Just when you thought things were going pretty hunky dory with San Bernardino’s bankruptcy, an appeal of the city’s eligibility has been approved.
U.S. District Judge Dolly Gee agreed Friday to let San Bernardino’s largest creditor appeal directly to the 9th Circuit Court of Appeals, opening another front in the battle between the city and the California Public Employees’ Retirement System.
If the 9th Circuit agrees to take the case, CalPERS will argue that U.S. Bankruptcy Judge Meredith Jury was wrong when she decided in August that the struggling city qualified for bankruptcy protection.
Meanwhile, Jury will continue overseeing the bankruptcy case, and U.S Bankruptcy Judge Gregg Zive will continue leading mediation sessions that reportedly are progressing well.
As Jury herself said, that progress could stall if CaLPERS or other parties decide they’re better off dragging their feet or focusing attention on the appeals process, argued the city’s bankruptcy attorney, Paul Glassman of Stradling Yocca Carlson & Rauth.
CalPERS has consistently argued that the City of San Bernardino is not eligible for bankruptcy protection. Just as consistently, CalPERS arguments have been denied and the bankruptcy process moved forward.
CalPERS celebrated this recent legal victory:
CalPERS chief executive officer Anne Stausboll praised Friday’s ruling.
“We are very pleased with today’s ruling in the federal district court,” said Stausboll. “CalPERS believes that it is important to have clarity regarding the standard for admission to bankruptcy for municipalities. Today’s ruling insures that the federal appellate courts will have an ability to provide guidance on this important policy matter.”
This ruling does not mean that San Bernardino will be forced out of bankruptcy court. It merely means CalPERS can ask the Federal 9th Circuit Court of Appeals to determine whether or no San Bernardino truly qualifies for bankruptcy protection.
The 9th Circuit may not even agree to hear the appeal.
To those who have been following San Bernardino’s bankruptcy, this new twist comes as somewhat of a surprise, given recent news reports that a great deal of progress had been made in the case, even according to an CalPERS attorney:
Progress in mediation, progress on fixing an unexpectedly thorny problem with retirement records, progress on producing financial documentation — all were reported in an unusually conflict-free hearing among the city and its creditors Tuesday in U.S. Bankruptcy Court.
“I hope I don’t disappoint or shock anyone, but I have nothing but positive things to report,” said Michael Lubic, attorney for the California Public Employees Retirement System.
The messages from attorneys for the city and police union were largely the same, coming off mediation last month and preparing for eight upcoming days of mediation sprinkled across January and February.
As always, we’ll keep you posted on the important developments in this matter.