Federal judge will decide fate of Detroit’s bankruptcy filing on Wednesday + more Emergency Manager news


Stuff’s about to get real…

Photo by Anne C. Savage, special to Eclectablog

A federal judge will determine on Wednesday morning if Detroit’s bankruptcy filing is a violation of the state constitution which protects public employee pensions.

U.S. Bankruptcy Judge Steven Rhodes has declared that his court has the authority to rule on a dispute between the city’s pension funds and the City of Detroit — not the state court in Ingham County.

Rhodes, in an order filed today, said he will hold a hearing on Wednesday at 10 a.m. to consider the city of Detroit’s request to put all lawsuits filed before the city filed for bankruptcy on hold.

The decision by Rhodes means that the first hearing of Detroit’s bankruptcy case could prove to be a crucial moment in the city’s effort to restructure under court protection.

The Police and Fire Retirement System and the General Retirement System and its 20,000 retirees filed a lawsuit in Ingham County court last week that argues that Detroit’s bankruptcy filing must be withdrawn because it violates the Michigan Constitution and state law.

If Rhodes rules in Detroit’s favor, it would put an automatic stay in the Ingham County case.

“The (bankruptcy) court finds that the court has jurisdiction over this matter,” Rhodes said in his order.

Meanwhile, Ingham County Circuit Court Judge Rosemarie Aquilina has adjourned a hearing on the constitutionality of the move until next Monday:

A hearing on whether Detroit’s bankruptcy filing violates the state’s constitution rules against tampering with pension benefits was adjourned to July 29.

Judge Rosemarie Aquilina said despite the state’s desire to move the case to federal court, she believes it should be heard in state court.

“This is a very important issue,” she said. “I understand that there may be this question of moving it to federal court…But these are state issues. We’re dealing with the state constitution and an emergency manager who is a product of the state legislation.”

Aquilina ruled last week that the bankruptcy filing violated the state constitution.

“As you all know, my decision last week was because there’s been a violation of constitution. I don’t believe the constitution should be made of swiss cheese,” she said.

In other news, Detroit activist Robert Davis has uncovered emails that show, despite repeated statements that bankruptcy would never happen in Detroit, Snyder administration officials were discussing Chapter 9 bankruptcy as early as January:

Weeks before a state financial review team found Detroit’s fiscal condition so dire that Gov. Rick Snyder would soon appoint an emergency manager, discussions behind the scenes indicated that an orderly Chapter 9 bankruptcy for the Motor City might be the best option, according to e-mails reviewed by the Free Press. […]

The e-mails also show Orr expressed doubts about becoming emergency manager in Detroit under Public Act 436, the Michigan emergency manager law the Legislature quickly enacted late in 2012 after state voters in November repealed the previous version, Public Act 4. Orr indicated the Legislature’s hasty approval on the replacement law could be considered an end-run around voters who repealed the law, the e-mails show.

Discussions with colleagues show one Jones Day lawyer told Orr that bankruptcy in Detroit was likely, and preferable to the political fight that appointing an emergency manager would bring.

“It seems that the ideal scenario would be that Snyder and (Mayor Dave) Bing both agree that the best option is simply to go through an orderly Chapter 9,” Jones Day lawyer Dan Moss, who worked with Orr on Chrysler’s 2009 bankruptcy, told Orr in a Jan. 31 email. “This avoids an unnecessary political fight over the scope/authority of any appointed emergency manager and, moreover, moves the ball forward on setting Detroit on the right track.”

Until this year, bankruptcy was a dirty word when discussing our state’s cities in crisis, especially Detroit. Here’s Rick Snyder in June of 2011:

Gov. Rick Snyder said Tuesday that he won’t let Detroit or any other Michigan cities declare bankruptcy, but he will help distressed communities such as Pontiac recover — with or without emergency managers.

“Detroit’s not going into bankruptcy,” Snyder told reporters, as he beamed with encouragement from his meetings Monday with three top bond rating agencies in New York. He said he hopes Michigan’s rating returns to the highest levels possible.

“We’re going to work hard to make sure we don’t need an emergency manager, and bankruptcy shouldn’t be on the table,” Snyder said of Detroit.

Here he is this week:

“The fiscal realities confronting Detroit have been ignored for too long,” Snyder said in a statement. “I’m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future.

“This is a difficult step, but the only viable option to address a problem that has been six decades in the making.”

What was once seen as too messy and too unpredictable has now become the only “viable option”. The question remains why it was necessary to install an Emergency Manager if bankruptcy was already being discussed seven months ago before Orr was hired. It will be very interesting to watch how this plays out and to see if individuals — pensioners and public employees — are completely sacrificed on the altar of corporate profit taking or if Orr will actually be a voice for the non-corporate interests as the bankruptcy plays out.

If Orr sides heavily with the big banks and other corporate creditors and throws the roughly 20,000 pension holders under the proverbial bus, I suspect we’ll have our answer as to why he was hired. Considering that he’s a Democrat who expressed worries about the installation of an Emergency Manager, I hope he has the interests of workers and retirees at least as prominently on his radar as he does the big banks and corporations.

I won’t say I’m optimistic.

Adding… I am on record as saying I’m generally in support of a Chapter 9 bankruptcy. I am highly concerned about ensuring that working people and retirees are protected, however. It’s also worth noting that the Snyder administration pretending that they were NOT going to file bankruptcy in order to exact more and deeper concessions from unionized workers is tantamount to engaging in deceptive business practices. Chris Michalakis, president of the Metro Detroit AFL-CIO put it this way:

As Chapter 9 proceedings begin, Detroit cannot afford any further attacks on working families, who have already sacrificed so much without a say in the process. City workers have already made severe concessions to keep the city afloat. Every step of the way, the citizens of Detroit were told that they had to give up their right to democratic representation in order to avoid bankruptcy. Now that this filing has come anyway, it is clear that either state control has failed or that Governor Snyder and his emergency manager appointee were not honest about their intentions in the first place.

This filing can be taken as confirmation that Kevyn Orr was hired, secretly and ahead of a declared financial emergency, because he is a bankruptcy expert.

While preparing for the filing, the emergency manager’s team was also scheduling future bargaining dates with public employee unions in a deliberate attempt to mislead working people and prevent them from exercising due process in the courts. This large scale lack of transparency is the kind of behavior that created a financial crisis in the first place.

Governor Snyder is trying to time the resolution of Detroit’s bankruptcy filing with his own reelection bid. This is more politics as usual at the expense of citizens and working people.

In other words, leave it to the Snyder administration to do the right thing the wrong way.