Detroit Judge Sets Hearing Over Pension’s Objection

Detroit’s police and fire pensions lost a bid to delay the city’s $18 billion bankruptcy when a federal judge ruled he has authority over the filing and will hold a hearing to determine how much protection the city gets as the case moves forward.

U.S. Bankruptcy Judge Steven W. Rhodes in Detroit set the hearing for July 24, granting the city’s request for a quick court date to confirm protections granted when a municipality files under Chapter 9 of the U.S. Bankruptcy Code. Under the code, the city and its officials are entitled to halt most court proceedings against them during the bankruptcy case.

Rhodes agreed to consider the city’s request to extend the protection to unspecified “state entities.” Pension officials are trying to use state court cases to force Governor Rick Snyder, a Republican, to withdraw his authorization for the bankruptcy filing, claiming he violated Michigan’s constitution.

Pension officials cited the July 19 ruling of Circuit Court Judge Rosemarie E. Aquilina in Lansing, who criticized Snyder for “overreaching” when he authorized Detroit’s emergency manager to rush the city into bankruptcy court. The July 18 Chapter 9 filing came minutes before Aquilina could rule on a bid by city workers and their pension funds to block the federal case.

Court Protection

Emergency manager Kevyn Orr had asked the court to hold a hearing tomorrow to confirm the city’s right to remain in bankruptcy, which would protect Detroit and its officials from state-court and other legal actions during the Chapter 9 case.

The pension systems argue that Orr’s bankruptcy plan will cut pensions that are protected by Michigan’s constitution. Should Orr push for such a reduction, Rhodes would need to decide whether Chapter 9 of the U.S. Bankruptcy code trumps state law, a state constitutional provision, both, or neither.

A hearing scheduled for today in Lansing on a related challenge was postponed until next week.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporter on this story: Steven Church in Detroit at schurch3@bloomberg.net

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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