A Tale of Two (Bankrupt) Cities

June 1, 2013 – In The News
California Lawyer

Michael Sweet was quoted in the California Lawyer article "A Tale of Two (Bankrupt) Cities." While the full text can be found in the June 2013, issue of California Lawyer, a synopsis is noted below.

After delivering his findings at a hearing last April in Stockton’s Chapter 9 proceeding, U.S. Bankruptcy Judge Christopher Klein addressed the legal status of the California Public Employees Retirement System (CalPers).

Bond insurers had forced a trial to determine whether the city was eligible for bankruptcy, leaving pensions statewide to rise or fall depending on the answer.

The message may have been directed at San Bernardino, which declared bankruptcy last summer, but avoided meeting with creditors by declaring a fiscal emergency.

“It’s really a tale of two cities,” says Michael A. Sweet. “These two cases are potentially precedent-setting, so both CalPERS and the bond insurers are spending big money on the litigation.”

Sweet believes CalPERS is trying to avoid a ruling on the big issues, such as, the Supremacy Clause and preemption of state laws, in both cases. “The worst thing for CalPERS would be a court ruling that it is a ‘garden-variety creditor,’” he says. “They don’t want to run that risk. The status quo works well for them. If the economy recovers, people may forget all about the pension crisis.”

Sweet cautions, “Judge Klein planted the seed for a ruling, warning that he will not allow a plan of adjustment to go forward with discriminating treatment between equally situated creditors.”