National Public Finance Guarantee Corp., the bond insurer fighting the biggest U.S. pension fund in two California municipal bankruptcies, must find a new law firm to represent it in San Bernardino’s case, a judge ruled.
U.S. Bankruptcy Judge Meredith Jury granted a request by the California Public Employees’ Retirement System to ban Winston & Strawn LLP from representing National Public in the Chapter 9 case. Jury agreed that Winston & Strawn had a conflict that couldn’t be resolved because the firm hired an attorney who worked for Calpers in the bankruptcy cases.
Winston & Strawn argued in court papers that it should be allowed to continue representing National Public because the firm had established internal policies to prevent the attorney from sharing information about Calpers.
“No matter how good the ethical wall is, there will always be a sense that there is a fox in the henhouse,” Jury said during a hearing in U.S. Bankruptcy court in Riverside, California. Jury is overseeing the bankruptcy of San Bernardino, where Calpers and National Public have taken opposing positions.
The Winston & Strawn attorney had been employed in the Charlotte, North Carolina, office of K&L Gates, the law firm representing Calpers in the Stockton and San Bernardino bankruptcies.
National and other creditors have complained that Stockton officials were trying to force them, but not Calpers, to take less than they are owed. The same disputes will have to be resolved in the San Bernardino case, the pension fund said.
San Bernardino was the third California city to file for bankruptcy last year. The city of about 209,000 people, about 60 miles (100 kilometers) east of Los Angeles, said a fiscal emergency, brought on by a $46 million budget shortfall, forced it to stop paying some creditors and seek court protection.
The case is In re San Bernardino, 12-bk-28006, U.S. Bankruptcy Court, Central District of California (Riverside).