In re Roth American, Inc.

975 F.2d 949 (1992)

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In re Roth American, Inc.

United States Court of Appeals for the Third Circuit
975 F.2d 949 (1992)

Facts

Roth American, Inc. (Roth) (defendant), a toy manufacturer, entered a collective-bargaining agreement (CBA) with 200 employees represented by Teamsters Local 401 (the union) (plaintiff). The CBA was set to end on June 30, 1988. On February 2, 1988, Roth filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Meanwhile, Roth renegotiated the CBA and arrived at new terms for which the bankruptcy court’s approval was neither sought nor obtained. The new agreement provided for a wage reduction and required Roth to continue operations for at least two years. However, Roth only briefly paid the agreed-on lower wage, and the company ceased operations in June. The union filed a proof of claim in the bankruptcy court, seeking lost wages and benefits for breach of the February 1988 agreement. The court granted damages to the extent of the difference between the two-week wage reduction and the original wage, but otherwise it rejected the union’s claim. The court held that the February 1988 agreement was outside the ordinary course of business and thus not a valid postpetition CBA. The union appealed to federal district court, which affirmed the bankruptcy court. The union again appealed. The United States Court of Appeals for the Third Circuit granted certiorari.

Rule of Law

Issue

Holding and Reasoning (Sloviter, C.J.)

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