(May 22, 2013) – The largest public pension fund in America is waging battle in bankruptcy court for the city of Stockton and San Bernardino’s remaining assets, but—according to the fund—an opponent’s legal team is not fighting fair.
The California Public Employees’ Retirement System (CalPERS) filed documents claiming that Winston & Strawn, a firm representing another creditor, “raided the restructuring and insolvency practice group of CalPERS’ lawyers” within the last four to five weeks.
At least five lawyers who had worked extensively on the pension’s case were successfully recruited away, according to the filing. “In a classic case of side-switching, those lawyers are now working for Winston & Strawn, the law firm that contentiously represents CalPERS’ litigation adversary, National Public Finance Guarantee Corporation, in the two Chapter 9 cases.”
The pension fund has filed a motion asking the judge to disqualify Winston & Strawn lawyers from further participation in the Stockton and San Bernardino bankruptcy proceedings. CalPERS has not accused National of any wrongdoing related to this matter.
The private-sector creditor represented by Winston insured bonds issued by the insolvent cities, and, along with other firms left with outstanding loans, is scrapping with CalPERS over its claim to priority repayment.
“CalPERS contends that because it is an ‘arm of the state,’ the court should ignore the Supremacy Clause of the United States Constitution and over 70 years of legal precedent to elevate CalPERS’ pecuniary interest above the interest of the city and its other unsecured creditors,” the bondholders assert in their protest filings. “CalPERS solipsistic view ignores every other entity’s interests.”
The California district court judge has scheduled a hearing about CalPERS’ conflict of interest claims for June 13.
For court documents, see case number 6:12-bk-28006-MJ in the Central District of California’s Bankruptcy Court, Riverside Division.
Further Coverage: Bankruptcy Trial Underway for Stockton, California; San Bernardino Bondholders Take on CalPERS in Court