Judge Rejects CalPERS’ Second Attempt to Appeal San Bernardino’s Bankruptcy Eligibility To Ninth Circuit

November 25, 2013, by Anya J. Freedman

CalPERS is the City of San Bernardino’s largest creditor, with the City owing the pension fund $17 million, plus growing interest, late fees and penalties. In August, U.S. Bankruptcy Judge Meredith Jury ruled that San Bernardino is eligible for Chapter 9 bankruptcy protection.  In November, Judge Jury denied without prejudice CalPERS first attempt to take a direct appeal from Judge Jury’s ruling. On Friday, November 15, 2013, Judge Jury rejected a second CalPERS motion for leave to file a direct appeal to the Ninth Circuit. Under the Federal Rules of Bankruptcy Procedure, a party must seek leave to appeal an interlocutory eligibility determination to a federal appeals court. See FRBP 8001(b). Judge Jury’s decision isn’t the end of the road for CalPERS; it can still ask a U.S. District Court judge to review the bankruptcy court’s eligibility ruling, which the Sacramento Bee reports it has already done.

At the heart of this skirmish over San Bernardino’s bankruptcy eligibility is the question of whether a municipality can use bankruptcy protections to reduce or evade its pension obligations. The same legal question is being litigated vigorously in Detroit’s bankruptcy proceedings, where attorneys for the city’s creditors (most vociferously labor unions, retirees, and the city's pension fund) have argued “that the city and the state of Michigan were so hell-bent on filing for bankruptcy that Detroit's emergency manager, Kevyn Orr, failed to meet requirements for a proper filing,” including the requirement that the city negotiate in good faith with the city’s creditors.

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