On December 11, 2015, the US Bankruptcy Appellate Panel of the Ninth Circuit (BAP) dismissed an appeal filed by holdout creditor Franklin Templeton over the plan that enabled the City of Stockton, California (pop. 300,000), to exit bankruptcy. The BAP dismissed the appeal as equitably moot in light of the consummation of the transactions and payments contemplated by the plan of adjustment, noting that to "reverse the confirmation order at this point would have a potentially devastating impact on creditor constituencies."
However, recognizing that while confirmation could not be undone as to creditors, generally, the BAP ruled that on remand, the bankruptcy court might be able to fashion relief for Franklin. It therefore went on to consider the merits of the appeal and confirmed on all contested issues, including classification of claims, the City’s good faith and the best interest of creditors test.
Stockton filed for bankruptcy relief in June 2012, and its plan of adjustment was confirmed in February 2015. The plan enabled Stockton to restructure approximately $1.5 billion in liabilities, including the restructuring of over $250 million of capital markets debt, the elimination of approximately $550 million in unfunded retiree health benefits, and the achievement of significant compensation and benefits reductions from its nine labor organizations, including their agreement to reduce pension benefits for new employees, to fund a greater portion of their pensions and to eliminate health benefits for current employees.
Restructuring partner Marc Levinson, who served as the City’s lead bankruptcy counsel and who argued the appeal, noted that the decision marks an important step in Stockton’s continuing recovery from the foreclosure crisis that drastically reduced the City’s revenue, plunging it into insolvency. He expressed his thanks to the City Council and the City staff for their dedication and for their willingness to confront the real problems the City faced, and expressed his gratitude for the support he received from the team of Orrick lawyers who worked so hard on the case.