07/24/2013 02:41 pm ET Updated Jul 24, 2013

Detroit Bankruptcy Filing Going To Federal Court, Judge Halts Challenge Lawsuits

A judge's decision Wednesday means Detroit's historic bankruptcy filing will move forward.

U.S. District Judge Steven Rhodes ruled Wednesday afternoon that Detroit's bankruptcy case will go to federal court, overruling challenges to the filing from Michigan's state court.

Rhodes decision halts a Friday ruling from Ingham Circuit Court Judge Rosemary Aquilina that declared the bankruptcy filing unconstitutional.

Detroit filed for bankruptcy last Thursday afternoon, just five minutes before Aquilina was set to rule on three lawsuits filed by pensioners and retirees in an emergency hearing. Typically, a bankruptcy filing creates an immediate stay on all lawsuits filed against a city in other courts.

But lawyers representing Detroit's two pension funds and several unions argued today that the bankruptcy filing was not legal, since public pensions are protected under Michigan's constitution. Detroit's pension pays out to 21,000 retirees and about 9,500 city employees.

The city estimates it has long-term debts and liabilities totaling more than $18 billion.

Read more from the Associated Press:

A federal judge agreed with Detroit on Wednesday and stopped any lawsuits challenging the city's bankruptcy, declaring his courtroom the exclusive venue for legal action in the largest filing by a local government in U.S. history.

The decision by U.S. Bankruptcy Judge Steven Rhodes was a major victory for Detroit, especially after an Ingham County judge last week said that Gov. Rick Snyder ignored the Michigan Constitution and acted illegally in approving the Chapter 9 filing. That ruling and others had threatened to derail the case.

Retirees had sued, claiming the bankruptcy threatened their pensions that are protected by the constitution.

"If these actions are not stopped, the city would be irreparably harmed. ... These litigants will have due process. They will have their day in court" – bankruptcy court, Detroit attorney Heather Lennox said during two hours of arguments by the city, pension funds and unions.

Rhodes said Wednesday there's nothing in federal law or the U.S. Constitution that gives a state court a concurrent role in a bankruptcy.

The courtroom was jammed with lawyers representing some of the thousands of creditors as well as rank-and-file city employees and retirees eager to know the outcome. Some wore T-shirts that said, "Detroit vs. Everybody."

Detroit emergency manager Kevyn Orr, who recommended bankruptcy, sat in the front row. Outside the courthouse, protesters held a banner with a message for Wall Street: "Cancel Detroit's debt. The banks owe us."



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