The California Public Employees’ Retirement System was successful in its efforts to have Winston & Strawn, the law firm representing National Public Finance Guarantee Corp. disqualified from San Bernardino’s bankruptcy case, according to court documents.
U.S. Bankruptcy Judge Meredith Jury ruled on the issue during a hearing held last Thursday.
Jury granted CalPERS’ motion to have Winston & Strawn disqualified from representing the bond insurance corporation, because of a conflict of interest.
The pension fund filed motions to remove Winston & Strawn from the San Bernardino and Stockton Chapter 9 cases because they hired CalPERS’ outside bankruptcy attorneys.
CalPERS said Winston & Strawn, which represents bond insurer National Public Finance Guarantee in the two cases, hired lawyers away from their external bankruptcy team at K&L Gates, causing a conflict of interest.
“CalPERS believes that this is a very serious case of lawyers engaged in side-switching, which is ethically impermissible,” CalPERS CEO Anne Stausboll, said in a statement released on May 21.
Winston & Strawn argued that there was no conflict because the firm had policies keeping the lawyer from disclosing information about CalPERS.
CalPERS is at odds with bond insurers in both San Bernardino and Stockton. The bond firms say CalPERS should be treated like other creditors. CalPERS argues that public pensions are protected under the state constitution and cannot be impaired by pension fund participants.
San Bernardino not paid the employer portion of its bi-weekly payments to CalPERS since it filed bankruptcy last August. As a result, San Bernardino owes the pension fund millions, while Stockton has kept up its payments.