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A federal judge has reopened a lawsuit challenging the constitutionality of Michigan’s emergency manager law, an attorney for plaintiffs in the case said Friday, the Detroit News reported on Saturday. John Philo, legal director for the Sugar Law Center, said U.S. District Judge George Caram Steeh ruled Thursday that the suit may proceed. The decision comes after Bankruptcy Judge Steven Rhodes, who is presiding over Detroit’s historic bankruptcy case, agreed three separate times that a stay on the suit should be lifted. Judge Rhodes has required that the lawsuit be amended to drop a request for the removal of Detroit’s Emergency Manager Kevyn Orr. Steeh’s ruling means the case taking on the legality of the law statewide will now advance in Detroit’s federal court while a new appeal by the state is pending, Philo said.

Detroit won’t take legal action for now against Bank of America Corp. and UBS AG over a costly swaps deal, even after canceling a forbearance agreement it reached with the banks in July, Bloomberg News reported yesterday. While they continue trying to negotiate an end to the swaps, which cost taxpayers about $4 million a month, the city and the banks will refrain from taking court action against each other, according to Bill Nowling, a spokesman for Detroit’s emergency financial manager, Kevyn Orr. The forbearance agreement, reached days before Detroit filed the biggest U.S. municipal bankruptcy, was a kind of truce. Detroit agreed not to sue to cancel the swaps and the banks agreed not to declare the city in default of the contracts, which would have allowed them to try to seize casino tax revenue. The city and the banks have been trying to reach a settlement that Bankruptcy Judge Steven Rhodes will accept. Last month, he rejected a proposal to buy out the swaps for $165 million, saying it was too costly.

In what would be a major step toward resolving Detroit's historic bankruptcy case, Michigan Governor Rick Snyder yesterday unveiled plans to use state funds to help pay for Detroit worker pensions in his proposed $52.1 billion state budget, Reuters reported yesterday. The insertion of the Detroit pension money is Snyder's first official move toward previously announced plans to tap $17.5 million a year over 20 years from the state's share of a 1998 multi-state settlement with U.S. tobacco companies. Last month, the Republican governor proposed adding $350 million in state funds to money pledged by U.S. foundations to help fund Detroit's retired worker pensions and keep city-owned art work out of the bankruptcy case. Pension funds are Detroit's biggest unsecured creditors, and Kevyn Orr, the state-appointed emergency manager running Detroit, has pegged the unfunded pension liability at $3.5 billion. Pension cuts are among options Orr has said he is considering in his effort to restructure Detroit's finances.

A report filed yesterday by a court-appointed fee examiner showed that Detroit's price tag for lawyers, consultants and other professionals hit $13.7 million in the first 75 days of its historic bankruptcy, Reuters reported today. The tab for professional services covers the period beginning with Detroit's July 18 bankruptcy filing until the end of September and likely has mushroomed since then, as lawyers spent significant time before Bankruptcy Judge Steven Rhodes, even throughout the holiday season. The fees and expenses Detroit incurred through the end of September were "substantial" but also unavoidable given circumstances of the bankruptcy, wrote Robert M. Fishman, who was appointed fee examiner in August, in his first quarterly report to the U.S. bankruptcy court.

The city of Detroit wants a Bankruptcy Judge Steven Rhodes to disband a committee appointed to represent unsecured creditors, saying that it could disrupt mediation talks aimed at reaching a deal to help the Motor City speed an exit from its record-setting chapter 9 bankruptcy filing, the Detroit News reported today. Judge Rhodes has set a Feb. 19 hearing on the motion, which was filed on Friday. Federal mediators have been working for months to reach deals to help speed the city’s plan of adjustment. The mediation team has been working to raise pledges of $370 million from foundations, $350 million from the state and $100 million by the Detroit Institute of Arts in a bid to defray pension losses and protect the city-owned art from sale in bankruptcy. “The city believes that the appointment of the creditors’ committee comprised largely of parties already participating in mediation will not advance, and may well disrupt, the mediation,” the city said in its filing.

Two federal judges in Detroit’s bankruptcy case have refused drawn-out battles in favor of quick rulings and aggressive mediation that’s speeding the chapter 9 process along, according to a commentary yesterday in the Detroit Free Press. Much of the action has been happening in the private chambers of Chief U.S. District Judge Gerald Rosen, where he convenes confidential mediation sessions producing rapid-fire results. Mediation breakthroughs — most notably lining up about $800 million of private and state money for a pension rescue fund — have shifted Detroit’s historic bankruptcy case into high gear with a quick resolution potentially in sight that was unthinkable just a few months ago.

Detroit’s proposal to restructure its $18 billion of debt by paying pensioners at more than twice the rate of some municipal bondholders threatens to increase borrowing costs for localities throughout Michigan, Bloomberg News reported on Saturday. The draft plan given to creditors last week by Emergency Manager Kevyn Orr offers different recovery rates for classes of unsecured creditors. Pensions would get 45 to 50 cents on the dollar, though retiree health care liabilities would recoup just 13 cents, according to the plan. By comparison, those who loaned $1.4 billion to shore up the two pension funds would receive 20 percent of their claims. Holders of $369 million in unlimited-tax general obligations would recover 46 percent. The plan assumes an infusion of nearly $800 million for the two pension systems from equal contributions by the state and private foundations. To protect the city’s collection of art masterworks, foundations and the Detroit Institute of Arts have pledged $470 million. Snyder proposed $350 million that the legislature must approve.

Detroit on Friday filed a lawsuit in U.S. bankruptcy court seeking to invalidate $1.44 billion of debt sold to fund public worker pensions — a move that also could void the ill-fated interest-rate swaps contracts that were a factor leading Detroit into bankruptcy, Reuters reported. The lawsuit contends the city and its retirement systems violated Michigan law when they set up "sham" service corporations and funding trusts to facilitate the debt sales in 2005 and 2006. All other contracts or obligations connected to the debt are also void, the lawsuit claims. Detroit in its lawsuit said that the pension debt was "nothing more" than a borrowing by the city, and it violated borrowing limits imposed on Detroit by the state of Michigan. In the suit, Detroit asked Bankruptcy Judge Steven Rhodes to issue a judgment declaring the city is not obligated to continue making payments on the so-called pension certificates of participation (COPs). The COPs were issued during the term of former Mayor Kwame Kilpatrick, now in prison on federal corruption charges.

Detroit officials gave Bank of America Corp. and UBS AG until today to say how much they would accept to cancel interest-rate swaps that cost city taxpayers about $4 million a month or face a possible lawsuit, Bloomberg News reported today. The city and the banks have been trying to negotiate a new deal since a federal judge rejected a proposal to pay the banks $165 million to end the swaps. Should the banks make a low enough offer today, the city will keep talking through the weekend in hopes of presenting a new deal to Bankruptcy Judge Steven Rhodes. Without a deal, the city will consider taking legal action to have the swaps declared illegal and to prevent the banks from seizing about $4.2 million in casino taxes held in a custodial account, the person said. The city has paid more than $200 million on the swaps since 2009. Judge Rhodes this month rejected the $165 million proposal, which was a reduction from an earlier agreement to pay $230 million, as “too high a price.” He advised Detroit to seek better terms.

The Detroit Institute of Arts (DIA) has pledged to raise $100 million for the federally mediated rescue fund to shore up municipal pensions, prevent the forced sale of any of the museum’s irreplaceable masterpieces and spin off the city-owned museum to an independent nonprofit, the Detroit Free Press reported today. The commitment was announced in a statement by Chief U.S. District Judge Gerald Rosen, which was followed a short while later by a statement from the DIA, which said that its board of directors approved a commitment by the DIA to raise $100 million from corporate and individual donors toward these efforts. According to the DIA’s statement, the City of Detroit will transfer to the DIA “free and clear legal title to the museum building, the art collection and all related assets.”