Hearing on Detroit bankruptcy set for Wednesday

July 22, 2013
BANKRUPTCY
Detroit unions file new suit; hearing set

Labor unions trying to stop Detroit from cutting pensions filed a new challenge to the city in bankruptcy court, and the federal judge overseeing the case said he would hear arguments Wednesday.

U.S. Bankruptcy Court Judge Steven Rhodes agreed Monday to a request by Detroit Emergency Manager Kevyn Orr to fast track a hearing on whether other courts can hear lawsuits against Detroit, while it seeks federal bankruptcy court protection.

Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have filed three lawsuits, including one backed by the United Auto Workers union, in state court in an effort to derail the biggest Chapter 9 municipal bankruptcy in U.S. history. A Michigan court judge, for instance, has ordered Orr to withdraw the bankruptcy filing.

The American Federation of State, County and Municipal Employees Council 25, which represents about 70 percent of Detroit’s civilian workforce, on Monday argued that if the other lawsuits were stopped, Orr, Michigan Gov. Rick Snyder (R) and others would be able to continue to operate beyond state constitutional authority.

However, many legal experts said they expect Rhodes to put the other cases on hold. “Federal bankruptcy law generally trumps state law,” said Stuart Gold, a
Detroit-based bankruptcy lawyer at Gold Lange & Majoros.

To remain in bankruptcy court, Detroit must prove that it is insolvent and that it made a good faith effort to negotiate with its creditors, including its employee pension funds.
AFSCME leaders said Monday that Orr had rebuffed efforts by unions to discuss the issues. “Not once, did [Orr’s] representatives sit down and seek to negotiate a solution with our union,” said Steven Kreisberg, AFSCME’s national director for collective bargaining.

— Reuters

Also in Business

l  Netflix’s revival of the comedy series “Arrested Development” didn’t reel in as many subscribers to the Internet video service as Wall Street had hoped. Even though Netflix’s quarterly profit more than quadrupled to $29.5 million from $6.2 million a year earlier, the report released Monday didn’t live up to investors’ lofty expectations propelling the company’s high-flying stock. The shares have nearly tripled since the beginning of the year, raising the pressure on Netflix to deliver spectacular numbers. That didn’t happen during the three months ended in June, when Netflix picked up 630,000 U.S. subscribers. Netflix’s stock slid nearly 6 percent in extended trading after the numbers came out. It closed down 1 percent, at $261.96.

l  Yahoo director and activist investor Daniel Loeb is leaving the board and selling $1.16 billion of his stake back to the company. Yahoo will repurchase 40 million shares at $29.11 apiece from Loeb’s Third Point, leaving him with about 20 million shares, or less than a 2 percent stake, the Sunnyvale, Calif.-based company said Monday in a statement. The shares have almost doubled since Loeb joined the board in May 2012 and helped bring in Google executive Marissa Mayer as chief executive.

l  McDonald’s on Monday dashed investors’ hopes that its business would strengthen in the second half of the year, blaming tougher competition in the United States and weaker sales in Europe. The world’s biggest restaurant chain by sales reported a lower-than-expected quarterly profit of $1.4 billion and said it expects global same-restaurant sales in July to be relatively flat, sending its shares down 2.7 percent to $97.58.

l  GlaxoSmithKline said Monday that some of its executives in China appear to have broken the law in a bribery scandal, and the British drugmaker promised changes in its business model that would lower the cost of medicine in the country. GSK’s head of emerging markets, Abbas Hussain, said his company had zero tolerance for employees who broke the law. Hussain held a meeting with the Ministry of Public Security at which he also promised to review GSK’s business model.

l  U.S. sales of previously occupied homes slipped in June to a seasonally adjusted annual rate of 5.08 million but remain near a 3½-year high. The National Association of Realtors said Monday that sales fell 1.2 percent last month from an annual rate of 5.14 million in May. The group revised down May’s sales, but they were the highest since November 2009. Despite last month’s slip, home sales have surged 15.2 percent from a year ago.

— From news services

Coming Today

l  Earnings: Apple, AT&T, Lockheed Martin, UPS, Wendy’s.

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