Bankruptcy Confirmation Trial Begins:
Lawyers Argue For a Temporary Restraining Order to Halt All Water Shut-offs in Detroit
Chad Livengood and Steve Pardo
The Detroit News
Detroit — U.S. Bankruptcy Judge Steven Rhodes is contemplating whether to issue a temporary restraining order against Detroit and halt the city’s controversial shut-offs of delinquent residential water accounts.
Alice Jennings, attorneys for the plaintiffs who filed suit in July to stop the water shut-offs, argued in bankruptcy court Tuesday morning for a restraining order until the city improves its communication with residential customers with medical emergencies.
Jennings said residents with small children, elderly parents or life-threatening medical conditions face an “imminent” danger if their water is shut off.
“The fear is the water could be shut off at any moment,” Jennings said. “That’s why we’re here.”
Detroit attorney Timothy Fusco told the judge he would be overstepping his boundaries by telling the city how to operate its water department. Chapter 9 municipal bankruptcy prohibits judges from running the city like they can when a bankrupt corporation is under their jurisdiction.
“You simply cannot do it,” Fusco argued.
Rhodes said he would issue an order later Tuesday.
After hearing the water shut-off issue, the judge heard a range of motions from holdout creditors Syncora Guarantee Inc. and Financial Guaranty Insurance Co. as they asked Rhodes to set boundaries to the type of evidence and testimony that can be addressed during the trial.
Specifically, FGIC’s attorney sought to have any testimony about the validity of a $1.4 billion pension debt deal his client insured suppressed and bar any testimony about whether pensioners would face a hardship from the city’s debt-cutting plan.
Syncora and FGIC’s attorneys also complained that the city unfairly used the secrecy of mediation to block creditors from gaining access to information surrounding “grand bargain” negotiations.
“It’s a fundamental due process issue,” Syncora attorney Stephen Hackney told the judge.
Detroit attorney (not Detroit but Jones Day) Greg Shumaker defended the city’s efforts to suppress the dialogue of behind-the-scenes negotiations that led to the deal between pensioners, the state, private foundations and the Detroit Institute of Arts.
“The back and forth doesn't matter,” Shumaker said. “The result matters.”
Rhodes said he rule on the various objections later Tuesday afternoon.
Water bills disputed
Costs for some water and sewer customers spiked starting in June of last year as the Detroit Water and Sewerage Department worked to start collecting for sewage runoff — money that Detroit hadn’t collected for years, Jennings said.
“The bills went from where people could handle to being unaffordable,” Jennings said Tuesday outside of federal court. “It’s not that people aren’t paying; it’s just that they can’t pay a $300 bill.”
Nicole Hill, a 42-year-old Detroiter who had her water cut off in July, said she had been paying her bills. She’s one of 10 people represented by Jennings and she continues to fight with the department over billing issues. Hill, a divorced mother of three children, 8, 13 and 14, said she was improperly billed for months on a previous residence. She continues to try to get answers over billing discrepancies and estimates she’s paid almost $3,000 to the department over the last two years.
“I made a great effort to pay my bill,” said Hill, who had water service restored after eight weeks.
“The water department is saying people aren’t letting them know what’s going on. But when you do, they don’t do anything about it.”
Creditors seek to block plan
The trial over Detroit’s plan to exit bankruptcy later this year hinges of the legality of its “grand bargain” with thousands of retired and current city workers owed billions for their retirements. .
Syncora and FGIC, which face a near wipe-out under Detroit’s plan, have assembled a battery of legal arguments in an attempt to blow holes in the city’s plan to shield 32,000 pensioners from deep cuts in their monthly checks.
U.S. Bankruptcy Judge Steven Rhodes will begin hearing opening arguments from attorneys for Detroit and a team of supporting creditors about why they feel the plan is fair and equitable, and will bring lasting change to a city bureaucracy hampered by decades of population decline and an eroding tax base.
The trial marks a pivotal moment in Detroit’s nearly 14-month-long odyssey through bankruptcy court, which has been bookmarked by unprecedented efforts of private foundations, corporations and the state of Michigan to bailout the city’s pension funds and shield a municipal art collection from a fire sale to satisfy creditors. (This is a blatant distortion of the actual situation in Detroit. The art belongs to the people and should not be sold to pay the banks or turned over to a "trust" which is tantamount to bankers' control.)
Syncora and FGIC, the backers of $1.4 billion in troubled pension debt the city wants to expunge from its books, were in late settlement negotiations with Detroit’s attorneys last week. The two creditors are prepared to argue at trial that the grand bargain’s infusion of $816 million over 20 years solely for pensioners in exchange for the art unfairly discriminates against them.
Both bond insurers face the prospect of losses of up to 94 percent on the investments they insured, while most city retirees would have to endure modest single-digit reductions in the monthly pension checks. (There is no mention in this report of the attacks on retiree's annuities which will be robbed if this plan is rubber-stamped by Rhodes. There is also the cancellation of retiree health benefits in March and the abolition of their COLA increases.)
“If we were being treated fairly, we could probably swallow hard and get over the procedural unfairness,” said James Sprayregen, an attorney for Syncora. “They’re treating pensioners unbelievably and massively better than my clients.” (The banks and bond insurers have robbed Detroit. They should not be paid a dime and instead be mandated to repay the people of Detroit for damage done throughout predatory mortgage and municipal financing.)
Despite all of the high-stakes posturing, bankruptcy court observers say a last-minute deal to avoid a protracted trial that could stretch into late October still remains possible. The Detroit News reported Saturday that city lawyers were holding weekend talks with Syncora about parting with city real estate to entice a pretrial settlement. (How can Jones Day turn over City of Detroit land without a vote of the people? This proceeding represents pure criminality.)
“If Syncora, who is one of the largest unsecured creditors, can be brought under control by being treated in a way that gets this plan of restructuring out of the courts, that is in everyone’s best interests,” said Jim McTevia, a Bingham Farms corporate turnaround specialist following Detroit’s bankruptcy case.
Though the trial is scheduled to begin today, the proceedings could get bogged down in objections from the holdout creditors and city over who will be allowed testify. Detroit has submitted a list of 26 witnesses that ends with Mayor Mike Duggan and includes Emergency Manager Kevyn Orr, Quicken Loans founder Dan Gilbert and auto executive Roger Penske. (These people and corporations are the mortal enemies of the people of Detroit).
Protesters assemble
Ahead of the trial Tuesday, a large crowd of protesters, including Detroit Water and Sewerage Department retiree Bill Davis, began setting up across the street from the federal courthouse. With signs wrapped in garbage bags to protect them from the rain showers, and banners reading “Hands Off Our Pensions Make the Banks Pay,” the protesters said they’ll be outside every day, as long as the trial continues.
“It’s bad enough they’re trying to illegally take our pensions,” said Davis, a 34-year DWSD worker who retired in 2012. “But now, every time it rains, the streets flood. That’s because they’re not properly maintaining the wastewater treatment plant. Now every time we get an inch or two of rain, the streets flood.”
Davis also believes that any movement to turn over operations to a regional authority — a plan Orr supports — should only occur after a general election vote.
“Personally, I think Kevyn Orr is a crook,” Davis said.
Baxter Jones, a former Detroit Public Schools teacher before being injured in a car crash in 2005, was one of several who spoke through an amplified sound system set up across the street.
By 9:30 a.m. Tuesday, the number of protesters grew.
Targeting grand bargain
For months, Syncora and FGIC have pushed for the city to sell portions or all of its multibillion-dollar art collection. But the terms of the grand bargain — as set out by private foundations and the state Legislature — call for the entire 60,000-piece collection to remain intact at the Detroit Institute of Arts.
Both insurers contend the grand bargain represents a $450 million present value for a world class art collection that could reap billions. Syncora has called the deal a “fraudulent transfer” designed to comfort “pensioners and mostly suburban patrons of the art.”
“If somebody robbed a bank to pay the pensioners, you wouldn’t say that’s appropriate either,” Sprayregen said.
Under the city’s plan, general retirees will receive a base reduction of 4.5 percent to their monthly pension, while some could see reductions total as much as 20 percent through Detroit’s attempt to recoup years of excess interest payments to retiree savings accounts.
The base pensions of retired police officers and firefighters will remain the same, but their annual cost-of-living inflationary raises will be reduced from 2.25 percent to about 1 percent.
Orr spokesman Bill Nowling said the city (Jones Day) remains committed to the grand bargain deal it forged with foundation and DIA leaders, legislators and pensioners.
“We believe that it is the fairest way to actualize value for the art without leveraging or selling the art and it allows us to also protect our pensioners so that they do not receive double digit cuts to their pension benefits,” Nowling said Friday. “And we’re going to defend that strongly in court.”
Supporting the plan
One bankruptcy expert said a settlement would relieve Rhodes of making a precedent-setting ruling about whether Detroit and other future municipal debtors can discriminate against one creditor in favor of the other.
“I think if Syncora were to settle, that would significantly reduce the flaws (in Detroit’s plan),” said David Skeel Jr., a bankruptcy law professor at the University of Pennsylvania.
Mark Diaz, chairman of the Detroit Police & Fire Retirement System, intends to testify at the trial in support of the city’s plan. He’s also president of the Detroit Police Officers Association, which negotiated a new five-year contract that immediately boosts officer pay by 8 percent to make up for a 10 percent cut in 2012.
Over the life of the contract, officers will see their pay increase a total of 15.5 percent, Diaz said.
Diaz said that despite current and retired city employees getting spared deep cuts in their pensions, they’re still facing major reductions in retiree health insurance. The city’s plan effectively ends guaranteed lifetime health insurance benefits for 19,000 retirees by reducing a $4.3 billion unfunded liability to $450 million in payments to two new health care trusts.
“For any entity to say that these cuts were not severe enough for police officers who don’t pay into Social Security, it’s absurd,” Diaz said.
What’s next
U.S. Bankruptcy Judge Steven Rhodes has scheduled 28 additional trial dates through Oct. 17, if necessary.
clivengood@detroitnews.com
(517) 371-3660
From The Detroit News: http://www.detroitnews.com/article/20140902/METRO01/309020024/#ixzz3CBoYaeap
Lawyers Argue For a Temporary Restraining Order to Halt All Water Shut-offs in Detroit
 |
| Atty. Alice Jennings talks with journalists after arguing for a temporary restraining order (TRO) to halt water shut-offs in Detroit. The federal bankruptcy confirmation trial began on Sept. 2, 2014. (Photo: Abayomi Azikiwe) |
The Detroit News
Detroit — U.S. Bankruptcy Judge Steven Rhodes is contemplating whether to issue a temporary restraining order against Detroit and halt the city’s controversial shut-offs of delinquent residential water accounts.
Alice Jennings, attorneys for the plaintiffs who filed suit in July to stop the water shut-offs, argued in bankruptcy court Tuesday morning for a restraining order until the city improves its communication with residential customers with medical emergencies.
Jennings said residents with small children, elderly parents or life-threatening medical conditions face an “imminent” danger if their water is shut off.
“The fear is the water could be shut off at any moment,” Jennings said. “That’s why we’re here.”
Detroit attorney Timothy Fusco told the judge he would be overstepping his boundaries by telling the city how to operate its water department. Chapter 9 municipal bankruptcy prohibits judges from running the city like they can when a bankrupt corporation is under their jurisdiction.
“You simply cannot do it,” Fusco argued.
Rhodes said he would issue an order later Tuesday.
After hearing the water shut-off issue, the judge heard a range of motions from holdout creditors Syncora Guarantee Inc. and Financial Guaranty Insurance Co. as they asked Rhodes to set boundaries to the type of evidence and testimony that can be addressed during the trial.
Specifically, FGIC’s attorney sought to have any testimony about the validity of a $1.4 billion pension debt deal his client insured suppressed and bar any testimony about whether pensioners would face a hardship from the city’s debt-cutting plan.
Syncora and FGIC’s attorneys also complained that the city unfairly used the secrecy of mediation to block creditors from gaining access to information surrounding “grand bargain” negotiations.
“It’s a fundamental due process issue,” Syncora attorney Stephen Hackney told the judge.
Detroit attorney (not Detroit but Jones Day) Greg Shumaker defended the city’s efforts to suppress the dialogue of behind-the-scenes negotiations that led to the deal between pensioners, the state, private foundations and the Detroit Institute of Arts.
“The back and forth doesn't matter,” Shumaker said. “The result matters.”
Rhodes said he rule on the various objections later Tuesday afternoon.
Water bills disputed
Costs for some water and sewer customers spiked starting in June of last year as the Detroit Water and Sewerage Department worked to start collecting for sewage runoff — money that Detroit hadn’t collected for years, Jennings said.
“The bills went from where people could handle to being unaffordable,” Jennings said Tuesday outside of federal court. “It’s not that people aren’t paying; it’s just that they can’t pay a $300 bill.”
Nicole Hill, a 42-year-old Detroiter who had her water cut off in July, said she had been paying her bills. She’s one of 10 people represented by Jennings and she continues to fight with the department over billing issues. Hill, a divorced mother of three children, 8, 13 and 14, said she was improperly billed for months on a previous residence. She continues to try to get answers over billing discrepancies and estimates she’s paid almost $3,000 to the department over the last two years.
“I made a great effort to pay my bill,” said Hill, who had water service restored after eight weeks.
“The water department is saying people aren’t letting them know what’s going on. But when you do, they don’t do anything about it.”
Creditors seek to block plan
The trial over Detroit’s plan to exit bankruptcy later this year hinges of the legality of its “grand bargain” with thousands of retired and current city workers owed billions for their retirements. .
Syncora and FGIC, which face a near wipe-out under Detroit’s plan, have assembled a battery of legal arguments in an attempt to blow holes in the city’s plan to shield 32,000 pensioners from deep cuts in their monthly checks.
U.S. Bankruptcy Judge Steven Rhodes will begin hearing opening arguments from attorneys for Detroit and a team of supporting creditors about why they feel the plan is fair and equitable, and will bring lasting change to a city bureaucracy hampered by decades of population decline and an eroding tax base.
The trial marks a pivotal moment in Detroit’s nearly 14-month-long odyssey through bankruptcy court, which has been bookmarked by unprecedented efforts of private foundations, corporations and the state of Michigan to bailout the city’s pension funds and shield a municipal art collection from a fire sale to satisfy creditors. (This is a blatant distortion of the actual situation in Detroit. The art belongs to the people and should not be sold to pay the banks or turned over to a "trust" which is tantamount to bankers' control.)
Syncora and FGIC, the backers of $1.4 billion in troubled pension debt the city wants to expunge from its books, were in late settlement negotiations with Detroit’s attorneys last week. The two creditors are prepared to argue at trial that the grand bargain’s infusion of $816 million over 20 years solely for pensioners in exchange for the art unfairly discriminates against them.
Both bond insurers face the prospect of losses of up to 94 percent on the investments they insured, while most city retirees would have to endure modest single-digit reductions in the monthly pension checks. (There is no mention in this report of the attacks on retiree's annuities which will be robbed if this plan is rubber-stamped by Rhodes. There is also the cancellation of retiree health benefits in March and the abolition of their COLA increases.)
“If we were being treated fairly, we could probably swallow hard and get over the procedural unfairness,” said James Sprayregen, an attorney for Syncora. “They’re treating pensioners unbelievably and massively better than my clients.” (The banks and bond insurers have robbed Detroit. They should not be paid a dime and instead be mandated to repay the people of Detroit for damage done throughout predatory mortgage and municipal financing.)
Despite all of the high-stakes posturing, bankruptcy court observers say a last-minute deal to avoid a protracted trial that could stretch into late October still remains possible. The Detroit News reported Saturday that city lawyers were holding weekend talks with Syncora about parting with city real estate to entice a pretrial settlement. (How can Jones Day turn over City of Detroit land without a vote of the people? This proceeding represents pure criminality.)
“If Syncora, who is one of the largest unsecured creditors, can be brought under control by being treated in a way that gets this plan of restructuring out of the courts, that is in everyone’s best interests,” said Jim McTevia, a Bingham Farms corporate turnaround specialist following Detroit’s bankruptcy case.
Though the trial is scheduled to begin today, the proceedings could get bogged down in objections from the holdout creditors and city over who will be allowed testify. Detroit has submitted a list of 26 witnesses that ends with Mayor Mike Duggan and includes Emergency Manager Kevyn Orr, Quicken Loans founder Dan Gilbert and auto executive Roger Penske. (These people and corporations are the mortal enemies of the people of Detroit).
Protesters assemble
Ahead of the trial Tuesday, a large crowd of protesters, including Detroit Water and Sewerage Department retiree Bill Davis, began setting up across the street from the federal courthouse. With signs wrapped in garbage bags to protect them from the rain showers, and banners reading “Hands Off Our Pensions Make the Banks Pay,” the protesters said they’ll be outside every day, as long as the trial continues.
“It’s bad enough they’re trying to illegally take our pensions,” said Davis, a 34-year DWSD worker who retired in 2012. “But now, every time it rains, the streets flood. That’s because they’re not properly maintaining the wastewater treatment plant. Now every time we get an inch or two of rain, the streets flood.”
Davis also believes that any movement to turn over operations to a regional authority — a plan Orr supports — should only occur after a general election vote.
“Personally, I think Kevyn Orr is a crook,” Davis said.
Baxter Jones, a former Detroit Public Schools teacher before being injured in a car crash in 2005, was one of several who spoke through an amplified sound system set up across the street.
By 9:30 a.m. Tuesday, the number of protesters grew.
Targeting grand bargain
For months, Syncora and FGIC have pushed for the city to sell portions or all of its multibillion-dollar art collection. But the terms of the grand bargain — as set out by private foundations and the state Legislature — call for the entire 60,000-piece collection to remain intact at the Detroit Institute of Arts.
Both insurers contend the grand bargain represents a $450 million present value for a world class art collection that could reap billions. Syncora has called the deal a “fraudulent transfer” designed to comfort “pensioners and mostly suburban patrons of the art.”
“If somebody robbed a bank to pay the pensioners, you wouldn’t say that’s appropriate either,” Sprayregen said.
Under the city’s plan, general retirees will receive a base reduction of 4.5 percent to their monthly pension, while some could see reductions total as much as 20 percent through Detroit’s attempt to recoup years of excess interest payments to retiree savings accounts.
The base pensions of retired police officers and firefighters will remain the same, but their annual cost-of-living inflationary raises will be reduced from 2.25 percent to about 1 percent.
Orr spokesman Bill Nowling said the city (Jones Day) remains committed to the grand bargain deal it forged with foundation and DIA leaders, legislators and pensioners.
“We believe that it is the fairest way to actualize value for the art without leveraging or selling the art and it allows us to also protect our pensioners so that they do not receive double digit cuts to their pension benefits,” Nowling said Friday. “And we’re going to defend that strongly in court.”
Supporting the plan
One bankruptcy expert said a settlement would relieve Rhodes of making a precedent-setting ruling about whether Detroit and other future municipal debtors can discriminate against one creditor in favor of the other.
“I think if Syncora were to settle, that would significantly reduce the flaws (in Detroit’s plan),” said David Skeel Jr., a bankruptcy law professor at the University of Pennsylvania.
Mark Diaz, chairman of the Detroit Police & Fire Retirement System, intends to testify at the trial in support of the city’s plan. He’s also president of the Detroit Police Officers Association, which negotiated a new five-year contract that immediately boosts officer pay by 8 percent to make up for a 10 percent cut in 2012.
Over the life of the contract, officers will see their pay increase a total of 15.5 percent, Diaz said.
Diaz said that despite current and retired city employees getting spared deep cuts in their pensions, they’re still facing major reductions in retiree health insurance. The city’s plan effectively ends guaranteed lifetime health insurance benefits for 19,000 retirees by reducing a $4.3 billion unfunded liability to $450 million in payments to two new health care trusts.
“For any entity to say that these cuts were not severe enough for police officers who don’t pay into Social Security, it’s absurd,” Diaz said.
What’s next
U.S. Bankruptcy Judge Steven Rhodes has scheduled 28 additional trial dates through Oct. 17, if necessary.
clivengood@detroitnews.com
(517) 371-3660
From The Detroit News: http://www.detroitnews.com/article/20140902/METRO01/309020024/#ixzz3CBoYaeap
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