Detroit bankruptcy judge allows appeal, asks higher court to reject

Reuters News
Posted: Dec 20, 2013 4:18 PM
Detroit bankruptcy judge allows appeal, asks higher court to reject

By Joseph Lichterman

DETROIT (Reuters) - The judge in Detroit's bankruptcy case on Friday certified a direct appeal of his recent decision declaring the city eligible for bankruptcy protection, but recommended that a federal appellate court reject it because the case would best be dealt with in bankruptcy court.

Judge Steven Rhodes, of U.S. Bankruptcy Court, in a written decision said he is required to certify the appeal directly to the U.S. 6th Circuit, a move that bypasses an intermediary step of an appeal to U.S. District Court.

Still, he recommended that the higher court reject the appeal and allow his court to embark on the process of resolving the city's financial insolvency without the interruptions a simultaneous appeal would impose.

On Monday, Rhodes said from the bench that he would allow for the appeal to bypass the district court, but he delayed a ruling on whether he would ask the higher court to expedite the appeal.

In his written ruling, Rhodes said he recommended that the appeals court not take up the appeal because it would be best to let the bankruptcy court decide whether to approve the city's plan to adjust its debt quickly and completely without the added burden of an appeals process.

"It is time now to begin that discussion, unfettered by piecemeal appellate litigation," Rhodes wrote.

Rhodes wrote he is still maintaining a March 1 deadline for Detroit to submit its plan of adjustment. Detroit's emergency manager, Kevyn Orr, has said that the city plans to submit its plan in early January.

The judge also wrote that if the court decided to take up the appeal, he would not make a recommendation of whether it should handle the matter in an expedited fashion. Instead, Rhodes wrote that the appeals court should consult with U.S. District Judge Gerald Rosen, the chief mediator in the case, to ensure that an expedited appeals process does not interfere with ongoing mediation.

"The Court remains convinced that the interests of the City, its residents and its creditors are better served by adjusting the pace of the legal process, including the appeals, to meet the needs of the mediation process," Rhodes wrote.

Attorney Sharon Levine, representing the American Federation of State, County and Municipal Employees, said in an interview that the union, which asked for a direct appeal, urges the appeals court to take up the case expeditiously.

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"The appeals should be decided quickly and in favor of protecting the pensions and promoting good faith negotiations," Levine said.

Unions, as well as retirees and pension funds, have opposed the bankruptcy, saying that plans to cut pensions for city workers is a violation of the Michigan constitution.

Earlier this month, Rhodes declared that Detroit was eligible for bankruptcy protection due to its insolvency and because there were too many creditors for the city to negotiate with. He also ruled that the city could cut pension benefits to reduce its $18.5 billion in debt, however he said he will "not lightly or casually exercise the power under federal bankruptcy law to impair pensions."

(Reporting by Joseph Lichterman; Editing by James Dalgleish, Dan Grebler and Leslie Adler)