Filed: Sep. 20, 2004
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit 9-20-2004 In Re: Allegheny Precedential or Non-Precedential: Precedential Docket No. 03-2085 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004 Recommended Citation "In Re: Allegheny " (2004). 2004 Decisions. Paper 276. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/276 This decision is brought to you for free and open access by the Opinions of the United Sta
Summary: Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit 9-20-2004 In Re: Allegheny Precedential or Non-Precedential: Precedential Docket No. 03-2085 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004 Recommended Citation "In Re: Allegheny " (2004). 2004 Decisions. Paper 276. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/276 This decision is brought to you for free and open access by the Opinions of the United Stat..
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Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
9-20-2004
In Re: Allegheny
Precedential or Non-Precedential: Precedential
Docket No. 03-2085
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004
Recommended Citation
"In Re: Allegheny " (2004). 2004 Decisions. Paper 276.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/276
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PRECEDENTIAL
On Appeal from the United States
UNITED STATES COURT OF
District Court
APPEALS
for the Western District of Pennsylvania
FOR THE THIRD CIRCUIT
(D.C. Civil No. 01-cv-01714)
District Judge: Honorable Donald E.
_______________
Ziegler
_____________
Nos. 03-2085, 03-2193
_______________
Argued: March 22, 2004
IN RE: ALLEGHENY HEALTH,
Before: FUENTES, SMITH and JOHN
EDUCATION
R. GIBSON,* Circuit Judges.
AND RESEARCH FOUNDATION;
ALLEGHENY UNIVERSITY OF
(Filed: September 20, 2004)
THE HEALTH SCIENCES;
ALLEGHENY UNIVERSITY
For Appellee/Cross Appellant:
MEDICAL PRACTICES;
Beverly W. Manne (ARGUED)
ALLEGHENY HOSPITALS;
Tucker Arensberg
CENTENNIAL AND ALLEGHENY
1500 One PPG Place
UNIVERSITY HOSPITALS-EAST
Pittsburgh, PA 15222
TENET HEALTHSYSTEM
Raymond W. Thomas
PHILADELPHIA, INC.,
Richard S. Zuniga
Hill, Farrer & Burrill
Appellant in No. 03-2193
300 South Grand Avenue
37th Floor
v.
Los Angeles, CA 90071
NATIONAL UNION OF HOSPITAL
For Appellant/Cross Appellee:
AND HEALTH
Gail Lopez-Henriquez (ARGUED)
CARE EMPLOYEES, AFSCME, AFL-
Freedman & Lorry
CIO,
400 Market Street
DISTRICT 1199C,
9th Floor
Philadelphia, PA 19106
Appellant in No. 03-2085
WILLIAM J. SHARFFENBERGER,
*The Honorable John R. Gibson,
Trustee United States Court of Appeals for the
Eighth Circuit, sitting by designation.
1
_______________________ bargaining agreements. Tenet purchased
substantially all the assets of these
OPINION OF THE COURT hospitals in a transaction approved by the
_______________________ bankruptcy court 3 under 11 U.S.C. §§ 105,
363 and 365 (2000). Tenet and District
JOHN R. GIBSON, Circuit Judge: 1199C now contest whether Tenet is
bound to pay sick leave benefits under the
District 1199C of the National collective bargaining agreements between
Union of Hospital and Health Care District 1199C and Allegheny.
Employees and Tenet HealthSystem
After Allegheny filed bankruptcy,
Philadelphia, Inc., each appeal from the
Tenet and Allegheny entered an agreement
district court's 1 order vacating an
for Tenet to purchase Allegheny's assets
arbitration order in part and dismissing
and, later, an amendment to the agreement,
Tenet's suit to vacate the other part of the
with a closing date of November 10,
arbitration order. We will affirm in part
1998.4 Under the asset purchase
and remand in part for entry of judgment
agreement, Tenet assumed some liabilities
in favor of District 1199C.
of Allegheny and disclaimed other
This case arises at the intersection liabilities, which remained the obligation
of the bankruptcy and labor laws. The suit of the bankruptcy estate. In particular, the
was filed as an adversary proceeding in the agreement contained a list of "Assumed
Chapter 11 bankruptcy of Allegheny Contracts" in Schedule 2.01(e), which
H ealt h , Educ ation and R esearc h Allegheny, as debtor-in-possession, would
Foundation and related entities,2 which assume and assign to Tenet. The
owned a number of hospitals in collective bargaining agreements between
Philadelphia. Employees at four of the Allegheny and District 1199C were listed
hospitals were represented by District on Schedule 2.01(e). 5 The asset purchase
1199C and were covered by collective
3
The Honorable M. Bruce
1
The Honorable Donald E. Ziegler, McCullough, Bankruptcy Judge for the
United States District Judge for the Western District of Pennsylvania.
Western District of Pennsylvania.
4
The sale actually closed on
2
The related entities are Allegheny November 11, 1998.
University of the Health Sciences,
5
Allegheny University Medical Practices, We have searched the record in
Allegheny Hospitals, Centennial, and vain for a copy of the elusive Schedule
Allegheny University Hospitals-East. We 2.01(e). The asset purchase agreement is
will refer to the debtors collectively as reproduced in the record with a note
"Allegheny." stating that schedules are attached to the
2
agreement defined "Assumed Liabilities" Sellers arising on or after the Closing Date
as including (inter alia) "all obligations of with respect to any period commencing on
the Closing Date under the Assumed
Contracts." Conversely, the asset purchase
agreement contained a list of "Excluded
amended agreement, but they are not. The
Liabilities" for which Tenet would not
bankruptcy court stated that District
become liable; one item excluded was
1199C's collective bargaining agreements
"liabilities or obligations arising from any
were on the schedule: "Unfortunately for
Assumed Contract before the Closing Date
Tenet, the Court concludes that the
or resulting from any breach or default
[collective bargaining agreements] are
prior to the Closing Date of any Assumed
'Assumed Contracts' within the meaning of
Contracts or other Assumed Liabilities . .
the [asset purchase agreement], which
. ." The asset purchase agreement also
conclusion is dictated because (a)
contained a section labeled, "5.03,
'Assumed Contracts' is defined in the
Employee Matters," in which Tenet agreed
[asset purchase agreement] as 'the
to bargain w ith unio ns cu rrently
Contracts described in Schedule 2.01(e) as
representing Allegheny's employees but
the same may be amended by Buyer [(i.e.,
with the following proviso: "Employees
Tenet)] as permitted by the Court,' and (b)
employed under written Contracts will not
the [collective bargaining agreements] are
be offered employment pursuant to this
described as Assumed Contracts in the
Section, but employment of such
initial Schedule 2.01(e), the Amended
employees shall be governed by the terms
Schedule 2.01(e), and the Second
of the Assumed Contracts, if any, relating
Amended Schedule 2.01(e)." Tenet
to such employees."
HealthSystem Philadelphia, Inc. v. Nat'l
Union of Hosp. & Health Care Employees, Allegheny moved in the bankruptcy
AFSCME, AFL-CIO, District 1199C (In re court for an order approving the asset
Allegheny Health, Educ. and Research purchase agreement under 11 U.S.C. §§
Found.), 265 B.R. 88, 102 (Bankr. E.D. 105, 363, and 365. District 1199C
Pa. 2001) (citations omitted). Tenet does received notice of the motion and the
not dispute this statement of a key fact. hearing on the motion. In two sale orders
Moreover, District 1199C attached to its dated October 1 and 30, 1998, the
reply brief Tenet's proposed schedule of bankruptcy court approved the asset
executory contracts to be assigned to Tenet purchase and assignment of the assumed
as part of the asset purchase agreement, contracts to Tenet and ordered the non-
which includ es sev eral co llective debtor parties to the assumed contracts to
bargaining agreements. Therefore, we can assert any claims for existing defaults
only assume that the District 1199C against Allegheny in the bankruptcy or
collective bargaining agreements are else to be barred from asserting the claims.
indeed found on the relevant Schedule The sale closed on November 11, 1998.
2.01(e).
3
After the sale closed, Tenet and November 11, 1998, and to pay employees
District 1199C took opposing positions sick leave for the first day of each absence.
about what the terms of employment
Tenet notified Allegheny's trustee
would be for District 1199C members.
that it considered Allegheny liable to
Tenet offered to credit the members with
indemnify Tenet under the asset purchase
40 hours of accrued sick leave, which it
agreement for the cost of the arbitration
later conditioned upon District 1199C
award. The asset purchase agreement
agreeing to eliminate leave pay
provided that Allegheny would indemnify
prospectively for the first day of any
Tenet against any loss due to excluded
absence. District 1199C rejected the
liabilities, and Tenet contended that the
prospective elimination of pay for the first
liability for accrued sick leave was an
day of an absence, and Tenet responded by
excluded liability.
refusing to credit members with any
accrued sick leave. Tenet then brought this suit in the
bankruptcy court. Count I sought vacatur
District 1199C filed a grievance
of the arbitration award on the grounds
accusing Tenet of refusing to abide by the
that the dispute was not arbitrable and that
terms of the collective bargaining
it fell within the exclusive jurisdiction of
agreements. The grievance proceeded to
the bankruptcy court. For convenience's
arbitration on the following questions:
sake, we will refer to the part of Count I
"Did the Employer violate the collective
concerning the accrued sick leave
bargaining agreements by refusing to pay
obligation as Count IA and the part
employees sick leave starting with the first
concerning the prospective sick leave
day of absence and by refusing to pay
obligation as Count IB.6 Count II sought
employees accumulated sick leave? If so,
indemnity from the Allegheny bankruptcy
what shall be the remedy?" Tenet
maintained the position that the grievance
was not arbitrable, but it participated in the
6
hearing, preserving its objection for The prayer for relief in the First
judicial review. The arbitrator observed Amended Complaint does not explicitly
that the issue of arbitrability was reserved ask for relief from the award of
for judicial determination and that his prospective sick leave under the collective
powers were limited to interpreting the bargaining agreements. However, Tenet
collective bargaining agreements signed by characterizes its suit as seeking vacatur of
Allegheny and District 1199C. He the arbitrator's prospective sick leave
concluded that those agreements provided ruling, the bankruptcy court so considered
for accrued sick leave and payment for the it, and District 1199C does not object.
first day of leave, as requested by District There is a general prayer for relief which
1199C. Accordingly, he ordered Tenet to could be broad enough to include relief
pay sick leave that had accumulated before from the award of prospective relief, and
we will so treat it.
4
estate for $4,500,000, which Tenet assigning all of the obligations, in which
estimated as the cost to it of complying case Allegheny as debtor-in-possession
with the arbitrator's award. District 1199C would remain liable for the obligations.
counterclaimed, seeking enforcement of Id. at 113-14.
the arbitration award, both as to accrued
Notwithstanding the common law,
and prospective sick leave obligations.
the bankruptcy court acknowledged that 11
The bankruptcy court held that the U.S.C. § 1113 governs rejection of
terms of the asset purchase agreement collective bargaining agreements by a
were binding on District 1199C by debtor-in-possession. The bankruptcy
collateral estoppel because "the Union, court considered the partial assignment of
although it received notice of the [asset the collective bargaining agreements in
purchase agreement] and the hearings to connection with the sale of Allegheny's
approve the same, failed to object at such assets to be a possible violation of 11
hearings to the Court's approval of the U.S.C. § 1113(f) by Allegheny (not by
[asset purchase agreement] and, in Tenet). 265 B.R. at 116-17. However, the
particular, to the Court's approval of bankruptcy court held that this possible
Tenet's incomplete assumption [of the violation of § 1113(f) would not render
collective bargaining agreements]." Tenet Tenet liable for the accrued sick leave
HealthSystem Philadelphia, Inc. v. Nat'l because District 1199C did not raise a §
Union of Hosp. & Health Care Employees, 1113 objection when the court was
AFSCME, AFL-CIO, District 1199C (In re deciding whether to approve the asset
Allegheny Health, Educ. and Research purchase agreement, and even if District
Found.),
265 B.R. 88, 112 (Bankr. E.D. 1199C had objected, the appropriate relief
Pa. 2001). The bankruptcy court construed would not have been to impose such
the asset purchase agreement to include a liability on Tenet.
Id. at 117.
partial assignment of the District 1199C
The bankruptcy court found that
collective bargaining agreements to Tenet.
under the asset purchase agreement, Tenet
District 1199C argued that the asset
assumed the collective bargaining
purchase agreement could not have
agreements, but only the obligations that
contemplated a partial assignment, because
arose after November 10, 1998. Id. at 105.
a partial assignment would not have been
Therefore, Tenet was not liable for the
legal. The court reasoned that under the
accrued sick leave obligation, but it was
common law of assignment of contracts,
liable for the prospective sick leave
the assignor and assignee can divide
obligation. Id. at 118. Accordingly, the
among themselves responsibility for
bankruptcy court granted Tenet summary
performing the duties to the obligee. The
judgment as to Count IA, vacating the
bankruptcy court held that Allegheny
arbitration award of accrued sick leave
could assign the benefits of the collective
benefits. Id. at 94. As to Count IB, which
bargaining agreements to Tenet without
sought vacatur of the award of prospective
5
leave benefits, the bankruptcy court held and 1291 (2000). Because this case was
that Tenet had assumed liability under the decided on summary judgment, it involves
asset purchase agreement for the only questions of law, which we review de
prospective sick leave obligation. This novo. American Flint Glass Workers
being so, the bankruptcy court reasoned Union v. Anchor Resolution Corp., 197
that Tenet's indemnity claim was F.3d 76, 80 (3d Cir. 1999).
unfounded and should not result in
As a threshold matter, District
recovery from the bankruptcy estate. The
1199C contends that the bankruptcy court
court reasoned that if the claim could not
lacked core subject matter jurisdiction, but
affect the bankruptcy esta te, the
appears to concede that the bankruptcy
bankruptcy court therefore lacked subject
court had non-core, or "related to,"
matter jurisdiction over Count IB. Id. at
jurisdiction.7 A bankruptcy court may hear
118-19. On this reasoning, the court
dismissed Count IB.
Id.
7
The resolution of Count II, the Whether or not District 1199C
indemnity count, followed from the concedes the existence of "related to"
resolution of Count I. As to the part of jurisdiction, such jurisdiction exists
Count II seeking indemnity for the accrued because Tenet names the trustee as
leave obligation, the bankruptcy court defendant in Count II, seeking contractual
dismissed Tenet's claim without prejudice indemnification for District 1199C's claim
as moot, because the court's holding on against it. See Copelin v. Spirco, Inc., 182
Count IA eradicated Tenet's claim for F .3d 174 , 179 ( 3d Cir . 1 9 9 9)
indemnification.
Id. at 127. As to the part ("[J]urisdiction is a threshold issue
of Count II seeking indemnification for the determined by speculating whether the
prosp ective leave oblig ation, th e ultimate outcome of the litigation could
bankruptcy court reasoned that since Tenet conceivably affect the bankrupt estate.").
assumed the prospective obligation, the A defendant's assertion of a claim for
bankruptcy estate was not liable for it; indemnity against a debtor does not always
accordingly, the bankruptcy court entered result in "related to" jurisdiction over the
summary judgment for the trustee and claim against the defendant. See Pacor,
against Tenet on that part of Count II. Id. Inc. v. Higgins,
743 F.2d 984, 994-96 (3d
at 128. Cir. 1984) (no "related to" jurisdiction for
products liability claim in which defendant
The district court affirmed the
had impleaded debtor that manufactured
bankruptcy court. Both District 1199C
product), overruled on another ground,
and Tenet appeal.
Things Remembered, Inc. v. Petrarca, 516
I. U.S. 124, 129 (1995); In re Federal-Mogul
Global, Inc., 300 F.3d 368, 379-84 (3d Cir.
Appellate jurisdiction over this
2002), cert. denied, 537 U.S. 1148 (2003).
appeal is founded on 28 U.S.C. §§ 158(d)
However, in this case the outcome of the
6
both core and non-core matters, see 28 the suit was a core proceeding because it
U.S.C. §§ 157(b) and (c), and "[w]hether a required the court to interpret and give
particular proceeding is core represents a effect to its previous sale orders. See In re
question wholly separate from that of Marcus Hook, 943 F.2d at 267 (motion to
subject-matter jurisdiction." In re enforce bankruptcy sale order is core
proceeding).
Marcus Hook Dev. Park, Inc., 943 F.2d
261, 266 (3d Cir. 1991). The significance However, we must conclude that
of the distinction between core and non- the bankruptcy court erred in determining
core jurisdiction is that in core proceedings that it had no jurisdiction over Tenet's
the bankruptcy court can enter a final Count IB to vacate the arbitration award
j u d g m e n t , w h e r e a s i n n o n -c o r e concerning the prospective sick leave
proceedings the bankruptcy court's power obligation or over District 1199C's
is limited to submitting proposed findings counterclaim to enforce that part of the
of fact and conclusions of law to the arbitration award. The bankruptcy court
district court for entry of a final order after reasoned:
de novo review (unless the parties consent
[I]f, and to the extent that,
to adjudication by the bankruptcy judge).
the Sales Orders and the
Id.; 28 U.S.C. §§ 157(b) and (c). Because
[asset purchase agreement]
the district court considered this case
are construed such that
under both the standard appropriate for
Tenet . . . assumed liability
appeals of core-matter decisions and the de
for the Sick Leave
novo standard, in the alternative, District
Obligations, then (a) such
1199C's argument about the core/non-core
liability is not that of . . . the
distinction has little practical import in this
Trustee and the instant
case. However, in order to clarify
debtor's bankruptcy estate,
procedure on remand, we hold that the
(b) Tenet cannot recover on
bankruptcy court correctly determined that
a claim for indemnification
against the instant debtor's
bankruptcy estate, and (c)
suit between District 1199C and Tenet
the debtor's bankruptcy
could have an immediate effect on the
estate thus cannot
bankruptcy estate since Tenet's indemnity
conceivably be impacted by
claim, if it is meritorious at all, has already
the outcome of litigation
matured. The asset purchase agreement
regarding whethe r the
requires Allegheny to defend Tenet or else
Arbitration Award should be
pay for its defense of third-party claims
set aside or enforced.
covered by the indemnity agreement, and
Tenet has already made demand on
Allegheny to defend it against District
265 B.R. at 97. In other words, the court
1199C's claim on the arbitration award.
7
reasoned that if the court decided to a Better Env't, 523 U.S. 83, 88-102 (1998).
interpret the asset purchase agreement to Because the bankruptcy court correctly
place responsibility on Tenet for the determined that Tenet's suit to vacate the
prospective leave obligation, then arbitration award and District 1199C's
Allegheny could not be liable to indemnify counterclaim to enforce it required the
Tenet and the claim for prospective leave court to interpret and enforce the sale
would not have any potential to affect
orders, 265 B.R. at 96, it was error then to
Allegheny's estate. If the claim could have hold that jurisdiction disappeared once the
no effect on the estate, there should be no court construed the asset purchase
bankruptcy jurisdiction. Accordingly, agreement and sale orders to bind Tenet to
when the court decided that Tenet had the collective bargaining agreement. The
assumed liability for the prospective sick bankruptcy court had subject matter
leave obligation, it held: jurisdiction over the entire suit and
counterclaim.
[B]ecause the Sales Orders
do not operate to preclude II.
the Union from pursuing
On the merits, District 1199C
Tenet for payment of the
argues that Tenet is bound by the
Prospective Sick Leave
collective bargaining agreements in their
Obligation, the Court lacks
entirety because Tenet assumed them in
even noncore subject matter
the asset purchase agreement with
jurisdiction over Tenet's 1st
Allegh en y, notwithstand ing T enet's
Count and the Union's
attempt to limit its liabilities under that
counterclaim to the extent
agreement. District 1199C argues that this
that the same seek to set
obligation follows from our opinion in
a si de or enforce the
American Flint Glass Workers Union v.
Arbitration Award as it
Anchor Resolution Corp., 197 F.3d 76 (3d
pertains to the Prospective
Cir. 1997), which District 1199C interprets
Sick Leave Obligation.
to mean that a party that assumes any part
of a contract's obligations automatically
assumes all of them.
265 B.R. at 118. Thus, the bankruptcy
court's holding that it lacked jurisdiction This is a misreading of American
was based on its resolution of the merits of Flint Glass. American Flint Glass held
the claim. that in order to effect a novation by
operation of law under 11 U.S.C. § 365(k),
The existence of subject matter
a bankruptcy debtor-in-possession must
jurisdiction is determined before, not after,
assign the old contract cum onere, with all
adjudication of the merits and depends on
rights and obligations intact. Id. at 80. A
the nature, not the validity, of the
partial assignment does not suffice to
plaintiff's claim. See Steel Co. v. Cit. for
8
effect a novation, releasing the original we interpret American Flint Glass to bind
obligor from its duties under the contract. Tenet to terms of the collective bargaining
The result in American Flint Glass of the agreement that it was not willing to
employer-debtor's attempt to make a assume, we will have "disenfranchise[d]"
partial assignment was that the debtor the Union by allowing the successor
remained liable for the entire collective employer to discard burdensome terms
bargaining agreement. The decision in without bargaining. We do nothing of the
American Flint Glass bound the debtor kind. To the extent that Tenet has been
only; it did not hold that the partial- able to enjoy the benefits of the collective
assignee became obliged to perform duties bargaining agreements without having to
it never agreed to undertake and which it pay for sick leave that accrued under them,
expressly disavowed in the asset purchase District 1199C has itself to blame. The
agreement. Therefore, American Flint division of responsibility between Tenet
Glass might be authority for holding and Allegheny was ordained by the asset
Allegheny liable on the collective purchase agreement. At the time the
bargaining agreements, but it does not bankruptcy court was considering the
provide authority for holding Tenet liable motion to approve the asset purchase
for the parts of the collective bargaining agreement, District 1199C neither objected
agreements that it declined to assume.8 to the pr opose d agreeme nt n or
affirmatively endorsed it. Deciding
District 1199C argues that unless
whether District 1199C became bound by
the terms of the asset purchase agreement
8 under such circumstances would require us
American Flint Glass also held
to consider difficult questions of
that when a debtor-in-possession makes a
bankruptcy and labor law. However this
partial assignment of a collective
inquiry has been rendered unnecessary
bargaining agreement in connection with
because in the briefs before us, District
a sale of substantially all its assets, this
1199C has conceded that the asset
amounts to an attempt to reject the
purchase agreement binds it. The
collective bargaining agreement, and
bankruptcy court held, "[T]he Sales
compliance with 11 U.S.C. § 1113 is
Orders, which approved the [asset
required. Under § 1113, before a debtor-
purchase agreement] . . . are final orders,
in-possession can reject a labor
which fact, when coupled with the notice
agreement, there must be negotiations
to the Union as just described, means that,
and a hearing. §§ 1113(b), (c), and (d).
by virtue of collateral estoppel . . . the
In American Flint Glass there was no
Union can no longer press, and the Court
attempt to comply with § 1113. The
is not now free to entertain, collateral
remedy was that the debtor remained
attacks upon said orders . . . ." 265 B.R. at
liable under the collective bargaining
112. District 1199C does not contest this
agreement, not that the assignee became
holding that it is bound by the terms of the
liable. 197 F.3d at 82.
9
asset purchase agreement, as enshrined in A.
the sale orders:
The asset purchase agreement
[T]he Union is not objecting excludes from Tenet's obligations any
to the approval of the [asset liability for "liabilities or obligations
purchase agreement] or arising from any Assumed Contract before
seeking to make a collateral the Closing Date." Conversely, Tenet
attack upon it. Rather, the assumed Allegheny's obligations "arising
Union is arguing that the on or after the Closing Date with respect to
[asset purchase agreement] any period commencing on the Closing
did not, and should not be Date under the Assumed Contracts." The
construed as if it did, collective bargaining agreements provide
establish an incomplete for the accrual of leave upon completion
assumption of the collective of specified periods of employment; the
bargaining agreements. leave accumulates and is then available for
employees to use in case of illness or
injury. Most of the collective bargaining
Thus, District 1199C does not dispute that agreements provide that the employees
it is bound by the asset purchase who retire will be paid for some
agreement; instead, it only argues about accumulated sick leave.
how to interpret the asset purchase
District 1199C contends that the
agreement. We will therefore assume that
asset purchase agreement's exclusion of
the asset purchase agreement is binding on
"liabilities or obligations arising from any
both Tenet and District 1199C.
Assumed Contract before the Closing
III. Date" does not exclude accrued sick leave
claims because the employees did not have
We now turn to the proper
a claim for the accrued sick leave until
interpretation of the asset purchase
they became sick or retired and tried to use
agreement. Tenet says the asset purchase
the leave. Our review of the collective
agreement excludes liability for the
bargaining agreements shows that once the
accrued sick leave and allows Tenet to set
employees had accumulated sick leave,
the initial terms of employment and to
they had a right to the leave, albeit a right
bargain with District 1199C for a new
contingent on future illness, injury or
collective bargaining agreement. District
retirement. A contingent obligation is,
1199C says the asset purchase agreement
nonetheless, an obligation. See Avellino
does not exclude liability for accrued sick
& Bienes v. M. Frenville Co. (In re M.
leave and requires Tenet to abide by the
Frenville Co.), 744 F.2d 332, 336 & n.7
collective bargaining agreements with
(3d Cir. 1984). The accrued sick leave
regard to prospective sick leave
obligation was an obligation arising before
obligations.
the closing date.
10
District 1199C also argues that Tenet argues that this obvious
Allegheny was not in default on the conclusion is rendered problematic by
accrued sick leave and was not liable to language in section 5.03 of the asset
pay such amounts as "cure" under 11 purchase agreement, in which Tenet
U.S.C. § 365(b). This may be true, but we agreed that it would bargain with unions
are determining Tenet and Allegheny's representing employees of Allegheny.
contractual division of liabilities in the Section 5.03 provided:
asset purchase agreement, not ascertaining
Subject to the foregoing and
what their statutory liabilities would be in
subject to the right of
the absence of such a contract. We
[Tenet] to set the initial
therefore interpret the asset purchase
terms and conditions of
agreement to exclude from Tenet's
e mploym e n t of u nio n
liabilities the obligation to pay for sick
employees, Bu yer will
leave that accrued before the closing date.
recognize all existing unions
B. at the Hospitals and will
bargain in good faith the
Tenet claims that the asset purchase
subse que nt terms a nd
agreement does not purport to bind Tenet
conditions of employment
to the terms of the District 1199C
for emp loyees in th e
collective bargaining agreements, but
bargaining units represented
leaves Tenet free to set initial terms of
by those unions, to the
employment and to bargain for new
extent required by law.
collective bargaining agreements. In the
Employees employed under
definition of "assumed liabilities," Tenet
written Contracts will not be
agreed to be responsible for "all
o f f e r e d e m p lo ym e n t
obligations of Sellers arising on or after
pursuant to this Section, but
the Closing Date with respect to any
e m p l o ym e n t o f s u c h
period commencing on the Closing Date
e m ployees shall b e
under the Assumed Contracts." The
governed by the terms of the
District 1199C collective bargaining
Assumed Contracts, if any,
agreements were included in the list of
relating to such employees.
assumed contracts. See note 5, supra.
Inclusion of the District 1199C collective Thus, Tenet agreed to bargain with union
bargaining agreements as "assumed employees generally, but employees
contracts" would seem to be conclusive covered by a written contract were taken
evidence that Tenet indeed assumed them out of the class of employees with whom
(with respect to obligations that accrued Tenet agreed to bargain. This exemption
after the closing date, that is), not that it makes sense, since employees who already
reserved the right to set them aside and had a contract would presumably have
bargain for new terms. nothing left to bargain over. This
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exemption would seem to apply to the would not necessarily have had a "written
District 1199C employees, who were Contract" with Tenet. Those unions would
covered by an "Assumed Contract," and still have to bargain with Tenet. The
who therefore had no need to bargain for a District 1199C collective bargaining
new contract. agreements, however, were expressly
assumed by Tenet. They were "written
However, Tenet argues that the
Contracts" to which Tenet became a party.
exemption for "written Contracts" should
Thus, it still makes sense for section 5.03
not apply to District 1199C's collective
to exempt District 1199C from the need to
bargaining agreements. Tenet contends
bargain even if all the unions did have
that "all employees in bargaining units
collective bargaining agreements with
represented by unions at [Allegheny] were
Allegheny.
covered by written collective bargaining
agreements." Tenet argues that if "written In sum, we reject Tenet's argument
collective bargaining agreements" were that the asset purchase agreement did not
synonymous with "written Contracts" bind it to performance of District 1199C's
under section 5.03, then there would only coll e c tive b a r g a i n in g a g r e e m e n ts
be one class of employees, those covered prospectively, beginning on the closing
by written contracts. It contends that date.
under such a reading, the part of section
IV.
5.03 agreeing to bargain would not apply
to anybody, which is an absurd In accordance with the foregoing
interpretation of the asset purchase opinion, we will affirm the judgment of
agreement. the district court entering summary
judgment for Tenet on its claim to vacate
Tenet's assertion that all union
the arbitrator's award of accrued sick leave
employees were covered by written
benefits and entering judgment against
collective bargaining agreements is
District 1199C on its suit to enforce that
unsupported by citation to the record. But
part of the award. We will reverse the
even if all unions had contracts with
dismissal of District 1199C's claim to
Allegheny, Tenet does not allege that it
enforce the arbitration award with regard
assumed all those collective bargaining
to the prospective sick leave obligation
agreements. Since a successor employer is
and the dismissal of Tenet's suit to vacate
n o t a u t omatically bound by i ts
that part of the arbitration award. We will
pred ec esso r's collective bargaining
remand with instructions to the bankruptcy
agreements, see NLRB v. Burns Int'l Sec.
court to enter judgment in favor of District
Servs., Inc., 406 U.S. 272, 281-91 (1972);
1199C on its claim to enforce the award of
Ameristeel Corp. v. Int'l Bhd. of
prospective benefits and against Tenet on
Teamsters, 267 F.3d 264, 273-77 (3d Cir.
its claim to vacate the award of
2001), unions that had a collective
prospective benefits.
bargaining agreement with Allegheny
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