Detroit pension funds sue city's emergency manager, governor in attempt to block bankruptcy

Jul 18, 2013

Two Detroit pension funds have sued the city’s emergency manager, Kevyn Orr, and Governor Rick Snyder in an attempt to block the Motor City from filing for bankruptcy.

The General Retirement System and the Police and Fire Retirement System of the City of Detroit filed the lawsuit yesterday, Bloomberg’s Margaret Cronin Fisk reported. The state’s constitution offers protection of public retirees’ rights, and the petitioners of the lawsuit are claiming that a Detroit bankruptcy would violate those rights.

Orr’s office refused to comment on the lawsuit.

Orr hasn’t commented on which pension funds would be cut, and to what degree, but he has vowed to make “significant cuts” to pension payments.

The state’s constitutional provision in question is Section 24 of Article IX:

“The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof and shall not be diminished or impaired thereby.”

Though this provision might seem like a crystal clear affirmation of the pensioners’ rights, Daniel Howes of The Detroit News reported other large-scale bankruptcy cases show that anything can go when filing a Chapter 9 -- including states’ constitutions.

“‘Cases have clearly recognized that bankruptcy law supersedes state laws protecting contract rights, even where the state constitution expressly protects contract rights,’ “ wrote attorneys Harold S. Horwich and Christopher L. Carter, in American Bankruptcy Institute’s journal.

- Melanie Kruvelis, Michigan Radio Newsroom