(BK) In Re: City of Vallejo, CA, No. 2:2009cv02603 - Document 35 (E.D. Cal. 2010)
Court Description: ORDER signed by Judge John A. Mendez on 6/14/10, ORDERING that IBEW's appeal of the Bankruptcy Court's Order granting the City's Motion for Approval of Rejection of IBEW's Collective Bargaining Agreement is DENIED, and the Bankruptcy Court's March 13, 2009 Memorandum decision and August 31, 2009 Findings of Fact and Conclusions of Law are AFFIRMED.(Kastilahn, A)
Download PDF
<![CDATA[
1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE EASTERN DISTRICT OF CALIFORNIA 8 9 10 11 12 13 14 No. 2:09-cv-02603-JAM In re Bankr. Case No. 08-26813-A-9 CITY OF VALLEJO, CA, Debtor, _____________________________ ORDER AFFIRMING THE BANKRUPTCY COURT S ORDER INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, LOCAL 2376, 15 Appellant, 16 17 v. 18 CITY OF VALLEJO, CA, 19 Appellee. _____________________________/ 20 21 22 23 This matter is before the Court on Appellant International Brotherhood of Electrical Workers (“IBEW s”) appeal from the Bankruptcy Court s ruling on Appellee City of Vallejo s (the 24 “City s”) motion to reject IBEW s collective bargaining 25 26 contract. 27 28 1 1 2 3 I. Facts and Procedural Background 4 5 6 7 8 9 On May 23, 2008, the City filed a petition for relief under Chapter 9 of the Bankruptcy Code. One month after filing, the City unilaterally modified the terms of collective bargaining agreements (“CBAs”) with four unions: IBEW, the International 10 11 Association of Firefighters (“IAFF”), the Vallejo Police 12 Officers Association (“VPOA”) and the Confidential, 13 Administrative, Managerial and Professional Employees of Vallejo 14 (“CAMP”). 15 On June 17, 2008, the City filed a Motion for Approval of Rejection of Collective Bargaining Agreements 16 17 (“Motion”) pursuant to Bankruptcy Code Section 365(a). The City 18 sought approval from the Bankruptcy Court to reject the CBAs of 19 these four unions. 20 21 Before the Motion was heard, IBEW, IAFF and VPOA challenged the City s eligibility to file for Chapter 9 bankruptcy relief 22 23 under Code Section 109(c). On September 5, 2008, the Bankruptcy 24 Court issued its Eligibility Findings, holding that the City met 25 the Chapter 9 eligibility requirements, and in particular, that 26 the City was insolvent. The three unions appealed to the 27 Bankruptcy Appellate Panel for the Ninth Circuit (“BAP”), which 28 2 1 2 affirmed. In re City of Vallejo, 408 B.R. 280 (B.A.P. 9th Cir. 2009). 3 For efficiency, the Bankruptcy Court deferred hearing the 4 5 Motion until after eligibility was determined. On December 11, 6 2008, the unions filed an opposition to the Motion. The City 7 filed a reply on January 23, 2009. 8 9 Shortly before the February 3, 2009 evidentiary hearing on the Motion, VPOA and CAMP agreed to modifications on their contracts. Subsequently, the City 10 11 voluntarily dismissed the Motion as to VPOA and CAMP. 12 On March 13, 2009, the Bankruptcy Court issued a Memorandum 13 Decision (“Memorandum”) on the Motion. (Doc. #1). The Memorandum 14 concluded that the federal bankruptcy law, specifically Section 15 365(a) as interpreted by the Supreme Court s decision in 16 17 N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 (1984), controlled 18 whether public sector labor agreements could be rejected in a 19 Chapter 9 case. The Memorandum stated that Bildisco provided the 20 legal standard for determining whether rejection was warranted. 21 Instead of ruling on whether the evidence satisfied the legal 22 23 24 standard, the Bankruptcy Court then ordered the City and the two remaining unions to judicially-supervised mediation. 25 In August 2009, IAFF agreed to rejection of their CBA, 26 which was approved by the Bankruptcy Court. Because IBEW and the 27 City could not reach an agreement through mediation, the Motion 28 went to decision. 3 1 2 On August 31, 2009, the Bankruptcy Court issued its Findings of Fact and Conclusions of Law on the Motion. The 3 Bankruptcy Court granted the Motion, confirming the legal ruling 4 5 6 in the Memorandum and finding that the evidence satisfied the Bildisco standard. IBEW appealed that ruling to this Court. 7 8 II. Opinion 9 10 11 12 A. Standard of Review The Bankruptcy Court s interpretations of the Bankruptcy 13 Code and conclusions of law are reviewed de novo by this Court. 14 Blausey v. United States Trustee, 552 F.3d 1124, 1132 (9th Cir. 15 2009)(internal citations omitted). 16 17 This Court reviews the Bankruptcy Court s factual findings 18 for clear error. Id. Factual review under this standard requires 19 deference to the Bankruptcy Court. McClure v. Thompson, 323 F.3d 20 1233, 1240 (9th Cir. 2003). Review under the clearly erroneous 21 standard requires significant deference to the trial court. 22 23 Ambassador Hotel Co., Ltd. v. Wei-Chuan Inv., 189 F.3d 1017, 24 1024 (9th Cir. 1999) (internal citations omitted). The factual 25 findings will only be clearly erroneous if the reviewing court 26 has the “definite and firm conviction that a mistake has been 27 committed.” Id. (quoting Concrete Pipe & Prods. of Cal., Inc. v. 28 Construction Laborers Pension Trust, 508 U.S. 602, 623 (1993)); 4 1 2 see also Latman v. Burdette, 366 F.3d 774, 776 (9th Cir. 2004). “Clear error is not demonstrated by pointing to conflicting 3 evidence in the record.” Nat l Wildlife Fed n v. Nat l Marine 4 5 Fisheries Serv., 422 F.3d 782, 795 (9th Cir. 2005)(quoting 6 United States v. Frank, 956 F.2d 872, 875 (9th Cir. 1991)). 7 Instead, if the trial court s account of the evidence is 8 9 plausible in light of the record viewed in its entirety, the reviewing court may not reverse it even though convinced that, 10 11 12 13 14 15 had it been sitting as the trier of fact, it would have weighed the evidence differently. Id. (citations omitted). A court s evidentiary rulings are reviewed for abuse of discretion. Watec Co., Ltd. v. Liu, 403 F.3d 645, 650 n.3 (9th Cir. 2005) (citing Janes v. Wal-Mart Stores, Inc., 279 F.3d 883, 16 17 886 (9th Cir. 2002)). “To reverse on the basis of an erroneous 18 evidentiary ruling, [a court] must conclude not only that the 19 bankruptcy court abused its discretion, but also that the error 20 was prejudicial.” Santa Barbara Capital Mgmt. v. Neilson (In re 21 Slatkin), 525 F.3d 805, 811 (9th Cir. 2008) (citations omitted). 22 23 “„A reviewing court should find prejudice only if it concludes 24 that, more probably than not, the lower court s error tainted 25 the verdict. ” McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1032 26 (9th Cir. 2003) (quoting Tennison v. Circus Circus Enters., 27 Inc., 244 F.3d 684, 688 (9th Cir. 2001)). 28 5 1 B. Issues on Appeal 2 IBEW raises four issues on appeal: (1) whether Section 365 3 of the Bankruptcy Code authorized the City to reject its CBA 4 5 with IBEW; (2) if rejection of a public employment contract is 6 permissible under the Bankruptcy Code, whether the Supreme 7 Court s Bildisco decision provided the standard for the 8 9 Bankruptcy Court s approval of the City s unilateral rejection and modification of the IBEW CBA under Chapter 9, or whether the 10 11 Bankruptcy Court should have looked to California state law 12 standards governing contract impairment; (3) if the Bildisco 13 standard is the appropriate standard of review for rejection of 14 a CBA, did the Bankruptcy Court err in finding the City 15 satisfied its burden of proof; and (4) if rejection of the IBEW 16 17 CBA was authorized, whether the City acted properly in treating 18 the CBA as unilaterally modified before the Bankruptcy Court 19 approved the City s rejection of the contract.1 20 21 C. Bankruptcy Code Section 365 22 The Bankruptcy Court held that Section 365 of the 23 24 Bankruptcy Code authorized the City to reject the IBEW CBA. IBEW 25 26 1 27 28 This fourth issue has arguably been waived by IBEW, since its briefs contain no separate or distinct argument with respect to this issue. See FN 21 in the City s Opposition Brief. Accordingly, this Court does not intend to separately address this fourth issue. 6 1 2 argues that Bankruptcy Code Section 365 does not authorize rejection of a CBA, and that state labor law should control. 3 Chapter 9 of the Bankruptcy Code governs municipalities 4 5 that declare bankruptcy. Section 901(a) expands Chapter 9 to 6 include other carefully selected sections of chapters 3, 5, and 7 11 of Title 11. 6 Collier on Bankruptcy, ¶ 901.01 (2010). 8 9 Not all sections are incorporated into Chapter 9 because some sections would frustrate the unique purpose of municipal debt 10 11 12 adjustment proceedings. Id. Section 365 is incorporated into Chapter 9 in Section 13 901(a). Section 365 governs the assumption and rejection of 14 executory contracts of the debtor. 6 Collier, supra, ¶ 901.04. 15 Section 365(a) expressly allows the debtor in a Chapter 9 case 16 17 18 19 20 21 to assume or reject any executory contract, subject to the court s approval. 11 U.S.C. § 365(a). In addition to the sections incorporated through Section 901(a), Chapter 9 includes Sections 903 and 904, which were crucial to the constitutionality of Chapter 9. In re County of 22 23 Orange, 179 B.R. 177, 182 n.10 (Bankr. C.D. Cal. 1995). In 24 essence, Section 903 states that Chapter 9 does not affect the 25 power of a state to control its municipality. Id. In addition, a 26 state must consent to a bankruptcy filing by a municipality 27 under 11 U.S.C. § 109(c)(2). These two sections, taken together, 28 empower states to act as gatekeepers to their municipalities 7 1 2 access to Chapter 9. In turn, a state s authorization that its municipalities may seek Chapter 9 relief is a declaration of 3 state policy that the benefits of Chapter 9 take precedence over 4 5 control of its municipalities. See In re County of Orange, 191 6 B.R. 1005, 1021 (Bankr. C.D. Cal. 1995)(“By authorizing the use 7 of Chapter 9 by its municipalities, California must accept 8 9 Chapter 9 in its totality; it cannot cherry pick what it likes while disregarding the rest.”) 10 11 California Government Code § 53760 authorizes 12 municipalities to petition for bankruptcy. Cal. Gov t Code § 13 53760(a)(“Except as otherwise provided by statute, a local 14 public entity in this state may file a petition and exercise 15 powers pursuant to applicable federal bankruptcy law.”) The 16 17 previous version of the Government Code did not include the 18 “except as otherwise provided by statute” language. The Law 19 Revision Commission Comments for the 2002 addition state that, 20 “This section is intended to provide the broadest possible state 21 authorization for municipal bankruptcy proceedings, and thus 22 23 provides the specific state law authorization for municipal 24 bankruptcy filing required under federal law. See 11 U.S.C. § 25 109(c)(2) (Westlaw 2001). As recognized in the introductory 26 clause of subdivision (a), this broad grant of authority is 27 subject to specific limitations provided by statute. See, e.g., 28 Ins. Code §10089.21 (California Earthquake Authority precluded 8 1 2 from resort to bankruptcy); Sts. & Hy. Code § 9011 (prerequisites to bankruptcy filing under the Improvement Bond 3 Act of 1915). See also Educ. Code § 41325 (control of insolvent 4 5 school district by Superintendent of Public Instruction); Health 6 and Safety Code § 129173 (health care district trusteeship).” 7 With respect to the conditional language, “Except as otherwise 8 9 provided by statute,” neither Government Code Section 53760 nor any other provision of California law explicitly imposes on 10 11 12 California municipalities limitations or restrictions that require compliance with or make applicable state labor laws. 13 As further discussed below, the legislative history of 14 Chapter 9 and California Government Code §53760 support the 15 City s argument that municipalities are intended to have broad 16 17 18 authority to reject contracts and reorganize pursuant to Chapter 9, without regard to state labor laws. 19 20 21 D. Federal Preemption IBEW argues that the Bankruptcy Court improperly concluded 22 23 that the City was authorized to reject the IBEW CBA without 24 looking to state law standards for mid-term modification or 25 termination of public employment contracts. IBEW contends that 26 in Chapter 9, state labor law should not be preempted by federal 27 bankruptcy law, i.e. it is state labor law that determines 28 whether a public employee labor agreement may be rejected. This 9 1 2 Court finds that the Bankruptcy Court s conclusion of law on this issue is supported by the record and by proper analysis. 3 Pursuant to the Supremacy Clause, federal laws are the 4 5 supreme law of the land, notwithstanding state laws to the 6 contrary. U.S. Const. art. VI, cl. 2. “Accordingly, it is 7 axiomatic that state law that conflicts with federal law is 8 9 without effect. Federal law may preempt state law under the Supremacy Clause in three ways. First, Congress may state its 10 11 intent through an express preemption statutory provision. 12 Second, in the absence of explicit statutory language, state law 13 is preempted where it regulates conduct in a field that Congress 14 intended the federal government to occupy exclusively. Such an 15 intent may be inferred from a scheme of federal regulation . . . 16 17 so pervasive as to make reasonable the inference that Congress 18 left no room for the States to supplement it or where an Act of 19 Congress touch[es] the field in which the federal interest is so 20 dominant that the federal system will be assumed to preclude 21 enforcement of state law on the same subject. Finally, state law 22 23 that actually conflicts with federal law is preempted . . . In 24 considering whether any of the three categories of preemption 25 apply, however, the purpose of Congress is the ultimate 26 touchstone of pre-emption analysis.” Kroske v. U.S. Bank Corp., 27 432 F.3d 976, 981 (9th Cir. 2005) (internal citations omitted). 28 10 1 2 The Tenth Amendment reserves certain powers to the states. U.S. Const. amend X (“The powers not delegated to the United 3 States by the Constitution, nor prohibited by it to the States, 4 5 are reserved to the States respectively, or to the people.”). 6 Thus, when analyzing preemption, “where federal law is said to 7 bar state action in fields of traditional state regulation . . . 8 9 we have worked on the assumption that the historic police powers of the State were not to be superseded by the Federal Act unless 10 11 that was the clear and manifest purpose of Congress. The 12 presumption of non-preemption does not apply however when the 13 State regulates in an area where there has been a history of 14 significant federal presence.” Kroske, 432 F.3d at 981 (internal 15 citations omitted). 16 17 IBEW argues that California s collective bargaining laws 18 are not pre-empted by the Bankruptcy Code, either by the 19 doctrines of field preemption or conflict pre-emption and 20 therefore Section 365(a) cannot be used by the City to reject 21 IBEW s CBA in violation of state law. IBEW contends that the 22 23 Ninth Circuit interprets the scope of pre-emption very narrowly. 24 See In re Pacific Gas & Electric, 350 F.3d 932 (9th Cir. 2003). 25 IBEW also cites In re Appelbaum, 422 B.R. 684, 689 (9th Cir. 26 B.A.P., 2009). “While federal bankruptcy law is pervasive and 27 there is a strong federal interest in bankruptcy, .... federal 28 bankruptcy law is not so pervasive, nor is the federal interest 11 1 2 so dominant, as to wholly preclude state legislation in the area.”). 3 IBEW further claims that despite the Supremacy Clause, 4 5 bankruptcy law does not preempt all state laws. Exceptions have 6 been identified in other cases. See BFP v. Resolution Trust 7 Corp., 611 U.S. 531, 539 (1994) (Section 548(a) does not 8 9 displace state foreclosure law); Midatlantic Nat l Bank v. New Jersey Dep t of Envt l Prot., 474 U.S. 494, 505 (1986) (section 10 11 544(a) does not pre-empt state environmental law); In re 12 Tippett, 542 F.3d 684, 689 (9th Cir. 2008) (section 326(a) does 13 not preempt California s bona fide purchaser statute). Thus, 14 according to IBEW, the Bankruptcy court erred in not finding 15 that state labor law should also be exempt from federal pre- 16 17 emption. IBEW argues that the language included in the 2002 18 amendment to California Government Code § 53760, the statute 19 that authorizes municipalities to utilize Chapter 9, (“Except as 20 otherwise provided by statute…”) is indicative of California s 21 intent to allow Chapter 9 bankruptcies in some circumstances, 22 23 24 but not allow full preemption of all state laws in doing so. In opposition, the City argues that, as the Bankruptcy Court 25 found, state labor law is preempted by the federal Bankruptcy 26 Code under the Supremacy Clause, Uniformity Clause and the 27 Contracts Clause. The Uniformity Clause authorizes Congress to 28 enact uniform bankruptcy laws. U.S. Const. art. 1, §8, cl. 4. 12 1 2 The City argues that the Bankruptcy Court properly recognized this preemption in allowing the City to reject the IBEW CBA as 3 part of its Chapter 9 bankruptcy. The City argues that there is 4 5 no case law exempting state labor law from federal bankruptcy 6 preemption, nor is there legislative history that would indicate 7 that such an exemption was intended by Congress or by the 8 9 California legislature. As noted above, the City points to In re County of Orange, 191 B.R. at 1021 (holding that California, 10 11 having authorized its municipalities to seek Chapter 9 12 protection must accept Chapter 9 in its totality, including 13 those provisions that Congress clearly intended to preempt state 14 law.) Thus, the City urges this Court to affirm the Bankruptcy 15 Court. 16 17 This Court declines to legislate from the bench and create 18 a new exception to federal preemption. State labor law is not 19 explicitly identified in California Government Code §53760 as an 20 exception to the general grant of authority for municipalities 21 to pursue Chapter 9 bankruptcy. If California had desired to 22 23 restrict the ability of its municipalities to reject public 24 employee contracts in light of state labor law, it could have 25 done so as a pre-condition to seeking relief under Chapter 9. 26 Its failure to take such action convinces this Court that the 27 City was unequivocally authorized to exercise its right under 28 Section 365 and reject the IBEW CBA without interference from 13 1 2 the state. In addition, state labor law has never been carved out as an exemption to the Bankruptcy Code s federal preemption 3 in case law from this circuit or other circuits. While Congress 4 5 did not expressly preempt state labor laws in Section 365(a), 6 incorporating state labor law is, as the Bankruptcy Court so 7 found, prohibited by the Supremacy Clause, the Uniformity Clause 8 9 and the Contracts Clause. The Bankruptcy Court s finding on this issue of law is supported by proper analysis. Accordingly, 10 11 the Court affirms the Bankruptcy Court s holding that the City 12 is permitted to reject the IBEW CBA as part of its Chapter 9 13 bankruptcy reorganization without limitation by state labor law. 14 15 16 E. Bildisco Standard The second issue raised by IBEW in its appeal is that the 17 18 19 Bankruptcy Court erred in ruling that the standard articulated in N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 (1984) 20 (“Bildisco”) applies to the approval of the rejection of the 21 IBEW CBA. IBEW argues that this case was overruled and is 22 inapplicable to the present action. In Bildisco, the Supreme 23 Court held that the language “executory contract” in section 24 25 365(a) of the Code included collective bargaining agreements. 26 The Bildisco Court held that the Bankruptcy Court should permit 27 rejection of such an agreement under section 365(a) if the 28 debtor can show that the agreement burdens the estate and that 14 1 2 the equities balance in favor of rejecting the labor contract. Id. at 526. Furthermore, the Court held that before acting on a 3 petition to modify or reject a collective bargaining agreement, 4 5 the Bankruptcy Court should be persuaded that reasonable efforts 6 to negotiate a voluntary modification have been made and are not 7 likely to produce a prompt and satisfactory solution. Id. 8 9 Bildisco involved rejection of a collective bargaining agreement in a Chapter 11 bankruptcy. A portion of the holding 10 11 was thereafter overturned by Congress when it enacted 11 U.S.C. 12 § 1113. Section 1113(f) provides that, “No provision of this 13 title shall be construed to permit a trustee to unilaterally 14 terminate or alter any provisions of a collective bargaining 15 agreement prior to compliance with the provisions of this 16 17 18 section.” Section 1113 of the Bankruptcy Code was incorporated into 19 Chapter 11 bankruptcy law, but not Chapter 9. As discussed 20 above, Section 901(a) expands Chapter 9 to include other 21 carefully selected sections of chapters 3, 5, and 11 of Title 22 23 11. 6 Collier, supra. ¶ 901.01. However, not all sections are 24 incorporated into Chapter 9 because some sections would 25 frustrate the unique purpose of municipal debt adjustment 26 proceedings. 27 Id. One of those sections not incorporated in Chapter 9 through Section 901(a) is Section 1113. See 11 U.S.C. 28 § 901(a). 15 1 2 Though Bildisco was a Chapter 11 case, one court has held that Bildisco applies in Chapter 9 cases. In re County of 3 Orange, 179 B.R. at 183. The court in In re County of Orange 4 5 found that Section 1113 overturned Bildisco s holding that 6 before rejection, a Chapter 11 debtor-in-possession can 7 unilaterally modify a collective bargaining agreement. However, 8 9 the In Re County of Orange court stated that this finding applied only to Chapter 11, not Chapter 9. Id. at 182-83. 10 11 Analyzing the legislative history of Section 1113 and its 12 potential application to Chapter 9 bankruptcies, the Court in In 13 re County of Orange noted that Congress contemplated enacting a 14 “1113-like” statute for Chapter 9, but did not. Id. at 183 n.15. 15 The Court reasoned that Congress may have decided against adding 16 17 a section 1113 to Chapter 9 out of concern about encroaching on 18 states rights under the Tenth Amendment. Without a section 1113, 19 states are able to decide on their own whether to allow a 20 municipality to file for bankruptcy under Chapter 9 (and have 21 the power to reject union contracts), or not. Chapter 9 was 22 23 later amended and Section 1113 was again not incorporated, thus 24 strengthening the argument that Congress did not intend for 25 Section 1113 to apply to Chapter 9 or to overrule Bildisco s 26 holding as to a Chapter 9 case. Id. 27 In deciding whether the City could reject IBEW s CBA, the 28 Bankruptcy Court held that the standard articulated in Bildisco 16 1 2 was still the appropriate standard for labor contract rejection in a Chapter 9 case. Using the Bildisco standard, the Bankruptcy 3 Court determined that rejection of the IBEW CBA was permissible. 4 5 While the Bankruptcy Court adopted the reasoning of the In Re 6 County of Orange court and applied Bildisco to the current 7 Chapter 9 case, IBEW contends that Bildisco is an irrelevant, 8 9 overruled case. IBEW argues that Bildisco is not the appropriate standard to determine whether a municipality may reject and 10 11 unilaterally modify the IBEW contract. IBEW further argues that 12 In re County of Orange is not persuasive because it does not 13 deal with contract rejection, and to the extent that it does 14 contribute to the current analysis, In Re Country of Orange 15 supports following state labor law due to its references to the 16 17 18 Meyers-Milias-Brown Act (“MMBA”). IBEW urges the Court to require the City to follow state 19 labor law. Under state labor law, as governed by the MMBA, Cal. 20 Gov t Code § 3500 et seq., municipalities are supposed to first 21 negotiate the terms of a contract with the union, and are to 22 23 negotiate again if modifying the terms before the contract has 24 expired. In Re County of Orange,179 B.R. at 183. This 25 negotiation process may be circumvented only in emergency 26 situations, and only after satisfying a four part test found in 27 Sonoma County Org. of Pub. Employees v. County of Sonoma, 591 28 P.2d 1, 5 (Cal. 1979). Under emergency situations, as in In Re 17 1 2 County of Orange, municipalities would have to first prove that they met the Sonoma emergency test before modifying labor 3 contracts. In Re County of Orange, 179 B.R. at 184. IBEW urges 4 5 6 7 8 9 the Court to adopt the Sonoma standard rather than the Bildisco standard. The City argues that the Bildisco standard applies to whether the City may reject the IBEW contract. The City maintains that the Bankruptcy Court properly applied In Re 10 11 12 13 14 15 County of Orange in deciding that the Bildisco standard for rejecting a CBA should apply to a Chapter 9 case. This Court agrees with the Bankruptcy Court that the standard articulated in Bildisco is the appropriate standard to apply in this case. The Bankruptcy Court properly concluded that 16 17 a municipality operating under Chapter 9 may utilize 11 U.S.C. 18 Section 365 to reject a CBA, if the municipality can show that 19 the requirements of Bildisco are met. The court in In Re County 20 of Orange concluded that “Bildisco applies in Chapter 9, because 21 Congress has had numerous opportunities to limit its effect by 22 23 incorporating § 1113 into chapter 9.” 179 B.R. at 183. The 24 Bankruptcy Court declined to “do what Congress has not done, 25 whether by incorporating Section 1113-like provisions into 26 Chapter 9, or by requiring compliance with state labor law.” 27 (Memorandum Decision, p. 9.) This Court agrees with the 28 Bankruptcy Court that it is Congress, not the Court, which 18 1 2 should decide whether to incorporate a Section 1113-like provision into Chapter 9. In the absence of such legislation, 3 and in the absence of case law that directly addresses the 4 5 issues of this case, the Court finds Bildisco and In re County 6 of Orange to be persuasive authorities for analyzing and 7 determining the appropriate standard for a municipality to 8 9 reject a CBA during Chapter 9 bankruptcy. Accordingly, the Court affirms the Bankruptcy Court s use of the Bildisco standard. 10 11 12 13 14 15 F. Satisfaction of the Bildisco Standard IBEW s third argument in support of its appeal herein is that even if the Bildisco standard applies in Chapter 9 proceedings, the standard was not applied correctly by the 16 17 Bankruptcy Court when it found that the City could reject the 18 CBA pursuant to Bildisco. IBEW contends that the City did not 19 produce sufficient evidence that: (1) the IBEW CBA constituted a 20 burden, (2) the balance of equities was in the City s favor, and 21 (3)the City negotiated reasonably with IBEW prior to rejecting 22 23 the CBA. This Court finds that the Bankruptcy Court s 24 evidentiary rulings and findings on the three prongs of the 25 Bildisco test were not clearly erroneous and, therefore, are 26 affirmed. 27 28 1. Bankruptcy Court s reliance on reply declarations 19 1 2 IBEW claims that the Bankruptcy Court improperly relied on inadmissible reply declarations filed by the City in reaching 3 its decision because the declarations did not reply to evidence 4 5 submitted by IBEW and the declarations improperly introduced new 6 evidence to bolster the City s burden argument. (IBEW Opening 7 Brief, n. 11). The City s response is that the Bankruptcy Court 8 9 only relied on the reply declarations to the extent that the evidence was already admitted at trial by IBEW so the reply 10 11 12 declarations were not improper. Here, the City filed a reply brief with five reply 13 declarations. IBEW filed a Motion to Strike the reply brief and 14 declarations as not responsive to evidence submitted in the 15 opposition. On February 2, 2009, the Bankruptcy Court had a 16 17 18 hearing on the motion to strike, and denied the motion. The Court finds that the Bankruptcy Court did not abuse its 19 discretion by relying, in part, on evidence raised in the reply 20 declarations to conclude that the IBEW contract is burdensome. 21 Any evidence relied on in those declarations was already 22 23 admitted at trial by IBEW. (SER 711:12-17:22, 872:8-16, 895:21- 24 909:19). IBEW claims that it did not present any evidence at the 25 evidentiary hearing, so any reply by the City was improper. 26 However, IBEW did admit trial exhibits. The Bankruptcy Court 27 only relied on the reply declarations to the extent that the 28 20 1 2 evidence in the reply declarations related to the alreadyadmitted exhibits. 3 Further, the Bankruptcy Court made it clear that any 4 5 “additional evidence produced in connection with the motion 6 served primarily to corroborate the foregoing [eligibility 7 findings].” (Findings of Fact and Conclusions of Law, p. 5.) 8 9 Thus, the Bankruptcy Court s refusal to strike the reply declarations did not prejudice IBEW because the Bankruptcy Court 10 11 stated that the relevant findings of fact from the Eligibility 12 Findings alone were sufficient to justify granting the motion. 13 (Id. at p. 4.) 14 15 2. Eligibility Findings 16 17 IBEW argues that the Bankruptcy Court clearly erred by 18 incorporating findings of fact from the eligibility hearing 19 (“Eligibility Findings”) into its decision that the City 20 satisfied the standards under Bildisco because determining 21 eligibility and determining rejection of a CBA apply different 22 23 burdens of proof. On the other hand, the City argues that use of 24 the Eligibility Findings was not clearly erroneous because the 25 findings came from the same case as the Motion, were relevant to 26 the issues being litigated in the Motion and were fully 27 litigated in front of the same judge. The City further points 28 out that these Eligibility Findings were made after an 8 day 21 1 2 eligibility hearing and were unanimously affirmed by the BAP. Moreover, the City claims that IBEW has failed even to address 3 the Eligibility Findings in this appeal and this silence 4 5 underscores the conclusive effect of the Eligibility Findings. 6 In short, according to the City, having litigated certain facts, 7 lost, appealed and lost again, IBEW cannot re-litigate or 8 9 dispute in this appeal those Eligibility Findings. This Court agrees with the City s argument on this issue. 10 11 Other than stating that the two evidentiary hearings 12 required different burdens of proof, IBEW has offered no case 13 law to support its argument that the Bankruptcy Court s use of 14 the Eligibility Findings was clearly erroneous. The Bankruptcy 15 Court noted in its findings of fact exactly which Eligibility 16 17 Findings it found most relevant to the Bildisco standard. (See 18 Findings of Fact and Conclusions of Law, p. 4.) This Court finds 19 that the Bankruptcy Court s reliance on the Eligibility Findings 20 as part of its Findings of Fact and Conclusions of Law was not 21 clearly erroneous. 22 23 24 3. Determination that IBEW CBA was burdensome 25 The first prong of the Bildisco test applied by the 26 27 Bankruptcy Court is whether the collective bargaining agreement burdens the estate. Bildisco, 465 U.S. at 526. In a Chapter 9 28 case, there is no “estate.” As explained in Bildisco, a debtor 22 1 2 must demonstrate that the collective bargaining agreement burdens the debtor s ability to reorganize. Id. at 525-26. The 3 Bankruptcy Court found that the City had introduced sufficient 4 5 evidence to satisfy its burden of proof on this issue. The IBEW 6 challenges this finding in this appeal by arguing, inter alia, 7 that the evidence produced by the City only related to the 8 9 burden on the City s general fund whereas the proper inquiry should have been on the burden to the City on the whole.2 The 10 11 City contends that the burden evidence and analysis properly 12 focused on the general fund, as the general fund affects the 13 City s ability to reorganize pursuant to Chapter 9. 14 15 This Court finds that the Bankruptcy Court did not err in focusing its burden inquiry on the insolvent general fund, 16 17 rather than the City s finances as a whole, because it was 18 previously determined at the eligibility hearing and affirmed by 19 the BAP that the City could not simply dip into other funds to 20 21 22 23 24 25 26 27 28 2 IBEW has also raised the issue that the Bankruptcy Court s Findings of Fact adopted, virtually unchanged, all the proposed findings of fact drafted by the City. IBEW contends that because of this, this Court must review the Bankruptcy Court s findings with special scrutiny. The City argues that this heightened standard of review is not warranted where, as here, the Bankruptcy Court did not simply adopt all the findings uncritically. This Court finds that while the Bankruptcy Court adopted most of the City s proposed findings of fact, the Bankruptcy Court also added additional findings and analysis. Even were this Court to review the Findings of Fact with special scrutiny, this Court does not find that the Bankruptcy Court s adoption of the City s proposed findings constitutes clear error. 23 1 2 cover general fund expenses. See In Re City of Vallejo, 408 B.R. 280, 293 (B.A.P. 9th Cir. 2009.) The BAP discussed the general 3 fund at length in affirming the Bankruptcy Court s findings that 4 5 the City was insolvent, and the City s ability to reorganize 6 hinged on the general fund emerging from insolvency. 408 B.R. at 7 286-294. 8 9 With respect to the Bankruptcy Court s findings of fact on the burden issue, IBEW specifically identifies the Bankruptcy 10 11 Court s finding #40 -- which states that the IBEW CBA longevity 12 pay provision is substantial – as being clearly erroneous. 13 IBEW CBA does not, in fact, provide for longevity pay. While 14 this finding was in error, the Court does not find that this 15 The error in and of itself warrants reversal of the Bankruptcy 16 17 Court s decision. Even absent this finding, there was more than 18 enough evidence relied upon by the Bankruptcy Court to justify 19 its conclusion that the IBEW CBA constitutes a burden. 20 21 With the exception of the erroneous finding mentioned above, the majority of IBEW s evidentiary disagreements are not 22 23 with the individual findings of fact, but rather with the 24 conclusion drawn by the Bankruptcy Court, namely that the IBEW 25 CBA is burdensome. However, the standard for this Court to 26 overturn the Bankruptcy Court s evidentiary findings is high. 27 This Court would have to find both clear error and prejudice in 28 reviewing the Bankruptcy Court s findings of fact. While there 24 1 2 may be conflicting evidence, or even evidence that this Court might have weighed differently, this is not enough to overturn 3 the Bankruptcy Court s ruling. See e.g. Nat l Wildlife Fed n., 4 5 422 F.3d 782, 795 (9th Cir. 2005) (Clear error is not 6 demonstrated by pointing to conflicting evidence in the record. 7 If the trial court s account of the evidence is plausible in 8 9 light of the record viewed in its entirety, the reviewing court may not reverse it.) In light of all the evidence reviewed by 10 11 the Bankruptcy Court for the eligibility hearing and the 12 evidentiary hearing, the Bankruptcy Court s findings of fact, 13 and ultimate conclusion that the facts show the City met the 14 Bildisco standard on the burdensome issue, were not clearly 15 erroneous. 16 17 18 19 20 21 4. Determination that the balance of equities favors the City The Bankruptcy Court found that absent rejection of the IBEW CBA, the City would not likely be able to implement a 22 23 viable plan of adjustment and emerge from bankruptcy. Bildisco 24 requires a determination that the equities balance in favor of 25 rejecting the contract. 465 U.S. at 526. However, the debtor 26 need not demonstrate that rejection is necessary for a 27 successful reorganization. See id. at 527. In balancing 28 equities, “the Bankruptcy Court s inquiry is of necessity 25 1 2 speculative and it must have great latitude to consider any type of evidence relevant to the issue.” Id. IBEW argues that the 3 Bankruptcy Court s conclusion that the balance of equities 4 5 favored CBA rejection is erroneous. IBEW challenges both the 6 Bankruptcy Court s balancing of the equities, and the Bankruptcy 7 Court s consideration of a declaration from IBEW s expert. IBEW 8 9 withdrew its expert, but the Bankruptcy Court admitted his declaration into evidence to the extent that it constituted an 10 11 admission. While IBEW argues that nothing in the declaration was 12 an admission, they do so in a footnote and without analysis or 13 support. This Court finds that IBEW has not demonstrated that 14 the Bankruptcy Court abused its discretion in considering the 15 evidence in IBEW s expert s declaration. 16 17 Nor does this Court find that the Bankruptcy Court s 18 conclusion that the balance of equities favored the City is 19 clearly erroneous. 20 plunging revenues threatened the City s financial survival; that 21 The Bankruptcy Court s findings that there was little, if anything left for the City to cut apart 22 23 from its labor expenses; that further reductions in the funding 24 of services threatened the City s ability to provide for the 25 basic health and safety of its residents; that reducing the 26 number of IBEW employees would threaten the health and safety of 27 Vallejo residents; that the IBEW CBA required a salary increase 28 in the next two years while City deficits were unresolved; and 26 1 2 that the City incurred significant expenses from items like uncapped sick leave accrual and unfunded retiree health 3 liability costs (see City Opposition brief at p. 27-28 and 4 5 citations to the record therein) are supported by the record in 6 this case. 7 may have a significant adverse effect on IBEW employees, IBEW is 8 9 While this Court recognizes that contract rejection not being singled out and all constituencies have or will suffer severe cuts in Vallejo, particularly the City s residents 10 11 because of the City s decision to petition for relief under 12 Chapter 9. 13 are entitled to great latitude and IBEW has not demonstrated 14 that these findings were clearly erroneous, this Court affirms 15 Accordingly, because the Bankruptcy Court s findings the Bankruptcy Court s conclusion on this second prong of the 16 17 Bildisco standard. 18 19 20 21 5. Determination that the City negotiated reasonably with IBEW, and a resolution is not likely The Bankruptcy Court found that the City met its burden of 22 23 proof by demonstrating that reasonable efforts to negotiate a 24 voluntary modification were made and and were not likely to 25 produce a prompt and satisfactory solution. The Bankruptcy Court 26 ordered the parties to judicially supervised settlement talks, 27 which were unsuccessful, prior to issuing its finding. The 28 record in this case reflects almost two years of negotiations 27 1 2 between the City and its unions, including IBEW. Both parties have made reasonable efforts to modify the CBA but it appears 3 unlikely to this Court (just as it did to the Bankruptcy Court) 4 5 that a “prompt and satisfactory solution is possible”. In sum, 6 this Court does not find that the Bankruptcy Court erred in 7 finding that reasonable negotiations were undertaken and a 8 prompt and satisfactory resolution was unlikely. 9 10 ORDER 11 12 For all the foregoing reasons, IBEW s appeal of the 13 Bankruptcy Court s Order granting the City s Motion for Approval 14 of Rejection of IBEW s Collective Bargaining Agreement is DENIED 15 and the Bankruptcy Court s March 13, 2009 Memorandum decision 16 17 18 and August 31, 2009 Findings of Fact and Conclusions of Law are AFFIRMED. 19 20 IT IS SO ORDERED. 21 22 23 Dated: June 14, 2010 ____________________________ JOHN A. MENDEZ, UNITED STATES DISTRICT JUDGE 24 25 26 27 28 28
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
