The federal judge overseeing Detroit’s bankruptcy will hear arguments Wednesday on the city’s request to freeze lawsuits by retirees who claim their pensions are protected by the state constitution.
It will be the first hearing less than a week after Detroit, which is saddled with billions of dollars in debt, became the largest U.S. city to file for bankruptcy. Judge Steven Rhodes said Monday he’ll take up just a few issues.
The city wants the judge to suspend lawsuits or prevent new ones, especially in state court. An Ingham County judge last week ordered emergency manager Kevyn Orr and Gov. Rick Snyder to not take any more action in the bankruptcy case. Judge Rosemarie Aquilina also barred any moves that would hurt benefits already being received by pensioners.
But city attorneys said federal bankruptcy law typically carries an “automatic stay” to give a debtor such as Detroit a “breathing spell” critical to protecting assets and restructuring debts. The lawyers said U.S. Bankruptcy Court is the only appropriate venue for anything related to the bankruptcy filing last Thursday.
Without Rhodes’ intervention, opponents “will continue attempting to exert direct or indirect pressure on the city by commencing or continuing” lawsuits, Detroit’s attorneys said in a court filing.
The Michigan Constitution says pensions for public employees “shall not be diminished or impaired.” Detroit retirees claim any reduction would be illegal.
“I don’t think the constitution should be made to be Swiss cheese. Once we erode it with one hole, there will be others,” Aquilina said in court Monday.
Pension payments have not been frozen or reduced in the wake of the city’s Chapter 9 filing. Ron King, an attorney for Detroit’s pension funds, said the funds aren’t trying to stop the bankruptcy, just limit its reach.
“It’s very narrow, very straightforward,” he told Aquilina. “It’s simply an issue of upholding the constitutional protections that are in place. This is what the people of the state of Michigan decided was important.”
Snyder wants the bankruptcy judge to sort out pension issues, not Aquilina.
“Everything’s on the table in terms of going through these issues in bankruptcy court. … That could be one of those unfortunate things that comes out of this process,” the governor told Detroit radio station WWJ, referring to smaller checks for current pensioners.