Crowds took over the streets in Detroit demanding that the banks be held accountable for the financial ruin of the city. "Make the Banks Pay" the people chanted., a photo by Pan-African News Wire File Photos on Flickr.
Detroit's nine-day bankruptcy eligibility trial ends, ruling not expected for days
9:01 PM, November 8, 2013
By Brent Snavely and Nathan Bomey
Detroit Free Press Business Writers
Judge Steven Rhodes will weigh the evidence and testimony presented to his court and is expected to rule on whether the city is eligible for bankruptcy protection sometime after Wednesday.
The ninth and final day of Detroit’s historic trial to qualify for Chapter 9 bankruptcy ended Friday, but not before the judge took swipes at the city and state’s attorneys on the question of good-faith negotiations and on the creation of the emergency manager law itself.
Judge Steven Rhodes challenged Bruce Bennett, the Jones Day attorney who is representing the city, to explain how the city can argue on one hand that it negotiated in “good faith”with creditors while also arguing that it became impracticable or not possible, to negotiate with them.
“It strikes me as factually impossible” for the city to simultaneously to make both claims, Rhodes said.
Bennett argued that negotiations with creditors became impossible because many of them said they were not authorized to negotiate on behalf of the city’s 23,500 retirees and others declined to consider any concessions.
To gain the protections provided under bankruptcy law, Detroit must prove that it was insolvent and that it tried to negotiate in good faith with its creditors before it filed. Rhodes is expected to make a decision sometime after Wednesday.
The last day of trial also included allegations that Gov. Rick Snyder and Detroit emergency manager Kevyn Orr lied and misled Detroiters for political purposes.
William Wertheimer, an attorney for a group of Detroit pensioners that oppose Detroit’s bankruptcy, said all of Snyder actions over the past two years related to Detroit’s crisis have been politically motivated.
“We are not saying the governor did anything evil,” Wertheimer said. “His political position has been no financial support from the state and that has driven everything that has happened here.”
Matthew Schneider, attorney for the state, challenged that allegation.
“What political juice does the governor get out of this? It’s not a popular move,” he said of Detroit’s bankruptcy filing.
Schneider, instead, painted Snyder not as a political power-hungry governor, but as a hero who has done all he can to help rescue a crumbling city.
Schneider compared Detroit’s financial crisis to a massive storm that was bearing down on its residents that the city, its unions and all of its other creditors for years knew was coming.
“Years ago, the people of Michigan and the people of this city started to learn that a tremendous and terrible storm was headed to the city of Detroit, and this was no secret,” Schneider said.
From the time Snyder took office, Schneider said, the governor carefully monitored Detroit’s financial crisis as it grew worse. Snyder also took a number of steps to help the city control the problem, including a consent agreement between the state and the city in the spring of 2012.
But by fall of 2012, Schneider said, Detroit already was unable to meet the terms of that agreement. That prompted the state to escalate discussions with additional consultants to figure out what should be done, and that led to the appointment of Orr as the emergency manager in March.
“The governor took on an enormous task. He saw that the problem was getting worse and nobody was solving it,” Schneider said.
But Schneider’s analogy was picked apart by attorneys for unions who suggested Snyder orchestrated a planned takeover of the city and has withheld direct financial aid for his own political purposes.
Throughout the trial, creditors attacked the city and the state by presenting evidence that suggests the state, city and its advisers were making plans all along for a bankruptcy filing and that its discussions with creditors were mandates rather than negotiations.
Attorneys for unions said Friday Detroit provided only 34 days for negotiations between June 14 when Orr presented a financial plan to creditors invited to a meeting at Metro Airport, and July 18, the day the city filed for bankruptcy.
“The governor took more time to interview the consultants than they took to negotiate the restructuring itself,” said Sharon Levine, an attorney for the American Federation of State, County and Municipal Employees. “That’s absurd.”
Still, Bennett, attorney for the city, argued that the financial crisis was growing worse by the day, and creditors refused to work with the city, which made it impracticable for Detroit to solve its problems without the aid of bankruptcy protection.
“When you get a proposal from someone and you don’t like it … you make a counterproposal,” Bennett said, suggesting the creditors did not do so.
“The city did not have more time,” Bennett said. “There was a constant tension between spending more time in negotiations and incurring more financial risk. What would more time have led to?”
Levine, however, argued that the June 14th proposal lacked specifics about which benefits would be cut or by how much.
“How are you going to make a counterproposal without these very simple facts,” Levine said.
Rhodes also took Schneider to task for the way the state of Michigan adopted its new emergency manager law, which was used to appoint Orr.
The law, enacted in December 2012 during a lame-duck session of the Legislature weeks after voters overturned a similar law, included an appropriations provision that prevents it from being overturned in the future.
“Doesn’t the constitution say there is a right of referendum unless there is an appropriation?” Rhodes asked. “So by putting an appropriation in the bill has the effect of denying what would otherwise be a right of referendum?”
Schneider tried to argue that other bills in Lansing have had appropriations tied to them as well.
Rhodes countered, “But the people had just spoken a month before.”
Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely
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