Marianne Goldstein Robbins Hearing Date and Time July 27, 2009, Nathan D. Eisenberg 11:00 a.m. (prevailing Eastern Time) Previant, Goldberg, Uelmen, Objection Deadline July 15, 2009, 5:00 p.m. Gratz, Miller, & Brueggeman, s.c. 1555 N. RiverCenter Drive - Suite 202 Milwaukee, WI 53212 Telephone: (414) 271-4500 Facsimile: (414) 271-6308 Attorneys for International Association of Machinists and Aerospace Workers, AFL-CIO District Lodge No. 77 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ____________________________________x In re: Star Tribune Holdings Corp., et al Case No. 09-10244 (rdd) Debtor. Chapter 11 Jointly Administered ____________________________________x DISTRICT LODGE 77 OF THE INTERNATIONAL ASSOCIATION OF MACHINISTS’ BRIEF IN OPPOSITION TO MOTION TO REJECT ITS COLLECTIVE BARGAINING

AGREEMENT PURSUANT TO 11 U.S.C. §1113.

i

TABLE OF CONTENTS

INTRODUCTION .............................................................................................................. 1 BACKGROUND ............................................................................................................... 3 ARGUMENT .................................................................................................................... 8 I . Star Tribune Has Failed To Meet The Substantive Requirements Of §1113,

Where The Changes Proposed By Star Tribune Are Not “Necessary.” ............... 8

A. Star Tribune Has Not Demonstrated That Withdrawal From The IAM Pension Is Necessary To Its Reorganization. .......................................... 10

B. Debtors Questions Concerning Funding Status of IAM Plan Is

Inadequate Basis For Rejection. .............................................................. 14 C. Debtor’s Desire To Avoid Future Liability Not A Basis For Rejection

Of Agreement. ......................................................................................... 15

1. Debtor Would Not Be Automatically Obligated To Pay Increased Contributions If IAM Plan Is Maintained. ....................... 17

2. Company Will Not Incur Withdrawal Liability From The IAM Plan, Unless It Withdraws From Plan. ........................................... 17

II. The Debtor Has Failed To Establish That Withdrawal From The IAM Pension Plan Is Fair And Equitable. ................................................................... 19

III. The Debtor Has Failed To Comply With Its Duty To Provide Information Relevant To The Rejection Motion. .................................................................... 21

A. The Debtor Failed To Provide The Union With “Relevant Information As Is Necessary To Evaluate The Proposal” Prior To Filing The Instant Motion. ......................................................................................... 21

B. Debtor’s Proposal Is Not Based On The Most Complete And Reliable Information Available At The Time Of Its §1113 Proposal. ...................... 25

IV. Debtor Has Failed To Bargain In Good Faith Pursuant To §1113(B)(2), Where Its Proposal Is Based On Speculative Costs Which Would Occur Past Reorganization, At The Reorganized Company’s Discretion. ..................... 26

V. Debtor Has Not Met Standards For Rejection Pursuant To §1113(C). ............... 29

A. Debtor’s Proposal Does Not Meet Standards Of §1113(B)(1). ................ 29

ii

B. The Union Rejected The Debtor’s Proposals With Good Cause, Where Debtor Would Not Calculate Impact Of Pension Contributions On Reorganization Nor Consider Other Alternatives To Withdrawal. ...... 29

C. The Balance Of Equities Does Not Warrant Rejection Of The Agreement. .............................................................................................. 30

CONCLUSION .............................................................................................................. 31

iii

TABLE OF AUTHORITIES

Cases

Association of Flight Attendants v. Mesaba Aviation, Inc., 350 B.R. 435 (D. Minn. 2006). .................................................................................................. 12

In re Century Brass Products, Inc., 795 F.2d 265 (2d Cir. 1986) ............................ passim

In re Delta Air Lines, 342 BR 685 (Bankr. S.D.NY 2006). ........................................... 28

In re Delta Air Lines, Inc., 359 BR 468 (Bankr. S.D.N.Y. 2006). .................................. 13

Fiber Glass Industries, Inc., 49 B.R. 202 (Bankr. N.D.N.Y. 1985) ................................ 12

In re Maxwell Newspapers, Inc., 981 F.2d 85 (2d Cir. 1992). ................................. passim

NLRB v Bildisco & Bildisco, 465 U.S. 513 (1984). ........................................................... 2

NLRB v. Manley Truck Line, 779 F.2d 1327 (7th Cir. 1985). .......................................... 9

In re Royal Composing Room, Inc., 848 F.2d 345 (2nd Cir. 1988). ................................ 30

In re Salt Creek Freightways, 47 B.R. 835 (Bankr. D. Wyo. 1985). ............................... 21

Truck Drivers Local 807, etc. v. Carey Transp., Inc., 816 F.2d 82 (2d Cir. 1987) ... passim

U.S. Truck Holdings Inc., 2000 Bankr. LEXIS 1376, 165 LRRM 2521 (Bankr. E.D.MI 2000) .......................................................................................... 27

In re Valley Kitchens, 52 B.R. 493 (Bankr. S.D. Ohio 1985). ........................................ 16

In re William P. Brogna, 64 B.R. 390 (Bankr. E.D. Pa. 1986) ........................................ 16

Statutory Authorities

11 U.S.C. §1113(b) ............................................................................................... passim

11 U.S.C. §1113(c) ............................................................................................... passim

26 U.S.C. §432 ................................................................................................. 14,17

29 U.S.C. §1383 ...................................................................................................... 18

1

International Association of Machinists and Aerospace Workers, AFL-CIO District

Lodge No. 77 hereby objects to Star Tribune Company’s Motion to Reject their

Collective Bargaining Agreements pursuant to 11 U.S.C. §1113 for the reasons stated

below.

INTRODUCTION

This §1113 Motion was filed for the narrow purpose of rejecting Star Tribune

Company’s (hereafter “Star Tribune” or Debtor) pension obligations to the International

Association of Machinists and Aerospace Workers, AFL-CIO District Lodge No. 77

(hereafter “Machinists”) bargaining unit. Specifically, Star Tribune seeks to reject the

portion of the collective bargaining agreement requiring contributions to the IAM

National Pension Fund, Pension Plan (“IAM Plan”). Debtor paints all pension

obligations, to all of its unions, with the same broad brush strokes. Star Tribune’s

motion is based not on specific proposals for modifications necessary to permit the

reorganization of the debtor, but on a generalized fear of future pension obligations to

the IAM Plan. Debtor’s goal of eliminating all pension obligations, in the case of the IAM

Plan, fails to meet the requirements of §1113. Debtor’s proposal does not meet the goal

of helping the Debtor emerge from bankruptcy. Rather, its proposal is directed at

avoiding speculative future pension obligations which would occur, if at all, long after

Debtor has completed its reorganization.

Section 1113 was passed to stop the gross abuse of bankruptcy power by

employers that used the Code, in the words of the Second Circuit, as “medicine to rid

themselves of corporate indigestion,” In re Century Brass Products, Inc., 795 F.2d 265,

272 (2d Cir. 1986), or “as a judicial hammer to break the union.” In re Maxwell

2

Newspapers, Inc., 981 F.2d 85, 89 (2d Cir. 1992). Prior to the enactment of §1113,

rejection of collective bargaining agreements was governed by the “business judgment”

standard, a standard which nearly always resulted in a pro forma hearing followed by a

swift abrogation of the labor agreement. NLRB v Bildisco & Bildisco, 465 U.S. 513

(1984). Second Circuit precedent and the legislative history of §1113 make clear that a

salient purpose of the statute was to require a more exacting standard and to prevent

rejection of a collective bargaining agreement absent complete adherence to the new,

tougher standard.

Debtor’s §1113 motion discusses two types of savings which it has sought

through negotiations with the Machinists. Machinists have agreed to those concessions

that seek readily identifiable, or “above the line,” savings by agreeing to concessions

totaling nearly $475,000 annually. However, Machinists have been unwilling to agree to

the a “not readily ascertainable”, “below the line” concession, specifically the elimination

of pension contributions to the IAM Plan. Machinists have not refused to agree with

Debtor’s proposal in order to be the “last man standing.” Rather, Machinists have

refused to abandon the IAM Plan since Debtor has failed to establish this concession is

needed for reorganization.

Debtor’s request to reject the pension obligations is based on a generalized

objection to pension contributions. However, the Debtor’s failure to monetize such

obligations, demonstrates that Debtor is not seeking necessary monetary concessions

as part of the reorganization but rather is impermissibly utilizing the §1113 process, to

eliminate portions of the Machinists’ collective bargaining agreement which it does not

like. Indeed, Debtor’s motion makes it clear that it is more concerned about potential,

3

future withdrawal liability from the IAM Plan than with the actual costs of contributing to

the IAM Plan. Similarly, Debtor misrepresents the potential for unilateral contribution

rate increases to the IAM Plan under the Pension Protection Act of 2006. Contrary to

Debtor’s claim, neither withdrawal liability nor increased pension contributions are

obligatory. In fact, the IAM National Pension Fund is in far better shape than many

other multi-employer funds. In light of Debtor’s improper goals and vague concerns

over future liability, the Machinists had good cause to reject the proposal.

For the foregoing reasons, Debtor’s §1113 motion should be denied.

BACKGROUND

The Machinists’ bargaining unit currently consists of 16 full time employees.

(Yetman Decl. ¶2). Included within the bargaining unit are journeyman machinists and

apprentice machinists performing maintenance, repair and similar work on mechanical

equipment. (Id.) The current collective bargaining agreement (CBA) is effective July 1,

2003 to June 30, 2011. (Id.)

Donald Yetman was the lead negotiator for the Machinists beginning in late 2008.

(Yetman Decl. ¶4). During those negotiations, which involved Restructuring Associates

Inc. (RAI), there was a discussion of reducing the number of employees in the

bargaining unit, reducing employees’ wages, and changes in health insurance and

pension. (Id.) From the time Yetman became involved, nearly all of the discussion was

about reducing the number of bargaining unit employees and reducing wages. (Id.)

The discussion at that point of time which involved the I.A.M. National Pension Fund,

National Pension Plan (hereafter “IAM Plan”), related more to a reduction in the

contribution rate to the IAM Plan than to a withdrawal from the Plan. (Id.)

4

On March 24, 2009, the Company provided a proposal containing modifications

to the existing collective bargaining agreement. (Yetman Decl. ¶5; Lebedoff Decl. Ex.

D). The proposal contained a number of financial concessions, including reducing the

number of full-time equivalent positions (FTEs) in the bargaining unit, wage reductions,

forgoing wage rate increases, and changes to shift premiums or differentials. (Id.) The

money saved for each of these concessions was specifically calculated and included

within the proposal. (Id.) The total modifications sought would save approximately

$475,000 annually. (Id.)

The March 24th proposal also included concessions, referred to as “below the

line” concessions, where the company had not calculated the cost savings of the

proposed modifications. (Yetman Decl. ¶6).This included freezing the two pension

plans, a company sponsored “Plan A” and the IAM Plan, and implementation of a paid

time off (PTO) plan. (Id.) Generally, the PTO plan was based on weeks of pay, which

the Machinists could calculate. (Id.) However, the fact that the Company was seeking

to reduce pension benefits without identifying the costs it was trying to save presented a

problem to the Union. (Id.) The Company was seeking contract modifications without

connecting them to cost savings needed as part of the reorganization. (Id.) As a result,

the Union could not determine how the proposed concessions were needed for the

company’s reorganization or alternatives that might be available to meet the same

needs. (Id.)

On March 25, 2009, Yetman attended a negotiation session with the Company.

(Yetman Decl. ¶7). During that meeting, the Company informed the Machinists of the

status of its negotiations with other bargaining units. (Id.) The Company indicated that

it would focus on seeking concessions from its four largest unions -- the Mailers, the

5

Pressmen, the Fleet, and the Guild. (Id.) The Machinists, as one of the smaller

bargaining units, were not their primary focus. (Id.) As of that date, the Company was

still in talks with the Fleet and the Guild, although it had concluded negotiations with the

Mailers and Pressmen. (Id.)

Negotiations continued on March 30, 2009. (Yetman Decl. ¶8). During those

negotiations, the Machinists were willing to accept most, if not all, of the Company’s

proposed modifications which provided identifiable cost savings. (Id.) However, there

were two major issues which remained – the pension plans and the health plans. The

Machinists discussed changes in health insurance; however the union was not able to

propose changes which provided as much cost savings as those changes proposed by

the Company. (Id.)

On March 31, 2009, the Machinists submitted a counterproposal to the Company

agreeing to all of the “above the line” concessions, including the company proposed

health insurance. (Yetman Decl. ¶9; Lebedoff Decl. Ex. F). The Machinists also agreed

to freeze Plan A and the company’s PTO policy. (Id.) The remaining modification on

the table was the withdrawal from the IAM Plan. (Id.) The Machinists explored whether

or not modification of the pension contributions would meet the company’s concerns.

(Id.)

There were no discussions about contract modifications between the end of

March and the end of June, 2009. (Yetman Decl. ¶10). During this time, the Company

was focused on negotiations with the larger unions. (Id.) It was only after negotiations

with the four largest unions concluded, that the Company again focused on obtaining

contract modifications from the smaller bargaining units, including the Machinists. (Id.;

Lebedoff Decl. ¶26) The next communication Yetman had from the Company was at

6

the end of the week of June 15 when the Company told him that he would be receiving

an §1113 proposal. (Yetman Decl. ¶10) On June 19, 2009, the company sent him its

§1113 proposal. (Id.) However, Yetman did not receive the proposal until Monday,

June 22nd. (Id.)

On June 23rd, the Machinists had a meeting with the company. (Yetman Decl.

¶11). The Machinists asked the effect of freezing the Plan A pension on the total

retirement benefit which would be received by bargaining unit members. They also

discussed the company proposal to withdraw from the IAM Plan. (Id.) It was at that

meeting that the company raised the issue of a funding letter from the IAM Plan,

indicating it was in “endangered” status. (Id.)

During the June 23rd negotiations, the Company insisted that its concessionary

demands for the Machinists were identical to the concessions it had obtained from other

bargaining units. (Yetman Decl. ¶12). For example, the Company insisted that the

Machinists withdraw all outstanding grievances since all other bargaining units had

done so. (Id.) Yetman informed the Company that the Machinists had a grievance over

a discharge and were not able to withdraw that grievance. (Id.) The Company was

trying to demand modifications and concessions from the Machinists that were not

tailored to that bargaining unit, without justification other than its agreements with other

unions. (Id.) The Company ultimately acknowledged that withdrawal of the discharge

grievance would be inappropriate, and dropped that demand. (Id.)

At the end of the June 23rd bargaining session, the company indicated that if the

Machinists did not reach an agreement that they would file the §1113 motion by either

June 26th or June 29th. (Yetman Decl. ¶13). They indicated that agreement had been

7

reached with the larger bargaining units, and that the Machinists’ contract was one of

the few remaining issues before the Company’s successful reorganization. (Id.)

Among the Company’s proposals, the elimination of the IAM Plan was a very

serious concern to Yetman. (Yetman Decl. ¶18). Once bargaining unit members were

withdrawn from the IAM Plan, it would be impossible to get them back into the Plan.

(Id.) He offered to provide additional information about the IAM Plan’s funding status to

the negotiations scheduled for Friday June 26, 2009. (Id.)

On Friday June 26th, negotiations started at about 3:30 p.m. (Yetman Decl. ¶19).

As part of their discussion of the Company’s proposal to withdraw from the IAM Plan,

the Machinists discussed the funding situation for the company’s Plan A fund. (Id.)

Yetman was concerned that when the Company had pulled Teamster bargaining unit

employees out of the Central States Pension Fund, it had promised to make up for lost

benefits by placing retirement aged employees into Plan A to compensate for lost

benefits without adding funding to the plan. (Id.) Yetman asked Company

spokesperson Randy Lebedoff what impact the placement of these additional

participants in Plan A would have on the funding of Plan A. (Id.) Ms. Lebedoff said she

could not give him the figures, but Plan A was overfunded and it was not anymore. (Id.)

Knowing the effect of the added participants on IAM bargaining unit member’s Plan A

pension benefits was relevant to the Union’s consideration of Company’s proposal to

withdraw from the IAM Plan; if there could be a loss of benefits from Plan A there was

even more reason to continue to participate in the IAM Plan which had a proven track

record. (Id.) As detailed below, Yetman also requested information so that he could

formulate a response to the Debtor’s proposal.

8

During the June 26th negotiations, Yetman attempted to determine what the

financial impact of remaining in the IAM Plan would be on the Company. (Yetman Decl.

¶20). The Company’s representatives were not able to give him a monetary figure for

remaining in the IAM Plan, rather they stated they were concerned about future

withdrawal liability. (Id.)

The final negotiation session with the Company was on June 29, 2009. (Yetman

Decl. ¶21). The only remaining issue for negotiations was the withdrawal from the IAM

Plan. (Id.) The Union had agreed to all other Company proposals. The Company

indicated that its fear of unknown costs in the future was causing it to seek to withdraw

from the IAM Plan. (Id.)

On June 30, 2008, the Company filed its 1113 proposal to reject the Machinists

contract. At that time, it had not identified any needed cost saving from withdrawal from

the IAM Plan.

ARGUMENT

I . STAR TRIBUNE HAS FAILED TO MEET THE SUBSTANTIVE REQUIREMENTS OF §1113, WHERE THE CHANGES PROPOSED BY STAR TRIBUNE ARE NOT “NECESSARY.”

Section 1113 of Chapter 11 provides the criteria for objection of a collective

bargaining agreement. Section 1113(b)(1)(A) states that:

Subsequent to filing a petition and prior to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession or trustee (hereinafter in this section "trustee" shall include a debtor in possession), shall make a proposal to the authorized representative of the employees covered by such agreement, based on the most complete and reliable information available at the time of such proposal, which provides for those necessary modifications in the employees benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably.

9

As the Second Circuit has held, “the statute permits the bankruptcy court to

approve a rejection application only if the debtor, besides following the procedures set

forth by Congress, makes three substantive showings. The first is that its post-petition

proposal for modifications… [proposes] only ‘those necessary modifications in . . .

benefits and protections that are necessary to permit the reorganization of the debtor,’

and obliges the debtor to assure the court that ‘all creditors, the debtor and all affected

parties are treated fairly and equitably.’ Second, the debtor must show that the union

has rejected this proposal without good cause. . . .Third, the debtor must prove that ‘the

balance of the equities clearly favors rejection of [the bargaining] agreement.’”

Truck Drivers Local 807, etc. v. Carey Transp., Inc., 816 F.2d 82, 88 (2d Cir. 1987)

(emphasis added, citations omitted).

Section 1113 of the Code was passed to reverse the two holdings of NLRB v.

Bildisco & Bildisco, 465 U.S. 513 (1984), that a debtor can unilaterally abrogate the

terms of an existing collective bargaining agreement without court approval and that the

debtor need meet only a lenient test for rejection with court approval. See Truck Drivers

Local 807 v. Carey Transportation, 816 F.2d 82, 87 (2nd Cir. 1987). The new statute

contains “meticulous procedural safeguards” and “exhaustive procedural requirements

to ensure that the interests of the union are represented and protected.” NLRB v.

Manley Truck Line, 779 F.2d 1327, 1331 n.7 (7th Cir. 1985). As in In re Maxwell

Newspapers, 981 F.2d 85, 89 (2nd Cir. 1992), these safeguards and higher standards

are imposed “to prevent [the debtor] from using bankruptcy as a judicial hammer to

break the union.”

10

A. Star Tribune Has Not Demonstrated that Withdrawal from the IAM Pension is Necessary To its Reorganization.

Section 1113 limits the debtor to proposing only "those necessary modifications

in . . . benefits and protections that are necessary to permit the reorganization of the

debtor.” Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 88 (2d Cir. 1987).

The use of “necessary” twice in the applicable section is not a legislative gaffe, but was

done deliberately to emphasize the limited nature of the changes allowed. 130 Cong.

Rec. S8898 (daily ed. June 29, 1984)(Remarks of Sen. Packwood) (“The word

‘necessary’ inserted twice into this provision clearly emphasizes this required aspect of

the proposal”). In re Century Brass Products, Inc., 795 F.2d 265, 273 (2d Cir. 1986)

(citing remarks of Sen. Packwood).

Congress intended that the debtor prove the efficacy of the demanded changes

to the ultimate reorganization. “[T]he court must consider whether rejection would

increase the likelihood of successful reorganization. A final reorganization plan, in turn,

can be confirmed only if the court determines that neither liquidation nor a need for

further reorganization is likely to follow…. Thus, in virtually every case, it becomes

impossible to weigh necessity as to reorganization without looking into the debtor's

ultimate future and estimating what the debtor needs to attain financial health.”

Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 89 (2d Cir. 1987) (citing the

requirements of §1129). Carey explicitly rejects the business judgment standard, id. at

88, and the citation to §1129 underscores that the debtor must present evidence that its

plan is feasible and that the changes demanded relate to feasibility of the debtor’s

business plan.

11

In this case, Debtor’s argument for rejection of the Machinists’ collective

bargaining agreement is based solely on the Debtor’s desire to withdraw from all multi-

employer, defined-benefits pension plans “across the board.” (See Lebedoff Decl. ¶13).

The Union and Debtor have agreed on all other proposed concessions. Both the

Debtors approach and its argument for rejection assume that all plans are equally

expensive, and that each multi-employer plan is roughly equivalent. In treating all plans

the same, the Debtor does not provide any evidence that the plans present the same

liabilities or risks to the Debtor, nor that each pension presents the same drain on the

estate. As discussed below, Debtor has failed to provide any information which

specifically addresses how elimination of the IAM Plan will assist the reorganization.

Rather, Debtor assumes that all pension obligations are equal.

Debtor has repeatedly in the last year noted that all pension obligations are not

equal. In support of the instant §1113 motion, the Debtors cite documents prepared in

anticipation of rejection of other of its collective bargaining agreements with other

unions. Most notably, are the §1113 documents prepared for rejection for the Fleet’s

agreement. Such documents reflect that that the Fleet unit’s pension obligations “are

the most expensive multi-employer pension plan provided to any of the Company’s

employees.” (Sirany Fleet Decl. ¶7).1 According to those documents, the Central

States Pension Fund, in which the Fleet and Pressmen participate, had an estimated

withdrawal liability of more than $20 million for the Fleet and more than $9 million for the

Pressmen. (Id. at ¶11). The documents filed in support rejection of the Fleet’s

1 “Sirany Fleet Decl. ___” refers to the Declaration of Adrienne Sirany submitted in support of Debtor’s 1113 motion to Reject the Collective Bargaining Agreement with the Miscellaneous Drivers and Helpers Union, Local #638.

12

agreement, suggest that the contribution rates for the Fleet unit are nearly twice the

cost, for half as many employees as the contribution rates for the other bargaining units.

(Sirany Fleet Decl. at ¶7). Debtor takes pains to demonstrate that Central States is

underfunded and in “critical” condition. Documents filed with the Debtor’s motion to

reject the Fleet’s contract demonstrated a calculation of monthly savings by withdrawing

from Central States.

In contrast to such a showing, Debtor has not demonstrated that withdrawal from

the IAM Plan would effectuate a savings necessary to assist the reorganization.

Indeed, Debtor refused to provide the IAM with what, if any cost, savings would be

realized. Instead, Debtor seeks to lump the IAM Plan with the other multi-employer

pension plans, including Central States. As discussed below, the funding status of the

IAM Plan is substantially superior to that of Central States, and is funded at 95% of its

liabilities. (Skolnik Decl. at ¶2). These documents show the Debtor’s argument that

“across the board” elimination of all multi-employer pension funds, because all Funds

are equally bad, is specious.

The Debtor fails to identify how rejection of the IAM Plan will fit into the larger

plan for reorganization. This failure is fatal to its motion. Fiber Glass Industries, Inc., 49

B.R. 202, 206 (Bankr. N.D.N.Y. 1985) (holding the debtor did not establish that rejection

was necessary, as it failed to offer evidence concerning how its labor costs fit into an

overall plan of reorganization: “Although it is clear from the legislative history that the

debtor is not required to have a detailed plan of reorganization…the debtor does need

to justify the particular modifications in light of a general scheme.”). See also

Association of Flight Attendants v. Mesaba Aviation, Inc., 350 B.R. 435, 451 (D. Minn.

13

2006). The debtor must demonstrate that it has a viable business plan; and that, the

changes sought in the collective bargaining agreement help bring about an actual

recovery. Debtor has failed to do this.

As Debtor’s motion makes clear, the specific amount of money saved by

withdrawing from the IAM Plan is secondary to Debtor’s desired result of rejecting all

multi-employer, defined benefit plans. The Machinists do not claim that because they

are the “last man standing” that they are entitled to preferential treatment in bankruptcy.

See e.g. Delta Air Lines, Inc., 359 BR 468, 486 (Bankr. S.D.N.Y. 2006). Rather,

Machinists object that the Debtor has made no attempt to demonstrate how withdrawal

from the IAM Plan is part of the larger reorganization plan. Debtor has done nothing

more than broadly argue that all pensions must be eliminated without making any

showing that the IAM Plan presents specific problems that need to be addressed as part

of the reorganization.

Without this showing, there has been no showing of necessity in the strict sense

of §1113. There is instead, at most, a blandishment that “every little bit helps.” The

statutory standard is much more stringent. Debtor must prove what it needs to emerge

and must prove what the Machinists’ share of that sum is. It cannot rely upon a

statement that everyone needs to give a little to declare that elimination of the IAM Plan

is part of the Machinists’ portion. While not every group must contribute an identical

percentage of concessions, the amount allocated to any group must have a basis in

necessity, or the first prong of the §1113 is completely disregarded.

14

B . Debtors Questions Concerning Funding Status of IAM Plan is Inadequate Basis for Rejection.

Underlying the Debtor’s motion are its questions about the financial health of the

union’s pension fund. The I.A.M. National Pension Fund, National Pension Plan

(hereafter “IAM Plan” or “Plan”) is a multi-employer Taft-Hartley Pension Plan. (Skolnik

Decl. ¶ 2). The Plan has been and continues to be financial sound. For many years

prior to 2008, the Plan was in an over-funded status. (Skolnik Decl. ¶2). As its 2008

funding notice reflects, under the Pension Protections Act of 2006 (PPA), the Plan was

funded at 114% of liabilities. (Id.) Due to the 2008 market declines, the Plan’s assets

have been adversely affected. (Id.) However, the Plan is still funded at 95% of

liabilities. (Id.) Its funded status is strong and well above many of its peers. (Id.)

According to the IAM Plan’s Director, with an improvement in economic conditions, the

Plan expect to be fully funded again. (Id.) Because of the Plan’s strong financial

status, under the Plan’s funding method, it is projected to remain funded above 80% of

liabilities for 2010. (Skolnik Decl. ¶3).

During negotiations, the Debtor raised the issue of a funding letter issued by the

Plan in April 2009 indicating that the fund was in “endangered” status. (See Yetman

Decl. ¶11; Sirany Decl. Ex. A). The Pension Protection Act of 2006 and the Worker,

Retiree, and Employer Recovery Act (“WRERA”) of 2008 established new requirements

for single employer and multi employer pension funds. (Skolnik Decl. ¶4). IRC Section

§432(b)(1) identifies a fund in endangered status as one having (A) a funding status of

less than 80 percent or (b) has a projected funding deficiency for any of the 6

15

succeeding plan years.2 26 U.S.C. §432(b)(1). Under WRERA, the Plan’s Trustees

were entitled to freeze the Plan’s 2008 status for the year 2009. However, they

informed employers that for 2009 the actuary’s certification was that the plan would

have been in the endangered or “yellow zone.” (Skolnik Decl. at ¶5). This was not

because the Plan’s funding level is below 80%, but rather because its projections,

based on the statutory criteria of the Pension Protection Act, show a funding deficiency

in five years. (Id.)

Debtor inappropriately emphasizes the funding status of the Plan as a basis for

rejecting the future contributions to the IAM Plan. However, Debtor’s filings in the

Fleet’s §1113 proceeding claim that Central States’ pension was underfunded by $18

billion or 54% funded. (Sirany Fleet Decl. at ¶6). This is a stark contrast to the 95%

funded IAM Plan. (See Skolnik Decl. at ¶5). There is a substantial and material

difference between the Machinists’ pension plan and multi-employer plans for the other

unions. To claim that the IAM Plan shares similar liabilities to the other unions’ multi-

employer pension funds is demonstrably false. The IAM Plan remains a healthy and

stable plan. In light of the Debtor’s arguments concerning the funding status of Central

States, its position with respect to the IAM Plan is highly superficial.

C. Debtor’s Desire to Avoid Future Liability Not a Basis for Rejection of Agreement.

Section 1113 was not intended to permit debtors to use “Chapter 11 as medicine

to rid themselves of corporate indigestion,” In re Century Brass Prods., 795 F.2d 265,

272 (2nd Cir. 1986), or as a “judicial hammer to break the union.” In re Maxwell 2 Funding status under the Pension Protection Act is generally referred to by colors or zones. An endangered plan is considered in the “yellow zone,” a critical plan is considered in the “red zone.” A plan with funding better than the yellow zone is considered in the “green zone.”

16

Newspapers, 981 F.2d 85, 89 (2nd Cir. 1992). Hence a debtor, even one in need of

financial relief, cannot take advantage of its bankruptcy to rid itself of unwanted, non-

monetary provisions in a labor agreement to which it previously had agreed. Inclusion

of non-financial demands is not “necessary” for the debtor’s rehabilitation, and rejection

should be denied if the debtor insists upon having such provisions in its proposal. In re

William P. Brogna, 64 B.R. 390 (Bankr. E.D. Pa. 1986); In re Valley Kitchens, 52 B.R.

493 (Bankr. S.D. Ohio 1985). The legislative history once again agrees:

[T]he debtor will not be able to exploit the bankruptcy procedure to rid itself of unwanted features of the labor agreement that have no relation to its financial condition and its reorganization and which earlier were agreed to by the debtor.

130 Cong. Rec. S8898 (daily ed. June 29, 1984)(Remarks of Sen. Packwood).

Star Tribune is seeking to withdraw from the IAM Plan during bankruptcy, not out

of a need to restructure its debts, but based on a desire to shed an obligation which is

not shown to impact reorganization. Two potential sources of liability are raised by

Debtor’s motion – increased contribution rates due to funding shortfalls and withdrawal

liability if the Company withdraws from the Plan in the future. Both sources of liability

are speculative, contingent and indefinite. The Star Tribune will only incur liability from

these sources under limited circumstances, and liability is neither automatic nor

necessary. Because such additional liability could occur many years in the future, and

at the Company’s option, they do not form the basis for modifications necessary for the

reorganization.

17

1. Debtor would Not be Automatically Obligated to Pay Increased Contributions If IAM Plan is Maintained.

Star Tribune will not be automatically obligated to pay increased contributions as

a result of the IAM Plan’s projected funding shortfalls. When a Plan is categorized in an

“endangered” status, it is obligated to adopt a funding improvement plan. The IAM Plan

contemplates a rehabilitation plan that recommends increased contributions from

employers. (Skolnik Decl. ¶8). This is not, however, the automatic increase in

contributions that the Debtor asserts in its motion. Rather, under IRC §432(c)(7), where

the parties to a collective bargaining agreement fail to adopt a contribution schedule

with terms consistent with a funding improvement plan, the plan sponsor shall

implement a “default schedule.” 26 U.S.C. §432(c)(7). The default schedule is based on

“reductions in the amount of future benefit accruals necessary to achieve the applicable

benchmarks, assuming no amendments increasing contributions under the plan.” Id.

Thus, if Star Tribune is unable to agree to additional contributions, the default is a

reduction in benefits, not an increase in employer contributions.

Debtor is wrong that the endangered status of the plan would result in an

automatic increase in contributions. Increases in contributions must be negotiated. If

such increases are not mutually agreed upon, the default is a decrease in benefits not a

unilateral increase by the Plan in contribution rates.

2. Company Will Not Incur Withdrawal Liability from the IAM Plan, Unless it Withdraws from Plan.

As a multi-employer pension plan, the IAM Plan may, under the Multiemployer

Pension Plan Amendments Act of 1980 (MPPAA), bill withdrawal liability to employers

who withdraw from the Plan beginning in 2009. (See Skolnik Decl. ¶10). MPPAA

18

requires employers who withdraw from underfunded multiemployer pension plans to pay

a “withdrawal liability.” Withdrawal liability, pursuant to 29 U.S.C. § 1383(a), is not

incurred until an employer “(1) permanently ceases to have an obligation to contribute

under the plan, or (2) permanently ceases all covered operations under the plan.”

Therefore, liability does not apply to employers who remain in the Plan. (See also

Skolnik Decl. ¶10)

While it is true that the Star Tribune might incur withdrawal liability should it

decide to withdraw from the Plan, this is not a cost that the Star Tribune or any other

employer will incur if they remain in the Plan. (Skolnik Decl. ¶10). Rather withdrawal

liability will protect the Star Tribune from experiencing an increase in liability if other

employers leave the IAM Plan. (Id.).

Notably, the withdrawal liability to the IAM Plan has not been established as any

calculable amount. Although Central States has calculated withdrawal liability upon

withdrawal of the Debtor for the Pressmen and Fleet (Sirany Fleet Decl. ¶11), no such

calculation has been made for withdrawal for the Machinists’ unit. (Sirany Decl. ¶8).

This is because prior to 2009, there was no withdrawal liability to the Plan. For the past

25 years the fund has been fully funded. (Skolnik Decl. ¶2). While the concern of

withdrawal liability from the other units is tangible, the withdrawal liability for the IAM

Plan is not. Debtor seeks to shed liability, which it need not incur, without knowing what

the liability is.

At its essence, the focus of the Debtor on withdrawal liability discloses a desire

unrelated to its reorganization to rid itself of participation in multi-employer pension

19

plans, regardless of how well funded and stable they are. This is an impermissible goal

in an §1113 proceeding. See In re Century Brass, 795 F.2d 265, 272 (2nd Cir. 1986)

II. THE DEBTOR HAS FAILED TO ESTABLISH THAT WITHDRAWAL FROM THE IAM PENSION PLAN IS FAIR AND EQUITABLE. In pursuing its §1113 Motion to reject the IAM collective bargaining agreement,

Debtor must bear the burden of proof on establishing that all statutory requirements of

the statute are met. Truck Drivers Local 807 v. Carey Transportation, Inc., 816 F 2d 82,

91 (2d Cir. 1987). This includes establishing that Debtors’ proposal meet the criteria of

§1113(b)(1). One of those criteria is that the proposal is “fair and equitable.”

Here there are many stakeholders who are making sacrifices. The Machinists

also have shown a willingness to make sacrifices by meeting all of the required cost

savings which Debtors have quantified as $475,000.00 annually. This amount includes

the staff reduction which the Debtors found appropriate, a $3.35 an hour wage

reduction, and a wage freeze to prevent negotiated wage increases from going into

effect. The Union has also agreed to the Employer’s PTO Plan and health insurance

proposal and freezing of the Employer’s Plan A Pension.

The only issue separating the parties is the Debtors’ insistence that it withdraw

from the IAM Pension Plan notwithstanding its value to bargaining unit employees, its

stability and 95% funded status. The Debtor never identified cost savings it expected to

realize from withdrawal from the IAM plan during bargaining but has stated in its 1113

pleadings that it will save $70,000.00 annually based on the staff of 20. The IAM

bargaining unit however has been reduced to 16 employees. Therefore, the annual

20

cost savings is closer to $56,000.00 annually. A figure which the Company has never

mentioned as part of its overall required cost savings from the Union.

The Company has failed to provide the Union with any information that would

establish that seeking withdrawal from the IAM Pension Plan is fair and equitable given

the other concessions which the Debtor has proposed and to which the Union has

agreed. Just three days before filing its §1113 Motion Debtors provided the Union, for

the first time, with its negotiated agreements with other unions. The Machinists,

however, did not receive the information on head count in these groups which would

allow it to make some meaningful comparison of overall sacrifice. The Union has not

received collective bargaining agreements for all groups or concession agreements

reached only in late June, including that of the Electricians, Operating Engineers and

SEIU.

It is not enough to say that because the Debtor has sought to obtain withdrawal

from other multi-employer pension plans, that it is fair and equitable to seek the same

concession from the Machinists. Groups appear to have experienced different wage

cuts or personnel cuts based on different circumstances. Notably, the Debtor has

retained the multi-employer annuity plan in which the Electricians participate. In the

case of the two units which participate in the Central States Teamster Pension Plan,

there was agreement that the employer withdraw from the plan but as the Debtor

indicated in its §1113 filings, the cost of that plan was twice as much as other plans for

half the number of employees. To compensate the Fleet and Pressman units, the

employer agreed to make up for lost benefits by providing an annuity through its

Pension Plan A.

21

While the Debtor has acknowledged that this placement of individuals who are in

retirement age in Plan A has reduced its funding, it has not provided information on the

impact that reduction in funding will have on the IAM unit. There is no showing that

given the distinctions between groups the additional proposal to withdraw from the IAM

Pension Plan is fair and equitable given the other concessions to which the Machinists

have agreed.

The Debtor has failed to establish that the additional concession of withdrawing

from the IAM Pension Plan is fair and equitable in comparison to the sacrifices sought

from other stakeholders.

III. THE DEBTOR HAS FAILED TO COMPLY WITH ITS DUTY TO PROVIDE INFORMATION RELEVANT TO THE REJECTION MOTION.

A. The Debtor Failed To Provide The Union With “Relevant Information As Is Necessary To Evaluate The Proposal” Prior To Filing The Instant Motion.

Section 1113(b)(1)(B) require that a debtor provide the union “with such relevant

information as is necessary to evaluate the proposal” to amend the contracts or modify

retiree benefits. This requirement is mandatory. A debtor seeking modifications to its

labor agreement must voluntarily come forward and offer all relevant information to the

union; the union has no obligation to ask for the information. “This court agrees that the

debtor has an affirmative duty to provide to the union all of the relevant information

necessary to adequately evaluate the debtor’s proposal.” In re Salt Creek Freightways,

47 B.R. 835 (Bankr. D. Wyo. 1985).

The Debtor’s §1113 petition was first presented to the union on June 22nd. When

the Company presented its §1113 proposal to the union on June 19th, the proposal was

not accompanied by “relevant information as is necessary to evaluate the proposal.” In

22

fact, Star Tribune segregated withdrawal from the IAM Plan as part of a “below the line”

proposal for which calculations were not provided. By defining the pension costs as

unquantifiable, the Debtor has acknowledged that the specific costs that such contract

modification would save are not relevant to the company. As of the June 23rd

bargaining session, the Company had not provided the Machinists with any information

which the Machinists could use to evaluate the concessions it was seeking from the

Machinists. (Yetman Decl. ¶14). It was only at the end of the first bargaining session,

that the Company, for the first time, raised the issue of a private website or “Data Bank”

where it maintained with information relevant to the concessions online. (Id.) Such

information was not provided until June 24th.

The information in the Data Bank is not specifically tailored to evaluating the

Debtor’s §1113 proposal to the Machinists, nor sufficient to evaluate the necessity of

withdrawal from the IAM Plan. Therefore, on June 25th, Yetman sent an information

request to the Company concerning its §1113 proposal. (Yetman Decl. ¶15; Lebedoff

Decl. Ex. H). Yetman requested information on the amount of overall labor cost

reductions from all employees and an explanation of why that amount was necessary,

and secondly, financial statements so that he could confirm the cost saving were

needed. (Yetman Decl. ¶15). As question 3, he asked for a calculation of the “cost

savings the Company expects to obtain from its new proposal to withdraw from the IAM

Pension Plan…. The information provided thus far is unclear as to the time period over

which the savings were calculated and provides no information from the new proposal

to withdraw and freeze pension.” (Id.) As his request 11, Yetman asked for all

23

information on why the Company had increased the concession sought to include

withdrawal from the IAM Pension Plan. (Id.)

Yetman’s other information requests were designed to help him evaluate the

concessions to which the IAM had agreed and compare the concessions sought from

the IAM with those sought from other groups: cost saving calculations for the

concessions provided by the union’s prior proposals (Request No. 4); costing of wages

and benefits for the bargaining unit (Request No. 5); concessions to which other

bargaining units had agreed and headcount information so that he could make a

meaningful comparison (Request No. 6), calculations of concessions by non-union

employees (Request No. 7), and calculations on the distribution of concessions

between groups of employees (Request No. 8). (Yetman Decl. ¶16). This information

would have allowed the union to evaluate the fairness of the proposal, the need for cost

saving from the proposed pension withdrawal and the ability to formulate a counter

proposal if these additional, as yet unidentified, savings were needed.

On June 25, Randy Lebedoff responded to his information request, but did not

provide any costing of its “below the line” proposals. (Yetman Decl. ¶17; Lebedoff Decl.

Ex. I.) Responsive to requests 6 and 7, the answer provided agreements ratified by

other bargaining units, but not the headcount information or information on how the

distribution of concessions had been determined, as sought by request 8. (Yetman

Decl. ¶17). The response provided general information about the reorganization, but

nothing which explained why the overall amounts sought, and specifically the proposal

to withdraw from the IAM Plan, were necessary for reorganization. (Id.)

24

With respect to request for information number 3, which sought the cost saving

from withdrawal from the IAM Plan, she responded “The remaining line items are

deliberately not quantified because such calculations are difficult to express in

annualized savings, and the company has not conducted such calculations for these

difficult-to-quantify modifications for any of its bargaining proposals….” (Id.) (emphasis

added). The answer also stated that “I cannot provide you any documents for your

remaining requests since such information either does not exist, or is not readily

available.” (Id.) (emphasis added)

At no time during the bargaining sessions, prior to filing its Motion to Reject the

IAM Collective Bargaining Agreement, did the Company provide the Union with a

calculation of the annual cost saving it would realize by withdrawing from the IAM Plan.

(Yetman Decl. ¶23). The only information it received on the total amount of labor

concessions needed for reorganization was the general information in the Disclosure

Statement; the company provided no information which identifies why the small amount

paid to provide for IAM Plan benefits, which was not sought initially as a concession, is

now necessary for reorganization. (Id.) The Machinists have not received an

explanation of how the distribution of concessions between employee groups was

determined or headcount information to allow comparison of the IAM unit to other units.

(Id.) It has received no information on the SEIU or Operating Engineers settlements;

the only information the union has received on the Electrician agreement is that their

pension Plan which is continuing. (Id.)

The information provided to the Machinists does not comply with the Debtors’

obligation to provide information under §1113(b)(1)(B). No information was presented

25

“prior to filing an application seeking rejection of a collective bargaining agreement” that

specified the total amount of costs savings which the Company was seeking to obtain

from the elimination of the IAM Plan or why it is necessary for reorganization. In fact,

when the Machinists have tried to quantify such amount, the Debtor’s response was that

such amount could not be calculated. Although Debtor’s §1113 motion contains some

quantification of the pension costs for the bargaining unit, these calculations were not

provided during bargaining, and were raised for the first time after the §1113 petition

was filed. (Yetman Decl. ¶24). Moreover, the Debtor has made clear that the

annualized contribution rates are secondary to its fears of future withdrawal liability and

rate increases.

It is notable that throughout bargaining between the parties, the union has been

requesting information about the impact on the bargaining unit of the withdrawal from

pension funds, both the IAM Plan and Plan A. (See Yetman Decl. ¶¶15, 19, 22). In

each situation, Star Tribune has indicated that it is not able (or willing) to make such

calculations. The result is that the Machinists have been unable to make reasoned

counterproposals on pension, nor make a calculated evaluation of the concessions they

are being asked to accept. (Yetman Decl. ¶22).

The failure to provide information concerning the cost savings of withdrawing

from the IAM Fund, prior to filing the motion, violates the duty to provide information

under §1113(b)(1)(B).

B. Debtor’s Proposal is not Based on the Most Complete and Reliable Information Available at the Time of its §1113 Proposal.

In conjunction with the duty to provide information under §1113(b)(1)(B), is the

requirement under §1113(b)(1)(A) that the proposal be “based on the most complete

26

and reliable information available at the time…” Debtor’s proposal to reject is not based

on the most complete information. Rather, it is based on information created as part of

the RAI Process in mid-2008. (Yetman Decl. ¶22). Thus, the proposal is based, in part,

on an over estimation of the number of employees in the bargaining unit of 20, and

results in an overestimation in the costs of pension contributions. (Id.) At no time

during 2009 have there been 20 bargaining unit employees, and the estimated costs are

therefore too high. (Id.)

Moreover, the Debtor’s proposal appears not to have considered the IAM Plans

superior funding and stability. Such information was available and even relied upon

when litigating an §1113 motion against the Fleet unit. In light of the availability of

information about the IAM Plan, as contrasted with other multi-employer plans, the

Debtor’s proposal was not based on the most complete and reliable information

available at the time of its §1113 proposal.

IV. DEBTOR HAS FAILED TO BARGAIN IN GOOD FAITH PURSUANT TO §1113(b)(2), WHERE ITS PROPOSAL IS BASED ON SPECULATIVE COSTS WHICH WOULD OCCUR PAST REORGANIZATION, AT THE REORGANIZED COMPANY’S DISCRETION.

In addition to the requirements substantive requirements for rejection, the debtor

must also meet with the union good faith in attempting to reach mutually satisfactory

modifications of such agreement.” 11 U.S.C. §1113(b)(2). The Debtor failed to meet

and confer in good faith, where its remaining bargaining proposal was based, not on a

desire to eliminate calculable “above the line” costs factored into its plan of

reorganization, but based on speculation about costs which would occur at its option

after the reorganization had concluded.

27

During negotiations between the parties, the union unsuccessfully tried to

suggest other alternatives to complete withdrawal from the IAM Plan, such as

modifications to benefits or lower contribution rates. (Yetman Decl. ¶22). However, in

the opinion of Yetman, the Company would not entertain the proposals. (Id.) It was

clear to him that offering concessions to pay for the pension was not likely to be

successful. (Id.) Because the Company did not identify the cost saving it projected

from withdrawal from the IAM Plan, it was not possible to provide a fully responsive

counter.

The company’s fixation on avoiding withdrawal liability can demonstrate bad faith

in conducting negotiations. For example, in U.S. Truck Holdings Inc., 2000 Bankr.

LEXIS 1376, 165 LRRM 2521 (Bankr. E.D.MI 2000), the Court found that the Debtor

failed to bargain in good faith where the issue of withdrawal liability “effectively

subsume[d] everything else.” Id. at *70. In that case, the Debtor was concerned that if it

did not withdraw from the union’s pension fund during bankruptcy, that the fund would

impose withdrawal liability by expelling it from the fund. The Court found that “Debtor’s

negotiations were driven much more by its concern for avoiding withdrawal liability,

eliminating the priority that would be afforded to the Union’s claims if the CBA were not

rejected…. than for determining the fair value of the Union’s claims in order to arrive at

a mutually agreeable settlement.” Id. at *69. The Debtor demanded, as part of its

negotiations and on a short timeline, that the fund give assurances that it would not be

expelled. The Court found that the Debtor could not engage in good faith bargaining,

where the Debtor’s fixation on withdrawal liability prevented negotiations contemplated

by §1113. Id. at *71.

28

Similarly, the Company’s refusal to consider alternatives to complete withdrawal

from the IAM Plan indicates bad faith. At no point after its proposal of the withdrawal

from the IAM Plan has the company ever been willing to change its position that nothing

short of total withdrawal will be acceptable. “A debtor cannot be said to comply with its

obligations to ‘confer in good faith in attempting to reach mutually satisfactory

modifications’ when it steadfastly maintains that its initial proposal…is non-negotiable,”

unless those portions of the proposal which are non-negotiable are essential to the

reorganization. In re Delta Air Lines, 342 BR 685, 697 (Bankr. S.D.NY 2006). “When

one side presents a non-negotiable, take-it-or-leave-it proposal, negotiation stalls

because there is nothing of substance to bargain for when one side must bid against

itself.” Id.

In this case, the Company has not engaged in good faith bargaining where it has

never been willing to address modifications which did not include a total withdrawal from

the IAM Plan, and has not shown the proposal is essential to reorganization.

Throughout the negotiations in 2009, the Company has stated that due to its fear of

withdrawal liability and increased contributions that it is not willing, under any

circumstances, to maintain its participation in the IAM Plan. “True negotiation

necessarily requires compromise in each side's bargaining positions.” Delta Air Lines at

697. Debtor has been unwilling to discuss other concessions or a modification which

even explain why withdrawal is needed for reorganization, and its fixation on liability is

speculative. It is impossible to negotiate against a fear of liability which has not yet

occurred, and may never occur. Nevertheless, this is the debtor’s position in this case.

Like the union in U.S. Truck Holdings Inc., Debtor is trying to make negotiations

29

contingent on conditions and guarantees from the IAM Plan that are impossible to meet.

By demanding an elimination of not only actual liability, but possible liability, the Debtor

was not seeking to obtain “mutually satisfactory modifications,” but was engaging in bad

faith negotiations.

V. DEBTOR HAS NOT MET STANDARDS FOR REJECTION PURSUANT TO §1113(c).

A. Debtor’s Proposal Does Not Meet Standards Of §1113(B)(1).

Section 1113(c)(1) requires that “prior to the hearing” that the Debtor have “made

a proposal that fulfills the requirements of subsection (b)(1).” As discussed above, the

Debtor has failed to meet this standard. Subsection (b)(1) requires that “prior to filing

an application seeking rejection of a collective bargaining agreement,” the debtor

provide a proposal seeking necessary modification, based on the most complete and

reliable information, and that such proposal be accompanied with relevant information

necessary to evaluate the proposal. As discussed above, prior to filing the petition, the

Debtor did not meet these criteria. Therefore, its proposals cannot meet the

requirements of subsection (c)(1).

B. The Union Rejected the Debtor’s Proposals with Good Cause, Where Debtor Would not Calculate Impact of Pension Contributions on Reorganization Nor Consider Other Alternatives to Withdrawal.

Before a Court may grant a debtor’s application for rejection of the collective

bargaining agreements or modification of retiree benefits, the debtor must prove that the

representatives lacked good cause for refusing its proposed modifications.11 U.S.C.

§1113(c)(2); See Truck Drivers Local 807 v. Carey Transportation, Inc., 816 F.2d 82, 91

(2nd Cir. 1987). While it is the debtor’s ultimate burden to persuade the court that the

union lacked good cause for rejecting its proposals, “the union must come forward with

30

evidence of its reason for declining to accept the debtors’ proposal in whole or in part.”

Id. at 92. A union has good cause to reject the proposed modifications, “where the

union makes compromise proposals during the negotiating process that meet its needs

while preserving the debtor’s savings, its rejection of the debtor’s proposal would be

with good cause.” In re Maxwell Newspapers, Inc., 981 F.2d 85, 90 (2nd Cir. 1992).

Accord In re Royal Composing Room, Inc., 848 F.2d 345, 349 (2nd Cir. 1988).

In this case, the Machinists had good cause to reject the Start Tribune’s §1113

proposal. Here the union met all Debtor’s quantified needs for cost savings in full.

During the course of negotiations, the Machinists made requests seeking to determine

the Company’s reason for seeking pension plan withdrawal and the amount of pension

claimed savings contributions so that it could formulate effective counterproposals.

During those negotiations, the Machinists have been continually stymied both by the

Debtor’s unwillingness to calculate the cost savings and its unwillingness to consider

any alternative other than withdrawal.

C. The Balance of Equities Does Not Warrant Rejection of the Agreement.

Section 1113(c)(3) requires that a collective bargaining agreement may be

rejected only if “the balance of the equities clearly favors rejection of such agreement.”

The relevant equitable considerations in a §1113 case include (1) the likelihood and

consequences of liquidation if rejection is not permitted; (2) the likely reduction in the

value of creditors’ claims if the union contract remains in force; (3) the likelihood and

consequences of a strike if the bargaining agreement is voided; (4) the possibility and

likely effect of any employee claims for breach of contract if rejection is approved; (5)

the cost-spreading abilities of the various parties, taking into account the number of

31

employees covered by the bargaining agreement and how various employees’ wages

and benefits compare to those of others in the industry; and (6) the good or bad faith of

the parties in dealing with the debtor's financial dilemma. Truck Drivers Local 807, etc.

v. Carey Transp., Inc., 816 F.2d 82, 93 (2d Cir. 1987).

The “balance” of these factors demonstrates that rejection of the Machinists’

agreement is not appropriate. Debtor has failed to show that there is any impact on the

likelihood of liquidation or impact on creditor’s claims. Rather, as discussed above, the

Debtor has given only pro forma objections to its continued participation in the IAM

Plan. It has made no efforts to explain how the IAM plan is similar to the other multi-

employer plans, most notably the Central States Pension Fund. In moving to withdraw

from the IAM Plan, the Debtor is not primarily concerned about financial savings

necessary for the reorganization, but has obsessed on the possibility of future

contribution rate increases and the potential for withdrawal liability at an undefined date

in the future. Such preoccupation with future possibilities demonstrates bad faith by the

debtor, particularly since it was not trying to reach an agreement but to shed a pension

plan to better position itself post-reorganization. Thus, the Debtor cannot show that the

balance of equities benefits rejection.

CONCLUSION

For the forgoing reasons, Star Tribune Company’s Motion to Reject International

Association of Machinists and Aerospace Workers, AFL-CIO District Lodge No. 77

Collective Bargaining Agreements, pursuant to 11 U.S.C. §1113, should be denied in its

entirety.

32

Dated this 15th day of July, 2009.

/s/ Marianne Goldstein Robbins

Marianne Goldstein Robbins Nathan D. Eisenberg Previant, Goldberg, Uelmen, Gratz, Miller, & Brueggeman, s.c. 1555 N. RiverCenter Drive - Suite 202 Milwaukee, WI 53212 Telephone: (414) 271-4500 Facsimile: (414) 271-6308 Email: mgr@previant.com Attorneys for International Association of Machinists and Aerospace Workers, AFL-CIO District Lodge No. 77