Judge Sets October Trial Date for Detroit Bankruptcy Eligibility to File Chapter 9

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By Nora Macaluso

LANSING, Mich.--The judge overseeing Detroit's bankruptcy set an Oct. 23 date for a hearing on the city's eligibility to file for bankruptcy, an issue he said is sure to be challenged by unions, pensioners, and other creditors (In re City of Detroit, Bankr. E.D. Mich., No. 13-53846, orders8/2/13).

Judge Steven W. Rhodes at an Aug. 2 status hearing also granted a request from Emergency Manager Kevyn Orr that a committee be appointed to represent city retirees, a diverse group that does not fall under the umbrella of any particular union, during the process. The city agreed to pay the committee's “reasonable professional expenses.” The committee's members will be chosen by the bankruptcy trustee.

Bruce Bennett of Jones Day, an attorney representing Detroit, said he expects challenges to eligibility on the basis of the constitutionality of the statute authorizing the filing, as well as on the issue of whether the city engaged in “good-faith negotiations” with creditors. Whether Gov. Rick Snyder (R) had the authority to approve the filling--the Michigan Constitution prevents the impairment of pension benefits--is “entirely a legal issue,” Bennett told the court.

Schedule of Deadlines Established
Rhodes set a schedule of deadlines leading up to the October trial that attorneys said was tight, but achievable. Aug. 19 is the last day for filing eligibility objections, and Aug. 23 is the deadline for serving written discovery requests. City attorneys said they have already made public much of the information about negotiations with creditors, so a long timeline for discovery is not needed.

Attorneys for Detroit unions argued that the city did not negotiate with them in good faith before filing for bankruptcy, saying many of the meetings the city characterized as negotiations were more informational in nature. Three suits filed in state court that challenged the constitutionality of the process were stayed by Rhodes at an earlier hearing (25 BBLR 1006, 7/25/13).

Reorganization Plan Deadline
Rhodes set a March 14, 2014, deadline for the city to file a plan of reorganization, and proposed appointing a mediator to aid in resolving disputes during the case. Mediation would benefit the city and creditors alike, as “consensual resolution” of sticking points would make for stronger relationships post-bankruptcy, he said. City attorneys agreed. “We don't want protracted litigation,” said Jones Day's David Heiman. “Time is our enemy.”

On Aug. 5, Orr said he will begin valuing all city-owned assets, a process that includes contracting Christie's Appraisals Inc. to appraise a portion of the city's collection at the Detroit Institute of Art. “Christie's will assist the city by recommending ways it could realize value for the art without having to transfer or relinquish ownership of it,” Orr's office said in a statement.

More information on Detroit's bankruptcy proceedings is available at http://www.mieb.uscourts.gov/apps/detroit/DetroitBK.cfm.

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