The Detroit News is reporting that Judge Steven Rhodes, the bankruptcy judge assigned to the City of Detroit’s Chapter 9 filing, has ruled that objections regarding pension obligations must be decided after a ruling is made on Detroit’s eligibility for bankruptcy protection.
A federal judge on Monday delayed hearing objections to Detroit’s bankruptcy case based on arguments the city wants to slash vested pension benefits in violation of the state constitution.
U.S. Bankruptcy Judge Steven Rhodes said those challenges could be raised after he decides whether the city is eligible for bankruptcy relief, perhaps once the city files a plan to adjust Detroit’s $18.5 billion debt. At this point, Emergency Manager Kevyn Orr only needs to prove that he plans to adjust the city’s debts, according to an order filed late Monday in federal court.
Potential cuts to retiree pensions have been hotly contested by city retirement funds, unions and others since the city filed Chapter 9 bankruptcy July 18. Also Monday, Rhodes accelerated Detroit’s bankruptcy case, moving up by one month the first phase of a trial to decide whether the city is eligible for bankruptcy relief.
“The court fully recognizes and appreciates the extraordinary importance of the pension rights of the city’s employees and retirees in this case and of how the city will ultimately propose to treat those rights,” Rhodes wrote in an order filed Monday in U.S. Bankruptcy Court. “It is an important question not only to the city’s employees, retirees and unions, but also to all of the parties in the case.”
Gov. Rick Snyder welcomed the judge’s order.
“The sooner relevant issues can be aired and resolved, the sooner we can ensure Detroit is on path to being a great city again,” Snyder’s spokeswoman Sara Wurfel said late Monday.
There have been 109 objections filed by creditors, including several claiming the case violates the state constitution because the city wants to slash vested city pensions. He will hear objections involving legal issues on Sept. 18, more than a month earlier than the original Oct. 23 hearing. Any objections involving material facts will be heard Oct. 23, the judge ordered.
“The court further concludes that a prompt oral argument on these legal issues will promote just, speedy and efficient determination of the city’s eligibility to be a debtor,” Rhodes wrote late Monday.
An Orr spokesman was not immediately available for comment late Monday.
The judge’s order ramps up what legal experts called an already aggressive schedule for the biggest municipal bankruptcy case in U.S. history.
Douglas Bernstein, a bankruptcy lawyer at Plunkett Cooney, said Rhodes was carving out the issues that don’t require testimony “to streamline the process.”
“It shortens the proceedings down the road,” Bernstein said. The other objections will require a “mixture of facts and law” through depositions, testimony in court and briefs before Rhodes can rule, he said.
Most of the objections that will be heard on Sept. 18 are from city unions and employees. Bernstein said the seven issues raised by creditors face an uphill battle. Many of the objections argue that the city can’t file a plan of adjustment that reduces the value of city pensions because, they say, it would violate the state constitution.
“That’s a ‘comfort order’ and courts don’t typically give you comfort,” Bernstein said.
The eligibility fight is expected to focus on creditor claims that Orr failed to negotiate the city’s restructuring in good faith and that the July 18 bankruptcy was unauthorized, legal experts said.
The Detroit News: http://www.detroitnews.com/article/20130827/METRO01/308270045/Detroit-bankruptcy-objections-based-pensions-must-wait
