​Detroit Bankruptcy Gets Fight From Unions

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August 19, 2013

Detroit has a mess on its hands after falling $18 billion in debt, and now the unions are challenging the city’s bankruptcy stating it should be dismissed. The unions say it violates the Michigan and U.S. constitutions.

The filing by the American Federation of State, County and Municipal Employees will be followed by other major creditors who have pledged fight the bankruptcy. Today is the deadline to challenge the city’s eligibility for court protection. U.S. Bankruptcy Judge Steven Rhodes in Detroit has scheduled a trial on the question for October.

The union expanded on the claims made in court last month by its lead lawyer, Sharon Levine, with the New Jersey law firm Lowenstein Sandler LLP.

Detroit “hastily commenced this unconstitutional, unlawfully authorized Chapter 9 proceeding seeking the haven of bankruptcy to illegally attempt to slash pension and other post-employment benefit obligations and cram such reductions down the throats of current and former city employees, such as the AFSCME Detroit Employees,” the union said.

The city filed the biggest ever U.S. municipal bankruptcy in July after the state-appointed emergency manager, Kevyn Orr, said six decades of economic decline left Detroit unable to pay creditors, including retired city workers, in full and provide residents necessary services.

In its first two court hearings, lawyers for police, fire and general-city workers said they were planning to challenge the city’s right to be in bankruptcy. Other creditors, including National Public Finance Guarantee Corp., a unit of bond insurer MBIA Inc., also indicated they plan to object to the bankruptcy.

City unions and pension officials claim Governor Rick Snyder violated Michigan’s constitution by authorizing Orr to file for bankruptcy. Pension funds for retired city workers unsuccessfully sued in state court to have the filing canceled.

A recent U.S. Supreme Court ruling shows that Chapter 9 of the federal bankruptcy code violates the U.S. Constitution, the union claimed.

The union claims the city hasn’t proved it is insolvent, hasn’t tried to negotiate with creditors and hasn’t been authorized for bankruptcy under Michigan law.