Appeals court rejects challenge to Detroit bankruptcy pension cuts
Detroit — A federal appeals court has ruled in favor of Detroit in a lawsuit by city retirees whose pensions were cut in a plan to get the city out of bankruptcy in 2014.
Some retirees sued, saying they deserve the pension that was promised before the city filed for bankruptcy in 2013. But in a 2-1 decision Monday, Judge Alice Batchelder of the 6th Circuit Court of Appeals said it’s “not a close call.”
The court says Detroit’s emergence from bankruptcy in 2014 was the result of a series of major settlements between the city and creditors and must not be disturbed. Thousands of retirees saw their pensions cut by 4.5 percent.
Altering the pension cuts, the judges said, would be a “drastic action” that “would unavoidably unravel the entire plan, likely force the city back into emergency oversight and require a wholesale recreation of the vast and complex web of negotiated settlements and agreements.”
In dissent, Judge Karen Nelson Moore says retirees deserve their day in court. She said they have been left “with the impression that their rights do not matter.”
She added Batchelder and Judge David McKeague were citing a “questionable” legal standard to dismiss the case.
“It has real-world consequences for the litigants before us — retirees who spent their lives serving the people of Detroit through boom and bust, and who feel that the city’s bankruptcy was resolved through a game of musical chairs in which they were left without a seat,” Moore wrote.
Jamie Fields, a retired Detroit Police Department deputy chief and an attorney for about 160 retirees, said Monday that Moore, a Clinton appointee, validated his legal battle in her dissent.
“With all the people who said we were crazy for filing this, at least there was one judge who said they agreed with me. I feel some vindication that one person didn’t say I was crazy,” he said.
Fields said he will ask for the full appeals court to hear the case.
“The next step after that would be to take it to the Supreme Court. The odds of them taking it are small, but the retirees deserve it, and we have no choice but to go forward,” Fields said.
Detroit Mayor Mike Duggan declined to comment at an afternoon jobs event since he had not seen the ruling. Detroit Corporation Counsel Melvin Hollowell also declined comment on the ruling.
The court’s decision to reject the pensioners’ claims comes as the city approaches the two-year anniversary of the bankruptcy this December.
In September, the city met a post-bankruptcy milestone with the state-mandated Financial Review Commission saying the city was in compliance with the commission’s annual requirements to meet financial milestones. If an audit in January confirms it, then the city would have just one more fiscal year to demonstrate good budget practices, and the state would consider lifting the demands that an outside board approve Detroit’s spending.
The ruling could be one of the last remaining legal fights from the landmark case, which had multiple appeals pending in the U.S. Court of Appeals in the past 18 months. Nine appeals listed on the docket indicated all those appeals have been closed.
Bankruptcy lawyer Doug Bernstein said an appeal to the U.S. Supreme Court is by application and not by right and the court does not accept many cases for consideration.
“Everyone is sympathetic to the plight of the pensioners, but think about everything that would have to be unwound,” Bernstein said. “You would have to undo the ‘grand bargain,’ deals with Syncora, with (Financial Guaranty Insurance Co). And that is an uphill battle for anyone to challenge.”
Under the deal dubbed the “grand bargain,” state money was used to support Detroit’s pension funds and donations from private foundations and the Detroit Institute of Arts were used to protect city-owned masterpieces from being sold to raise money to pay creditors.
Bernstein, who represented the top leaders of national and local foundations in the “grand bargain,” said while the justices are concerned with violations of the law, if the case was taken up and the city’s plan was undone, “Detroit is back in bankruptcy without a plan.”
Bernstein said the chance of additional appeals going forward still exists. “The case isn’t done,” he said.
William Davis, a named plaintiff in the suit, said Monday the battle is not over for pensioners like him.
“Today’s decision does not stop or deter us,” said Davis, who heads the Detroit Active and Retired Employee Association, a grassroots group that’s critical of city government and the 2013 bankruptcy. “We will continue to fight.”
In 2014, Detroit’s approved bankruptcy plan was the biggest municipal bankruptcy case in U.S. history.
The city’s plan shed $7 billion in debt, restructured another $3 billion and is to put $1.7 billion into improved services.
In the bankruptcy, the city cut $7.8 billion from payments to its retired workers. The city also has escaped $4.3 billion in retirement health care benefits.
Staff Writers George Hunter, Christine Ferretti and Shawn D. Lewis and Associated Press contributed.
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