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Hebert v. City of Woonsocket

Superior Court of Rhode Island

February 4, 2016

GLEN HEBERT, ET AL., in their individual capacities and on behalf of all others similarly situated, Plaintiffs and Counterclaim-Defendants,
v.
THE CITY OF WOONSOCKET, by and through its Mayor, Lisa Baldelli-Hunt, and the WOONSOCKET BUDGET COMMISSION, Defendants and Counterclaim-Plaintiffs,
v.
MICHAEL L. A. HOULE, RONALD PENNINGTON, in their individual Capacities and on behalf of all others similarly situated, Counterclaim-Defendants.

Providence County Superior Court

For Plaintiff: Edward C. Roy, Jr., Esq.

For Defendant: Sara A. Rapport, Esq.; Matthew H. Parker, Esq.; Michael J. Marcello, Esq.; Joseph S. Larisa, Jr., Esq.

DECISION

LANPHEAR, J.

One of the most basic principles of a just and civilized society is that a person will stand behind a promise that he or she has made. Perhaps the earliest provision of our system of laws, therefore, is that such a commitment will be enforced by the courts. [1] This is particularly so where the contract is in writing and clear, where it has been bargained by both parties fairly and in good faith, and when both parties rely on the contract and the promises contained therein.

Of course, people are not always pleased about keeping their promises-particularly when contracts are costly and long-lasting, parties may attempt to avoid the obligations that they have made. Avoiding the obligations of a contract after having received all of the benefits of the contract is obviously unfair. The founders of our government recognized that state governments (powerful creations in our federal system) should be prohibited from voiding the obligations of contracts. Here, the government is seeking to void a contract to improve its own financial status. It seeks to do so unilaterally-without permission from or compensation to the Plaintiffs. It fails to even note that the Plaintiffs have already fulfilled all of their contractual obligations.

This case is before the Court on Plaintiffs' motion for preliminary injunction.

I Procedural Background

In October of 2013, Plaintiffs, former employees of the Woonsocket Police Department, filed a request for a preliminary injunction seeking to restrain the City of Woonsocket from terminating health insurance benefits and modifying the terms of their ongoing health insurance. Specifically, they request the Court to issue an Order "restraining and enjoining the City of Woonsocket and the Woonsocket Budget Commission from [increasing] . . . the 'co-share' payment from the plaintiffs as a requirement for [continued] health care coverage . . . ." (Am. Compl. 6, ¶ 5.) The Court conducted an extensive evidentiary hearing from August 13, 2013 through March 11, 2014 over thirteen days, submitting eighty-seven full exhibits. The parties agreed to submit the deposition transcript of Mr. Robert Knowles in lieu of additional testimony. Memoranda were then submitted in support of their respective positions.

II Factual Background

This case involves the alteration of health insurance benefits for retired municipal police officers of the City of Woonsocket. The Plaintiffs allege that through serial collective bargaining agreements (CBAs) with the City, the City contracted to provide lifetime health insurance benefits similar to the plans in place at the time of their retirement. (Am. Compl. 3, ¶¶ 4, 5.) Plaintiffs, all retired police officers, further allege that their health and welfare will be negatively impacted by the alterations to their health insurance benefits. [2]

For many years, the collective bargaining agreement between the City of Woonsocket and its police officers contained generous health insurance benefits. One provision reads:

"SECTION IV: BLUE CROSS AND PHYSICIANS' SERVICE
"4.2 The City shall pay the entire cost of Major medical, plus student rider coverage, and $2 Co-Pay Drug Program, for all members of the IBPO Local 404 on active service in City employment and including those members placed on disability or retirement pension after July 1, 1981.
"4.5 The City shall pay the entire cost, including family coverage, applicable where an employee has a family within Blue Cross definition, for an employee, covered by this Agreement, placed on disability or retirement pension list after July 1, 1981 and the semi-private plan of the Rhode Island Hospital Service Corporation (Blue Cross) and also the Rhode Island Medical Society Physicians, Service Plan 100 in accordance with the rules and regulations of such corporation. The City shall pay the cost of Major Medical for said retirees. Said coverage may be temporarily suspended by the City in avoidance of dual coverage if equal or greater benefits are provided through any other means to said retiree." (Pls.' Ex. 10 at 5, ¶ 4.5, Collective Bargaining Agreement between City of Woonsocket and International Brotherhood of Police Officers Local 404, July 1, 2002 through June 30, 2005, emphasis added.)

Similar broad-based health insurance benefits were agreed to by the City of Woonsocket for many years. In the 1996-1999 CBA, health insurance coverage was provided to police retirees. Coverage was continued for retirees in the 1999-2002 CBA, and thereafter as indicated above. The parties could not agree on a contract for the following years. In April 2007, interest arbitrators modified health coverage plans and explicitly noted the increasing costs of health insurance for a one year contract. Pls.' Ex. 11 at 11. In 2007, interest arbitration was necessary to resolve an impasse, but there is no indication that the health insurance benefits for retirees were diminished or even discussed. Interest arbitrations in 2009 required a copayment of health insurance for active employees, presumably not in retired employees' benefits. (Pls.' Ex. 14 at 2; Ex. 15.) For the 2010-2012 CBA, some costs were added for retiree health insurance but only for persons hired after 2010.

In 2010, the Rhode Island General Assembly enacted into law the "Fiscal Stability Act, " G.L. 1956 §§ 45-9-1, et seq. (Act). The Act establishes a three-tiered procedure in an effort to prevent municipalities from initiating receivership or bankruptcy proceedings without state intervention, consequently threatening the economic integrity of the state.[3] Pursuant to the statutory procedure, if a local government is projecting a deficit or meets other criteria, it may request the appointment of a "fiscal overseer" by the state. Sec. 45-9-3. If the appointed fiscal overseer cannot achieve financial security, he or she may request the appointment of a "budget commission" by the state with even broader powers. Sec. 45-9-5. Finally, if the budget commission "concludes that its powers are insufficient to restore fiscal stability, " a "receiver" is appointed. Sec. 45-9-7.[4] In May 2012, the Woonsocket City Council and Mayor requested the appointment of a fiscal overseer who, unable to achieve fiscal stability, requested the appointment of a Budget Commission. (Defs.' Ex. O.)

Pursuant to the Act, the Director of the Rhode Island Department of Revenue appointed the Woonsocket Budget Commission in May of 2012. The Plaintiffs allege that effective July 1, 2013, the Budget Commission unilaterally modified the terms of their retirement benefits. Prior to July 1, 2013, retirees were not required to pay yearly deductibles or substantial copayments for health care (Defs.' Ex. B). The City enacted resolutions effective July 1, 2013 that unilaterally imposed a mandatory coshare payment of approximately $267 per month, and imposed increasing deductibles as a condition of continued health care coverage. (Defs.' Ex. DD.) Copayments for medical services were also imposed. Ms. Booth Gallogly, the Director of the Rhode Island Department of Revenue who appointed and worked with the Budget Commission, testified that those changes were implemented for "indefinite" periods of time. No end date was established and the changes remain in effect. (Defs.' Mem. 67). Exhibits YY1 and EEE display the substantial increases in costs of health insurance. While the documents were offered to reflect the savings to the City, they also reflect the significant impact on the retirees.

At the time of the hearing, Woonsocket had been in financial distress for many years. Defendants' Exhibit C demonstrates the scope and extent of the City's financial decline. The City is designated as a distressed community pursuant to § 45-13-12. It has suffered a steady population loss since 2002. Since 2009, its foreclosure rate has been higher than the state's foreclosure rate, and its unemployment rate has exceeded the state's unemployment rate since at least 2000. From 2007 through 2011, the City lost over 13 million dollars in state financial aid, a decline of 22.3%. Each fiscal year, the loss of state aid increased. Moreover, the City's infrastructure is decaying.

Mayor Leo T. Fontaine, who held office from December 2009 through 2013 (after the CBAs were signed and the 2009 arbitrations completed), recognized the obligation of the City to enact a balanced budget. He noted in his testimony on November 21 and 22, 2013 that the City could not knowingly incur a deficit and that its budget must be balanced. Nevertheless, when he took office, he inherited a cumulative deficit of $6.9 million. (Defs.' Ex. K.)

When it downgraded the City of Woonsocket's rating in April of 2010, Moody's Investors Service stated:

"The downgrade reflects the deterioration of the city's financial position over [the] last several fiscal years resulting in a sizeable accumulated deficit which is expected to increase at the end of fiscal 2010. The rating also factors the city's lack of liquidity and increasing reliance on cash flow borrowing . . . ACCUMULATED DEFICIT CONTINUES TO GROW; SCHOOL DEPARTMENT OVERSPENDING PERSISTS; NEW MANAGEMENT TEAM EXPLORING ISSUANCE OF DEFICIT REDUCTION BONDS.
Woonsocket's financial position is expected to continue to narrow in fiscal 2010 from an already weak position. Six years of consecutive operating deficits in the General Fund and School Unrestricted Fund have increased the city's accumulated deficit to a negative $6.9 million or – 6.2% of revenues at the end of fiscal 2009." (Defs.' Ex. K.)

The same Moody's report discussed how the City's finances had deteriorated significantly since 2006. Defendants presented extensive testimony and documentary evidence which established the City's worsening financial condition. Exhibit C provides an overview of fiscal issues, though extensive testimony and evidence was also provided.

Although the City of Woonsocket experienced increased financial pressures, through the negotiation and agreement of several subsequent CBAs with the police officers, it made minimal changes to postretirement benefits. The 1996-1999 contract provided generous postretirement benefits to police officers. In the 1999-2002 contract, those benefits remained intact. The same broad benefits for retirees remained substantially unchanged when the contract was again negotiated for 2002-2005 (Pls.' Ex. 10). Ultimately, in September 2010, the City of Woonsocket negotiated and ratified a contract for 2010-2012 which limited retiree health insurance benefits for police officers hired after August 15, 2010.[5] (Pls.' Ex. 12.)

In April of 2012, the Woonsocket Personnel Director sent a memorandum to all city employees and to all retirees who were receiving United Healthcare health insurance coverage. It indicated that all active and retired members under the plan would be "transferred" to Blue Cross/Blue Shield, as the City decided not to contract with United Healthcare for its municipal health benefits. The differences in coverage were striking. The new plan mandated substantial yearly deductibles, copayments for particular services, and new out-of-pocket costs for retirees and active members. (Compare Exs. 3 and 4). The City also required that all retirees who were eligible for Medicare must apply for Medicare.

Plaintiff, Glen Hebert, is a retired Woonsocket police officer. He is married, has two children and worked for the Police Department from 1984 through March 2005. He was a union official and at one time assisted in the negotiation of the CBAs, including the provisions regarding active and retiree health care benefits. As stated above, the CBA in effect at the time of Mr. Hebert's retirement stated that the City would "pay the entire cost, including family coverage, applicable where an employee has a family within Blue Cross definition, for an employee, covered by this Agreement, placed on disability or retirement pension list after July 1, 1981 . . . The City shall pay the cost of Major Medical for said retirees." (Pls.' Ex. 10, § 4.5.) Mr. Hebert testified, and the Court finds, that he retired with the understanding that the City would provide his health insurance benefits, without cost, during his lifetime.

Scott Strickland worked as a Woonsocket police officer from December 1998 through January 2010. He left the department on a disability pension at the age of thirty-seven. In December of 2007, he incurred a herniated disc as a result of a fall. He cannot sit or stand for long periods as he is in chronic pain and in need of vertigo medication. He retired with the understanding that he would receive fully paid health insurance benefits for the rest of his life, and the City "would take care of everything" related to the injury.[6] In February of 2014, Mr. Strickland was informed that his health care coverage with the City of Woonsocket had changed. Certain drugs were no longer being provided, and his coverage for one of the prescriptions was denied. ...


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