Court backs Trump Entertainment in fight with union, meaning Icahn could take over Taj

Joshua Burd//January 19, 2016

Court backs Trump Entertainment in fight with union, meaning Icahn could take over Taj

Joshua Burd//January 19, 2016

A federal appeals court has paved the way for billionaire investor Carl Icahn to take control of Atlantic City’s ailing Trump Taj Mahal, siding with the casino’s ownership group after its union challenged the operator’s ability to complete its Chapter 11 bankruptcy proceedings.The union, UNITE Here Local 54, had sought to block the proceedings after Trump Entertainment Resorts tried to move forward with a scaled-back version of a collective bargaining agreement that expired in September 2014. But on Friday, the U.S. Third Circuit Court of Appeals in Philadelphia upheld a federal bankruptcy judge’s earlier decision that ruled in favor of the operator.

“Rejection of the Debtors’ continuing labor obligations, as defined by the expired CBA, is necessary to permit the Debtors’ reorganization — indeed it is essential to the Debtors’ survival,” the three-judge panel wrote. “As the Bankruptcy Court repeatedly emphasized, the Debtors’ financial situation is desperate. Not only are their losses large, but they have been unable to obtain debtor in possession financing for their bankruptcy cases and are operating with cash collateral.”

Trump Entertainment’s ability to move forward could mean Icahn is poised to invest $100 million to reinvigorate the struggling gaming hall. According to the court filings, the reorganization plan calls for Icahn, the first lien-holder for the property, to convert the debt to an equity stake and then provide such a capital infusion to the Taj.

The dispute stems from the health and pension benefits offered by the Taj Mahal to its employees under a contract that expired in mid-September 2014. When the casinos owners and the union could not reach a new agreement with days before the expiration date, Trump Entertainment Resorts filed for Chapter 11 bankruptcy protection.

Negotiations continued, and the Taj has teetered on being the fifth Atlantic City to close since 2014. But the company then rejected a subsequent proposal by UNITE Here in order to move forward with its reorganization, instead proposing a plan that would save nearly $15 million annually in retirement, health and other benefits.

The move was approved by a federal bankruptcy court, but the union responded by appealing to the federal appeals court.

In its decision last week, the appeals court concluded that, “Under the policies of bankruptcy law, it is preferable to preserve jobs through a rejection of a CBA, as opposed to losing the positions permanently by requiring the debtor to comply with the continuing obligations set out by the CBA.”

“Moreover, it is essential that the Bankruptcy Court be afforded the opportunity to evaluate those conditions that can detrimentally affect the life of a debtor, whether such encumbrances attach by operation of contract or a complex statutory framework. In light of Chapter 11’s overarching purposes and the exigencies that the Debtors faced, we conclude that the Bankruptcy Court did not err in granting the Debtors’ motion.”