In Re County of Orange

MEMORANDUM OPINION

Under California state law, certain government entities may choose to deposit, or are required to deposit, their excess funds into the county treasury. The county treasurer may then invest these funds in a variety of securities. Acting pursuant to these statutes, the Orange County Treasurer, Robert L. Citron (the “Treasurer”), combined the funds he received from various participating entities into a commingled investment pool, a commingled bond investment pool, and a specific investment account (collectively, the “OCIP”). By December 1994, 190 municipal entities had invested approximately $7.6 billion in the OCIP.

The Treasurer’s investment strategy for the OCIP was risky, volatile and lacked liquidity. It revolved around the Treasurer’s bet that interest rates would not rise in 1994. This proved incorrect and on December 6, 1994, Orange County (the “County”) and the OCIP filed separate chapter 9 petitions in bankruptcy.

Later, three OCIP participants, Yorba Linda Water District (“Yorba Linda”), Special District Risk Management Authority (“SDRMA”), and Huntington Beach (“Huntington Beach”) and Merrill Lynch & Co., Inc. (“Merrill Lynch”) (collectively, the “Mov-ants”) filed motions to dismiss the OCIP case (the “Motions”). Movants contend that the *597 OCIP ease should be dismissed because the OCIP has not satisfied the jurisdictional requirements for a chapter 9 debtor.

After a hearing on March 28, 1995, I took the dismissal question under submission.

JURISDICTION

This court has jurisdiction over this bankruptcy case pursuant to 28 U.S.C. § 1334(a) (1995) (the district courts shall have original and exclusive jurisdiction of all eases under Title 11), 28 U.S.C. § 157(a) (1995) (authorizing the district courts to refer all Title 11 cases and proceedings to the bankruptcy judges for the district) and General Order No. 266, dated October 9, 1984 (referring all Title 11 cases and proceedings to the bankruptcy judges for the Central District of California). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (0) (1995).

STATEMENT OF FACTS

The Treasurer is a separately elected officer of the County. Cal. Gov’t Code §§ 24000(f) and 24009. He is responsible for receiving and safekeeping all monies belonging to the County and all other funds directed by law to be paid to the Treasurer. Cal. Gov’t Code § 27000.

California state law requires that all excess funds of certain governmental entities be held by the Treasurer. E.g., Cal.Educ.Code § 41001 (all monies received by school districts); Cal.Bus. & Prof.Code § 6320 (all monies received by law libraries). Other public entities, such as cities and special districts, may also deposit their excess funds into the County treasury if authorized by their governing boards. E.g., Cal.Gov’t Code § 6505.5 (funds of entities created by joint powers authorities); Cal.Pub.Util.Code § 40096 (funds of the Orange County Transit District). These deposits may then be accepted by the Treasurer for investment. 1 Once these funds are deposited into the County treasury, the Treasurer may invest 2 in a variety of securities, including U.S. Treasury Notes, bonds and reverse repurchase agreements (“reverse repos”). Cal.Gov’t Code §§ 53601 and 53635. On February 2, 1988, the County Board of Supervisors (the “Board”) adopted Resolution No. 88-134 which authorized local agencies to deposit their excess funds in the County treasury (the “Resolution”). By December 1994, 190 municipal entities had invested approximately $7.6 billion in the OCIP. California Bureau of State Audits, Report on Orange County Treasurer’s Investment Strategy, at 3 (March 1995).

The Treasurer combined the funds he received from these entities into the OCIP. 3 Id. at 2. This pooling arrangement allowed for the purchase of large denominations of securities that provided higher yields than those available to smaller investors. Id.

The Treasurer’s investment strategy for the OCIP “was risky, volatile and lacked liquidity.” Id. at 9. This strategy involved leveraging or borrowing billions of dollars against the OCIP to obtain cash for invest *598 ments, 4 thereby dramatically increasing the OCIP’s risk to interest rate changes. Id. at 13. For example, as of November 30, 1994, the County’s leveraging strategy magnified the impact of an interest rate change on the base portfolio 2.7 times. Id.

Using the funds obtained through leveraging, the Treasurer often purchased derivatives known as inverse floaters. 5 Id. at 19. Inverse floaters are highly sensitive to changes in interest rates. The OCIP held at least $6.6 billion of these derivatives (32% of the total portfolio). Id. By investing heavily in inverse floaters, the Treasurer bet that interest rates would remain low or fall. Id.

The Treasurer’s strategy was also risky because he purchased long-term securities with short-term borrowings. Id. at 20. This strategy forced the OCIP to continually borrow at current short-term rates until the long-term security matured. 6 Id. at 21. Thus, as short-term rates rose, the spread decreased and eventually disappeared. Id. at 22.

The practice of borrowing short and buying long further exposed the OCIP to an increased risk of collateral calls. Id. at 22. “When a broker lends money under a reverse repo, the broker requires collateral in excess of the amount lent to protect its interest.” Id. If the market value of the collateral declines, the broker can send a collateral call to the borrower requiring additional assets to secure the borrower’s interest. Id. Collateral calls adversely affect a securities portfolio by draining cash, requiring the deposit of additional collateral or forcing the premature liquidation of the collateral. Id.

As stated, the Treasurer’s investment strategy revolved around his prediction that interest rates would not rise. Id. at 3. By early 1994, however, interest rates began rising sharply. As interest rates rose, the value of the collateral pledged to secure the OCIP’s reverse repos dropped. Id. This created two problems. First, the market value of the OCIP portfolio plummeted. Id. Second, lenders began making collateral calls that the OCIP could not meet. Further, these lenders refused to renegotiate or renew existing reverse repos. On December 6, 1994, faced with the prospect of the liquidation of the OCIP portfolio by lenders, the County and the OCIP filed chapter 9 petitions in bankruptcy.

In response, Yorba Linda, SDRMA and Merrill Lynch 7 filed the Motions. Later, Huntington Beach joined the moving parties. Movants contend that the OCIP ease should be dismissed because: (1) the OCIP is not an *599 entity; (2) the OCIP is not a municipality; (3) the OCIP has not been specifically authorized by the State of California to file chapter 9; (4) the OCIP is not insolvent because it has no debtor/creditor relationship with the OCIP participants; (5) the OCIP did not negotiate in advance with its creditors; and (6) the petition was not filed in good faith because the OCIP is a legal fiction created for the sole purpose of filing bankruptcy.

The County argues that the OCIP case should not be dismissed because the OCIP is eligible for chapter 9 relief and the case was filed in good faith.

At a hearing on March 28,1995,1 took the matter under submission to determine whether to dismiss the OCIP case.

DISCUSSION

Pursuant to § 921(e) of the Bankruptcy Code 8 (the “Code”), the court may dismiss a chapter 9 petition “if the debtor did not file the petition in good faith or if the petition does not meet the requirements of [§ 109(c)].” Although the language of § 921(c) is permissive, the case law indicates that § 921(c) “must be given a mandatory effect if the defect in the filing is in the debtor’s eligibility to file Chapter 9.” 4 Collier on Bankruptcy ¶ 921.04 at 921-7 (L. King. 15th ed. 1994); see also In re Sullivan County Regional Refuse Disposal Dist., 165 B.R. 60, 83 (Bankr.D.N.H.1994) (“The debtors in the present case have failed to establish the requisites for Chapter 9 relief ... under § 109(e) ... and therefore their petitions must be dismissed_”). The burden of proving eligibility under § 109(c) is on the party filing the petition. In re City of Bridgeport, 129 B.R. 332, 339 (Bankr.D.Conn.1991).

The OCIP is an entity.

Pursuant to § 109(e), a debtor must be an “entity” before it is eligible to file chapter 9. 9 Merrill Lynch contends that the OCIP is not an entity, but rather a legal fiction created on the eve of the filing for the sole purpose of filing chapter 9.

In response, the OCIP contends that it existed long before the petition date and was treated as a separate entity by Merrill Lynch and other entities, including over 200 investor participants. The OCIP points out that it was formed pursuant to a group of statutory provisions (e.g., Cal. Gov’t Code §§ 53684, 53601 and 53635) that authorize the Treasurer to receive and invest the excess funds of various agencies. Acting in accordance with these statutory provisions and the Resolution, the Treasurer set up and managed the OCIP. At the time of the filing, the OCIP had outstanding accounts for 190 participants aggregating approximately $7.6 billion. These funds were invested and managed by the Treasurer for the benefit of participants. Moreover, several financial institutions, including Bank of America, First Interstate Bank of California and Dai-Ichi Kango'Biarik* of California, had entered into contracts to" invest funds in the OCIP prior to the petition date. Even Merrill Lynch has admitted the separate existence of the OCIP in this case. 10

Under Code § 101(15), an “entity” includes a “person, estate, trust, governmental unit, and United States Trustee....” It is the *600 most inclusive of the various defined terms relating to bodies or units. H.R.Rep. No. 595, 95th Cong., 2nd Sess. 311 (1978) U.S.Code Cong. & Admin.News 1978, p. 5787, 6268. An entity is also defined as “a real being ... an existence apart.” Black’s Law Dictionary 582 (6th ed.1990). “Being” is defined as “something that actually exists.” Webster’s Ninth New Collegiate Dictionary 141 (9th ed.1990).

Here, the OCIP did exist. It was comprised of three separate commingled funds— an investment pool, a bond investment pool and a specific investment account. California Bureau of State Audits, supra, at 2. The OCIP borrowed funds from various financial institutions, purchased securities and transferred securities as collateral for loans. Moreover, the OCIP liquidated its assets, distributed funds and provided accountings to its participants. These facts establish that the OCIP existed before the bankruptcy and was not a legal fiction created solely to file chapter 9.

The OCIP is also an entity because it is a governmental unit. Code § 101(27) defines a “governmental unit” as including an “instrumentality of ... a municipality_” Clearly, the County is a municipality under the Code. 11 The term “instrumentality” is defined as “something by which an end is achieved....” Black’s Law Dictionary 801 (6th ed.1990).

The Treasurer is an officer of the County who was directed under Cal. Gov’t Code § 27000 to receive and invest funds. The Treasurer established the OCIP to maximize the investment return for participants and used it as the vehicle to carry out his statutory mandate. The County had oversight and control responsibilities over the OCIP through its supervisory control over the Treasurer. 12 Accordingly, the OCIP is an instrumentality of the County 13 which, in turn, makes it a governmental unit. Because by definition a governmental unit is an entity, the OCIP is an entity under the Code.

The OCIP is not a municipality.

Section 101(40) states that a municipality “means political subdivision or public agency or instrumentality of a State.” Merrill Lynch argues that no enactment of the California legislature creates or establishes the OCIP as a political subdivision, public agency or instrumentality of the State of California. Moreover, the County does not have the inherent power to create the OCIP. Finally, the OCIP does not have the characteristics of a municipality.

The OCIP responds that the OCIP is the product of state statutes. Furthermore, as an instrumentality of the County, it is a “municipality” within the meaning of the Code.

The rules of statutory interpretation dictate that the court must first look to the language of the statute. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989) (“where ... the statute’s language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ” (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917))). In Toibb v. Radloff, 501 U.S. 157, 162, 111 S.Ct. 2197, 2200, 115 L.Ed.2d 145 (1991), the Supreme Court held that “[w]here, as here, the resolution of a question of federal law *601 turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear.” Moreover, where the language of a statute is not ambiguous, legislative history need not be considered. Tennessee Valley Authority v. Hill, 437 U.S. 153, 184 n. 29, 98 S.Ct. 2279, 2297 n. 29, 57 L.Ed.2d 117 (1978).

The Code does not define the terms “political subdivision, public agency, or instrumentality of a State.” The case law offers little guidance in this area. 14 Absent further definition, the boundaries of these terms are unclear, creating an inherent ambiguity as to what is and is not a municipality. The definition of a municipality in § 101(40) is, therefore, ambiguous.

Because the proper application of this statutory language is unclear, the legislative history of § 101(40) must be examined. The language of § 101(40) is nearly identical to the language in § 84 of the 1976 municipal bankruptcy legislation. 15 Section 84 generally categorized a list of entities contained in § 81 of the 1937 Bankruptcy Act (the “1937 Act”). 16 The Code change was “intended to broaden the applicability of Chapter IX as much as possible.” ELR.Rep. No. 686, 94th Cong., 2nd Sess. 20. (1975). Certainly, the term “municipality” should not be narrowly construed. This does not mean, however, that any entity under governmental control is a municipality. See generally United States v. Turkette, 452 U.S. 576, 581, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981) (statutes should be construed to avoid absurd results). The legislative history of § 101(40), although helpful, does not set the limits for inclusion in these broad categories of “political subdivision, public agency or instrumentality of a State.”

*602 Because neither the plain language of the statute nor its legislative history answers the question with sufficient clarity, the next step is to examine the bankruptcy practice that existed prior to the addition of § 101(40). The Supreme Court has indicated that it “will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.” Pa. Dep’t of Public Welfare v. Davenport, 495 U.S. 552, 563, 110 S.Ct. 2126, 2133, 109 L.Ed.2d 588 (1990) (citations omitted). Moreover, “when congress amends the bankruptcy laws, it does not write on a clean slate.” See Dewsnup v. Timm, 502 U.S. 410, 419, 112 S.Ct. 773, 779, 116 L.Ed.2d 903 (1992). Accordingly, without a clear directive from Congress to the contrary, this court should follow prior bankruptcy law.

The first question is what is a “political subdivision.” Section 81(7) defines political subdivision as “any county or parish or any city, town, village, borough, township, or other municipality....” 17 The common thread that ties these entities together is their ability to exercise various sovereign powers such as the power to tax, the power of eminent domain or the police power. See supra, n. 15.

Here, the OCIP has neither sovereign power delegated to it by the State of California, nor does it have by its existence some inherent sovereign power to act. Instead, the OCIP is the creation of the County and the Treasurer. It is an investment vehicle formed by the County and administered by the Treasurer to receive, commingle, invest, hold, account for and distribute funds of the participants who are authorized by state law to deposit their excess funds with the Treasurer. The OCIP does not possess the characteristics of a sovereign, unlike the entities in § 81(7), nor is it similar in any other respect to the political subdivisions described therein. Accordingly, the OCIP is not a political subdivision.

Turning to the term “public agency,” § 81(6) describes public agencies as “incorporated authorities, commissions, or similar public agencies organized for the purpose of constructing, maintaining and operating revenue producing enterprises.... ” Section 81(6) was added to the 1937 Act in 1946. The legislative history of this section indicates that the 1937 Act did not adequately address revenue bonds 18 “because they were not an important factor in municipal financing at the time.” H.R.Rep. No. 2246, 79th Cong., 2d Sess. 2 (1946). By the 1940’s, however, revenue bond financing became increasingly popular. Id. The development of this type of financing

brought into existence a new type of municipality known as an authority. In some instances they are called commissions or districts, but essentially they are all of the same character that is, a public agency authorized to construct or acquire a revenue-producing utility and to issue bonds for such purpose payable solely out of the revenues derived from the utility.

Id.

Based on the foregoing, the OCIP is not a public agency as that term is used in § 81(6) because the OCIP was not organized for the purpose of maintaining or operating a revenue producing enterprise. Moreover, the OCIP does not finance its operations by issuing bonds of any type. Accordingly, I find that the OCIP is not a public agency within the meaning of § 101(40). 19

*603 The last question is whether the OCIP is an “instrumentality of a State.” Sections 81(1) — (5) describe several kinds of instrumen-talities including various types of local improvement districts such as a public school district “organized or created for the purpose of constructing, maintaining, and operating public schools and public school facilities” or a port district “organized or created for the purpose of constructing, maintaining, and operating ports and port facilities.” The characteristics and objectives of the OCIP have nothing in common with the characteristics and objectives of these several entities described in § 81. The OCIP is, therefore, not an instrumentality of the State of California.

The OCIP also argues that because it is an instrumentality of the County and the County is a political subdivision of the State of California, the OCIP is an instrumentality of the State and, therefore, a municipality.

This is incorrect for three reasons. First, Congress could easily have written § 101(40) to include instrumentalities of a County, public agency or political subdivision but it did not take that step. 20 Second, this leap in logic presents potential Constitutional problems because it would reduce state control over those entities entitled to file chapter 9. Lastly, interpreting § 101(40) this way would blur the boundaries surrounding the term “municipality” to the extent that any entity set up by a political subdivision or public agency could qualify for chapter 9. I am unwilling to accept this leap of faith without a clearer indication that Congress intended this result.

Because the OCIP is not a political subdivision, public agency or instrumentality of the State of California within the meaning of § 101(40), the OCIP is not a municipality.

The OCIP was not specifically authorized to file chapter 9.

The next requirement under § 109(c) is that the OCIP be specifically authorized to file chapter 9. Section 109(c)(2) states that an entity may be a debtor under chapter 9 if such entity “is specifically authorized, in its capacity as a municipality or by name ... to be a debtor under such chapter by State law_” Once again, the first step in statutory interpretation is to look at the language of the statute. I am unaware of any published case interpreting this language. Section 109(c)(2) is ambiguous regarding what is required for specific authorization and the degree of specificity. Accordingly, it is unclear from the statute how this requirement should be applied.

Turning to the legislative history of § 109(c)(2), prior to the Bankruptcy Reform Act of 1994 (the “1994 Act”), § 109(c) required that an entity be “generally authorized” to file bankruptcy. 21 The House Report to the 1994 Act indicates that the courts split whether this provision required, express statutory authorization. H.R.Rep. No. 835, 103rd Cong., 2nd Sess. 45-46 (Oct. 4, 1994) U.S.Code Cong. & Admin.News 1994, pp. 3340, 3353-3355. 22 In those cases not requiring express authorization, the courts found *604 the right to file bankruptcy by inference from the general powers that the municipality possessed, such as the power to control finances and the power to sue and be sued. 23

In contrast, those courts requiring express authorization to file chapter 9 did not imply such power. For example, in Carroll, 119 B.R. at 62, the court cited the legislative history of section 109(c)(2) for the proposition that “absent ... a requirement for affirmative action by the state, a serious constitutional question would be raised in connection with the Tenth Amendment.” citing S.Rep. No. 989, 95th Cong., 2d Sess., reprinted in 1978 U.S.C.C.A.N. 5787, 5896-97. 24 See also Matter of North & South Shenango Joint Mun. Auth. 14 B.R. 414 (Bankr.W.D.Pa.1981) rev’d 80 B.R. 57 (W.D.Pa.1982). 25

To remedy the split in the courts, Congress amended § 109(c) to require specific authorization. In other words, the courts could no longer find the requisite authorization for the filing by implication. The amendment requires that the state give the municipality express authority to file. Express authority is defined as “[t]hat which confers power to do a particular identical thing set forth and declared exactly, plainly, and directly with well-defined limits.” Black’s Law Dictionary 581 (6th ed.1990). Since a state acts by statute, the authorization obviously would be recorded in writing. It also must be exact, plain, and direct with well-defined limits so that nothing is left to inference or implication.

Despite the need for specificity, I see no reason why the state authorization can not be *605 by specific category. For example, the statute could authorize all “municipalities” as defined in the Code to file bankruptcy. As previously noted, the Code defines municipalities by categories. The state statute could also name the specific entities within certain categories. That was the approach previously taken in the 1937 Act by § 81. In either ease, the authorization would appear to be sufficiently specific. 26

The State of California has expressly authorized certain entities to file bankruptcy. Cal. Gov’t Code § 53760 provides that: “Any taxing agency or instrumentality of this State, as defined in Section 81 of the act Congress entitled ‘An act to establish a uniform system of bankruptcy throughout the United States approved July 1, 1898 may file_The OCIP argues that this language illustrates California’s intention to authorize every California municipality to file bankruptcy so long as that municipality is eligible under federal law. This is too broad an interpretation of § 53760. Section 53760 was passed in 1949 and specifically refers to § 81 in the form it was in at that time. Section 81 is quite specific as to the type of entities that can file under chapter 9. As previously discussed, § 81 includes a laundry list of public entities that are authorized to file bankruptcy. See supra n. 15. However, § 81 does not refer to an investment fund. In fact, no specification even comes close.

The OCIP argues that in § 81(7) the language “or other municipality” can encompass the OCIP. But, that language is clearly a reference to other political subdivisions that might not be listed in that category. For the reasons previously stated, the OCIP is not a political subdivision.

Accordingly, the OCIP has not been specifically authorized to file chapter 9.

The OCIP is insolvent.

Section 109(c)(3) requires that an entity be insolvent to qualify as a chapter 9 debtor. An insolvent municipality is one that is either not paying, or unable to pay, its debts when they come due. 27

Movants argue that the OCIP is not insolvent because the OCIP has no “debts” and the OCIP participants are not “creditors.” Instead, according to Cal Gov’t Code § 27100.1 the OCIP is a trust. 28 Therefore, the OCIP assets belong to its participants, and no debtor-creditor relationship exists between the OCIP and its participants.

Movants’ argument, however, ignores the Code’s broad definition of claim and creditor. Pursuant to Code § 101(5)(A), a “claim” is defined as a right to payment. 29 The legislative history of the Code indicates that Congress intended to provide the broadest possible definition of “claim.” See H.R.Rep. No. 595, 95th Cong., 1st Sess. 309 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6266. A creditor is defined by Code § 101(10)(A) as an *606 entity that has a claim against the debtor. 30 These terms were addressed by the Ninth Circuit in Danning v. Bozek (In re Bullion Reserve of North America), 836 F.2d 1214 (9th Cir.1988), cert. denied, 486 U.S. 1056, 108 S.Ct. 2824, 100 L.Ed.2d 925 (1988). In Bullion, Bullion Reserve of North America (“BRNA”) engaged in a Ponzi scheme, where it purported to buy and hold bullion on behalf of investors. Id. at 1216. Debtor did not fulfill its purchasing obligations but, instead, commingled investor funds and deposited them into its general bank accounts. Id.

Bozek, who was a program investor for three years, liquidated his account and received $212,138.60 in bullion. Id. Forty-two days later, BRNA filed for bankruptcy relief. Id. Subsequently, BRNA’s bankruptcy trustee brought an action against Bozek under Code § 547 to recover the bullion as a preferential transfer. 31 Id.

Bozek argued that the bullion he received was not property of the debtor because the agreement he entered into with BRNA created an express trust under California law. Id. at 1217. The court disagreed because the evidence did not show that BRNA intended to assume the duties of a trustee. Id. at 1218. Moreover, even if an express trust had been created, Bozek could not enforce the trust without tracing his funds to purchased bullion. Id. Because Bozek could not trace, the bullion was considered property of BRNA. Id.

Bozek also argued that he was not a creditor of BRNA because he was paid in full on demand. Id. at 1218. The Ninth Circuit disagreed and held that Bozek immediately became a creditor when he transferred funds to BRNA because: (1) at that moment, he had a right to demand bullion; (2) this right, although unmatured, was a “claim” under the Code; and (3) an entity with a claim is a “creditor.”

Bozek further argued that the transfer was not on account of an antecedent debt because BRNA never owed him anything until the bullion transfer. Once again, the Ninth Circuit disagreed: “A debt is defined as a ‘liability on a claim’. 11 U.S.C. § 101(11) (1982). The terms ‘debt’ and ‘claim’ are coextensive. When a creditor has a claim against the debtor, the debtor owes a claim to the creditor.” [citations omitted]. BRNA accrued a debt when Bozek accrued a claim. The transfer was, therefore, on account of an antecedent debt.

Based on the foregoing, the OCIP is a debtor for two reasons. First, the Bullion case holds that the trust question does not determine the existence of a claim. Instead, a participant obtained a claim upon the transfer of funds to the OCIP irrespective of the existence of the trust. Id. Simultaneously, the OCIP has a debt on that claim, thereby creating a debtor-creditor relationship.

The OCIP also has debts to its participants even if the OCIP is a trust because participants cannot trace their funds in the OCIP. In general, a claimant to a commingled trust fund bears the burden of ascertaining and tracing the trust property. 32 Elliott v. Bumb, 356 F.2d 749, 754 (9th Cir.1966). If the funds are dissipated and cannot be traced, then the claimant stands in the position of a general creditor with regard to those funds. Kupetz v. United States (In re California Trade Technical Schools, Inc.), 923 F.2d 641, 648 (9th Cir.1991).

Finally, the OCIP is unable to pay its debts as they come due. The OCIP has suffered a $1.7 billion loss. The OCIP does not have the ability to generate revenues or satisfy all the withdrawal requests of the *607 OCIP participants. I, therefore, find that the OCIP is insolvent.

The OCIP has satisfied the 109(c)(4) requirement.

The next issue is whether the OCIP desires to effect a plan to adjust its debts. Merrill Lynch contends that the OCIP cannot effect an adjustment plan because it has no debts to adjust. As shown above, however, this argument fails because the OCIP does have debts that could be the subject of an adjustment plan. Furthermore, the OCIP has proposed a comprehensive settlement agreement (the “CSA”) with its participants and taken other steps that show a desire to effectuate a plan of adjustment of its debts as required by § 109(c)(4). 33

The impracticality exception to good faith negotiations before filing applies.

The next step is to determine whether the OCIP has satisfied at least one of the requirements of § 109(e)(5). 34 The SDRMA contends that the OCIP has not complied with § 109(c)(5) because it failed to negotiate in good faith with its creditors pri- or to the filing of its chapter 9 petition. This argument ignores an exception to this requirement if negotiations are impracticable. Section 109(e)(5)(C). Congress enacted § 109(c)(5)(C) specifically “to cover situations in which a very large body of creditors would render prefiling negotiations impracticable.” Sullivan County, 165 B.R. at 79 n. 55. 35 The impracticality requirement may be satisfied based on the sheer number of creditors involved. See In re Villages at Castle Rock Metro. Dist. No. 4, 145 B.R. 76, 85 (Bankr.D.Colo.1990) (“It certainly was impracticable for [debtor] to have included several hundred Series D Bondholders in these conceptual discussions.”).

Section 109(c)(5)(C) is directly applicable here where the OCIP has over 200 participants and hundreds of accounts with many complex accountings. Additionally, the event *608 that caused the filing was the demand of lenders for additional collateral, which the OCIP could not meet, and the threat of liquidation of its portfolio. The OCIP had no time to enter into negotiations with its participants before acting to protect its portfolio assets.

The OCIP petition was filed in good faith.

Turning to the issue of whether OCIP’s petition was filed in good faith. Pursuant to § 921(c), the court has discretion to dismiss a petition if it finds that the petition was not filed in good faith. Sullivan County, 165 B.R. at 79. Good faith in the chapter 9 context is not defined in the Code and the legislative history of § 921(c) sheds no light on Congress’ intent behind the requirement. Id. at 80. The courts have, therefore, applied to chapter 9 cases the judicial reasoning that developed in chapter 11 cases. See, e.g., Id. at 81; Castle Rock, 145 B.R. at 81 (“Determining whether a [chapter 11] petition has been filed in good faith requires an evaluation of a debtor’s ‘financial condition, motives, and the local financial realities.’ These comments would appear to be equally applicable, at least in part, to a Chapter 9 petition.”) (citations omitted).

The Ninth Circuit test for good faith in a chapter 11 case is whether the debtor is attempting to unreasonably deter and harass its creditors or attempting to effect a speedy, efficient reorganization on a feasible basis. In re Marsch, 36 F.3d 825, 828 (9th Cir.1994), citing In re Arnold, 806 F.2d 937, 939 (9th Cir.1986). Moreover, the purpose of the filing must be to achieve objectives within the legitimate scope of the bankruptcy laws. Id.

In this context, the OCIP filed its petition in good faith. No evidence has been presented that the OCIP filed for illegitimate reasons. The OCIP filed to protect its assets and allow it the opportunity to work out an adjustment of its debts in an orderly way. H.R.Rep. No. 595, 95th Cong., 1st Sess. 263 (1977) (general policy of chapter 9 is to give a debtor a breathing spell from debt collection efforts so that it can work out a repayment plan with creditors); Commodity Credit Corporation v. Tarnow (In re Tarnow), 35 B.R. 1014, 1017 (N.D.Ind.1983) (two major purposes for bankruptcy are to give the debtor a fresh start and provide for a fair and orderly distribution of assets among creditors) rev’d on other grounds 749 F.2d 464 (7th Cir.1984). Nothing in the record indicates that the OCIP has attempted to unreasonably deter and harass its creditors. Rather, from the beginning, the OCIP has moved quickly toward resolving its problems. The CSA that was proposed within four months of the filing demonstrates that the OCIP has moved quickly to deal with a very difficult and complex case.

Merrill Lynch argues that the case should be dismissed because the County had objectives other than reorganization when it filed its petition. Those objectives were allegedly as follows: (1) to put the County’s funds out of its reach, thereby exacerbating, or even creating the County’s insolvency; (2) to gain control over the allocation of losses suffered by the OCIP, thereby favoring the County’s interests at the expense of the other participants; (3) to use the bankruptcy process as a leveraging tool to coerce the OCIP participants to settle their claims; and (4) to forestall being called to account to the OCIP participants for the losses, and, at the same time, to force the non-County participants to join the County in its litigation against Merrill Lynch.

The OCIP responds that this case was filed in good faith as shown by the following: (1) this case provides a distinct forum in which to resolve various claims to the OCIP funds; (2) the case will allow the funds to be distributed in an orderly fashion; (3) the OCIP has moved quickly to resolve the case; and (4) none of the OCIP participants have raised a good faith objection to the filing.

Merrill Lynch has submitted no evidence of a bad faith filing. The reasons for the filing of this case have been well documented. As previously discussed, protection of assets and resolution of claims that exceed the value of the OCIP assets are good and valid reasons for the filing. Although the County may have had some doubts as to whether the filing could satisfy all the requirements of 109(c), it had reasonable legal arguments why the filing should be upheld. Its strategy *609 that a separate filing by the OCIP might facilitate the quick disbursement of funds from the OCIP proved correct. This was not a bad faith calculation.

What are the effects of dismissal?

Now that it has been determined that this case should be dismissed, the OCIP Committee conditionally requested in its response that the court affirm all orders in the ease pursuant to § 349(b). 36 The main objective of § 349(b) is to undo the bankruptcy case and, as far as practicable, restore all property rights to the position they occupied at the commencement of the ease. H.R.Rep. No. 595, 95th Cong., 1st Sess. 338 (1977). However, § 349(b) expressly reserves to the bankruptcy court “the power to alter the normal effects of the dismissal of a bankruptcy case if c