The Detroit Free Press has an interesting story on the success of Detroit’s mediation. Mediation consists of discussion between parties and moderated normally by an expert in the field at issue.
In this case, bankruptcy lawyers for the City of Detroit and its creditors met with U.S. District Judge Gerald Rosen for the mediation process. Judge Rosen facilitated the bankruptcy lawyers of all parties coming to terms that were favorable and accepted by all sides.
Mediation in these cases is preferred because: 1. all parties enter into it voluntarily, so it has to be accepted by all parties and thus considered fair if accepted; 2. it saves precious court resources; and 3. it spares the parties expensive legal fees. In this case, bankruptcy lawyers for all sides are charging large hourly rates. The cost of the City’s bankruptcy lawyer fees would be born by its tax base. Fortunately they were afforded a reduction with the mediation arising out of the Detroit bankruptcy filing.
When Detroit filed for bankruptcy, the case was expected to mirror others around the country: contentious with several years of pitched courtroom battles ahead.
But in Detroit, two powerful federal judges have refused drawn-out battles in favor of quick rulings and aggressive mediation that’s speeding the process along. Much of the action has been happening on the 7th floor of the federal courthouse, 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.
On Wednesday came the first draft of the city’s highly anticipated plan of adjustment, a detailed document that shows how Detroit will reduce its $18 billion in debt and long-term liabilities, restructure city government and emerge from bankruptcy. How creditors will react remains to be seen.
On Friday, meanwhile, the city dropped a bombshell, announcing it’s suing over a bad pension deal from the Mayor Kwame Kilpatrick era that helped push Detroit into bankruptcy. The move follows U.S. Bankruptcy Judge Steven Rhodes’ rejection of two proposed settlements with the two major banks involved.
But many of the city’s other most pressing issues are nearing resolution with far more collaboration:
■ On Thursday, Detroit retirees and the city reached a settlement involving health care cuts, which includes the creation of a special health care trust for Detroit retirees.
■ On Wednesday, the Detroit Institute of Arts pledged $100 million to the growing rescue fund that would shore up municipal pensions as it protects the DIA’s world-class art collection and spins off the museum into an independent nonprofit.
■ On Tuesday, the W.K. Kellogg Foundation announced a $40-million pledge to that same rescue fund.
■ Meanwhile, negotiations are coming to a head on a 40-year deal to lease the water department to a new regional authority in exchange for $47 million in annual payments that would help the city reinvest in services such as police, fire and blight removal.
A balancing actLegal experts attribute much of this progress to mediation, a process that few bankrupt municipalities have ever used. But they’re not Detroit.
“Detroit is a special place. It’s huge. Without mediation, the court would say it lacks the resources to move the case along,” said Alabama bankruptcy attorney Patton Hahn, who worked on the municipal bankruptcy case in Jefferson County, Ala., which did not use mediation.
That’s because the Alabama case was driven by a single sewer debt issue, “not acute infrastructure problems like Detroit, or a giant pension problem,” Hahn said.
Detroit Free Press: http://www.freep.com/article/20140202/NEWS01/302020063/Orr-Snyder-Rosen-Detroi-bankruptcy
