Here's the answer to the mechanism question I posed at the end of the last post. Some have suggested a 4-membered ring intermediate. While that cannot be ruled out, a mechanism that does not include the high strain of a bridged 4-membered ring seems more plausible.
Since this is an aminoacid, it will exist in it's zwitterionic form. Thus, the quaternary ammonium will not be acylated. The carboxylate is converted to a mixed anhydride. Then it undergoes a beta-elimination of the ammonium to open the 6-membered ring. This is followed by an acylation of the resulting amine to form the rearranged lactam.

This reaction was reported by Henry Rapoport (
JACS 1970,
92, 5781). He cites an older paper by Ferles (
Coll. Czech. Chem. Commun.,
1964,
29, 2323.
Update: As liquidcarbon points out in the comments, the free amine of the ring-opened intermediate above would likely be acetylated in refluxing acetic anhydride. Another possible route to the product would involve an intramolecular acylation forming a bridging 4-membered ring, followed by beta elimination. Possible, but I'm not sure how well the bridgehead hydrogen sigma orbital would overlap with the sigma star orbital of the C-N bond.