Michigan Judge Rules Detroit Bankruptcy Unconstitutional
By Chuck Sudo in News on Jul 20, 2013 3:00PM
Michigan Gov. Rick Snyder (L) and Detroit's emergency manager Kevin Orr (R) address Detroit's bankruptcy filing at a news conference July 19, 2013 in Detroit, Michigan. (Photo by Bill Pugliano/Getty Images)
Michigan Attorney General Bill Schuette said he will appeal a Friday ruling declaring the city of Detroit’s historic Chapter 9 bankruptcy filing unconstitutional, one of many legal challenges the filing will eventually face.
Ingham County Circuit Judge Rosemarie Aquilina said the Michigan Constitution prohibits actions that will lessen the pension benefits of public employees, including nearly 30,000 Detroit City employees whose retirement and health care plans are in jeopardy in the wake of Thursday’s filing. Aquilina was set to issue an order blocking the bankruptcy filing Thursday, but Detroit attorneys filed the bankruptcy petition minutes before a hearing on the matter was to begin.
Aquilina said Michigan Gov. Rick Snyder and Detroit Emergency Manager Kevyn Orr violated the state Constitution by filing for bankruptcy, knowing full well of the consequences to pension benefits. "I have some very serious concerns because there was this rush to bankruptcy court that didn't have to occur and shouldn't have occurred," Aquilina said. "Plaintiffs shouldn't have been blindsided," and "this process shouldn't have been ignored."
There are three lawsuits pending before Aquilina related to the bankruptcy filing, but her ruling may not matter since the bankruptcy was filed in federal court. Still, Schuette’s office filed appeals in federal court in all three cases. Detroit filed a motion requesting to include the state as a party in the bankruptcy code’s provisions tying up lawsuits in the city, a move intended to fight Aquilina’s ruling by preventing the state from being sued.
The city and Michigan AG’s office is asking U.S. District Judge Steven Rhodes to hold a hearing Tuesday. Rhodes, a bankruptcy specialist has been described by attorneys who have argued before him as a stern but fair judge who doesn’t tolerate shenanigans in his courtroom.
Meanwhile, Orr tried to alleviate fears about pension plan changes Friday, telling active and retired city workers they would see no changes to their retirement and health care plans for at least six months. Detroit filed bankruptcy as a means to restructure $18 billion in long-term debt, $11 billion of that debt is unsecured, including pension plans. The bankruptcy process is expected to be long and contentious, with over 100,000 creditors, including retirement plan systems for city employees, looking to receive payments from the city.