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Michigan attorney general sees no conflict in defending Detroit retirees

The word 'Bankruptcy' is seen painted on the side of a vacant building by street artists as a statement on the financial affairs of the city
The word 'Bankruptcy' is seen painted on the side of a vacant building by street artists as a statement on the financial affairs of the city

By Nick Carey

DETROIT (Reuters) - Michigan Attorney General Bill Schuette says he sees no conflict in representing the state's governor, who approved Detroit's bankruptcy filing, while at the same time representing Detroit's retirees, who assert that the filing is illegal.

In both cases, Schuette said, he is defending Michigan's constitution. He also pointed out that his office is often called upon to appear on conflicting sides of the same case.

"You can't pick and choose which parts of the constitution to enforce," Schuette, a Republican, told Reuters in a telephone interview on Tuesday. "Constitutions aren't meant to be convenient - they're meant to be followed, and I do that consistently."

Earlier this month, Schuette defended Republican Governor Rick Snyder in three state court cases challenging the governor's power to approve a bankruptcy filing for Michigan's largest city by Detroit Emergency Manager Kevyn Orr.

Detroit retirees, workers and the pension funds that filed the cases argue that the law empowering Snyder to approve the bankruptcy filing is unconstitutional because the bankruptcy threatens pension benefits, which are specifically protected by Michigan's constitution.

"I represented the governor, and he was correct," Schuette said. "Obviously we talk all the time, and we agreed the proper place to resolve these issues is the bankruptcy court."

U.S. Bankruptcy Court Judge Steven Rhodes on July 24 suspended the lawsuits pending in state court, putting his federal courtroom in control of the case.

Last Saturday, Schuette announced he would defend retirees who risk losing public pensions because of Detroit's bankruptcy filing. Schuette's statement cited Michigan's constitutional prohibition against any diminishment or impairment of pension benefits.

Laura Bartell, a law professor at Wayne State University in Detroit, said the attorney general had adopted the right approach to both of the bankruptcy-related disputes.

"Schuette correctly took the position that the Michigan Constitution does not prevent the bankruptcy filing itself," she said in an email. "He is now saying that now that the city is in bankruptcy, its plan of adjustment may not reduce the pensions under the Michigan Constitution. (There is) no conflict in the two positions."

Detroit filed for Chapter 9 bankruptcy protection in federal bankruptcy court on July 18 in the biggest municipal bankruptcy case in U.S. history.

The proceedings in bankruptcy court are expected to be protracted and expensive. The city has some $18.5 billion in long-term debt and liabilities and must battle with tens of thousands of creditors, including Detroit's two pension funds.

Schuette told Reuters he has a separate team of attorneys assigned to each side of the Michigan bankruptcy arguments. Over the past five decades, Schuette said, Michigan attorneys general frequently have appeared on conflicting sides of cases.

'COMMON PRACTICE'

"This is common practice both in Michigan and in other states when issues like this might occur," he said. "From time to time, you establish what is called a 'conflict wall,' where you have a team of attorneys on each side of the wall. We're all professionals here and we have an ethics officer who helps us manage all these issues."

Schuette said he often has to represent the Michigan Public Service Commission on the one hand and rate-paying citizens on the other hand.

Detroit has about 23,000 retired city workers, more than double the current city payroll. The city's debt includes $5.7 billion in liabilities for healthcare and other retiree benefits and a $3.5 billion pension liability.

Schuette said he has an open line of communication with Snyder and that he had let the governor and Emergency Manager Orr know of his intention to represent city retirees in federal bankruptcy court.

"After I made my decision, I talked to the governor about it so there were no surprises," he said. "And Kevyn Orr understood that I need to fulfill my constitutional responsibilities."

Schuette is a conservative former Republican state senator, U.S. congressman and judge on the Michigan Court of Appeals.

While not commenting on his own views of either the state or federal bankruptcy matters, Schuette said Detroit's retirees represent a "human aspect" of the city's federal bankruptcy filing that is often overlooked.

"These are cops and firefighters who worked hard, did their job and, through no fault of their own - and possibly due to pension fund mismanagement, their pensions are in jeopardy," he said. "So there's a human side to this that I think is really important."

The bankruptcy case has marked a new low for Detroit, which rose with the U.S. auto industry in the 20th century but has seen its fortunes decline since its zenith in the 1950s as auto jobs moved away and white residents moved to the suburbs.

The city's population has fallen from its peak of 1.8 million to 700,000 now.

(Additional reporting by Karen Pierog; Editing by Will Dunham)

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