Historical Ruling: Detroit Prevails in Bankruptcy Decision !


DETROIT, MI – The City of Detroit is eligible for Chapter 9 bankruptcy relief and US-Bankruptcy-Courtcan restructure more than $18 billion in debt in court.

Creditors end up battered and bruised in the rulings.  As the rulings came down one after another, those protesting outside the courthouse started dwindling very quick as they realized that nothing was going as they had hoped.

Judge Steven Rhodes did his very best to ensure that he would not be overruled on appeal.  As he laid out his rulings he referenced law as it has previously been applied or written.

“The court finds the city of Detroit was and is insolvent. The court finds that that city was generally not paying its debts.”  Judge Steven Rhodes ruled that Detroit is eligible for bankruptcy and the Chapter 9 case can proceed toward the debt-cutting phase.

“Was Detroit bankruptcy a foregone conclusion? Of course it was,” judge stated. The City of Detroit should have filed years earlier he added.  The city could have avoided much of the distrust by “simply announcing honestly that the city is insolvent” & needed bankruptcy.  “There is simply no evidence that the city has an ulterior motive in seeking Chapter 9, such as to buy time or evade creditors.”

On Good faith negotiations:  “There was simply not enough information for creditors to start meaningful negotiations.”  Judge Rhodes rules Detroit did not file good faith negotiations requirement.  It’s clear Kevin Orr had the “desire and intent” to put a plan in place to improve finances and that Kevin Orr had no ulterior motive.  However, Detroit does prevail under the law based on the shear size of its debt obligation. The city does meet the requirement because it was impractical to negotiate.

As for the selling of the artwork at the DIA, Judge stated there are those who said that the city should have sold the art to pay for services. Judge Rhodes stated this would not have helped.

Evidence “establishes overwhelmingly” that the city cannot deliver services & pay its bills”  Judge Rhodes made it clear that “one-time budget fixes were not fixing the problems.”

Federal Judge Steven Rhodes decisions based on a 140 page ruling is one that will have ripple effect throughout the United States for any city that is facing the possibility of filing for bankruptcy.  One of his first statements after taking the bench addressed the City of Detroit’s issue with pensions.

Judge Rhodes ruled his court is not obligated to uphold a state court lawsuit that sought to derail the bankruptcy filing in July.  Rhodes stated the court’s role is to determine what is eligible by law and not what is popular, or unpopular, like the appointment of the Emergency Manager.

Judge Rhodes is quoted as saying ‘The city needs help. 18 billion dollars in debt. More than 100,000 creditors.’ ‘Pension contributions will only rise with time.’  On the city’s decision to stop paying some creditors.  “If the city had not not deferred payments, it would have run out of cash by June 30, 2013” Rhodes said. “Let me repeat that.”

Rhodes findings and conclusions of law in his bench ruling, starting with the challenge of constitutionality of Ch. 9 & PA436.“The court concludes that it has the authority to determine the constitutionally of Chapter 9 and PA436,” Judge Rhodes stated.  States Chapter Nine does satisfies the Constitution.

When the Judge addressed standing & ripeness of Ch. 9 constitutional objection: “The court concludes the objecting parties do have standing.”  Judge Rhodes speaking on the constitutional challenges on grounds of pension impairment. “The court finds now that these issues are ripe for decision.”  “Resolving the issue now will likely expedite the resolution of this bankruptcy case.”  “The court concludes that Chapter 9 is not facially unconstitutional under the 10th amendment of the United States Constitution”

He also ruled, which is vitally important, “The State must provide for constitutionally protected pension rights.”  Judge Rhodes on the arguments that bankruptcy interferes with state’s rights on pensions, he is bound by Supreme Court decisions.  Judge Rhodes stated that the objectors argument “does not demonstrate that pensions are entitled to any” additional protection like other contracts.  The arguments that pensions have state protection: “These prohibitions, however, do not apply in federal bankruptcy court.”  To interpret that:  Only contract rights and nothing further.  Judge Rhodes stated that Michigan’s 1963 constitution could have protected pensions in bankruptcy. “But it did none of those.”  The Court will not lightly or casually exercise power to impair pensions.”  “It’s clear the pension rights are contract rights and are subject to impairment in Bankruptcy and is constitutional.” This does mean that pensions can be altered.

Judge shot down the challenge that state Emergency Manager law is unconstitutional.  “The court finds that PA436 does not violate the home rule provisions of the Michigan constitution.”

An outburst over the pension ruling had security staff threatening to remove someone.

Expect immediate appeals to flood the court system

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