Posted on July 24, 2013

Judge Halts Lawsuits Seeking to Block Detroit Bankruptcy

Scott Cohn, CNBC, July 24, 2013

A federal bankruptcy judge on Wednesday suspended pending lawsuits in state courts that are challenging Detroit’s bankruptcy filing.

U.S. Bankruptcy Judge Steven Rhodes said there is nothing in the 10th Amendment, which guides state vs. federal jurisdiction, that bars federal jurisdiction in this case. He said his court will be the exclusive venue for any legal action regarding the bankruptcy.

Detroit’s Emergency Manager Kevyn Orr — a bankruptcy expert appointed by Gov. Rick Snyder earlier this year to oversee Detroit’s finances — has said the federal bankruptcy filing is necessary to get the city out from under some $18 billion in liabilities.

But the city’s employee unions argued the bankruptcy is an end-run around the state constitution, which protects their pension benefits. The unions backed a series of lawsuits filed in Michigan courts to block the bankruptcy. Last week, Ingham County Circuit Judge Rosemarie Aquilina ruled the bankruptcy filing unconstitutional, but a state appeals court put her ruling on hold, and Orr argued the federal court should make that stay indefinite.

The emergency manager said bankruptcy is a federal matter. A bankruptcy filing normally puts all other litigation on hold, but Orr’s office asked the judge to extend that automatic stay to cover him and state officials, including the governor. Orr’s attorneys acknowledged the request was unusual, but said “recent events” — the lawsuits in state court — made it necessary.


Because of the intense interest in the largest municipal bankruptcy filing in U.S. history, the hearing was moved from Rhodes’ normal courtroom to a much larger one across the street at the Theodore Levin Federal Courthouset. Many members of the public and the media were relegated to an overflow courtroom down the hall to view a video feed.

Outside the courthouse, a handful of protesters carried signs in support of the unions. One demonstrator played a recording of Martin Luther King’s “I have a dream” speech through a megaphone.