This weekend, I had the unenviable task of going on Fox News and “defending” Detroit. I wasn’t sure what I was supposed to be defending: poor city government, white flight, crumbling infrastructure… the best thing anybody can say about Detroit right now is that Miguel Cabrera is still sober. My solution was to sell Detroit to Canada. Our neighbors to the north seem to do a better job of providing civic services in a business-friendly environment without the kind of gridlock and recriminations that dominate every “solution” ever offered to Detroit’s long-standing problems.

Understand, this is a city that can’t even file for bankruptcy without getting dragged into legal quicksand. Former Jones Day partner Kevyn Orr was named Detroit’s emergency financial manager just four months ago. Evidently, it doesn’t take long to look at Detroit’s books and cry uncle, but now a judge is trying to block Orr and the city from restoring financial sense.

Don’t worry, as usual there will be people making money in Detroit. It just won’t be the people who actually live there…

First, let’s deal with the fact that Detroit’s bankruptcy filing is being challenged in court. From Reuters:

Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have been running to state court in Michigan’s capital of Lansing in an effort to derail the biggest Chapter 9 municipal bankruptcy in U.S. history.

A Michigan state court judge on Monday morning adjourned a hearing in a case brought by city pension plans with no action taken. The pension plans asked for the proceedings to be postponed one week to July 29.

That follows an order issued in one of the other cases on Friday by the same judge, Ingham County Circuit Court Judge Rosemarie Aquilina, directing Detroit Emergency Manager Kevyn Orr to withdraw the bankruptcy petition he filed on Thursday.

In Friday’s order Aquilina said the state law that allowed Michigan Governor Rick Snyder to approve the bankruptcy filing violated the Michigan Constitution. The governor cannot take actions that would violate constitutional protections for retirement benefits for public workers, she said.

So Detroit, which can’t afford to pay all that it owes to things like its public pension funds, might not be allowed to file for bankruptcy because it might affect how much it owes to its public pension funds. Baby Boomers really rigged this system in an amazing way.

Generally, I’m on the side of public workers, police, firefighters, teachers — a city should meet its obligations to its workers.

But as much as I might support “workers” over “corporations” or whatever, there’s comes a point where the only side you can choose is “math.” Detroit owes money, but it has no tax base. How many of these retired workers even still live in Detroit? Math is a bitch, and she doesn’t care about our human laws and constitutions.

While Detroit’s retired workers hope the state’s constitution protects their interests, Detroit’s creditors have hired their own protection force. From Am Law Daily:

Detroit’s municipal bond insurers and creditors have retained their own teams of Am Law 100 firms.

Arent Fox is advising Ambac Assurance; Sidley Austin and Michigan’s Jaffe, Raitt, Heuer & Weiss are representing the National Public Finance Guarantee Corporation; Winston & Strawn has been retained by Assured Guaranty; and Weil, Gotshal & Manges is counseling the Financial Guaranty Insurance Company.

There are also some local firms getting in on the action. It’s a right mess, so we can expect that lawyers will be getting paid.

But there’s only so much blood you can get out of a rock, even a Rock City. I’d hire Omni Consumer Products to get my money out of Detroit.

Legal wrangling shadows Detroit bankruptcy filing [Reuters]
Am Law Firms, Local Shops in Drive for Detroit Work [Am Law Daily]

Earlier: Can a Biglaw Partner Fix the Big Old Mess… of Detroit?


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