In re City of Detroit

• Decision Date: 06 April 2020
• Docket Number: Case No. 13-53846
• Citation: 614 B.R. 255
• Parties: IN RE: CITY OF DETROIT, MICHIGAN, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

614 B.R. 255

IN RE: CITY OF DETROIT, MICHIGAN, Debtor.

Case No. 13-53846

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed on April 6, 2020

Marc N. Swanson, Jonathan S. Green, Miller, Canfield, Paddock and Stone, P.L.C., Detroit, Michigan, Attorneys for Debtor, the City of Detroit.

Charles N. Raimi, City of Detroit Law Department, Detroit, Michigan, Attorney for Debtor, the City of Detroit.

Jennifer K. Green, Ronald A. King, Shannon L. Deeby, Clark Hill PLC, Birmingham, Michigan, Attorneys for the Police and Fire Retirement System for the City of Detroit.

Megan B. Boelstler, Christopher P. Legghio, Legghio & Israel, P.C., Royal Oak, Michigan, Attorneys for the Detroit Fire Fighters Association Local 344.

Elizabeth A. Ferguson, Law Offices of Elizabeth A. Ferguson, PLLC, Mount Clemens, Michigan, Attorney for Respondents, Daniel J. Salkowski, Jeffrey Hamm, and Richard Makulski.

OPINION REGARDING THE JOINT MOTION BY THE CITY OF DETROIT AND THE POLICE AND FIRE RETIREMENT SYSTEM OF THE CITY OF DETROIT, MICHIGAN FOR THE ENTRY OF AN ORDER ENFORCING THE PLAN OF ADJUSTMENT AND CONFIRMATION ORDER AGAINST DANIEL J. SALKOWSKI, JEFFREY HAMM, AND RICHARD MAKULSKI

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

This case is before the Court on a civil contempt matter.

In July 2019, three fire fighters employed by the City of Detroit (the "City") filed a lawsuit in the Third Judicial Circuit Court of Michigan (the "State Court"). They sought equitable relief that would prevent them from being deemed retired in August 2019, and thereby terminated from their employment with the City. And they obtained a temporary restraining order, which was later dissolved when the State Court lawsuit was dismissed, with prejudice.

While the State Court lawsuit was still pending, the City and the Police and Fire Retirement System of the City of Detroit, Michigan (the "PFRS") filed a joint motion in this Court, claiming that the filing and prosecution of the State Court lawsuit was a violation of the City's confirmed plan of adjustment, and the injunction contained in that plan. They ask the Court to find the three fire fighters in civil contempt, and for related relief.

For the reasons stated in this Opinion, the Court concludes that the State Court lawsuit was indeed a violation of the injunction contained in the City's confirmed plan. And the Court finds the three fire fighters in civil contempt, because all the elements for a contempt finding have been established. But the Court declines to award any relief for the contempt. This is because (1) the City and PFRS no longer seek any injunctive relief; (2) PFRS seeks no monetary relief; (3) the City no longer seeks part of the monetary relief it originally sought in the motion; and (4) in the exercise of its discretion in contempt matters, the Court concludes that no other monetary relief should be granted.

II. Background

This case is before the Court on the motion filed on August 9, 2019 (Docket # 13090, sometimes referred to below as the "Motion"), entitled "Joint Motion by the City of Detroit and the Police and Fire Retirement System of the City of Detroit, Michigan for the Entry of an Order Enforcing the Plan of Adjustment and Confirmation Order Against Daniel J. Salkowski, Jeffrey Hamm, and Richard Makulski." The joint movants are the City and PFRS. The Motion seeks relief against three individuals, Daniel J. Salkowski, Jeffrey Hamm, and Richard Makulski (collectively, the "Respondents"). Until recently, at least, each of the Respondents was a fire fighter employed by the City, and was a member of the Detroit Fire Fighters Association Local 344 (the "DFFA").

On July 25, 2019 the Respondents jointly filed, and then briefly prosecuted, a lawsuit in the State Court, against the City, PFRS, and the DFFA.¹ On August 1, 2019, the Respondents sought and obtained a temporary restraining order, without notice, that restrained the City, PFRS, and the DFFA "from completing the process of retiring Plaintiffs from their positions as Detroit Fire Fighters."²

On August 15, 2019, six days after the present Motion was filed in this Court, the State Court held a hearing, and on August 21, 2019, the State Court entered an order dissolving the temporary restraining order and dismissing the State Court lawsuit, with prejudice.³

The City and PFRS contend that the Respondents' filing and prosecution of the State Court lawsuit was a violation of an injunction contained in the City's confirmed plan of adjustment, and ask this Court to find the Respondents in civil contempt for that violation. The City asks this Court to award it compensatory relief for the contempt, for the attorney fees and expenses incurred by the City.⁴ PFRS has not requested any monetary relief, as its counsel confirmed during the hearing on the Motion.

Originally, the City and PFRS also sought an order requiring the Respondents to dismiss the State Court lawsuit, and the City sought reimbursement for any compensation the City paid to Respondents after their retirement dates (August 8, 2019 for Hamm and Makulski and August 9, 2019 for Salkowski), due to the temporary restraining order. But the City and PFRS later withdrew these requests, as moot, because the State Court lawsuit was dismissed, and because, as stated by the City's counsel during the hearing on the Motion, the Respondents did not actually receive any compensation after their retirement dates.

The Respondents filed a timely response objecting to the Motion, and the Court held a hearing on September 18, 2019.⁵ For the reasons stated in this Opinion, the Court finds each of the Respondents in civil contempt, but the Court will deny any other relief.

III. Facts

Except as otherwise indicated, the following facts are undisputed.

A. The City's confirmed plan of adjustment

The plan of adjustment in this Chapter 9 bankruptcy case was confirmed on November 12, 2014. It consists of the "Eighth Amended Plan for the Adjustment of Debts for the City of Detroit," and all of its exhibits, filed October 22, 2014 (the "Plan"),⁶ and the "Order Confirming Eighth Amended Plan for the Adjustment of Debts for the City of Detroit," filed November 12, 2014 (the "Confirmation Order").⁷ (The Plan and the Confirmation Order are collectively referred to as the "POA."). The POA became effective on December 10, 2014.⁸

B. The amendment of the PFRS Plan under the POA

One of the many effects of the POA was to change the City's pension plan applicable to its fire fighters. That pension plan is called the "Combined Plan for the Police and Fire Retirement System of the City of Detroit, Michigan" (the "PFRS Plan"). As part of the POA, the PFRS Plan that was in effect before confirmation of the City's POA (the "Old PFRS Plan") was amended and restated, effective July 1, 2014. Although the amended and restated PFRS Plan (the "New PFRS Plan") was stated to be effective July 1, 2014, it did not actually come into effect until the Effective Date of the City's POA — i.e ., December 10, 2014. As the City points out, the New PFRS Plan was actually defined to be part of the City's proposed Plan, which was later confirmed and became part of the POA.⁹

The New PFRS Plan came into being, after confirmation of the City's POA, by virtue of Order No. 44 issued by the City's Emergency Manager, Kevin D. Orr. That Emergency Manager Order was entitled "Emergency Manager[,] City of Detroit, Order No. 44[,] Final Emergency Manager Order" ("EM Order No. 44"), and it was signed by the Emergency Manager on December 8, 2014, in contemplation of the upcoming Effective Date of the confirmed POA.¹⁰ In a section of EM Order No. 44 entitled "Plan of Adjustment Matters," the Emergency Manager ordered as follows:

[T]he Mayor, the Council, and all City officers, department heads and other employees, agents and contractors shall take such steps as are necessary or appropriate from and after the Effective Date to pursue the prompt implementation of the Plan of Adjustment, the Confirmation Order, and all agreements necessary thereto, including the Plan Settlements. For the avoidance of doubt, such steps include, without limitation, the following:

....

Pursuant to Section 17.5 of Component I of the [New PFRS Plan], the [Emergency Manager], on behalf of the City, adopts the [New PFRS Plan], in the form attached hereto as Exhibit E, which document: (a) reflects changes in the terms and conditions of retirement benefits as provided in the [Collective Bargaining Agreements] and memoranda of understanding negotiated with certain of the employee representatives; (b) conforms the [PFRS Plan] to the terms of the confirmed Plan of Adjustment; and (c) makes other clarifying modifications.¹¹

The City's adoption of the New PFRS Plan took effect on December 10, 2014, when the confirmed POA became effective.¹² Until that date, the Old PFRS Plan was in effect.

C. The amendment of the "DROP Program" in the PFRS Plan

One feature of both the Old PFRS Plan and the New PFRS Plan is known as the "Deferred Retirement Option Plan ("DROP") Program" (the "DROP Program"). In the Motion, the City and PFRS describe the DROP Program, in general terms, in this way:

The DROP [P]rogram provides members of the PFRS who are eligible to retire with a pension, the option to continue working subject to certain pension modifications. Generally speaking, under DROP, the electing member (a) continues to work for the City beyond the eligible age for her retirement for her full salary and (b) receives a portion of the pension benefit that otherwise would have been paid to the member during the DROP period had the member elected to retire and not participated in DROP.¹³

More specifically, an employee electing to participate in the DROP Program begins to receive monthly payments credited into a DROP Account established on behalf of the employee equal to 75% of the employee's monthly "Retirement Allowance," while he continues to work for the City and receive his normal pay. The...