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In re City of Vallejo

June 14, 2010


Bankr. Case No. 08-26813-A-9


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 "City‟s") motion to reject IBEW‟s collective bargaining contract.

I. Facts and Procedural Background

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 Association of Firefighters ("IAFF"), the Vallejo Police Officers Association ("VPOA") and the Confidential, Administrative, Managerial and Professional Employees of Vallejo ("CAMP"). On June 17, 2008, the City filed a Motion for Approval of Rejection of Collective Bargaining Agreements ("Motion") pursuant to Bankruptcy Code Section 365(a). The City sought approval from the Bankruptcy Court to reject the CBAs of these four unions.

Before the Motion was heard, IBEW, IAFF and VPOA challenged the City‟s eligibility to file for Chapter 9 bankruptcy relief under Code Section 109(c). On September 5, 2008, the Bankruptcy Court issued its Eligibility Findings, holding that the City met the Chapter 9 eligibility requirements, and in particular, that the City was insolvent. The three unions appealed to the Bankruptcy Appellate Panel for the Ninth Circuit ("BAP"), which affirmed. In re City of Vallejo, 408 B.R. 280 (B.A.P. 9th Cir. 2009).

For efficiency, the Bankruptcy Court deferred hearing the Motion until after eligibility was determined. On December 11, 2008, the unions filed an opposition to the Motion. The City filed a reply on January 23, 2009. Shortly before the February 3, 2009 evidentiary hearing on the Motion, VPOA and CAMP agreed to modifications on their contracts. Subsequently, the City voluntarily dismissed the Motion as to VPOA and CAMP.

On March 13, 2009, the Bankruptcy Court issued a Memorandum Decision ("Memorandum") on the Motion. (Doc. #1). The Memorandum concluded that the federal bankruptcy law, specifically Section 365(a) as interpreted by the Supreme Court‟s decision in N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 (1984), controlled whether public sector labor agreements could be rejected in a Chapter 9 case. The Memorandum stated that Bildisco provided the legal standard for determining whether rejection was warranted. Instead of ruling on whether the evidence satisfied the legal standard, the Bankruptcy Court then ordered the City and the two remaining unions to judicially-supervised mediation.

In August 2009, IAFF agreed to rejection of their CBA, which was approved by the Bankruptcy Court. Because IBEW and the City could not reach an agreement through mediation, the Motion went to decision.

On August 31, 2009, the Bankruptcy Court issued its Findings of Fact and Conclusions of Law on the Motion. The Bankruptcy Court granted the Motion, confirming the legal ruling in the Memorandum and finding that the evidence satisfied the Bildisco standard. IBEW appealed that ruling to this Court.

II. Opinion

A. Standard of Review

The Bankruptcy Court‟s interpretations of the Bankruptcy Code and conclusions of law are reviewed de novo by this Court. Blausey v. United States Trustee, 552 F.3d 1124, 1132 (9th Cir. 2009)(internal citations omitted).

This Court reviews the Bankruptcy Court‟s factual findings for clear error. Id. Factual review under this standard requires deference to the Bankruptcy Court. McClure v. Thompson, 323 F.3d 1233, 1240 (9th Cir. 2003). Review under the clearly erroneous standard requires significant deference to the trial court. Ambassador Hotel Co., Ltd. v. Wei-Chuan Inv., 189 F.3d 1017, 1024 (9th Cir. 1999) (internal citations omitted). The factual findings will only be clearly erroneous if the reviewing court has the "definite and firm conviction that a mistake has been committed." Id. (quoting Concrete Pipe & Prods. of Cal., Inc. v. Construction Laborers Pension Trust, 508 U.S. 602, 623 (1993)); see also Latman v. Burdette, 366 F.3d 774, 776 (9th Cir. 2004). "Clear error is not demonstrated by pointing to conflicting evidence in the record." Nat‟l Wildlife Fed‟n v. Nat‟l Marine Fisheries Serv., 422 F.3d 782, 795 (9th Cir. 2005)(quoting United States v. Frank, 956 F.2d 872, 875 (9th Cir. 1991)). Instead, if the trial court‟s account of the evidence is plausible in light of the record viewed in its entirety, the reviewing court may not reverse it even though convinced that, 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, 886 (9th Cir. 2002)). "To reverse on the basis of an erroneous evidentiary ruling, [a court] must conclude not only that the bankruptcy court abused its discretion, but also that the error was prejudicial." Santa Barbara Capital Mgmt. v. Neilson (In re Slatkin), 525 F.3d 805, 811 (9th Cir. 2008) (citations omitted). ""A reviewing court should find prejudice only if it concludes that, more probably than not, the lower court‟s error tainted the verdict.‟" McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1032 (9th Cir. 2003) (quoting Tennison v. Circus Circus Enters., Inc., 244 F.3d 684, 688 (9th Cir. 2001)).

B. Issues on Appeal

IBEW raises four issues on appeal: (1) whether Section 365 of the Bankruptcy Code authorized the City to reject its CBA with IBEW; (2) if rejection of a public employment contract is permissible under the Bankruptcy Code, whether the Supreme Court‟s Bildisco decision provided the standard for the Bankruptcy Court‟s approval of the City‟s unilateral rejection and modification of the IBEW CBA under Chapter 9, or whether the Bankruptcy Court should have looked to California state law standards governing contract impairment; (3) if the Bildisco standard is the appropriate standard of review for rejection of a CBA, did the Bankruptcy Court err in finding the City satisfied its burden of proof; and (4) if rejection of the IBEW CBA was authorized, whether the City acted properly in treating the CBA as unilaterally modified before the Bankruptcy Court approved the City‟s rejection of the contract.*fn1

C. Bankruptcy Code Section 365

The Bankruptcy Court held that Section 365 of the Bankruptcy Code authorized the City to reject the IBEW CBA. IBEW argues that Bankruptcy Code Section 365 does not authorize rejection of a CBA, and that state labor law should control.

Chapter 9 of the Bankruptcy Code governs municipalities that declare bankruptcy. Section 901(a) expands Chapter 9 to include other carefully selected sections of chapters 3, 5, and 11 of Title 11. 6 Collier on Bankruptcy, ΒΆ 901.01 (2010). Not all sections are incorporated into Chapter 9 because some sections ...

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