Detroit bankruptcy: Legal turmoil emerges one day after filing

July 19, 2013|By Cindy Carcamo
  • A store in downtown Detroit shows a sign of optimism on Friday.
A store in downtown Detroit shows a sign of optimism on Friday. (Bill Pugliano / Getty Images )

Detroit’s historic bankruptcy filing was thrown into turmoil Friday afternoon, sparking a court battle between a judge and the state’s attorney general a day after the city’s state-appointed emergency manager filed for Chapter 9 protection.

A judge in Michigan ruled that the bankruptcy filing violated Michigan’s constitution because it would prove detrimental to the pension and benefits of public employees. Circuit Court Judge Rosmarie Aquilina ordered Detroit Emergency Manager Kevyn Orr  to stop moving forward with bankruptcy proceedings as a result of three separate lawsuits, stating that the bankruptcy was a way for city officials to illegally circumvent city pension obligations.

At the end of the order, Aquilina took the unusual move of writing that “a copy of this order shall be transmitted to President Obama.”

Shortly after, state Atty. Gen. Bill Schuette pledged to appeal Aquilina’s ruling, stating that he would seek emergency consideration with the Michigan Court of Appeals.  He also filed motions to stay the trial court rulings and any future proceedings while the appeals proceed, according to a prepared statement sent by Schuette spokeswoman Joy Yearout.

Schuette claims that the trial court  “abused its discretion in entering the preliminary injunction” and that the order would injure the public interest.

“The public is not benefited by a court order that prohibits the emergency manager from proposing an effective recovery plan,” Schuette argues in court documents.

The issue stems from three lawsuits filed by lawyers representing pensioners against Gov. Rick Snyder, Orr and state Treasurer Andy Dillon. The suits claim that the bankruptcy was unconstitutional.

Detroit has an estimated $18 billion in debt. For decades, it has suffered job losses in the auto industry, plummeting population and the inability to provide decent basic services to its residents because there aren’t enough people paying taxes.

Detroit now beats out Stockton, Calif., as the biggest city to seek bankruptcy protection. San Bernardino filed for bankruptcy protection in August.


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