Bankruptcy Court Awards Partial Victory to San Bernardino

RIVERSIDE – On Friday, Judge Meredith Jury awarded San Bernardino a partial victory in Bankruptcy court as she refused CalPERS motion. This motion would have allowed them to sue in state court, for millions of dollars that the city was no longer making. According to Jury, even though payments worth at least $13 million are being deferred by the city till July 2013, the city would stand to lose too much if CalPERS won the case.

At a US Bankruptcy Court hearing in Riverside, she claimed that many employees would stop getting paid immediately which would be horrible for San Bernardino city. On the other side, she also admitted that CalPERS would face harm if their payments are not made but there was sufficient evidence to believe that the city really does not have the money to make the payments and maintain the services.

CalPERS’s lawyers, on the other hand, refute this belief by saying that the city has been maintaining funds and assets in places like the water fund. They also did not believe that the city’s financial position is all that devastating.

Jury on her part, has refused to lift the stay on all parties wishing to sue the city during a state of bankruptcy but she has allowed CalPERS to argue this lift at a later point in time. CalPERS also did not approach a state court for payment despite the lift mainly because it would go against the precedent set by 9th Circuit Court of Appeals. According to attorney Gearin, CalPERS would still want to explore its options but they would choose to follow the law. He believed that they were not trying to go around Jury’s court but they have to make reservation of California’s right to approach another court.

On the other side, the city was awarded partial victory which isn’t all good news for the city because first and foremost, it had legal as well as contractual obligations to pay CalPERS along with its other creditors. Therefore, Judge Jury strongly believed that San Bernardino would very soon have to figure out a well-balanced budget that would be successful in helping them get rid of bankruptcy.

Initially, Judge Jury did not wish to allow formal discovery which is their formal requirement to produce interviews and documents on the request of creditors. All of this, she apparently did to prove the city’s eligibility for bankruptcy even though, this formal discovery process was extremely difficult for the Finance Department of the city which is already understaffed.

Once formal discovery process was allowed, CalPERS made a list of all the documents it wanted from the city. A court document that listed 53 requests that CalPERS had made, out of which 11 had been granted, was also produced so that CalPERS could show that San Bernardino did not meet the bankruptcy requirements because they had filed in bad faith or they did not desire to adjust their budget. CalPERS attorney Michael Lubic believed that even though they are trying, the city has still not decided to adequately staff their Finance Department.

Judge Jury considered this testimony and then allowed for 60 days of formal discovery covering information from last year. Then the creditors and attorneys for the city privately decided not to agree upon anything but would meet again to discuss the discovery procedure.

On Friday, a number of community members and City Council and elected city officials attended the hearing and according to Mayor Pat Morris, this hearing was extremely important for the city. Experts will now be hired to help refinance and reorganize the budget and present a planned motion before Friday’s hearing.

Have You:

Been paying credit card balances that seem to never go down?

Lost your job and are now having trouble keeping up?

Attempted to work out a payment arrangement to no avail?

Been notified of a mortgage foreclosure action?

Been denied for a mortgage or other line of credit?

If the answer to any of these questions is “yes” then bankruptcy may be an option that you should consider.

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