Matter of Continental Airlines

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

--------------
No. 89-2943
--------------

IN THE MATTER OF: CONTINENTAL AIRLINES, et al.,
Debtors.

JOSEPH E. O'NEILL, et al. and
JAMES STEPHENS, et al.

Appellants,
versus

CONTINENTAL AIRLINES, INC.,
Appellee.

***************

-------------------------------------------------------------------
Appeals from the United States District Court
for the Southern District of Texas
-------------------------------------------------------------------
(January 19, 1993)

Before POLITZ, Chief Judge, BROWN and JOHNSON, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

This case arises, like so many others before it, out of the

bankruptcy proceedings of Continental Airlines, Inc. (Continental).

However, unlike many of those other cases, we reach the merits of

this case over two years after the parties argued the case before

this court. These two groups of pilots brought their individual

furlough pay claims after Continental Airlines filed petitions

under Chapter 11 of the United States Bankruptcy Code on September

24, 1983 in the United States Bankruptcy Court for the Southern

District of Texas. On June 27, 1986, Bankruptcy Judge T. Glover

Roberts signed an order granting Continental's motion for summary

1
judgment, disallowing the pilots' furlough pay claims and

estimating the claims at zero. On August 4, 1989, the district

court affirmed, and the pilots appealed. In the meantime,

Continental filed a second Chapter 11 bankruptcy petition on

December 3, 1990 in the United States Bankruptcy Court for the

District of Delaware, which stayed all judicial actions against the

airline pursuant to 11 U.S.C. § 362(a). We issued an opinion on

March 15, 1991 holding that the pilots' appeal was stayed in light

of the 1990 bankruptcy proceedings. Matter of Continental

Airlines, 928 F.2d 127 (5th Cir. 1991). On August 4, 1992, the

Delaware bankruptcy court issued an order granting the parties'

joint motion for limited relief from the stay, in order that we

might render our decision in this case.1

The pilots appeal 1) the district court's holding that a

furlough had not occurred on September 24-27, 1983, 2) the district

court's holding that a post-filing rejection of the collective

bargaining agreement relieved Continental of furlough pay

obligations, 3) the district court's estimation of the furlough pay

1
The United States Bankruptcy Court for the District of
Delaware, Judge Helen S. Balick, entered the following order:
"It is hereby ordered this 4th day of August, 1992, that the
Joint Motion of Continental Airlines, Inc. and O'Neill Group For
Limited Relief From Stay is granted." O'Neill v. Continental
Airlines, No. 90-932 (Bankr. D. Del. Aug. 4, 1992).

In their Joint Motion for Limited Relief from Automatic
Stay, the parties requested only that the bankruptcy court lift
the stay to permit this court to render its decision in the
pending appeal. The parties emphasized that the limited stay
relief would allow no further action by the parties, and that the
parties would remain under the control and guidance of the
bankruptcy court regardless of this court's decision.

2
claims at zero, and 4) the district court's refusal to require

recusal of the bankruptcy judge and to vacate the bankruptcy

judge's decision. We hold that on the construction of the

collective bargaining agreement between the parties, a furlough of

the pilots occurred on September 24-27, 1983, and therefore, we

reverse the bankruptcy court's order granting summary judgment in

favor of Continental. Because no genuine issues of material fact

exist and the pilots are entitled to judgment as a matter of law,

this is one of those rare cases in which granting summary judgment

in favor of Continental was improper, and we grant summary judgment

in favor of the pilots. Additionally, we hold that Continental's

rejection, with the approval of the bankruptcy court, of the

collective bargaining agreement between the parties did not serve

to relieve Continental of its obligations under the agreement.

Finally, we hold that Judge Roberts' failure to stand recused

constituted a violation of 28 U.S.C. § 455(a), and we therefore

remand the portion of the bankruptcy court's order estimating the

pilots claims at zero value to the bankruptcy court for calculation

of the pilots' claims by a new bankruptcy judge.

The Facts

On September 24, 1983, the president of Continental Airlines

sent a memorandum to all employees announcing that the company

would be seeking protection from creditors under the Chapter 11

reorganization provisions of the United States Bankruptcy Code.

See 11 U.S.C. §§ 1101-1174. The memorandum stated that Continental

would be reducing the size of its operations and would therefore be

3
required to furlough many of the company's employees.2 The

furloughs became effective one and one half hours later, at 5:00

p.m., when Continental filed its Chapter 11 petition. Continental

suspended all domestic passenger service and a portion of its

international service until September 27, 1983, when the company

resumed a limited portion of its domestic operations using

substantially fewer pilots than it had employed before filing for

bankruptcy. On October 1, 1983, the ALPA commenced a strike

against Continental.

A number of Continental pilots filed individual claims for

furlough pay pursuant to the collective bargaining agreement

between Continental and ALPA, commonly referred to as the "Red

Book." The pilots claimed that they were entitled to furlough

allowances totalling $32.6 million as a result of the three-day

2
The memorandum stated as follows:

Because of the contemplated initial reduction in
the size of our operations, we will be required to
furlough many of our employees prior to our filing for
reorganization. Such furloughs will be made without
prejudice to our rights as a debtor-in-possession.
These furloughs are effective as of 5:00 p.m. (C.D.T.)
September 24, 1983. The furloughs apply to (1)
management, clerical and maintenance employees (unless
specifically notified that they are being retained),
and (2) all personnel at stations and reservations
offices to be closed indefinitely. Pilots, flight
attendants, agents, clerical and reservations personnel
located or based at the "open cities" (as shown on
Attachment A) will be subject to emergency work rules
established by the Company to provide for the wages,
hours and working conditions for these employees.
These emergency work rules have been sent to all "open
cities" for posting and distribution.

Record, Vol. 3 at 362-63.

4
shutdown. The Stephens Group and the O'Neill group together

represent 482 of the 1069 pilots who filed claims. The two groups

claim that they collectively are entitled to $1.5 million in

furlough pay.

Continental moved for summary judgment disallowing the

furlough claims and estimating the claims at zero value. The two

groups of pilots filed oppositions to which Continental replied.

The bankruptcy court granted Continental's motion for summary

judgment and estimated the pilots' claims at zero. The district

court affirmed the bankruptcy court's order on August 4, 1989. The

pilots appeal.

On Furlough

The memorandum sent to all employees on September 24, 1983

stated that the required employee furloughs would apply to specific

personnel, including "1) management, clerical and maintenance

employees . . . and 2) all personnel at stations and reservations

offices to be closed indefinitely." The memorandum went on to

state that "[p]ilots, flight attendants, agents, clerical and

reservations personnel located or based at the 'open cities'

[would] be subject to emergency work rules established by the

Company . . ."

Continental, relying in part on the language of the September

24 memorandum, argues that the pilots were not put on furlough

during the three-day shutdown. Continental contends that other

employees were furloughed, but that the pilots were subject to

emergency work rules, which was evidenced by the fact that when

5
Continental resumed reduced domestic operations on September 27,

Continental officials began calling pilots on the phone to ask them

to return to work.

The pilots claim that despite the language in the September 24

memorandum, Continental's three-day suspension of service

constituted a furlough for which they are entitled to furlough

allowance under the terms of the Red Book. Section 23 of the Red

Book covers pilot furloughs. Part 3 contains furlough rules and

Part 4 provides for furlough pay according to the pilot's period of

time in active service. The Red Book, however, does not define

"furlough."

Both the pilots and Continental argue that whether the pilots

were placed on furlough on September 24, 1983 is a matter of

contract interpretation. The pilots argue that they were placed on

furlough as that term was contemplated in drafting the furlough

provisions of the Red Book. Continental argues that the furlough

provisions of Section 23 are not self-effectuating, pointing to

other provisions in the Red Book which Continental argues belie the

pilots' claim that the furlough provisions of the Red Book are

applicable to the three-day shutdown. Continental contends that

Section 4 of the Red Book, containing a minimum flight pay

guarantee for pilots, Section 25, detailing flight rescheduling,

and Section 3, Part 6, regarding trip cancellation, are the

provisions applicable to the three-day shutdown.

The bankruptcy court found that the pilots were not furloughed

on September 24 as that term is used in the Red Book. In Re

6
Continental Airlines Corp., 64 B.R. 882, 887 (Bankr. S.D. Tex.

1986). The court pointed to the specific clauses in the collective

bargaining agreement providing for short-term cancellation of

flights. The court also stated that the agreement contemplates a

partial reduction in force at specific bases triggering the

furlough provisions, not a total shutdown. The court examined the

reasons behind the three-day shutdown, and concluded that

application of the furlough provisions in this case would lead to

an absurd result.

The district court affirmed the bankruptcy court's finding

that no furlough had taken place. The court stated that nothing in

the September 24 memorandum indicated that Continental intended to

furlough the pilots. The court also found that certain sections of

the Red Book expressly contemplated temporary cancellation of

flights. In response to the pilots' argument that the shutdown was

not temporary, the court pointed to Continental's actions in

telephoning the pilots and requesting them to come back to work as

indicating that Continental attempted to do everything possible to

build back its operations. The district court asserted that it was

the pilots' strike that prevented Continental from expanding its

services after the three-day shutdown. Because the court concluded

that the flight cancellations were temporary, the court held that

Section 3, Part 6 and Section 25, Part 2 of the Red Book applied.

The court stated that these provisions provided a separate

contractual means of dealing with temporary cancellation of

flights, belying the pilots' contention that the three-day

7
cancellation constituted a furlough. The court concluded that

requiring Continental to pay the furlough allowance would result in

a windfall for the pilots.

The fact remains that as of 5:00 p.m. on September 24, 1983,

all of Continental's domestic operations were completely shut down,

with only a limited number of international routes continuing to

operate. As of 5:00 p.m. on September 24, there was no work for

Continental's union or nonunion employees involved in the company's

domestic operations, including the pilots. There was no work for

three days, until September 27 when Continental resumed operations

utilizing a greatly reduced number of employees. Whether the

three-day period during which Continental made no work available

constituted a furlough of the pilots must be determined by an

examination of the facts and the terms contained in the Red Book,

which is the official agreement entered into between the parties,

not by reference to an informational memorandum sent to all

employees that simply announced a work stoppage.

We review de novo the district court's construction of the

collective bargaining agreement between the parties, or Red Book,

which is a question of law. Sheet Metal Workers, Local 19 v. 2300

Group, Inc., 949 F.2d 1274, 1279 (3d Cir. 1991); Santa Monica

Culinary Welfare Fund v. Miramar Hotel Corp., 920 F.2d 1491, 1493

(9th Cir. 1990), cert. denied, ___ U.S. ___, 111 S. Ct. 2855, 115

L. Ed. 2d 1023 (1991); DeMarco v. C&L Masonry, Inc., 891 F.2d 1236,

1238-39 (6th Cir. 1989). We hold that the district court erred in

finding that no furlough of the pilots occurred. Based on the

8
construction of the Red Book, we hold that the three-day period

during which the pilots had no work constituted a furlough of the

pilots.

Continental relies on certain sections of the Red Book to give

meaning to the term "furlough" -- to define what furlough is not.

In oral argument, Continental likened the domestic operations

shutdown to "a snowstorm in Denver", and the company argues that

the mere presence of provisions covering flight cancellations due

to bad weather, holidays, schedule changes or for other reasons

indicates that the three-day shutdown was not a furlough within the

meaning of the Red Book. We find that the provisions of the Red

Book cited by Continental regarding flight cancellations fail to

lend meaning to the term "furlough" as that term is used in Section

23 of the Red Book.

a. Section 3, Part 6 and Section 25, Part 2:
Trip Cancellation

Continental first cites Section 3, Part 6 of the Red Book.

Part 6 is entitled "Pay for Equipment Substitutions and/or Trip

Cancellations", and covers trip cancellations due to holidays,

schedule changes, accommodation of extra sections or charters, or

weather or mechanical reasons.3 The company then cites Section 25,

3
Section 3, Part 6 provides in pertinent part:

Part 6 - Pay for Equipment Substitutions and/or Trip
Cancellations

* * *

B. Domestic and Flag: When a pilot is awarded a
regular line of time and trips are subsequently
cancelled from that line due to:

9
Part 2, Paragraph J, which covers instances "when a regular pilot

loses flying time from his trip pattern because of . . .

cancellation, except as provided for in Section 3, Part 6,

Paragraph B . . .", and Paragraph K, which provides a remedy for a

pilot "when [he] has commenced a trip series and loses a portion of

that series through no fault of his own . . ."4 Significantly, the

(1) holiday cancellations subsequent to bid
award, or

(2) schedule changes subsequent to bid award, or

(3) accommodation of extra sections or charters,
or

(4) weather or mechanical reasons during the
final seventy-two (72) hours of a calendar
month,

such pilot shall be paid for the scheduled time
for the trip(s) so cancelled, less any time for
which he is reassigned. A pilot may only be
reassigned on the same calendar days he was
originally scheduled to fly.
4
Section 25, Part 2 provides in pertinent part:

Part 2 - Operation of Regular Trip Bid Patterns

* * *

G. Policy Regarding Trip Pickup

(1) When a regular pilot's projected schedule for
a month is less than seventy-six (76) hours,
he may pick up a trip out of open time
providing the reserve pilot scheduled to fly
the trip can be given at least five (5) hours
notice prior to scheduled departure. . .

* * *

J. When a regular pilot loses flying time from his
trip bid pattern because of:

(1) cancellation; except as provided for in

10
remedies provided for pilots in the circumstances described in both

Paragraph J and Paragraph K involve picking up other flights from

"open time."

Continental argues that both of these provisions together show

that the Red Book "plainly did not contemplate that a temporary

cancellation of flights would constitute a furlough." These

provisions plainly do not indicate anything of the kind. Section

3, Part 6 and Section 25, Part 2 provide for situations in which

flights have been cancelled for a specific reason and provide a

specific remedy when flights are running otherwise as normal. As

for the general language in Section 25, Part 2, Paragraph J(1)

regarding cancellations other than those provided for in Section 3,

Section 3 (Compensation), Part 6, Paragraph
B,

(2) weather or mechanical irregularities,

(3) flight time limitation,

(4) emergencies in his immediate family, or

(5) trips dropped during time of transfer from
one base to another, he may exercise the
provisions of Part 2, G. of this Section.

NOTE: (1) and (2) above do not pertain to pilots
who lose time due to Company convenience. They
are covered under the rescheduling provisions in
Part 6 of this Section.

K. When a regular pilot has commenced a trip series
and loses a portion of that series through no
fault of his own, he shall have the option of
picking up any portion of the balance of the
series that he can reasonably pick up, or he may
pick up time from open time. . . . This paragraph
does not apply to a pilot who loses time due to
Company convenience as covered in Part 6 of this
Section.

11
Part 6, the three-day shutdown hardly can be encompassed by the

situation in Paragraph J(1), the remedy for which was not only

unavailable, but meaningless during a three-day period when all of

Continental's domestic operations had ceased.

Furthermore, the application of Section 23 of the Red Book to

the three-day shutdown of operations does not turn on whether the

shutdown was temporary or permanent. Merely because the shutdown

lasted only three days does not invoke automatic application of the

sections of the Red Book regarding temporary cancellations. It is

the nature of the cancellation, not its duration alone, that

determines whether specific provisions of the Red Book apply.

Neither does the temporary nature of the shutdown indicate that the

provisions cited above present an alternative to the furlough pay

provisions in Section 23. If a temporary shutdown presented

Continental with a choice as to whether to use the temporary

cancellation provisions (although, as stated above, these

provisions provide no remedy in the case of a total shutdown) or

the furlough allowance provisions of Section 23, effectively there

would be no choice; classifying the three-day shutdown as a

temporary cancellation would preclude furlough payments to the

pilots.

Because we hold that the application of the Section 23

furlough provisions does not turn on the temporary nature of the

shutdown, we need not address the pilots' arguments regarding the

long-term impact of the shutdown on their jobs or Continental's

assertions that the availability of work after the shutdown was

12
prevented only by the pilots' strike. Whether employment was

available after the shutdown, albeit on different terms, is

irrelevant; the fact remains that no work was available for three

days, and the three-day shutdown constituted a furlough.

b. Section 4: Minimum Pay Guarantee

Continental also points to the minimum flight pay guarantee

contained in Section 4 of the Red Book in its effort to persuade

this court that the three-day shutdown was not a furlough. Section

4 provides that "each regular pilot shall receive a minimum monthly

guarantee consisting of 86% of the monthly maximum."5 Unlike the

sections of the Red Book regarding temporary cancellations of

flights, the minimum pay guarantee does not hinge upon the

availability of regularly scheduled flights, and Section 4 does not

expressly contemplate a normal operating situation. The section

merely guarantees pilots a minimum amount of pay per month. The

Section 4 guarantee does not indicate, however, that the minimum

pay guarantee is an alternative to the furlough provisions of

5
Section 4 provides in pertinent part:

Part 1 - Minimum Flight Pay Guarantee

A. Domestic

(1) Regular Guarantee

(a) Each regular pilot shall receive a
minimum monthly guarantee consisting of
86.6% of the monthly maximum to include
longevity, hourly, mileage and gross
weight pay, at rates applicable to his
status, one-half day and one-half night
on the equipment he is currently flying
on a regular trip bid pattern. . . .

13
Section 23 as urged by Continental. Following the same reasoning

set forth above regarding the temporary cancellation provisions, a

choice between the furlough provisions and the minimum pay

guarantee in the event of a temporary, total shutdown would render

the furlough provisions of Section 23 a nullity.

c. Section 23: Furlough

Section 23 of the Red Book is entitled "Reduction in Force,

Furlough and Recall." Part 1 covers reductions in force, Part 2

deals with closings of pilot bases, Part 3 contains furlough rules

and Part 4 sets out a furlough pay schedule.6 The only argument

6
Section 23 states in pertinent part:

Part 1 - Reduction in Force

D. All pilots that could be affected by a reduction
in force should submit a new standing bid
indicating the lowest relative seniority position
acceptable to them at each base/sub-base on the
following basis, and all vacancies shall be filled
on the basis of this new standing bid, or, in its
absence, the last standing bid the pilot has
submitted.

* * *

(2) Affected pilots (as defined in Section 2) may
displace any pilot junior to them at any
base/sub-base in any status.

* * *

Part 3 - Furlough Rules

A. All orders to pilots involving furloughs or recall
from furloughs shall be in writing. Thirty (30)
days notice is required prior to furlough. Upon
recall, a pilot will be allowed thirty (30) days
to return to service. Any furloughed pilot who
fails to notify the Company within ten (10) days
of his intention to return to duty, and who fails
to return to duty within thirty (30) days after

14
 notice has been sent by certified mail, return
receipt requested, to the last address furnished
the Company, will be considered out of service
unless a justifiable reason be presented. For the
purpose of this Paragraph, "notice" means
attempted delivery by the U.S. Postal Service of a
letter sent Certified Mail, marked "Deliver to
Addressee Only."

(1) Should the Company offer recall to a pilot
which would require him to be based in Guam,
he may refuse that recall and remain on
furlough as long as there is a junior pilot
on the recall list. If the most junior pilot
refuses recall, he will lose all of his
seniority.

(2) When a pilot is on furlough he shall, upon
request, prior to ten (10) days following
notice of recall, be granted a leave of
absence of up to three (3) years from the
date of such request provided a pilot(s)
junior to him is on furlough.

B. All pilots furloughed from the Company shall file
their current permanent address with the Vice
President-Flight Operations at the time of
furlough. Any subsequent change of address should
be supplied to the Vice President-Flight
Operations.

C. Pilots furloughed due to a reduction in force
shall be allowed, for seniority purposes, all time
accrued prior to such furlough and shall continue
to accrue seniority during the period of furlough.
All such furloughs shall expire at the end of ten
(10) years from the effective date of such
furlough, or at the expiration of a period equal
to the furlough pilot's length of service with the
Company, whichever is longer.

D. When a pilot is furloughed or his employment with
the Company is terminated during any year, he
shall be paid for vacation time earned and not
previously taken, and the total amount of such
vacation compensation shall be at the rate of pay
currently receivable by such pilot and such amount
shall be in addition to any other compensation due
him as of the date of termination of his
employment.

15
E. Pilots recalled from furlough shall be entitled to
exercise their respective seniority as regards
bidding rights on base/sub-base vacancies which
necessitated the recalls. Such pilots, when
called from furlough, shall be recalled to the
base from which furloughed, or a Company paid move
shall be granted in accordance with Section 6
(Moving Expenses).

F. Any pilot recalled from furlough shall be
guaranteed a minimum of ninety (90) days
employment or ninety (90) days pay and credit in
lieu thereof.

G. The notice provisions under Part 3 and furlough
pay under Part 4 shall not apply if the furlough
is occasioned by a strike, work stoppage, act of
God or circumstances over which the Company has no
control.

H. If a pilot is furloughed within twelve (12) months
of exercising a Company paid move, the pilot may
(at his option) be returned to the pilot's
previous base at Company expense within two (2)
years of the effective date of the furlough. A
pilot will be eligible for such a move only if it
is exercised prior to his return to duty. If the
pilot is recalled to his last active base, the
pilot will be responsible for the costs associated
with the move. If the pilot is recalled to a base
other than the one from which he was furloughed,
the pilot will be entitled to the value of the
move from the furloughed base to the new base.

I. Pilots on furlough shall receive on line space
available pass privileges for a minimum of six (6)
months or a period equal to the pilot's actual
length of service, if greater, commencing on the
first day of the month following the date of the
pilot's last furlough pay.

Part 4 - Furlough Pay

A. A pilot who is furloughed shall receive furlough
pay for the period of time of active service as
specified below:

1 year of service 1/2 month
2 years of service 1 month
3 years of service 1-1/2 months

16
advanced by Continental as to why Section 23 does not apply to the

situation at hand is based on the bankruptcy court's finding that

the Red Book's furlough scheme "would be impossible to administer

in the case of a total cessation of Company operations." In Re

Continental Airlines Corp., 64 B.R. 882, 888 (Bankr. S.D. Tex.

1986). The bankruptcy court was referring to the "elaborate and

comprehensive scheme to handle partial layoffs" or "daisy-chain"

procedure set out in Part 1.D. of Section 23 dealing with

reductions in force. Under this scheme, vacancies resulting from

reductions in force are filled using a system-wide bidding process

and through displacement of junior pilots by senior pilots. The

bankruptcy court reasoned that because such a "daisy chain"

procedure could not be used in a total shutdown, Section 23 must

contemplate only partial shutdowns, and thus only a partial

shutdown may qualify as a "furlough."

We find that the "daisy-chain" procedure was not necessary for

a furlough under the terms of the Red Book, and therefore the

application of Section 23 does not turn on whether the shutdown was

4 years of service 2 months
5 years of service 2-1/2 months
6 years of service 3 months
7 years of service 3-1/2 months
8 years of service 4 months
9 years of service 4-1/2 months
10 years of service 5 months to pay
or more

* * *

D. Full furlough pay provisions shall apply each and
every time a pilot is placed on furlough status.

* * *

17
partial or total. The bankruptcy court was correct that the daisy

chain procedure could not have been implemented during a total

shutdown of operations. However, the daisy chain procedure is

described in part of Section 23 dealing with reductions in force;

Part 1 does not mention furloughs. Furloughs are dealt with

separately in Parts 3 and 4 of Section 23. Furthermore, even if

the procedure in Part 1 does apply to furloughs, Part 1 does not

contain any mandatory language regarding the implementation of the

procedure in a furlough situation. Similarly, Parts 3 and 4 do not

even refer to the daisy chain procedure, much less make the

procedure a mandatory requirement in the event of a pilot furlough.

We therefore conclude that Continental's failure to invoke the

daisy chain procedure described in Section 23, Part 1, does not

indicate that no pilot furlough took place on September 24, 1983.

Section 23, Part 4, which sets out a furlough pay schedule,

provides for furlough pay ranging from 1/2 month's pay for pilots

who have actively served for at least one year to 5 months' pay for

pilots who have actively served for 10 or more years. Continental

therefore contends that to hold Continental responsible for

furlough pay would provide a windfall to the pilots. The

bankruptcy court agreed, stating that to require Continental to pay

these amounts for a three-day shutdown would lead to "absurd

results . . . virtually guaranteeing a windfall for the entire

pilot and flight attendant workforce." 64 B.R. at 888.

The furlough pay scale contained in Section 23, Part 4 of the

Red Book is part of the negotiated contract between the parties.

18
The furlough payments, scaled according to the pilots' length of

service, are due regardless of the length of the furlough. The

furlough payments are not considered part of wages or compensation;

these aspects of the pilots' employment are covered in separate

sections of the contract. The furlough provisions thus do not

protect the pilots from loss of pay; instead, they serve as a

disincentive for Continental to impose arbitrary, unexpected

shutdowns. As the pilots point out, that the furlough payments

serve as a penalty on Continental will not always render an absurd

result. In the event of an extended furlough, the furlough pay

scale could work to Continental's advantage. In short, Continental

cannot manipulate the provision which Continental negotiated as

part of the collective bargaining agreement to work to its

advantage in the situation at hand by using the absence of any

language regarding the length of the furlough against the pilots.

Continental may not use the short-term nature of the shutdown as a

shield to protect the company from payment of amounts justly due

its employees.

Because our holding that the September 24-27 shutdown

constituted a furlough is based solely on the construction of the

Red Book, we need not address the pilots' arguments regarding the

commonly understood meaning of furlough7 or the Department of

7
The pilots urge that because a "furlough" is not
specifically defined in the Red Book, the legal presumption is
that the parties intended the "customary broad meaning" of the
term. Appellant's Brief at 15. The pilots discuss the meaning
given to "furlough" by various courts, by Congress in the Civil
Service Reform Act, and by Webster's dictionary.

19
Labor's opinion regarding Continental's shutdown.8 The Red Book

comprises the sole agreement between the parties, and no reference

to sources outside the Red Book is necessary in this case.

Summary Judgment

In evaluating a summary judgment motion, the reviewing court

applies the same standard that governs the district court. Latimer

v. Smithkline & French Lab., 919 F.2d 301, 303 (5th Cir. 1990);

Waltman v. International Paper Co., 875 F.2d 468, 474 (5th Cir.

In Fishgold v. Sullivan Drydock & Repair Corp., the Court
stated that a furlough is a "form of lay-off", and defined "lay-
off" as "A period during which a workman is temporarily dismissed
or allowed to leave his work . . ." 328 U.S. 275, 287 & n. 11,
66 S. Ct. 1105, 90 L.Ed. 1230 (1946) (quoting Oxford English
Dictionary, Supp.). Section 7511(a)(5) of the Civil Service
Reform Act defines "furlough" as "the placing of an employee in a
temporary status without duties and pay because of lack of work
or funds or other nondisciplinary reasons." 54 U.S.C. §
7511(a)(5). Additionally, Webster's dictionary defines
"furlough" as "a temporary lack of employment due to economic
conditions." Webster's Third New International Dictionary 923
(1961).
8
In furtherance of their argument that Continental's
three-day shutdown constituted a furlough, the pilots point to an
opinion letter issued by the Department of Labor (DOL) in
response to an inquiry by a member of the O'Neill group as to
whether he was entitled to designated status under the labor
protective provisions of the Airline Deregulation Act, 49 U.S.C.
§ 1552(d). Record, Vol. 2 at 130, Appendix 21 at 3. The letter
states as follows:

First, the Department stands by its earlier opinion on the
designated status of the pilots. The nature of
Continental's layoff admittedly differed from that which was
common to the industry, but it still must be construed as a
constructive furlough or termination. While the substantial
reduction in wages and benefits and changes in work rules
may have been comparable to standards at some other
carriers, the abrogation of the collective bargaining
agreement made Continental's action radically different.

20
1989). Summary judgment is proper when, viewing all the evidence

in light most favorable to the non-movant, "there is no genuine

issue as to any material fact and . . . the moving party is

entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c);

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91

L. Ed. 2d 265 (1986); Waltman, 875 F. 2d at 474.

This court has the power to render summary judgment for a

nonmoving party if we find that the moving party is not entitled to

summary judgment and that no factual dispute exists and the

nonmoving party is entitled to summary judgment as a matter of law.

6 James W. Moore, et al., Moore's Federal Practice, ¶ 56.12 at 161-

65 (2d ed. 1991); Jensen v. Snellings, 841 F.2d 600, 618 (5th Cir.

1988); E.C. Ernst, Inc. v. General Motors Corp., 537 F.2d 105, 109

(5th Cir. 1976); Black Warrior Elec. Membership Corp. v.

Mississippi Power Co., 413 F.2d 1221, 1226 (5th Cir. 1969).

Because we hold that on the construction of the Red Book,

Continental's three-day shutdown constituted a furlough of the

pilots, we reverse the bankruptcy court's order granting summary

judgment in favor of Continental. Moreover, we find that no

factual dispute as to whether a furlough occurred exists, and that

the pilots are entitled to summary judgment as a matter of law.

Facing (Contract) Rejection

Immediately after Continental filed its bankruptcy petition on

September 24, 1983, the company filed a motion in bankruptcy court

to reject its labor contracts with ALPA and the Union of Flight

Attendants (UFA) pursuant to 11 U.S.C. § 365. The bankruptcy court

21
approved Continental's rejection of its labor contracts. ALPA and

UFA then filed proofs of claim for contract rejection damages, and

the bankruptcy court granted summary judgment in favor of

Continental, disallowing all contract rejection claims. This

court, in In Re Continental Airlines Corp., 901 F.2d 1259 (5th Cir.

1990), cert. denied, ___ U.S. ___, 113 S. Ct. 87, 121 L. Ed. 2d 50

(1992), affirmed the bankruptcy court's order granting partial

summary judgment in favor of Continental and disallowing contract

rejection damages for time periods when the employees were on

strike, but vacated the bankruptcy court's order disallowing all

contract rejection claims.

Under Bankruptcy Code § 365(g), "the rejection of an executory

contract . . . of the debtor constitutes a breach of [the] contract

. . ." 11 U.S.C. § 365(g); see also Matter of Brady, Texas, Mun.

Gas Corp., 936 F.2d 212, 214 (5th Cir. 1991), cert. denied, ___

U.S. ___, 112 S. Ct. 657, 116 L. Ed. 2d 748 (1991). Section

365(g)(1) goes on to state that if the contract has not been

assumed under § 365 or under a plan confirmed under 11 U.S.C.

chapters 9, 11 or 13, the breach is deemed to take place

"immediately before the date of the filing of the petition." 11

U.S.C. § 365(g)(1) (emphasis added). In its order approving

Continental's rejection of the Red Book, the bankruptcy court

ordered the contract rejection effective as of the date of the

bankruptcy filing. However, this court noted in its decision cited

above that under 11 U.S.C. § 365(g)(1), when a contract is rejected

pursuant to § 365, the agreement is deemed breached the day before

22
the Chapter 11 petition was filed. In Re Continental Airlines

Corp., 901 F.2d at 1264.

In the instant action, the district court held that

Continental's rejection of the collective bargaining agreement

between the parties removed any possible basis for the pilots'

furlough claims. Continental argues on appeal that because the

collective bargaining agreement was deemed breached as of September

23, 1983, the furlough provisions contained therein no longer were

in effect on September 24, when the pilots contend Continental

placed them on furlough. Alternatively, Continental argues that

the pilots' furlough pay claims are subsets of their claims for

contract damages. The pilots contend that precisely when the

breach was deemed to occur is irrelevant, because the purpose of §

365(g) is to ensure that the creditor with a rejection claim has at

least a prepetition claim allowable in bankruptcy, not to relieve

the debtor of any contractual liability to the creditor that has

accrued under the contract. They also argue that contract

rejection damages compensate the pilots for the loss of contract

rights, such as seniority and recall rights and rights to wages and

union representation, and not for the three-day shutdown during

which no work was available.

Significantly, § 365(g)(1) speaks only in terms of "breach."

The statute does not invalidate the contract, or treat the contract

as if it did not exist. To assert that a contract effectively does

not exist as of the date of rejection is inconsistent with deeming

the same contract breached. Furthermore, a party aggrieved by

23
contract rejection may assert a claim for damages. 11 U.S.C. §

502(g); Brady, 936 F.2d at 214.9 Contract rejection damages are

based upon what an employee would have made under the rejected

contract. See In Re Continental Airlines Corp., 901 F.2d at 1265.10

Thus inconsistency again arises in the notion that damages may be

awarded on the basis of the rejected contract, the provisions of

which, according to Continental, are no longer in effect as of the

date of rejection.

Continental cites NLRB v. Bildisco & Bildisco, 465 U.S. 513,

104 S. Ct. 1188, 79 L.Ed. 2d 482 (1984), in support of its

arguments regarding the purpose and scope of § 365(g)(1). In

Bildisco, the Court stated that "While the Board insists that §

365(g)(1) deals only with priorities of payment, the implications

from the decided cases are that the relation back of contract

rejection to the filing of the petition in bankruptcy involves more

9
11 U.S.C. § 502(g) provides as follows:

A claim arising from the rejection, under section 365
of this title or under a plan under chapter 9, 11, 12,
or 13 of this title, of an executory contract or
unexpired lease of the debtor that has not been assumed
shall be determined, and shall be allowed under
subsection (a), (b), or (c) of this section or
disallowed under subsection (d) or (e) of this section,
the same as if such claim had arisen before the date of
the filing of the petition.
10
In ruling on the pilots' and flight attendants'
contract rejection damages claims in this case, this court held
that "employees whose collective bargaining agreements are
rejected in a Chapter 11 bankruptcy proceeding are entitled to
future wages and benefits as contract rejection damages under 11
U.S.C. § 502(g)", In Re Continental Airlines, 901 F.2d at 1260,
based upon what the employees would have made had the contract
not been rejected. Id. at 1265.

24
than just priority of claims." 465 U.S. at 531. However, we think

that Continental misreads this statement to say that § 365(g)(1),

in addition to dealing with priority of claims, deals with the

continued existence of the terms of the contract. The cases cited

by the Court in support of its statement above do not support

Continental's proposition that rejection of the Red Book rendered

the agreement ineffective, thereby relieving Continental of any

liability under the agreement. See cases cited 465 U.S. at 531,

n.13. Instead, the Court appears to be referring to the contract

damages available to a creditor when a collective bargaining

agreement is rejected pursuant to § 365(g)(1), and not to any

lessened obligations of the debtor resulting from that rejection.

Section 365(g)(1) indeed involves more than priority of claims. As

we have explained above, however, it is difficult to reconcile a

holding that damages are due when a collective bargaining agreement

is rejected and an argument that that agreement at the same time

does not effectively exist. An agreement cannot "exist" for one

purpose yet take on a "nonexistent" quality which works to the

advantage of one party or the other.

In In Re Modern Textile, Inc., 900 F.2d 1184 (8th Cir. 1990),

the Eighth Circuit addressed the argument that rejection of a lease

under 11 U.S.C. § 365 terminated the debtor's obligations on the

lease. The court cited the language of 11 U.S.C. §§ 365, 365(g)(1)

and 502(g) in support of its conclusion that "the trustee's

rejection of the lease operate[d] as a breach of an existing and

continuing legal obligation of the debtor, not as a discharge or

25
extinction of the obligation itself." Modern Textile, 900 F.2d at

1191. Similarly, Continental's rejection of the Red Book did not

extinguish its obligations under the furlough rules contained in

the agreement or render the furlough rules inapplicable as of the

date of rejection. We hold that the district court erred in

holding that "the rejection of [the Red Book] removes any possible

basis for the pilots' claims . . . ."

The House and Senate reports regarding § 365(g) state that the

purpose of that section is to "treat rejection claims as

prepetition claims." HR Rep. No. 595, 95th Cong., 1st Sess. 349

(1977); S. Rep. No. 989, 95th Cong., 2d Sess. 60 (1978). In the

instant case, the pilots' claims for contract rejection damages

were properly treated as prepetition claims allowable in bankruptcy

in accordance with the purpose of § 365(g) stated above. However,

the award of contract rejection damages to the pilots who did not

strike in no way precludes the pilots from making furlough pay

claims pursuant to Section 23 of the Red Book. The claims for

contract rejection damages and the furlough pay claims are two

distinct and separate sets of claims. This court previously has

ruled on the contract rejection damages issue, and we need not

revisit that issue here. We agree with the pilots that they may

maintain both actions and that the furlough claims must be examined

independently of any contract rejection issues previously raised.

We believe that the inconsistency demonstrated in the

conclusions of the bankruptcy court and this court as to the

precise day on which the contract is deemed breached is immaterial

26
in light of our holding that the rejection of the Red Book did not

relieve Continental of its furlough pay obligations arising from

the three-day shutdown.

Estimation and Recusal

The pilots appeal the bankruptcy court's estimation of their

furlough pay claims at zero. Bankruptcy Code § 502(c) provides as

follows:

There shall be estimated for purpose of allowance under
this section --

(a) any contingent or unliquidated claim, the fixing or
liquidation of which, as the case may be, would
unduly delay the administration of the case; or

(b) any right to payment arising from a right to an
equitable remedy for breach of performance.

11 U.S.C. § 502(c). The bankruptcy court, based on its conclusion

that the pilots' claims ultimately were without merit, found that

the claims necessarily must be estimated at zero pursuant to §

502(c). In Re Continental Airlines, 64 B.R. at 890. The

bankruptcy court noted that "liquidation of [the] furlough claims

through arbitration would unduly delay [Continental's]

reorganization." Id. at 887. The district court affirmed the zero

valuation of the claims, stating that in light of the "enormous

task" which faced the bankruptcy court, the § 502(c) estimation

process was an appropriate means by which to facilitate the

confirmation of Continental's reorganization plan in the event

summary judgment on its motions was denied. The district court

asserted that liquidation of the pilots' furlough pay claims could

not have been accomplished expeditiously in light of the large

27
number of individual claims filed, and that the bankruptcy court

avoided "undue delay in the administration of this case" by

utilizing the § 502(c) estimation process.

In order for the estimation process of § 502(c) to apply, a

claim must be contingent or unliquidated and fixing the claim must

entail undue delay in the administration of justice. The pilots

argue that the bankruptcy court and the district court failed to

establish these prerequisites for utilization of the estimation

process, and that even if the requirements had been met, the

bankruptcy court failed to properly estimate the claims, using

estimation as a vehicle for granting Continental's summary judgment

motion.

In Matter of Ford, 967 F.2d 1047 (5th Cir. 1992), this court

observed that Bankruptcy Code § 502(c)(1) serves two purposes: 1)

the section is designed to avoid the need to await the resolution

of outside lawsuits to determine issues of liability or amount owed

by means of anticipating and estimating the likely outcome of these

actions, and 2) the section is designed to promote a fair

distribution to creditors through a realistic assessment of

uncertain claims. Id. at 1053. However, in cases where a claim is

neither contingent nor unliquidated, estimation is "simply

inappropriate." Id.

A bankruptcy court's estimation of the value of an

unliquidated claim, the liquidation of which would unduly delay the

proceedings, may be disturbed on appellate review only in the event

of an abuse of discretion. Matter of Brints Cotton Mktg., Inc.,

28
737 F.2d 1338, 1341 (5th Cir. 1984). Because we find, however,

that Judge Roberts should have stood recused from the case, and,

for reasons set forth below, that his failure to stand recused

pursuant to 28 U.S.C. § 455(a) does not constitute harmless error

with regard to his ruling on the estimation of the pilots' claims,

we vacate the portion of the June 27 order estimating the pilots'

claims at zero and remand the issue to the bankruptcy court for

determination by a new bankruptcy judge.

Twenty-eight U.S.C. § 455(a) states that "[a]ny justice,

judge, or magistrate of the United States shall disqualify himself

in any proceeding in which his impartiality might reasonably be

questioned." Id. The pilots argue that Judge Roberts should have

stood recused from the case because shortly after issuing the order

granting Continental's motion for summary judgment, Judge Roberts

accepted an offer for partnership in the law firm representing

Continental. The pilots assert that Judge Roberts' actions in

connection with the law firm and in publicly praising Continental's

president created an appearance of impropriety, and that Judge

Roberts' failure to recuse himself requires the reversal of the

bankruptcy court's order granting summary judgment.

This court addressed the issue of Judge Roberts' failure to

stand recused with regard to his summary judgment order disallowing

the pilots' and flight attendants' contract rejection claims in In

Re Continental Airlines Corp., 901 F.2d 1259 (5th Cir. 1990). The

court noted that recusal may be mandated even though no actual

partiality exists, Hall v. Small Business Admin., 695 F.2d 175, 178

29
(5th Cir. 1983), and that the standard for recusal is an objective

one: whether a "reasonable man, were he to know all the

circumstances, would harbor doubts about the judge's impartiality."

901 F.2d at 1262 (quoting 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)). The panel discussed the

appearances of the situation, concluding that

when an offer of employment was received the day after
[Judge Roberts'] 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.

901 F.2d at 1262-63 (quoting Liljeberg, 486 U.S. at 861, 108 S. Ct.

at 2202-03, 100 L.Ed.2d at 873). This court went on to hold,

however, that the § 455(a) violation constituted harmless error.

Id. at 1263. The panel carefully considered three factors in

determining whether reversal was mandated: i) the risk of

injustice to the parties in this particular case; ii) the risk that

the denial of relief will produce injustice in other cases; and

iii) the risk of undermining the public's confidence in the

judicial process. Id.

With respect to the first factor, the court concluded that

"the risk of injustice to the parties in allowing a summary

judgment ruling to stand is usually slight" because summary

30
judgment rulings are subject to de novo review, with the reviewing

court utilizing criteria identical to that used by the court below.

Id. The panel stated that "[i]n cases where we would otherwise

affirm such a ruling, little would be gained by vacating and

remanding with instructions that it be essentially reinstated."

Id.

The court concluded with regard to the second factor that its

failure to vacate would not be likely to produce injustice in other

cases, but would serve as a caution to other judges contemplating

private employment following retirement. Finally, the court

concluded that its ruling that Judge Roberts' actions violated §

455(a) should serve to restore some of any public confidence lost

as a result of the violation, and therefore, that the violation

constituted harmless error.

In considering the issue of Judge Roberts' recusal in the

instant case, we apply the same standard and carefully consider the

same factors as did this court in its opinion discussed above.

Using the same standard in determining whether a § 455(a) violation

has taken place, and applying that standard to the same set of

circumstances described in this court's previous opinion, we find

that Judge Roberts violated 28 U.S.C. § 455(a) in his failure to

stand recused from this case.

Similarly, we consider the same set of factors in determining

whether the § 455(a) violation in this case constitutes harmless

error. The only difference between the two cases arises in the

consideration of the first factor: the risk of injustice to the

31
parties in this particular case. In In Re Continental Airlines,

this court affirmed the bankruptcy court's order granting summary

judgment, and asserted that nothing would be gained by vacating and

remanding the case because of the § 455(a) violation. In this

case, after reviewing the bankruptcy court's order de novo, we

reverse the bankruptcy court's order and grant summary judgment in

favor of the pilots; similarly, nothing would be gained by vacating

and remanding this case when we have utilized the same criteria as

the courts below in ruling on the summary judgment issue.

With regard to the second and third factors, we adopt the

reasoning of this court in In Re Continental Airlines: the risk

that the denial of relief with regard to the summary judgment issue

will produce injustice in other cases is slight, and the risk of

undermining the public's confidence in the judicial process is

decreased by our ruling that a § 455(a) violation did indeed occur

in this case and our plenary review and reversal of the bankruptcy

court's order granting summary judgment. Accordingly, we hold that

the violation of 28 U.S.C. § 455(a) constitutes harmless error with

regard to the portion of the bankruptcy court's order granting

summary judgment in favor of Continental.

The standard of review which a reviewing court must utilize in

ruling on a bankruptcy court's estimation of the value of an

unliquidated claim, that is, whether the bankruptcy court's

estimation constituted an abuse of discretion, demands a different

result when considering the issue of whether a § 455(a) violation

constitutes harmless error. The risk of injustice to the parties

32
is much greater when a court lacks broad powers of review. In this

instance, if we do not vacate the bankruptcy court's order

estimating the pilots' claims at zero and remand the estimation

issue to the district court, the parties may remain subject to an

order entered by a judge who has violated 28 U.S.C. § 455(a), yet

has not abused his discretion in entering the order.

Additionally, the risk of undermining the public's confidence

in the judicial process also is greater in this instance than the

risk posed when dealing with summary judgment review. We are

concerned with more than appearances when dealing with a

discretionary ruling of a lower court; we are concerned with

parties receiving fair treatment of their claims and maintaining

the public's confidence and trust that should a violation of §

455(a) occur, the welfare of the parties will take priority over

convenience or ease of disposing of the parties' claims.

The risk that the denial of relief will produce injustice in

other cases, however, is not great should we deny relief on the

bankruptcy court's estimation order; by finding that a § 455(a)

violation occurred, we caution other judges, and because

Continental's plan of reorganization is complete, injustice to

other Continental creditors resulting from any delay is minimal.

However, we find that the increased risk of injustice to the

parties and of undermining the public's confidence in the judicial

process far outweighs any decrease in the risk of injustice to

other parties in denying relief from the bankruptcy court's

estimation order. Accordingly, we hold that the § 455(a) violation

33
did not constitute harmless error with regard to the portion of the

bankruptcy court's order estimating the pilots' claims at zero, and

therefore we vacate such portion of the bankruptcy court's order

and remand the issue to the bankruptcy court for determination by

a new bankruptcy judge.

Conclusion

We reverse the bankruptcy court's order granting summary

judgment in favor of Continental, and because we find that there is

no genuine issue as to any material fact and that the pilots are

entitled to judgment as a matter of law, we grant summary judgment

in favor of the pilots. We vacate the portion of the bankruptcy

court's order estimating the pilots' furlough claims at zero, and

remand the issue to the bankruptcy court for calculation of the

amount of the pilots' claims by a new bankruptcy judge.

REVERSED AND REMANDED for calculation of claims.

34