Judge begins 1st hearing on Detroit's bankruptcy

First hearing on Detroit's bankruptcy begins; city wants judge to freeze lawsuits by opponents

Associated Press
Judge stops lawsuits against Detroit bankruptcy
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Firefighters protest outside the Theodore Levin United States Courthouse, in Detroit, Wednesday, July 24, 2013. A lawyer for Detroit argued Wednesday that the city would be “irreparably harmed” if lawsuits challenging a multibillion-dollar bankruptcy are allowed to go forward, the first dispute in the largest municipal bankruptcy in U.S. history. Retirees anxious about their pensions have won favorable rulings from an Ingham County judge that could slow down or even derail the bankruptcy filed just last week.(AP Photo/Paul Sancya)

DETROIT (AP) -- A lawyer for Detroit argued Wednesday that the city would be "irreparably harmed" if lawsuits challenging a multibillion-dollar bankruptcy were allowed to derail the largest municipal bankruptcy in U.S. history.

Retirees anxious about their pensions have already won favorable rulings from an Ingham County judge that could disrupt the bankruptcy filed just last week. Detroit asked a federal judge to put a deep freeze on any pending lawsuits and make his court the exclusive venue to settle the beleaguered city's financial future.

"If these actions are not stopped, the city would be irreparably harmed. ... These litigants will have due process. They will have their day in court" — bankruptcy court, attorney Heather Lennox said.

U.S. Bankruptcy Judge Steven Rhodes heard about two hours of arguments during the first hearing since Detroit filed for Chapter 9 protection on July 18. The courtroom was jammed with lawyers representing some of the thousands of creditors as well as rank-and-file city employees and retirees eager to know the outcome.

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

There are three lawsuits in state courts challenging the bankruptcy. They mostly focus on a provision in the Michigan Constitution that says public pensions "shall not be diminished or impaired." Pensions have not been frozen or reduced in the bankruptcy so far, but officials say there are shortfalls in the funds and payouts could be at risk.

The lawsuits remain alive, although the Michigan appeals court temporarily stopped any further proceedings Tuesday.

Sharon Levine, an attorney for a union that represents city workers, urged Rhodes to let those lawsuits run their course. She said there's no federal insurance for public pensions once they're broken, unlike pensions at private employers.

"Our members who participate at most are at or below $19,000 a year. There is no safety net," Levine said.

Michigan Gov. Rick Snyder signed off on Detroit's bankruptcy, calling it the only "feasible path" for a city whose population has plummeted to 700,000 from 1.8 million decades ago. Detroit's $18 billion in long-term debt has become an urban millstone.

In March, Snyder appointed Orr, a bankruptcy expert, as Detroit's emergency manager. Orr had sweeping powers to reshape city finances but recommended bankruptcy after failing to reach any significant deals with creditors, including Wall Street bankers and Detroit pension funds. Many of those creditors, however, accused him of being inflexible and believe bankruptcy always was the plan.

Detroit has more than double the population of Stockton, Calif., which had been the largest U.S. city to file for bankruptcy before Detroit trumped it last week.

Retirees and city employees are concerned. Lt. James Edwards, who has worked 18 years at the fire department, attended the court hearing Wednesday.

"It seems as though we're going to end up being the patsy for a lot of bad decisions that have been made over the years," he said. "You base your life decisions on promises made to you when you came on the job."

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