Abayomi Azikiwe, right, of the Moritorium Now Coalition talks with protestors gathered outside of the Coleman A. Young Municipal Center in downtown Detroit on Friday July 26, 2013 while opposing to pension cuts., a photo by Pan-African News Wire File Photos on Flickr.
September 6, 2013 at 11:09 pm
City's lawyers argue challengers to Detroit bankruptcy ignore 'overwhelming' need for relief
Chad Livengood and Robert Snell
The Detroit News
Detroit— Detroit’s legal team on Friday struck back at challenges to the city’s eligibility for bankruptcy protection, arguing objectors are ignoring the financial reality of the “overwhelming need for debt relief” for Michigan’s largest city.
In a 135-page consolidated response to 109 objections to Detroit’s eligibility for bankruptcy, city lawyer Bruce Bennett said creditors are wrong to claim Gov. Rick Snyder’s authorization of the Chapter 9 filing violated the state constitutional protection of pensions.
“They are mistaken,” Bennett wrote.
Neither the bankruptcy petition nor Snyder’s authorization diminishes retiree pensions, Bennett argued.
“These are simply steps that begin the bankruptcy process, where pensions may be impaired by order of a federal bankruptcy court at some later date,” Bennett wrote.
Bennett also claimed labor unions have attempted to “invent” a legal requirement that Snyder should have restricted Emergency Manager Kevyn Orr from slashing pensions as a condition on the bankruptcy filing. Bennett said there’s no statute or constitutional requirement for bankruptcy conditions.
“And in any event, such conditions would be prohibited by federal law,” Bennett wrote.
Bennett’s argument was aided Friday by a brief filed by Attorney General Bill Schuette’s office making a similar defense of Snyder’s bankruptcy authorization.
Schuette’s office argued the filing does not necessarily mean pensions will be slashed, which Schuette has vowed to fight separately.
“... Simply authorizing the filing under Chapter 9 does not diminish or impair a single pension,” Assistant Attorney General Steven B. Flancher wrote.
Schuette, a Republican, has repeatedly said his office can both defend Snyder’s authorization of bankruptcy and challenge Orr’s stated goal of using the federal bankruptcy process to reduce pension debt. The city estimates its pension funds face a $3.5 billion unfunded liability.
Pensions could be slashed without retiree consent later in the process, Bennett argued, if ordered by a judge.
The city’s lawyer pointed to the ongoing Stockton and Vallejo, Calif., bankruptcy cases, in which both cities were eligible for Chapter 9 relief despite potential cuts to pensions. In the Stockton case, the judge indicated that pension cuts should not be addressed until after a city is eligible for bankruptcy relief.
Alabama has similar constitutional protections as Michigan but municipal bankruptcy was used in a 1999 case involving the city of Prichard that cut future pension payments by 8.5 percent, Bennett wrote Friday.
Detroit won’t know whether it is eligible until late October, at the earliest.
Bennett reiterated Orr’s past arguments that the city tried to avoid bankruptcy, but that negotiating with some 100,000 creditors – including more than 23,000 retirees and 47 labor unions – meant getting voluntary reductions to $18.5 billion in debt became “impracticable.”
The city negotiated in good faith contrary to claims made by several creditors, Bennett argued.
He attacked complaints that Orr’s restructuring proposals were presented in a “take it or leave it” manner that precluded negotiations.
The city held three public meetings, several closed-door sessions and presented a restructuring plan to creditors at Detroit Metropolitan Airport in June, Bennett said.
None of the objectors offered a counter-proposal and some invitations to continue talks were “essentially rebuffed,” Bennett wrote.
“Of course, good faith negotiation is a two-way street,” Bennett wrote.
Only eight unions, representing 10 of the city’s 47 bargaining units, agreed to represent retirees during restructuring talks.
The UAW and AFSCME “expressly declined” to represent retirees, Bennett wrote.
Both unions now have representatives on a committee of retirees formed to negotiate with the city in bankruptcy proceedings.
U.S. Bankruptcy Judge Steven Rhodes has set hearings for Sept. 18-19 for oral arguments on Detroit’s bankruptcy eligibility. A mini trial on eligibility is set to begin Oct. 23 and could last weeks as Rhodes sorts through numerous legal challenges to the city’s bankruptcy petition.
The city’s response on Friday also challenged legal claims made by AFSCME that the federal bankruptcy law is unconstitutional, accusing the union’s attorneys of plucking “selective” quotes from a Supreme Court decision on the power of bankruptcy judges.
On Friday, the United Auto Workers’ attorneys asked Rhodes to reconsider his earlier decision to delay hearing objections to bankruptcy eligibility because it could be used to slash monthly pensions checks.
Late last month, 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 pare down Detroit’s $18.5 billion in estimated debt. At this point, Orr needs to prove only that he plans to adjust the city’s debts, according to an order filed in federal court.
The UAW alleges Orr wants to use bankruptcy “to strong-arm retirees and pension-vested workers into negotiating away accrued pension benefits” that are protected by the state constitution, according to a filing Friday.
AFSCME, the city’s largest union, claimed Detroit is not insolvent and said Orr failed to negotiate in good faith with creditors before filing bankruptcy July 18.
Also Friday, the NAACP’s Michigan and Detroit branches asked Rhodes to let their lawsuit challenging the constitutionality of the state’s emergency manager law proceed while the city is in bankruptcy.
Since most legal proceedings involving Detroit are halted while the city is in bankruptcy, the civil rights organization needs Rhodes’ permission to continue pursuing a federal lawsuit claiming the EM law violates equal protection and voting rights under the U.S. Constitution.
clivengood@detroitnews.com
(517) 371-3660
From The Detroit News: http://www.detroitnews.com/article/20130906/POLITICS02/309060104#ixzz2eGRVsDr1
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