CHICAGO — A federal appeals court judge supported bond insurer Syncora Guarantee Inc.'s appeal of a key decision in the Detroit bankruptcy case, ordering a lower court to review the issue before July 14.
It marks a rare, if limited, victory for Syncora, one of the chief opponents in the high-profile bankruptcy case.
Judge Julia Smith Gibbons of the U.S. Sixth Circuit Court of Appeals ordered the U.S. District Court for the Eastern District of Michigan to rule on the bond insurer's challenge of a decision finding the city's casino tax revenues are part of the bankruptcy estate, and therefore subject to the automatic stay.
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the city's Chapter 9 case, made the ruling in August 2013, about a month after the city filed for bankruptcy.
Syncora appealed in September. The district court stayed the appeal, and it has "languished" in that court for seven months, Gibbons said in her order.
In an effort to advance the appeal, Syncora asked the appeals court for a writ of mandamus on June 10.
It's one of a handful of challenges that could derail the city's effort to wrap up the case by early fall.
The appeals court will also hear an appeal of Rhodes' decision that the city is eligible for bankruptcy in the first place.
Detroit's lawsuit to invalidate $1.4 billion of certificates of participation — and the bond insurers' challenge to that lawsuit — could also delay a final trial, on the city's plan of confirmation, currently set to begin Aug. 14.
Gibbons directed the lower court to hear the appeal ahead of the confirmation plan trial.
The appeal will also come ahead of a July 30 hearing on the separate challenge to Rhodes' eligibility decision.
In her ruling, Gibbon said Syncora's appeal raises an important question that must be settled before the bankruptcy court rules on the city's plan of confirmation.
"Although mandamus is an 'extraordinary remedy,' these are extraordinary circumstances, and we do not evaluate Syncora's petition in a vacuum," Gibbons wrote. "If the bankruptcy court confirms the city's plan of adjustment before Syncora obtains judicial review of the merits of its appeal, Syncora may be left with no option but to seek an emergency stay of that plan," Gibbons wrote. "In a bankruptcy case of such scope and complexity, that is not the proper way to adjudicate appeals that implicate legal questions of fundamental importance to the bankruptcy proceedings."
Without the decision, the city will not know how much it has to repay its creditors, among other factors, the judge said.
Syncora filed the petition for a writ of mandamus on June 10 in an effort to advance its appeal of Rhodes' ruling that certain casino tax revenues were correctly deemed to be the property of the bankruptcy estate.
The ruling blocked Syncora from 'trapping' the casino revenue, which the insurer argued it had the right to do after Detroit stopped making payments on its pension certificates of participation.
"The question presented in Syncora's appeal — whether a substantial revenue stream is rightly considered property of the bankruptcy estate — is precisely the type of issue that should be reviewed before the bankruptcy court confirms the plan of adjustment," Gibbons said.
The judge ordered the district court to adjudicate the appeal no later than July 14.
