Legal wrangling shadows Detroit bankruptcy filing

LANSING, Michigan Mon Jul 22, 2013 4:58pm EDT

1 of 3. Downtown Detroit is seen looking south along Woodward Avenue in Detroit, Michigan July 21, 2013.

Credit: Reuters/ Rebecca Cook

Related Topics

Photo

Obama at the bar

Obama shares drinks and shoots pool during a stopover in Denver.  Slideshow 

LANSING, Michigan (Reuters) - The tug of war over whether Detroit legally could file for municipal bankruptcy continues this week as the city seeks an initial hearing in U.S. federal court to put on hold challenges to the filing in Michigan court.

Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have been running to state court in Michigan's capital of Lansing in an effort to derail the biggest Chapter 9 municipal bankruptcy in U.S. history.

A Michigan state court judge on Monday morning adjourned a hearing in a case brought by city pension plans with no action taken. The pension plans asked for the proceedings to be postponed one week to July 29.

That follows an order issued in one of the other cases on Friday by the same judge, Ingham County Circuit Court Judge Rosemarie Aquilina, directing Detroit Emergency Manager Kevyn Orr to withdraw the bankruptcy petition he filed on Thursday.

In Friday's order Aquilina said the state law that allowed Michigan Governor Rick Snyder to approve the bankruptcy filing violated the Michigan Constitution. The governor cannot take actions that would violate constitutional protections for retirement benefits for public workers, she said.

Michigan Attorney General Bill Schuette, acting on behalf of Snyder, filed an appeal with the state appeals court, which has not yet taken action on the matter.

Orr, meanwhile, filed a motion with Federal Bankruptcy Court Judge Steven Rhodes, who was appointed on Friday to oversee the Detroit case, requesting a hearing as soon as Tuesday on his request to put a hold on lawsuits aimed at stopping the city's Chapter 9 proceedings. The emergency manager's motion also asked the judge to rule on deadlines, schedules, notification lists and other procedural matters.

Legal experts have said they expect the federal judge to put state litigation on hold, allowing those plaintiffs to use the federal court to argue why Detroit should not be allowed to file for bankruptcy.

Orr on Friday said he suspected the city will face an eligibility fight, which would also include whether or not the city made a good faith effort to negotiate with creditors over its more than $18 billion of debt.

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry and Motown music, has struggled for decades as companies moved or closed, crime became rampant and its population shriveled by about 25 percent in the past decade to 700,000. The city's revenue failed to keep pace with pending, leading to years of budget deficits and a dependence on borrowing to stay afloat.

(Writing and additional reporting by Karen Pierog; Editing by Dan Burns and Nick Zieminski)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (16)
Zomp_Zomp wrote:
It’s really sad and I do side with the state. There should be stricter rules in place and if a person chooses to work as a public worker for a city, he or she must live in and retire within that city. Pensions are paid by property taxes and other taxes collected within the community. If the community moves away – they are essentially spending Detroits money in another community, that scenario will fail. My guess is the rules will be rewritten and the pensioners will be required to tighten their belt.

Jul 22, 2013 11:36am EDT  --  Report as abuse
dpendable wrote:
Looks like business as usual. The only people likely to come out ahead are the attorneys.

Jul 22, 2013 11:42am EDT  --  Report as abuse
frd197 wrote:
I’ve been asking the same questions for around twenty years and have yet to receive a response that is even vaguely satisfactory: Is there any majority-black municipality or nation on Earth that is prosperous? By “prosperous,” I mean places with high life expectancy and income alongside low crime and disease. Is there evidence of any place on this big blue marble where such conditions improve alongside an increased black population? I’ve been trying my best to find even one example, yet I keep coming up empty-handed. I’m not saying it doesn’t exist, only that no one has been able to point me in the right direction.

Scanning the globe in 2013, it would seem hard to deny that conditions for blacks are better in areas where there are significant quotients of nonblacks. Though you may call such an observation “hateful,” I merely call it an observation. And until presented with evidence that undermines this observation, I’m going to gingerly suggest that Detroit’s drastic decline may be in some way related to its dramatic shift in demographics.

Jul 22, 2013 11:55am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.