Bankruptcy Proceedings Allow City To Dissolve Contract With Police Colonel

On March 23, 2010, Joseph Moran retired from his position as Chief of Police of the City of Central Falls, Rhode Island, and began collecting retirement benefits under a pension plan maintained by the City. The next day, the City entered into a contract appointing Moran as “Colonel” of the Police Department for a five-year term. The contract provided for compensation and benefits that exceeded those of other non-union employees of the City, including additional days for vacation, holidays, personal leave, and sick leave, as well as annual bonuses for longevity and the cost of obtaining a Master’s Degree.

The contract also made Moran the only non-union City employee who could not be terminated at will. Moran continued to collect retirement benefits under the City’s pension plan, while receiving compensation under the contract.

The City, which had been in financial difficulties for some time, petitioned bankruptcy court for appointment of a receiver on May 18, 2010, less than two months after entering into the contract with Moran. When a “Bankruptcy Receiver” informed Moran that the contract was “terminated, rejected, and deemed immediately unenforceable,” Moran challenged the decision in the United States District Court for Rhode Island.

The Court granted the City’s request to dissolve the contract. The Court found that “the City has been in a financial crisis for some time. The five-year contract between the City and Moran was entered into less than two months before the Mayor and City Council filed a petition for receivership in Rhode Island state court. Pursuant to the contract, Moran, who was also collecting retirement benefits under a pension plan maintained by the City, was the only non-union City employee whose employment was not ‘at will.’ Moran’s compensation and benefits under the contract were significantly more favorable than those provided to other City employees. As such, not only did the contract, by its terms, constitute a significant financial burden on the City, it also presented difficulties for the City’s efforts in restructuring its fiscal obligations in a fair and consistent manner.”

The Court also found that “Moran’s allegation that the Receiver’s rejection of the contract was the result of bad faith, whim, or caprice are entirely unsupported. Neither Moran’s personal disagreement with the report recommending consolidation of two positions into that of a Public Safety Director nor the fact that previous receivers had not elected to reject the Contract serve to bolster such allegations. In sum, the Bankruptcy Court applied the correct legal standard in reviewing the City’s request for approval to reject the Contract.”

Moran v. City of Central Falls, 2012 WL 1592625 (D. R.I. 2012).