CalPERS filed an amicus brief in the 6th U.S. Circuit Court of Appeals in Cincinnati regarding the city of Detroit's bankruptcy case.
Lawyers for the $289.1 billion California Public Employees' Retirement System, Sacramento, filed the brief May 1 in support of appeals to the court arguing against its decision that Detroit is eligible to declare bankruptcy by the Committee of Retirees of the City of Detroit and other parties, confirmed CalPERS spokesman Brad Pacheco, in an e-mail.
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.
“As a friend of the court, CalPERS sought to inform the 6th Circuit about several important statutory and constitutional issues that the bankruptcy court's decision did not give full attention to,” Mr. Pacheco said.
The CalPERS brief's three basic arguments about Mr. Rhodes' ruling are:
- that 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.”
CalPERS has significant experience with Chapter 9 bankruptcy cases, having been involved in at least seven such cases, including those of the California cities of Stockton and San Bernardino, which are ongoing, the brief stated.
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 the court rule that the bankruptcy court was right in ruling that Detroit is eligible for Chapter 9 bankruptcy protection.
“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.
The CalPERS amicus brief can be accessed on the pension fund's website.