Court sets three hearings for Detroit Chapter 9 eligibility objections

By Caroline Salls

Pittsburgh, Aug. 27 - A federal bankruptcy court laid out its plan for hearing objections to the City of Detroit's eligibility as a Chapter 9 debtor and said it would not consider the treatment of pension rights when hearing objections related to the city's desire to complete a plan of debt adjustment, according to a Monday filing with the U.S. Bankruptcy Court for the Eastern District of Michigan.

Judge Steven W. Rhodes said 109 parties filed objections to Detroit's Chapter 9 eligibility.

Under Monday's scheduling order, objections that only raise legal issues will be heard on Sept. 18, and objections filed by individuals will be heard on Sept. 19. Objections that require the resolution of "genuine issues of material fact" will be heard at the previously scheduled Oct. 23 hearing.

Legal issues

The legal issues raised in the objections include the following:

• Chapter 9 of the Bankruptcy Code violates the U.S. Constitution;

• The bankruptcy court does not have the authority to determine the constitutionality of Chapter 9 of the Bankruptcy Code;

• Michigan Public Act 436 of 2012 violates the Michigan constitution and therefore the city was not validly authorized to file the bankruptcy case;

• The bankruptcy court does not have the authority and jurisdiction to determine the constitutionality of Michigan Public Act 436 of 2012;

• Detroit's emergency manager is not an elected official and therefore did not have valid authority to file this bankruptcy case;

• Because the governor's authorization to file this bankruptcy case did not prohibit the city from impairing the pension rights of its employees and retirees, the authorization was not valid under the Michigan constitution; and

• Because of the proceedings and judgment in Gracie Webster, et al. v. the State of Michigan, et al., a case before the Ingham County Circuit Court, the city is precluded by law from claiming that the governor's authorization to file this bankruptcy case was valid.

Resolution required

Meanwhile, objections that require resolution of issues of material fact include the following:

• The city was not insolvent;

• The city does not want to complete a plan to adjust its debt. The court said it would not consider the treatment of pension rights in connection with this category of objections.

Rhodes said these objections claim that the city's emergency manager intends to propose a plan that would impair the pension rights of employees and retirees in violation of the Michigan constitution and that such a plan cannot be confirmed.

However, the judge said the requirement of eligibility that the city desires "to effect a plan to adjust such debts" under the Bankruptcy Code does not obligate it to prove that any particular plan that it might later propose is confirmable;

• The city did not negotiate in good faith with creditors;

• The city was not "unable to negotiate with creditors because such negotiation is impracticable;" and

• The bankruptcy petition should be dismissed because it was filed in bad faith.

Detroit filed bankruptcy on July 18 under Chapter 9 case number 13-53846.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.