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Detroit: So Many Questions

posted by Melissa Jacoby

Arrows...but first, a new (and short!) article: Please download here a just-published piece on the first months of Detroit's bankruptcy, resulting from a fall 2013 Fordham symposium. It reflects efforts to follow public parts of Detroit's chapter 9 through recordings of court hearings and monitoring the docket. And although largely descriptive, the piece sets the stage for unpacking the institutional and functional roles played by the federal court in municipal bankruptcies and beyond. The court's early management and oversight choices (discussed on Credit Slips here & here & here & here) can be tied quite directly to this bankruptcy's development  - most notably through the appointment of Chief District Judge Rosen as lead mediator. Without Chief Judge Rosen, would the  Grand Bargain exist?

When is Creditor Class Discrimination "Unfair?" Move over, fair and equitable test and absolute priority rule. Detroit is giving prime time attention to the "does not discriminate unfairly" standard in the Bankruptcy Code (also recently at issue in LightSquared's chapter 11). If the Grand Bargain survives, and classes of financial claimants vote against the plan because they are offered a considerably smaller return than pension claimants, is the plan confirmable?  Lubben says yes, as does Bartell. Skeel says no. Keep in mind that a different judge in the Eastern District of Michigan Bankruptcy Court adopted an unfair discrimination test penned by Bruce Markell. In re Dow Corning Corp., 244 B.R. 696, 701-703 (Bankr E.D. Mich. 1999). Bankruptcy judges are not bound to follow colleagues' decisions, but the adoption in Dow Corning virtually assures that the Detroit court will at least consider Markell's formulation. Plan objections filed by Syncora (#4679) and some Certificate of Participation holders (#4653) pay close attention to the Markell test.

What is "Incident to Mediation" in a Grand Bargain World?  The parties have been actively disputing and resolving discovery requests relating to plan confirmation. The mediation order entered in August 2013 indicates, "[a]ll proceedings, discussions, negotiation, and writings incident to mediation shall be privileged and confidential, and shall not be disclosed, filed or placed in evidence." (#322). "Incident to mediation" seems relatively straightforward as applied to negotiations between parties who have been ordered to mediation. What about when a mediator reaches out to nonparties, such as private foundations, to ask them to donate money to the plan? Discussions between a mediator and Michigan state house and senate leaders? 

Will Detroit's Confirmation Hearing Begin on a Bus? At a status hearing on plan confirmation on May 15, one of Detroit's lawyers proposed beginning the confirmation hearing with a city bus tour for the presiding judge and others. Blight, neighborhoods, rails. Good, bad, ugly. A fire alarm then cleared the courtroom. When court reconvened, discussion moved on to other more time-sensitive disputes about witnesses and depositions. Site visits in federal litigation have precedent. But the examples I have found tend to center on discrete factual disputes such as the physicial condition of a more discrete parcel of property. The Detroit bus tour concept is considerably broader. Do readers know of more applicable examples? Would news reporters be on the bus? In a caravan with an audio feed?

How Will Appointment of a High-Profile "Non-Testifying Consultant" Shape the Case (and Appeals)?  Sua sponte, Judge Rhodes solicited applications for a court-appointed expert under Federal Rule of Evidence 706(a)  to examine plan feasibility. (#3610) After interviewing five candidates in a public session (a full recording of which is unavailable), Judge Rhodes selected Martha Kopacz.  Last week, the court clarified that any information Kopacz collects and relies upon is subject to disclosure through her report, deposition, and trial testimony. (#4747)  Judge Rhodes also retained one of the expert candidates, Richard Ravitch, as a pro bono non-testifying consultant on "issues of municipal finance and viability." (#4216) Per that order, creditors are required to "fully and promptly cooperate" with Ravitch, but Ravitch is shielded from discovery, cross-examination, and the like. Courts have held that federal judges have the power to appoint technical advisors in rare cases (putting aside the question of whether these holdings were meant to apply to bankruptcy judges). But the appointment has given losing parties another axe to grind on appeal in other types of cases. Given Judge Rhodes'  interest in promoting transparency in this case, I imagine that any decision confirming or denying the City's plan will disclose the way in which he received and relied on Ravitch's input. Will this be enough to satisfy parties disappointed with the outcome?

So many questions.

Arrow image courtesy of Shutterstock.com.


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