* Opening salvos of biggest U.S. muni bankruptcy case
* Hearing will address motion to stay all related litigation
* Court officials open overflow rooms to accommodate crowds
* City must still prove that it is insolvent
By Bernie Woodall and Joseph Lichterman
DETROIT, July 24 Lawyers for the city of Detroit
on Wednesday asked a U.S. bankruptcy judge to set aside all
other lawsuits seeking to block the city's petition for
bankruptcy protection, arguing that federal bankruptcy court is
the only venue to debate the matter.
In oral pleadings that marked the opening salvos of the
biggest municipal bankruptcy filing in U.S. history, attorney
Heather Lennox asked U.S. Bankruptcy Court Judge Steven Rhodes
to force the city employees, retirees and pension plans that
object to the Chapter 9 filing as violating the state
constitution to make their case only in his court.
"We believe those decisions must be made and can only be
made by this court in actions brought before this court," said
Lennox, an attorney for the law firm Jones Day, which has been
hired by the city. Kevyn Orr, a corporate bankruptcy lawyer
tapped by Michigan officials in March as Detroit's emergency
manager, also worked for Jones Day before joining the city.
Rhodes began the proceedings on Wednesday by saying the
hearing would address two issues: a motion to stay all related
litigation and a motion to extend that stay to lawsuits filed
against the governor, state treasurer and Orr.
Attorneys for the workers, retirees, city unions and pension
plans were expected to follow Lennox in presenting arguments to
The case has attracted massive U.S. media interest, with
people lining up to gain entrance to the federal courthouse in
downtown Detroit on Wednesday morning, forcing court officials
to open overflow rooms to accommodate the crowd. Meanwhile, city
firefighters, worried that bankruptcy, filed July 18, will lead
to stinging cuts in their retirement benefits, protested
Rhodes agreed on Monday to an expedited hearing requested by
Orr that seeks to extend Chapter 9's automatic stay of
litigation to lawsuits filed against Governor Rick Snyder,
Michigan Treasurer Andy Dillon, and Orr by Detroit workers,
retirees and pension funds. Those lawsuits are pending in state
court in Michigan's capital city of Lansing.
Those lawsuits were halted by a Michigan Appeals Court panel
on Tuesday in response to State Attorney General Bill Schuette's
request to stop proceedings while he seeks to overturn orders
issued by a lower court judge hearing the cases. One of those
orders directs Orr to withdraw the bankruptcy petition on state
Ironically, Wednesday's launch of the historic bankruptcy
began exactly 312 years after Detroit was founded in 1701 by
French soldier Antoine de la Mothe Cadillac.
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 almost two-thirds since the 1950s to
about 700,000 at present. The city's revenue failed to keep pace
with spending, leading to years of budget deficits and a
dependence on borrowing to stay afloat.
If Rhodes allows Detroit's bankruptcy petition to proceed
without interference from the state courts, the city still
must prove that it is insolvent and that it made a good-faith
effort to negotiate with creditors, including its employee
pension funds. Detroit has more than $18 billion of debt and
unfunded liabilities. That includes $5.7 billion in liabilities
for healthcare and other retiree benefits and a $3.5 billion
In a June 14 proposal to creditors, Orr called for
"significant cuts in accrued, vested pension amounts for both
active and currently retired persons."