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  1. #1
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    Default This is a incredibly bad precedent to set.

    In a First, Bankruptcy Judge Rules Calif. City Can Void Union Contracts
    Pamela A. MacLean
    03-17-2009

    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.


  2. #2
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    Friday, March 13, 2009
    Vallejo, CA - Bankruptcy Judge Tosses IAFF and IBEW Contracts
    BY RON YORK
    POLICEPAY.NET

    In a much anticipated decision, Bankruptcy Judge Michael McManus gave the IAFF and IBEW contracts the heave ho today. This is just one more loss in row for a flawed strategy. The only good thing is that Steve Gordon and Mat Mustard cut a deal for the Vallejo police officers before the axe came down. Locked into a vindictive battle with the City of Vallejo, the firefighters have repeatedly made bad decisions. Today's decision is just one more blow for police officers and firefighters in the United States. The scorched earth policy being promoted by Local 1186 has advanced the cause of those who would impair public safety associations. Based on the firefighters bankruptcy attorney's comments, this will not be the last defeat.

    The situation in Vallejo would be a good comedy if it was not so painful. It is much like Adlai Stevenson's remarks after losing the race for President in 1956 - "I am too old to cry, but it hurts too much to laugh." By the time the firefighters are finished, the criteria for municipal bankruptcy will be so low, that even Beverly Hills will qualify. Many of you were and still are angry about my coming out against this act of self-destruction. I have had some really nasty emails.

    On the other side, it was amazing to watch the city roll out its claim of poverty at last Tuesday's city council meeting. According to city finance director, Rob Stout, the city is in the tank - a $12 million dollar deficit. About one-half of that large number is attributed to two items -bankruptcy legal fees and an attempt to pre-fund the retirees insurance. There is no requirement that the city must pre-fund the retiree's heath insurance - none, nil, zilch, nada. It is much like a man who cannot feed his family but is trying to prepay his mortgage.

    If you want to read the decision, click this link - Vallejo Decision. Read it and weep. It will not be the last act of this fiasco - it is just a brief intermission. The only thing that could save Vallejo now is a "Mississippi Squirrel Revival." Oh well, at least there is a large supply of my favorite pain killer nearby - Merlot. Ah.

  3. #3
    Forum Member AZFF25's Avatar
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    That is some serious bullsh*t!!!!!
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    A city can declare bankruptcy? WTF?

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    Quote Originally Posted by Catch22 View Post
    A city can declare bankruptcy? WTF?
    No it is the ease at which a city could manipulate the books to enter into Chapter 9 and then break all muncicipal contracts.

    Contract Law is being turned on its head in this country and it needs to be preserved...this isn't a banana republic, is it?

    FTM-PTB

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    Well,why not?If Barry the Chosen One can play Donald Trump and fire corporate CEOs before bailing out a private enterprise,why cannot a city declare bankruptcy?
    I have heard of cities threatening to go bankrupt if they didn't get their finances under control but I don't think that I can recall one actually doing so.
    If a city cannot control the money collected in taxes,they need to try everything to avoid going into the red including reducing wages of city employees INCLUDING the City Council and Mayor that screwed things up so badly financially.
    If the unions won't do it,that doesn't mean that the politicians can't take a pay cut and then point out what sacrifices they are making while the unions are still pulling down negotiated wages.Let the people know why the city is in trouble and who to blame.

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    Forum Member scfire86's Avatar
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    My agency (Orange County, CA) declared bankruptcy in 1994.

    A good time was had by all.
    Politics is like driving. To go forward select "D", to go backward select "R."

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    Forum Member eastcoastFF's Avatar
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    This type of thing has been happening in PA. Pennsylvania has a law called Act 47 which is meant to stave off bankruptcy. Provisions of the law allow an Act 47 City to essentially toss out a contract and all its provisions once the contract is up. Basically if you have a 3 year contract and the City goes Act 47 after the 3 years is up you start a new contract from scratch. The State sends people in to take over City management and enact a recovery plan. I believe Scranton, PA has been hit especially hard.

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    Angry Not Good At All

    So far in our state, everything in a contract is binding except wages. This in essence given the City it's bargaining chip for a "bankruptcy" scenario. They can force Union's to renegotiate through cutting wages. While we've not seen it happen yet, I'd favor it over tossing the whole contract out. It at least forces the groups to the table to work on the solution rather than letting the City start from scratch by nullifying the contracts.

    If this decision stands those with any money woes (most of us in this economy) will lose minimum staffing which is likely the fastest way the bean counters can save money and the most dangerous I might add.

    I'm not sure the particulars, but Waterbury, CT went "bankrupt" a few years back and I belive the state took over and cut the WFD from 4 shifts to 3? Which we can only assume was clearly a violation of the contract? Of course we also have Gary, IN this year and likley many others who have been "forced" to accept reduced staff in violation of contract language.

  10. #10
    Forum Member scfire86's Avatar
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    Bankruptcy protection (in our case) very much enabled our employer to void our contract. Our's wasn't due to a sluggish economy as it was poor investments by the County Treasurer.

    The fun part was when the county seized 457 contributions in order to help it meet payroll. Our union was instrumental in getting legislation signed that forced the County to repay those seized assets.

    I don't envy Vallejo. It was a really screwed time to work in our department.
    Politics is like driving. To go forward select "D", to go backward select "R."

  11. #11
    Forum Member CaptOldTimer's Avatar
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    Quote Originally Posted by Catch22 View Post
    A city can declare bankruptcy? WTF?
    Not only a city but a state. The state of confusion, aka California, is almost in that boat. They are having one heck of a time paying their employees. Probably because too many people in the state that do not pay taxes whatsoever and need to go back home.
    Stay Safe and Well Out There....

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    wow this is pretty disturbing.

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    I believe Pittsburgh is also getting their *** kicked this way.

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    Quote Originally Posted by len1582 View Post
    I believe Pittsburgh is also getting their *** kicked this way.
    Yeah, they're feeling the love too.

  15. #15
    Back In Black ChiefKN's Avatar
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    I know that NJ State Employees can have wage freezes and mandatory furlough days (and have already suffered this).

    NJ isn't even bankrupt (except morally).
    I am now a past chief and the views, opinions, and comments are mine and mine alone. I do not speak for any department or in any official capacity. Although, they would be smart to listen to me.

    "The last thing I want to do is hurt you. But it's still on the list."

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    My second country ( Ukraine) is possibly only a few months away from Bankruptcy. According to BBC, this would be the first country ever in the world to actually declare bankruptcy. My wife and I are working ashard as we can to help, but 70 years of communism unfortunately has left a legacy for governance here. Its really hard on seniors and other pensioners.

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    This kind of stuff happens in every restructuring effort. Company A extends credit to Company B who all of a sudden claims Bankruptcy. Now Company A is stuck holding the bag and may have to go under as well.

    These guys should look on the bright side, at least they will still have jobs. Around here, many of the jobs are headed off to Mexico.

    Although, the city did try to bargain in good faith as is shown by the PD, city clerks and managers group concessions. Only the electrical and fire fighters refused to budge.

    The thing these guys need to realize is you can't get water from a stone. If the city has no money to pay contracts then what good is the contract?

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    Forum Member scfire86's Avatar
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    Quote Originally Posted by ScareCrow57 View Post
    This kind of stuff happens in every restructuring effort. Company A extends credit to Company B who all of a sudden claims Bankruptcy. Now Company A is stuck holding the bag and may have to go under as well.

    These guys should look on the bright side, at least they will still have jobs. Around here, many of the jobs are headed off to Mexico.

    Although, the city did try to bargain in good faith as is shown by the PD, city clerks and managers group concessions. Only the electrical and fire fighters refused to budge.

    The thing these guys need to realize is you can't get water from a stone. If the city has no money to pay contracts then what good is the contract?
    Is that what you told everyone when you went BK? Since you have personal first hand experience with this type of activity, I'm sure your insight will be considered very valuable. Maybe you should write the city a letter offering your assistance.
    Politics is like driving. To go forward select "D", to go backward select "R."

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    Quote Originally Posted by scfire86 View Post
    Is that what you told everyone when you went BK? Since you have personal first hand experience with this type of activity, I'm sure your insight will be considered very valuable. Maybe you should write the city a letter offering your assistance.
    Well at least my entire county didn't go BK. Simply show the OC liberal government is ineffective.

    I will say this though. Government workers should be treated just like their private industry counter parts. There shouldn't be two sets of rules except when it comes to matters of national security. Certain segments cannot be allowed to strike for obvious reasons.

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    This is a very a bad thing. While I do beleive, in bankurupcy, there should be a means to void all contracts etc, I don't believe it should be easy or simple to do. It should be a poison pill - last resort option with signficant review trying to keep as many provisions as is reasonable/possible.

    In this case - both sides share a lot of the blame. The union should have worked diligently to meet in the middle with compromises. The city should have opened the books clearly to all - including the voters. The city got to that financial point for a reason - lets see what it is. (who knows, it may not be local mismanagement so much as required services and unfunded mandates coupled to a shrinking taxable base)

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