CALPELRA Alert: City Can Sever Its Contract With
CalPERS In Bankruptcy
In today’s verbal ruling, two years after Stockton filed for bankruptcy, U.S. Bankruptcy Judge Christopher Klein ruled the City of Stockton has the right to sever its contract with CalPERS.
 
For the first time, a judge in California has said a city or county can walk away from its CalPERS obligations.  Essentially, Judge Klein determined that the state law takes a back seat to the federal bankruptcy code and the U.S. Constitution.  CalPERS has argued that the relationship between Stockton and CalPERS is governed by state law that makes it extremely difficult to sever, even in bankruptcy.
 
CalPERS and the City say chaos would ensue if the city doesn’t pay CalPERS in full. Default would occur, and the City would either have to make a one-time payment of $1.6 billion to keep its pensions intact or watch CalPERS slash pension benefits by 60 percent. The City believes the result would be a mass exodus of employees.
 
After Judge Klein’s oral opinion, CalPERS issued the following statement to its stakeholders:

“Federal bankruptcy Judge Klein has opined that pensions can be impaired during federal bankruptcy proceedings.  Although not legally binding on any of the parties in the Stockton case or as precedent in any other bankruptcy proceeding, his opinion is already generating news and commentary from others watching the outcome.  We at CalPERS are still awaiting his ruling this afternoon on the City of Stockton’s Plan of Adjustment which would enable them to emerge from bankruptcy proceedings and will keep you posted on that as well.”
  
“We disagree with the Judge’s opinion on the issue of pension impairment.  This ruling is not legally binding on any of the parties in the Stockton case or as precedent in any other bankruptcy proceeding and is unnecessary to the decision on confirmation of the City of Stockton’s plan of adjustment. CalPERS will reserve any further comment until such time as the court renders its final written decision. What’s important to keep in mind is what the City of Stockton stated in court today: that they can’t function as a city if their pensions are impaired.”
This Alert summarizes a significant recent court case, arbitration decision, legislation, or other important information.  The Alert format is not intended as a periodic review of all significant cases, but instead provides labor relations practitioners with key information for immediate guidance in day-to-day activities.
CALPELRA President:  G. Scott Miller, Ventura Port District
Alert No. 14-27,  Author:  M. Carol Stevens, Burke, Williams & Sorensen
The information contained in this publication is not intended to constitute professional counsel or a legal opinion. Although we consider the information to be timely and accurate, there is no substitute for personal counsel with a professional. Provided with specific facts, your attorney can fashion a solution sensitive to your needs.
Facebook
Twitter
LinkedIn
Copyright © 2014 CALPELRA (California Public Employers Labor Relations Association), All rights reserved.