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Eleventh Hour Motion to be Filed in EM Challenge

Verdict on EM Laws Legality Draws Near



Last week, the geeks here at News Hits raised the issue of the two federal challenges to Michigan’s emergency manager law — and the possibility that they could be put on hold as a result of the decision by Emergency Manager Kevyn Orr and Gov. Rick Snyder’s to seek Chapter 9 bankruptcy protection for the city of Detroit.

This week, that narrative is being turned on its head.

We’ve heard from people in the know that a motion was to be filed on Monday, Aug. 19, asking U.S. Bankruptcy Court Judge Steven Rhodes to put the bankruptcy proceedings on ice until it is determined in a federal court whether the EM law, formally known as PA 436, is constitutional.

Such a move would seem to make sense — at least to us. But our opinion has all the weight of an anorexic gnat.

Even so, from a common-sense point of view, it seems like a completely reasonable approach. But what might seem obvious to a layman may not comport at all with the way lawsuits are adjudicated, which is why at least one legal scholar is of the opinion that all we’re doing here is calling attention to a heaping pile of irrelevance.

As we pointed out previously, the road to municipal bankruptcy in Michigan leads through PA 436. The controversial law lays out the steps that must be taken to file for Chapter 9. And in cities (or school districts) where an EM is in place, he or she is the one charged with recommending to the governor that bankruptcy be pursued. The governor then needs to approve the EM’s recommendation and authorize filing for bankruptcy.

The question is: What happens if a key link in that chain — namely the emergency manager — is not a legitimate actor in this legal drama? We don’t have a concrete answer to that.

It is not hard to imagine proponents of the emergency manager law and bankruptcy arguing that, since the governor is the one who has to authorize seeking Chapter 9, the process of getting to that point isn’t really the issue.

That doesn’t seem like a particularly strong argument, but you never know until a judge actually drops the gavel.

But let’s not get ahead of ourselves. The more immediate question is: Should the bankruptcy proceedings move forward while the constitutionality of PA 436 remains a matter of dispute in two cases that are currently in front of U.S. District Judge George Caram Steeh?

According to attorney Thomas Stephens, the answer is a loud and resounding “No!”

Stephens, until recently being laid off, had worked for the Detroit City Council’s Research & Analysis division. But he’s also been operating in the background as part of the team of lawyers fighting the EM law in federal court.

In his motion, Stephens argues that “proceeding with the bankruptcy before resolution of the underlying constitutional and legal issues regarding the authority and unlawfulness of the actions and policies challenged in the pending litigation … would exceed the lawful jurisdiction and purposes of bankruptcy under Chapter 9 and unjustly prejudice the rights of Detroit residents …”

We should note that, among other things, Stephens points out the filing for bankruptcy automatically puts a hold on all cases being brought against the city, including a Freedom of Information Act lawsuit filed on behalf of Metro Times.

We took that action last month in an attempt to get our hands on a copy of a video recording of an April meeting held between attorneys for Jones Day, a representative from the restructuring firm Miller Buckfire, then-City Council member Gary Brown (who has since gone to work for Orr) and City Council staff members. Stephens, by the way, was at that meeting.

Here’s what Stephens has to say about our FOIA case in his motion:

“Said recording has been formally requested under the Michigan Freedom of Information Act … an action that has been stayed by filing the Chapter 9 bankruptcy, unjustly depriving the public and plaintiff news media representative of access to information not otherwise available about the nature of the restructuring, in violation of the First Amendment. It should be noted that this public document was officially requested on April 22, 2013, and has been unlawfully withheld.”

Not to make too big a deal of our case, but it does help illustrate an important point. Information that would help expose the relationship between Jones Day and Miller Buckfire (which devised the criteria used during the evaluation process that led to the hiring of Jones Day, and is now working with Jones Day on the restructuring of Detroit) is being withheld, and we can’t pry it loose in court because of the bankruptcy proceedings.

The image of a snake choking on its own tail comes to mind.

On the other hand, we — and attorney Stephens — can be totally mistaken about all of this. That is the opinion of Laura Bartell, a Wayne State University Law School prof with expertise in bankruptcy.

Asked to comment on the motion being made by Stephens, she sent us an email saying:

“There is nothing new here. Kevyn Orr made the bankruptcy filing pursuant to the provisions of a law that was enacted in a proper way. Judge Rhodes has already decided that the federal bankruptcy court has the authority to proceed with the case to determine if the city of Detroit is eligible to file and if it is, he will continue to push for early confirmation of a plan of adjustment. He is not going to ‘stay’ his own proceedings and is certainly not going to ‘formally request expedited consideration of all pending litigation’ (that is not something a bankruptcy court does).”

Retired U.S. bankruptcy judge Ray Reynolds Graves has a slightly different take: “If Judge Rhodes feels that the objection has merit, he has the discretion to stay the Chapter 9 and ask for the U.S. District Court to give immediate and expedited consideration to the constitutional arguments in the interest of ‘judicial economy.’ It would be a rarity if it happened.”

Here’s another point to consider: Bartell says that the underlying issue — whether PA 436 is constitutional — could likely turn out to be a non-issue; or, in her words, “… for what it is worth, I think the pending constitutional challenges to the EM law are not going to prevail.”

University of Michigan Law School prof John Pottow, who’s also a bankruptcy expert, says via email that what Stephens is attempting to do is “not unanticipated. “

Pottow says that Rhodes “clearly” has the power to put the bankruptcy proceedings on ice, but asking Steeh to expedite the two cases he’s presiding over could be “touchier.”

Of course, we aren’t surprised to hear from the governor’s office that there is the utmost certainty in how its plan has been executed. In an email sent to News Hits at press time, Gov. Snyder’s press secretary, Sara Wurfel, affirmed Snyder’s position. “The bottom line is that we have full confidence in the legality and Constitutionality of the governor’s determination and action,” Wurfel says. “Ultimately it was determined this filing was simply the last viable option and was in the best interests of the people of Detroit and our state — to solve the financial crisis, restore services that residents need and deserve, and to grow the city in the future.”

There are matters of law, and then there are matters of judicial “etiquette.” Both Pottow and Wayne State University Law School’s John Mogk, however, are of the opinion that federal bankruptcy law grants Rhodes the authority to assume control of the cases in front of Steeh and rule on them himself.

As for the proper etiquette, don’t go asking us. The original definition of a geek, after all, is a sideshow carnival attraction that bites the heads off live chickens.

News Hits is written by Curt Guyette. Contact the column at 313-202-8004 or [email protected]


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