February 21, 2014 at 6:36 pm

Detroit pension funds can file direct appeal of bankruptcy

The Spirit of Detroit glows in the late afternoon sunlight. (Brandy Baker / The Detroit News)

The city’s pension funds and others were granted permission Friday morning to file a direct appeal of the city’s bankruptcy eligibility.

The 6th U.S. Circuit Court of Appeals granted permission ahead of the city’s filing of a plan to shed debt and emerge from bankruptcy court.

The city’s pension funds appealed an earlier ruling from U.S. Bankruptcy Judge Steven Rhodes that concluded Detroit is eligible for Chapter 9 bankruptcy relief. He also ruled that pensions can be cut despite protections included in the state constitution.

The appeals court, however, refused to grant an expedited appeal, and a timetable for consideration is uncertain.

Trustees of the city’s two pension funds said they were pleased with the order.

“The Detroit Retirement Systems are pleased that the Sixth Circuit Court of Appeals has granted our request for a direct appeal to that Court,” trustees said in a joint statement Friday. “We look forward to the court’s review of the eligibility ruling in the bankruptcy case.”

Michigan Attorney General Bill Schuette has urged the Court of Appeals to move quickly on deciding the pension issue, but he has not appealed the city’s eligibility for Chapter 9 protection from its creditors.

Schuette’s office had no comment on the reorganization plan Emergency Manager Kevyn Orr filed with the bankruptcy court Friday, which calls for varied reductions in pensions.

“We’ll be reviewing Orr’s proposal carefully, and we’ll also follow the 6th Circuit’s review of the constitutionality of Michigan’s pension clause,” Schuette spokesman Joy Yearout said Friday in a statement.

The appeals court’s ruling encouraged Terri Renshaw, chair of the official committee representing retirees in the bankruptcy case. The committee is fighting Detroit’s eligibility for bankruptcy relief, arguing Emergency Manager Kevyn Orr did not negotiate in good faith and violated state constitutional protections of retiree pensions.

The court order Friday “shows that the Court of Appeals appreciates the importance of this case not just to those directly affected by it but also to the people of Michigan and that the matter should not go to the district court first,” Renshaw said in a statement.

An attorney for two city retiree groups was also encouraged by the order granting a direct appeal, noting that state Attorney General Bill Schuette also supported a direct appeal.

“There is a trend of positive events occurring in the appellate process that gives hope that all legal issues will be reviewed,” said Ryan Plecha, who represents the Detroit Retired City Employees Association and Retired Detroit Police and Fire Fighters Association.

Rhodes certified the direct appeal request in December, concluding the city’s bankruptcy involved a matter of public importance.

“The bankruptcy court’s eligibility decision involves nationally significant, unresolved legal questions that will determine the fate of the largest municipal bankruptcy in American history, and may set the template for future Chapter 9 cases,” pension fund lawyer Lisa Blatt wrote in an earlier filing. “The pension benefits of all municipal employees and retirees in the state of Michigan are at risk.”

The city’s attorneys had argued against an expedited appeal to 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 in an earlier filing.

The pension funds have argued they have met the requirement for skipping 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.

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