LOS ANGELES — The California Public Employees' Retirement System has filed an amicus brief in support of appeals challenging Detroit's eligibility to be in bankruptcy.
In the friend of the court brief filed Thursday in the U.S Court of Appeals for the Sixth Circuit, CalPERS disputes the bankruptcy court decision that "once a state authorizes its subdivisions to file bankruptcy, the state's laws and constitution no longer control the actions of the municipal debtor."
In the brief, CalPERS argues that U.S. Bankruptcy Judge Steven Rhodes' decision nullifies section 903 of the bankruptcy code that specifically preserves state laws governing municipalities even in a bankruptcy proceeding.
"In essence, the bankruptcy court decided a constitutional question, not because it was unavoidable, but because it believed that putting the issue behind would facilitate negotiations and administration of the case," the filing stated.
CalPERS notes that has significant experience with Chapter 9 bankruptcy cases, having been involved in at least seven, including the ongoing cases of Stockton and San Bernardino.
The amicus brief differentiated between Detroit's pension system, which was created by the city charter and is run by the city, and CalPERS, which was created by state charter and therefore, its attorneys say, acts as an arm of the state of California.
While arguing that significant differences exist between CalPERS and Michigan's pensions systems, CalPERS also contended that the decision "raises issues that are of critical importance to CalPERS and its 1.7 million members."
CalPERS' lawyers asked the Court of Appeals to issue a "narrow holding, taking into account the difference between state-run pensions and municipal-run pensions, given the different roles states and municipalities play in our constitutional plan," should the court rule that the bankruptcy court was right in ruling that Detroit is eligible for Chapter 9 bankruptcy protection.
The $289.1 billion pension fund is currently in confidential mediation, along with other creditors, in the San Bernardino Chapter 9 bankruptcy case.
San Bernardino filed bankruptcy in July 2010 and was granted eligibility in August 2012. CalPERS has been the most adversarial of that city's creditors.
San Bernardino and its creditors are due to appear before lead U.S. Bankruptcy Judge Meredith Jury for a status hearing May 8 in U.S. Bankruptcy Court in Riverside, Calif.
CalPERS appealed San Bernardino's eligibility to be in bankruptcy in U.S. Ninth Circuit Court of Appeals in December. On April 17, it asked for a continuance on the briefing schedule on that appeal. The judge granted the postponement, which moves the date for CalPERS to file an opening brief to May 19, with responding briefs from the city due June 20.
