DETROIT, (Reuters) – A U.S. bankruptcy court judge yesterday dealt a blow to Detroit’s public employee unions and pension funds opposed to the city’s historic bankruptcy filing by suspending legal challenges in Michigan state courts while he reviews the city’s petition for protection from creditors.
Judge Steven Rhodes ordered three lawsuits filed by city workers, retirees and pension funds be halted and extended that stay to suits against Michigan’s governor, treasurer and Detroit’s emergency manager. Rhodes’ action ensures that the only path to fight the city’s Chapter 9 bankruptcy petition runs through his courtroom in downtown Detroit.
It also sets the stage for what is expected to be a protracted and bruising battle over the city’s eligibility to restructure more than $18 billion in debt and pension and healthcare liabilities under the broad protections of federal bankruptcy law.
“It gives us one venue to settle our disputes. This brings it into one court where it should be,” said Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr, who attended the oral arguments before Rhodes on Wednesday morning but did not return for the judge’s ruling from the bench in the afternoon.
The city’s unions and pension funds had hoped to keep the fight in state court, where they felt Michigan’s constitutional protections of retiree benefits would prevail against efforts by Orr to scale them back. Now, barring an appeal of the Rhodes ruling, their fight likely turns to convincing the judge that Orr has not dealt with them in good faith in negotiations since he was appointed by state officials in March.
“Stay or no stay, we will never stop fighting for Detroit and its workers,” Al Garrett, president of American Federation of State, County and Municipal Employees Council 25, Detroit’s biggest union, said in a statement.
Union members in the packed courtroom held their heads in their hands or shook their heads as Rhodes ruled against them on all three of the motions at issue in the day’s proceedings. Meanwhile, city firefighters, worried that the bankruptcy case will lead to stinging cuts in their retirement benefits, protested outside.
