SACRAMENTO, Calif. Jan 30 The U.S. judge
hearing the bankruptcy case of Stockton, California ruled on
Wednesday the city does not need court approval to settle a
$55,000 claim, a plan contested by capital market creditors
and backed by the state's pension fund.
Chief Bankruptcy Judge Christopher Klein said the federal
Chapter 9 municipal bankruptcy code does not allow courts to
tell cities seeking protection from their creditors how to use
their property and revenues.
Klein said Stockton maintains financial independence, which
includes opting to pay to settle a claim against its police
department, a blow to creditors seeking his help to influence
the broke city's financial choices.
Stockton, a city of nearly 300,000 in an agricultural region
east of the San Francisco Bay area, last year became the biggest
U.S. city to file for bankruptcy.
The move triggered a lengthy and testy fight with Stockton's
financial markets creditors. The U.S. bankruptcy court must
still determine whether Stockton is eligible for Chapter 9
bankruptcy protection before the city may restructure its
finances under court supervision.
Bond insurers with more than $350 million of exposure to
Stockton's debt have been contesting the city's regular payments
to the state pension fund, the California Public Employees'
Retirement System, best known as CalPERS. In the meantime,
Stockton halted halting payments to some bondholders.
CalPERS General Counsel Peter Mixon said he was pleased with
Klein's ruling but declined to elaborate.
CalPERS in December suffered a setback in court in Southern
California when a U.S. bankruptcy judge ruled against its
attempt to bypass the bankruptcy court and collect overdue
pension payments from the city of San Bernardino, which also
filed for Chapter 9 bankruptcy protection in 2012.
Attorneys for Stockton's capital markets creditors, which
include Assured Guaranty Corp and its Assured Guaranty
Municipal Corp unit and MBIA unit National Public Finance
Guaranty Corp, are contesting the city's Chapter 9 filing in
U.S. Bankruptcy Court for the Eastern District of California in
The Stockton case number is: 2012-32118