No Decision in Oakland-SunCal-Lehman Fight Over Oak Knoll



Officials in the the Oakland City Attorney's office can take a break from their battle with bankrupt megabank Lehman Brothers now that a judge in southern California has delayed hearings on Lehman's Chapter 11 restructuring plans for twenty stalled real-estate ventures.

The plans, containing language that would prohibit Oakland from enforcing its most basic constitutionally mandated police powers at the 167-acre former Oak Knoll Naval Hospital, were scheduled to go before Santa Ana-based judge Erithe A. Smith of the U.S. Bankruptcy Court on November 5. But in an unexpected move, Smith on October 29 stayed the hearing and ordered Lehman and developer SunCal — its former land-use partner — into mediation.

Details of the decision became available late last week.

Lehman and SunCal have been engaged in an ugly struggle in the courts since dozens of the developer's Lehman-backed land ventures began entering bankruptcy protection in November 2008. The two parties have proposed rival restructuring plans, with SunCal seeking a cash-only auction to pay off secured creditors while downgrading Lehman's priority access to the proceeds. Lehman's plan puts the bank itself in charge of the 17 stalled projects that have not been combined with other ventures or foreclosed since the bankruptcies were filed.

Until now, SunCal has not fared well against Lehman, failing to get permission from the New York court overseeing the bank's massive bankruptcy to propose its ideal restructuring plan in the California case. On October 22, Smith denied a SunCal request for plan hearings to be delayed. But Smith's October 29 reversal comes at SunCal's behest, and the developer's attorney, Skip Miller of Los Angeles firm Miller Barondess — which is also handling SunCal's lawsuits against the city of Alameda — championed the decision as a victory for his side.

"We have been suggesting mediation for several months," Miller told the Dow Jones Daily Bankruptcy Review. "We wholeheartedly support the order because we want to stop the litigation, stop the maneuvering and work toward a resolution to get the many creditors paid off."

Details of last Friday's hearing on mediation specifics have not yet been made available, but Smith's October 29 decision orders the two parties to begin formal mediation before February 11 of next year.