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Michigan Judge Says Detroit Bankruptcy Should Be Dropped

Michigan Judge Says Detroit Bankruptcy Should Be Withdrawn
Rick Snyder, governor of Michigan, left, and Kevyn Orr, emergency manager for the city of Detroit, hold a news conference in Detroit on July 19, 2013. Photographer: Jeff Kowalsky/Bloomberg

July 19 (Bloomberg) -- A Michigan judge declared that Detroit’s Chapter 9 bankruptcy filing violated the state’s constitution and ordered Governor Rick Snyder to withdraw it.

Circuit Court Judge Rosemarie E. Aquilina in Lansing today criticized Snyder, a Republican, for rushing the filing into court yesterday before she could rule on a bid by city workers and their pension funds to consider an emergency request to block the filing.

“I’m finding the actions that were taken in filing bankruptcy as overreaching and unconstitutional,” she said.

She ordered the governor to direct Detroit emergency manager Kevyn Orr to immediately withdraw the bankruptcy petition. She also said he cannot authorize further filings that would impair or diminish public pension benefits.

Attorney General Bill Schuette applied for permission to appeal the decisions. He also filed a motion to suspend Aquilina’s rulings pending appeal, Joy Yearout, a spokeswoman for the attorney general, said in an e-mailed statement.

Kenneth Klee, the bankruptcy lawyer who spearheaded the bankruptcy restructuring of Jefferson County, Alabama, said a state judge can’t force Detroit out of federal bankruptcy, even if Snyder agrees to try to withdraw the petition.

Once Detroit city filed the bankruptcy petition, it came under federal jurisdiction and the case cannot be withdrawn, even by Snyder, said Klee, of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles. A federal judge would have to agree to dismiss the case, according to Klee.

‘Full Confidence’

“We have full confidence in the legality and constitutionality of the governor’s and emergency manager’s actions,” Sara Wurfel, Snyder’s press secretary, said in an e-mailed statement. “We are seeking a quick appeal for finality and to ensure efforts can be put into finding a fair resolution for all concerned in a single forum and truly get Detroit on the path to becoming a great city again.”

“If the governor changes his mind, it doesn’t matter,” he said. “Not only can’t she do that, but her order may be in contempt of a federal court, and a federal judge can put her in jail.”

‘Running Shoes’

Current and retired city workers had asked Aquilina to issue a temporary restraining order to keep the city of Detroit from filing for bankruptcy. The bankruptcy petition was filed minutes before the judge was able to rule.

“The plaintiffs should not have been blindsided in this court,” said Bill Wertheimer, a lawyer representing some of the plaintiffs.

Brian Devlin, a Michigan assistant attorney general, argued that no harm has yet been done to the plaintiffs.

Aquilina said harm was “imminent.”

“You understand bankruptcy court,” she said. “That’s why you ran there yesterday, not slowly, but in your running shoes.”

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

To contact the reporters on this story: Steven Raphael in Lansing, Michigan, at sraphael5@bloomberg.net; Megan Durisin in Lansing, Michigan, at mdurisin@bloomberg.net

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

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