U.S. Bankruptcy Judge Steven Rhodes )
Detroit— U.S. Bankruptcy Judge Steven Rhodes is allowing Detroit’s biggest labor union to pursue an effort to restore bonus payments for city retirees and employees.
The judge issued a limited order Wednesday that clears the way for a labor law judge to issue a written opinion over whether the city improperly terminated the so-called “13th check” program two years ago.
Administrative law judge Doyle O’Connor, who is retiring Friday, has indicated in oral remarks the city should have negotiated with the American Federation of State, County and Municipal Employees instead of unilaterally axing the benefit in 2011. The judge also could pinpoint the amount of money the General Retirement Fund must repay workers and retirees.
City lawyers fear the move could lead to AFSCME trying to revive the 13th check program, which they say depleted the city’s pension funds of $1.9 billion in investment value over two decades and contributed to an estimated $3.5 billion in unfunded liability at the center of Detroit’s bankruptcy case.
From 1985 to 2007, the General Retirement System paid out $756 million in bonuses to employees and $195 million in extra payments to retirees when the pension fund’s investments made more money than expected, according to an affidavit pension trustee John Riehl filed in court Tuesday.
AFSCME attorney Sharon Levine said if the administrative law judge issues a written opinion in the labor union’s favor, they may use it later in the bankruptcy proceedings to make an additional financial claim against the city.
“All we’re really looking to do here is take a snapshot of a piece of information that may become valuable to us at a future time,” Levine said Wednesday during a court hearing.
Describing his ruling as “very narrow,” Rhodes said he has the authority to lift the automatic stay blocking lawsuits while Detroit is in bankruptcy when another court is poised to rule on a specific issue. He’s giving AFSCME until 11:59 p.m. Friday to get a written opinion from O’Connor.
Rhodes cautioned other creditors that his ruling does not mean he is inclined to let other parties pursue lawsuits against the city while Detroit is in bankruptcy court.
“The facts and circumstances here are unusual and unique to say the least,” he said.
Also Wednesday, Rhodes heard arguments from two other parties seeking relief from the stay to pursue starkly different lawsuits.
The family members of a slain Detroit police officer wants Rhodes to let their lawsuit against the city and police personnel proceed despite the historic bankruptcy case.
Attorney William Goodman asked the judge for permission to seek restitution for the estate of slain Detroit officer Patricia Williams, who was killed by her husband, Ed Williams, a Detroit homicide detective, in a murder-suicide in the Canton Public Library parking lot on Sept. 23, 2009.
Patricia Williams’ mother, Deborah Ryan, is pursuing a lawsuit against the city, arguing the Police Department is liable for a “state-created danger” for not hospitalizing Ed Williams after a string of domestic violence and suicidal incidents.
Goodman said the bankruptcy case’s automatic stay violates the family’s constitutional rights to due process. Rhodes set another hearing for Tuesday on the matter.
Also on Wednesday, attorneys for the NAACP’s Detroit and Michigan branches sought permission from Rhodes to pursue a lawsuit seeking to overturn the emergency manager law.
NAACP attorneys Melvin “Butch” Hollowell and Nabih Ayad argued the law violates the voting rights of residents in Detroit and other cities and school districts with state-appointed emergency managers by sidelining the elected officials.
In May, the NAACP sued Gov. Rick Snyder and state Treasurer Andy Dillon over the constitutionality of Public Act 436, the emergency manager law the Legislature passed in December.
Rhodes questioned what impact the lawsuit might have on the bankruptcy case since Emergency Manager Kevyn Orr’s Chapter 9 filing was done under PA 436.
“This is not a collateral attack on the Detroit’s bankruptcy,” Hollowell told the judge. “Really, it’s a direct attack on the constitutionality of Public Act 436.”
Hollowell later acknowledged Orr could be ousted from City Hall if the law is found unconstitutional.
Assistant Attorney General Nicole Grimm said the NAACP lawsuit, if allowed to proceed, would “eviscerate Detroit’s bankruptcy filing.”