In a recent bench ruling, the Bankruptcy Court for the Central District of California denied the attempt of the California Public Employees’ Retirement System (“CalPERS”) to obtain relief from the automatic stay to permit CalPERS to pursue the city of San Bernardino in state court for overdue pension payments.
The stay motion drew objections from not only the city, but also from a number of the city’s largest creditors, including Ambac Assurance Company and Wells Fargo, NA. CalPERS argued that the city’s payments were mandated by state statute, so CalPERS should not be constrained by the automatic stay, and should be free to commence state court litigation to compel the overdue payments. The city and certain of its creditors countered that allowing CalPERS to proceed would, among other things, jeopardize the city’s reorganization efforts.
The dispute was closely watched due to its potential implications with respect to other pending Chapter 9 cases. A CalPERS’ victory could have allowed CalPERS to effectively elevate its claim above other creditors and may have provided a roadmap for similar maneuvers by CalPERS in other California cases, as well as by state pension funds in other current and future cases.
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