Posted on 03/17/2009 2:43:05 PM PDT by 2banana
In a First, Bankruptcy Judge Rules Calif. City Can Void Union Contracts Pamela A. MacLean The National Law Journal March 17, 2009
In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies.
Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers' union contracts
U.S. Bankruptcy Judge Michael McManus held March 13 that when Congress enacted 11 U.S.C. sec. 1113 to limit companies from outright rejection of union contracts it limited it to Chapter 11 bankruptcies. By failing to extend the limits to Chapter 9, which covers municipal bankruptcy, McManus said cities have broader latitude to break existing union pacts, In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.)
"This will have a huge effect nationwide if it is upheld," said Kelly Woodruff, of Farella, Braun & Martel in San Francisco, representing the firefighters and electrical workers unions. Woodruff said the unions would certainly appeal if the city ultimately voids the existing contracts with the two unions. "And I think we have a good chance of success," she said.
"My understanding is that a lot of cities are watching this and particularly this motion," said Woodruff. "If the city of Vallejo succeeds in using bankruptcy to void union contracts I am sure others will follow," she said.
Vallejo attorney Norman C. Hile of Orrick, Herrington & Sutcliffe's Sacramento, Calif. office said, "This is a decision that is somewhat groundbreaking."
"There are a number of other cities and government entities watching it very closely," he said, but declined to speculate on whether others would take the step Vallejo took of seeking bankruptcy protection.
The decision will be particularly important to cities with large unfunded pension liabilities, according to James Spiotto, of Chapman & Cutler in Chicago and a specialist in municipal bankruptcy who helped advise the Senate Judiciary Committee on Chapter 9 reforms.
He said the unfunded pension liabilities for states and cities was $800 billion a few years ago and may be at $1 trillion today. "The question is whether it is an inability to pay or an unwillingness to pay. If municipalities can't provide basic services and still pay labor costs or pensions then that is a real issue," Spiotto said.
Chapter 9 should be a last resort, he warned, because it causes problems in the municipal bond market. There are 50,000 municipalities but have only been 567 Chapter 9 filings since 1937, when the law was created, he said. By contrast, there may be 10,000 corporate bankruptcies in a single year.
Vallejo, a suburb of San Francisco, issued a statement saying the union challenge of the city's insolvency "at a time of an unprecedented economic downturn and the labor groups ongoing intransigence regarding the modifications of their labor agreements has cost the city more than $3.5 million in bankruptcy costs. These funds could have provided critical municipal services to the Vallejo community," the city stated.
Vallejo declared bankruptcy in 2008 that it blamed on spiraling payroll costs and declining revenue and within weeks asked U.S. Bankruptcy Judge Michael McManus in Sacramento to void all four contracts with 400 police, firefighters, electricians, maintenance workers, secretaries, clerks and other city workers.
Since then two unions, the police and city clerks and managers groups have settled with the city, making concessions in the contracts. Only the firefighters and electricians contracts have not been resolved.
McManus held that because Congress did not impose limits on invalidating union contracts under Chapter 9, cities must only meet the requirements under the U.S. Supreme Court's ruling in NLRB v. Bildisco, 456 U.S. 513 (1984), which gives broader discretion to break the contracts in bankruptcy.
"Section 1113 applies in chapter 11 cases and imposes on chapter 11 debtors procedural and substantive requirements that must be met prior to rejection of collective bargaining agreements," he wrote.
"Section 1113, however, is not incorporated into chapter 9," he concluded. He pointed out Congress considered such an extension in 1991 but did not add Chapter 9 and he would "not presume to do what Congress has not done."
The unions maintained that the city has not proven, as required in Bildisco, that the contracts are a burden to the city because it has $136 million in 100 special purpose funds, portions of which could be used to pay the wage obligations. In addition, the unions assert that negotiation has not been exhausted.
McManus did not allow for an immediate action by the city but ordered both sides back to court March 23 to tell him if negotiations with the two unions have progressed.
Woodruff said at this point the sides are not talking.
Expect to see this repeated across the nation.
BTW - Police and Fireman have starting salaries above $100,000 in Vallejo...
awesome!
sarc/
This is huge. I bet you will see this all over CA and other states.
Ninth Circus will reverse but SCOTUS?.....
Big, big "if". I don't expect to see it hold up. 9th circuit and all that. Might win in the Supreme Court. Maybe.
Although my family has its share of union members...f them, compete with the Mexicans!
Whats the mean starting salary for that area?
This is big! There are few things in this country that would make me more happy than to see unions outlawed. Why, I ask, are unions legal in the first place? Is it the organized theft factor?
Well they will just strike and of course be fired and then illegals who have recently been made legals will be hired to work for alot less and VOILA!
...coming soon to Detroit.
Are there many Mexicans in Detroit????
If “Government is the Answer” to all problems...why do government employees need a union anyway??
Great! Bankruptcy should be the preferred mechanism for ALL of what is now going on with the bailouts and rescues.
But bankruptcy judges and magistrates and masters must have very broad discretion to redo contracts. Even in private business they should be able to redo union contracts.
It all gets to the importance we put in having honest people in such positions of authority. It is of the highest importance for a society to survive.
Let the cleansing begin.
Let the cleansing begin.
Sounds outrageous, until you consider how much it costs to live in the PRK. How much do you think an apartment rent for or a small house costs there?
I once read about a janitor getting a salary of $50K - which sounds outrageous until you find out where he lives: NYC. In NYC, $50K is poverty wages.
Wages that would be insane in GA or PA may be “entry level” in insane places like the PRK or NYC.
If Congress isn’t bound by the actions of a previous congress, thus allowing Congress the government to unilaterally change the terms of military enlistment contracts, then why should the unions be any different regarding a city council’s contracts?
Bet the pointy-headed NE liberal bookworms didn’t see that one coming.
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