12.23.13

Unappealing.  U.S. Bankruptcy Judge Steven Rhodes late Friday afternoon filed a memorandum with the U.S. 6th Circuit Court of Appeals recommending that the circuit court reject direct appeals of his decision finding the City of Detroit eligible for municipal bankruptcy and that the city’s pensions could be impaired as part of the city’s Plan of Adjustment. In addition, in his memo, Judge Rhodes wrote that his court was “not in a position to make a recommendation on whether the appeal (should the 6th Circuit grant it) should be expedited,” noting: “In the present case, one fact overshadows everything, including these appeals. The City is insolvent on a cash flow basis. It has no money to pay claims. The City cannot successfully adjust its debt and revitalize itself without help.” Noting that he is required to certify the appeal directly to the U.S. 6th Circuit, because it bypasses an intermediary step of an appeal to U.S. District Court, he recommended that the higher court reject the appeal in order to prevent the imposition of still further costs and delays in the process of resolving the city’s financial insolvency without the interruptions a simultaneous appeal would impose: “It is time now to begin that discussion, unfettered by piecemeal appellate litigation,” noting he is still maintaining a March 1 deadline for Detroit to submit its plan of adjustment. (Detroit Emergency Manager Kevyn Orr has set an ambitious goal of completing the plan by the week after next.)  Judge Rhodes also wrote that if the court decided to take up the appeal, he would not make a recommendation of whether it should handle the matter in an expedited fashion―instead recommending the appeals court should consult with Chief U.S. District Judge Gerald Rosen, the chief mediator in the case, to ensure that an expedited appeals process does not interfere with ongoing mediation, writing that the task with which he has charged Judge Rosen is “the task of marshalling potential sources of help that the city needs to achieve a plan that (1) has the broadest possible support among creditors (remember there are more than 100,000 creditors); (2) is feasible for the City to implement, and (3) allows the City to refocus on a revitalized and successful future, in whatever way the City defines that future.”

The A Team: Advising the circuit court that the mediation underway is a serious and substantial mission—and its head, Judge Rosen, should be the determiner—should the circuit court provide for an appeal—whether such an appeal should be expedited or not. Judge Rhodes wrote: “Chief Judge Rosen has appointed an extraordinary team of mediators to assist the parties in mediating the wide variety of issues that the case presents—District Court Judge Victoria Roberts of Detroit; Senior District Judge Wiley Daniel of Colorado; retired District and Bankruptcy Judge David Coar of Chicago; Bankruptcy Judge Elizabeth Perris of Oregon; and Attorney Eugene Driker of Detroit―noting to the circuit court that it should consult with Judge Rosen and his team “on whether expediting these appeals will facilitate or impede the mediation and be guided accordingly―The Court remains convinced that the interests of the City, its residents and its creditors are better served by adjusting the pace of the legal process, including the appeals, to meet the needs of the mediation process.”

The Creditors. AFSCME will ask the 6th Circuit to expedite the appeal despite the judge’s recommendation, the union’s labor lawyer Michael Artz said Friday. Mr. Artz noted: “We are disappointed and know the retirees who are bracing for cuts are nervous and anxious…They deserve a swift appeal.”  A committee representing retirees has argued the historic case needs to be heard by a higher court before the city is able to slash pensions, which are protected by the state constitution. The City of Detroit will request the appeals court affirm and that the appeal should be blocked until Judge Rhodes confirms the City’s Plan of Adjustment, which will detail how much money creditors will be paid. Addressing the pension issue in hos memorandum, Judge Rosen wrote:

To the extent that the City proposes a plan that impairs pensions, this Court has already cautioned:

 

No one should interpret this holding that pension rights are subject to impairment in this bankruptcy case to mean that the Court will necessarily confirm any plan of adjustment that impairs pensions. The Court emphasizes that it will not lightly or casually exercise the power under federal bankruptcy law to impair pensions. Before the Court confirms any plan that the City submits, the Court must find that the plan fully meets the requirements of 11 U.S.C. § 943(b) and the other applicable provisions of the bankruptcy code. Together, these provisions of law demand this Court’s judicious legal and equitable consideration of the interests of the City and all of its creditors, as well as the laws of the State of Michigan. (In re City of Detroit, 2013 WL 6331931, at *44.)

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