USDC S.D. California, February 10, 2012
A years-long political duel over whether California should control local government bankruptcies was resolved on October 9, 2011. Chapter 9 of the Bankruptcy Code provides specifically for the reorganization of cities and towns, taxing districts, municipal utilities, and school districts. California Governor Jerry Brown (D) signed legislation prohibiting local municipalities from filing for bankruptcy unless they first negotiate with creditors using a “neutral evaluation process” or vote to declare a fiscal emergency after a public hearing.
In a depressed economy wrought with defaulting developers, a lender in California facing a lien priority challenge should evaluate whether it would be worthwhile to secure a first priority position for its deed of trust through law and motion practice.
Numerous municipalities in California and elsewhere are struggling financially. Indeed, Harrisburg, Pennsylvania and Central Falls, Rhode Island have both recently filed for Chapter 9 protection. State governments may have neither the economic reserves nor the political will to bail out troubled cities and counties. These circumstances have raised the focus on Chapter 9 as a tool for reorganizing municipality debt obligations and has deepened the debate between states and their municipalities about the best strategies for addressing a fiscal crisis.
In re Summer View Sherman Oaks Apartments, LLC (Bankr. C.D. Cal.) Case no. 11-19800
On October 3, 2011, the California Supreme Court heard argument in Francis Harris et al v. Superior Court, Case No. S156555. The issue here is whether insurance adjusters should be eligible for overtime pay under California’s wage and hour laws.
In re Culver Village, LLC (Bankr. C.D. Cal.) Case no. 11-46359
The United States Bankruptcy Court for the Central District of California recently held that the filing of a bankruptcy petition by a borrower can void a trustee sale even where the petition is filed after the trustee sale, so long as the borrower files the petition before the execution of the trustee's deed upon sale. In re: Gonzales 2011 WL3328508 (Bkrtcy. C.D.Cal. August 1, 2011).
A recent ruling of the Bankruptcy Court for the Central District of California endorsed a path toward enforceability of prospective waivers of the automatic stay in certain circumstances. In short, such a waiver approved in a bankruptcy case may be enforceable in a subsequent bankruptcy case. This offers creditors a tactical opportunity to significantly better their position in such a subsequent case.