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Judge Steven Rhodes Sets Detroit Bankruptcy Hearing For Lawsuits Challenging Bankruptcy Filing

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DETROIT — The federal judge overseeing Detroit's bankruptcy set the first hearing in the case for Wednesday after the city urged him to stop pensioners from filing lawsuits that could gum up plans to restructure billions of dollars in debt.

It will be the first hearing less than a week after Detroit became the largest U.S. city to file for bankruptcy. Judge Steven Rhodes said Monday he'll take up just a few issues.

The city wants Rhodes to suspend lawsuits and prevent new ones, especially in state court. In one lawsuit, pensioners have complained that retirement checks could be in jeopardy in violation of the Michigan Constitution. An Ingham County judge ordered Detroit emergency manager Kevyn Orr and Gov. Rick Snyder to not take any more action in the bankruptcy.

The status of employee pensions is expected to be a key issue in the bankruptcy. Orr has said that pension benefits could be reduced along with other debts as the city returns to sound financial footing.

Lawyers for the city said U.S. Bankruptcy Court is the only appropriate venue for matters related to the case. It's routine, they said, for all other litigation to be stopped, giving a debtor such as Detroit a "breathing spell" as it works to protect assets and restructure debts.

Employee unions are citing a provision in the Michigan Constitution says pensions for public employees "shall not be diminished or impaired."

In her ruling Monday, Ingham County Circuit Judge Rosemarie Aquilina said, "I don't think the constitution should be made to be Swiss cheese. Once we erode it with one hole, there will be others."

Ron King, an attorney for Detroit's pension funds, said the funds aren't trying to stop the bankruptcy, just limit its reach.

"It's very narrow, very straightforward," King told reporters. "It's simply an issue of upholding the constitutional protections that are in place. This is what the people of the state of Michigan decided was important."

Snyder wants the bankruptcy judge to sort out pension issues, not Aquilina, although he conceded that smaller checks for current pensioners "could be one of those unfortunate things that comes out of this process."

"Everything's on the table in terms of going through these issues in bankruptcy court," the governor told Detroit radio station WWJ.

University of Michigan law professor John Pottow said Rhodes has a few options, including a time-out in the bankruptcy case to let Michigan courts sort out the impact of the constitution's pension provision.

"There is no precedent for this," Pottow said.


Eggert reported from Lansing, Mich.


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