On Friday, Detroit’s bankruptcy lawyers and opposing bankruptcy attorneys finished the trial to determine bankruptcy eligibility for the City of Detroit, Michigan, in the bankruptcy court for Eastern District of Michigan.
Nine bankruptcy lawyers had their time to speak in front of bankruptcy Judge Steven Rhodes on the last day of the trial. Judge Rhodes has stated that he will await brief’s from the bankruptcy lawyers next week and then make a ruling from there.
The bankruptcy lawyers for creditors argued that the City of Detroit did not make a good faith effort to negotiate with its creditors. Detroit’s bankruptcy lawyers countered that there was no negotiating on behalf of the creditors and the city needed to take quick and decisive action.
Detroit’s bankruptcy trial ended yesterday without a ruling from the judge on whether the city can remain under court protection, where creditors are limited in what they can do to challenge the city’s restructuring process.
Following more than eight hours of arguments by nine lawyers in federal court in Detroit, U.S. Bankruptcy Judge Steven Rhodes said he will issue a ruling after the city and its opponents file legal briefs next week about how labor law may affect his decision.
The day ended with Rhodes asking lawyers for the city and the state to respond to allegations that Governor Rick Snyder and the emergency manager he appointed, Kevyn Orr, acted in bad faith in the months before the case was filed.
On June 10, in a meeting with residents, Orr told a retired city worker that pensions were “sacrosanct” under Michigan law. Four days later, he proposed a plan to cut payments to the city’s retirement systems.
“This may not be the moment where he used the best words,” Bruce Bennett, an attorney for the city, said of Orr’s statement. “If your honor believes this statement was misleading,” Orr corrected himself when the June 14 cuts were proposed.
Lawyers for city unions and retired employee groups argued that Snyder and other state officials wanted to push the city into federal bankruptcy court because that was the only way to get around a ban on pension cuts in Michigan’s constitution.
Union ArgumentUnion and retiree lawyers made their closing arguments after lunch yesterday, beginning with Sharon Levine of Lowenstein Sandler PC, who represents the American Federation of State, County and Municipal Employees.
Levine said it was “absurd” that state officials spent more time hiring consultants to prepare for a bankruptcy than Orr spent negotiating with creditors to avoid a filing. Orr made his first debt-cutting proposal on June 14 and filed for bankruptcy on July 18.
Snyder did nothing to solve the city’s problems except prepare for bankruptcy from the time he took office in 2011, Levine said. She called Detroit’s cash crunch in 2013, when the city was projected to have only $7 million in cash out of a $1 billion budget, a “self-created emergency.”
Objectors put on witnesses who said the city didn’t try to negotiate with them. They presented e-mail that showed Jones Day, Orr’s former law firm, was offering advice to state officials about Detroit more than a year before the bankruptcy was filed.
Negotiations ImpracticalA July 8 communications plan put together by the city shows that Orr wasn’t serious about negotiating, said Jennifer K. Green, an attorney for a city pension system that’s fighting the case. That plan emphasized that negotiations were impractical even though Orr hadn’t held any negotiating sessions with creditors, Green said.
Matthew Schneider, an attorney for Snyder, attacked those claims. Any planning Snyder or state officials did for a bankruptcy was designed to help the city, he said.
“Their theory is, ‘Don’t go speaking to weather experts because that must mean you want the storm to come,’” Schneider told Rhodes yesterday. “Isn’t this what you expect out of your government? You expect planning. It would be irresponsible to fail to prepare.”
Vulnerable CityEnding the bankruptcy would leave Detroit vulnerable to lawsuits and other actions that could disrupt its turnaround effort. The $18 billion bankruptcy is the biggest ever filed by a U.S. municipality and the trial featured unprecedented testimony from a sitting governor, who has made revitalizing Detroit a central goal of his administration.
