The Herald Bulletin

Morning Update

Nation & World

July 24, 2013

Judge freezes challenges to Detroit bankruptcy

DETROIT — A federal judge on Wednesday swept aside lawsuits challenging Detroit's bankruptcy, settling the first major dispute in the scramble to get a leg up just days after the largest filing by a local government in U.S. history.

After two hours of arguments, U.S. Bankruptcy Judge Steven Rhodes made clear he's in charge. He granted Detroit's request to put a permanent freeze on three lawsuits filed in Ingham County, including another judge's extraordinary decision that Gov. Rick Snyder trampled the Michigan Constitution and acted illegally in approving the Chapter 9 filing.

That ruling and others had threatened to derail the bankruptcy.

Questions about Detroit's eligibility to turn itself around through bankruptcy "are within this court's exclusive jurisdiction," Rhodes said.

He said nothing in federal law or the U.S. Constitution gives a state court a dual role. It was a victory for Detroit, which had warned that it would be "irreparably harmed" if it had to deal with lawsuits in state courts while trying to restructure $18 billion in debt with thousands of creditors.

"Widespread litigation ... can only confuse the parties, confuse the case and create serious barriers," attorney Heather Lennox told the judge.

Creditors "will have their day in court" — bankruptcy court, she said.

The courtroom was jammed with lawyers representing creditors as well as rank-and-file city employees and retirees eager to know the outcome. Some wore T-shirts that said, "Detroit vs. Everybody."

Detroit emergency manager Kevyn Orr, who recommended bankruptcy, sat in the front row for part of the hearing. Outside the courthouse, protesters held a banner with a message for Wall Street: "Cancel Detroit's debt. The banks owe us."

Detroit has about 21,000 retirees — police, firefighters, City Hall clerks, trash haulers, bus drivers — who are owed money and fear their income is at risk in a bankruptcy. Orr has said the city has underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage.

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