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Judge Holds First Hearing In Detroit Bankruptcy

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DETROIT (WWJ/AP) –  Detroit’s bankruptcy hit a courtroom for the first time as a judge considers what to do with challenges from retirees who claim their pensions are protected by the Michigan Constitution.

Bankruptcy Judge Steven Rhodes, Wednesday morning, heard about two hours of arguments and will return to the bench at 2 p.m. to make a key decision in the  case.

Rhodes will decide whether to stop lawsuits in other courts that challenge the bankruptcy filing.

Retirees worried about their pensions have received favorable rulings from an Ingham County judge who says Gov. Rick Snyder acted illegally in approving the bankruptcy. Those cases remain alive, although the Michigan appeals court temporarily stopped any further proceedings Tuesday.

As lawyers for some of the thousands of creditors arrived Wednesday, they passed protesters holding a banner saying: “Cancel Detroit’s debt. The banks owe us.”

“Detroit’s Emergency Manager Kevyn Orr is inside the courtroom,” reported WWJ’s Vickie Thomas as the hearing got underway at 10 a.m. “Just outside the courtroom there’s a table for other attorneys of record who want to speak during today’s proceedings to sign in.

“There are community leaders here; there are city workers here. Right now I’m looking at a lot of folks in red t-shirts, and these are firefighters who are joining with other protesters here outside of the courthouse,” Thomas said.

In Michigan, pension benefits are guaranteed in full according to state constitutions, statutes or court precedent. Yet Orr, who was appointed by the state, is asserting that those guarantees go away in federal bankruptcy court, leaving retirees in the same pool as numerous other creditors who may get mere cents for each dollar they are owed.

Both Michigan Gov. Rick Snyder and Orr contend that retiree benefits should be able to be trimmed along with other debts to restore the city’s finances. Detroit has about 21,000 retired workers who are owed benefits, with underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage.

“There have to be concessions,” Orr said earlier this week.

Detroit attorney Heather Lennox says the city would be “irreparably harmed” if the lawsuits are allowed to continue. She says bankruptcy court is the proper place for any challenges to the case. But union attorney Sharon Levine says Michigan courts are the right venue for state constitutional issues.

Orr said for a city suffocating under $18 billion in long-term debt, bankruptcy was the only viable option.

The bankruptcy case is expected to last a year or more.

Detroit is the largest U.S. city to file for bankruptcy protection.

Get complete coverage of Detroit’s bankruptcy HERE.

TM and © Copyright 2013 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2013 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

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