Monday, January 13, 2014

Bankruptcy Court preempts California Constitutional provision


So, here's something potentially amusing for the blog.  I happened upon this doing research into municipal bankruptcies last fall.  If you go into Westlaw Next, navigate over to the California Constitution, and check out Article 1, Section 9 (a.k.a. CA's contracts clause), you'll see that it's been red flagged:



https://www.dropbox.com/s/7cfr1u42boqlycc/CA%20Constitution%20Pic.png



The CA contracts clause was pre-empted by a bankruptcy court in In re City of Vallejo (Bankr. E.D. Cal. 2009) 403 B.R. 72, 77:  "Sonoma, state labor law applicable outside of the bankruptcy context, and the contracts clause of the California Constitution, Article I, Section 9, do not apply to the City's rejection of its collective bargaining agreements because they conflict with section 365 and the Bankruptcy Code. They are preempted. U.S. Const. art. 1, § 8, cl. 4; art. VI, cl. 2; art. IV."



In Vallejo, which was an evidentiary hearing, the city of Vallejo was in Chapter 9 bankruptcy, and sought to reject several of its collective bargaining agreements.  The unions in question objected, presumably on the grounds that the CA State Constitution forbid state entities from modifying contracts under Cal Const. Art 1 Sec 9.  The bankruptcy judge, Michael S. McManus, decided that not only did state precedent and state law not trump the US Bankruptcy Code (which makes sense under the supremacy clause), but that the US Bankruptcy Code also supersedes the state constitution.

 

Questions I have no idea about:



Does a bankruptcy judge have the authority to overturn a state constitutional provision?



Is a bankruptcy judge's ruling binding precedent on other bankruptcy judges?  Other federal courts?  Lower state courts?  A state supreme court?



Effectively, all this ruling has done is prevent other bankruptcy parties from attempting to rely on CA state constitutional grounds - in other words, a narrowing of the article.  Is narrowing an appropriate outcome when a court overturns a state constitutional provision?



Does it matter that the provision overturned is virtually identical to the US Constitution's contracts clause?  If the CA contracts clause is overturned, would the US contracts clause then fulfill the same purpose?

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