A recently uncovered National Labor Relations Board memo on the bitter dispute between billionaire investor Carl Icahn and Trump Taj Mahal casino workers may provide a roadmap for unions to pursue recourse when labor contracts are nullified during bankruptcy proceedings.

Barry Kearney, the board’s former associate general counsel, concluded in 2016 that Taj Mahal workers could pursue certain unfair labor practice claims against Icahn and the Atlantic City, N.J., casino’s other owners. That was despite a federal appeals court ruling that Icahn could use bankruptcy to scrap obligations to cover workers’ pensions and health care.

“That was a major, major event,” Richard Marcus, a Chicago lawyer who represented Icahn, said of the appeals court decision. “The argument that collective bargaining can fit neatly within a bankruptcy proceeding is pure garbage.”

“But you’re still going to run up against the NLRB, which seems to take the position that the decision was beyond the bankruptcy court’s jurisdiction,” Marcus said.

An Icahn Enterprises LP subsidiary last year agreed to pay more than $1 million to resolve a case challenging scheduling, break, and other changes that the Taj Mahal’s owners imposed without negotiating with the union UNITE HERE. The settlement deprived the five-member NLRB—or a federal court—of a chance to decide whether Icahn violated labor law by making those moves while the company was in bankruptcy.

The issue may rise again in the pending bankruptcy of California utility PG&E Corp., which has been assuring retirees it won’t try to terminate their pension or insurance benefits, with the conflict unsettled between the bankruptcy courts and the administrative body that enforces federal labor law.

“Employers often use bankruptcy as an opportunity to get out of their obligations to their workers,” Peter DeChiara, a New York lawyer who represents labor unions, told Bloomberg Law. “But the workers have statutory rights that are not impacted by the bankruptcy, including that the employer can’t make unilateral changes to certain terms and conditions.”

Trump’s ‘Eighth Wonder’

President Donald Trump originally developed the Taj Mahal, which he touted as “the eighth wonder of the world.” Trump sold his ownership stake in 2009 but was still getting a licensing fee for the use of his name when Icahn—a Taj Mahal investor—started trying to rescue the property from bankruptcy in 2014. He bought it two years later. Icahn Enterprises closed the casino after a three-month strike and last year sold the property to Hard Rock International for $50 million.

Icahn served as a special trade adviser to Trump in 2017 until resigning amid questions by Democratic lawmakers about whether he advocated for policies beneficial to his oil-refining and other businesses.

The Kearney memo was issued near the end of the Obama administration, when former general counsel Richard Griffin and Democrats controlling the board pushed expansive legal interpretations meant to bolster workers’ rights. The Republican-majority board under Trump, and General Counsel Peter Robb, have been chiseling away at some of those efforts but haven’t yet touched the bankruptcy question.

“The current general counsel has not taken any position on those issues,” an NLRB spokeswoman told Bloomberg Law.

Kearney’s memo came to light through a Freedom of Information Act request by the AFL-CIO. Marcus, Icahn’s attorney, told Bloomberg Law he hadn’t been aware of it.

“The ultimate settlement had to do with changes to hours, rescheduling, and combining jobs,” Marcus said. “It had nothing to do with the pension and other changes that were approved by the bankruptcy court.”

Strike Led to Closing

Icahn’s move to reorganize the casino’s debts through bankruptcy included a push to renegotiate the UNITE HERE bargaining agreement. Those talks eventually soured.

“He was trying to pay off the debt on the backs of the employees,” William Josem, a lawyer for UNITE HERE, told Bloomberg Law. “To Icahn’s credit, he moved on.”

More than 1,000 Taj Mahal workers went on strike in the summer of 2016, by which point Icahn had taken control of the business. The labor strife eventually prompted the company to close the casino. Some of the employees were hired at the nearby Tropicana, in which Icahn held a stake for a decade before selling it for $1.85 billion in 2018.

“We saved thousands of jobs at the Tropicana and had good relations with the unions,” Icahn said in a brief interview with Bloomberg Law. “Unfortunately, even though we had a deal with union leadership at the Taj, it was rejected by the union membership.”

Unsettled Territory

The Third Circuit Court of Appeals in 2016 ruled that Icahn was authorized under bankruptcy law to scrap the contract with UNITE HERE, even though it had expired by that time. Federal labor law generally requires employers to maintain certain terms and conditions in an expired contract while a new one is being negotiated.

Bankruptcy law allows companies to modify or terminate union contracts when they can prove it’s necessary for the business to survive. Congress updated that law in response to a 1984 Supreme Court decision ruling that union contracts could be more easily discarded in bankruptcy proceedings, similar to leases and other agreements.

It’s “premised on the concept that the labor organization may be fighting this, but based on the evidence before the judge, it’s in the group’s best interest because otherwise the company is going to shut down,” David Kupetz, a bankruptcy lawyer in Los Angeles, told Bloomberg Law.

Kearney in the memo acknowledged that the appeals court had blessed Icahn’s refusal to continue funding pension and benefits plans under the contract. But he said Icahn committed unfair labor practices by changing other terms and conditions of the workers’ jobs.

The appeals court ruling “wasn’t intended to interfere with the board’s authority to proceed against unfair labor practices,” Kearney said. “Such an order would have been of dubious legality.”

Kearney is now a management attorney and Griffin has returned to representing labor unions. They declined to comment on the memo.

—Hassan Kanu contributed to this report