649 B.R. 633
Bankr. E.D. Pa.2023Background
- Chester (a Pennsylvania Act 47 distressed city) filed a Chapter 9 petition on November 10, 2022; the Act 47 receiver filed with written authorization from the PA Secretary for Community and Economic Development.
- The City has sustained multi‑decade fiscal decline with large unpaid pension MMOs, massive OPEB liabilities, recurring general‑fund deficits, and projections showing multi‑year negative cash flow.
- The Receiver pursued prepetition interventions (recovery plans, austerity measures, furloughs, ARPA and TRAN funding) but could not resolve pension and retiree obligations without restructuring.
- Prepetition negotiations occurred with unions, Delaware County bondholders, and Preston Hollow (holder of 2017 bonds); retirees (≈268) lacked centralized representation prepetition.
- Two parties timely objected to eligibility: (a) City mayor and council members (Elected Officials) contended the filing lacked authorization and the City didn’t “desire” a plan; (b) Preston Hollow alleged lack of good‑faith negotiations.
- The bankruptcy court held an eligibility hearing and ruled the City satisfied § 109(c) and filed the petition in good faith, entering an order for relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| State authorization to file under §109(c)(2) | Elected Officials: Home‑rule charter vests power in City Council; Council must authorize filing | City/Receiver: Act 47 expressly empowers Receiver to file with Secretary's written authorization and Receiver consulted MFRAC | Receiver was properly authorized under Act 47; filing validly authorized by state actor |
| Insolvency under §101(32)(C) | Objectors (Preston Hollow) sought discovery and contested adequacy of insolvency proof | City: long history of unpaid MMOs, >$100M pension shortfall, OPEB liabilities, and multi‑year projected deficits | City is insolvent — not paying debts as due (MMOs) and prospectively unable to pay obligations |
| Desire to effect a plan under §109(c)(4) | Elected Officials: City Council has not expressed a desire; petition not by elected body | City/Receiver: Receiver acts for the municipality, submitted motion for mediation and is developing a plan; recovery plan efforts pre/postpetition | Court finds City (through Receiver) desires to effect a plan; no evidence of ulterior motive |
| Good‑faith negotiations / impracticability under §109(c)(5) | Preston Hollow: City did not negotiate meaningfully or in good faith; negotiations were practicable | City: engaged in multi‑year negotiations with Preston Hollow, unions, and Delaware County; retirees unrepresented so prepetition negotiations were impracticable | Court finds good‑faith negotiations with unions, Delaware County, and Preston Hollow; impracticable to negotiate with unrepresented retirees — §109(c)(5)(B) and (C) satisfied |
| Standing and good‑faith filing under §921(c) / §1109 | Elected Officials: they have an interest; petition is effectively involuntary and infringes local governance | City: Act 47 limits elected officials’ powers in receivership; petition consistent with Chapter 9 purposes | Elected Officials lack standing to contest eligibility; filing was in good faith and Chapter 9 relief appropriate |
Key Cases Cited
- In re City of Vallejo, 408 B.R. 280 (9th Cir. B.A.P. 2009) (standard for proving municipal "desire" to effect a plan)
- In re City of Stockton, Cal., 493 B.R. 772 (Bankr. E.D. Cal. 2013) (framework for Chapter 9 eligibility and good‑faith filing analysis)
- In re Hamilton Creek Metro. Dist., 143 F.3d 1381 (10th Cir. 1998) (favoring broad construction of Chapter 9 eligibility)
- In re City of Detroit, Mich., 504 B.R. 97 (Bankr. E.D. Mich. 2013) (factors for evaluating negotiation good faith and practicability)
- In re Valley Health System, 383 B.R. 156 (Bankr. C.D. Cal. 2008) (impracticability to negotiate may justify filing)
- In re Wolf Creek Valley Metro. Dist. No. IV, 138 B.R. 610 (D. Colo. 1992) (standing limits for non‑creditor municipal actors)
- In re Boy Scouts of America and Delaware BSA LLC, 642 B.R. 504 (Bankr. D. Del. 2022) (declining to consider inadequately developed arguments)