CalPERS filed an amicus brief in the 6th U.S. Circuit Court of Appeals in Cincinnati on Thursday regarding the city of Detroit’s bankruptcy case.
Lawyers for the $289.1 billion California Public Employees’ Retirement System, Sacramento, filed the brief in support of appeals arguing against the court’s decision that Detroit is eligible to declare bankruptcy by the Committee of Retirees of the City of Detroit and other parties, said CalPERS’ spokesman, Brad Pacheco, in an e-mail.
“The bankruptcy court’s ruling in Detroit took an overly simplistic view of the complex issues surrounding the ability to impair pensions in Chapter 9, and CalPERS believed its views on the matter would assist the 6th Circuit in coming to a correct decision,” Mr. Pacheco wrote.
The amicus brief argued that U.S. Bankruptcy Court Judge Steven W. Rhodes, who is presiding over Detroit’s Chapter 9 bankruptcy case, was wrong in his ruling that “once a state authorizes its subdivisions to file bankruptcy, the state’s laws and constitution no longer control the actions of the municipal debtor,” according to a CalPERS news release.
The CalPERS brief’s three basic arguments about Mr. Rhodes’ ruling are:
- giving federal law precedence over state law was not “absolutely necessary” to determining whether Detroit is eligible to seek bankruptcy protection;
- it nullifies Section 903 of the Bankruptcy Code that specifically preserves state laws governing municipalities even in a bankruptcy proceeding; and
- it decided a constitutional question “not because it was unavoidable, but because it believed that putting the issue behind would facilitate negotiations and administration of the case.”
The amicus brief differentiated between Detroit’s pension system, which was created by the city charter and is run by the city, and CalPERS, which was created by state charter and acts as an arm of the state of California.
CalPERS’ lawyers went on in the brief to ask the Court of Appeals to issue a “narrow holding, taking into account the difference between state-run pensions and municipal-run pensions, given the different roles states and municipalities play in our constitutional plan,” should it rule the bankruptcy court was right in ruling Detroit is eligible for Chapter 9 protection.
The CalPERS amicus brief can be accessed on its website.
“In basic terms, CalPERS believes the bankruptcy court’s decision was both unnecessary to its determination that Detroit was eligible for relief and misguided. By pointing both of these things out, CalPERS hopes the 6th Circuit will recognize that the bankruptcy court’s sweeping ruling was unnecessary and therefore vacate that portion of the opinion, or that it was wrong and reverse the court on that issue,” Mr. Pacheco said.