Cle Elum filed a proposed Chapter 9 debt-adjustment plan on August 21, 2026, after obtaining a court order granting municipal bankruptcy relief. The proposal addresses judgment-related claims arising from the city's development dispute with City Heights Holdings. Proposed plan, p. 1Eligibility order
September filings shifted the case toward judicial settlement discussions. On September 30, 2026, the court appointed Bankruptcy Judge Christopher M. Klein to assist in resolving disputes among the city, City Heights and the official unsecured creditors' committee. September 23 minutes stated that the hearing related to confirmation in December would be rescheduled pending settlement negotiations. These filings establish the procedural posture through September 30; they do not establish approval of the proposed payment terms or a completed settlement. Settlement orderSeptember 23 minutes
U.S. Bankruptcy Court for the Eastern District of Washington
Case Number
25-01128-WLH9
Petition Date
June 24, 2025
Case Snapshot
The city's June 24, 2025 petition identifies it as a municipality seeking Chapter 9 relief. Voluntary petition, pp. 1–2
The plan separates gross and net judgment-related claims
The proposed plan defines City Heights' judgment-related claim at a gross amount of $26,415,746.00. It offsets that amount dollar for dollar by the allowed Class 8 Gordon Thomas Honeywell claim, yielding a net Class 9 City Heights claim of $23,947,376.84. The gross and net figures describe the proposed claim structure; they are not amounts promised for distribution. All amounts are in U.S. dollars. Proposed plan, § 1.17, p. 3
Bankruptcy also changed the developer's collection position. A November 6, 2025 stipulated judgment avoided the prepetition garnishment writs and recorded judgment lien. It directed cooperation in releasing garnished funds and unfreezing city accounts, and stated that the avoided lien no longer attached to the city's real property. The August plan consequently describes City Heights' claim as wholly unsecured. Avoidance judgment, pp. 2–3Proposed plan, §§ 1.15–1.17, p. 3
Tax measures and general-fund finances
The city's disclosure statement identifies two enacted sales-and-use-tax measures: a 0.1% transportation-benefit-district tax and an additional 0.1% public-safety tax. It also identifies an extension of the volunteer fire department tax levy. The filing states that these enacted measures do not require further voter approval to be in effect. A further 0.1% transportation-benefit-district sales-and-use tax described in the proposal requires voter approval. Disclosure statement, p. 6
The disclosure statement reports 2025 general-fund revenue of $4,734,633 and spending of $4,916,550, a deficit of $181,917. It reports a year-end general-fund book balance of $434,925. These historical figures show the city's budget constraints, but do not establish future creditor recoveries. Disclosure statement, p. 13
Cle Elum cleared the eligibility challenge
The judgment arose from a November 2011 development agreement. According to the city's disclosure statement, an arbitrator found that the city breached the agreement and awarded $22,230,175 on November 5, 2024. The award was entered as a King County Superior Court judgment in December 2024. A supplemental attorney-fee and cost award followed in January 2025, and an amended judgment was entered on May 12, 2025, before the bankruptcy filing. Disclosure statement, pp. 14–15
City Heights sought dismissal based on alleged bad faith in seeking bankruptcy relief. After evidentiary hearings in May 2026 and closing arguments in June, the court overruled the objection in its entirety on June 24, 2026. The order granted Chapter 9 relief. Eligibility order, pp. 1–2
In its July 14 opinion, the court found that the city owed a debt it could not pay, had made serious efforts to negotiate a consensual resolution, and faced collection activity during mediation. The court concluded that the city had filed in good faith and rejected the contention that the adjudicated contractual breach itself established bad faith in seeking bankruptcy relief. Memorandum opinion, pp. 12–14
September filings set up a settlement process
The eligibility ruling allowed the case to proceed; it did not confirm the August plan. On September 17, the court struck the disclosure-statement approval hearing at the city's request and converted it to a status conference. The September 23 minutes recorded the parties' request for a settlement judge and stated that the hearing related to confirmation would be rescheduled pending negotiations. September 17 minutesSeptember 23 minutes
The September 30 order appointing Judge Klein authorizes the parties to schedule, prepare for and participate in settlement conferences. It requires any resulting settlement terms to be reduced to writing or recited and agreed to on the record. The appointment establishes a process for seeking agreement, without establishing settlement terms or creditor distributions. Settlement order, ¶¶ 1–3 and 7
Sources
Proposed plan, p. 1 /documents/219a377d-b2c8-4b0a-8f6e-edf36954b81b/
Eligibility order /documents/a97fa5f5-face-4e30-8709-aa8ac2f63483/
Settlement order /documents/094512a7-29a0-48a8-8044-8e80a1dd522d/
September 23 minutes /documents/ce1d6545-5f67-4a63-8a2e-44facdf74b39/
Voluntary petition, pp. 1–2 /documents/c1aa58fe-98e3-4ae6-91a2-a2d0a844745a/
Avoidance judgment, pp. 2–3 /documents/876bab4f-6acd-45c1-87ca-0153de2e84a4/
Disclosure statement, p. 6 /documents/5b0ebca5-9100-45f9-a03d-61890468e321/
Memorandum opinion, pp. 12–14 /documents/1cce17d1-0a86-4e48-97d6-f7f45b24b539/
September 17 minutes /documents/ee8f082d-3211-4948-a88e-558fbb1dfb46/
This article was researched and written with AI assistance, using court filings, public records, and news sources. AI-generated content can contain errors. Verify all information against primary sources before relying on it. This is not legal or financial advice. See the disclaimer.