The California Public Employees’ Retirement System, the nation’s largest public pension, makes frequent appearances in Legal affiliate The Am Law Litigation Daily as a lead plaintiff in securities class actions. But late Tuesday, CalPERS made an unprecedented move in a very different venue: the municipal bankruptcy of San Bernardino, Calif. In an 11-page filing, CalPERS’ lawyers at K&L Gates asked a federal bankruptcy judge in Riverside, Calif., for permission to sue San Bernardino for falling behind its contributions for municipal employee benefits. News of the filing was first reported by Reuters.
San Bernardino, a city of about 200,000 that sits a few miles east of Los Angeles, has been deferring its pension payments to CalPERS since just before it entered Chapter 9 bankruptcy proceedings in August. According to CalPERS, the city owes $5.9 million in back payments under California labor laws. “By failing to timely make the required contributions, the city is undermining the actuarial soundness of the pension plan and threatening its employees’ ability to obtain their vested contractual right to pension benefits,” the K&L Gates lawyers wrote in Tuesday’s brief.
CalPERS asked U.S. Bankruptcy Judge Meredith Jury to lift a stay on litigation in the bankruptcy so that it can file suit against the city in state court. The K&L Gates lawyers argued that as an arm of the state of California, the pension fund doesn’t need the court’s permission to sue. But they wrote that CalPERS opted to file the motion “out of an abundance of caution.”
The Litigation Daily reached out to Michael Lubic at K&L Gates, who directed it to his client. A CalPERS spokesperson said the pension did not have to take similar action in two prior municipal bankruptcies in California. The city of Stockton, Calif., currently in Chapter 9 proceedings, has continued to make payments to CalPERS, as did Vallejo, Calif., which exited bankruptcy in August 2011.
Reuters reported Wednesday that the city’s bondholders and insurers have indicated they intend to challenge CalPERS’s position in the front of the line among creditors in the San Bernardino case, the first where a city has decided to halt its CalPERS payments.
The city of San Bernardino is represented by bankruptcy counsel at Stradling Yocca Carlson & Rauth.