Story first appeared in the Detroit Free Press.
Bankruptcy Judge Steven Rhodes on Monday allowed appeals of two of his
critical rulings -- finding Detroit eligible for bankruptcy and its
pension systems subject to cuts to retirees -- to proceed to the U.S.
6th Circuit Court of Appeals.
Rhodes certified his eligibility
ruling, which allows creditors including labor unions and the official
group representing retirees to appeal his decision to permit Detroit to
enter into the largest municipal bankruptcy in U.S. history.
did not act on requests from lawyers for unions and retirees that he
support their bid to fast-track appeals. Rhodes said only that he
certified his Dec. 3 ruling and would decide "in the next day or two"
whether to support expedited appeals in the 6th Circuit.
proceedings resume today as Rhodes begins hearing evidence in what could
be a three-day trial on the city's request for $350 million in new
financing from Barclays, a London-based banking company. The financing
is controversial because it would pay off about $230 million in debt
owed to two banks before the city figures out how it will repay other
The city said it needs the additional financing now to
free up about $180 million in annual casino revenue. The city also
would gain access to $120 million that it could use to fund its
revitalization and improve city services.
Orr has said that the
city urgently needs to improve city services such as police and fire
response times and that the additional financing is essential to those
During questioning on the appeals Monday, Sharon
Levine, a lawyer for the city's largest union, the American Federation
of State, County and Municipal Employees, said the union sees the issue
of pension rights in Detroit as one of national importance because
cities and other governments across the nation pay attention to how such
benefits are decided.
AFSCME and other creditors are fighting
Rhodes' decision to declare Detroit eligible to proceed with Chapter 9
bankruptcy and not to treat pensions as protected from cuts.
the city's two pension plans are fighting the eligibility ruling, they
are committed to negotiating with the city, said Lisa Fenning, a lawyer
for the pension systems. "We are not trying to slow down the process,"
Lawyers for the city had argued that appeals should
wait until after Detroit files its detailed plan of adjustment, the
legal term for the strategy it will finalize to emerge from bankruptcy,
including what cuts it plans for creditors and how Detroit would operate
Emergency manager Kevyn Orr's restructuring
team hopes to file the plan of adjustment by early to mid-January with
agreement from a number of creditors. He led the city's filing for
Chapter 9 protection in July, saying Detroit had about $18.5 billion in
debt and liabilities it couldn't afford to pay in full, including $3.5
billion in unfunded pension liabilities. Unions and the city's two
pension plans dispute that figure.
The retiree groups and other
creditors argue that Michigan's constitution protects pensioners from
cuts, but Rhodes' Dec. 3 ruling found that the federal bankruptcy code
trumps state law.
The city's bankruptcy lawyers want to move as
rapidly as possible and had hoped appeals would be stayed until the city
presents the plan of adjustment.
But Corinne Ball, a lawyer for
the Jones Day firm that represents the city, said in court Monday that
Detroit would support moving the appeals out of U.S. District Court in
Detroit to the U.S. 6th Circuit Court of Appeals in Cincinnati on an
expedited basis to speed up resolution of the appeals.
told Rhodes that quick hearings on the appeals could help prevent
complications later. She said the appeals court could affirm Rhodes'
ruling, reverse it or provide a middle ground where Detroit is found to
be eligible to proceed with bankruptcy but without the ability to cut
Fenning said that her firm has been retained to fight the matter to the Supreme Court, if necessary.
challenges to eligibility have been resolved prior to appeals court
arguments, said Douglas Bernstein, who leads the banking, bankruptcy and
creditors' rights practice at the Plunkett Cooney law firm in
"The 6th Circuit still has to agree to hear the immediate appeal," Bernstein said.
the Detroit issue is that there's so little precedent for many of the
questions raised by Detroit's bankruptcy, Bernstein said.
"recognizes that we don't have any binding precedent, and it involves a
matter of public importance," he said. "Whether or not we ever see a
decision on the appeals remains to be seen, as the parties very well may
settle prior to disposition."
The proposed financing agreement
is one of the most complex and important elements in the city's
bankruptcy proceedings. If approved, the financing would be used to
settle a claim from UBS and Bank of America Merrill Lynch, which hold
city debt from a soured Wall Street bet that was backed by the city's
casino tax revenues.
The interest rate swaps are investments that tried to lock in steady interest rates on a $1.44-billion loan in 2005.
city told Rhodes on Friday that it plans to call five witnesses --
including Orr -- and creditors said they would call several financial
However, Rhodes told attorneys from both sides he
does not plan to rule on how the city can spend the loan or if the loan
is necessary because bankruptcy code gives a city the right to obtain
additional financing in a bankruptcy case. Instead, Rhodes said, he will
base his decision on whether "it is fair and equitable and whether it
is in the best interest of the estate."
WALSH COLLEGE NAMES NEW CEO
3 months ago