The nation’s largest public pension fund wants to bar Winston & Strawn from further work on bankruptcy proceedings involving the cities of Stockton and San Bernardino.
The California Public Employees’ Retirement System said Winston, which represents a bond insurance creditor in the two cases, lured away members of its K&L Gates counsel in what the fund’s CEO called "a very serious case" of "side-switching."
"Winston has a serious conflict of interest resulting from its hiring members of CalPERS legal team while representing an adverse party," said Anne Stausboll, CalPERS’ chief executive officer said in a prepared statement. "CalPERS is acting swiftly to ensure the interests of our members are not compromised."
A Winston & Strawn spokeswoman said there is "no basis" for CalPERS’ motions, filed Monday in the U.S. bankruptcy courts in the eastern and central districts of California.
"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," Jill Delaney Shea wrote in an email. "We will contest the motion vigorously and continue to represent National Public Finance Guarantee Corp."
CalPERS and a number of bond insurers are heavily involved in the cities’ legal efforts to stave off creditors. The pension fund maintains that Stockton and San Bernardino are legally bound to continue making full payments — unless they want to pay gigantic termination fees. But other debt holders have argued that if they must take a loss, CalPERS should have to as well. Those capital market entities say federal courts have the authority to cut the cities’ payments to the pension funds.
In its motions to disqualify Winston & Strawn, filed by The Sall Law Firm of Laguna Beach, CalPERS said two partners and two associates defected from K&L Gates’ restructuring and insolvency practice group in late April and early May. One of those partners was Felton Parrish, a "key lieutenant" in the Chapter 9 cases, according to the declaration of Michael Gearin, one of K&L Gates’ lead attorneys for CalPERS.
Parrish billed 366 hours on the cities’ bankruptcies, which included drafting multiple pleadings and having at least one conversation with CalPERS general counsel Peter Mixon, Gearin wrote.
When K&L Gates’ co-leader of the bankruptcy group, Jo Ann Brighton, announced on April 15 that she was leaving for Winston, Gearin said he warned her any attempt to take Parrish with her would be problematic.
"We discussed the importance of the Chapter 9 Cases to CalPERS, the high degree of sensitivity of the confidences that Mr. Parrish held and the contentiousness of the disputes between CalPERS and Winston’s client National [Public Finance Guarantee]," Gearin wrote. "I made it very clear that if Mr. Brighton that if Mr. Parrish chose to join Winston, his access to CalPERS confidential information would not be a conflict that I thought could or would be waived."
Parrish left K&L Gates for Winston on April 22.
A hearing to consider CalPERS’ motion to disqualify Winston from the San Bernardino bankruptcy case is scheduled for June 13 in Riverside. A similar motion involving Stockton’s proceedings will be heard in Sacramento on July 2.