CHICAGO -- Detroit's pension funds asked a federal circuit court to allow an expedited appeal of the bankruptcy court's recent ruling that the city is eligible for Chapter 9 and that its pensions can be cut, saying the case has national implications that warrant a speedy review.
The city's two pension funds filed the appeal with the U.S. Court of Appeals for the Sixth Circuit. The filing came a week after U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the Detroit case, said he would certify a direct appeal of his eligibility ruling to the Court of Appeals — allowing creditors to bypass the district court level — but said he would not recommend an expedited appeals process.
In their late-Thursday filing, the Detroit Police and Fire Retirement System and the General Retirement System called Rhodes' decision "puzzling," according to local reports.
"If any bankruptcy case ever warranted an immediate, direct appeal, it is this case," the attorneys for the funds wrote in the filing. "The bankruptcy court's eligibility decision involves nationally significant, unresolved legal questions that will determine the fate of the largest municipal bankruptcy in American history, and may set the template for future Chapter 9 cases."
Rhodes, who declared the city eligible Dec. 3, wants the pensions and other creditors to wait to appeal until after Detroit has filed a plan of adjustment for its debt. Detroit emergency manager Kevyn Orr has said the city hopes to file the plan by mid-January.
Rhodes said he thinks it's better if the city and its creditors try to reach agreement through mediation, led by Chief District Judge Gerald Rosen, rather than through appeals. Rhodes recommended that the Court of Appeals consult with the mediator to determine whether expedited appeal is "in the best interest of the city, its creditors and its residents," in a three-part memorandum released last Friday outlining his appeals decisions.
"Ordinarily, the bankruptcy judge presiding over a reorganization case is in a good position to assess that question and to determine the appropriate procedural pace based on the best interests of the parties," he wrote. "In the present case, one fact overshadows everything, including these appeals. The city is insolvent on a cash flow basis. It has no money to pay claims. The city cannot successfully adjust its debt and revitalize itself without help."
Pension fund lawyers countered that the case is likely to have an impact on municipal bankruptcies elsewhere.
"Delay risks irreparable harm to the pension funds and other creditors," pension attorneys said in the filing. "Resolution of the city's eligibility will have life-changing consequences for active and retired police officers, firefighters, librarians, government clerks, public works employees, and many others."
The case ultimately could land before the U.S. Supreme Court.