Catching Up from the Courtroom

Catching Up from the Courtroom

Judge Steven Rhodes still has July 24 scheduled as the day to begin confirmation hearings on the Detroit’s Plan of Adjustment — the document that explains how the city proposes to restructure its debt and operations post bankruptcy. But between now and then, there are plenty of outstanding issue he’ll address in court documents and hearings. Here are  few that are pending:

First, creditors continue to pressure Judge Rhodes to delay the hearing. At a May 22 status conference, attorneys for several creditors urged the judge to postpone by a few weeks the July date. “There are many different creditor issues, any one of which, in my world as a complex litigator, could itself be a multi-year litigation,” said Stephen Hackney, a Chicago-based attorney for bond insurer Syncora. “I can’t come as a surprise to us that there are complicated issues to work through and complicated issues on discovery.”

To help along issues related to document production and witness lists, Judge Rhodes ordered attorneys for Detroit’s creditors to form a Committee on Discovery and Trial Efficiency, which they did. He has told the attorneys he hopes they can work out discovery-related issues themselves, but he will continue last week’s status conference on May 28 where he will continue to hear updates about the discovery process…and undoubtedly continued objections from attorneys to the timeline.

“I cannot adequately represent my client as the schedule is currently constructed,” said Guy Neal, an attorney with the Sidley Austin law firm from Washington D.C. who represents National Public Finance Guarantee, which insures about $1.8 billion worth of Detroit Water and Sewerage Department bonds. “We’re stuck on discovery but not even deposition discovery. We’re stuck on document discovery.”

Second, while it’s largely the city that’s pressing for the ambitious court schedule, Judge Rhodes’s appointed (and paid) expert witness has complained the city is preventing her from doing the necessary work to evaluate the feasibility of the city’s plan. An attorney for Martha Kopacz filed a letter with the court stating, in part, that the city’s accounting firm, Ernst & Young, was not providing her with complete financial information about the city. Kopacz wants the information on which the city is relying to make multi-year financial projections.

Judge Rhodes issued an order that he would consider Kopacz’s complaint at a May 28 hearing.

Third, the issue came up at last week’s hearing what would happen with the city’s contract with Jones Day law firm if the Chapter 9 case continued past September. That’s when the Detroit City Council could vote to remove Emergency Manager Kevyn Orr from office. Orr, of course, is a former partner with the Washington D.C. law firm, and the previous City Council voted to contract with the firm.

In court, the Jones Day attorneys said they weren’t sure what would happen if the bankruptcy case wasn’t settled by Orr’s exit date. “We have not had discussions to my knowledge going beyond that,” said Gregory Shumaker, a Jones Day attorney. “The mayor, the city council, it would be up to them whether Jones Day would continue its representation of the city.”

A day later the Detroit Free Press reported what Mayor Mike Duggan thought about that issue:

Mayor Mike Duggan’s office said Thursday he won’t support extending Kevyn Orr’s time as the city’s emergency manager or keeping on his former law firm, Jones Day, if Detroit’s bankruptcy extends beyond Orr’s expected exit date in late September. … Duggan made clear that if the bankruptcy proceedings extend beyond Sept. 25, he won’t support keeping Jones Day as the city’s law firm in bankruptcy. “We have no intention of keeping Jones Day,” Duggan’s spokeswoman and chief of staff, Alexis Wiley, told the Free Press. “We have every intention of running this city, and that means both services and finances.” Wiley declined to discuss how Duggan would handle the bankruptcy after ditching Jones Day, or which lawyers would pick up where the firm left off.

The Detroit bankruptcy story is far from ending.