Bankruptcy

Residents, retirees take center stage in Detroit bankruptcy fight

A parade of Detroiters and retirees tried to derail the city’s bankruptcy case Thursday, arguing the filing was not made in good faith and would slash constitutionally protected pensions.

About two dozen residents and retirees, some delivering tearful and racially charged speeches, were given a rare chance to speak directly to U.S. Bankruptcy Judge Steven Rhodes while pursuing objections challenging the city’s eligibility for Chapter 9 bankruptcy relief. The speeches illustrated the impact of the biggest municipal bankruptcy case in U.S. history and Detroit’s attempt to restructure $18 billion in debt.

The speeches ranged from the poignant to the political and the oddball. A widow pleaded with Rhodes to preserve her late husband’s pension, Councilwomen JoAnn Watson and Brenda Jones argued that the city is ineligible for Chapter 9 bankruptcy protection and one man gave a nearly incomprehensible rant about aliens and claimed Detroit was a “legal fiction.”

Whether those arguments will succeed in kicking Detroit out of bankruptcy court will be decided later. Rhodes is holding a trial next month to determine the eligibility issue.

The hearing showed “democracy at its finest,” Rhodes said after more than three hours of testimony.

The residents were among more than 100 people and groups objecting to the city’s bankruptcy case.

The residents argued the Chapter 9 bankruptcy filing was not authorized by elected city officials and claimed Detroit is not insolvent because it failed to determine the value of Belle Isle, Coleman A. Young International Airport or the Detroit Institute of Arts masterpieces prior to the the July 18 bankruptcy filing.

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U.S. Bankruptcy Judge Steven Rhodes on Thursday ordered Detroit Emergency Manager Kevyn Orr to sit for a second deposition, but limited questions from union attorneys that he has to answer under oath about the city’s bankruptcy filing.

Rhodes said conversations Orr had with the city’s attorneys and lawyers representing Gov. Rick Snyder prior to the July 18 bankruptcy filing are protected by attorney-client privilege.

The judge said Orr would have to disclose any discussions he had with Snyder about “the political ramifications of the bankruptcy or for other purposes I’m too naive to fathom.”

During an eight-hour deposition Monday, Orr refused to answer some questions about communications he had with Snyder and the governor’s team, citing attorney-client privilege, according to a bankruptcy filing Wednesday by the American Federation of the State, County and Municipal Employees.

In granting AFSCME a second chance to depose Orr, Rhodes told attorneys representing the city, state and creditors they have an avenue for resolving future legal disputes over privileged information.

“You can get me on the phone and I will resolve it on the spot, if I at all can,” the judge said.

City attorney Bruce Bennett said Thursday any delay in the city’s bankruptcy proceedings could have an “enormous” impact on Detroit’s ability to pare down $18.5 billion in debt and attract businesses and residents to the Motor City.

He was arguing against a request by a committee of city retirees to halt the proceedings so legal challenges can be taken to a different judge in U.S. District Court.

“We need to convince the outside world that… we’re making progress,” Bennett told U.S. District Court Judge Steven Rhodes during a Thursday afternoon hearing. “… Speed is of the essence.”

Companies are delaying business decisions in the city while Detroit makes its case for court protection, the largest municipal bankruptcy filing in U.S. history.

“We don’t think those decisions are going to get made until the outcome of this case gets clearer,” Bennett said.

Bennett later added: “There is an enormous public interest in finding out how this case ends.”

An attorney with the Michigan Attorney General’s office told the judge the state opposes the Official Committee of Retiree’s request to halt the proceedings.

After about an hour of arguments from both sides, the judge said he would take the request for a stay under advisement and issue an order in the coming days.

A city attorney argued Thursday in U.S. Bankruptcy Court that an attempt by a committee of retirees to get a different federal judge to rule on Detroit’s eligibility for bankruptcy protection is doomed to fail.

“We think there is … literally no chance of success in this case,” city attorney Bruce Bennett told U.S. Bankruptcy Judge Steven Rhodes.

Earlier, an attorney for the nine-member Official Committee of Retirees argued there are federal and state constitutional questions surrounding Detroit’s eligibility for bankruptcy that give creditors the right to be heard before a federal district court judge.

In the federal court system, bankruptcy judges are an adjunct of the local U.S. District Court.

The retiree committee is asking Rhodes to stay, or halt, a series of hearings planned for next months on whether the city is eligible for Chapter 9 protection from its creditors.

An attorney representing city retirees on Thursday asked U.S. Bankruptcy Judge Steven Rhodes to halt proceedings in Detroit’s fight for Chapter 9 eligibility on grounds the case is outside of the bankruptcy court’s jurisdiction.

Claude Montgomery, a New York attorney working for the Official Committee of Retirees, said Rhodes should halt the proceedings so the committee can ask a federal district court to consider constitutional issues at stake in the case.

“We are not seeking to stay any other aspects of the case in front of the court,” Montgomery told Rhodes.

Citing a 2011 Supreme Court decision, Montgomery argued the bankruptcy court can’t weigh in on whether the bankruptcy filing violates Michigan’s state constitutional protection of pensions or whether there are federal constitutional issues that would prevent the city from being eligible for bankruptcy.

“That’s a very different kettle of fish than your ordinary question,” Montgomery told the judge.  “It’s the special nature of the circumstances that we’re asking this court to take into account in granting a stay.

Montgomery later added: “Basically we’re asking the court to see the danger in … having the wrong court make the determination (of eligibility).”

Rhodes, a veteran bankruptcy jurist, questioned Montgomery’s argument and said halting the proceedings could delay a final resolution for retirees.

“We also want to make sure the right court hears it,” Montgomery replied.

Rhodes took a 10-minute break before hearing the city of Detroit’s argument against a stay in the eligibility proceedings.

A rare chance for residents and retirees to fight against the city’s bankruptcy case Thursday showed “democracy at its finest,” U.S. Bankruptcy Judge Steven Rhodes.

Rhodes spoke after more than three hours of speeches from dozens of residents and retirees, who are challenging the city’s eligibility for bankruptcy relief.

“The arguments that you all took the time to articulate in writing and in court today were moving, thoughtful, passionate, compelling and well-articulated,” Rhodes said.

Whether those arguments will succeed in kicking Detroit out of bankruptcy court will be decided later. Rhodes is holding a trial next month to determine the eligibility issue.

A lawyer leading Detroit’s bankruptcy case urged retirees and residents who are trying to derail the case to become allies instead of opponents.
Bruce Bennett of the Jones Day law firm said while bankruptcy is never a good thing, there are worse alternatives while the city copes with $18 billion in debt.
“Sometimes leaving financial problems the way they are is even worse,” Bennett told U.S. Bankruptcy Judge Steven Rhodes.
Bennett spoke after residents spent more than three hours urging Rhodes to rule Detroit is not eligible for bankruptcy relief.
“It is impossible to argue with assertions that retirees should be paid what they earned,” Bennett said. “Our entire team remembers there is a human dimension to all of this.”
Bennett said the city’s bankruptcy team is trying to maximize how much money is distributed to retirees and other creditors.
“It is extremely important to possibly mitigate any harm that results from the financial condition of the city,” Bennett said.

A Detroit pastor wants to halt the city’s bankruptcy case until a judge rules on lawsuits challenging the state’s new emergency manager law.
The Rev. Charles Williams II, head of the state chapter of the National Action Network, joined dozens of residents and retirees objecting to the city’s eligibility for Chapter 9 bankruptcy relief.
“We look to the federal government to make sure that states don’t take advantage of cities and that cities don’t take advantage of citizens,” Williams said to U.S. Bankruptcy Judge Steven Rhodes.
He railed against the city committing money to build a new hockey arena for the Detroit Red Wings and hiring the Jones Day law firm to lead the city’s bankruptcy case.
Williams said: “If we can spend over $200 million to build a hockey arena, if we can hire Jones Day –  spending $500 an hour and millions in fees –  we can surely wait” while the emergency manager lawsuits proceed through federal court.

Detroit Councilwoman JoAnn Watson urged a judge Thursday to freeze the city’s bankruptcy case, arguing it is illegal and disenfranchises residents.
Watson said neither the City Council nor Mayor Dave Bing approved the bankruptcy filing.
She also raised old arguments about a perceived conflict between the state and city. The state has defaulted on an agreement to repay $220 million in revenue sharing, a deal reached years ago.
“The city has continued to live up to the agreement by not charging persons who work in the city but live elsewhere income tax,” Watson said.
Plus, the Public Act empowering Emergency Manager Kevyn Orr was based on a repealed law, Watson said.

Councilwoman Brenda Jones also spoke against the bankruptcy.

A man who claims to represent “The Chair of St. Peter” drew quizzical looks and laughter in bankruptcy court Thursday while delivering a nearly incomprehensible speech challenging the city’s eligibility for bankruptcy relief.
Robert Michael Marques had to be cut off repeatedly by U.S. Bankruptcy Judge Steven Rhodes and manhandled by a security guard after exceeding time limits for residents who are challenging Detroit’s bankruptcy case.
Marques said the city is a “legal fiction” and that residents have asked “The Chair of St. Peter” to intervene in the bankruptcy case and compel the return of unspecified property.
The city’s conditions have left residents in “economic slavery.”
The speech was so puzzling several bystanders, including former political consultant Sam Riddle, looked around the courtroom in a confused manner while others laughed.
“We have proposed a Detroit recovery plan,” Marques said.
“Your time is up,” Rhodes said before giving him another minute to speak.
The city’s economic crisis, he continued, has tarnished  the credit and reputation of the people of Detroit and reducing them to “insolvent paupers.”
“Please wrap up sir,” the judge said.
A security guard approached Marques from behind.
“Excuse me,” Marques said.
The security guard retreated.
“I have to ask you to terminate,” your speech, the judge said.

Sam Riddle, the former political consultant who was convicted in a corruption case stemming from his time working for ex-Detroit Councilwoman Monica Conyers, said the city’s bankruptcy case revolves around questions of race and democracy.

He urged U.S. Bankruptcy Judge Steven Rhodes to dismiss the city’s bankruptcy case until there is a resolution to legal challenges fighting Emergency Manager Kevyn Orr’s appointment and powers.

Riddle gave a racially charged speech that said the bankruptcy did more to disenfranchise black residents than any lynchings by the Klu Klux Klan.

“Do dollars trump democracy?” Riddle asked the judge. “More black Americans in America’s blackest city have seen their votes rendered meaningless.”

A Detroit creditor took aim at one of the city’s key arguments why Detroit should be eligible for bankruptcy relief.

Michael Joseph Karwoski, who sits on a committee of Detroit retirees, said the eligibility deliberations should factor in expected cuts to retiree pensions and health benefits even though the bankruptcy petition itself does not propose cuts.

“It is a myth to suggest pensions are not part of this bankruptcy, and a core part of it,” Karwoski told U.S. Bankruptcy Judge Steven Rhodes. “The emergency manager has made clear…that he intends to cut pensions and health benefits.

Numerous objectors, including Karwoski, say the city should not be granted bankruptcy relief because the city wants to eventually cut pensions, which are protected by the state constitution.

The city argues it is eligible for Chapter 9 relief because the petition has not proposed any cuts. Those cuts could come if the city is eligible and then submits a plan to restructure $18 billion in debts.

A tearful Detroit retiree said she and her former workers are being treated like slaves during the bankruptcy case.

Sheilah Johnson retired after working for the city for 28 years and faces a bleak future if her $3,000-a-month pension is cut in bankruptcy court, she said.

“I am too old to start over and try to find another job,” she told U.S. Bankruptcy Judge Steven Rhodes.

She complained about businesses failing to pay taxes and other debts owed to the city. Johnson, a black woman, tried to get the city’s bankruptcy case dismissed by arguing the city is not bankrupt.

“We are not bankrupt,” she said. “Anyone who believes that, believes I am white.”She started to cry while recounting a conversation with her grandson.

“He said ‘grandma, are they trying to make us slaves again?’” she said. “This is not a dictatorship. I am not a slave. I earned my pension.”

A retired Detroit water department mechanic said employees are entitled to their pensions after sacrificing their personal lives to help the city.

“I worked in human waste, I worked in 14 of the city’s incinerators doing repairs,” William Howard told U.S. Bankruptcy Judge Steven Rhodes. “Me and my fellow employees feel we are really entitled to a pension. We worked on holidays such as Christmas, New Year’s and Thanksgiving while others enjoyed their families.”

Detroit residents have been disenfranchised by the city’s bankruptcy case, which was drafted by state-appointed Emergency Manager Kevyn Orr, a resident said.

William Hickey said he has weathered good and bad politicians during his 50 years in Detroit.

“Whether good or not so good, I’ve had a say in them being mayor or council people,” Hickey told U.S. Bankruptcy Judge Steven Rhodes. “I and my fellow citizens find ourselves in a bankruptcy proceeding completely disenfranchised. None of the people I have, or fellow citizens, voted for have had any decision-making power in this situation.”

Retired Detroit employee Jacqueline Esters emphasized the possible cuts she faces if pensions are slashed during the city’s bankruptcy case.

She said she had to qualify for her job with the city, it wasn’t handed to her.

“And with that came a promise to pay a pension, health care and so forth,” she said. “When I started working in 1968, I made $2.24 an hour. One reason they gave pensions or had them was because they knew we didn’t make a lot of money anyway.

“Along the way what I was able to do is raise a family, pay taxes and I stayed in Detroit,” she continued. “I want to leave but I really can’t. The value of homes isn’t worth anything.”

The possibility of cuts to constitutionally protected pensions means “promises made, promises broken,” she said.

A courthouse security officer had to briefly restrain a Detroit creditor who refused to stop speaking beyond a time limit during Detroit’s bankruptcy hearing Thursday.
Lucinda Darrah failed to stop when prompted by U.S. Bankruptcy Judge Steven Rhodes. A female security officer flanked Darrah, grabbed her arms and tried to escort her from the lectern inside U.S. District Court.
Darrah eventually stopped speaking and walked away and was allowed to stay in the courtroom.

A retired Detroit employee said retirees are being treated worse than animals during the city’s bankruptcy case.

Paulette Brown, a retired manager in the Detroit Water and Sewerage Department, invoked NFL quarterback Michael Vick.

“Michael Vick went to prison for cruelty to animals. Who is going to prison for proposed cruelty to employees?” Brown asked U.S. Bankruptcy Judge Steven Rhodes.

Brown said she retired more than a year ago after a nearly 30-year career and fears losing her pension during the bankruptcy case.

“I was a dedicated civil servant,” Brown told the judge. “My goal was to always make the city better. I worked with people who sacrificed their health and safety to make sure our customers had clean water. Many worked in hazardous areas, extreme heat, extreme cold and unsanitary conditions. We breathed in feces and raw sewage on a daily basis.”

The widow of a former Detroit police sergeant spoke out against the city’s bankruptcy case, saying it threatens her late husband’s $3,000-a-month pension.

Cynthia Blair said she does not have Social Security and any cuts to her pension would throw her “directly onto the welfare roll.”

Blair was one of several Detroiters and retirees urging U.S. Bankruptcy Judge Steven Rhodes to dismiss the city’s bankruptcy case.

Charles Brown, meanwhile, said he was concerned about the city’s legal firm, Jones Day, having a conflict of interest with Wall Street bond firms.

Kevyn Orr

Kevyn Orr

A creditor attacked Emergency Manager Kevyn Orr, saying he was chosen only because he is black and was “never the sharpest knife in the drawer.”

The comments from creditor Hassan Aleem prompted U.S. Bankruptcy Judge Steven Rhodes to warn residents objecting to the city’s bankruptcy case against making personal attacks.

“I understand the depth of feelings people have about this,” Rhodes said. “At the same time, however, I have to ask you, seriously, to refrain from personal attacks on Mr. Orr or really anyone. This is not the time and place for it.”

Earlier, Aleem said the city is not eligible for Chapter 9 bankruptcy relief and urged Rhodes to dismiss the case.

 

There was a muted protest outside U.S. District Court ahead of a 10 a.m. hearing for residents and retirees to speak out against the city’s historic bankruptcy case.

Less than a dozen protestors stood along Lafayette Boulevard, some holding a banner reading “Cancel Detroit’s debt” and “The banks owe us.”

The hearing is minutes away. Convicted political consultant Sam Riddle is in the front row and is expected to try and convince U.S. Bankruptcy Judge Steven Rhodes that the city is ineligible for Chapter 9 bankruptcy relief.

 

Sam Riddle

Sam Riddle

The names of 90-plus Detroit residents and retirees who at 10 a.m. will urge U.S. Bankruptcy Judge Steven Rhodes to kick the city out of bankruptcy court range from the boldfaced to the oddball.

The list includes convicted political consultant Sam Riddle. He doesn’t need directions to federal court. Riddle stood trial on corruption charges and was sentenced to three years in prison in 2010.

Riddle is the most notable person invited to argue why Detroit should not receive Chapter 9 bankruptcy relief. The list of people also includes the Rev. Charles Williams II, head of the National Action Network in Detroit.

An inanimate object also is on the list.

The Chair of St. Peter” filed an objection to Detroit’s bankruptcy case, calling Detroit a “legal fiction.”

In its objection, “The Chair of St. Peter” wrote that Detroit “has been intentionally mismanaged by politicians, bureaucrats and consultants whose word smithing and slight of hand that has cast the inhabitants into economic slavery, which is intentionally insolvent.”

The 21-page objection, which you can see here, is signed with fingerprints — 12 of ‘em.

 

Robert Snell
Robert Snell is the Detroit News federal courts reporter. He can be reached at rsnell@detnews.com or (313) 222-2028.