Federal judge upholds CSD bankruptcy plan in Osos

A federal judge has upheld the bankruptcy plan for the Los Osos Community Services District.

The district filed for bankruptcy protection in August 2006 to hold off creditors while it figured out how to deal with an estimated $45 million in debts, fines and claims resulting from the district’s decision to halt construction of a sewage treatment and collection system.

The March 26 decision by U.S. District Court Judge Manuel L. Real resolves all of the lawsuits and claims arising from the failed sewer project and ends more than six years of legal proceedings, said Marshall Ochylski, president of the Los Osos services district.

The plan had been approved by a bankruptcy court but was appealed by one of the construction companies hired to build the failed sewer project, Monterey Mechanical. The company wanted to recoup a greater percentage of its claims against the district.

Under the settlement, the district will pay in full the holders of bonds issued in connection with the sewer project as well as loans the district has taken out to pay for improvements to water systems and other property. Payments to contractors, such as Monterey Mechanical, are limited to between 35 percent and 40 percent.

The district will not have to pay any of the fines levied by the Regional Water Quality Control Board or to the State Water Resources Control Board for loans it made to the district to build the sewer system, Ochylski said.

“Through hard work and persistence, the district was able to get the appeal of its plan approval denied and continue to move forward to provide the services its residents deserve without the distraction of the bankruptcy,” he said.

This story was originally published April 3, 2012 at 8:27 PM with the headline "Federal judge upholds CSD bankruptcy plan in Osos."