2005 Pension Fund Position – Bankruptcy Not An Option, With Advice

George R. Najjar

Bankruptcy is inappropriate under the law. The city should only pay the portion the city attorney determines to be fair, and let the pension fund or its beneficiaries sue for the difference, if the so dare. Then, all cards will be put on the table for the citizens of San Diego, sitting as a jury, will decide fault. If the city loses, then good faith negotiations between all parties will have to occur before the city will be absolutely be required to seek bankruptcy protection.

Analysis

To file for Chapter 9 Municipal Bankruptcy protection, the municipality must allege, among other things, that there were good faith negotiations with the creditors but those negotiations have irreparably broken down.

The pension fund is the main creditor, but due to corruption, there have been no negotiations whatsoever.

And even if there were negotiations, the Code requires those negotiations to be in good faith. Since the Pension Fund and unions won’t budge an inch on their positions, and since the fraud and collusion of their players contributing to the immediate budget crisis, there is no way they can successfully allege that they acted in good faith.

And I do not know of a procedure whereby a municipality can be involuntarily compelled into bankruptcy, so the pension board, beneficiaries or whomever could not force the city to seek bankruptcy protection.

Therefore, I suggest the city attorney determine what amount of fair payments should be made to the pension fund, and the city pay only that amount. The city can carry on its business around the pension lawsuit. The unions and pension fund can then sue the city for breach or declaratory relief as to the disputed amount. We can then put all the cards on the table in front of a jury and let the people of San Diego decide where fault lies, and ultimately whether bankruptcy is absolutely necessary.

(I do not believe we should hold the soldiers accountable for the acts of the generals. Workers who toil and play by the rules set by their superiors should not be punished. However, the city attorney should draw a line between innocent city workers and those who knew or should have known the pension benefits were the product of improper collusion.)