Pfeiffer v. Moreau, PB 10-5672

• Decision Date: 18 October 2010
• Docket Number: PB 10-5672,PB 10-5615
• Parties: MARK A. PFEIFFER, in his capacity as Receiver for the City of Central Falls v. CHARLES MOREAU, in his individual capacity and in his official capacity as Mayor of the City of Central Falls; WILLIAM BENSON, JR., in his individual capacity and in his official capacity as President of the City Council for the City of Central Falls; RICHARD AUBIN, JR., in his individual capacity and in his official capacity as a member of the City Council for the City of Central Falls; EUNICE DELAHOZ, in her individual capacity and in her official capacity as a member of the City Council for the City of Central Falls; PATRICK J. SZLASTHA, in his individual capacity and in his official capacity as a member of the City Council for the City of Central Falls; and JAMES DIOSSA, in his individual capacity and in his official capacity as a member of the City Council for the City of Central Falls CHARLES D. MOREAU, in his capacity as Mayor of the City of Central Falls, and individually; the CITY COUNCIL FOR THE CITY OF CENTRAL FALLS; WILLIAM BENSON, JR., in his capacity as a member of the City Council for the City of Central Falls; RICHARD AUBIN, JR., in his capacity as a member of the City Council for the City of Central Falls; EUNICE DELAHOZ, in her capacity as a member of the City Council for the City of Central Falls; and PATRICK J.SZLASTHA, in his capacity as a member of the City Council for the City of Central Falls v. JUSTICE MARK A. PFEIFFER, in his capacity as Appointed Receiver to the City of Central Falls; ROSEMARY BOOTH GALLOGLY, in her capacity as Director of the Department of Revenue and Director of the Department of Administration; and JAMES DIOSSA, in his capacity as a member of the City Council for the City of Central Falls
• Court: Superior Court of Rhode Island

MARK A. PFEIFFER, in his capacity as Receiver for the City of Central Falls
v.
CHARLES MOREAU, in his individual capacity and in his official capacity as Mayor of the City of Central Falls; WILLIAM BENSON, JR., in his individual capacity and in his official capacity as President of the City Council for the City of Central Falls; RICHARD AUBIN, JR., in his individual capacity and in his official capacity as a member of the City Council for the City of Central Falls; EUNICE DELAHOZ, in her individual capacity and in her official capacity as a member of the City Council for the City of Central Falls; PATRICK J. SZLASTHA, in his individual capacity and in his official capacity as a member of the City Council for the City of Central Falls; and JAMES DIOSSA, in his individual capacity and in his official capacity as a member of the City Council for the City of Central Falls

CHARLES D. MOREAU, in his capacity as Mayor of the City of Central Falls, and individually; the CITY COUNCIL FOR THE CITY OF CENTRAL FALLS; WILLIAM BENSON, JR., in his capacity as a member of the City Council for the City of Central Falls; RICHARD AUBIN, JR., in his capacity as a member of the City Council for the City of Central Falls; EUNICE DELAHOZ, in her capacity as a member of the City Council for the City of Central Falls; and PATRICK J.SZLASTHA, in his capacity as a member of the City Council for the City of Central Falls
v.
JUSTICE MARK A. PFEIFFER, in his capacity as Appointed Receiver to the City of Central Falls; ROSEMARY BOOTH GALLOGLY, in her capacity as Director of the Department of Revenue and Director of the Department of Administration; and JAMES DIOSSA, in his capacity as a member of the City Council for the City of Central Falls

Nos. PB 10-5672, PB 10-5615

Superior Court of Rhode Island

October 18, 2010

DECISION

SILVERSTEIN, J.

These consolidated matters are before the Court for decision following a hearing predicated on a Joint Statement of Undisputed Facts, the Joint Undisputed Exhibits, and arguments by counsel of record.^[1] The parties seek injunctive relief and a declaration by the Court regarding the constitutionality of the Act Relating to Cities and Towns – Providing Financial Stability, G.L. 1956 § 45-9-1 et seq. (Act) and the propriety of certain appointments made to the Central Falls Housing Authority (CFHA) and Central Falls Detention Center Corporation.

I Facts and Travel

The following facts are undisputed. On July 16, 2010, Mark A. Pfeiffer (Receiver or Pfeiffer) was appointed by the state of Rhode Island's Director of Revenue to serve as Receiver of the City of Central Falls pursuant to the terms of the Act. (Joint Statement of Undisputed Facts ¶ 1.) At all times material to this matter Rosemary Booth Gallogly (Director of Revenue) was the Director of the Department of Revenue and the Acting Director of the Department of Administration of the state of Rhode Island. Id. ¶ 9.

The City of Central Falls (City or Central Falls) is a duly organized municipal corporation that has a Home Rule Charter adopted in accordance with the Rhode Island State Constitution. The City's governance includes the Mayor as chief executive officer, and the City Council as the legislative branch. Id. ¶ 10. The City Council is comprised of five members who are elected by the electorate of the City. Id. ¶ 11. The Mayor is also an elected official, elected by the residents of the City. Id. ¶ 12.

Charles D. Moreau (Moreau or Mayor) is the Mayor of Central Falls. Id. ¶ 2. At all times material to this matter, William Benson, Jr. (Benson), Richard Aubin, Jr. (Aubin), Eunice DeLaHoz (DeLaHoz), Patrick J. Szlastha (Szlastha), and James Diossa (Diossa) (collectively, City Council) were members of Central Falls' City Council. Id. ¶¶ 3-8.

On May 18, 2010, the City Council by Resolution, along with the Mayor, authorized the filing of a Verified Petition for Appointment of Receiver with the Providence County Superior Court. Id. ¶ 13. After a review of the petition and hearing on the same, on May 19, 2010, this Court entered an order appointing Jonathan N. Savage as Temporary Receiver of the City upon the terms and conditions, and with the powers therein contained. Id. ¶ 14; see Joint Ex. E.

On June 9, 2010, the Rhode Island Senate passed the Act. Id. ¶ 15. On June 10, 2010, the Rhode Island House of Representatives passed the Act. Id. ¶ 16. On June 11, 2010, the Governor, the Honorable Donald L. Carcieri, signed the Act into law. Id. ¶ 17. In response to the enactment of the Act, on June 18, 2010, Moreau and the City Council withdrew their motion for the appointment of a judicial receiver and this Court entered a Consent Order outlining the transition period from the judicial receivership to the non-judicial receivership as required pursuant to the Act.^[2] Id. ¶ 18; see Joint Ex. G.

As part of the transition to a non-judicial receivership, in a July 16, 2010 letter, the Director of Revenue appointed Pfeiffer as receiver for the City. Id. ¶ 19; see Joint Ex. J. Pfeiffer, by a letter dated July 19, 2010, informed Moreau that he had been appointed receiver of Central Falls and had assumed the duties and functions of the Office of Mayor. Id. ¶ 20; see Joint Ex. L. Pfeiffer further instructed Moreau that pursuant to his powers under § 45-9-7, Moreau was to henceforth act solely in an advisory capacity.^[3] Id. ¶ 20; see Joint Ex. L.

As of the July 16, 2010 letter, the Receiver has assumed all of Moreau's duties as both Public Safety Director and Mayor. Id. ¶ 24. On July 19, 2010, Moreau was required to relinquish his City vehicle, cell phone, and his keys to City Hall. Id. ¶ 21. Prior to July 19, 2010, Moreau was not afforded a hearing or an opportunity to be heard with respect to the Receiver's decision to assume the duties and functions of the Office of Mayor, including the Mayor's duties as Public Safety Director. Id. ¶ 22.

On September 13, 2010, the Receiver appointed Edna Poulin to the CFHA for a five-year term and informed Milad Shabo^[4] that a successor had been appointed to his position. Id. ¶ 25; see Joint Exs. N & O. Edna Poulin was subsequently qualified as a commissioner of the CFHA by the filing of a certificate with the City's Clerk and by the administration of the oath of office. Id.

As Receiver, Pfeiffer has rescinded the August 4, 2010 and September 20, 2010 Resolutions of the City Council.^[5] Id. ¶ 23. The City Council's August 4, 2010 Resolution authorized the appointment of Lawrence L. Goldberg, Esq. as attorney for the City Council, and the September 20, 2010 Resolution authorized the engagement of Attorneys Michael A. Kelly and John O. Mancini of the Law Offices of Michael A. Kelly, P.C. to file a legal action to determine the legality and constitutionality of the Act. Id. ¶ 26; see Joint Ex. P. By a letter dated September 22, 2010, from the Receiver to Benson, the Receiver rescinded the September 20, 2010 Resolution. Id. ¶ 27; see Joint Ex. Q.

On September 22, 2010, the City Council scheduled a meeting for September 24, 2010 at 5:30 p.m. Id. ¶ 29. The posted Agenda included consideration of Moreau's putative appointments of Milad Shabo and Gladys Burns to the CFHA and Clarise Thompson and Shawne Thomas to the Central Falls Detention Center Corporation. Id. ¶ 29; Joint Ex. T.

Additionally, on September 22, 2010, the CFHA filed a Motion for Declaratory Judgment seeking a declaration that Milad Shabo remain as a commissioner of the CFHA and a declaration that the Receiver exceeded his legal authority in appointing Edna Poulin.^[6] Id. ¶ 28. On September 23, 2010, the Receiver filed a Complaint seeking a preliminary injunction and temporary restraining order against Moreau and Benson. Id. ¶ 30. On September 27, 2010, Moreau and the City Council filed a Motion for a Preliminary Injunction and Temporary Restraining Order against the Receiver. Id. ¶ 31. By agreement, the parties filed a motion with the Court consolidating the Receiver's action with that of Moreau and the City Council. Additionally, the parties agreed that the October 5, 2010 hearing would combine their requests for preliminary and permanent injunctions.^[7]

The Court also takes notice of the following relevant facts. Central Falls is in an "extraordinary" fiscal crisis. (June 18, 2010 Tr. 14.) Even before requesting a judicial or non-judicial receivership, Central Falls had already requested that the General Assembly grant it the authority to file for a Chapter 9 bankruptcy proceeding. Id. A June 30, 2009 independent audit showed that the City had total net assets of negative $16,866,819. (Verified Pet. for Appointment of Receiver ¶ 6.) The City's annual operating budget for fiscal year 2010 and the proposed budget for 2011 was just under $18,000,000, with a shortfall of $3,000,000 and projected shortfall of over $5,000,000 respectively. Id. ¶ 7. The City also has a municipal bond indebtedness of over $10,000,000. Id. ¶ 10.

Furthermore, in order to satisfy its annual pension obligations, the City sold off much of its chief pension fund assets. Id. ¶ 8. The pension accrued liability exceeding $35,000,000, with assets of approximately $4,000,000. Id. The City's audit reports indicate that for fiscal year 2009 the City failed to make any contributions to the pension despite having a required contribution of over $2,700,000, and at the time the City petitioned for the appointment of a receiver, it had no funds available to satisfy over $1,500,000 in obligations for fiscal year 2010. Id.

In light of this "extreme fiscal stress," on May 18, 2010, the City Council passed a Resolution joining the Mayor in his petition for the appointment of a receiver "to exercise all the powers necessary and reasonable to return the City to solvency with a budget that is balanced." See Joint Ex. C. As a result of the receivership, Central Falls' capital markets credit rating was immediately reduced to junk bond status. Id. at 4. State...