Bankruptcy Judge: Detroit Is Eligible for Chapter 9; Unions Appeal Immediately

Bankruptcy Judge: Detroit Is Eligible for Chapter 9; Unions Appeal Immediately

 DETROIT — (Mealey’s) The federal bankruptcy judge presiding over the Chapter 9 case filed by the City of Detroit issued a verbal ruling today from the bench stating that the city is eligible to file for bankruptcy, a source said.  The unions representing city employees immediately filed a notice of appeal (In Re:  City of Detroit, No. 13-53846, Chapter 9, E.D. Mich. Bkcy.).

Bankruptcy

The city filed for Chapter 9 bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Michigan on July 18.

The Michigan Council 25 of the American Federation of State, County & Municipal Employees (AFSCME), Sub Chapter 98 of the AFL-CIO and the union representing the Detroit Retirees initially opposed the city’s bankruptcy petition on grounds that it violated Michigan law and the U.S. Constitution.

The unions filed their notice of appeal before a written order was issued by Bankruptcy Judge Steven W. Rhodes.

Standing

The unions maintained that the city lacked standing to file for bankruptcy because it did not need debt relief and argued that Article IX, Section 24 of the Michigan Constitution, also known as the pensions clause, invalidated the city's authorization to file for Chapter 9 bankruptcy.

The unions argued that if the city is permitted to proceed with its bankruptcy, their pensions will be diminished or impaired.

The city contended that it has "exhaustively documented" its "overwhelming need for debt relief and its eligibility" to file for Chapter 9 bankruptcy.  Moreover, the city contended that pensions will not be diminished or impaired as a result of the bankruptcy.

Pensions

The city insisted that the pensions clause does not invalidate the city's right to file for bankruptcy and that no pensions have been diminished or impaired as a result of its Chapter 9 petition.

The city is represented by David Gilbert Heiman and Heather Lennox of Jones Day in Cleveland, Bruce Bennett of Jones Day in Los Angeles and Jonathan S. Green and Stephen S. LaPlante of Miller Canfield Paddock & Stone in Detroit.  The unions are represented by Sharon L. Levine and Philip J. Gross of Lowenstein Sandler in Roseland, N.J., Herbert A. Sanders of the Sanders Law Firm in Detroit and Richard G. Mack Jr. of Mille Cohen in Detroit.

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