LOS ANGELES — The California Department of Finance has scored a win in its court battle with San Bernardino over money transferred to the city following the dissolution of its redevelopment agency.
U.S. District Court Judge James Otero ruled Friday that the bankruptcy court "erred in denying our Eleventh Amendment sovereign immunity arguments," said H.D. Palmer, a DOF spokesman.
Otero reversed the bankruptcy court's decision on Eleventh Amendment issues and remanded the case for further proceedings, according to the filing.
The state government shut down redevelopment agencies in 2012.
State officials contend that San Bernardino inappropriately held on to $15 million that belonged to the former city redevelopment agency and should be redistributed to school districts, special districts, and every other municipal entity that receives a split of property taxes, including the city itself.
In September 2013, San Bernardino filed a suit against the state in an attempt to use its ongoing bankruptcy case to win the redevelopment dispute with the state.
The city is one of many squabbling with the state about how to divide money after the dissolution of redevelopment agencies, but Chapter 9 bankruptcy puts San Bernardino in a unique position.
The city lost the first round when U.S. Bankruptcy Judge Meredith Jury ruled on Sept. 11, 2013 that the city and the successor agency to its redevelopment agency are separate entities, making it a non-bankruptcy court issue.
In that ruling, Judge Jury said in court documents that if the successor agency had a dispute with the state's Department of Finance, it should take the issue to state court. Jury also left the door open for the city to file before her a second time, which the city did.
It was her ruling on the second filing that Otero reversed.
Otero agreed that the city and successor agency are separate entities, which means the city has no standing to sue the state. He also found in favor of state on the 11th amendment, which protects state sovereignty.
"Proceeding forward would insert the Bankruptcy Court into a dispute between a state and a non-debtor municipal agency, even though the state agency's actions have no direct tie to the debtor's property and the [bankruptcy] court does not and never will have in rem jurisdiction over the disputed property," the judge ruled.
As a municipality, the city is a creature of state law, and the state can withhold, grant, or withdraw powers and privileges of its municipalities as it sees fit, Otero wrote.
