By Chris Reed

As John Seiler pointed out here Tuesday, Monday’s court ruling by U.S. Bankruptcy Judge Christopher Klein isn’t seen as definitive. Yes, the city of Stockton can proceed with its bankruptcy filing. No, Klein doesn’t yet agree with the city’s plan to only short bondholders and not CalPERS, its biggest creditor, as it reorganizes under Chapter 9 of federal bankruptcy law. He explicitly said later that he will decide on its fairness later.

But did Klein make one crucial point in his ruling and comments from the bench? Maybe, and I’m not the only one who thinks so.

Consider this: Every newspaper advance story that I saw before last week’s hearings in Klein’s court spoke of the centrality of the CalPERS argument that promised pensions were protected by the state Constitution, which should take precedence over federal bankruptcy laws which allow federal courts to modify contracts that bankrupt entities have with their creditors.

Pension preservation: State law vs. federal law

So did the most sophisticated legal analysis of Stockton’s pension-protection proposal that I read before Klein’s April 1 ruling. It appeared in January on the Bankruptcy Law Insights blog and was written by bankruptcy expert Ben Feder:

“The issues at stake — whether California state laws protecting public employee pension obligations are pre-empted and superseded by Congress’s Article I, Section 8 authority to establish uniform laws regarding bankruptcy, or are protected under the Tenth Amendment — implicate fundamental issues of federalism, and in all likelihood the Supreme Court will eventually need to resolve the questions being raised regarding the proper balance between state and federal power … .

“The [most] complicated question is whether priorities for unsecured claims created under state law — particularly regarding obligors that are themselves governmental units — can trump the distribution mechanisms of the U.S. Bankruptcy Code, and the Code’s underlying purpose of providing similar treatment for similarly situated creditors. Numerous states in addition to California have varying degrees of protection for public employee pension obligations. (Rhode Island, on the other hand, recently took the opposite tack and enacted a law that gave priority to bondholders in the Central Falls Chapter 9 cases.)

“Calpers will argue that the preference under California law for public employee< pension obligations is protected under the Tenth Amendment. San Bernardino’s bond investors will argue that the Bankruptcy Code expressly sets forth the priority of certain types of unsecured claims, that no other unsecured claims are entitled to more favorable treatment, and that California law regarding public employee pension obligations is pre-empted by the Supremacy Clause of the Constitution.”

‘Powers not delegated to the U.S. are reserved to the states’

What is the relevance of the Tenth Amendment? This is from CalPERS’ counsel:

“The Tenth Amendment provides that the ‘powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states … or to the people.’ This is no minor addendum to the Bill of Rights; this amendment reflects the federal structure of our government.

“This structure allocates and ultimately provides limits on the powers of dual sovereigns — the federal government and the governments of the States. The Tenth Amendment and the principles of federalism preserve the integrity and residual sovereignty of the States, and ensure that the States function as political entities in their own right.”

But at least based on published accounts, the knotty question of deferring to the California Constitution’s pension protections or interpreting the Tenth Amendment to the U.S. Constitution as preserving the state’s decision-making authority on such matters didn’t seem knotty at all to bankruptcy Judge Klein.

Klein depicted CalPERS as a “garden-variety creditor” -– not one in a protected class.

He also said that going forward, he “is going to have a difficult time confirming a [bankruptcy reorganization plan] over the objection of unfair discrimination.” That’s a reference to Wall Street bondholders’ objecting to CalPERS being insulated from any of the pain facing other creditors. That’s another way of saying he rejects the idea that CalPERS is in a protected class.

Complex question — or not even a close call?

So instead of being a complex, challenging legal issue, Klein doesn’t appear to see this as a close call at all: Federal bankruptcy law supersedes the California Constitution, and the Tenth Amendment doesn’t shield CalPERS either.

I welcome any counter interpretation in the comments. And I acknowledge that an appeals court could completely disagree with Klein and go in another direction.

But I also think there is a chance that April 1, 2013, is remembered as a turning point in how Chapter 9 allows local governments to deal with their immense pension debts. We’ll see.

By Steven Greenhut

SACRAMENTO — Some Oakland residents are furious that on the same day a gunman murdered seven people this week at the private Oikos University in the city, SWAT teams raided a different educational institution less than a mile away, where only peaceful activities were being conducted.

Federal agents also showed up at the home of Richard Lee, owner of this second private school, Oaksterdam University, and the sponsor of a nearly successful 2010 California ballot measure denounced by the feds during the initiative campaign.

This is something that should have been seized upon by the Republican presidential candidates. It had all the elements found in the common GOP narrative about President Barack Obama. How many times have we heard that Obama is obliterating states’ rights, shredding the Constitution, abusing his authority to punish political enemies, backing away from campaign promises and misallocating federal resources?

And yet the Oaksterdam raid April 2 incited virtually no response from GOP activists and candidates. Why? Oaksterdam teaches students the cannabis trade — growing marijuana to serve California’s medical pot industry, which voters authorized and which had been flourishing until crackdowns by the Obama administration contributed to driving many dispensaries out of business. Lee’s 2010 initiative, Proposition 19, would have legalized marijuana in California.

Republicans won’t stand up for the right of California to enforce a set of laws that the GOP candidates find offensive, regardless of their fealty to states’ rights when it comes to the national health care law and other issues.

“The raid demonstrated the ongoing tension between the federal government and states/municipalities willing to permit some marijuana use,” reported the International Business Times. “Medical marijuana is legal in California, and Oakland offered a glimpse of what broader legalization might look like by passing laws to tax and regulate dispensaries. But the federal Controlled Substances Act holds that cannabis is a dangerous drug with no medical value, ranking it alongside substances like heroin and mescaline.”

Broken vows

Despite his campaign vows to make marijuana enforcement a low priority, the president has stepped up raids on these clinics and has been remarkably successful — if one considers tormenting sick people, shutting down tax-paying businesses, confiscating private property and threatening to jail people a success. In the Sacramento area, where I live, these clinics were common. I would see small pharmacies, where customers would go to purchase their “medicine,” and the world went on without incident.

Oakland officials encouraged the development of the cannabis industry, viewing it as a tax-generating enterprise that provided extra money for public services including policing. I’ve driven by these shops in Oakland and they are far less problematic than the liquor stores that dot that crime-plagued city.

Marijuana foes have argued, despite strong evidence to the contrary, that medical marijuana is a sham — that cannabis has no medical properties, and that the state’s law is a fancy “work around” federal drug laws. That’s a position born of ignorance.

I recall a debate on the Orange County Board of Supervisors a few years ago. That board approved the issuance of medical-marijuana cards after one supervisor explained how the drug helped a cancer-stricken relative.

We shouldn’t have to rely on personal experience to make us do the right thing. Freedom-loving people should be willing to let other people and their doctors make these decisions. I don’t pry into the types of sleeping pills a doctor might prescribe for my neighbors. Yet there’s something about marijuana that drives people crazy — a form of reefer madness that afflicts drug warriors rather than pot smokers.

Medicine

No doubt, it’s easy to get a medical-marijuana physician recommendations in California.

Many people with such documents suffer nothing worse than anxiety. One answer, then, would be more stringent medical requirements for medical pot, not to send paramilitary officials into peaceful businesses. The best answer would be to eliminate the sham altogether by legalizing marijuana, which would provide a tax windfall and take a bite out of the Mexican drug cartel profits. It’s not as if pot smokers can’t easily buy marijuana on the black market.

Conservatives from an earlier era — i.e., William F. Buckley Jr. and Milton Friedman — championed drug legalization. They understood that the drug war undermined freedom and civil liberties.

Unlike today’s religious right moralists and statists, these conservatives understood that government crackdowns do not make problems go away. Legalization is the best way to control something. As the cliché goes, one doesn’t see Budweiser dealers shooting each other in the streets over territorial disputes.

Rick Santorum, who admits to smoking marijuana in college, trashed former presidential contender Rick Perry after Perry said that marijuana is a states-rights issue. It’s hard to believe that society would have been better served by having Santorum spend a decade in jail for drugs rather than moving on to the U.S. Senate from Pennsylvania. (Given some of his votes, I might stand corrected!) Mitt Romney rejects liberalized marijuana laws and walked away from a medical marijuana patient who questioned him about it. (See YouTube below.)

Obama pretends to be a civil libertarian, but has authorized the crackdown.

These people are not serious or consistent. Whenever I bring up this constitutional matter, I’m barraged by “Cheech and Chong”-like reefer jokes, as if that’s a substitute for an argument.

Despite their rhetoric, Republicans believe in the freedom of Americans to live any way they choose to — as long as that way conforms to the preferences of Republicans. They believe in states’ rights as long as the states do things approved by the federal government, which is the same thing that Democrats believe in, except that the Democrats use different language to justify their authoritarian impulses.

In other words, don’t expect the Oaksterdam outrage – or serious discussions of freedom and states’ rights — to become a focal point of the presidential race.