Michigan Judge Says Detroit Bankruptcy Is Unconstitutional, Demands Filing Be Withdrawn

Detroit billboardA large ‘Opportunity Made In Detroit’ banner is seen on the side of one of the buildings owned by Quicken Loans founder Dan Gilbert in downtown Detroit, Michigan January 30, 2013. Gilbert has a vision for downtown Detroit that many would find hard to square with the long, painful decline commonly associated with this city: a vibrant urban core full of creative, innovative and talented young people. Yet Quicken Loans, the mortgage lender Gilbert co-founded in 1985, has invested $1 billion over three years, bought some 2.6 million square feet of commercial space in the downtown area and moved 7,000 employees there in a bid to make that vision a reality. Picture taken January 30, 2013.

A Michigan judge says the city of Detroit’s Chapter 9 bankruptcy filing Thursday was unconstitutional, and she demands that it must be withdrawn.

At issue are the city’s pension obligations, which would be reduced in the bankruptcy process.

However, Ingham County Circuit Court Judge Rosemarie E. Aquilina says that would cause irreparable damage to pensioners, and asserts that in order to rectify the situation, Michigan Governor Rick Snyder must order the bankruptcy filing to be withdrawn.

Bloomberg’s Steven Raphael and Megan Durisin report that Aquilina can’t make that happen, though:

Kenneth Klee, the bankruptcy lawyer who spearheaded the bankruptcy restructuring of Jefferson County, Alabama, said a state judge can’t force Detroit out of federal bankruptcy, even if Snyder agrees to try to withdraw the petition.

Once Detroit city filed the bankruptcy petition, it came under federal jurisdiction and the case cannot be withdrawn, even by Snyder, said Klee, of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles. A federal judge would have to agree to dismiss the case, according to Klee.

“If the governor changes his mind, it doesn’t matter,” he said. “Not only can’t she do that, but her order may be in contempt of a federal court, and a federal judge can put her in jail.”

Snyder is appealing Aquilina’s decision. She is holding a hearing on the case on Monday morning.

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