Local 4's Shawn Ley blogs from Detroit's first bankruptcy hearing

U.S. Bankruptcy judge Steven Rhodes presiding over case in federal court in downtown Detroit

By Shawn Ley - Reporter
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DETROIT - Local 4's Shawn Ley is inside the courtroom to update what happens at Detroit's first bankruptcy hearing.

Special Section: Detroit Bankrupt

11: a.m.

The judge is not expected to rule on these 

Robert Gordon, lawyer for retired cops and firefighters.

The thrust of our argument is:

The stay presumes facts not in evidence.

This case is unique.

Michigan has protection for pensions.

The governor approved the chapter 9, the governor also is sworn to uphold the constitution. 

He cannot authorize a bankruptcy filing that has a stated goal to go after pensions protected by the state constitution. 

To talk about the stay presumes that there has been a valid state authorization. There hasn't.

The Ingham county judge already ruled against the governor.

That matter has not been stayed by the court of appeals. 

This means: They shouldn't be in court today. Everything is void and trumped by the state constitution.

That is what retirees want to hear.

10:50 a.m.

Heather Lennox, Jones Day law firm is arguing on behalf of the city. 

She argues that the stay should extend to Gov. Snyder, "city agents and representatives."

The city also wants to stay the three lawsuits already filed. 

The city says the lawsuits will "confuse" the proceedings. 

Now comes the "creditors": 

Michigan council 25 AFSCME



Detroit Public safety unions

Police and fire unions 

The argument from AFSCME's attorney: Chapter 9 is being used to avoid state constitutional rights.

Meaning, the constitution protects public employee pensions. 

Chapter 9: "It intends to go after the pensions. That's unconstitutional." 

Individual citizens of Detroit have the absolute right to protect their constitutional rights.

Meaning, people should be able to sue the city, Orr, Snyder during this process. 

She argues that there are lawsuits pending in state courts right now and the city is running to bankruptcy court to get protection from those suits.

She says there is a fundamental right for those suits to go forward in the state courts. 

She argues there is a "collateral advantage" by sending the case out of bankruptcy court and to state court will help people who mainly make $19,000 a year. 

Ryan Bennett, an attorney on behalf of Syncorra is next.

Syncora is a insurance company that has holdings in employee pensions. They say the city is seeking too broad of a stay. 

Next: Barbara Paddock, lawyer for public safety unions.

The public interest trumps all arguments. The public interest is at stake. We want to make it clear, we are not conceding the city can be a debtor in this case.

We believe this court is the proper forum.

Stay extension: Include employees and retirees who may be the source of lawsuits.

Preserve all lawsuits.

10:20 a.m.

Lawyer for the city is arguing that the stay should extend to Emergency Manager Kevyn Orr.

A stay means, he can't be sued by anyone during this process to slow down the process. 

Bond holders and insurance companies are closely watching if the court will extend those protections to Orr and others.

If so, they're seeking a "clean" bankruptcy and they'll know faster how the city will map out how they will satisfied it's debts, and not have a case bogged down by lawsuits and delays.

10:15 a.m.

Judge Rhodes begins with his "order of proceedings." 

Administer oath to attorneys who seek to do business with the court today

Opening statement

City: 15 minutes for its initial argument

15 minutes for creditors

Rebuttal by the city

Break for judge to deliberate on motions

Then the judge will rule on the motions heard today 

Judge Rhodes says he'll begin to describe the matters before the court today: 

Two motions will be heard and ruled upon: 

1.       Stay confirmation motion.

2.       Stay extension motion. 

Just as I describe in the first blog post this morning, the stay motion protects the city of Detroit from being sued and protection from creditors trying to collect debts.

The other motion is to rule if the retirees lawsuit to stop the bankruptcy will go forward. 

Not being ruled upon: If the city is eligible to declare bankruptcy. This is an issue that will be "fully litigated" in due course. 

A city attorney has now begun to speak.

"The reason we filed the motion is evident that not all people understand the concept of a stay."

Going to need a lot of blue

Our Local 4 sketch artist told me, "I'm going to need a lot of blue." He means blue pencils to draw what's happening in court. He's spot on.

Lawyers tend to wear conservative blue suits and this courtroom is jam packed with lawyers in blue and dark colored suits. 

It's truly unprecedented the scene that's unfolding inside courtroom 733 inside the Theodore Levin United States Courthouse on West Lafayette Blvd. in downtown Detroit. 

Bankruptcy Judge Steven Rhodes is about to take the stand to begin proceedings in the nation's largest municipal bankruptcy.

Will this be the beginning of a new day for the city of Detroit and it's people who live and work here? 

The courtroom is jammed with lawyers and media.

The "overflow" room on the first floor is jammed with reporters and city retirees. 

So much is at state in this unchartered waters Detroit finds itself in. 

Security just escorted Emergency Manager Kevyn Orr into the courtroom.

He is dressed in a dark suit with a bright red "power tie." 

Orr told us that Judge Rhodes "doesn't suffer fools" and he and the city has to "have their A game" today.

10 a.m.

Maryellen Tighe is from Midland, Michigan but is living in New York City working a very interesting job for a media outlet called "Debt Wire."

"Debt Wire" is a website that covers bonds. 

Who in the world pays good money to read news reports about bonds?

Tighe says bond holders pay to get that news and there is massive interest in Europe in the Detroit bankruptcy. 

People, groups, funds, financial type businesses buy bonds and in Europe, banks bought a lot of Detroit bonds.

They paid money, banking on the bonds maturing and making interest. 

Those banks hold Detroit bonds right now and if the city is bankrupt, they want to know how they should handle their next steps. 

Right now, those Detroit bonds are being traded on secondary markets. Hedge fund managers are buying the bonds at a low price, gambling to see if they'll get a little bit more on their return though the bankruptcy and with that, they will make money. 

Say they buy the Detroit bonds today at .30 on the dollar. Then the judge rules that the bankruptcy will move forward today and in the coming days and weeks the city is forced to start selling assets to pay back creditors.

If the city is forced to sell artwork at the DIA, then the value of those bonds may rise.

A lawyer here says "There is always someone who will buy a bond." 

Maryellen meantime is from Michigan and finds herself in Detroit covering this historic event.

I've never met a reporter before who's beat is "municipal debt." She's come to the right city.

She's wondering if her company will form a Detroit bureau and that she'll move to Detroit to cover the bankruptcy and the restructuring of the city.

Hey, that will help the local economy!

9:30 a.m.

Hello everyone, welcome to my #DetroitBankrupt blog here at ClickonDetroit.com.

This is one fascinating case and I hope you follow along today, ask questions, make comments as I learn about this unbelievably complicated process and try to boil it all down for you.

First of all, this is taking place in federal court.

The bankruptcy court is across the street, but the judge in the case, U.S. Bankruptcy judge Steven Rhodes, needed more room inside federal court due to all the lawyers involved and the intense media coverage. 

Let's talk about the media for a moment.

The court has reserved about 15 seats in the courtroom for reporters from national media outlets like the Wall Street Journal, Bloomberg, Reuters, and others.

Local 4's veteran reporter Roger Weber will also be in the courtroom, but you get the idea that there is massive media interest in this case.

No one has ever seen a municipal bankruptcy like this one before.

Who will be reading and watching all of the coverage?

You can start with other cities around the country that are also in financial trouble.

With the city of Detroit declaring bankruptcy and if it gains protection from the people, bond holders, insurance companies and banks it owes money to, other cities will take note and may declare bankruptcy as well. Above all of that are cities watching how the bankruptcy impacts city employee union collective bargaining agreements and retiree pensions.

If the money is drying up for cities to put money into pensions and if they find that they can't afford the union contracts that entered into, then they may declare Chapter 9 bankruptcy as well to get out of those deals.

That means as Detroit employee retires wait to see if they will lose their pensions, there are tens of thousands of people around the country who could find themselves in the same scary boat and right not they don't even know it. 

Okay, let us now discuss what today is all about. 

There are dozens of lawyers packing the hallway here.

They represent bond holders, insurance companies, creditors and banks. 

They are waiting to see if the judge puts up the STOP sign.

That means, so many people want to sue the city of Detroit to get money they're owed, to stop the bankruptcy, to protect pensioners and if they can't sue they city, attorneys would set their sights to sue Gov. Rick Snyder and Emergency Manager Kevin Orr. 

The bankruptcy court has the power to stop the lawsuits.

When Detroit filed for Chapter 9 bankruptcy last week, like anyone declaring bankruptcy, the city is given an automatic "stay."

Stay means, stop. Meaning, the city automatically got protection from creditors and protection from lawsuits. 

Others want to sue the city and collect money now.

The judge has to decide if he'll extend that stay to others in the case, like the Governor and like the emergency manager.

We'll see when the hearing starts at 10am to see if that's the first thing Judge Rhodes decides to do, "extend the stay."  

That's important because all of the other attorneys and bond holders here want to see if this bankruptcy will take a "clean" path, free of people filing lawsuit after lawsuit. 

Remember, Detroit employees filed suit before the city filed for bankruptcy, arguing that the pensions can't be touched in this bankruptcy process. 

Next, today and this entire bankruptcy process is about PEOPLE. 

Here today is Denise Tajaka and her friend Cynthia Falska.

Denise was a Detroit police sergeant for 27 years, Cynthia was a Detroit Police lieutenant for 33 years.

Both lived in Detroit well after the city changed residency rules. 

Both live on their pensions they paid into as a Detroit Police officers.

Both are scared to death that their pensions will be cut or eliminated all together. 

But wait, these two retired police officers aren't creditors coming after the city for money.

They are people who worked for the city, protected the streets and paid into a fund with the promise that the money they put in would be there for them when they retired. 

But both Tajaka and Falska say things changed when then mayor Coleman Young took out a huge loan to put money into the pension fund.

They fear that action years ago exposed the pension fund if and when the city ever declared bankruptcy.

If a bank put money into that fund through a loan, that bank is here wanting their money back.

Will the loan be paid back with the money that the retirees are counting on? 

Also, the state constitution states that money in public employee retiree pension can't be touched. How is the judge going to square that fact in the nation's largest municipal bankruptcy? 

This case is so complex, but I say it always comes back to the people who live and work in the city of Detroit.

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