Finance

Judge Denies Challenge to Detroit's Emergency Manager Law

November 7, 2013

By Nathan Bomey

U.S. Bankruptcy Judge Steven Rhodes today denied the NAACP’s bid to challenge the state’s emergency manager law in a lawsuit separate from Detroit’s bankruptcy case.

Rhodes, in a 14-page opinion, also issued a reminder that only Detroit emergency manager Kevyn Orr is allowed to act on the city’sbehalf in bankruptcy court.

The ruling comes a day after Detroiters elected former Detroit Medical Center CEO Mike Duggan as the city’s next mayor. Duggan threatened during his campaign to file a proposed reorganization plan with the U.S. Bankruptcy Court if he doesn’t get cooperation from Orr after taking office.

“There is no provision in law for the mayor or any other city official to act on the City’s behalf in this case,” Rhodes wrote.

READ: More financial stories

The ruling against the Detroit and Michigan divisions of the NAACP — which sought to overturn the emergency manager law in a separate lawsuit — shows that Rhodes is reserving the right to rule on the constitutionality of the controversial law.

Legal experts say U.S. bankruptcy judges have the authority to rule on the constitutionality of state laws.

NAACP lawyers had said their lawsuit should be allowed to proceed because they were “not seeking any damages, contractual claims or similar related relief that would implicate the city’s finances.”

But Rhodes ruled that the NAACP’s lawsuit could result in Orr’s removal from office, which would terminate the bankruptcy.

“The public has a substantial interest in the speedy and efficient resolution of a municipal bankruptcy case that affects as many people and institutions, and as much of the local, regional and national economy, as this case does,” Rhodes ruled.

“The public also has an interest in the opportunity that this bankruptcy case may provide for the City of Detroit not only to adjust its debt and to restore the basic services that its residents need for their health and safety but also to regenerate its economic livelihood.”

Rhodes rules that the NAACP’s lawsuit is subject to the automatic stay in bankruptcy court, meaning it can continue after the bankruptcy is done.

In the same ruling, Rhodes allowed a separate lawsuit against the emergency manager law, filed by Catherine Phillips and several other plaintiffs, to move forward — but only after the plaintiffs agreed not to pursue Orr’s ouster.

Several creditors have objected to the city’s Chapter 9 bankruptcy filing on the grounds that the emergency manager law is illegal.

Rhodes on Tuesday conducted Day 7 of a bankruptcy eligibility trial in which the city and its creditors are arguing over whether the bankruptcy can proceed. The trial will continue Thursday with more testimony from former Michigan Treasurer Andy Dillon.

Join the Discussion

After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.

More from Finance