Moreau v. Flanders

15 A.3d 565, 2011 R.I. LEXIS 39, 2011 WL 1136079
CourtSupreme Court of Rhode Island
DecidedMarch 29, 2011
DocketNo. 2010-400-Appeal
StatusPublished
Cited by17 cases

This text of 15 A.3d 565 (Moreau v. Flanders) is published on Counsel Stack Legal Research, covering Supreme Court of Rhode Island primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Moreau v. Flanders, 15 A.3d 565, 2011 R.I. LEXIS 39, 2011 WL 1136079 (R.I. 2011).

Opinion

OPINION

Justice FLAHERTY,

for the Court.

Background: A City in Distress

We are called upon to determine the constitutionality of G.L.1956 chapter 9 of title 45, in the face of a challenge by the Mayor and City Council of the City of Central Falls. Before we begin our analysis, we find it appropriate to pause and compliment the detailed, well-written, and scholarly decision of the trial justice, whose judgment we affirm completely and with confidence.

The City of Central Falls long has enjoyed the reputation of being one of Amer-ica’s most densely populated cities. Packed within 1.2 square miles live 19,000 people. The General Assembly created the city in 1895, partitioning it from the neighboring Town of Lincoln. Over the years, Central Falls became a bustling industrial center and the home to a variety of proud immigrant and ethnic groups. Over time, however, the city experienced financial distress, and by 1991, it no longer had the financial resources to operate its schools, resulting in a takeover by the state. In more recent years, Central Falls, like other communities, has continued to struggle financially. With the closure of several manufacturing facilities, the city’s tax base dwindled, causing its fiscal woes to become exacerbated. With its largest taxpayers gone, no land to develop, and confronted with the crushing realities of a devastating local and national economy, there is no surprise that the city’s leaders felt that their backs were up against the wall. And thus, believing there was no other viable solution to the city’s dire financial plight, the mayor and city council in May 2010, petitioned the Superior Court for the appointment of a receiver, a petition that was granted by the court.

At the same time, however, legislation that would enact a major revision to chapter 9 of title 45 was working its way through the General Assembly. Signed into law in June that same year, the legislation prohibited municipalities from seeking the appointment of judicial receivers, but instead authorized the director of the Department of Revenue to implement a defined process to restore stability to a fiscally imperiled city or town. That process involved a tiered system of oversight, including appointments of a fiscal overseer, a budget and review commission, and finally a nonjudicial receiver.

On July 16, 2010, retired Superior Court Justice Mark A. Pfeiffer (Pfeiffer or receiver) was appointed by the director of the Department of Revenue to serve as receiver for the City of Central Falls under the terms of chapter 9 of title 45, as amended by P.L.2010, ch. 27, § 1, entitled, “An Act Relating to Cities and Towns— Providing Financial Stability” (act or Financial Stability Act).1 The City of Central Falls is a duly authorized municipal corporation that has a home-rule charter adopted in accordance with article 13 of the Rhode Island Constitution.2 The city’s [570]*570form of government includes a mayor, who serves as chief executive officer, and a five-member city council. Both the mayor and the city council are elected by the city’s residents. At all times relevant to this cause of action, Charles D. Moreau (Mor-eau or mayor) has been the mayor. Similarly, at all times relevant to this matter, William Benson, Jr. (Benson or council president), Richard Aubin, Jr., Eunice De-LaHoz, Patrick J. Szlastha, and James Diossa3 (collectively, city council) have been the members of the city council.

Facts and Travel

In an effort to stem the effects of its financial distress, the city council, by resolution, and the mayor authorized the filing of a verified petition for appointment of a receiver with the Providence County Superior Court on May 18, 2010. The circumstances preceding this verified petition, which named the City of Central Falls as defendant, included a June 30, 2009, independent audit, which revealed: (1) that the city had total net assets of negative $16,866,819; (2) an annual operating budget for 2010 and a proposed operating budget for 2011 just under $18 million, with anticipated shortfalls of $3 million for 2010 and $5 million for 2011; (3) municipal bond indebtedness of over $10 million; (4) the city’s sale of much of its chief pension fund to satisfy current pension obligations; (5) accrued pension fund liability exceeding $35 million, supported by assets of only $4 million; (6) the city’s failure to make any contributions to the pension fund in 2009, despite a requirement that it make a contribution in excess of $2.7 million for that year; (7) the fact that increasing the property tax rate by the maximum allowed under the state cap of 4.5 percent would yield additional revenues of less than $500,000; and (8) a request by Central Falls to the General Assembly to grant it the authority to file for Chapter 9 bank-ruptey pursuant to Title 11 of the United States Code, providing for the adjustment of debts of a municipality.

In their verified petition to the Superior Court seeking the appointment of a judicial receiver, the mayor and the city council represented:

“Plaintiffs have determined that the City is fiscally insolvent due to revenue shortfalls and state budget cuts, along with collective bargaining agreements and pension obligations it cannot afford.
“In the opinion of Plaintiffs, the elected leaders of the City, it is urgent and advisable that a Receiver be appointed immediately to oversee the affairs of the City to assist in balancing the City’s budget through spending cuts and revenue enhancement * *

After a hearing on the petition, the Superi- or Court, on May 19, 2010, entered an order appointing attorney Jonathan Savage as temporary receiver for the City of Central Falls; a permanent receiver was to be appointed “on or before June 8, 2010.” In its order, “the [c]ourt determined that [appointment of a receiver] would be in the best interest of the Defendant’s taxpayers, employees, creditors, vendors, and pensioners and other interested parties * * *.” The order further delineated the terms and conditions of the [571]*571temporary receivership as well as the powers conferred on the receiver.

As a result of the petition for judicial receivership, the already precarious credit rating of Central Falls was reduced to “junk-bond” status. Even more ominously, state officials were informed by financial rating agencies that, as a result of Central Falls’ receivership, capital markets would view debt financing to Rhode Island cities and towns as extremely risky, and that as a consequence such financing would become more expensive for Rhode Island municipalities. Faced with that scenario, the General Assembly determined that judicial receiverships, initiated solely at the discretion of a municipality, were not in the best interest of the citizens of Central Falls or the state, and that municipally initiated judicial receiverships threatened the financial well-being of all the state’s cities and towns, and of the state itself. The General Assembly moved with alacrity, revising chapter 9 of title 45 (Budget Commissions) for the purpose of creating a more effective mechanism to identify and respond to dire financial adversity confronting municipalities. On June 11, 2010, a major revision was signed into law. Significantly, § 45-9-1, as amended by P.L.2010, ch. 27, § 1, set forth:

“Declaration of policy and legal standard.

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Cite This Page — Counsel Stack

Bluebook (online)
15 A.3d 565, 2011 R.I. LEXIS 39, 2011 WL 1136079, Counsel Stack Legal Research, https://law.counselstack.com/opinion/moreau-v-flanders-ri-2011.