Detroit bankruptcy judge releases 150-page order

• Judge Rhodes said pensions can be cut because they are contracts
• Judge didn%27t blame creditors for failing to negotiate
• Detroit filed for Chapter 9 bankruptcy protection July 18

DETROIT — The 150-page order filed Thursday by U.S. Bankruptcy Judge Steven Rhodes that details his legal reasoning for authorizing the City of Detroit's bankruptcy filing provides guidance on rarely raised Chapter 9 issues.

Though the Rhodes ruling is not binding on municipalities in other states, the expectation is it will be picked through carefully, especially given the judge's expertise and thoroughness, said attorney Doug Bernstein.

"This is an opinion from a well-respected judge who is active nationally," said Bernstein.

Wayne State University law professor Laura Beth Bartell agrees.

"I know from my days when I was clerking, if a judge is well respected in the community, his or her opinions carry more weight. And Judge Rhodes is very well respected — not just here but across the country. So citing a judge Rhodes opinion is something other courts are likely to do."

Rhodes on Thursday issued the formal Order for Relief for the city to be a debtor under Chapter 9 of the U.S. Bankruptcy Code.

In a separate filing, he expounded on the summary he gave in court Tuesday with a detailed ruling, saying pensions can be cut because they are contracts. He also urged the city to be cautious about "one-time" sale of assets unless it contributes to the city's "operational revenue."

"It will have some influence on those California judges trying to decide whether pensions can be cut," said Wayne State University law professor Laura Beth Bartell.

Rhodes also reiterated his assertion that the city did not have to negotiate at all with creditors because fair talks were "impracticable."

By July 18, the day Detroit filed for bankruptcy, the city was being bombarded by lawsuits, facing dwindling cash flow and failing to deliver vital services — adding credence to the city's argument that reaching a deal with more than 100,000 creditors would have taken too long.

Still, Rhodes refused to blame creditors for failing to negotiate. He said a month-long window between Detroit emergency manager Kevyn Orr's June 14 proposal to creditors and the bankruptcy filing was not enough time for "good faith" talks.

"The city argues that these meetings were intended to start negotiations and that they expected counter-proposals from the creditors," Rhodes wrote.

"Even as a first step, these meetings failed to reach a level that would justify a finding that negotiations had occurred, let alone good faith negotiations," he wrote.

Bernstein said he thinks the unions will have a hard time finding errors upon which to base an appeal. He noted Rhodes worked to find a balance between moving the case along quickly while still allowing all parties to have their say.

"That makes it tougher to appeal on the grounds they were not given an opportunity for their day in court," he said.

Creditors also argued that Michigan Gov. Rick Snyder should have forced Orr to attach a contingency to the bankruptcy filing that would protect pensions under all circumstances. Snyder rejected his own attorney's advice to attach a contingency.

But Rhodes said contingencies could have undercut the bankruptcy.

"Any such contingency in the governor's authorization letter would have been invalid, and may have rendered the authorization itself invalid," he wrote.