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Michigan Attorney General to Join Detroit Bankruptcy

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Michigan Gov. Rick Snyder & Attorney General Bill Schuette
Michigan Governor Rick Snyder, right, addresses the media as Attorney General Bill Schuette stands by at a news conference in Lansing, Michigan, on June 5, 2013. Photographer: Al Goldis/AP Photo

July 29 (Bloomberg) -- Michigan’s attorney general joined the Detroit bankruptcy case two days after announcing he would represent retired city workers by seeking to enforce a clause in the state constitution that shields pensions from cuts.

The filing today in U.S. Bankruptcy Court in Detroit by Attorney General Bill Schuette didn’t indicate what positions he plans to take in the case, and was designed simply to inform the court that his office would be involved.

The move puts the attorney general’s office on both sides of the debate over Detroit’s $18 billion bankruptcy. Schuette, 59 has already gone to a state appeals court on behalf of Governor Rick Snyder, a fellow Republican, to defend the bankruptcy filing, which the governor authorized on July 18.

Joy Yearout, Schuette’s spokeswoman, said different teams of lawyers would represent different interests in the bankruptcy. One would advocate on behalf of Snyder as the governor, while the other would have a broader responsibility to represent the people of the state and defend the Michigan Constitution, she said.

It’s too early in the case to determine whether those two teams will take conflicting positions, Yearout said.

Separate Questions

Larry Dubin, a professor at the University of Detroit Mercy School of Law, said the governor’s determination that Detroit should file for bankruptcy raises a separate legal question from whether the state’s constitution prohibits cuts to public-worker pensions. It’s possible that as the case progresses, a conflict may arise, he said.

Kevyn Orr, the emergency manager that Snyder appointed for Detroit, has proposed cutting the amount the city’s retirees receive. Schuette said in a statement that the state constitution bars any public pension reductions.

At the same time, Schuette asked a state appeals court to put on hold a lower court’s July 19 ruling that Detroit’s Chapter 9 filing violated the constitution’s pension provision.

The ruling came in three lawsuits, brought by two Detroit pension plans and individual retirees, which challenged Snyder’s authority to initiate the bankruptcy and contended the Michigan Constitution blocks any cuts in public employee pension funds.

The appeals court today closed the three lawsuits without ruling on the merits of the claims.

No Authority

The pending bankruptcy proceeding “deprives this court of the authority to continue its review of this case,” the court said. The cases can be reopened after the bankruptcy stay on litigation has been lifted, the court said.

The attorney general said on July 27 that he would join the dozens of lawyers representing city workers, retirees, bondholders and other creditors that are working on the case.

“I will defend the rights of Michigan citizens and defend the constitution of the state of Michigan,” he said in a statement.

Schuette also said he will continue to “aggressively represent” Snyder.

The attorney general’s office occasionally has lawyers who take opposing views in cases, Yearout said. In cases involving electricity rates, for example, one group of lawyers may represent consumers, while another represents utility regulators, Yearout said.

Schuette was elected in 2010 and faces voters again next year, Yearout said.

The 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 Church in Wilmington, Delaware, at schurch3@bloomberg.net; Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

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