07/22/2013 10:48 am ET

Detroit Bankruptcy Hearing Delayed By Judge Rosemary Aquilina, Says Constitution Not Swiss Cheese

Ingham County Circuit Court Judge Rosemary Aquilina put off a hearing on whether Detroit's bankruptcy filing is unconstitutional until July 29, telling an audience on Monday that Michigan's constitution is ironclad and can't be made of Swiss cheese, according to Detroit Free Press reporter Kathleen Gray.

The Detroit News reports Aquilina asked lawyers representing pension funds to file several briefs before next Monday's hearing.

Ruling on three separate lawsuits Friday filed by pension funds and retirees, Aquilina issued a restraining order, injunction and a declaratory judgment said that Gov. Rick Snyder and Detroit Emergency Manager Kevyn Orr's decision to file for bankruptcy the day before violated Michigan's constitution and state law. The Michigan Constitution says that the pensions of public employees can't be reduced or taken away. However, those pensions are not guaranteed by pension insurance or the state of Michigan in the event that a city can't pay.

Pension boards in Detroit are arguing that Orr did not negotiate with them in good faith over unfunded pension liabilities. In Orr's recommendation for bankruptcy, he wrote that creditor meetings were constructive and conducted in good faith, but "there is no realistic prospect of reaching agreements with all affected constituencies in a timely fashion."

Bankruptcy generally puts a hold on all lawsuits filed against a city, which makes the impact of the Ingham County Circuit Court Judge's ruling questionable. Federal law most often trumps state law, and since the bankruptcy was filed
before Aquilina submitted her decision Friday, it may be determined invalid.

Michigan Attorney General Bill Schuette issued a statement Friday saying he would ask for an expedited hearing in the Michigan Court of Appeals to stop any lower court proceedings from going forward. Snyder petitioned the court on Monday to move the lawsuit to U.S. District Court, giving a bankruptcy judge the authority to rule on the issue.

"This is going to present an interesting issue that you wouldn't get in a normal bankruptcy case, which is the interplay of state and federal law," Wayne State Law Professor Peter Henning told The Huffington Post.

A bankruptcy judge could also take up the issue of whether Michigan's filing violated state law, and, of course, negotiate with pension funds and retirees if ultimately deciding that the city of Detroit is able to cut pensions. But if the bankruptcy is found to be unconstitutional, the case would be kicked out of court.

Bankruptcy and reorganizing expert Jim McTevia said he thinks the Michigan Court of Appeals will stay Aquilina's decision, which he called "unconscionable," thus allowing Detroit's bankruptcy to move forward.

"I think that, under the law, the governor has the authority; and under the law, Kevyn Orr has the authority; and under the law, the City of Detroit under bankruptcy code Chapter 9 is eligible to reorganize and seek protection," he said.



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