Bankruptcy lawyers for the City of Detroit, the State of Michigan, and creditors of the city submitted a request that the Sixth circuit not proceed with appeals hearings regarding the Detroit bankruptcy.
Bankruptcy lawyers for Detroit’s creditors filed appeals after the bankruptcy court ruled the city eligible to proceed through bankruptcy.
After the retiree unions had voted to accept the settlement offered by the city, their bankruptcy lawyers joined in to avoid the appeals hearings as the Sixth circuit could then rule against them and the retirees could suffer greater cuts.
A panel of federal court judges put a halt to appeals in Detroit’s bankruptcy case Friday pending the outcome of a big trial on Detroit’s plan for exiting bankruptcy.
The U.S. 6th Circuit Court of Appeals released the order a day after lawyers for Detroit, the State of Michigan, state Attorney General Bill Schuette and several groups representing unions, pensioners and retirees asked the court not to proceed with appeals, saying that would endanger the $816-million grand bargain that eases pension cuts and spares a potential sale of artwork at the Detroit Institute of Arts.
The ruling was brief, saying only: “Based on the submissions of the parties, these cases are stayed.”
The parties sent letters urging the appeals court not to proceed with the appeals because retirees and many of the city’s major unions have either reached agreements with the city and voted to support the bankruptcy exit plan or are reasonably close to reaching settlements.
Two unions still working on contract agreements with the city — the Detroit Police Officers Association and the Detroit Fire Fighters Association — also signed the letter, along with the city’s largest nonuniformed union, the American Federation of State, County and Municipal Employees Council 25.
Bruce Babiarz, a spokesman for the Police and Fire Retirement System, said the letter was in response to a deadline given by 6th Circuit Judge Julia Smith Gibbons, asking the groups to decide by Thursday whether to pursue the appeals by Aug. 7. Her letter had warned that further delays weren’t acceptable.
But the court appeared to have been swayed by the letter that warned that not pausing the appeals until the conclusion of the city’s confirmation hearings set to begin Aug. 21 “would significantly undermine a sensitive settlement and court-ordered mediation process, and would jeopardize both the city’s expeditious emergence from bankruptcy and over $800 million of critical funding commitments from the State of Michigan and other outside sources.”
That money is the cash that the state of Michigan, philanthropic organizations and the museum have pledged to reduce pension cuts to Detroit retirees in exchange for spinning the DIA off to a nonprofit trust, shielding the museum’s artworks from creditors.
The letter notes that retiree groups and unions that have reached settlements with the city or approved its bankruptcy exit plan also agreed not to pursue appeals if the plan is approved without significant changes to pension and benefits terms.
The groups had filed appeals of U.S. Bankruptcy Judge Steven Rhodes’ ruling in December that the city was eligible for bankruptcy and that federal bankruptcy law trumps Michigan’s constitutional protections of pension benefits, but the appeals were filed before retirees voted overwhelmingly to accept the bankruptcy grand bargain and before some of the city’s unions agreed to new contract terms.
The ruling doesn’t impact the appeal by Syncora, a bond insurer on the hook for hundreds of millions of dollars in Detroit’s bankruptcy. Syncora lawyers, hoping to reverse court rulings that city casino tax revenue is legally property of Detroit, presented arguments to the appeals court panel Wednesday in Cincinnati; pension, union and other groups had been scheduled to make oral arguments the same day but the hearings were canceled at the last minute.
Detroit Free Press: http://www.freep.com/article/20140801/NEWS01/308010161/Judge-Steven-Rhodes-Detroit-bankruptcy-appeals
