San Bernardino City Hall

Ryan Hagen, Staff Writer
Posted: 12/21/2012 12:08:19 PM PST

RIVERSIDE – San Bernardino scored a victory in bankruptcy court Friday, as Judge Meredith Jury refused a motion by CalPERS that would have allowed the pension giant to sue in state court for millions of dollars in payments the city has stopped making.

She said she was inclined to think at least $13 million in payments the city plans to defer until July 2013 are legally required, but the harm to the city would be overwhelming.

“One of the immediate effects of that would be that the employees would not be paid, and that, to me, is a death knell for the city of San Bernardino, and an immediate one,” she said at a hearing in U.S. Bankruptcy Court in Riverside.

There likely would be eventual harm to CalPERS if the payments weren’t made, she said, but based on evidence available so far she said she believed the city’s claims that it didn’t have the money to maintain essential services and stay current in its CalPERS payments.

“I don’t think there’s really anyone in the room who thinks the city isn’t broke,” she said.

CalPERS’ lawyers argued against that point, saying they suspect the city has assets and money in places such as the water fund.

“We support the city’s efforts to try to restore financial stability,” said attorney Michael Gearin. “…I’m not sure it is all that devastating.”

Jury sided with the city in refusing to lift the stay that prevents people from suing the city during bankruptcy in most circumstances, but left CalPERS the option to later argue the stay should be lifted for other reasons.

And CalPERS reserved the right to go directly to a state court to argue it deserved to be paid despite the stay, a strategy Jury said would violate precedent set by the 9th Circuit Court of Appeals.

“I will be highly disappointed if you go to a state court,” she said.

CalPERS would follow the law, but it wanted to check its options before committing, Gearin said.

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