Legal wrangling shadows Detroit bankruptcy filing

By Bernie Woodall

LANSING, Michigan (Reuters) - The tug of war over whether Detroit legally could file for municipal bankruptcy continues this week as the city seeks an initial hearing in U.S. federal court to put on hold challenges to the filing in Michigan court.

Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have been running to state court in Michigan's capital of Lansing in an effort to derail the biggest Chapter 9 municipal bankruptcy in U.S. history.

A Michigan state court judge on Monday morning adjourned a hearing in a case brought by city pension plans with no action taken. The pension plans asked for the proceedings to be postponed one week to July 29.

That follows an order issued in one of the other cases on Friday by the same judge, Ingham County Circuit Court Judge Rosemarie Aquilina, directing Detroit Emergency Manager Kevyn Orr to withdraw the bankruptcy petition he filed on Thursday.

In Friday's order Aquilina said the state law that allowed Michigan Governor Rick Snyder to approve the bankruptcy filing violated the Michigan Constitution. The governor cannot take actions that would violate constitutional protections for retirement benefits for public workers, she said.

Michigan Attorney General Bill Schuette, acting on behalf of Snyder, filed an appeal with the state appeals court, which has not yet taken action on the matter.

Orr, meanwhile, filed a motion with Federal Bankruptcy Court Judge Steven Rhodes, who was appointed on Friday to oversee the Detroit case, requesting a hearing as soon as Tuesday on his request to put a hold on lawsuits aimed at stopping the city's Chapter 9 proceedings. The emergency manager's motion also asked the judge to rule on deadlines, schedules, notification lists and other procedural matters.

Legal experts have said they expect the federal judge to put state litigation on hold, allowing those plaintiffs to use the federal court to argue why Detroit should not be allowed to file for bankruptcy.

Orr on Friday said he suspected the city will face an eligibility fight, which would also include whether or not the city made a good faith effort to negotiate with creditors over its more than $18 billion of debt.

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry and Motown music, has struggled for decades as companies moved or closed, crime became rampant and its population shriveled by about 25 percent in the past decade to 700,000. The city's revenue failed to keep pace with pending, leading to years of budget deficits and a dependence on borrowing to stay afloat.

(Writing and additional reporting by Karen Pierog; Editing by Dan Burns and Nick Zieminski)

Source: http://news.yahoo.com/legal-wrangling-shadows-detroit-bankruptcy-filing-145353259.html

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