Audience listening intently to speakers at the Moratorium NOW! Coalition public hearing on the role of the banks in the destruction of Detroit. The gathering attracted people from throughout the area. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
July 24, 2013 at 3:57 pm
Judge says orders 'enhance the likelihood of a Chapter 9 reorganization' for Detroit
Robert Snell, Mike Wilkinson and Chad Livengood
Detroit News
Detroit — A federal judge has frozen all lawsuits against the city, a move that clears the path for the future of Detroit’s historic Chapter 9 filing to be decided in bankruptcy court.
U.S. Bankruptcy Judge Steven Rhodes issued his order Wednesday after hearing two hours of arguments from lawyers representing the city and creditors who alleged the bankruptcy filing was not valid and was designed to slash retiree benefits.
“My orders enhance the likelihood of a Chapter 9 reorganization, speeds the bankruptcy case and cuts costs to taxpayers,” Rhodes said.
The judge also decided that an automatic stay triggered by Detroit’s Chapter 9 filing extends to Emergency Manager Kevyn Orr, Gov. Rick Snyder and members of the restructuring team as well as state Treasurer Andy Dillon.
But the judge did not rule that Detroit is eligible to file Chapter 9. A decision on that will come later.
Rhodes also did not rule whether Snyder was prohibited from authorizing the city’s bankruptcy filing, which proposes to slash constitutionally protected pension benefits.
Also, any further appeals would be made to U.S. District Court, not the 6th U.S. Circuit Court of Appeals.
Orr spokesman Bill Nowling said he was pleased with Wednesday’s ruling by the court.
“This clears the way so we can proceed in an orderly fashion with bankruptcy proceedings and restructuring Detroit,” Nowling said afterward. “One thing that was clear was that Judge Rhodes mentioned ... he wanted an efficient and speedy process, and we think that’s essential for turning the city around and we think that was important, and that’s why we’re happy with the ruling today so that we can move forward.”
American Federation of State, County and Muncipal Employees lawyer Michael Artz said he would meet with the union’s legal team before deciding whether to appeal.
“All options are on the table,” Artz said after the hearing. “Nothing that was said in court today changes the fact that Gov. Snyder’s authorization of a bankruptcy was unconstitutional as far as pensions are concerned.”
His colleague, AFSCME attorney Sharon Levine, is looking ahead to a fight over whether the state constitution can be trumped in federal bankruptcy court.
“We think the bankruptcy judge was very careful to make it perfectly clear that he’s keeping open the issue with regard to whether or not the filing of this bankruptcy case violates the Michigan Constitution in regards to pension,” Levine said.
Wednesday’s ruling is the opening salvo of a legal protracted battle between Orr and the city’s unsecured creditors, who are owed $11.5 billion, in the country’s biggest municipal bankruptcy case.
The city’s Chapter 9 filing has drawn intense scrutiny from creditors and governments throughout the country for implications on the nation’s municipal bond market and the sanctity of public pension funds.
But during arguments Wednesday morning, city lawyers argued Detroit would be “irreparably harmed” if retirees were able to block the Chapter 9 filing.
City lawyer Heather Lennox argued the city would be “prevented from accessing necessary protections” of a Chapter 9 bankruptcy filing.
Retirees and city pension fund lawyers have been trying to fight the bankruptcy case because, they say, the filing is trying to violate constitutional protections of vested pension benefits. Union lawyers argued the city’s bankruptcy filing is also flawed because it is designed to slash retiree pension benefits.
Attorney Robert Gordon, who represents the city’s pension funds, made the argument during Wednesday’s hearing in the municipal bankruptcy filing case, which attracted dozens of lawyers, reporters and protesters to the federal courthouse in downtown Detroit.
“There simply has not been a valid bankruptcy petition,” Gordon told Rhodes.
The Chapter 9 filing is trying to override the state constitution, which protects vested pension benefits, added Levine, the attorney who represents Michigan Council 25 of the AFSCME, and AFL-CIO.
“The filing is arguably flawed because it is going after pensions,” Levine told Rhodes.
State residents “have an absolute right to protect their constitutional rights,” she added.
Rhodes himself appeared at ease Wednesday. After a UAW attorney joked about placing a bet, he fired back.
“We don’t permit that,” Rhodes joked.
Earlier, Lennox urged Rhodes to block the lawsuits against Orr, Snyder and members of the restructuring team. According to a city attorney, Orr was in the federal court building on Wednesday. Lenno said the automatic stay triggered by Detroit’s bankruptcy filing should be extended to the public officials and members of Orr’s team.
Orr’s legal team wanted Rhodes to take over three state court lawsuits filed by retirees, current city workers and Detroit’s pension funds. Attorneys for labor unions and the city’s two pension funds have argued the bankruptcy filing endangers earned pension benefits for nearly 20,000 retirees and 10,000 current city workers in violation of the state constitution.
“That kind of activity needs to stop,” Lennox told the judge.
Chief U.S. District Judge Gerald Rosen also will mediate in the case, according to a federal court filing, which states: “Chief Judge Rosen may, in his discretion, direct the parties to engage in facilitative mediation, under his direction, with such other mediators as he may designate. The fees and expenses of any such mediators shall be shared by the parties as directed by Chief Judge Rosen.”
Ahead of and after the hearing, protesters were outside the federal courthouse. Labor unions, religious leaders and liberal political action groups also are planning an afternoon rally outside the courthouse on West Lafayette Boulevard to protest potential cuts to pensions.
On Monday, Rhodes ordered extra security and restricted access for Wednesday’s hearing, limiting creditors to two attorneys apiece in the first-floor courtroom. A scheduling conference in the bankruptcy proceedings is scheduled for Aug. 2.
Staff writers Darren A. Nichols, Steve Pardo and Christine Ferretti contributed.
From The Detroit News: http://www.detroitnews.com/article/20130724/METRO01/307240058#ixzz2a1dBbnUt
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