NAACP constitutional case challenging PA 436 now in U.S. District Court
Detroit is the only Chapter 9 case under unelected official
Not only pensions, but key assets like Water Dept. at stake; DWSD bondholders in mediation sessions in NYC Jan. 6 and 7
By Diane Bukowski
January 2, 2014
DETROIT – In a key development in the Detroit Chapter 9 bankruptcy case, the Michigan and Detroit NAACP plaintiffs succeeded Dec. 30 in moving their appeal of U.S. Bankruptcy Judge Steven Rhodes’ earlier order barring their constitutional challenge to the state’s Emergency Manager law, PA 436, into U.S. District Court.
U.S. District Court Senior Judge Bernard Friedman has been assigned to the case. No hearing date has yet been set. The appeal is key because Detroit is the only municipality in the country where a Chapter 9 bankruptcy is taking place under an unelected official, EM Kevyn Orr.
The NAACP et al appeal asks among other issues, “Whether the Bankruptcy Court had the jurisdiction to address a strictly constitutional law claim, not in any way intertwined with bankruptcy law or the Bankruptcy Code?, and . . . Whether the Bankruptcy Court abused its discretion when it used subjective reasoning and speculation as to the Petitioners’ intentions and determined what is best for the City, over and above fundamental constitutional issues, such as voting rights?”
Judge Rhodes ruled Nov. 6 that he would allow a similar complaint, Phillips et al, to proceed because it exempted Detroit’s situation from its complaint, to avoid interfering with the ongoing Detroit bankruptcy case. But he himself is hearing that complaint.
“The substance of our case is not about debtor-creditor issues, but about voter law,” Melvin “Butch” Hollowell, the Michigan NAACP’s in-house counsel, told Judge Rhodes during the Oct. 2 hearing on their motion to remove Rhodes’ stay of the case, which was then pending before U.S. District Court Judge George Caram Steeh.
“PA 436 creates two classes of voters, a superior class of voters with elected officials with full power and duties, and an inferior class of voters,” Hollowell said. “It violates the 7th and 14th Amendments and therefore does fundamental and irreparable harm. Now, since the law took effect, 50.4 percent of all Michigan’s African-Americans are under emergency managers vs. 1.3 percent of whites.”
The assignment to a U.S. District Court judge, a level higher than Bankruptcy Court, is significant because it may divert a headlong rush by Rhodes, mediator U.S. District Court Chief Judge Gerald Rosen, Detroit Emergency Manager Kevyn Orr, and the pro-corporate Jones Day law firm, t0 slash and burn Detroit retirees’ pensions, as well as Detroit assets like the Water & Sewerage Department, in the near future.
However, Friedman, who was previously Chief Judge of the U.S. Court of the Eastern District of Michigan, was assigned to the case by Rosen. Senior Judges only hear cases assigned by the current Chief Judge.
Friedman is a Ronald Reagan appointee who struck down the University of Michigan’s affirmative action program in 2001, dismissed a case challenging the No Child Left Behind Act in 2005, and dismissed another case against DTE by the Environmental Protection Agency in 2011. But this year, in somewhat of a turnaround, he refused to throw out a case challenging Michigan’s ban on gay marriage.
The assignment to Friedman instead of Judge George Caram Steeh, who was hearing both the NAACP et al and the Phillips et al cases challenging the constitutionality of PA 436, is thus open to question. But hopefully it will pave the way to putting that key question in the hands of higher courts even if Friedman does not rule in the NAACP’s favor.
Rhodes earlier certified an appeal of his eligibility ruling by other objectors directly to the U.S. Sixth Circuit Court of Appeals, but refused to recommend an expedited hearing as they asked.
The NAACP appeal entered Friedman’s court Dec. 30, 2013, as Rhodes prepared for a Jan. 3 hearing on a motion forcing the City of Detroit to pay $165 million on swaps deals to banks including UBS AG, Bank of America, and Barclay’s, that have raped it for decades.
Rhodes made a show of demanding that the original $230 million deal be reduced, bringing a temporary halt to bankruptcy court hearings while mediation progressed, under Chief Judge Gerald Rosen of the U.S. District Court of Eastern Michigan. Rosen, who was appointed as mediator by Rhodes, is a member of the right-wing Federalist Society.
Rosen has openly recommended the new pact. Many creditors including Detroit’s pension funds have objected that he overstepped the bounds of an impartial mediator by doing so, in particular since they have not agreed to the deal.
The deal also diverts attention away from the need for a criminal investigation of the original $1.5 billion Pension Obligation Certificates deals of 2005-06, a predatory loan orchestrated by Wall Street ratings agencies and former Detroit CFO Sean Werdlow, under former Mayor Kwame Kilpatrick. Werdlow promptly took a top management position with Siebert, Brandford and Shank, a partner in the deal, and is now its COO.
Detroit’s Chapter 9 bankruptcy case is the only one in the country taking place under an unelected official.
It has gone far beyond Chapter 9 strictures barring demands that a municipality liquidate its assets, because Chapter 9 allows such liquidation if the municipality (Orr, as recognized by Judge Rhodes), consents. So far, none of the Chapter 9 bankruptcies in the rest of the country have resulted in cuts to retirees’ pensions or liquidation of assets.
Only one, in Central Falls, Rhode Island, succeeded in slashing pensions because the state legislature passed a law allowing it.
The Detroit Water and Sewerage Department, the third largest in the country, which serves six counties, faces liquidation under Rhodes and mediator Rosen.
The duo just issued the following order for continuing mediation in the matter to the City of Detroit, Emergency Manager Kevyn D. Orr, U.S. Bank National Association, as Trustee, etc., Assured Guaranty Municipal Corporation, Financial Guaranty Corporation, Black Rock Financial Management, Berkshire Hathaway Reinsurance Group, Fidelity Management and Research Co. and Eaton Vance Management:
“IT IS HEREBY ORDERED that the above-named noticed parties shall appear, with counsel, for continuing mediation on Monday, January 6, 2014, and Tuesday, January 7, 2014, at the NEW YORK OFFICE OF JONES DAY, 222 East 41st St., New York, NY 10017, at the following times: Monday, January 6, 2014 at 1:30 p.m. — City of Detroit, Emergency Manager Kevyn D. Orr, and DWSD bondholder representatives, only; Tuesday, January 7, 2014 at 2:00 p.m. – City of Detroit, Emergency Manager Kevyn D. Orr, DWSD bondholder representatives and bond insurers.” (Bold designation part of order.)
There is no representation at these talks, being held in New York City, from the residents and voters of Detroit, who paid for the construction of DWSD through billions in bonds over many decades. They continue to be hit with massive rate hikes every year, including sewage rate hikes higher than those outside Detroit, allegedly due to the large numbers of delinquent bills.
There is no representation from the unions representing DWSD workers and the workers themselves, or the pension funds, which will be decimated if DWSD workers are taken out of their system.
The key issue appears to be getting Detroit’s future out of the hands of Orr, Rhodes, and Rosen. Rhodes, like Rosen, clearly is guilty of rampant collusion with Orr/Jones Day. He has ruled on their side almost without exception on every issue.
He should have recused himself from the current bankruptcy case, or at the very least disclosed his participation in “chairing” a one-sided forum on Chapter 9 and Emergency Managers Oct. 20, 2012. Five out of six participants were direct supporters of the original Emergency Manager Law, Public Act 4, and one even helped co-author it. Another participant, accountant Charles Moore of Conway McKenzie, was a key witness for Orr/Jones Day in the bankruptcy trial.
Despite the fact that VOD brought this issue to the attention of attorneys for the pension systems, the unions, and others, only VOD editor Diane Bukowski ended up filing a motion for Judge Rhodes to recuse himself, which he refused to publish online but issued a six-page opinion claiming he only “chaired” the session.
Whether Judge Friedman will be any more principled than Rhodes and Rosen remains to be seen. It is clear, however, that actions like those which birthed the Voting Rights Act, the massive civil rights and Black nationalist and freedom movements of the 1960’s, including the Montgomery bus boycott, the battle at the bridge at Selma, Alabama, and the militant class-conscious struggles of the Black Panthers, are necessary to save the nation’s largest Black-majority city from the claws of the vultures, the banks and other financial institutions, and their politician lackeys, who now hold it.