Judge Allows Appeal in Detroit Bankruptcy Case That Could Cut Public Sector Pensions

Judge says appeal can go forward in Detroit bankruptcy case while all sides keep negotiating

December 16, 2013

AP - A crucial decision that keeps Detroit in bankruptcy court and puts pensions at risk can immediately be appealed to a higher court, a judge said Monday. 

But Judge Steven Rhodes said he still needs a day or two to think about whether he'll recommend that a federal appeals court put the case on a fast track. 

At issue is Rhodes' Dec. 3 opinion that changed the tone of Detroit's bankruptcy case. He found the city eligible to remake itself under Chapter 9, saying it was impossible for officials to genuinely negotiate before the July filing. He also declared that pensions aren't immune to cuts in a final plan, contrary to the Michigan Constitution. 

Attorney Lisa Fenning said pension funds aren't trying to stop the bankruptcy process and will continue to negotiate with the city as it tries to come up with a broad plan to restructure $18 billion in long-term debt.

She said the best "middle ground" for her clients at the appeals court would be a decision that protects pensions but doesn't kill the overall case. 

Sharon Levine, an attorney for the American Federation of State, County and Municipal Employees, said an immediate appeal is important because the union is concerned that Rhodes' decision could be applied in other states where governments are struggling.

"This is an issue of national importance. ... We do think having these issues decided quickly would be constructive," she told the judge, referring to Detroit's eligibility for bankruptcy and the impact on pensions.

Detroit emergency manager Kevyn Orr hopes to file a broad reorganization plan by January. Separately, foundations and private donors have been asked to consider raising $500 million to protect city-owned art and soften any blow to pensions.