Sharon L. Levine (top photo) is a partner, and
Philip J. Gross is an associate in Lowenstein
Sandler LLP’s Bankruptcy, Financial Reorganization
& Creditors’ Rights Group. They serve as lead
bankruptcy and restructuring counsel to the
American Federation of State, County and
Municipal Employees, AFL-CIO (AFSCME), in the
Detroit bankruptcy discussed in this article. They
may be reached at 973-597-2500 or at slevine@
lowenstein.com and email@example.com.
The views expressed in this article are solely
those of Levine and Gross, and not those of
AFSCME or Lowenstein Sandler LLP.
a Chapter 9 filing should be considered
only as a last resort, after an out-of-court
attempt to avoid bankruptcy has failed.”)).
12–CV–02591–JST, 2013 WL 5423788
( N.D.Cal. Sept. 27, 2013).
9 City of Detroit, Michigan, 504 B.R. at _.
10 The Detroit court relied on prior Chapter 9
Bankruptcy Courts similarly holding that “[t]he
impracticality requirement may be satisfied
based on the sheer number of creditors
involved.” City of Detroit, Michigan, 504 B.R. at _.
11 Further exacerbating the lack of protection
for union/retiree pension benefits once
a municipality enters Chapter 9 is that
unlike in the Chapter 11 context, where
the Pension Benefit Guaranty Corporation
(PBGC) backstops pension obligations up to
a certain dollar threshold, there is no PBGC
protection for public pension systems.
12 See IBEW, Local 2376 v. City of Vallejo (In re
City of Vallejo), 432 B.R. 262 (E.D. Cal. 2010).
13 In In re City of Stockton, California, 478 B. R.
8 (Bankr. E.D. Cal. 2012), soon after filing its
Chapter 9 case, the city unilaterally reduced
OPEB, including retiree health benefits.
Certain retirees filed a class action seeking
to enforce their contractual rights, but the
Bankruptcy Court dismissed the case, holding
that: the debtor city could unilaterally reduce
the benefits of its retirees and the court was
not permitted to enjoin the debtor from
implementing the benefit reductions due to
the express limitations on a Bankruptcy Court’s
power over the debtor in Chapter 9 cases.
14 In the Detroit bankruptcy, the city sought
to implement significant OPEB changes.
The official committee of retirees appointed
in the case sought to block this action, but
ultimately was forced to settle the issue, and
OPEB changes, with certain modifications
(the city agreed to provide some additional
funding, although nowhere near prepetition
levels), were achieved by the city.
15 Indeed, in several recent large Chapter 9
cases, including Detroit and San Bernardino,
Bankruptcy Courts have appointed
mediators at the outset of the case.
When failure is
not an option.
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