STATE OF RHODE ISLAND KENT, SC.

Girard Bouchard, in his capacity as President of the Board of Directors of The Central Coventry Fire District, : : : : Plaintiff, : : v. : : Central Coventry Fire District, : : Defendant, : __________________________________________:

SUPERIOR COURT

K.B. No. 12-1150

COVENTRY FIREFIGHTERS RESPONSE TO SPECIAL MASTERS OBJECTION TO RENEWED AND AMENDED MOTION FOR PAYMENT OF POST-PETITION WAGES AND BENEFITS Now come Coventry Professional Firefighters, Local 3372 (Firefighters) and hereby respond to the Special Masters Objection to payment of wages and other compensation owed to its firefighters for work performed during the Mastership. This Court Should Exercise Its Equitable Powers and Grant Firefighters Their Full Compensation 1. On or about October 16, 2012, this Court entered an Order which provides,

[t]hat any firefighters and other of Defendants employees who work for the Special Master without being paid their compensation for such work when due shall be entitled to an allowed administrative claim herein for such compensation, which shall be paid by the Special Master as soon as reasonably practical. Emphasis added. 2. Likewise, this Courts November 13, 2012 Order authorized and empowered the

Special Master to pay all wages due employees as soon as there are sufficient funds available, with such employees being relieved of the necessity of filing claims with the Special Master

unless the amount paid or shown on the books of the Defendant is not acceptable to any employee, in which case said employee may file his/her claim in the same manner as other creditors. 3. The same Order authorizes the Special master to pay employees in the usual

course of business. 4. Finally, this Courts May 21, 2013 Order delegating certain powers to the Central

Coventry Board of Directors (Board or Board of Directors) granted the Board the authority to negotiate concessions with the Firefighters. However, it specifically prohibits the Board, the Special Master and any other party from impairing the rights set forth in any existing contracts. 5. While the Special Master has filed petitions seeking payment for the Boards

attorney, as well as the Boards Accountant, he has objected to paying Firefighters in accordance with their collective bargaining agreement (CBA). 6. The Special Master does not contest the validity of the CBA, or the calculation of

amounts owed, but questions whether the payments should be made, in part, because the Union had offered tentative concessions relating to some of the claimed expenses. 7. However, as this Court knows, after negotiation with the Firefighters, the Board

declined to approve a negotiated concession agreement. Consequently, the Firefighters CBA remains in full force and effect, as written. 8. Further, at no point has the Special Master moved to invalidate any portion of the

CBA. Consequently, for the past fourteen months, firefighters have continued to provide services to the estate based on the understanding that they would receive payment in accordance with the CBA.

9.

After over a year, it appears the Special Master has now taken the position that he

is not obligated to pay the Districts employees their full compensation in the usual course of business, or even (with respect to some wage components) when funds become available. Rather, he has taken the position that he may pick and choose which portion(s) of firefighters compensation are necessary to preserve the estate. 10. As the Firefighters argued in their Amended Motion, the Special Master cannot

pick and choose which salary components he will pay. See In re Fleming Packaging Corp., 0382408, 2004 WL 2106579 (Bankr. C.D. Ill. Aug. 31, 2004). Rather, [t]he amount of the administrative claim is determined by looking to the amount due under the agreement. In re Airlift Int'l, Inc., 761 F.2d 1503, 1511 (11th Cir. 1985). 11. The Special Master argues that this Court should avoid application of the

Bankruptcy Code in these proceedings,1 and should instead apply its broad equitable powers. The Firefighters submit that this Court need only rely on its own equitable powers, including its prior orders, in granting their Motion for compensation. Quite simply, for the reasons stated below, it would be inequitable to pay the lawyers and accountants before providing payment to the firefighters whose service is the whole reason for the Districts existence. 12. Furthermore, the firefighters have been harmed by the Special Masters failure to

pay their full compensation. Many firefighters are owed nearly $10,000. The amount continues to grow. Such a significant reduction in salary has caused extreme hardship, preventing some firefighters from paying their taxes, and requiring others to seek financial assistance from the State.

However, he goes on to rely on the Bankruptcy Code when he believes it supports him. 3

13.

Upon information and belief, due in part to this Courts intervention, the District

has collected over $2.3 million so far this budget year. Thus, it currently has sufficient assets to pay Firefighters claimed compensation. The Instant Petition for Compensation is Not Premature 14. The Special Master asserts that the Firefighters are not entitled to be paid for their

services until a decision has issued on the validity of the CBA. Admittedly, the Union filed a Request for Declaratory Relief in May, 2013 seeking a declaration regarding the validity of the CBA. The Request was filed in response to an unsupported statement made by a member of the Coventry Citizens Task Force that the CBA was invalid. The request provides: [t]he Firefighters submit that it is within the best interest of the estate for the Court to make a determination as to the validity of the CBA as soon as possible. This will enable all parties, including the [Special] Master and the voters, to make informed decisions about the future of the District. 15. Both the Special Master and the Board of Directors have operated under the

assumption that the CBA is valid. Negotiations over proposed concessions were conducted based on that assumption, and the budget was proposed based on that assumption. 16. At this point, there exists no evidence undermining the validity of the CBA.

Consequently, there is no basis for deferring consideration of the Firefighters request for compensation. The Union has submitted a signed collective bargaining agreement which has been complied with for years up until the filing of the Petition for Receivership. Post-petition, the Special Master has clearly agreed to abide by the CBA (although he has failed to comply with all aspects of it) and has even attempted to negotiate concessions to the CBA. Further, the Special Master has never taken the position that the CBA is invalid, not even in his Objection to

the instant motion. Consequently, absent evidence that the CBA is invalid, this Court should treat the CBA as valid for the purpose of determining the Firefighters right to compensation. Firefighters Wages and Salaries Constitute Administrative Expenses under the Bankruptcy Code 17. The Firefighters agree with the Special Master that this action is not governed by

the Bankruptcy Code. But, assuming the Court looks to bankruptcy law for guidance, Firefighters are entitled to their full compensation as provided under the CBA. 18. Section 503 of the Bankruptcy Code provides administrative claim status for the

actual, necessary costs and expenses of preserving the estate. 11 U.S.C.A. 503(b)(1). Under that provision, wages, salaries, and commissions for services rendered after the commencement of the case constitute actual, necessary costs. Thus, it is unnecessary for this Court to undertake an analysis into whether firefighters compensation is an actual, necessary cost[] and expense[] of preserving the estate; the United States Congress has already determined that it is. 19. The following forms of compensation owed to the Firefighters clearly constitute

wages, salaries and commissions within the meaning of 11 U.S.C.A. 503(b)(1): Longevity (bonuses that compensate employees based on the length of time they have provided services to the Employer), wages (i.e. the increased base pay the District failed to provide), holiday pay, holiday differential pay (payable when a firefighter works on a holiday), and medic pay (additional pay provided to employees certified as National Registered Paramedics). 20. Notably, each of the foregoing constitutes salary for purposes of calculating

pension benefits. 21. Further, clothing allowances, vision care, post-employment health plan

contributions and health insurance co-shares are all components of Firefighters compensation. Absent these benefits, Firefighters would receive a higher base wage. 5

Compensation Owed Firefighters Pursuant to the CBA For Work Performed for the Mastership Should Be Paid As Soon As Possible 22. By failing to pay firefighters their contractual rate of pay, but continuing to utilize

their services for the benefit of the estate, the Special Master and the District are taking undue advantage of the firefighters. Unlike other professionals who provide services to an estate during receivership or bankruptcy, firefighters cannot discontinue their services if they are not paid. Lawyers, accountants and other service providers can walk away, thus providing the District with incentive to pay their bills during the receivership. However, firefighters cannot walk away and are left without a mechanism for enforcing their rights. According to the Special Master, they are prohibited from proceeding to arbitration to dispute the Districts contract violations, and cannot even file wages claims with the Department of Labor, or unfair labor practice charges with the State Labor Relations Board. See Motion to Enforce Automatic Stay. Essentially, then, unlike other service providers, firefighters are hostages of the District. They cannot discontinue their services or enforce the CBA, but, according to the Special Master, they are not entitled to be paid for those services in a timely fashion or, in some cases, at all. To prevent this injustice from continuing, Firefighters should be paid their rightful compensation going forward. Further, any backpay owed for services performed during mastership proceedings should be paid as soon as the funds become available. The Special Masters Arguments Against Paying the Firefighters Are Misplaced 23. The Special Master claims that longevity pay cannot be considered an

administrative expense unless the payment is for services rendered after the commencement of mastership proceedings. The Special Master misunderstands the concept of longevity pay. It is not payment for specific services rendered but a form of incentive pay owed to employees who continue employment with the District, no matter how many hours they worked during the 6

preceding year. Moreover, unlike severance pay, longevity is considered compensation and must be included as part of an employees regular rate. Bonuses that are explicitly promised to employees- as the longevity payments are in the CBA- must be included in the employees regular rate. OBrien, 350 F.3d at 295, citing 207(e)(3), 778.211 (any bonus paid pursuant to a contract must be included in the regular rate). In fact, firefighters pension benefits are based on their longevity pay. 24. Even if longevity pay is treated as severance pay for the purpose of determining

administrative priority, longevity pay would nonetheless constitute an administrative expense. The crucial question for purposes of priority treatment is when a party becomes entitled to payment. In Straus-Duparqust, Inc. v. Local Union No. 3 International Brotherhood of Electrical Workers, 886 F.3d 649 (2d Cir. 1967), the Second Circuit granted administrative expense priority to severance claims reasoning that even though the calculation of severance compensation was based on length the employment, severance does not accrue, but rather is due in full upon termination. Because termination occurred post-petition, the full severance compensation was an expense of administration. Id. at 651. Likewise, the Fourth Circuit defined the term earn as to become entitled in holding that the full amount of severance is entitled to priority to the extent it was earned on termination. See Matson v. Alarcon, 651 F.2d at 410. Again, to the extent termination occurred within the relevant time frame, which, in Matson was within 180 days of the petition, it was entitled to priority. 25. Like severance pay, longevity pay is earned only upon reaching a particular date.

It does not accrue. If an employee leaves the Districts employ prior to that date (which, under the CBA is December 31) he or she is not entitled to a longevity bonus. Because December 31, 2012 occurred post-petition (and so will December 31, 2013) longevity has been earned post-

petition. Consequently, it must be treated as an administrative expense just as wages, salaries, and [other] commissions for services. See Section 503(b)(1)(A)(i). 26. Further, longevity should properly be treated as a necessary expense in

administering the estate. The purpose and intent of the longevity bonus is to deter firefighters from leaving the employ of the District. Within the first five years of a new hires employ, the District will have spent tens of thousands of dollars to train, educate and outfit the employee. In recent years past, employees were utilizing the District as a stepping stone to receive training and experience only to leave for other higher paying firefighting positions. The longevity bonus

encourages firefighters to remain in the District and saves the District the money it would otherwise have to spend to train new employees. It also ensures an experienced and qualified fire department. Administrative priority helps rehabilitate businesses by encouraging third parties to continue providing goods and services to a debtor post-petition. By continuing to employ firefighters under the terms of the CBA, the District received a vital service. For the Special Master to now assert, after fourteen months, that he will not pay firefighters in accordance with their contract, because certain aspects of their compensation are not necessary, is misleading, and inequitable. See also In re Public Ledger, 161 F.2d 762, 771 (3d Cir. 1947), finding severance compensation a necessary expense in administering the estate, thus entitling the compensation to priority as an administrative expense. 27. Finally, even if longevity pay could be apportioned based on length of service,

any apportionment would be based on the prior year of service. Because the Petition for Mastership was filed over a year ago, each eligible firefighter is entitled to receive at least one longevity payment as an administrative expense.

28.

The Special Master also argues that the Court may be required by R.I. Gen. Laws

36-16.2-1 to deny longevity pay in its entirety.2 Assuming arguendo that the statute applies in the instant case, the statute does not forbid longevity pay; it provides, there shall be no further longevity increases. Id. Further, the statute envisions that any longevity pay would be included as part of the employees salary, and thus paid weekly or bi-weekly as the case may be, not that an employees total compensation package would decrease by several thousand dollars. Finally, to the extent both the District and Union erred by including longevity provisions in the most recent contract, and, as a result, the District was required to breach the CBA, it would still owe damages as a result of that breach. Salary Increases, Holiday Differential, and Medic Pay are not Fringe Benefits 29. The Special Master questions whether the foregoing wage components are fringe

benefits and, therefore, administrative expenses. For the reasons stated above, salary, holiday differential and medic pay are salary components, not fringe benefits. Consequently, they are per se administrative expenses. No inquiry into reasonableness or necessity is required. Clothing Allowances, Vision Care, Post-Employment Health Plan Contributions and BCBS Co-Shares are Necessary Expenses in Administering the Estate 30. The clothing allowance is without a doubt an actual, necessary cost[] and

expense[] of preserving the estate. See 11. U.S.C. 503(b)(1)(A). For the District to continue to operate, it must provide the fire suppression and emergency services it is required to provide under its Charter. In accordance with the standards set by the National Fire Protection Association (NFPA) and codified in the Central Coventry Fire Districts Operations Manual,

However, recognizing that an outright denial of longevity may be too harsh a penalty in light of the statutory framework allowing for longevity to be included in base pay, [t]he Special Master asks that the Court consider the matter of administrative status of longevity payments carefully. See Objection at p. 10. 9

see 600-01 et.seq. firefighters station uniforms worn under the structural firefighting ensemble shall be fire and heat retardant and must be comprised of materials that cannot melt, drip, or ignite when exposed to high heat. , These uniforms cost an average of $1,171 per year. In addition, firefighters are required by the CBA, and by department rules and regulations to have and maintain dress uniforms, and to wear such at the direction and discretion of the Fire Chief. The total estimated cost for uniform purchase and maintenance per year is $2,389.00 per firefighter. The Firefighters are requesting $1,200 per person. To the extent the Special Master contests the actual cost to purchase and maintain the required clothing, the Firefighters will attempt to gather itemized receipts. However, the receipts will inevitably exceed the $1,200 clothing allowance. 31. Likewise, it is unreasonable for the Special Master to assume that a firefighter

would put himself or herself in danger on a daily basis without the promise of health insurance. In fact, the District would place itself at great risk by employing uninsured firefighters. Clearly, the provision of health insurance to its firefighters is a necessary cost of continuing to operate the estate. Consequently, the vision care payments and health insurance contributions owed by the District constitute administrative expenses. This Court Should Exercise Its Equitable Powers and Grant Firefighters Their Past-Due Overtime Pay 32. In an effort to assist the District during its financial troubles, in 2011 the Union

signed an agreement permitting the District to defer overtime pay over a period of three years. The District paid in accordance with that agreement until the Special Master stopped making such payments in October, 2012. 33. The Firefighters would be within their right to file a wage action with the United

States and/or Rhode Island Department of Labor against the District, seeking payment of past 10

due overtime pay, along with penalties and interest. Such action would not be subject to the automatic say under the governmental entity exception. However, for the time being, the Firefighters have elected payment through this Court. 34. Had the Firefighters not graciously agreed to defer payment, they would have

received full payment back on 2011. Firefighters should not be penalized for working with District in an attempt to ease its financial burdens. 35. Further, because the overtime pay became due after commencement of mastership

proceedings, the same argument that supports severance and longevity should require payment of overtime wages. The Death Benefit Owed to a Firefighter Who Died in the Line-Of-Duty is an Administrative Cost 36. There can be no dispute that a death benefit is only payable upon a particular

event: death. Thus, just as severance pay is considered an administrative expense to the extent termination occurs post-petition, a death benefit that becomes payable post-petition is properly treated as an administrative expense. 37. Further, just as the District would be unlikely to obtain fire suppression services

without providing its employees with health benefits, it is unlikely a firefighter would agree to put his or her life in danger without a promise of payment to his or her family if killed in the line of duty. Consequently, the death benefit should be considered a necessary cost of preserving the estate. Conclusion 38. Based on the foregoing, the Firefighters request that the Court grant it Petition for

Payment of Post-Petition Wages and Benefits, whether or not it considers the claims administrative within the meaning of the Bankruptcy Act. 11

39.

The Firefighters further request an Order requiring the Special Master to make

payments to the firefighters in accordance with the CBA in the regular course of business.

Respectfully submitted, Coventry Professional Firefighters, Local 3372, By its Attorneys, /s/ Elizabeth Wiens Marc Gursky, Esq. (#2818) Elizabeth Wiens, Esq. (#6827) Gursky Law Associates 420 Scrabbletown Road North Kingstown, RI 02852 ewiens@rilaborlaw.com

CERTIFICATION A true copy of the foregoing was served on the following via email on December 13, 2013: kmiley@courts.ri.gov, bstern@courts.ri.gov, rland@crfllp.com. /s/ Elizabeth Wiens

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