Bankruptcy judge rules that federal court must make all decisions in Detroit Chapter 9 Bankruptcy

DETROIT (WXYZ) - A bankruptcy judge has ruled that the federal court has jurisdiction in Detroit's Chapter 9 Bankruptcy case, halting the challenges that have been pending in state court.

The ruling is victory for the city of Detroit and a blow to the Detroit pension funds. However, they can still appeal the decision in federal court.

This does not mean that the city's Chapter 9 Bankruptcy will move forward. The judge must now weigh the facts and decide if the bankruptcy filing is valid, before if can proceed. That process will take 90 days.

Today's hearing was moved from bankruptcy court to the main federal courthouse, because interest is so high. Three overflow rooms were set up for spectators and media, so they can watch the hearing on closed circuit TV. However, no media cameras will be allowed in.

The judge is due to decide if proceedings in state court will be allowed to continue, or if everything will he litigated in federal bankruptcy court. 

7 Action News reporter Kim Russell was in federal court this morning for the hearing.

Read her live blog of the proceedings below:

 

Before you could walk into U.S. District Court in Detroit on Wednesday morning you had to walk past about a dozen protesters.  They held signs that made their message clear.  They believe the banks should take the hit as Detroit goes through bankruptcy court.

At 10:00 a.m. on the dot the hearing began.  The judge explained to lawyers how the day would go.

Judge Steven Rhodes did say that when anyone files bankruptcy all of the legal proceedings against that person are stopped.  When a municipality files bankruptcy the legal proceedings against that municipality are also stopped.

The city's attorney spoke first before the judge.  She said the city filed a motion with federal court because  not all people understand the concept  of a stay or how it works in Chapter 9.  She said they  have had state judges look into whether it applies.  She wants the federal judge to issue a ruling to make sure it applies.

UPDATE 10:28 a.m.:

The city knows of three lawsuits that have been filed by creditors, but wants the judge to also protect them from future lawsuits that may be filed while in bankruptcy. The city attorney just wrapped up her opening, and the attorneys for creditors involved in those lawsuits are going to get a chance to argue their case.

UPDATE 10:35 a.m.:

Attorneys for employees and the retirement system say this is a unique case.  They say what Detroit is trying to do in bankruptcy is violate the constitutional rights of its workers.  The state constitution protects the pensions of  public workers. Attorneys say the state constitution does not allow a bankruptcy filing to go after pensions.  They say the state courts are ready to address this, and there is no reason to stop them.

UPDATE 10:50 a.m.:

Furthering their argument,  attorneys for city retirees say in order for a city to get protection from litigation in Chapter 9, it must have obtained valid state permission to file for Chapter 9.  The governor is also sworn to uphold the state constitution.  As a result they argue there has not been a valid state authorization for this bankruptcy filing.

UPDATE 11:25 a.m.  The judge allowed anyone in the courtroom with something to say to speak.  Now the city attorney is answering the judge's questions. She just introduced Detroit's Emergency Manager Kevyn Orr, who is in the courtroom to the judge.  She now is citing other cases that she believes help her case.

 

 

 

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