May 1 Calpers, the country's largest pension
fund, said on Thursday that Detroit's bankruptcy court was wrong
to rule state law does not apply to bankrupt municipalities, a
ruling that removed protection for the city's pension fund.
In a brief filed with the U.S. Court of Appeals for the
Sixth Circuit, California Public Employees' Retirement System
(Calpers) said the bankruptcy court misconstrued the Tenth
Amendment and the limitations it places on a state's ability to
consent to violations of state laws and constitutional
Detroit entered an $18 billion bankruptcy proceeding in
December. Judge Steven Rhodes, who is overseeing the case, ruled
that state law did not apply to the bankrupt city and pensions
would be treated the same as other obligations.
Michael Sweet, a municipal bankruptcy attorney in San
Francisco, said Calpers has a lot at stake in how public
pensions are treated in the Detroit bankruptcy, especially if
the city's public pensions end up being cut.
"While not binding on a bankruptcy judge in California, a
decision by the 6th Circuit court in Detroit would certainly be
persuasive to a judge applying the same federal bankruptcy law
in a California case," Sweet said. "Furthermore, the next step
after the 6th Circuit court in Detroit is the U.S. Supreme
Court. If the Supreme Court ever rules on this, it would be the
law of the land binding on all courts, including those in
In Stockton, Cali., another city in Chapter 9, the proposed
plan to exit bankruptcy would leave pensions untouched. During a
status hearing on Thursday, U.S Bankruptcy Court Judge
Christopher Klein said his decision in Stockton's bankruptcy
"would be just one more example on how Chapter 9 cases can go,"
and that if anyone really wanted to tackle pensions, "the U.S.
Supreme Court would be involved."
Stockton's "exit plan" trial is scheduled to begin on May
(Reporting By Robin Respaut; Additional reporting by Tim Reid.
Editing by Andre Grenon)