Lawyers wrapping case in Detroit bankruptcy trial

11/8/2013

DETROIT  — Detroit bankruptcy opponents are confusing careful and deliberate planning by officials with pursuing bankruptcy at all costs, attorneys argued today at the end of a trial that will determine the future of the largest public filing in U.S. history.

They “want to punish the governor and treasurer for contingency planning, for doing their jobs,” said Matthew Schneider of the Michigan attorney general’s office. “This was never about predetermining a Chapter 9 filing. This was only about careful consideration.”

Attorneys representing the city and Gov. Rick Snyder were making their final case to a judge who will determine if the city can fix its finances in bankruptcy. Opposing arguments were continuing throughout the day from the city, retiree groups, unions and pension funds.

Detroit filed for Chapter 9 protection in July, but Judge Steven Rhodes gets the say on whether the city is eligible for a restructuring overseen by the court. Critics claim emergency manager Kevyn Orr wanted bankruptcy for months and didn’t want to try good-faith negotiations before filing.

But Schneider told Rhodes that bankruptcy always was a “last resort” and that contingency planning doesn’t “mean you want the storm to come.”

Rhodes said he found it “factually impossible” for the city to conclude that negotiation with creditors was “impracticable” while also arguing it negotiated in good faith with them.

Detroit’s lead counsel, Bruce Bennett, disagreed, noting it is widely understood that reaching an out-of-court settlement is a “great thing” but “extremely difficult.” He said a June proposal for creditors and subsequent meetings with them laid out in great detail the city’s undisputed financial problems and prescriptions for solving them, but that no group came forward with a credible counterproposal.

“Nobody was hiding the ball,” Bennett said. “Everyone understood that negotiations were likely to fail.”

Sharon Levine, an attorney representing the American Federation of State, County and Municipal Employees, said state and local officials were operating “under a cloak of secrecy” and had pursued bankruptcy since Snyder’s earliest days in office in 2011.

“The governor took more time to interview the consultants to help the city with restructuring than they took to negotiate the restructuring itself,” she said. “That’s absurd.”

Levine cautioned the judge that he was being asked to set a “very dangerous precedent” that could chart a map for governors across the country to push municipal bankruptcies based on “self-created” financial emergencies.

Orr, a bankruptcy expert who was appointed emergency manager last March by the governor, has said Detroit has at least $18 billion in long-term debt, including $3.5 billion in pension shortfalls.

If Detroit is found eligible to stay in bankruptcy, the case would turn to how to solve the debt. The city has said it could propose a plan by the end of the year. Meanwhile, a team of mediators has been meeting with all sides in the hope of reaching an out-of-court compromise.