BALTIMORE CITY LODGE 3 FOP v. Mayor & City Council

• Decision Date: 18 September 1992
• Docket Number: Civ. No. Y-92-228,Y-92-440.
• Citation: 801 F. Supp. 1506
• Parties: BALTIMORE CITY LODGE NO. 3 FRATERNAL ORDER OF POLICE v. MAYOR AND CITY COUNCIL OF BALTIMORE CITY. BALTIMORE TEACHERS UNION, et al. v. MAYOR AND CITY COUNCIL OF BALTIMORE, et al.
• Court: U.S. District Court — District of Maryland

801 F. Supp. 1506

BALTIMORE CITY LODGE NO. 3 FRATERNAL ORDER OF POLICE v. MAYOR AND CITY COUNCIL OF BALTIMORE CITY.

BALTIMORE TEACHERS UNION, et al. v. MAYOR AND CITY COUNCIL OF BALTIMORE, et al.

Civ. Nos. Y-92-228, Y-92-440.

United States District Court, D. Maryland.

September 18, 1992.

Michael Marshall and Herbert R. Weiner, Baltimore, Md., for plaintiff Baltimore City Lodge No. 3, Fraternal Order of Police.

Joel A. Smith, Lutherville, Md., for plaintiff Baltimore Teachers Union, AFT Local 340 and City Union of Baltimore, AFT Local 800.

Neal M. Janey, City Sol., Ambrose T. Hartman, Deputy City Sol., William R. Phelan, Jr., Sr. Sol., and James S. Ruckle, Jr., Asst. Sol., Baltimore, Md., for defendant.

MEMORANDUM

JOSEPH H. YOUNG, Senior District Judge.

On January 16, 1992, Baltimore City implemented a "payroll reduction plan," which placed all City employees on five days of unpaid furlough. (the "Furlough Plan" or "Plan"). The Plan was in response to an anticipated $13.3 million dollar cut in State aid to the City of Baltimore. The Baltimore Teachers Union, the City Union of Baltimore, and the Fraternal Order of Police ("Plaintiffs") brought suit challenging the Furlough Plan as an unconstitutional impairment of the terms of their respective labor agreements with the City.

On April 3, 1992, while cross motions for summary judgment were pending before the Court, the State enacted the Budget Reconciliation Act for Fiscal 1992 (the "Act").¹ Instead of the previously forecast $13.3 million dollar cut, the new Act cut state aid to Baltimore by 4.7 million.² With the anticipated fiscal crisis diffused, the City cancelled the Furlough Plan on April 15, 1992.

For the five pay periods that the Plan was in effect (January 16 through April 15), City employees lost the equivalent of 2.5 days of pay, or .95% of their gross annual salaries. The cost to an employee earning $13,000 per year was $124; to an employee earning $20,000 per year, $190; and to an employee earning $30,000 per year, $285. The City saved approximately $2 million dollars as a result of the Plan, and does not plan to reimburse City employees for wages withheld during this period. Plaintiffs then filed a supplemental motion for summary judgment claiming the right to be reimbursed for funds withheld.

The City argues that it remains in a fiscal crisis due to shortfalls in local revenues, and other unanticipated expenses. The City argues that the Furlough Plan was implemented pursuant to the "Neall Amendment" to the Budget Reconciliation Act which authorized the City to "take any action necessary, including any action to reduce a previously approved appropriation, to prudently manage its fiscal affairs and to meet its obligations" in light of the cuts in State aid.³ The City also contends that the payroll reduction plan resulted in a minimal impairment to the labor agreements negotiated between the City and City Employees, and thus does not rise to the level of an unconstitutional contractual impairment.

The proper analysis of an alleged Contract Clause violation, begins with the determination of whether a contract indeed exists. United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977). On November 19, 1991, the FOP and the City executed two Memoranda of Understanding governing the wages, terms and conditions of employment for City police personnel. The MOU was negotiated pursuant to the Municipal Employee Relations Ordinance — City Charter, Art. II, Sec. 55(a)(3) — which authorizes the City to negotiate "collective bargaining agreements" setting forth such things as "salaries, wages, hours and other matters relating to employee benefits and duties." See, City Code, Art I, Sec. 120(k). Although the Memoranda were negotiated well into fiscal year 1992, the City and the unions reached agreement over the issue of compensation before fiscal 1992 began, and those figures were approved by the City Board of Estimates and enacted into law by the City Council.⁴

The Board of School Commissioners negotiates labor agreements with the teachers. See, City Charter, Art. VII, Sec. 59. Such agreements are specifically denominated "collective bargaining agreements" in the City Charter. Id. The process, however, is much the same as with labor agreements negotiated under the Municipal Employee Relations Ordinance. The Board of School Commissioners negotiates the terms and conditions of employment including levels of compensation, and submits a recommendation to the Board of Estimates for approval. The Board then includes the Commissioners' budget in the Ordinance of Estimates and the Ordinance is enacted into law by the City Council.

By approving the bargained for levels of compensation, and enacting the Ordinance of Estimates into law, the City clearly imposed contractual obligations on itself. United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977).⁵ In United States Trust, the Supreme Court held that a statutory scheme will be treated as creating contractual obligations where the "language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the government." Id. at 17. Given that the Municipal Employee Relations Ordinance, and other provisions of the City Charter, call for a bargained for agreement between City employees and the City, the Court concludes that the City intended by this statutory scheme, to create private rights of a contractual nature, enforceable against the City.

Having determined that a contractual relationship exists between the parties, the inquiry turns to whether the Furlough Plan, in fact, operated as a substantial impairment of that relationship. The City argues that the Furlough Plan operates as a minimal impairment at best, and does not rise to the level of impairment meriting contract-clause analysis.

The severity of an impairment measures the height of the hurdle the city ordinance must clear. "Minimal alterations of contractual obligations may end the inquiry at its first stage." Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245, 98 S.Ct. 2716, 2723, 57 L.Ed.2d 727 (1978). Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the legislation. Id. The impairment is to be measured against the legitimate expectations of the contracting parties. United States Trust Co., 431 U.S. at 19-20 n. 17, 97 S.Ct. at 1516; Spannaus, 438 U.S. at 245-46, 98 S.Ct. at 2723; Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411, 103 S.Ct. 697, 704, 74 L.Ed.2d 569 (1983). "Contracts enable individuals to order their personal and business affairs according to their particular needs and interests. Once arranged, those rights and obligations are binding under the law, and the parties are entitled to rely on them." Spannaus, 438 U.S. at 245, 98 S.Ct. at 2723. Total destruction of contractual expectations is not necessary to find a substantial impairment. United States Trust Co., 431 U.S. at 26-27, 97 S.Ct. at 1520; Energy Reserves Group v. Kansas Power & Light, 459 U.S. at 411, 103 S.Ct. at 704.

In light of the Supreme Court's reasoning in Spannaus, the City's argument that the contractual impairment created by the Furlough Plan was "minimal", must fail. Plaintiffs bargained in good faith over the issues of wages and the terms and conditions of employment. Wages are expressed on an annual basis, each employee earning a defined annual salary.⁶ Once a fiscal year has begun, an employee has every reason to expect that the wage rates fixed for that year will remain constant throughout the year.

For the five pay periods that the Plan was in effect, City employees lost the equivalent of 2.5 days of pay. City employees were justifiably relying on full paychecks to pay for such essentials as food and housing. It would be contradictory to hold that this impairment was necessary because of a governmental fiscal crisis, and to do so by disregarding the personal fiscal crises that the Furlough Plan would create.⁷

The impairment of the City's contractual obligations to City employees was substantial; but the inquiry does not end here. Finding a substantial impairment is merely a threshold step toward resolving the more difficult question of whether that impairment is permitted under the Constitution. United States Trust Co., supra. This more difficult question is resolved by balancing the contractual rights of the individual against "the `essential attributes of sovereign power' necessarily reserved by the States to safeguard the welfare of their citizens." Id. cite omitted; Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 236, 78 L.Ed. 413 (1934) ("reservation of essential attributes of sovereign power is ... read into contracts as a postulate of the legal order"); El Paso v. Simmons, 379 U.S. 497, 508, 85 S.Ct. 577, 583, 13 L.Ed.2d 446 (1965) (state may protect public welfare notwithstanding interference with public contracts); Atlantic C.L.R. Co. v. Goldsboro, 232 U.S. 548, 558, 34 S.Ct. 364, 368, 58 L.Ed. 721 (1914) (state police power is "inalienable even by express grant"). See also, Maryland State Teachers Asso. v. Hughes, 594 F.Supp. 1353, 1360 (D.Md.1984) ("the reserved powers doctrine renders void ab initio a state contract which `surrenders an essential attribute of State sovereignty,'" since a "legislature cannot bargain away the police power of a State.") (quoting, United States Trust, supra, 431 U.S. at 23, 97 S.Ct. at 1518).

The authority to regulate the compensation of municipal employees, is within the police power of City government. See Maryland State Teachers, 594 F.Supp. at 1360 (citing Newton v. Commissioners, 100 U.S. 548, 559, 25 L.Ed. 710 (1879) (under the police power a state may "increase or diminish the salary or change the mode of compensation" of its employees)); Arceneaux v. Treen, 671 F.2d...