Detroit bankruptcy case comes into focus with second hearing

Aug 2, 2013

A federal bankruptcy judge ordered a committee to represent retiree interests in Detroit’s bankruptcy, as lawyers representing the city and creditors went head-to-head in court for the second time Friday.

Detroit emergency manager Kevyn Orr has proposed cutting retirees’ pensions in his effort to restructure about $11 billion of the city’s debt.

But both the city and creditors have complained about a lack of clear retiree representation during negotiations. Some unions hesitated to represent their retirees, and some retirees thought the unions would favor current workers’ interests over their own.

So Judge Steven Rhodes ordered up the committee, though it’s not clear exactly what the committee will look like.

“Our experience has been that they tend to form committees that they view as workable,” said Sharon Levine, a lawyer for the American Federation of State, County and Municipal Employees. “They will keep it relatively small, and they like to keep it in odd numbers so you can have a vote.”

Lawyers for retirees had objected to the city choosing the panel. A US Justice Department trustee will decide who sits on the panel.

The city of Detroit has also agreed to pay a “reasonable” amount so the panel can hire outside help if needed.

Judge Rhodes strongly suggested a mediator to facilitate continued negotiations as the proceedings move forward.

University of Michigan professor and bankruptcy expert John Pottow says that makes a lot of sense, because bankruptcy courts favor consensual agreements—and Rhodes doesn’t want all the particulars hashed out in court.

“And that’s what he’s trying to get,” Pottow said. “He said, ‘I don’t want you litigating and fighting, I really want you guys to come to a deal that works for everyone.’”

Pottow says it’s also apparent Rhodes wants the case to move along at a quick clip.

The next big milestone—an eligibility trial to decide whether Detroit qualifies for Chapter 9 municipal bankruptcy—is slated for late October.

City lawyers also suggested they wanted to file their proposed “plan of adjustment” to tackle Detroit’s debt by the end of the year. Rhodes had suggested a March 1 deadline.