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.
Gross and net are two different things, of course, and $100k per year in California is not the same as in Kansas.
But the real question is whether you are actually delivering the value of your salary, no matter where you live.
You had better be delivering far more than that, or your job is a net drag and should be eliminated.
The upside of bankruptcy for counties cities and states
CAPLERS blew billions last year by law the cities and counties of California have to make up the difference. They will mercilessly raise taxes to do this.
Tax revolts and bankruptcies with contract and pension re-negotiations are needed. It’s the only way out
Bring it on!!!
The private sector citizens are suffering and so should the public sector
You raise a good point, but something to keep in mind is this . . .
By rescuing a company like AIG from bankruptcy, the U.S. government actually eliminated the one legitimate measure that could have been used (a bankruptcy filing) to negate those executive bonuses. A contractual agreement that can be negated in a bankruptcy court cannot be negated under a government "rescue" measure unless the changes in the contract are included in the rescue process.
Ah common sense...unfortunately that has no place in government work, or budget analysis.
If we apply your logic then nearly ALL of our elected officials would be out on their cans within their first term.
What happened in Vallejo is just the tip of the iceberg. Many municipalities are facing similar budget shortfalls and many of them are much larger than Vallejo.
Not to be a pessimist, but I can’t see this ruling standing.
WAY too much political pressure. Maybe someday, but not this one.
OK, I guess I’m a pessimist. Hope I’m wrong.
Thank you and everyone who replied. I see the light. I was having a slow mental day, not too unusual for me anymore, to much O distraction. I totally overlooked the Bankruptcy aspect, which when brought to my attention made things clear. Note to self: It’s a bankruptcy court ruling dummy!
What planet have you been living on?
Vallejo is scary.
That would be an excellent tagline!
Only because of an over inflated cost of living. Why is a 2000 sq ft house worth 150K say in Wisconsin but that same 150K house is worth 50oK in CA?
LOL!
Could this be proof that god does exist?
Excuse me that was sarcasm! A follow up from a earlier post! I live and breathe the same air you do!
“Why is a 2000 sq ft house worth 150K say in Wisconsin but that same 150K house is worth 50oK in CA?”
Because a buyer will pay that price in CA, same as any other goods, services in America.
And the people in CA are “happier” than the people in Wisconsin!!
http://www.gallup.com/poll/116497/Rankings-Reveal-State-Strengths-Weaknesses.aspx
Must be better drugs...kool aid
So you are saying, as long as “happiness reigns” I should be able to over charge for the same product? I will sell you 40 acres in WI for 40K but I will sell you this 40 acres in CA for 4M. Land is Land! Materials for construction are the same materials. Why do I have to subsidize over inflated CA housing costs with my homeowners insurance premiums based on “Happiness”?
“drugs, koolaid....
So you are saying, as long as “happiness reigns” I should be able to over charge for the same product? I will sell you 40 acres in WI for 40K but I will sell you this 40 acres in CA for 4M. Land is Land! Materials for construction are the same materials. Why do I have to subsidize over inflated CA housing costs with my homeowners insurance premiums based on “Happiness”?”
Your responses jump from topic to topic..scatterbrain?
I will start and finish my lesson on real estate economics for you, by stating prices vaary widely INSIDE Wisconsin, and inside California based on what a willing BUYER will pay, to complete a purchase.
Asking prices mean nothing, in the end.
This is actually really, really huge because the Democrats in control in WA State are planning to try to use the union contracts to get a court ordered tax increase.
Use this phrase while you can, journalist.
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