City of Cent. Falls, Rhode island v. Cent. Falls Teachers' Union, Rhode Island Council 94, Afscme, Afl-Cio Local 1627 (In re City of Cent. Falls, Rhode island)

278 Ed. Law Rep. 1002

468 B.R. 36

In re CITY OF CENTRAL FALLS, RHODE ISLAND, Debtor.City of Central Falls, Rhode Island, Plaintiff

v.Central Falls Teachers' Union, Rhode Island Council 94, AFSCME, AFL–CIO Local 1627, et al., Defendants.

Bankruptcy No. 11–13105–FJB.

Adversary No. 11–1094.

United States Bankruptcy Court, D. Rhode Island.

March 23, 2012.

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)

Christine M. Curley, Christine M. Curley, Esq., North Kingstown, RI, Theodore Orson, Orson and Brusini Ltd., Providence, RI, for Plaintiff.

Curtis C. Mechling, Stroock & Stroock & Lavan LLP, Hanan B. Kolko, Meyer, Suozzi, English & Klein, P.C., New York, NY, Marc B. Gursky, Gursky Law Associates, North Kingstown, RI, William J. Delaney, Delaney DeMerchant & Heitke LLC, Forrest L. Avila, RI Department of Education, Michael R. McElroy, Schacht & McElroy, Claire J.V. Richards, State of Rhode Island, Providence, RI, Girard A. Galvin, Corcoran, Peckham, Hayes & Galvin, P.C., Newport, RI, for Defendant.

MEMORANDUM OF DECISION ON CITY'S MOTION FOR SUMMARY JUDGMENT AND ON TEACHERS' UNION'S MOTION TO DISMISS OR ABSTAIN

FRANK J. BAILEY, Bankruptcy Judge.

This adversary proceeding arises in the bankruptcy case of the City of Central Falls, Rhode Island (the “City”), a proceeding for adjustment of debts of a municipality under chapter 9 of the Bankruptcy Code. The plaintiff is Robert G. Flanders, Jr. (the “Receiver”) in his capacity as the state-appointed receiver of the City. The principal defendants are two labor unions, the Central Falls Teachers Union, Local 1657 of the American Federation of Teachers (the “Teachers' Union”) and Local 1627, Rhode Island Council 94, AFSCME, AFL–CIO (“Council 94”) (jointly, the “Unions”). Each is party to a collective bargaining agreement with the Central Falls School District (the “School District”), which—suffice it to say for now—runs the public schools in Central Falls. As part of his efforts to fashion a feasible and comprehensive plan of debt adjustment in this bankruptcy case, the Receiver has been renegotiating the CBAs with the Unions, but his efforts have been impeded by uncertainty over two issues: (i) whether the School District is part of the City, such that the debts and contract obligations of the School District are obligations of the City and therefore subject to adjustment in this bankruptcy case; and (ii) whether the Receiver, acting on behalf of the City, has the power under Rhode Island's Fiscal Stability Act, the statute defining his powers as receiver, to collectively bargain with the Unions. By his complaint in this adversary proceeding, the Receiver seeks a declaratory judgment resolving both issues in the affirmative, and he has now moved for summary judgment to that effect. In response, the Teachers' Union has moved to dismiss for lack of subject matter jurisdiction or to abstain; and, on the merits, both Unions have opposed summary judgment and urged resolution of the Receiver's issues in the negative. In view of the need to avoid significant delays in the reorganization process, the Court heard both motions on an expedited basis and now addresses them in this memorandum of decision.

PROCEDURAL HISTORY

On August 1, 2011, the City, by and through the Receiver, filed a voluntary petition under Chapter 9 of the Bankruptcy Code, commencing the Chapter 9 case in which this adversary proceeding arises. On December 1, 2011, the Court entered an Order for Relief in the Chapter 9 case. In the first five months of the case, the Receiver negotiated agreements with three unions with whom the City had collective bargaining agreements and a further agreement with the City's retirees.¹ The court approved these agreements, each a major step toward a confirmable plan of debt adjustment.

In the meantime, the Receiver had also begun negotiations with the defendant Unions, the Teachers' Union and Council 94. Each is a party to a collective bargaining agreement with the Central Falls School District. The Teachers' Union's contract expired on August 31, 2011, but under state law, its terms continue to govern for a time, the extent of which is uncertain. ² Council 94's contract expires on June 30, 2013. Though negotiations have continued, each defendant Union expressly has reserved the right to argue (i) that the School District is not part of the City and therefore the collective bargaining process is not within the Bankruptcy Court's subject-matter jurisdiction and (ii) that the Receiver does not have the power to act on behalf of the City relative to collective bargaining with the defendant Unions.

On December 30, 2011, the Receiver filed the complaint commencing this adversary proceeding, a complaint seeking only declaratory relief and naming only the Teachers' Union as a defendant. It requested two declarations: in Count One, “that the School District is part of the City and therefore, ipso facto, the collective bargaining process is within the Bankruptcy Court's subject-matter jurisdiction”; and in Count Two, “that the Receiver has the power under the Fiscal Stability Act to act on behalf of the City relative to collective bargaining with the Union.” By a first amendment to the complaint, the Receiver added Council 94 as a defendant. By a second amendment, the Receiver added numerous related governmental parties (the “Governmental Defendants”) as nominal defendants, the court having determined that these were necessary parties.³ These amendments notwithstanding, the complaint's demand for declaratory relief is unchanged. At the Receiver's request, the court established an expedited schedule for adjudication of the adversary proceeding.

Before the time to answer the Second Amended Complaint, the Receiver filed the present motion for summary judgment. The Teachers' Union filed an opposition to the motion for summary judgment and a “cross-motion” to dismiss for lack of subject matter jurisdiction or to abstain.⁴ Having moved under Fed.R.Civ.P. 12(b)(1) to dismiss or abstain, the Teachers' Union has not yet filed an answer, and its answer has not come due. In a separate opposition to the motion for summary judgment, Council 94 indicated that it was relying on the opposition filed by the Teachers' Union and has submitted no separate argument of its own. Council 94 has filed an answer opposing the Receiver's demands for declaratory relief.⁵ Each of the Governmental Defendants has answered the Second Amended Complaint and, without articulating a position on the two main issues, has simply requested the judgment of the court; none has opposed the motion for summary judgment.

By order of August 5, 2011 in the Chapter 9 case, the court established October 4, 2011 as the deadline for filing proofs of claim, but the order also provided that “a claim arising from the rejection of an executory contract ... of the debtor may be filed within such time as the court later directs.” The Teachers' Union has not filed a proof of claim. On October 3, 2011, Council 94 filed a proof of claim in an amount stated as “unknown,” in part on the basis of its collective bargaining agreement with the School District.⁶

As of the date of the hearing on the present motions, negotiations between the Receiver and the Unions were continuing but remained in preliminary stages. In a recent status report in the Chapter 9 case, the Receiver indicated that he expects to make a financial offer to the Unions on or before March 21, 2012, and that he expects to know within three weeks thereafter whether he will have reached new and modified collective bargaining agreements with the Unions. In his complaint in this adversary proceeding, the Receiver stated that if he is unable to negotiate collective bargaining agreements with the Unions that would enable the City to operate with balanced budgets for a period of five years, he will move to reject their collective bargaining agreements. He has not yet moved to reject either agreement. The Receiver maintains that before he can file a confirmable plan in this case, the court must resolve the issues as to which he now seeks declaratory relief.

DECLARATORY RELIEF

The Court must first determine its subject matter jurisdiction and therefore will address the Motion to Dismiss or Abstain before the Motion for Summary Judgment. However, in order to address the issues of jurisdiction, authority, and abstention that are presented by the former motion, it would help first to clarify the relief being demanded and establish whether declaratory relief is appropriate and warranted.

The Declaratory Judgment Act states that “[i]n a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” ⁷ Bankruptcy courts are among the federal courts that may grant declaratory relief under this statute. ⁸ And, notwithstanding the inapplicability of Fed.R.Civ.P. 57 to adversary proceedings, the Bankruptcy Rules make provision for entertainment of complaints for declaratory relief in bankruptcy cases.⁹

The Declaratory Judgment Act is designed to enable litigants to clarify legal rights and obligations before acting upon them, “whether or not further relief is or could be sought.” ¹⁰ Despite the availability of this relief before a party is injured or aggrieved, a court may enter declaratory relief only “in a case of actual controversy.” ¹¹ An actual controversy is “a case and controversy in the constitutional sense.... It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” ¹² But even where an actual controversy is presented, the court retains discretion to deny declaratory relief for prudential reasons.¹³

...