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In re City of San Bernardino

United States District Court, C.D. California

May 7, 2015

In Re: CITY OF SAN BERNARDINO, CALIFORNIA, Debtor,

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[Copyrighted Material Omitted]

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Appeal from the United States Bankruptcy Court for the Central District of California, Riverside Division; The Honorable Meredith A. Jury, Presiding (No. 6:12-bk-28006).

For San Bernardino City Professional Firefighters Local 891, Appellant: David M. Goodrich, LEAD ATTORNEY, SulmeyerKupetz APC, Los Angeles, CA.

For City of San Bernardino, California, Appellee: Fred Neufeld, Kathleen D DeVaney, Laura L Buchanan, LEAD ATTORNEYS, Paul Robert Glassman, Stradling Yocca Carlson and Rauth PC, Santa Monica, CA; Gary David Saenz, LEAD ATTORNEY, San Bernardino City Attorneys Office, San Bernardino, CA.

OPINION

OTIS D. WRIGHT, II, UNITED STATES DISTRICT JUDGE.

Page 492

I. INTRODUCTION

Appellant San Bernardino City Professional Firefighters Local 891 (the " Union" ) appeals the " Order Denying Motion of San Bernardino City Professional Firefighters For Relief From the Automatic Stay" entered by the United State Bankruptcy Court for the Central District of California, Riverside Division, on November 13, 2014. San Bernardino City Prof'l Firefighters Local 891 v. San Bernardino (In re City of San Bernardino), No. 6:12-bk-28006, ECF No. 1287 (Bankr. C.D. Cal. Nov. 13, 2014) (the " Stay Order " ). The Stay Order denied the Union's request for relief from the automatic stay in the underlying chapter 9 bankruptcy of Appellee City of San Bernardino (the " City" ). The Union sought relief from the stay to litigate the City's post-petition conduct in state court. For the reasons discussed below, the Court AFFIRMS the Bankruptcy Court's order in full.

II. FACTUAL AND PROCEDURAL BACKGROUND

On August 1, 2012, the City filed a voluntary petition under chapter 9 of the Bankruptcy Code. (AER 1-8.)[1] At that time, the City was in a financial crisis with an estimated budget deficit of $45.8 million. (SER 351-53, 99, 1642.) The City's insolvency is detailed in the Bankruptcy Court's chapter 9 eligibility opinion. In re San Bernardino, 499 B.R. 776 (Bankr. C.D. Cal. 2013). The City's first step in stabilizing the financial crisis was negotiating modifications to the collective bargaining agreements of the City's seven public-sector labor unions. (SER 425-29, 518-22.)

One year after the petition date, the City had reached modification agreements with five of the seven labor unions, but the City and Union failed to reach a deal modifying the parties' Memorandum of Understanding (the " MOU" ). ( Id. at 516-17, 853-58, 866-86.) The City and the Union engaged in extensive negotiations and mediation sessions regarding voluntary modifications of the MOU, and those efforts are detailed in a separate opinion from this Court. See In re City of San Bernardino, No. 5:14-cv-02073, ECF No. 47, 530 B.R. 474, (C.D. Cal. May 7, 2015). On March 4, 2013, the City filed a motion to reject the MOU.

On May 23, 2014, the City notified the Union that it would implement cost-reduction measures to modify staffing and equipment provisions in the MOU. (SER 1299-1300, 1682-83.) The City informed the Union that its proposed budget for fiscal year 2014-15 required a reduction of eighteen fire safety positions, and the elimination of a paramedic truck company and a paramedic engine company. ( Id. at 1302; AER 90-96.) Due to open positions elsewhere in the department, the City told the Union that only four firefighters would lose their jobs. (SER 1302) Another cost-reduction measure was a modification to the MOU's " Constant Staffing" provision. The Constant Staffing provision required that the " Fire Department will maintain its authorized daily constant staffing position vacancies through off-duty personnel on an overtime basis." ( Id. at 550.) This provision required the City to provide twenty-four-hour staffing, seven days a week on all fire engines and ladder trucks irrespective of existing service level demands. ( Id. at 1644, 2333-59.) The Constant

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Staffing provision resulted in $4.2 million in overtime costs in 2013. ( Id. at 2333-34.) The City believed that implementing a " minimum staffing" provision would save the city between $2-3 million a year. ( Id.)

On June 30, 2014, the City Council approved the budget for fiscal year 2014-15 and the City began implementing the cost-reduction measures. ( Id. at 1340, 1342-1436.) Four firefighters received " Reduction in Force" letters. ( Id.) Despite the notices, no Union members were laid off. The Union members in question exercised their seniority rights to take other open positions and were reinstated to their original positions several months later. ( Id. at 2696-99.) The City also implemented the minimum staffing model, removed apparatuses from service, and closed a fire station.

On July 21, 2014, the Union filed a " Motion for Relief" seeking a confirmation from the Bankruptcy Court that the automatic stay did not apply to a proposed state-court lawsuit contesting the City's cost-reduction measures, or in the alternative, requesting relief from the automatic stay.[2] (AER 9-170; SER 1171-1285.) The Union claimed that the City's cost-reduction measures violated numerous provisions of state law, and therefore it would seek an injunction and declaratory judgment in state court to reverse the layoffs, increase staffing, and reopen the closed fire station. (AER 9-170.) On July 29, 2014, the Bankruptcy Court heard oral arguments on the Union's Motion for Relief, and continued the motion for two months to allow for supplemental briefing. ( Id. at 393-473.) On September 11, 2014, the Bankruptcy Court heard further arguments and then denied the Union's Motion for Relief from the bench. ( Id. at 653-751.) A written order denying the Motion for Relief was entered on November 13, 2014. (SER 2707-15.) The Union is now appealing the order denying its Motion for Relief.

III. STANDARDS OF REVIEW

The Court has jurisdiction pursuant to 28 U.S.C. § 158(a), and is sitting as a single-judge court of appeal. The traditional appellate review standards apply. The Court reviews the Bankruptcy Court's conclusions of law de novo and its factual findings for clear error. Salazar v. McDonald (In re Salazar), 430 F.3d 992, 994 (9th Cir. 2005). Review under the clearly erroneous standard requires significant deference to the trial court. Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1024 (9th Cir. 1999). The Court reviews its own jurisdiction, including questions of mootness, de novo. Silver Sage Partners, Ltd. v. Desert Hot Springs (In re City of Desert Hot Springs), 339 F.3d 782, 787 (9th Cir. 2004).

IV. ISSUES ON APPEAL

The Union raises three issues on appeal:

(1) Did " the Bankruptcy Court err[] when it found [11 U.S.C. § 362(a)] enjoined the [Union] from commencing and prosecuting litigation against the City for violations of state law which occurred post-petition[?]" ;

(2) " [D]id the [B]ankrupcty [C]ourt err when it found 'cause' did not exist to terminate the ...


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