Bankruptcy Court Rejects Vallejo MOU

In re Vallejo (U.S.E.D. Bankruptcy Case No. 08-26813-A-9) (Issued 8/31/09)

The federal judge hearing the City of Vallejo’s bankruptcy case has tossed out the MOU between the City and the International Brotherhood of Electrical Workers (IBEW). The City had initially asked the court to toss out all its MOUs.  However, the City was able to reach agreements with all its unions, with the sole exception of the IBEW.  Even the firefighters—the group most responsible for pushing the City into bankruptcy—agreed to dissolve their MOU in exchange for an expedited negotiations process for a new one.  The last holdout was the IBEW.

Most observers did not expect the judge to toss the IBEW MOU without trying to apply more pressure on the parties. So the timing of the court’s decision was a bit of a surprise.  In its decision, the court held that the City had met the standards set forth in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 521-22 (1984) (Bildisco) for rejection of a collective bargaining agreement in bankruptcy.  Specifically, the court made the following findings:

1. The Court found that the IBEW MOU was “burdensome” within the meaning of Bildisco. The court based this finding on the fact that the IBEW MOU would require another salary increase in fiscal year 2009-10 and further imposed “significant burdens, such as costs related to active and retiree health benefits and compensated absences” on the City. The court also found that the City’s financial situation will likely continue to deteriorate in the next two years. Given these facts, the court concluded that the “City cannot afford the IBEW [MOU].”

2. The court held that the balance of equities supported rejection of the MOU. This conclusion was based on the findings that compensation under the IBEW MOU is above market. Also, the court noted that all the other employee unions voluntarily agreed to modify their respective MOUs—even the firefighters. Based on these facts, the court held that, “It is equitable to reject the IBEW [MOU]”

3. Finally, the court found that the City had made reasonable efforts to reach voluntary agreement with IBEW. This was based on the fact that the parties met numerous and exchanged several proposals. The court also found that the City had negotiated in good faith as evidenced by the agreements reached with all the other unions.

Based on these findings, the court concluded that the IBEW MOU should be rejected.