, legally reviewed application of § 1113, holding that rejection of a collective-bargaining agreement demands proof that proposed modifications are essential to reorganization and fairly distributed among stakeholders; it vacated the authorization to reject and remanded for reconsideration under the correct standards.


Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of Am., AFL-CIO-CLC, 791 F.2d 1074 (3d Cir. 1986)