A federal judge in California disqualified Winston & Strawn from additional work on the city of San Bernardino’s bankruptcy proceedings on Thursday, ruling that the firm has an insurmountable conflict.
U.S. Bankruptcy Judge Meredith Jury in Riverside sided with the California Public Employees’ Retirement System, which accused Winston of hiring away K&L Gates attorneys who had worked on the bankruptcy case for CalPERS. Winston represents National Public Finance Guarantee Corp., a bond insurer and rival of CalPERS in the ongoing battle over San Bernardino’s assets.
Jury said Winston could set up an effective confidentiality screen to distance the former K&L Gates attorneys from the firm’s ongoing bankruptcy work, according to Michael Sweet, a Fox Rothschild partner who monitored Thursday’s hearing in Riverside by telephone. But Jury concluded that Winston could not overcome the attorneys’ potential breach of duty to CalPERS under California Rules of Professional Conduct, Sweet said.
"There was really no way that the screen could address that duty of loyalty," Sweet said.
Jury also declined Winston’s request to stay her order, Sweet said.
In separate bankruptcy proceedings involving San Bernardino and Stockton, CalPERS has argued that the cities must legally continue making full payments to the pension fund unless they choose to pay enormous termination fees. But debt holders and insurers like National Public say that if they must accept less than their owed by the city, CalPERS should as well.
"CalPERS believes the court made the correct decision," CalPERS spokeswoman Amy Norris said in an email. "Winston & Strawn has a conflict of interest and was properly disqualified from representing National Public Guarantee."
Messages left with Winston & Strawn were not returned Thursday afternoon.
CalPERS’ motion to remove Winston & Strawn from the city of Stockton’s bankruptcy case is scheduled to be heard July 2 in Sacramento.