Detroit’s pension funds continued to push this week for an expedited appeal of the city’s bankruptcy eligibility and ability to slash pensions while negotiations between the city and its creditors intensified over a deal to shed billions in debt.
The General Retirement System and Police and Fire Retirement System shot back late Wednesday at the city’s attempt to keep its favorable eligibility ruling out of the hands of judges on the 6th Circuit Court of Appeals’ bench.
“The city’s transparent effort to avoid any appellate review of the critically important eligibility question is legally unjustified and breathtakingly unfair to the tens of thousands of workers and retirees who devoted their lives to public service to Detroit and now depend on their accrued pension benefits, as well as employees and retirees across the state and nation who may be affected by this ruling,” the pension funds wrote in a brief filed late Wednesday with the 6th Circuit.
The pension funds’ appellate attorneys filed the brief after the city’s attorneys argued against an expedited appeal in a Monday filing with the Cincinnati-based appellate court. Detroit’s retirees want to be insulated from cuts to more than $18 billion in city debt, including an estimated $3.5 billion long-term liability in the two pension funds.
“...It would threaten to impede the progress of the case by derailing the delicate negotiations being conducted as part of the court-ordered mediation process below,” Detroit’s attorneys wrote.
The two sides traded legal barbs as their representatives also met this week at the New York City law offices of Jones Day — Detroit’s bankruptcy law firm — for closed-door negotiations over the city’s debt-cutting plan of adjustment. Emergency Manager Kevyn Orr has said he wants to present an initial plan to creditors in early January.
“We are strongly opposed to any notion that the mediation process should interfere with the request for an immediate appeal,” Bruce Babiarz, spokesman for Police and Fire Retirement System, said Thursday in a statement. “There is no reason why both efforts cannot proceed on a dual track.”
At the General Retirement System’s board meeting Wednesday morning in Detroit, pension fund officials said progress is being made in the negotiation sessions and that the meetings would continue through Friday in New York.
Last month, U.S. Bankruptcy Judge Steven Rhodes allowed the pension funds, labor unions and a committee of retirees to seek a direct appeal of his eligibility and pension rulings.
But he refused to recommend that the appeal should be expedited and suggested the Court of Appeals consult with the chief mediator in the bankruptcy case, Chief U.S. District Court Judge Gerald Rosen, “on whether expediting this ... appeal is in the best interest of the city, its creditors and its residents.”
The pension funds argued Wednesday that they have met the requirement for skipping the U.S. District Court in Detroit and going straight to the Court of Appeals to have the higher court review Rhodes’ precedent-setting ruling on the city’s ability to cut vested pension benefits in bankruptcy.
City attorneys also argued the U.S. District Court, which Rosen runs, needs to grant creditors permission to skip its jurisdiction.
Pension fund attorneys called that a “novel interpretation” of federal law.
In Detroit’s brief, attorneys were optimistic the mediation sessions could result in a “consensual plan,” hinting at the possibility of pensions being spared from the type of deep cuts Orr proposed in June before the city filed the largest municipal bankruptcy in U.S. history.
“This court should not speed its review of the city’s eligibility just to avoid problems that may never materialize,” the city’s attorneys wrote.
In their reply brief, the pension fund’s attorneys said the city was seeking to stall creditors from getting a higher court’s review of Rhodes’ ruling.
“The city contends that a direct appeal might interfere with the ongoing mediation, but, like the bankruptcy court below, offers no explanation why or how that is so,” the pension fund wrote. “...Indeed, the city’s opposition to an appeal now is transparently designed to avoid any appeal ever, in the hope the parties will settle or the city’s implementation of a plan (of adjustment) will equitably moot the issue.”