In Re City of San Bernardino, California, No. 5:2014cv02073 - Document 47 (C.D. Cal. 2015)
Court Description: OPINION by Judge Otis D. Wright, II: The Court hereby AFFIRMS the Bankruptcy Courts Order Granting in Part and Denying in Part City of San Bernardinos Motion Authorizing Rejection of Collective Bargaining Agreement with San Bernardino City Professional Firefighters. In re City of San Bernardino, No. 6:12-bk-28006, ECF No. 1187. The Clerk of the Court shall close this case. (Made JS-6. Case Terminated.) (lc)
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In Re City of San Bernardino, California Doc. 47 O JS-6 1 2 3 4 5 6 7 United States District Court Central District of California 8 9 10 11 In Re: 12 CITY OF SAN BERNARDINO, 13 CALIFORNIA, Case No. 5:14-cv-02073-ODW 14 OPINION Appeal from the United States Debtor, 15 __________________________________ Bankruptcy Court for the Central 16 SAN BERNARDINO CITY District of California, Riverside 17 PROFESSIONAL FIREFIGHTERS Division; 18 LOCAL 891 The Honorable Meredith A. Jury 19 20 Presiding (No. 6:12-bk-28006) Appellant, v. 21 CITY OF SAN BERNARDINO, 22 CALIFORNIA, 23 24 Appellee. I. INTRODUCTION 25 Appellant San Bernardino City Professional Firefighters Local 891 (the 26 “Union”) appeals an order from the United State Bankruptcy Court for the Central 27 District of California, Riverside Division, that granted in part and denied in part the 28 City of San Bernardino’s (the “City”) motion to reject a memorandum of Dockets.Justia.com 1 understanding 2 Firefighters Local 891 v. San Bernardino (In re City of San Bernardino), No. 6:12-bk- 3 28006, ECF No. 1187 (Bankr. C.D. Cal. Sept. 19, 2014) (the “Rejection Order”).1 4 The Union raises six arguments on appeal. The Union’s principle argument is that 5 the City failed to meet the necessary burden of proof for setting aside a collective 6 bargaining agreement as established in N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 7 (1984). 8 Court’s order in full. 10 A. San Bernardino City Prof’l For the reasons discussed below, the Court AFFIRMS the Bankruptcy II. 9 between the Union and the City. FACTUAL AND PROCEDURAL BACKGROUND Original Labor Agreement and Attempts to Reach Extension 11 Over a decade ago, the City and the Union entered into a labor agreement titled 12 “Fire Safety Employees Memorandum of Understanding – January 1, 2003 to June 30, 13 2009” (the “MOU”). (ER 160–214, 655.) 2 The MOU contains an “evergreen clause” 14 which states: 15 negotiated between the Union and the City, all articles in this MOU shall remain in 16 full effect, unless otherwise stated in this MOU.” (Id. at 198.) In June 2009, the 17 parties extended the MOU’s expiration date to June 30, 2010. 18 /// “Upon expiration of the MOU and until a new MOU has been 19 20 21 22 23 24 25 26 27 28 1 The Rejection Order is a two-page document that merely grants in part the Rejection Motion. On November 7, 2014, the Bankruptcy Court published the “Findings of Fact and Conclusions of Law Regarding Order Granting in Part and Denying in Part City of San Bernardino’s Motion Authorizing Rejection of Collective Bargaining Agreement with San Bernardino City Professional Firefighters.” In re City of San Bernardino, No. 6:12-bk-28006, ECF No. 1262 (Bankr. C.D. Cal. Nov. 4, 2014) (ER 3508–47). The Rejection Order is the appealable final order, while the Bankruptcy Court’s November 4, 2014 Order provides the justifications and is the scrutinized order on appeal. Accordingly, both orders are treated as a single entity and are jointly referred to as the “Rejection Order.” 2 Due to the voluminous record below, the parties submitted their own excerpts. While managing two “records” is not ideal, the Court does not identify any conflict between the submissions and the parties raise no objections. Citations to the “Excerpts of the Record” or “ER” denote the excerpts submitted by the Union. (ECF Nos. 13–23.) Citations to the “Supplemental Excerpts of the Record” or “SER” denote the excerpts submitted by the City. (ECF Nos. 29–42.) The parties do not dispute any facts on appeal. 2 1 On April 16, 2012, the City’s director of human resources sent a letter to the 2 Union’s counsel asking to meet and confer to determine if the parties could reach an 3 agreement on a successor MOU. (Id. at 742.) On April 25, 2012, the City sent 4 another e-mail to the Union seeking to schedule MOU negotiations. (Id. at 744–45.) 5 On June 18, 2012, Bob Heitzman sent an e-mail to the Union indicating that he was 6 hired by the City to assist with labor relations. (Id. at 747.) Heitzman noted that it 7 was imperative that the City and the Union begin meeting regarding the “extension of 8 the current compensation or other alternatives.” (Id.) The Union responded seeking 9 clarification on the scope of discussions and the effect of a separate lawsuit between 10 the Union and the City. (Id. at 749–50.) Heitzman replied that it would “take some 11 time” to respond to all of the Union’s questions, but he indicated that his request was 12 to meet and confer for a successor MOU. (Id. at 752–54.) The parties agreed to meet 13 on July 17, 2012. (Id. at 752.) On July 16, 2012, Heitzman postponed the meeting. 14 (Id.) 15 B. Bankruptcy Petition and Initial Financial Changes 16 The City’s financial situation deteriorated quickly in the summer of 2012. The 17 City ran out of cash to pay its creditors and employees, and had a projected budget 18 deficit of $45.8 million. (Id. at 82–84, 891.) Personnel costs alone were projected to 19 exceed all of the City’s General Fund revenue. (Id. at 84.) On August 1, 2012, the 20 City filed a voluntary bankruptcy petition under Chapter 9, Title 11 of the United 21 States Code. (Id. at 1–8.) Five days later, the San Bernardino City Council (the “City 22 Council”) passed a resolution deferring certain employment payments to include cash- 23 outs and sell-backs of unused leave time. (SER 298–99.) 24 Shortly thereafter, the City contacted the Union to discuss modifications to the 25 MOU. (ER 150, 534–42, 546–51, 557–64.) On September 10, 2012, the Union’s 26 labor negotiator, Corey Glave, responded that unless the City was willing to reverse or 27 modify the City Council’s cost-cutting measures, a meeting between the two parties 28 was “really just a waste of time, money and resources for both the City and the 3 1 Union.” (Id. at 547.) On September 18, 2012, the City notified the Union that it hired 2 a new attorney to handle labor negotiations and that it would like to begin MOU 3 negotiations with the Union. (Id. at 761.) The parties met on September 26, 2012, but 4 did not conduct any MOU negotiations. (Id.) After the City offered six dates for 5 negotiations, Glave reiterated, inter alia, that recession of the cost-saving measures 6 was a pre-condition to negotiations. (Id. at 57, 555–56; SER 571–57.) 7 C. Substantive Changes to Labor Agreements and Mediation 8 On November 26, 2012, the City Council passed a “Pendency Plan” which set 9 forth a series of expenditure reductions and required the City to negotiate contract 10 modifications with the Union and the City’s six other labor unions. (ER 56–60.) Five 11 unions reached agreements with the City to modify their employment agreements. 12 (Id. at 147–49, 484–89.) The Union and the City did not initially reach an agreement. 13 During January 2013, the City and the Union engaged in a confidential, and 14 ultimately unsuccessful, mediation session before the Honorable Scott Clarkson. (Id. 15 at 658, 3530.) The parties met January 11, 17, and 23. (Id.) On February 1, 2013, the 16 City Council, relying on its fiscal emergency status, passed a resolution that imposed 17 “interim terms and conditions of employment” for the Union. (Id. at 658.) 18 D. 19 The Rejection Motion and Subsequent Discovery On March 4, 2013, the City filed a motion with the Bankruptcy Court seeking 20 authorization to reject the MOU (the “Rejection Motion”). (Id. at 9–30.) The 21 Rejection Motion sought to set aside the MOU and nunc pro tunc approval of the City 22 Council’s February 1, 2013 resolution. (Id. at 29, 32–34.) 23 On March 8, 2013, the Union filed a Motion to Confirm the Termination of the 24 Automatic Stay, or Alternatively, for Relief from Automatic Stay (the “Motion for 25 Relief”). (Id. at 3625–3799.) In its Motion for Relief, the Union sought relief to file 26 an action in a non-bankruptcy forum to challenge the interim employment terms 27 imposed by the City Council’s February 1 resolution. (Id.) On March 21, 2013, the 28 Union filed a timely opposition to the Rejection Motion and raised two evidentiary 4 1 objections to declarations attached to the City’s Rejection Motion. (Id. at 625, 809– 2 16.) 3 On April 4, 2013, the Bankruptcy Court held a preliminary hearing on the 4 Rejection Motion. (Id. at 817–85.) At the hearing, the Bankruptcy Court defined 5 discovery limits in connection with the planned depositions of the City’s witnesses, 6 but did not publish a corresponding discovery order. (Id. at 837–78.) Subsequent 7 hearings were scheduled, but were each continued to allow for further discovery. (Id. 8 at 1058–59, 1090–97.) On May 6, 2013, the parties filed a joint report regarding the 9 status of the discovery. (SER 605–15.) 10 The Union, in opposing the Rejection Motion, deposed three witnesses that the 11 City cited and relied upon in its Rejection Motion. (Id. at 777–803, 1001–1310.) The 12 Union claims that the City instructed its key witnesses to not respond to several lines 13 of questioning at the depositions. (ER 1167–1464.) On July 10, 2013, the Union filed 14 a motion to strike the testimony of two of the City’s three witnesses or, in the 15 alternative, to compel further answers to deposition questions. (Id. at 1167–1464.) 16 The line of questioning at issue related to the City’s ability to negotiate consensual 17 modifications to the MOU. The City opposed the motion to strike, and on July 31, 18 2013, the Bankruptcy Court denied the Union’s motion. (SER 755–959, 970–71; ER 19 1465–1540, 1763–69.) The Bankruptcy Court explained that it previously limited the 20 scope of discovery in a manner that justified the City’s witnesses from responding to 21 certain questions. (ER 3552–59.) The Bankruptcy Court acknowledged that it did not 22 publish an order limiting the scope of discovery for the Rejection Motion. (Id. at 23 3560–61.) 24 The Bankruptcy Court, at the request of the Union, continued the Rejection 25 Motion until it first determined whether the City was eligible for chapter 9 relief. (Id. 26 at 637, 1770–74.) From September 2013 through June 2014, the Rejection Motion 27 was continued to the same dates as the status conferences in the underlying chapter 9 28 case. (SER 1527–30, 1539, 1542–44, 1463–66, 1574–78, 1587–88, 1590–94.) The 5 1 Bankruptcy Court continued the hearing dates for the Rejection Motion fifteen 2 separate times. 3 E. Further Mediation and Meetings 4 On September 5, 2013, the Bankruptcy Court appointed the Honorable Gregg 5 W. Zive as the Case Mediator and ordered all major creditors, which included the 6 Union, to participate in mediation before Judge Zive. (Id. at 1467–68.) The City and 7 the Union met on three separate occasions prior to mediation to discuss the City’s 8 financial conditions and the City’s cost-cutting proposals: October 2013, December 9 2013, and February 2014. (ER 2595.) 10 On May 23, 2014, the City and the Union met outside of the confidential 11 mediation process, and discussed the proposed budgets for the City and the fire 12 department. (Id. at 2595–96.) On May 27, 2014, the City and the Union attended a 13 mediation session before Judge Zive, and the City made a proposal to the Union 14 regarding changes to the MOU. (Id. at 2596.) This was the first mediation since the 15 failed mediation before Judge Clarkson in January 2013. 16 On June 19, 2014, the Bankruptcy Court granted the Union’s request for relief 17 from the September 5 mediation order. (Id. at 2152.) After releasing the Union from 18 the mediation order, the Bankruptcy Court set a supplemental briefing schedule and 19 hearing date for the then-still-pending Rejection Motion. (Id. at 2182–88.) On July 20 18, 2014, the City delivered a proposal to the Union regarding implementation of a 21 fire department budget previously approved by the City Council. (Id. at 2596.) On 22 July 28, 2014, the City and the Union began discussing thirty-one proposed changes to 23 the MOU. (Id. at 2655–2702.) On July 30, 2014, the City sent the Union a revised 24 proposal. (Id. at 2653–2702.) The City and the Union met again on August 13, 2014, 25 August 25, 2014, and September 3, 2014 to discuss the proposed changes to the 26 MOU. (Id. at 2597, 3089–90, 3093–3411.) 27 /// 28 /// 6 1 F. Adjudication of Rejection Motion 2 On September 11, 2014, the Bankruptcy Court heard arguments on the 3 Rejection Motion as it applied to the MOU. (Id. at 2356–2491.) On September 19, 4 2014, the Bankruptcy Court published the Rejection Order. (Id. at 3448–50.) The 5 Rejection Order, while authorizing the City to reject the MOU, specifically declined to 6 provide the City with nunc pro tunc relief relating to the February 1, 2013 City 7 Council resolution or any relief authorizing the implementation of new terms and 8 conditions. (Id.) The City then lodged, at the Bankruptcy Court’s request, proposed 9 findings of fact and conclusions of law. (Id. at 3458–3507, 3800–49.) The Union 10 filed two separate objections and lodged its own proposed findings of fact and 11 conclusions of law. (SER 3006–19, 3485, 3808–26.) After consulting with the 12 California Public Employees Retirement System (“CalPERS”), the City lodged a 13 revised findings of fact and conclusions of law, and replied to the Union’s objections. 14 (Id. at 3097–3188, 3238–3467, 3827–66.) 15 On November 4, 2014, the Bankruptcy Court published its findings of facts and 16 conclusions of law to support the Rejection Order. (ER 3508–47.) The Bankruptcy 17 Court also published an order rejecting the Union’s evidentiary objections. (SER 18 2867–79.) III. 19 STANDARDS OF REVIEW 20 The Court has jurisdiction pursuant to 28 U.S.C. § 158(a), and is sitting as a 21 single-judge court of appeal. The traditional appellate review standards apply. The 22 Court reviews the Bankruptcy Court’s conclusions of law de novo and its factual 23 findings for clear error. Salazar v. McDonald (In re Salazar), 430 F.3d 992, 994 (9th 24 Cir. 2005). 25 deference to the trial court. Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 26 1024 (9th Cir. 1999). Review under the clearly erroneous standard requires significant 27 “A mixed question of law and fact occurs when the historical facts are 28 established; the rule of law is undisputed . . . ; and the issue is whether the facts satisfy 7 1 the legal rule.” Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997) 2 (citing Pullman-Standard v. Swint, 456 U.S. 273, 289 n.19 (1982)). “Mixed questions 3 presumptively are reviewed . . . de novo because they require consideration of legal 4 concepts and the exercise of judgment about the value that animate legal principles.” 5 Id. (citing Boone v. United States, 944 F.2d 1489, 1492 (9th Cir. 1991)). 6 A court’s evidentiary rulings are reviewed for abuse of discretion. Watec Co. v. 7 Liu, 403 F.3d 645, 650 n.3 (9th Cir. 2005). “To reverse on the basis of an erroneous 8 evidentiary ruling, [a court] must conclude not only that the bankruptcy court abused 9 its discretion, but also that the error was prejudicial.” Santa Barbara Capital Mgmt. v. 10 Neilson (In re Slatkin), 525 F.3d 805, 811 (9th Cir. 2008) (internal citations omitted). 11 “A reviewing court should find prejudice only if it concludes that, more probably than 12 not, the lower court’s error tainted the verdict.” McEuin v. Crown Equip. Corp., 328 13 F.3d 1028, 1032 (9th Cir. 2003) (internal quotation marks omitted). IV. 14 ISSUES ON APPEAL 15 The Union raises six issues on appeal: 16 (1) “Did the Bankruptcy Court err in finding the City met its burden of proof 17 on the element of ‘reasonable efforts to negotiate voluntary modifications to the 18 collective bargaining agreement were made’ under [Bildisco]?”; 19 20 21 22 (2) “Did the Bankruptcy Court err in finding that City met its burden of proof when it found the [MOU] was a burden on the City?”; (3) “Did the Bankruptcy Court err by limiting discovery on the Motion for an Order Authorizing Rejection of the [Union’s] Collective Bargaining Agreement?”; 23 (4) “Did the Bankruptcy Court err by (a) waiting 18 months to render a 24 decision on the [City’s] Motion for an Order Authorizing Rejection of the [Union’s] 25 Collective Bargaining Agreement, and (b) authorizing further briefing?”; 26 (5) “Did the Bankruptcy Court err in finding the City can reject the [MOU] 27 under 11 U.S.C. § 365 even though the [MOU] expired under its own terms pre- 28 petition?”; and 8 (6) “Did the Bankruptcy Court err by issuing an advisory opinion on the 1 2 ‘practical effect’ of the rejection of the [MOU]?” (Appellant Br. 3–4.) V. 3 DISCUSSION The parties do not dispute the applicable law or the factual record for the six 4 5 issues on appeal. Instead, the Union merely contests the Bankruptcy Court’s 6 application of facts to law and discretionary rulings. As discussed below, the Court 7 must reject each of the Union’s arguments. The Court will discuss each issue in turn. 8 A. Issue 1: Reasonable Efforts to Negotiate 9 The first issue on appeal is whether the City made reasonable efforts to 10 negotiate voluntary modifications to the MOU. This issue involves mixed questions 11 of law and fact and is reviewed de novo. See In re Bammer, 131 F.3d at 792. 12 Bankruptcy Code section 365(a) provides that a debtor “may assume or reject 13 any executory contract.” 11 U.S.C. § 365(a). In Bildisco, the Supreme Court held 14 that the language “executory contract” in section 365(a) includes collective bargaining 15 agreements. Bildisco, 465 U.S. at 521–22. Bildisco instructs that in order for a debtor 16 to reject a collective bargaining agreement under section 365(a), the debtor must 17 show; (1) “reasonable efforts to negotiate a voluntary modification have been made, 18 and are not likely to produce a prompt and satisfactory solution,” (2) the agreement is 19 a burden on the debtor, and (3) the balance of the equities weigh in favor of the 20 rejection. Id. at 526. The debtor bears the burden of establishing that these factors are 21 satisfied. Id. 22 Chapter 9 of the Bankruptcy Code, which authorizes a municipality to 23 discharge its debt through bankruptcy, incorporates section 365(a). 24 901(a); see also In re City of Vallejo, 403 B.R. 72, 77 (Bankr. E.D. Cal. 2009) aff’d in 25 432 B.R. 262 (E.D. Cal. 2010) (“Congress incorporated section 365 into chapter 9 26 without restricting or limiting its application to collective bargaining agreements.”). 27 “The judicial consensus is that Bildisco controls rejection of collective bargaining 28 agreements in chapter 9 cases.” Ass’n of Retired Employees of the City of Stockton v. 9 11 U.S.C. § 1 Stockton (In re City of Stockton), 478 B.R. 8, 23 (Bankr. E.D. Cal. 2012); see also In 2 re City of Vallejo, 432 B.R. at 272 (“The Bankruptcy Court properly concluded that a 3 municipality operating under Chapter 9 may utilize 11 U.S.C. Section 365 to reject a 4 CBA, if the municipality can show that the requirements of Bildisco are met.”); 5 Orange County Employees Ass’n v. Orange (In re County of Orange), 179 B.R. 177, 6 183 (Bankr. C.D. Cal. 1995) (“Bildisco applies in Chapter 9.”). 7 The inquiry into whether a municipality made “reasonable efforts to negotiate a 8 voluntary modification” involves the application of case-specific facts to the law. 9 Here, the parties do not dispute the law or the operative facts, but instead dispute the 10 Bankruptcy Court’s application. The Bankruptcy Court concluded that the City 11 satisfied Bildisco by making reasonable efforts to negotiate a modification to the 12 MOU. Rejection Order at 34–37. The Bankruptcy Court reached this conclusion 13 based on the “aggregate” of the following events: 14 (a) the efforts made by the City in the first few months of the 15 bankruptcy case to meet with the [Union], (b) the 16 subsequent unsuccessful mediations between the City and 17 the [Union] involving first Judge Clarkson and then Judge 18 Zive, and (c) the meetings between the City and the [Union] 19 in the five weeks after the City submitted its comprehensive 20 set of proposals to the [Union] on or about July 28, 2014. 21 Id. at 35. 22 The Bankruptcy Court also explained that a prompt and satisfactory solution 23 was not likely because the Union made no concessions to the City’s offers even 24 though the Union was informed that modifications were necessary. Id. at 35–36. The 25 Bankruptcy Court further noted that the lack of meetings was a result of the Union’s 26 “reluctance to engage with the City” and the Union refused to negotiate without first 27 receiving a comprehensive proposal, which is not required under Bildisco. Id. at 36. 28 /// 10 1 On appeal, the Union makes two arguments regarding the reasonableness of the 2 City’s efforts to negotiate. First, the Union claims that the evidence of reasonable 3 efforts is “scant” and the Bankruptcy Court relied on “innuendo and supposition” 4 stemming from the confidential mediation sessions. (Appellant Br. 16.) The Union 5 argues: “The fact that the parties attended mediation does not sufficiently establish 6 reasonable efforts to negotiate voluntary modifications to the MOU were made; the 7 ‘reasonableness’ of the City’s efforts to ‘negotiate’ cannot be ascertained by 8 speculating on matters that occurred in a confidential mediation session.” (Id.) 9 The Union’s argument is legally unsupported and lazy. As an initial matter, the 10 mediation sessions were not the only occasions in which the parties met. The parties 11 began discussions before the City even filed its voluntary petition and met on 12 numerous occasions outside the mediation process. Communications between the 13 parties began as early as April 2012. In fact, it was the Union’s representative Glave 14 that refused to meet in the fall 2014 despite the City’s efforts to find a workable time. 15 (ER 57, 555–56; SER 571–57.) The City’s willingness to meet and compromise, and 16 the Union’s stubbornness, is quite apparent from the wealth of e-mail traffic between 17 the parties. (Id.) The Union’s claim that the evidence regarding reasonable efforts is 18 “scant” is a misrepresentation of the evidence. 19 Furthermore, the Union wants this Court to believe that because the mediation 20 sessions were confidential, the City can therefore not prove that they acted reasonably 21 during the mediation. The Union cites no law for this proposition. The City and the 22 Union mediated before Judge Clarkson for at least three days, and before Judge Zive 23 at least once. The City showed up on time, sent the appropriate negotiators, and spent 24 hours upon hours talking with Union representatives. The Court does not need to 25 know the precise talking points of those discussions to conclude that such conduct was 26 reasonable. There is no legal requirement that the Court pour over the contents of a 27 mediation to determine if negotiations were reasonable. In fact, Bildisco only requires 28 “reasonable efforts to negotiate a voluntary modification” without any mention of 11 1 judicial review of all matters discussed during negotiations. Bildisco, 465 U.S. at 526. 2 The Union’s reading of Bildisco would render all unsuccessful, confidential 3 mediations per se unreasonable. Bildisco does not require the parties to reach a 4 resolution and recognizes that even the lack of a “prompt” resolution can justify 5 rejection of a collective bargaining agreement. Id. The parties mediated on at least 6 four occasions, met outside the mediation process on at least three occasions, and 7 exchanged a host of e-mails and phone calls regarding meeting times and 8 modifications. The Union cannot rely on the confidentiality of the mediation to claim 9 the City failed to carry its burden. The Court rejects the Union’s over-zealous reading 10 of Bildisco. 11 The Union’s second argument regarding the reasonableness of negotiations is 12 equally as vapid. The Union argues: “the evidentiary record demonstrates the City 13 made no real effort to make consensual changes to the MOU or negotiate a new 14 MOU.” (Appellant Br. 16.) In making this claim, the Union cherry picks the facts it 15 wants while ignoring the entirety of the record. The Union also fails to cite any 16 authority involving similar facts. Essentially, the Union wants the Court to take its 17 word. The Union is correct that six months passed between the imposition of the 18 interim terms of employment and the mediation sessions, but it is equally true that 19 Union representatives refused to meet, the City kept the Union informed on the 20 financial conditions and employment proposals, and the City struck deals with five of 21 the other labor unions. The record is replete with e-mails from the City seeking times 22 to meet with the Union. The legal standard is reasonableness—not “no real effort”— 23 and the City’s extensive outreach to communicate and meet with the Union, while in 24 the midst of a financial collapse, unquestionably satisfies Bildisco. 25 The District Court in In re City of Vallejo affirmed a bankruptcy court’s 26 “reasonableness” findings on grounds that the bankruptcy court “ordered the parties to 27 judicially supervised settlement talks” and the record indicated “almost two years of 28 negotiations between the City and its unions.” 432 B.R. at 275. The efforts in this 12 1 case, also spanning nearly two years and involving judicially supervised settlement 2 talks, were at least as expansive as those in In re City of Vallejo. There is no authority 3 to suggest otherwise. The Bankruptcy Court found that the City acted reasonably, and 4 based on its own review of the record, this Court agrees. The Union’s “no real effort” 5 argument is rejected. 6 In passing, the Union complains that the Bankruptcy Court “did not reference” 7 the Union’s proposed findings of fact in the Rejection Order. (Id. at 17.) The Union 8 fails to identify any of the alleged facts that the Bankruptcy Court ignored and how 9 those facts would impact the case. The Bankruptcy Court is the finder of fact. It has 10 the duty to weigh the evidence and make factual conclusions. The Bankruptcy Court 11 did its job. 12 conclusions, it should have made a “clearly erroneous” argument. There is no legal 13 principle that requires a court to “reference” the proposed findings of fact from both 14 parties. The Court therefore rejects this cursory argument. If the Union wants to challenge the Bankruptcy Court’s factual The Court concludes that the City made reasonable efforts to make voluntary 15 16 modifications to the MOU, thus satisfying the standard from Bildisco. 17 Bankruptcy Court’s conclusion on this issue is affirmed. 18 B. The Issue 2: MOU a Burden on the City 19 The second issue on appeal relates to the City’s claim that the MOU was a 20 financial burden to reorganization. This is also a mixed question of law and fact 21 reviewed de novo. See In re Bammer, 131 F.3d at 792. 22 As explained supra, the second element in Bildisco requires the debtor to prove 23 that the collective bargaining agreement is a burden on the debtor’s ability to 24 reorganize. Bildisco, 465 U.S. at 525–26. The Bankruptcy Court found that the “City 25 submitted substantial evidence that the MOU was a burden on the City’s ability to 26 recover from its insolvency.” Rejection Order at 37. The Bankruptcy Court noted the 27 costs of unnecessary overtime, the costs of paying CalPERS premiums, and the 28 Union’s refusal to agree to any modification that required more pension contribution 13 1 from the Union’s members. Id. at 37–38. The Bankruptcy Court also noted the City’s 2 dire financial situation and lack of funds to provide necessary services to its citizens. 3 Id. 4 On appeal, the Union claims that the City failed to prove it was financially 5 burdened by focusing on the testimony of the City’s financial expert, Michael Bush. 6 The Union argues that Mr. Bush “did not have an accurate understanding of the 7 finances” and “could not testify as to what the overall cost savings to the City would 8 be if the [Union] contract was rejected.” (Appellant Br. 18.) The Union further 9 argues that a “cost to the City is not the equivalent of a ‘burden’ on the City under 10 Bildisco.” (Id.) The Union claims that Bush admitted that he did not factor the budget 11 surplus and “cost savings for concessions of other employee groups,” and therefore 12 the City failed to carry its burden of proof. (Id.) 13 The Unions arguments are flawed for several reasons. First, it is clear that the 14 Union does not understand how the bankruptcy process works. On October 16, 2013, 15 the Bankruptcy Court issued an order confirming the City’s eligibility to file for 16 chapter 9 bankruptcy. (SER 1483–1514.) In that order, the Bankruptcy Court ruled 17 that “[t]he uncontroverted facts establish that the City is insolvent. The City was 18 unable to pay its forthcoming obligations when the resolutions were passed and faced 19 a cash deficit of $45.9 million for fiscal year 2012–2013. This issue is uncontested.” 20 (SER 1500.) It was also undisputed that the City’s personnel costs alone surpassed 21 the entire General Fund. (ER 89.) The costs of public safety—specifically the fire 22 and police departments—accounted for 72 percent of the City’s annual budget. (Id. at 23 83–84.) Despite these uncontested facts, the Union has the audacity to now claim that 24 there is not enough evidence that the MOU was a burden. Any financial obligation for 25 an insolvent debtor is a burden, which is why a debtor would seek bankruptcy 26 protection in the first place. 27 Additionally, the Court is appalled that the Union would suggest that the cuts to 28 other labor unions must be considered before its own MOU is deemed a burden. 14 1 There is no law anywhere that allows a creditor to sandbag the bankruptcy process and 2 then claim its debt is not a burden because other creditors already took cuts. The 3 Union is not entitled preferential treatment because it held out the longest and refused 4 to negotiate. This sly attempt to discredit the worth of the other public sector labor 5 unions is astounding. 6 Second, the Union waived any argument it had to challenge Bush’ testimony. 7 During the proceedings before the Bankruptcy Court, the Union did not offer its own 8 expert evidence regarding the MOU’s burden and expressly waived an opportunity for 9 an evidentiary hearing and cross-examination of Bush. (ER 2366, 2374, 2382, 2408, 10 3509.) In its Rejection Order, the Bankruptcy Court explains that the “City’s evidence 11 on the financial burden of the contract was entirely unrebutted by any admissible 12 evidence presented by the [Union], who chose to not present any expert testimony to 13 counter the testimony of Michael Bush.” Rejection Motion at 2. By not challenging 14 the financial burden of the MOU before the Bankruptcy Court, the Union waived any 15 right to do so on appeal. In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988, 16 992 (9th Cir. 2010) (holding arguments not raised in the bankruptcy court are waived 17 on appeal). In presenting this meritless argument, the Union even fails to cite a single 18 page from the record or a single authority. 19 In passing, the Union also claims that the Bankruptcy Court’s findings 20 regarding the burden of the MOU were flawed due to several evidentiary errors. First, 21 the Union argues that the Bankruptcy Court relied on evidence “submitted after the 22 initial hearing on the Rejection Motion” and “[t]hese items should not have been 23 admitted by the Court because they were untimely.” (Appellant Br. 19.) The Union 24 claims that the “Bankruptcy Court erred when it relied upon these untimely 25 pleadings.” (Id.) Unsurprisingly, the Union cites zero authority for this claim. This 26 argument is baseless. The Union did not object to the Bankruptcy Court’s 27 consideration of this evidence until after it entered the Rejection Order, and thus this 28 argument is waived on appeal. See Mercury Interactive Corp., 618 F.3d at 922. 15 1 Furthermore, evidentiary rulings are reviewed under an abuse of discretion standard 2 and the appellant must show prejudice. McEuin, 328 F.3d at 1032. Lower courts are 3 afforded “broad discretion” in evidentiary rulings. Harper v. Los Angeles, 533 F.3d 4 1010, 1030 (9th Cir. 2008). There is no rule that prohibits evidentiary submissions 5 following a hearing and there is no viable argument that the Bankruptcy Court 6 committed any abuse of direction. The proceedings below were a fluid situation, and 7 the Bankruptcy Court took the steps it felt were appropriate to reach the correct result. 8 Affording the Bankruptcy Court broad discretion to consider filings after a posted 9 hearing date, the Court finds no abuse of discretion. The Court therefore rejects the 10 Union’s argument. The Court concludes that the MOU was a financial burden to the City. The 11 12 Bankruptcy Court’s conclusion on this issue is affirmed. 13 C. Issue 3: Discovery Limits 14 The third issue on appeal relates to the Bankruptcy Court’s April 4, 2013 15 discovery order related to the Rejection Motion. At the April 4 hearing, the Union 16 sought permission from the Bankruptcy Court to depose the City’s negotiators who 17 were cited in the City’s Rejection Motion. (Appellant Br. 19.) The Union “sought 18 information relating to the City’s ability to negotiate consensual modifications to the 19 MOU” after the City disclosed a proposed budget. (Id. at 21–22.) As noted in the 20 factual background section, supra, the Bankruptcy Court issued an oral order setting 21 parameters for the deposition request. The Bankruptcy Court limited the depositions 22 of the City’s negotiators—Diana Leibrich and Linda Daube—to the source and scope 23 of their authority to negotiate voluntary modifications to the MOU. (See ECF No. 560 24 at 17:11–15, 33:12–22, 55:3–8, 60:14–16.) On June 10, 2013, the Union filed a 25 “Motion to Strike Evidence, or in the Alternative, to Compel Deposition Responses.” 26 (ECF No. 686.) The motion claimed that Leibrich and Daube refused to answer the 27 following questions: “(1) the nature and extent of alleged negotiations between the 28 City and the [Union]; (2) whether the City’s negotiators had authority to conduct good 16 1 faith negotiations with the [Union] as opposed to merely proposing a predetermined 2 ultimatum.” (Id. at 2.) 3 At a hearing on July 31, 2013, the Bankruptcy Court denied the Union’s 4 motion. (ECF No. 720.) The Bankruptcy Court described the Union’s motion as 5 “unrealistic” and “backwards.” (Id. at 5.) In explaining why it limited the depositions 6 to only the authority to negotiate, the Bankruptcy Court explained: 7 The nature and extent of the alleged negotiations between 8 the City and the [Union] I said before at the first hearing, the 9 second hearing, and now that it takes two parties to 10 negotiate. It doesn’t matter what was in the state of mind of 11 the two women negotiating for the City, what was discussed 12 in closed session, which is clearly confidential anyway, what 13 might have been discussed with counsel which is privileged 14 anyway, those things to the extent they were not 15 communicated to the unions are just never going to come 16 into relevant evidence, admissible evidence with the Court 17 with concern. So inquiring further about that wouldn’t assist 18 the Court in making the decision. [¶] I did believe that the 19 source and scope of the power of the negotiator’s authority 20 to negotiate was important. . . . So I am going to deny this 21 motion and I – no argument by the [Union] is going to 22 change my mind. 23 allowed and, in addition to that, the deponents actually 24 answered many questions beyond the scope of what I 25 allowed and I certainly don’t mind that they did that, but 26 they have answered the questions that are relevant to the 27 Court’s decision. 28 It is not within the scope of what I (ER 1475–76.) 17 1 Here, the Union argues that “the Bankruptcy Court abused its discretion when 2 it limited the [Union’s] depositions of the City’s witnesses.” (Appellant Br. 19.) The 3 Union claims that Federal Rule of Civil Procedure 26 authorizes broad discovery and 4 a federal court may only limit discovery where justice requires the protection of a 5 party from “annoyance, embarrassment, oppression, or undue burden or expense.” 6 (Id. at 20–21 [quoting Oppenheimer Fund v. Sanders, 437 U.S. 340, 351 (1979)].) 7 According to the Union, “[o]ther than saving the City the cost of responding to 8 discovery, there was no other basis for limiting discovery,” and “there was no 9 evidence that the costs would unduly burden the City; the Bankruptcy Court simply 10 assumed significant costs would be incurred and elected to sua sponte limit 11 discovery.” (Id. at 21.) The Union further argues that “[t]o ascertain the City’s ability 12 to negotiate anything more than a take-it-or-leave-it offer, the [Union] questioned the 13 City’s negotiators on the subject” and “[i]f responses were provided, it is likely that 14 the discovery requests would have revealed whether or not the City could actually 15 make reasonable efforts to negotiate consensual changes above its budgetary bottom- 16 line.” (Id. at 22.) 17 All of the Union’s arguments are meritless. First, the Bankruptcy Court’s 18 discovery limitations had nothing to do with costs to the City. The Bankruptcy Court 19 does not even mention the costs to the City. Instead, it correctly found that the 20 deposition of the City’s negotiators was not another opportunity for the Union to 21 rehash issues from the confidential bargaining table. Discovery was limited to the 22 scope of the negotiators’ authority and it appears that those questions were answered. 23 (ER 1307–12, 1314–18, 1321, 1324–34, 1338–40.) 24 Furthermore, a trial court “is vested with broad discretion to permit or deny 25 discovery, and a decision to deny discovery will not be disturbed except upon the 26 clearest showing that the denial of discovery results in actual and substantial prejudice 27 to the complaining litigant.” Laub v. U.S. Dep’t of Interior, 342 F.3d 1080, 1084 (9th 28 Cir. 2003) (internal quotation marks and citations omitted). The Union fails to make a 18 1 “clearest showing” of “substantial prejudice.” The Bankruptcy Court succinctly 2 explains that the confidential and privileged information from negotiations was not 3 relevant in its determination of whether the City made reasonable efforts to negotiate 4 under Bildisco. The Bankruptcy Court determined that it did not need all of the 5 specifics of the negotiations to decide the issue. Both parties engaged in the same 6 negotiation and both already knew exactly what occurred during that process. 7 Deposing the negotiators on those same negotiations is simply not necessary or 8 relevant. The Union’s argument, which is unsupported by any precedent, is soundly 9 rejected. The Union fails to make any showing of prejudice. 10 In passing, the Union complains that the Bankruptcy Court failed to publish a 11 formal discovery order and this failure “created[d] havoc in discovery.” (Appellant 12 Br. 22.) The Union never once requested a written order, never availed itself of other 13 remedies before the Bankruptcy Court, and never raised this objection below. This 14 torpid argument is waived. See Mercury Interactive Corp., 618 F.3d at 922. The Court concludes that the Bankruptcy Court did not abuse its discretion in 15 16 limiting discovery. 17 D. Issue 4: Delay in Issuing Order 18 The fourth issue on appeal focuses on the length of time between the filing of 19 the Rejection Motion and its final disposition. The Rejection Motion was filed on 20 March 8, 2013, and the Bankruptcy Court issued the Rejection Order on September 21 19, 2014. The Union challenges the Bankruptcy Court’s docket management, and 22 such challenge is reviewed for an abuse of discretion. Preminger v. Peake, 552 F.3d 23 757, 769 n.11 (9th Cir. 2008). 24 Section 365 does not impose any deadlines for court rulings rejecting executory 25 contracts. 11 U.S.C. § 365. The Court cannot find, and the Union fails to identify, 26 any rule or statute that mandates a bankruptcy court to issue any ruling within a 27 certain time period. Relying on no case law or statutory authority, the Union argues 28 that it was prejudiced by the delay because it “resulted in a second round of briefing 19 1 whereby the City was given another opportunity to brief the Rejection Motion and 2 was given a right to reply to any opposition of the [Union] to the supplement.” 3 (Appellant Br. 26.) 4 opportunities that the Union did not have. Both parties were treated equally and the 5 Court strains to see any logic behind the Union’s claim that more briefing is bad. 6 Ironically, the Union even requested the Bankruptcy Court to continue the hearing on 7 the Rejection Motion. (ER 637.) The proceedings below involved no less than seven 8 different unions, dozens of creditors, millions of dollars of debt, and several 9 confidential mediations. There are no allegations that the City was provided with The Bankruptcy Court did not abuse its discretion by 10 allowing the complex factual record to develop and both parties additional briefing 11 opportunities. 12 authorizing further briefing and evidence, and the Court rejects any invitation to 13 meddle with a lower court’s docket management. The Bankruptcy Court did not 14 abuse its discretion and the Court, therefore, rejects this legally unsupported claim. There is simply no rule preventing the Bankruptcy Court from 15 The Union further argues that the delay in ruling on the Rejection Motion left 16 the interim terms of employment—previously imposed on February 1, 2013—in effect 17 for an “unprecedented” and “protracted” period. (Appellant Br. 26.) The Union 18 acknowledges that “Bildisco provides a temporary safe-haven for [the] City while its 19 Rejection Motion was pending,” but the interim terms of employment “became 20 something more than ‘interim’” because the Bankruptcy Court did not immediately 21 rule on the Rejection Motion. (Id. at 27.) 22 Once again, the Union makes an argument without any support in the law. The 23 Union does not even bother to analogize examples from other areas of law, but instead 24 relies on hollow supposition. The Union’s claim that the Bankruptcy Court’s delay 25 was “unprecedented” and “protracted” is unfounded, and its claim that the interim 26 terms were “something more than ‘interim’” is unreasonable. Bildisco explicitly 27 authorizes the imposed interim terms in this case, and the Court is not inclined to 28 /// 20 1 create an arbitrary rule regarding the outer limit of “interim.” There was no error of 2 law or abuse of discretion. This argument is rejected in full. The Court concludes that the Bankruptcy Court did not abuse its discretion in 3 4 ruling on the Rejection Motion. 5 E. Issue 5: Expiration Before Rejection 6 The fifth issue on appeal concerns the expiration of the MOU. Most of the 7 Union’s arguments on appeal concern the City’s ability to reject the MOU. The 8 Union also offers an argument in the alternative: “The Bankruptcy Court erred when it 9 found the MOU could be rejected even though it expired pre-petition.” (Appellant Br. 10 23.) 11 The Union argues that the MOU was “extinguish[ed]” in 2011. The MOU 12 contains an evergreen clause which states that the MOU’s terms and conditions 13 remain in full effect after the MOU expires unless a new MOU is negotiated. (ER 14 198.) The MOU expired naturally on June 30, 2010 without a new agreement. The 15 parties do not dispute that the MOU initially remained in effect. On appeal, the Union 16 claims that the MOU was “extinguish[ed]” on February 22, 2011 when the City 17 Council passed Resolution 2011-33. 18 unilaterally imposed certain employment conditions on the Union’s members. The 19 Union claims that the MOU “lost all characteristics of a contract upon the codification 20 of the terms and conditions in Resolution 2011-33 because the terms and conditions of 21 employment were not consensual.” (Id. at 24.) The Union further argues that “the 22 Court’s factual finding that the MOU continued on as a result of an ‘evergreen’ is 23 faulty; the MOU cease[d] to exist upon the implementation of Resolution 2011-33 and 24 any ‘evergreen’ clause that may have existed in the MOU was extinguished. If not, 25 then the 2011-33 Resolution would be void in its entirety.” (Id.) 26 (Appellant Br. 23.) Resolution 2011-33 This argument is meritless for a number of reasons. First, the Union waived 27 this argument by not raising it below. The Union never once argued to the 28 Bankruptcy Court that Resolution 2011-33 extinguished the entire MOU, and in fact, 21 1 the Union continually argued that the MOU was still in effect. The Union’s 2 opposition to the Rejection Motion repeatedly acknowledged that the MOU was in 3 effect (ER 632–60), and the Union’s proposed statement of facts also acknowledges 4 that the MOU was in effect (SER 3817; see also ER 2757–3048, SER 2006–19, 3458– 5 3807, 3808–26 ). The Union even requested that the Bankruptcy Court conclude that 6 “the evergreen clause in the MOU is enforceable, and the MOU is subject to rejection 7 under Section 365(a).” (Id.) The Union’s new claim that “[Resolution 2011-33], and 8 not the MOU, were the terms and conditions of employment that existed on the 9 Petition Date,” contradicts the first half of its appellate brief as well as every 10 representation it made to the Bankruptcy Court. Accordingly, the Union’s argument is 11 waived. See Mercury Interactive Corp., 618 F.3d at 922. 12 Second, and notwithstanding the waiver issue, the Union’s argument is 13 meritless. The evergreen clause states that the MOU remained in effect “until a new 14 MOU has been negotiated.” 15 “extinguish[ed]” is factually and legally unsupported. Resolution 2011-33 contains no 16 language that suggests that the entire MOU is void or that the evergreen clause is no 17 longer applicable. 18 Resolution 2011-33 or why those terms would extinguish the entire MOU, but both 19 parties concede that some of those terms came directly from the MOU and others were 20 thrown out by a California Superior Court. (ER 792–94.) In addition to lacking any 21 factual basis for this claim, there is no authority to support the Union’s position. No 22 legal authority supports the Union’s argument that an entire MOU is nullified as a 23 result of a city council employment resolution. The parties are bound by the plain 24 language in the MOU’s evergreen clause. The Court rejects this argument in full. 25 F. (ER 198.) The Union’s claim that the MOU was The Union conveniently makes no mention of the terms in Issue 6: Advisory Opinion 26 The sixth issue on appeal relates to the scope of the Bankruptcy Court’s 27 Rejection Order. The Union argues that the Bankruptcy Court held that the “‘practical 28 effect’ of rejection of the MOU is the right afforded to the City to implement new 22 1 terms and conditions of employment” and “[s]ection 365 does not provide any 2 authority for the Bankruptcy Court” to make this conclusion. (Appellant Br. 27–28.) 3 These conclusions, according to the Union, “constitute an impermissible advisory 4 opinion.” (Id. at 28.) 5 The statement from the Bankruptcy Court at issue is as follows: “For that 6 reason, where a court approves rejection of a collective bargaining agreement under 7 Section 365(a), the practical effect of rejection is that the debtor is permitted to 8 implement new terms and conditions of employment, notwithstanding that there may 9 be applicable labor laws that permit such changes only after the parties have 10 negotiated to impasse.” (ER 3540.) This statement from the Bankruptcy Court is 11 nothing more than dicta. Contrary to the Union’s claim, the Bankruptcy Court’s 12 statement did not authorize the imposition of new employment terms. The statement 13 merely recognizes the proper legal standards going forward. There is no basis in the 14 law for this Court to overturn an order from a bankruptcy court solely on dicta. The 15 statement from the Bankruptcy Court is an accurate statement of the law and does 16 nothing to change the relationship between the parties. 17 argument in full. 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 23 The Court rejects this VI. 1 CONCLUSION 2 The Court hereby AFFIRMS the Bankruptcy Court’s Order Granting in Part 3 and Denying in Part City of San Bernardino’s Motion Authorizing Rejection of 4 Collective Bargaining Agreement with San Bernardino City Professional Firefighters. 5 In re City of San Bernardino, No. 6:12-bk-28006, ECF No. 1187. The Clerk of the 6 Court shall close this case. 7 IT IS SO ORDERED. 8 9 May 7, 2015 10 11 12 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24
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