Wednesday, December 19, 2012

United States: Stockton, California, Ruling: Bankruptcy Court Powerless To Prevent Retiree Benefit Reductions By Municipal Debtor

And that's a real shame.  CA needs to put the blame on the elected officials and others who allowed this to happen.  I would be devastated if this happened to me.

Stockton is the 13th-largest city in the State of California, with a population of nearly 300,000. On June 28, 2012, it became the largest city to file for chapter 9 protection in U.S. history. Burdened by a $26 million budget shortfall, the city council adopted a budget for the fiscal year commencing July 1, 2012, which by state law was required to be balanced. To achieve a balanced budget, the city council imposed significant cost cutting, including a unilateral reduction in retiree health benefits.

A group of Stockton's retirees responded by filing a class-action adversary proceeding in the chapter 9 case seeking, among other things, injunctive relief preventing Stockton from unilaterally cutting benefits or, in the alternative, modification of the automatic stay to seek such relief in state court. The retirees contended that they had vested contractual rights protected from impairment by the Contracts Clause of the U.S. Constitution, a similar clause in the California Constitution, and other provisions of state law. The complaint, however, made no reference to section 904 of the Bankruptcy Code, an omission that the court later directed must be remedied by means of briefing by the retirees on the issue and a statement by Stockton as to whether it consented to the court's resolution of the health benefit payment dispute. Stockton did not consent.

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