Welch v. Brown, 13-1476
| Decision Date | 03 January 2014 |
| Docket Number | No. 13-1476,13-1476 |
| Parties | JOHN WELCH; KENNETH SPARKS, JR.; JUDITH WELCH; CAROL SPARKS; SHERRY MURPHY; MARK A. FULKS; URGE, Plaintiffs-Appellees, v. MICHAEL BROWN; EDWARD KURTZ; ROBERT ERLENBECK; GERALD AMBROSE; CITY OF FLINT, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF MICHIGAN
OPINIONBEFORE: DAUGHTREY, COLE, and WHITE, Circuit Judges.
COLE, Circuit Judge. The limited purpose of this appeal is to determine whether the district court abused its discretion by granting Plaintiffs-Appellees preliminary injunctive relief. The City of Flint is in financial distress. Declining property taxes, high unemployment rates, and a decrease in revenue-sharing from the State of Michigan have contributed to the City's chronic budgetary woes. To stave off municipal insolvency and balance the City's budget, the Governor of Michigan appointed an Emergency Manager to address the financial crisis. In this appeal, Plaintiffs challenge several orders the Emergency Manager issued, which modified existing contracts and collective bargaining agreements with respect to health-care benefits of municipal retirees. While themodifications stand to save the City 3.5 million dollars, the changes also shift out-of-pocket medical expenses to retirees, many of whom live on fixed incomes.
Plaintiffs and the class they represent are individual retired municipal workers, their eligible spouses, dependents, and the United Retired Governmental Employees ("URGE"), an organization that represents the interests of municipal retirees. Seeking injunctive relief and damages under 42 U.S.C. § 1983, Plaintiffs filed a Class Action Complaint against the City of Flint, its current and former Emergency Managers, its Retirement Officer Manager, and its Finance Director (collectively, "Defendants"). According to Plaintiffs, Defendants violated the Contract and Bankruptcy Clauses of the United States Constitution and deprived them of a property interest without due process or just compensation. Plaintiffs requested a preliminary injunction to enjoin Defendants from modifying the contracts and ordinances governing their health-care benefits and to restore any already modified agreements to the status quo ante. Although Defendants argue that reducing retiree benefits is a "necessary change" to avoid bankruptcy, the district court was not persuaded based on the evidence and argument presented. Finding no abuse of discretion, we affirm the district court's order granting preliminary injunctive relief.
In 2011, the Michigan legislature passed the Local Government and School District Fiscal Accountability Act ("Public Act 4") to ensure the financial accountability of local governments and to provide services for the health, safety, and welfare of citizens. Under Public Act 4, the Governor appointed Michael Brown as Flint's Emergency Manager—with the attendant authority to modify collective bargaining agreements and contracts in order to "rectify the financial emergency." PublicAct 4 was subsequently repealed by referendum, and Edward Kurtz became the new Emergency Manager. Kurtz later appointed Brown as the City Administrator of Flint. Although the Act was repealed, Defendants seek to enforce the actions taken by Brown when he acted as the Emergency Manager under Public Act 4.
There is little doubt that Flint faces a serious financial emergency and is, in effect, under state receivership. In 2011, the City had a cumulative deficit of $25.7 million. Michigan law, however, requires that local governments operate under a balanced budget. As a result, local officials are faced with the formidable task of reducing the City's accumulated deficit.
For fiscal year 2013, Brown proposed that Flint balance its budget in a single year. To accomplish this, Gerald Ambrose, Flint's Financial Director, provided deposition testimony that reducing the deficit would require the City to reduce its work force by 115 positions, implement a twenty percent salary reduction for other employees, and modify the City's pension and health-care plans. In addition to reducing expenditures, the City also adopted methods to increase revenues. For example, Flint raised the water and sewer rates, yielding approximately 15 million dollars; increased fees for garbage collection, netting approximately 1.5 million dollars; and imposed a street-light assessment, resulting in additional revenues of 2.85 million dollars. Despite these changes, the City has continued to experience a cash shortage.
Recognizing that more needed to be done, in 2012 Brown issued a series of orders modifying certain terms in collective bargaining agreements between Flint and Plaintiffs-retirees. Plaintiffs claim they are entitled to lifetime health-care benefits identical or comparable to the plans in effect at the time of their retirement. These benefits are secured by collective bargaining agreements, othercontracts, ordinances, and past practices. The orders reshape Plaintiffs' contractual expectations in several ways. First, the City will no longer provide health-care coverage for a retiree's spouse if the spouse is eligible to receive paid coverage through a current or former employer. Second, the modifications limit all active and retired employees to three insurance providers, as opposed to the twenty different health insurance plans available before the changes. Defendants believe this consolidation will save the City $7,874,152 annually, although it also shifts costs to Plaintiffs by increasing deductibles, co-payments, and coinsurance. Under all three plans, Plaintiffs will be forced to pay a minimum of $500 and a maximum of $2,000 in out-of-pocket expenses before any insurance coverage begins. Retirees will also have to cover twenty percent of the costs of their health-care, out-of-pocket, even after the deductibles have been paid. Finally, the changes mandate that retirees and their eligible spouses aged sixty-five and over enroll in, and pay for, Medicare Supplemental Part B. This modification requires Plaintiffs to pay an additional $100 per person, per month.
Plaintiffs claim they are unable to pay for Medicare and health-care premiums because they live on fixed incomes. If Defendants are not preliminarily enjoined, Plaintiffs fear they will have to sacrifice basic necessities as a result of the increased co-pays and deductibles. For Plaintiff Judith Welch, the modifications require her and her spouse to purchase Medicare Part B at an additional cost of $200 per month. Welch also claims that as a result of the modifications, she will no longer be able to visit the physician who has been treating her for the past thirty years.
With over 1,000 municipal retirees, Defendants argue that if health-care benefits are not modified, the City would have to find another way to reduce expenditures immediately by 3.5 million dollars because there are no alternative revenue sources.
Defendants caution that curtailing public safety personnel would be imprudent and ultimately detrimental to the City's residents. Numerous accounts have underscored the violence in Flint. The City was recently ranked as "the number one most violent city in the nation," it was rated number six on a list of "America's most violent cities for women," and it was ranked number one on the FBI's 2011 List of Most Violent Cities with Populations over 100,000 persons. At this point, reductions have not been made to the Public Safety budget. But if the City maintains its current level of retiree health-care coverage, Defendants predict that it would be "impossible" to sustain police and fire services because public safety consumes about 70 percent of the City's general fund budget.
On August 29, 2012, Plaintiffs moved for a temporary restraining order and a preliminary injunction to preclude modifications of their health-care plans from taking effect. In lieu of an evidentiary hearing, the parties submitted depositions and other documentary evidence. Based on this paper record, on March 29, 2013, the district court granted Plaintiffs' motion for a preliminary injunction.
Defendants then moved to stay the injunction pending appeal, and the district court denied their motion. After Defendants requested a stay on July 2, 2013, a panel of this court stayed thepreliminary injunction pending the outcome of the instant appeal. Defendants thereupon appealed the district court's order enjoining the Emergency Manager's modifications from taking effect. We have jurisdiction to review the district court's decision under 28 U.S.C. § 1292(a)(1).
A "district court's findings of fact underlying its decision to grant a preliminary injunction are reviewed for clear error and the legal conclusions underpinning its decision are reviewed de novo." In re Eagle-Picher Indus., Inc., 963 F.2d 855, 858 (6th Cir. 1992). A factual finding is clearly erroneous when "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). The district court's ultimate decision to grant a preliminary injunction is accorded significant deference and examined under the "highly deferential" abuse of discretion standard. Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir. 2000). Accordingly, a decision may be disturbed only if the district court "relied upon clearly erroneous findings of fact, improperly applied the governing law, or used an erroneous legal standard." Michigan Coal. of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150, 153 (6th Cir. 1991). Only in the "rarest of cases" should a district court's evaluation of the equities be disrupted on appeal. NAACP v. City of Mansfield, 866 F.2d...
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