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Michigan’s Emergency Financial Law Suspended After Michigan Supreme Court Compels Certification of Referendum Petition

In March, 2012, we described how a citizens’ group, Stand Up for Democracy, opposed Michigan’s emergency financial manager law, officially entitled “Local Government and School District Fiscal Accountability Act, MCL §§ 141.1501, et seq. (the “Act”), by filing petitions to place the issue of the Act’s repeal on the state ballot in November. The Board of State Canvassers reached a stalemate with respect to a motion to certify the petition, with the two Republican members of the Board believing that a question arose as to the size of the words of the petition heading, and the two Democrat members believing that the petition was in total compliance with the requirements for certification. Based on this stalemate, the Board did not approve the motion to certify the petition.

Thereafter, Stand Up for Democracy filed a complaint for mandamus in the Michigan Court of Appeals, requesting that the court order certification of the petition. The Michigan Court of Appeals granted the writ of mandamus based on substantial compliance, thus compelling inclusion of the referendum on the ballot. However, an organization calling itself the Citizens for Fiscal Responsibility challenged certification of the petitions and the signatures contained therein, alleging that (i) the form of the petition failed to comply with the type-size requirement of MCL 168.482(2), and (ii) the doctrine of substantial compliance is inapplicable to cure defects in petitions.

On August 3, 2012, the Michigan Supreme Court ruled in favor of certification of the petition, thus suspending the Act until registered voters of the State of Michigan decide whether to approve the Act on November 6, 2012. Stand Up for Democracy v. Secretary of State, __ N.W.2d __, 2012 WL 3155687 (Mich. Aug. 3, 2012). In sum, the Michigan Supreme Court held that although the doctrine of substantial compliance could not cure a defect in the petition as the Michigan Court of Appeals had ruled, the petition was nonetheless in total compliance because the “type” of the petition heading measured the requisite 14 points.

The decision in Stand Up for Democracy has now suspended the Act until the election in November. As a result, current emergency financial managers and perhaps even a financial consent agreement between the State of Michigan and the City of Detroit are in limbo. In the meantime, it appears that the Governor and the State Treasurer are taking the position that a former emergency financial manager statute, MCL §§ 141.1201, et seq., is being revived as a stop-gap measure until the November election. Although the former statute contemplates the appointment of emergency financial managers, it does so without many of the broad powers included in the current Act, such as the ability to modify collective bargaining agreements and general contracts. It is unclear, however, how the former statute is being resurrected in such short order, as it was repealed when the current Act went into effect. Therefore, additional challenges to the authority of emergency financial managers may arise in the weeks to come.

© 2022 BARNES & THORNBURG LLPNational Law Review, Volume II, Number 235
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About this Author

John Gregg, Restructuring and Bankruptcy Attorney, Barnes Thornburg, Law Firm
Partner

John T. Gregg is a partner in the Chicago and Grand Rapids, Michigan offices of Barnes & Thornburg LLP. Mr. Gregg focuses on corporate restructuring, bankruptcy, and insolvency law.

He has experience representing debtors, lenders, committees, trustees, asset purchasers, lessors, and other parties in interest in some of the country’s largest and most complex restructuring matters.

Mr. Gregg serves as the co-chairperson of the Bankruptcy Committee for the Real Property Law Section of the Michigan State Bar and is also a member of the American Bankruptcy Institute’s Central...

616-742-3945
Patrick E. Mears, Barnes Thornburg Law Firm, Grand Rapids, Corporate and Finance Law Attorney
Of Counsel (Retired)

Patrick E. Mears is retired of counsel in the Grand Rapids, Michigan office of Barnes & Thornburg LLP. He was a member of the firm's Finance, Insolvency and Restructuring Department and New York Law Practice Group. Mr. Mears concentrated his practice in distressed real estate, insolvency, workouts and restructurings, commercial finance, securitizations, and creditors’ rights. He represented financial institutions as individual creditors and as members of loan syndicates in matters throughout the state of Michigan and the remainder of the country. Although his primary...

616-742-3936
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