Baltimore Teachers Union, American Federation of Teachers Local 340, AFL-CIO v. Mayor and City Council of Baltimore

Decision Date12 October 1993
Docket NumberAFL-CI,AFL-CIO,92-2237 and 92-2238,Nos. 92-2234,P,s. 92-2234
Citation6 F.3d 1012
Parties144 L.R.R.M. (BNA) 2158, 62 USLW 2137, 86 Ed. Law Rep. 92 BALTIMORE TEACHERS UNION, AMERICAN FEDERATION OF TEACHERS LOCAL 340,; the City Union of Baltimore, American Federation of Teachers, Local 800,, Plaintiffs-Appellees, v. MAYOR AND CITY COUNCIL OF BALTIMORE; Kurt L. Schmoke, Individually and in his capacity as Mayor and Member of the Board of Estimates of Baltimore City; Mary Pat Clarke, Individually and in her capacity as President of the Baltimore City Council and Member of the Board of Estimates of Baltimore City; Jacqueline F. McClean, Individually and in her capacity as Comptroller and Member of the Board of Estimates of Baltimore City; Neal Janey, In his capacity as Member of the Board of Estimates of Baltimore City; George F. Balog, Individually and in his capacity as Member of the Board of Estimates of Baltimore City; Board of Estimates of Baltimore City, Defendants-Appellants. In Re STATE OF MARYLAND, Appellant, v. BALTIMORE TEACHERS UNION, AMERICAN FEDERATION OF TEACHERS LOCAL 340,; the City Union of Baltimore, American Federation of Teachers, Local 800,, Plaintiffs-Appellees, v. MAYOR AND CITY COUNCIL OF BALTIMORE; Kurt L. Schmoke, Individually and in his capacity as Mayor and Member of the Board of Estimates of Baltimore City; Mary Pat Clarke, Individually and in her capacity as President of the Baltimore City Council and Member of the Board of Estimates of Baltimore City; Jacqueline F. McClean, Individually and in her capacity as Comptroller and Member of the Board of Estimates of Baltimore City; Neal Janey, In his capacity as Member of the Board of Estimates of Baltimore City; George F. Balog, Individually and in his capacity as Member of the Board of Estimates of Baltimore City; Board of Estimates of Baltimore City, Defendants. BALTIMORE CITY LODGE NUMBER 3 FRATERNAL ORDER OF POLICE, Plaintiff-Appellee, v. MAYOR AND CITY COUNCIL OF BALTIMORE, Defendant-Appellant.
CourtU.S. Court of Appeals — Fourth Circuit

Ambrose T. Hartman, Deputy City Sol., Dept. of Law; and Marlene Trestman, Asst. Atty. Gen., Baltimore, MD, argued (William R. Phelan, Jr., Sr. Sol., James S. Ruckle, Jr. Joel Allen Smith, Kahn, Smith & Collins, P.A. and Michael Lawrence Marshall, Schlachman, Belsky & Weiner, P.A., Baltimore, MD, argued (Christyne L. Neff, Kahn, Smith & Collins, P.A., Herbert R. Weiner, Schlachman, Belsky & Weiner, P.A., on brief), for appellees.

Asst. Sol., Dept. of Law, and J. Joseph Curran, Jr., Atty. Gen., on brief), for appellants.

Before WIDENER and LUTTIG, Circuit Judges, and VOORHEES, Chief United States District Judge for the Western District of North Carolina, sitting by designation.

OPINION

LUTTIG, Circuit Judge:

In response to budgetary shortfalls, Baltimore City implemented a plan under which it ultimately reduced the annual salaries of its employees by approximately 1%, through deductions from five of their semi-monthly paychecks. Its teachers and police, through their certified collective bargaining units, brought suit alleging that the salary reductions constituted an impermissible impairment of their contracts with the City. The district court entered judgment in their favor, and we now reverse.

I.

The facts essential to the resolution of this case are simple and not in dispute. Baltimore has what is commonly known as an "executive budget system," the chief executor of which is the City's Board of Estimates. See generallyCity of Baltimore v. American Fed'n of State, County & Mun. Employees, 281 Md. 463, 379 A.2d 1031, 1034-36 (1977). Pursuant to the Municipal Employee Relations Ordinance ("MERO"), the police negotiate memoranda of understanding embodying the terms of their employment with the City, which are approved by the Board of Estimates and collected with other budgetary obligations in an Ordinance of Estimates. The Ordinance of Estimates is then enacted into law by the City Council. The process for the City's teachers, though not pursuant to MERO, is apparently similar. The Board of School Commissioners negotiates the terms of employment, which are then approved by the Board of Estimates, included in the Ordinance of Estimates, and enacted into law by the City Council. It is undisputed that these procedures were followed for Fiscal Year 1992, the period relevant to this litigation.

As of October 1991, Baltimore had lost a total of approximately $24.2 million in state aid, $4.78 million of which was cut pursuant to special authority granted the Governor by the General Assembly meeting in special session. Baltimore responded to this round of cuts with a variety of measures, such as layoffs, elimination of positions, and early retirements. Having failed to reverse the tide of the State's financial fortunes, the Governor announced in December 1991 a new round of proposed cuts in state aid to Baltimore, equal to approximately $13.3 million, and in response Baltimore implemented its so-called furlough plan. Under the plan, full-time city employees, except for firefighters, who enjoy certain privileges, lost the annual equivalent of 2.5 days of pay, or .95% of their gross annual salary, and Baltimore saved approximately $2 million, which it does not intend to refund. These salary reductions were less than those originally contemplated under the plan, because it was discontinued midstream after the General Assembly approved only $4.68 million of the cuts proposed by the Governor for Baltimore City.

Seeking restitution, the teachers and police brought suit, charging that their salary reductions violated the Contract Clause, U.S. Const. art. I, Sec. 10, cl. 1 ("No State shall ... pass any ... Law impairing the Obligation of Contracts...."). The district court ruled in their favor, 801 F.Supp. 1506, and this appeal followed.

II.

Though the Contract Clause is phrased in absolute terms, the Supreme Court does not interpret the Clause absolutely to prohibit the impairment of either government or private contracts. SeeUnited States Trust Co. v. New Jersey, 431 U.S. 1, 21, 97 S.Ct. 1505, 1517, 52 L.Ed.2d 92 (1977) ("Although the Contract Clause appears literally to proscribe 'any' impairment, this Court observed in Blaisdell that 'the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula.' " (quoting Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 236, 78 L.Ed. 413 (1934))). 1 Rather, it has formulated essentially a three-part analysis for harmonizing the command of the Clause with the "necessarily reserved" sovereign power of the states to provide for the welfare of their citizens. Id. 2

As a threshold matter, it must be determined whether there has been impairment of a contract. See, e.g.,id. 431 U.S. at 17, 97 S.Ct. at 1515 ("[A]s a preliminary matter, appellant's claim requires a determination that the [law] has the effect of impairing a contractual obligation."). Second, it must be determined "whether the state law has, in fact, operated as a substantial impairment of a contractual relationship." Spannaus, 438 U.S. at 244, 98 S.Ct. at 2722 (emphasis added); see alsoBannum, Inc. v. Town of Ashland, 922 F.2d 197, 202 (4th Cir.1990) (legislation must constitute "a severe impairment of the [contractual] right"). Finally, assuming there has been a substantial impairment of contract, it must be determined whether that impairment is nonetheless permissible as a legitimate exercise of the state's sovereign powers, an inquiry that differs subtly depending upon whether the contract impaired is a private or, as here, a public one. Analyzing Baltimore's action within this framework, we agree with the district court that the City substantially impaired an extant contract with its teachers and police. We conclude, however, affording the requisite degree of deference to the City's legislature, that the impairment was in exercise of the City's legitimate powers and thus permissible under the Contract Clause.

A.
1.

We have little trouble concluding, as did the district court, see J.A. at 344-45, that Baltimore intended to and did enter into contractual relationships with its teachers and police, at least upon enactment into law of the Ordinance of Estimates. Cf.United States Trust, 431 U.S. at 17 n. 14, 97 S.Ct. at 1516 n. 14 ("In general, a statute is itself treated as a contract when the language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the State."); American Fed'n, 379 A.2d at 1035. Upon enactment of the Ordinance, the City Council formally ratified the essential agreement between the City and its employees embodied in the memoranda of understanding and authorized funding for the City's obligations under those memoranda.

There was, we believe, also an impairment of those contracts. The teachers and police indisputably received less in salary than they were entitled to receive under the terms of their contracts. Only if the employees' salaries were subject to unilateral adjustment by the City under the terms of the contract could it possibly be concluded otherwise. In this regard, the City argues that any contract that existed was expressly subject to the Baltimore City Charter which, it contends permitted the reductions. Appellants' Br. at 17. We reject this contention.

Given the value ascribed to contracts in our society, and the Constitution's explicit proscription on the state's impairment of contracts, we would not hold, absent the clearest evidence, that the City intended to confer upon the Board of Estimates even the power unilaterally to modify the City's contracts. We do not read the City Charter as clearly evidencing such an intent. As the City notes, the memoranda of understanding were made explicitly...

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