Attorneys for Detroit won a clean sweep in federal court Wednesday that
should allow the city's bankruptcy filing to move forward in federal court
without getting bogged down in lawsuits filed in state court.
U.S. Bankruptcy Judge Steven Rhodes dealt back-to-back wins for emergency manager Kevyn Orr in rulings shortly after a two-hour hearing in a courthouse packed with about 175 lawyers, journalists, city workers and retirees.
Saying the city would suffer irreparable harm if delays to its bankruptcy were upheld, 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.
"In the context of a Chapter 9 case, and especially this Chapter 9 case, that is probably the most important factor of all," Rhodes said.
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.
Rhodes' rulings -- the first in Detroit's historic bankruptcy case that is now a week old -- drew protests outside the court and gasps within the courtroom from union members and retirees who hoped for a different outcome.
"I'm mad!" said Belinda Myers-Florence, a City of Detroit retiree who attended the hearing. "I worked in the city for 35 years, and now you're gonna tell me I don't have a pension?"
Detroit's two pension funds, unions and other creditors tried to argue 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.
The city, which has been borrowing money to repay its debts, has about $18 billion in debt and became the largest municipality in U.S. history to file for bankruptcy last Thursday.
His rulings put a stop to an Ingham County Circuit Court ruling that Detroit shouldn't proceed with bankruptcy until state courts decide whether the filing violates Michigan's constitutional protections of public pensions. And, his ruling extends the protection the city has from legal action by others to Gov. Rick Snyder, who is specifically named in one of those lawsuits.
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.
"It's 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. "That's not going to happen for a couple of months yet in court, but this is an important step that we bring everything in one court and increase the efficiency of the process."
However, Rhodes spent an unusual amount of time making it clear that all of the objections that creditors have are yet to be decided and can still be argued in his court.
"The court is making no ruling whatsoever on whether the city is eligible to be a debtor under Chapter 9" or on whether Snyder was right to file for bankruptcy, given Michigan's constitutional protections for pension benefits, Rhodes said.
Unions and Detroit's pension funds latched on to those promises and said they
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