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Detroit files lawsuit to nullify $1.44 billion pension obligation deal
By Caroline Salls
Pittsburgh, Jan. 31 - City of Detroit emergency manager Kevyn Orr authorized the city Friday to take legal action to nullify a $1.44 billion pension obligation certificates transaction, according to a news release.
The city said the lawsuit filed Friday seeks "to end the controversial pension financial deals that hastened Detroit's insolvency."
The lawsuit was filed against the Detroit Police and Fire Retirement System Service Corp., the Detroit General Retirement System Service Corp., the Detroit Retirement System Funding Trust 2005 and Detroit Retirement System Funding Trust 2006.
Detroit said the transaction was void from the beginning.
"This deal was bad for the city from its onset despite reassurances it would adequately resolve the city's pension issues," Orr said in the release.
"We have tried without success to negotiate a resolution to this dispute and to allow the city and its taxpayers to move forward and unwind these illegal transactions."
According to the release, the transaction was intended to raise money to meet Detroit's obligations related to the unpaid accrued actuarial liabilities of its two principal retirement systems.
The city said it believes that the transaction was illegal from the outset "because it was a thinly disguised municipal bond issue using shell entities to exceed the city's statutory debt limit under the Michigan Home Rule City Act and circumvent the requirements of the state's Revised Municipal Finance Act."
The city is asking the U.S. Bankruptcy Court for the Eastern District of Michigan to rule that Detroit has no enforceable obligation to continue making payments on the certificates.
The city is represented by Jones Day in connection with the lawsuit.
Detroit filed bankruptcy on July 18, 2013 under Chapter 9 case number 13-53846.
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