Protestors outside federal court in Detroit this morning
The Detroit bankruptcy filing on Wednesday started to look a lot like a complex video game with land mines.
U.S. Bankruptcy Judge Steven Rhodes blew up the first major land mine in federal court, and gave the city the green light to move forward with its filling, saying he -- and not the state courts -- have complete jurisdiction over the bankruptcy issue.
He concluded that all the bankruptcy issues "must be decided by the bankruptcy court exclusively."
The ruling capped a morning of arguments that gave a preview of the complexity of bankruptcy for a municipality of Detroit's size.
The rulings froze state lawsuits filed by lawyers for the city pensions that could have postponed, confused or derailed the federal bankruptcy proceedings. The lawsuits claimed the bankruptcy filing violated the state constitution, which protects vested pension benefits.
The judge indicated that he didn't want simultaneous litigation in both state and federal court.
Last week, an Ingham County Circuit Court in Lansing ruled that the bankruptcy filing was unconstitutional. Earlier this week, a state Court of Appeals put that decision on hold while it determined the next step.
While issuing his ruling, Rhodes made clear he was not deciding on whether Detroit was a legit debtor in bankruptcy court. He said he would address that issue if a lawyer raises it.
But he made clear that litigating the case in both state and federal court would be costly and potentially confusing, In light of his rulings, it appeared unlikely he would derail the bankruptcy filing.
In the morning, Heather Lennox, an attorney for the city from Kevyn Orr's law firm Jones Day, argued that all the issues should be addressed in bankruptcy court.
“A state court simply does not have the jurisdiction to decide” these issues. She added that the federal courts have authority to decide state constitutional matters when it comes to bankruptcy.
She added that the federal courts have authority to decide state constitutional matters when it comes to bankruptcy.
Attorney Robert Gordon, who spoke on behalf of the city's two pension systems, police and fire and the general employee system, which are underfunded by $3.5 billion, argued that Gov. Rick Snyder couldn’t essentially file for federal bankruptcy while trying to uphold the state constitution, which protects the pensions. He asked that the judge not interfere with those suits.
The hearing came amid a circus-like atmosphere at the federal court on Lafayette Blvd. in downtown Detroit. A small group of people protested outside in close proximity to the usual pack of TV trucks. Inside, an army of poker-faced bankruptcy attorneys in conservative suits, TV and newspaper reporters and people in union t-shirts filled the hallways, and eventually the courtroom.
