Carver v. Nassau Cnty. Interim Fin. Auth.

• Decision Date: 14 February 2013
• Docket Number: No. CV 11–1614.,CV 11–1614.
• Parties: James CARVER, as President of the Nassau County Police Benevolent Association, Gary Learned, as President of the Superior Officers Association of Nassau County, and Thomas R. Willdigg, as President of the Nassau County Police Detectives' Association, Inc., Plaintiffs, v. NASSAU COUNTY INTERIM FINANCE AUTHORITY, Ronald A. Stack, Leonard D. Steinman, Robert A. Wild, Christopher P. Wright, George J. Marlin, Thomas W. Stokes, in their official capacities as directors/members of the Nassau County Interim Finance Authority, Edward Mangano, in his official capacity as County Executive of Nassau County, County of Nassau, and George Maragos, in his official capacity as Nassau County Comptroller, Defendants.
• Court: U.S. District Court — Eastern District of New York

923 F.Supp.2d 423

James CARVER, as President of the Nassau County Police Benevolent Association, Gary Learned, as President of the Superior Officers Association of Nassau County, and Thomas R. Willdigg, as President of the Nassau County Police Detectives' Association, Inc., Plaintiffs,

v.NASSAU COUNTY INTERIM FINANCE AUTHORITY, Ronald A. Stack, Leonard D. Steinman, Robert A. Wild, Christopher P. Wright, George J. Marlin, Thomas W. Stokes, in their official capacities as directors/members of the Nassau County Interim Finance Authority, Edward Mangano, in his official capacity as County Executive of Nassau County, County of Nassau, and George Maragos, in his official capacity as Nassau County Comptroller, Defendants.

No. CV 11–1614.

United States District Court, E.D. New York.

Feb. 14, 2013.

Alan A. Klinger, Esq., Stroock & Stroock & Lavan LLP, New York, NY, Harry Greenberg, Esq., Greenberg Burzichelli Greenberg P.C. Lake Success, NY, for Plaintiffs.

Christopher Gunther, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendants Nassau County Interim Finance Authority and Individual Directors/Members.

Mark L. Sussman, Esq., Jackson Lewis LLP, Melville, NY, for Defendants County of Nassau Edward Mangano and George Maragos.

MEMORANDUM AND ORDER

WEXLER, District Judge.

In this action Plaintiffs, officers representing three Nassau County Police Officers and Detectives Unions (collectively the “Unions”) challenge the imposition of a wage freeze imposed by Defendant Nassau County Interim Finance Authority (“NIFA” or the “Authority”). The wage freeze at issue impacts compensation agreements reached between the Unions and the County of Nassau (the “County”). In addition to naming the Authority as a Defendant, Plaintiffs also name the individual directors/members of NIFA, the County, Nassau County Executive Edward Mangano, and Nassau County Comptroller George Maragos. All individuals are named only in their official capacities.

Federal jurisdiction is based upon Plaintiffs' claim that the wage freeze violates the Contracts Clause of Article 1 of the United States Constitution. In addition to the Constitutional claim, Plaintiffs allege that the freeze was imposed in violation of the express terms of Section 3669 of the New York Public Authorities Law—the statute that authorizes imposition of a wage freeze under certain circumstances. Plaintiffs seek a judgment declaring the wage freeze unlawful, and an order enjoining its implementation.

The parties have engaged in expedited factual discovery which is now complete. Presently before the court are the parties' cross-motions, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment.

BACKGROUND

I. Facts: The Parties and the Creation of NIFA

The facts set forth below are drawn from the documents properly before the court, including the parties' statements pursuant to Rule 56.1 of the Rules of this Court.

As noted, Plaintiffs are representatives of three Nassau County Police Officers and Detectives Unions. NIFA is a corporate governmental agency and an instrumentality of the State of New York. It was created in 2000 by the Nassau County Interim Finance Authority Act (the “NIFA Act”). See County of Nassau v. Nassau County Interim Finance Authority, 33 Misc.3d 227, 920 N.Y.S.2d 873, 875 (N.Y. County 2011). NIFA was created in response to the County's impending descent into insolvency. At the time, debt service in the County accounted for nearly one-fourth of the County's budgeted spending, and rating agencies downgraded the County's bond rating to near junk status. The Nassau County Legislature voted for unanimous approval of the NIFA Act as “necessary and in the public interest.” County of Nassau, 920 N.Y.S.2d at 875.

Under the NIFA Act, the Authority was authorized, inter alia, to issue bonds and notes for County purposes and to oversee its finances. Id. at 876. Pursuant to the Act, the County was provided with a $100 million state subsidy ($25 million per year through 2004) as well as a grant of $5 million to assist the County in connection with its tax certiorari process. Id. To date, NIFA has issued more than $2 billion in bonds for the County's benefit, $1.5 billion of which remain outstanding. Additionally, the Authority has also assisted Nassau by restructuring maturing debt, refinancing existing debt, and borrowing money. Nassau County, 920 N.Y.S.2d at 876.

II. NIFA Monitoring of the County's Finances: The Interim Financing and Control Periods

The NIFA Act provides for separate periods during which the Authority monitors County finances—an “interim financing period,” and a subsequent period, extending to the later of the end of January 1, 2030, or the date when NIFA's bonds are discharged. The NIFA Act also allows to Authority to invoke a “control period,” during which it may exercise additional enumerated powers over County finances and contractual obligations.

A. The Interim Finance Period

The NIFA Act's “interim finance period” referred initially to the time period from the enactment of the NIFA Act through 2004. During this time, NIFA issued bonds to assist in the restructuring of County debt and to address its cash flow needs. SeeN.Y. Pub. Auth. L. § 3667. During the interim finance period, the County was required to submit annual audit reports demonstrating that its budget and financial plans comply with the NIFA Act, and that in making certain budgetary calculations, the County adhered to Generally Acceptable Accounting Principles See generally,N.Y. Pub. Auth. L. § 3651(14). The initial interim financing period provided for in the NIFA Act was scheduled to end in 2004. That period was extended by the New York State Legislature through 2008. See id. There is no dispute that the interim finance period expired in 2008, and is therefore no longer in effect. The NIFA Act makes clear that despite the expiration of the interim financing period, the Authority remains obligated to continue to oversee the County's financing. See, e.g.,N.Y. Pub. Auth. L. § 3667(4) (requiring the submission of budgets and revisions thereto so long as bonds issued by NIFA are outstanding).

B. The Control Periodi. NIFA's Power to Invoke a Control Period

The NIFA Act authorizes the Authority to institute, under certain limited circumstances, what is referred to as a “control period,” as set forth in Section 3669 of the Public Authorities Law (“Section 3669”). N.Y. Pub. Auth. L. § 3669; seeN.Y. Pub. Auth. L. § 3651(5). During a control period, NIFA has the power to exercise a higher level of monitoring and control over County finances and contractual obligations. The circumstances requiring NIFA to impose a control period are set forth in Section 3669. Those circumstances include, inter alia, a determination that the County: (1) has failed to pay the principal of or interest on any of its bond or notes when due or payable; (2) has incurred a major operating funds deficit of one percent or more in the aggregate, or (3) has violated the NIFA Act in any way that “substantially impairs the marketability of the county's bonds or notes.” N.Y. Pub. Auth. L. § 3669(1).

NIFA is required to impose a control period either in the event that one of the Section 3669 enumerated events has occurred, or if there exists a substantial likelihood and imminence of such occurrence. The Section 3669 control period is terminated when NIFA determines that the conditions permitting the imposition of that period no longer exist. N.Y. Pub. Auth. L. § 3669(1). Additionally, the NIFA Act provides that a control period may not continue, in any event, “beyond the later of (1) January 1, 2030 or (2) the date when all NIFA bonds are refunded, discharges or otherwise defeased.” N.Y. Pub. Auth. L. § 3669(1).

ii. NIFA's Duties and Powers During a Control Period

Section 3669(2) sets forth certain duties and powers granted to NIFA duringa control period. Among those duties are the requirement that the Authority consult with the County and prescribe the form of a financial plan. N.Y. Pub. Auth. L. § 3669(2)(a). NIFA is also required, as deemed necessary, to “review the operations, management, efficiency and productivity of county operations, audit compliance with the financial plan and compliance with respect thereto.” N.Y. Pub. Auth. L. § 3669(2)(b). Section 3669(2)(d) sets forth particular NIFA duties with respect to prospective contracts, including the rights to review, revise and/or disprove the terms of any such contract. Id. NIFA is also granted the power to review the terms of any proposed long or short term borrowing during a control period. N.Y. Pub. Auth. L. § 3669(2)(e). Additionally, subsection (2) of Section 3669 grants NIFA the broad control period power to withhold any transitional state aid from the County. N.Y. Pub. Auth. L. § 3669(2)(g).

iii. NIFA's Power to Institute a Control Period Wage Freeze

In addition to the duties and powers granted under subsection (2) of Section 3669, the control period section of the NIFA Act also grants the Authority the power to suspend any wage increase previously agreed upon in connection with “collective bargaining agreements, or other analogous contracts or interest arbitration awards.” N.Y. Pub. Auth. L. § 3669(3). The imposition of a control period wage freeze requires more than the determination that a control period exists. Instead, in addition to the declaration of a control period, a Section 3669 wage freeze may be imposed only upon NIFA's enactment of a resolution that a wage freeze is “essential to the adoption or maintenance of a county budget or a financial plan that is in compliance with” the NIFA Act, and the Authority's separate declaration that there exists a “fiscal crisis.” N.Y. Pub. Auth. L. § 3669(3).

Section 3669(3) places a time limit on any wage freeze imposed during a control period. That section, quoted in full below, refers to a wage freeze that lasts for “one year and” to a date specified by the...