A legal challenge in Detroit's municipal bankruptcy case must be heard before a trial on the city's debt-cutting plan, a federal appeals court ruled yesterday, the Wall Street Journal reported today. The Sixth Circuit Court of Appeals said that a lower district court judge improperly held up an appeal by municipal bond insurer Syncora questioning the city of Detroit's use of casino tax revenue during the case. "In a bankruptcy case of such scope and complexity, that is not the proper way to adjudicate appeals that implicate legal questions of fundamental importance to the bankruptcy proceedings," the Sixth Circuit Court of Appeals said in its ruling. By ordering the lower court to act, a federal appeals court may have thrown a potential wrench in the timetable to exit the city of Detroit from municipal bankruptcy by this fall. The appeals court ordered a federal-district court judge to rule by July 14 on a request by Syncora Guarantee Inc. and its associated Syncora Capital Assurance Inc. to stop the city from using its casino tax revenue rather than preserve the funds potentially to pay back creditors including Syncora. The city generates about $170 million a year from taxes levied on its three casinos.
