Federal Circuits, 5th Cir. (May 25, 1990)
Docket number: 89-2347
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U.S. Supreme Court - Trans World Airlines, Inc. v. Flight Attendants, 489 U.S. 426 (1989)
U.S. Supreme Court - Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847 (1988)
U.S. Supreme Court - NLRB v. J. H. Rutter-Rex Mfg. Co., 396 U.S. 258 (1969)
U.S. Supreme Court - John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964)
U.S. Supreme Court - J. I. Case Co. v. NLRB, 321 U.S. 332 (1944)
U.S. Court of Appeals for the 11th Cir. - United States of America, Plaintiff-Appellant, v. Angel Cerceda, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Courtney Ricardo Alford, A.K.A. 'Rickey' Edward Bernard Williams, A.K.A. 'Bernard' Nathaniel Dean, Defendants-Appellees. United States of America, Plaintiff-Appellant, v. Hector Fernandez-Dominguez, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Jesus E. Cardona, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Carlos Hernandez, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Jose Herminio Benitez, A.K.A. 'William Muniz,' A.K.A. 'Emilio,' Heriberto Alvarez, Elpidio, Pedro Iglesias-Cruz, A.K.A. 'Budweiser,' Defendants-Appellees. United States of America, Plaintiff-Appellant, v. Minnie Ruth Williams, Ralph W. Corker, Defendants-Appellees. United States of America, Plaintiff-Appellant, v. Hiram Martinez, Jr., Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Diogenes Palacios, Defendant-..., 172 F.3d 806 (11th Cir. 1999) Plaintiff-Appellant, v. Angel Cerceda, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Courtney Ricardo Alford, A.K.A. 'Rickey' Edward Bernard Williams, A.K.A. 'Bernard' Nathaniel Dean, Defendants-Appellees. United States of America, Plaintiff-Appellant, v. Hector Fernandez-Dominguez, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Jesus E. Cardona, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Carlos Hernandez, Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Jose Herminio Benitez, A.K.A. 'William Muniz,' A.K.A. 'Emilio,' Heriberto Alvarez, Elpidio, Pedro Iglesias-Cruz, A.K.A. 'Budweiser,' Defendants-Appellees. United States of America, Plaintiff-Appellant, v. Minnie Ruth Williams, Ralph W. Corker, Defendants-Appellees. United States of America, Plaintiff-Appellant, v. Hiram Martinez, Jr., Defendant-Appellee. United States of America, Plaintiff-Appellant, v. Diogenes Palacios, Defendant-...
Randolph J. Haines, Marty Harper, Allen Clarke, Jessica Franken, Lewis & Roca, Phoenix, Ariz., for appellants.
Reginald H. Wood, William Schweinle, Jr., Stubbeman, McRae, Sealy, Laughlin & Browder, Houston, Tex., for O'Neil Group.James R. O'Donnell, Leon V. Komkov, Butler & Binion, Houston, Tex., for Stephens Group.Barbara Gardner, Mandell & Wright, Houston, Tex., Bruce Simon, Babette Ceccotti, Cohen, Weiss, & Simon, New York City, Kathleen M. Schaden, Schaden, Heldman & Lampert, Denver, Colo., Christopher Cameron, Taylor, Roth, Bush & Geffner, Burbank, Cal., Daniel P. Casey, Continental Airlines, Inc., Houston, Tex., for appellees.John J. Gallagher, Charles L. Warren, Jon A. Geier, Aiken, Gump, Strauss, Hauer & Feld, Washington, D.C., Lenard Parkins, Sheinfeld, Maley & Kay, Houston, Tex., for Continental Airlines, Inc.Appeals from the United States District Court for the Southern District of Texas.Before GEE, REAVLEY, and GARWOOD, Circuit Judges.GEE, Circuit Judge:Today's case presents the question whether employees whose collective bargaining agreements are rejected in a Chapter 11 bankruptcy are entitled to future wages and benefits as contract rejection damages under 11 U.S.C. Sec . 502(g). Recognizing that the agreements here at issue do not guarantee employment, we hold that the difference between the wages and benefits set out in the agreements and the wages and benefits actually paid under the emergency work rules are recoverable as unsecured claims to the extent that work would have been available had the agreements not been rejected. The bankruptcy court dismissed all employee claims without considering how long Continental could have remained in business absent rejection of the agreements. For this and other reasons to be stated, we reverse and remand the cause to the bankruptcy court to allow it to make a specific finding of when Continental would have had to cease operations had it not cancelled its labor contracts, and to calculate appropriate damages to that date.I. FactsIn 1983, Continental halted domestic flight operations and filed a bankruptcy petition under Chapter 11. Continental then filed a motion in bankruptcy court to reject its labor contracts with the Air Line Pilots Association, International ("ALPA") and the Union of Flight Attendants ("UFA") pursuant to 11 U.S.C. Section 365. That same day, Continental recommenced its domestic flights under what it termed "Emergency Work Rules," rules that changed dramatically the employees' terms and conditions of employment. As a result, ALPA and UFA called strikes.The bankruptcy court approved Continental's rejection of its labor contracts with ALPA and UFA and ordered the rejection effective the date of the bankruptcy filing. ALPA and UFA then filed proofs of claim, in amounts of $408 million and $409 million respectively, for contract rejection damages under 11 U.S.C. Sections 365(g) and 502(g). These claimed damages consisted of the full wages and benefits set forth in the rejected labor contracts, for time periods beginning from the date of the bankruptcy filing up to and somewhat beyond the contracts' amendable dates.In October of 1985, Bankruptcy Judge T. Glover Roberts, acting by agreement between Continental and ALPA, signed an "Order and Award" that was intended to settle all issues between Continental and ALPA, including the contract rejection damage claims. Because of objections raised by certain individual pilots, the court allowed pilots who did not participate in the settlement to file proofs of claim and pursue their derivative share of the claims originally filed by ALPA. A like settlement agreement was reached between Continental and UFA, with a procedure created which was similar to that for the pilots, allowing non-settling flight attendants to pursue their claims independently of UFA. In all, approximately 460 pilots and 14 flight attendants have filed proofs of claim seeking contract rejection damages under the procedures established by the bankruptcy court.In a motion for partial summary judgment, Continental next asked the bankruptcy court to disallow contract rejection damages claims for the time that the employees were on strike. When that motion was granted on September 10, 1985 ("September 10 Order"), Continental filed an additional motion for summary judgment seeking to disallow the remaining claims for contract rejection damages. This was granted as to the claims of the flight attendants on May 8, 1986 ("May 8 Order"), and as to the pilots' claims on June 26 of the same year ("June 26 Order"). The court reasoned that as the collective bargaining agreements did not guarantee employment, the claimants were not entitled to future wages and benefits as contract rejection damages. The orders were appealed to federal district court, which affirmed them.II. DiscussionA. Failure to Stand RecusedThe appellants contend that Judge Roberts, who shortly after making his May 8 and June 26 orders received and accepted an offer for partnership in the law firm representing Continental, should have stood recused from the case and that his failure to do so requires the reversal of those orders.Several months before making his rulings in this case, Judge Roberts had announced his intentions to enter private practice and to stop handling the Continental bankruptcy cases to avoid conflicts of interest in the event he considered employment with any of the firms appearing before him. Shortly thereafter, Continental's local bankruptcy counsel, Messrs. Sheinfeld, Maley & Kay ("Sheinfeld"), discussed hiring Judge Roberts at a partnership meeting. Before his confirmation of Continental's plan of reorganization, at least two Sheinfeld lawyers had asked Judge Roberts about his future employment plans. At about the same time, Judge Roberts was quoted as praising Continental's President Frank Lorenzo in articles which appeared in Business Week and the Wall Street Journal.1Judge Roberts granted summary judgment disallowing all contract rejection damage claims in orders made on May 8 and June 26, 1986, and confirmed Continental's plan of reorganization on June 30. On July 1, Judge Roberts granted various fee requests made by counsel, including a $700,000 fee to Sheinfeld. On July 2, Sheinfeld contacted Judge Roberts about joining their partnership. On July 29, Judge Roberts agreed to join the firm and did so on September 5 of the same year.28 U.S.C. Section 455(a) requires a judge to stand recused "in any proceeding in which his impartiality might reasonably be questioned." Because the goal of Section 455(a) "is to exact the appearance of impartiality," recusal may be mandated even though no actual partiality exists. Hall v. Small Business Admin., 695 F.2d 175, 178 (5th Cir.1983). The standard for recusal is an objective one, that if a "reasonable man, were he to know all the circumstances, would harbor doubts about the judge's impartiality." Health Services Acquisition Corp. v. Liljeberg, 796 F.2d 796, 800 (5th Cir.1986), aff'd, 486 U.S. 847, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988).In the present case there is no allegation that, prior to his rulings in this case, Judge Roberts had sought employment with the Sheinfeld firm, or that he knew that the firm was actively considering him. The close coupling of Judge Roberts's rulings with the employment offer and his acceptance of it, however, does create the appearance that he may have been pursuing employment with Sheinfeld while he was presiding over the case. As the Seventh Circuit noted in Pepsico, Inc. v. McMillen, 764 F.2d 458, 461 (7th Cir.1985):The appearance of equal justice requires that the judge not be exploring the prospects of employment with one lawyer or all lawyers appearing in a case before him. The dignity and independence of the judiciary are diminished when the judge comes before the lawyers in the case in the role of a suppliant for employment. The public cannot be confident that a case tried under such conditions will be decided in accordance with the highest traditions of the judiciary.Id. at 461.Continental contends that a judge cannot be expected to stand recused in a case when he is unaware that counsel for one of the parties appearing before him is considering him for employment. The Supreme Court, in Liljeberg v. Health Services Corp., responded to a similar contention:Contrary to petitioner's contentions, this reading of the statute does not call upon judges to perform the impossible--to disqualify themselves based on facts they do not know. If, as petitioner argues, Sec. 455(a) should only be applied prospectively, then requiring disqualification based on facts the judge does not know would of course be absurd; a judge could never be expected to disqualify himself based on some fact he does not know, even though the fact is one that perhaps he should know or one that people might reasonably suspect that he does know. But to the extent the provision can also, in proper cases be applied retroactively, the judge is not called upon to perform an impossible feat. Rather, he is called upon to rectify an oversight and to take the steps necessary to maintain public confidence in the impartiality of the judiciary. If he concludes that "his impartiality might reasonably be questioned," then he should also find that the statute has been violated. This is certainly not an impossible task.486 U.S. 847, 861, 108 S.Ct. 2194, 2202-03, 100 L.Ed.2d 855, 873 (1988). Similarly, to hold that Sec. 455(a) was violated in the present case does not mean that Judge Roberts was required to stand recused before discovering that he was being considered for employment. Rather, when an offer of employment was received the day after his approval of $700,000 in legal fees to the firm making the offer, Judge Roberts was "required to take the steps necessary to maintain public confidence in the judiciary." In the circumstances of this case Judge Roberts should either have rejected the offer outright, or, if he seriously desired to consider accepting the offer, stood recused and vacated the rulings made shortly before the offer was made. Although we are confident that Judge Roberts committed no substantive impropriety in his handling of the motions in this case, we nevertheless conclude that recusal was mandated by the appearances of the situation which we have described.Although a violation of Sec. 455(a) has occurred in the present case, reversal is not automatic. As with other areas of the law, the "harmless error" rule applies to a breach of a judge's duty to stand recused under Sec. 455(a). Liljeberg, 486 U.S. at 861-62, 108 S.Ct. at 2202-03, 100 L.Ed.2d at 873-74. In determining whether reversal is mandated by a failure to stand recused, a number of factors warrant our careful consideration: The risk of injustice to the parties in this particular case; the risk that the denial of relief will produce injustice in other cases; the risk of undermining the public's confidence in the judicial process. Id. at 864, 108 S.Ct. at 2204, 100 L.Ed.2d at 875.The risk of injustice to the parties in allowing a summary judgment ruling to stand is usually slight. Such rulings are subject to de novo review, with the reviewing court utilizing criteria identical to that used by the court below. In cases where we would otherwise affirm such a ruling, little would be gained by vacating and remanding with instructions that it be essentially reinstated.2Next, we consider whether a failure to vacate the orders below would be likely to produce injustice in other cases. We seriously doubt that a failure to vacate the decisions of the bankruptcy court could be read in future cases as a nod of approval for Judge Roberts's handling of the situation; rather, our ruling here should serve as a caution to other judges who are contemplating private employment following retirement. Moreover, were we to vacate the orders below for the Sec. 455 violation alone, injustice to other Continental creditors might result from the delay in finishing Continental's plan of reorganization.Finally, we consider whether the public's confidence in the judicial process will be undermined if we hold Judge Roberts's violation of Section 455(a) to be harmless error. We are aware of the high profile the Continental bankruptcy has had before the public and that the circumstances surrounding Judge Roberts's retirement from the bench have not gone unnoticed by the press.3 That we have ruled Judge Roberts's actions to be violative of Section 455(a) should serve to restore some of any public confidence lost as a result of the violation; whether vacating the orders granting summary judgment for the sake of appearances alone would help or hinder the restorative process, however, is not clear. As the Eleventh Circuit has noted, in similar circumstances:In fact, if we reverse and vacate a decision that we have already determined to be proper, the public will lose faith in our system of justice because the case will be overturned without regard to the merits of the employees' claims. Judicial decisions based on such technical arguments not relevant to the merits contribute to the public's distrust in our system of justice.Parker v. Connors Steel Co., 855 F.2d 1510, 1527 (11th Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 2066, 104 L.Ed.2d 631 (1989). We accordingly hold that the Section 455(a) violation in the present case constituted harmless error.B. Contract Rejection DamagesBankruptcy Code Section 365 permits an employer to reject a collective bargaining agreement and set new terms and conditions of employment. 11 U.S.C. Sec . 365; NLRB v. Bildisco & Bildisco, 465 U.S. 513, 531, 104 S.Ct. 1188, 1198-99, 79 L.Ed.2d 482 (1984). When so rejected, the agreement is deemed breached the day before the Chapter 11 petition was filed. 11 U.S.C. Sec . 365(g). Section 502(g) provides a remedy for this breach in lieu of the labor law remedies which would have been available outside bankruptcy. The appellants contend that, in addition to accrued wages and benefits, future wages and benefits are recoverable as of right as Section 502 contract rejection damages.In support of their contention that the district court erred in rejecting their damage claims, the appellants rely principally upon NLRB v. Bildisco & Bildisco,Try vLex for FREE for 3 days
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