Protesters from the Detroit Fire Fighters Union gather in front of the Federal Court Building to protest pension cuts during a bankruptcy hearing on Wednesday July, 23 2013 in Detroit. / Andre J. Jackson/Detroit Free Press
Detroit firefighters gather in front of the Theodore Levin U.S. Courthouse to protest against the Detroit bankruptcy hearing Wednesday, July 24, 2013. / Kirthmon F. Dozier/Detroit Free Press
A federal judge dealt back-to-back wins today for Kevyn Orr’s effort to petition the nation’s largest municipal bankruptcy for Detroit on a day that brought emotionally charged reactions from protesters.
Saying the city would suffer irreparable harm if delays to its bankruptcy were upheld, U.S. Bankruptcy Court Judge Steven Rhodes denied attempts by lawyers for pension funds, unions and other creditors to halt Detroit’s Chapter 9 filing while the matter is being taken up by state courts in Michigan.
Rhodes said it’s clear that Orr, the state-appointed emergency manager, has the authority under state law to act as the official representative for Detroit in bankruptcy, and that matters of the city’s eligibility to enter bankruptcy should be decided in Rhodes’ courtroom, not in state courts.
The rulings put a stop to an earlier Ingham County Court ruling that Detroit shouldn’t proceed with bankruptcy until state courts decide whether the filing violates Michigan’s constitutional protections of public pensions.
■ Related story: Protesters gather before Detroit’s bankruptcy hearing today
“Dammit I'm mad!” said a visibly irritated Belinda Myers, a city of Detroit retiree who has worked numerous jobs over three decades, including bus driver, drug treatment coordinator and planning and development official for the Department of Human Services.
Rhodes ruled that bankruptcy court is the jurisdiction to decide such matters in the larger context of whether Detroit will ultimately be deemed eligible for bankruptcy, a matter that could take months or longer to decide.
The judge emphasized that his ruling today did not decide whether the city is eligible for bankruptcy or the validity of arguments made by lawyers for the city’s two pension plans, current workers and retirees and other creditors of the city. Orr says Detroit is buried under $18 billion-$20 billion in debts and liabilities it cannot afford to pay.
“The court is making no ruling whatsoever on whether the city is eligible to be a debtor under Chapter 9” or on whether (Gov. Rick) Snyder was right to file for bankruptcy given Michigan’s constitutional protections for pension benefits, Rhodes said.
Nor, he said, was he ruling on whether the city’s bankruptcy plan will ultimately win approval.
Nevertheless, it was a clean sweep of the city and its attorneys today in its first bankruptcy hearing.
“The court has the authority to extend the scope of the stay when necessary and appropriate,” Rhodes said.
A status conference on the case is set for Aug. 2.
In addition, all issues related to bankruptcy “must be decided by the bankruptcy court exclusively,” Rhodes ruled. Rhodes added that nothing in 10th Amendment supports the argument that constitutionality of state’s pension protections must be decided by state courts.
“Its an important step to know that now we can start to litigate this issue so we can start to move forward,” said Bill Nowling, spokesman for Orr. “This is an important step that we bring everything in one court and increase the efficiency of the process.”
For nearly two hours today, lawyers for the city clashed with attorneys representing some of its creditors as Detroit’s first bankruptcy hearing got under way in federal court in Detroit. Facing $18 billion in debts, the city became the largest municipality in U.S. history to file for Chapter 9 bankruptcy last week.
In short, Rhodes gave the emergency manager and the state what it wanted: the pending lawsuits in Ingham County won’t stop the bankruptcy from moving forward.
Creditors latched onto Rhodes’ statements that all of their arguments will be considered later by the bankruptcy court while also signaling that they might appeal today’s ruling.
“All options are on the table right now,” said Michael Artz, in-house counsel for AFSCME. “Nothing the judge said today erases the fact that Gov. Snyder’s authorization of this bankruptcy is unconstitutional.”
Myers, who attended the hearing, fears her pension is at stake.
"I worked in the city for 35 years, and now you're gonna tell me I don't have a pension?" said Myers, who referred to Orr's takeover team as "the bulldozer."
Janee Ayers, 31, a cashier at MGM and member of Unite Here, also is worried about pensions. She believes Detroit's financial troubles could have been solved without bankruptcy, and that Michigan as a whole stands to lose from the bankruptcy.
“What happens to Detroit happens to all of us,” said Ayers, who remains optimistic, despite today's ruling.
Earlier this morning, Heather Lennox, an attorney with Jones Day, argued before Rhodes that the city is merely asking the court to give the city the normal protections that are provided during any bankruptcy case, by putting a halt to three lawsuits filed in state court and any other pending litigation in other courts.
Lennox said three lawsuits filed against the city in Ingham County jeopardizes the ability of the city to restructure its debts through bankruptcy.
“We believe those decisions must be made and can only be made by this court,” Lennox said. “This court has jurisdiction for all matters related to this case. Having widespread litigation … can only confuse the parties, confuse the case and create serious barriers to efficient administration of this case.”
However, Detroit’s two pension funds, as well as attorneys representing several unions, argued that the city’s bankruptcy case should not have been filed because the state cannot authorize a bankruptcy filing since it is sworn to uphold pension benefits, which are protected by the state’s constitution.
“You are taking away very fundamental rights,” said Sharon Levine, attorney for Lowenstein Sandler of New Jersey, which represents the American Federation of State, County and Municipal Employees Council 25. “There can’t be a more fundamental situation then when you are dealing with basic fundamental constitutional rights.”
At stake are pension benefits for 20,000 retirees and about 9,500 current Detroit employees paying into the systems. Gov. Rick Snyder and emergency manager Kevyn Orr have said that pension payments will be protected for six months, but that “adjustments” will have to be made after that to deal with a reported $3.5-billion unfunded liability in the pension system.
Robert Gordon, a partner with Clark Hill who represents the General Retirement System and the Police and Fire Retirement System, said Gov. Rick Snyder is sworn to uphold the Michigan Constitution, which requires him to protect employee pensions.
But Rhodes challenged Gordon and asked him to explain why bankruptcy court isn’t the right place to decide the issue of Detroit’s eligibility to file for bankruptcy.
“How do you deal with the city’s argument that this court has jurisdiction over the bankruptcy?” Rhodes asked.
Gordon said the city’s arguments “presumes that there has been a valid state authorization and there hasn’t been a valid state authorization.”
Rhodes said after the court reconvened that in all other recent Chapter 9 cases, it was the bankruptcy court that determined all eligibility issues raised by all the parties.
Ed McNeil, special assistant to AFSCME Council 25 President Al Garrett, said even before Rhodes issued his ruling that it appeared to him that the judge was leaning toward siding with the city’s lawyers. He was correct.
“My hint is that he may bring everything in his courtroom,” meaning the judge would not let stand state court rulings seeking to block the bankruptcy from proceeding, McNeil added. “I think there’s an obligation for this governor to uphold the state Constitution.”
McNeil accused Snyder and state Attorney General Bill Schuette of trying to evade lower courts by seeking favorable federal court rulings instead of addressing questions raised by pension funds and workers and retirees who sued in Ingham County to halt the bankruptcy.
The Michigan Court of Appeals has yet to rule on the state’s appeal of Ingham County Judge Rosemarie Aquilina’s ruling that the bankruptcy must be halted. But the court did put in place a stay in Aquilina’s orders in three cases involving the pension systems and her temporary restraining order against moving forward with the bankruptcy.
No comments:
Post a Comment