TAHOMA, Calif. – The California Public Employees’ Retirement System has filed motions to remove the law firm Winston & Strawn LLP 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,” Anne Stausboll, CEO for the largest pension fund in the country, said in a statement Tuesday afternoon. “Winston has a serious conflict of interest resulting from its hiring members of CalPERS legal team while representing an adverse party.”
The pension fund said Winston hired at least four lawyers from K&L Gates, including one partner and two associates who had performed more than 500 hours of legal service for CalPERS.
It noted that switching sides in the same case is forbidden under California law.
Winston & Strawn denied it acted unethically and said it will contest the motion and continue to represent National.
“Winston & Strawn LLP complies with all legal and ethical standards in the representation of existing clients and with respect to adding new lawyers to the Firm,” its spokesperson Jill Delaney Shea said in an emailed statement Wednesday. “We believe there is no basis to disqualify the firm in the San Bernardino case, nor any other case.”
CalPERS, with $266 billion in assets, has had a prominent place, although so far on the sidelines, in the two Chapter 9 cases amid calls for cuts to pension payments in both Stockton and San Bernardino.
The bond firms in Stockton’s case, which include National, want to see CalPERS, which has been listed as the city’s largest creditor court documents, take a haircut along with them.
In San Bernardino, the city suspended its payments to the pension fund, and CalPERS has sought permission to sue the city outside the bankruptcy process for the missing payments..
A U.S. bankruptcy judge ruled in April that Stockton, a city of 300,000 in the Central Valley, was eligible for Chapter 9 bankruptcy protection - so far the largest city in the country to do so.
San Bernardino, a city of 213,000 60 miles from Los Angeles, is still waiting for a hearing on the eligibility question.
A hearing is set for June 5 on the city’s eligibility and motions made by CalPERS and two city employee unions seeking relief from bankruptcy’s automatic stay to sue in state court.