Detroit Officials File Bankruptcy but Judge Rejects Request

Detroit Officials File Bankruptcy but Judge Rejects Request

An Ingham County Judge rejected a bankruptcy petition by officials in Detroit because it violated the Michigan State Constitution.

Circuit Judge Rosemary Aquilina ordered officials to withdraw the bankruptcy petition because it violated Article IX Section 24 of the Michigan Constitution which prevents any actions that threatens to diminish or impair accrued pension benefits of public employees.

Lawyers representing petitioners on Thursday were able to get an emergency hearing with Judge Aquilina and she planned to issue an order to block the bankruptcy petition, but unbeknownst to the judge and petitioners, the lawyer representing the city filed the bankruptcy petition five minutes before the hearing.

Aquilina stated that the Bankruptcy filing was unconstitutional because the Michigan Constitution prohibits actions that will lessen the pension benefits of public employees, including the City of Detroit.  She further stated that Governor Rick Synder and Detroit Emergency Manager Kevyn Orr violated the constitution by proceeding with the bankruptcy filing because they were aware of the effect it would have, reducing pension benefits.

“We can’t speculate what the bankruptcy court might order,” said assistant Attorney General Brian Devlin, who is representing the state.

“It’s a certainty, sir,” Aquilina replied. “That’s why you filed for bankruptcy.”

The attorney for the Plaintiffs stated that he agreed to a five minute delay in the emergency hearing because Snyders’ attorney requested it.  He had no idea that it was so the defendants could file the bankruptcy prior to the emergency hearing to block it.

According to Attorney General Bill Schuette, an appeal has been filed in the three cases before Judge Aquilina.  Motions were filed to delay the court rulings and any future proceedings during the appeals process.

Aquilina ruled that the bankruptcy was unconstitutional and suggested two remedies to correct the violation.

“In order to rectify his unauthorized and unconstitutional actions … the Governor must (1) direct the Emergency Manager to immediately withdraw the Chapter 9 petition filed on July 18, and (2) not authorize any further Chapter 9 filing which threatens to diminish or impair accrued pension benefits,” she said in her order.

While there is nothing restraining Snyder from continuing with the bankruptcy filing, John Canzano, the attorney representing the plaintiff’s, stated that he may return to court seeking further relief if Snyder does not direct Orr to withdraw the bankruptcy filing.

Reports show that $9 billion of Detroit’s debt is owed to pension funds and retiree health benefits for the city’s 10,000 employees and 20,000 retirees.

There are several ways that this issue may be address, it can continue through the Michigan court system until it reaches the Michigan Supreme Court, or possibly be addressed in the bankruptcy court, which would give a decisive answer and a faster response, according to University of Michigan law Professor John Pottow.

“There’s nothing that precludes a federal judge from adjudicating the constitutionality of the Michigan statute,” Pottow said. “The bankruptcy judge can interpret Michigan law.”

Judge Aquilina is prepared for a battle and the possibility that her order may be appealed by the state because “it is headed to the Court of Appeals,” she said.

At the end of the Order of Declaratory Judgment she order a copy be transmitted to President Obama.

State officials believe the bankruptcy is necessary for Detroit to survive, even if it threatens the pension and benefits of the city employees, which is unconstitutional in Michigan and the reason Judge Aquilina blocked it.

By: Veverly Edwards

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