8.20.13

Detroit’s Bankruptcy Filing Deadline. U.S. Bankruptcy Judge Steven Rhodes met with lawyers in the Detroit bankruptcy case Wednesday to tackle a host of issues , including a civil spat involving millions in casino revenue <!–more–> and a separate dispute involving indicted Highland Park activist Robert Davis. On tap was a request from New York insurer Syncora Guarantee Inc. to dissolve a temporary restraining order stemming from a fight with the city over $180 million worth of annual revenue from the city’s three casinos. Syncora wants to depose city officials and conduct discovery in connection with a lawsuit that is playing out on the sidelines of the Detroit bankruptcy case.

Detroit has requested that Judge Rhodes approve an agreement that would give the city access to the revenue, which would be critical to Emergency Manager Orr’s $1.25 billion plan to improve city services and create foundation for future sustainability.

Davis, meanwhile, wanted Rhodes to clarify whether the city’s bankruptcy case froze his lawsuitchallenging whether Orr’s appointment violated the Open Meetings Act.

U.S. Bankruptcy Judge Steven Rhodes questioned why the city was being so secretive about giving people access to financial projections and expert reports and why the city is demanding that creditors in the bankruptcy case sign non-disclosure agreements before being allowed to view financial reports and other data: “Doesn’t the city want every one of its citizens to know what the financial future is?” Rhodes asked city bankruptcy lawyer Gregory Shumaker.

“Yes,” the lawyer said.

“What’s the problem?” the judge said.

“There are a lot of scenarios played out in those projections,” the lawyer said. “The city believes it would not be in its best interest for it to be disseminated in the public.”

“Ok,” the judge countered, “but why not? What would the harm be?”

“Your honor, it is hard to imagine the different scenarios that might develop with the information,” Shumaker said.

“Generally speaking, speculation and conjecture are not the basis for confidentiality,” Judge Rhodes countered.

Detroit bankruptcy judge orders Orr to sit for deposition

Emergency Manager Kevyn Orr and two other unnamed individuals must sit for depositions that will last six hours, U.S. Bankruptcy Judge Steven Rhodes ordered today. Mr. Orr will face questions in relation to a civil lawsuit over casino cash between the city and New York insurer Syncora Guarantee. A deposition date was not set but Rhodes recommended they be scheduled as “promptly as possible.”

The city of Detroit may have to open its digital vault of financial information that includes what the city’s fiscal future could look like. U.S. bankruptcy judge Steven Rhodes will hold a hearing at 3 p.m. ET on Wednesday to allow attorneys for the city to argue why a digital “data room” should be kept from the public. The city, under Emergency Manager Kevyn Orr, set up and provided the content for the password-protected data room and allowed access to creditors involved in the historic Detroit bankruptcy filing only if they signed a nondisclosure agreement. Creditors and the Emergency Manager’s office have, so far, been unwilling to reveal what is included in the data; however, representatives from the city’s unions and pension funds as well as corporate creditors have been given the password after agreeing to the nondisclosure agreement.

At a hearing earlier on Wednesday, Rhodes seemed to take umbrage when Gregory Shumaker, attorney for the Jones Day law firm that is representing the city in the bankruptcy filing, said some of the financial information in the so-called room was not relevant to the Chapter 9 filing.

“This is bankruptcy. What is not relevant?” said Rhodes.

Shumaker seemed taken aback. There are scenarios of what may happen to the city’s finances in the future that are best kept private, he said.

“What would be the harm to the city’s interest?” countered Rhodes. The judge said he would give Jones Day until the afternoon to come up with a coherent argument on why the data room should remain closed to all but those who agree not to disclose its contents.

On July 10, eight days before Detroit filed for the largest municipal bankruptcy in U.S. history, a United Auto Workers attorney, Michael Nicholson, refused to sign the nondisclosure agreement that covered the data as well as discussions held that day in a meeting with Jones Day representatives regarding the city’s pensioners.

Nicholson told Rhodes in court Wednesday that he was pleased to see a hearing had been set on the information.

The question of opening the data room was tacked on to the 3 p.m. session by Rhodes.

He initially set the afternoon hearing to hear from the city and Syncora Guarantee, the bond insurer that is contesting a creditor agreement Detroit is asking the court to approve. That agreement involves interest-rate swaps related to Detroit pension debt that Syncora insures.

Detroit sued Syncora in July after it allegedly told U.S. Bank, which controls the flow of casino funds that were part of a previous agreement with the swap counterparties, not to release up to $11 million a month to Detroit.

Questions regarding information in the data room by Syncora’s attorney, Stephen Hackney, led to Rhodes’ questioning why the information should be kept confidential.

The stakes are enormous. Should U.S. Bankruptcy Judge Steven Rhodes accept the objections following the eligibility trial, Detroit would be many millions poorer, but back at square one. Nevertheless, the 11 months of a mutual consent agreement between the state Treasury, City Council, and Mayor Dave Bing delivered far less than city officials pledged to deliver. The three-plus months before the emergency manager and his legal team filed Chapter 9 produced little more than bickering. Lengthy legal proceedings could threaten mountain legal bills at stunning levels; too lengthy a legal bankruptcy process could risk risks a mid-case exit of Emergency Manager Orr, who could be removed by a new Detroit City Council as early as September 2014. So speed matters. Under Judge Rhodes’ ambitious schedule, the eligibility trial could conclude the week of Detroit’s Election Day, less than four months after Mr.Orr and his team filed their Chapter 9 petition. In contrast, the city of Stockton filed for municipal bankruptcy on June 28th last year, and its eligibility was confirmed on this year on June 12th — more than three times longer than the schedule contemplated by Judge Rhodes. Thus, the schedule is critical.

Equally critical is thinking sustainability: that is not just getting out of bankruptcy, but rather sustainability. Thus, even as Judge Rhodes is mapping out an aggressive calendar, Mr. Orr and the city are poised to unveil a series of service improvements intended to validate the emergency manager process. Over the next two months, Mr. Orr expects to make additional announcements to mitigate blight; to tout new equipment, police cruisers and EMS units for the public safety; to highlight refurbished street lights for darkened neighborhoods. He also is seeking proposals to privatize garbage collection and “monetize” the city’s parking assets.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s