Legal Challenges

  • Bankruptcy Appeals: City wants consolidation, employees want faster decisions

    Back in February, the Sixth Circuit Court of Appeals agreed to hear a set of challenges from employee unions and pensioners to Detroit’s eligibility to file for bankruptcy. This week, the city is asking the court to consolidate them and allow more time of the city’s response.

    In a motion filed Tuesday, attorneys for the city said:

    Administrative consolidation is appropriate here. While there are nominally seven different appeals pending before this Court, each challenges the same underlying Bankruptcy Court order. The filings in each appeal are relevant to the others. There is no reason for the Court to manage separate dockets or for the parties to have to file identical materials in each, as this motion itself demonstrates.

    Meanwhile, lawyers for the retirees are again asking the Court of Appeals to expedite the case, given the ambitious schedule for bankruptcy proceedings in the Detroit court. The Sixth Circuit accepted the appeal (and declined to expedite it) on Feb. 21, the same day the city filed its Plan of Adjustment. The retirees’ attorneys write:

    Since then, however, circumstances in the bankruptcy court have materially changed that now warrant setting oral argument in these appeals for the Court’s June session. …

    If the former and current employees are successful, they could halt or impair the city’s bankruptcy case, which is currently scheduled for a final hearing July.

    Here is the city’s  Appeal Consolidation Request.

    Here is the Retirees’ Request to Expedite Appeal.

    Bill Nowling, spokesman for Emergency Manager Kevyn Orr, told Next Chapter the city would “let our court pleadings speak on this matter.”

    But Ryan Plecha, an attorney representing retirees, said this:

    The Retiree Association Parties (along with other appellants, including the Retiree Committee and Retirement Systems) have filed motions to expedite the appellate process.  This is an ironic reversal of roles, from the parties usual positions on expedition. Not only is the City trying to delay the proceedings, but the City is also trying to squeeze all of the appellants into one brief or briefs with severe and unjustified page restrictions.  This is in exact contradiction to the unique roles played by each the in the eligibility trial, which was conducted with minimal duplication.  Justice cannot allow the City’s attempt to homogenize the appellate process. In essence, the City is trying to delay the appellate process as much as possible  to steam roll through plan confirmation process and essentially strip retires of their appellate rights and in turn drastically reduce retiree pensions and benefits.

     

     

     

     

     

     

     

     

  • Detroit’s Plan of Adjustment: Breaking it down for pensioners

    What’s on Carole Neville’s mind about Detroit’s Plan of Adjustment?

    Plenty, says the attorney who is representing the official retirees’ committee in Detroit’s bankruptcy case.  She’s heard the city’s side in court, in the media and in other discussions, and she’s got her own points to make publicly on behalf of the retirees.

    Carole Neville

    Attorney Carole Neville

    She and Ryan Plecha, another lawyer for retirees, will be guests on The Craig Fahle Show between 9 and 11 a.m. Thursday. Tune it to 101.9 FM or online to hear them. They’ll also share some of the objections the pensioners are raising in their written objections to the bankruptcy judge.

    RyanPlecha

    Attorney Ryan Plecha

    Next Chapter Detroit spoke with Plecha the day the Plan of Adjustment was released, which was the same morning the 6th Circuit Court of Appeals agreed to hear the pensioners’ challenge to the city’s eligibility for bankruptcy. Listen to that interview here.

    Neville also gave us a preview of some of her thoughts about the Detroit situation.

    Here are a few:

    * “They’re neglecting the health care completely,” she says of the media and the city representatives. “Basically the city paid about $160 million a year for health care for its retirees, and then cut that during the Chapter 9 to $30 million a year, and it’s planning future cuts under the plan. There really is not going to be a significant health care program for retirees post-plan.”

    So that means as pensioners’ checks shrink, they’ll also need to pick up a greater share of their health care costs. But just how much, no one knows.

    “Right now there’s very little in the plan to be able to describe what the health care benefits in the future will look like. It’s four or five sentences,” she says. “It hasn’t been negotiated at all.”

    Some of the retirees, including police and fire, are not eligible for Medicare.

    “Some of them are really going to be hit terribly,” Neville says.  For the pensioners who are: “Medicare is not adequate to cover all the costs of health care, and people have to buy supplementals and that is an out-of-pocket cost that the city is not willing to pick up.”

    Not willing or can’t?

    “Can’t is a relative word,” Neville says. “It’s a question of priorities.”

    The citys’ current plan cuts annual increases to pension payments that were similar to cost-of-living adjustments but not tied directly to inflation or another indicator, Neville says.

    “For younger retirees, that loss is huge,” she says. “And it’s not being mentioned in any of the discussions.”

    How attorneys are going to explain to the pensioners what they’re voting on when all 176,000 creditors receive the informational packets and ballots. “You have to drop a lot of the bankruptcy code references. As if people are going to understand what that means?” she says. “All of those things are going to need to be explained in plain English.”

    Neville and her team are working to determine what each pensioner is facing under the city’s proposed Plan of Adjustment, which is still partially based on the “grand bargain.” That’s the yet-to-be-finalized deal that brings in $350 million of state money, $100 million from the Detroit Institute of Arts and $365 million from the foundation community. The funds would be allow the city to retain the DIA collection instead of selling it to fund pension payments.

    “Our intention is to calculate what people’s pensions are now, what their pension is likely to be in the future if the DIA money comes in and if there’s no excess allocation. We’re going to give them the numbers,” Neville says.

    The seriousness of the “swaps agreement” announced last week that if approved by the bankruptcy judge, would allow a “cramdown” of the city’s plan to all other creditors including pensioners.

    The deal between the city and two investment banks drops the city’s obligation on interest rate swaps debt from $288 million to $85 million, according to court filings. Judge Steven Rhodes has rejected two previous agreements of $230 million and $165 million as too generous to the lenders, UBS AG and Merrill Lynch.

    But if this deal is approved, that means the city has one class of creditors agreeing to its plan, which allows the plan to be “forced through” instead of being agreed upon by all groups of creditors, including pensioners.

    Neville, who has represented creditors’ committees in dozens of bankruptcy cases, called the swaps deal “one of the most outrageous things” she’s ever seen.

    Tweet us your questions for her using #DetNext.

  • Trial Delayed: Judge moves Detroit case to July date

    After hearing from attorneys objecting to the first scheduled Detroit bankruptcy case timeline as too compressed, Judge Steven Rhodes extended the deadlines for filings and objections in the case. The hearing for the city’s Plan of Adjustment is to start July 16 with additional dates available into August.

    Here’s the Amended Scheduling Plan Judge Rhodes issued. 

    The deadline for voting on the plan is June 30. About 173,000 parties are eligible to vote on the plan in dozens of creditor categories including pensioners and bondholders.

    The city filed its proposed Plan of Adjustment and Disclosure Statement Feb. 21. Attorneys have said they will amend it. Meanwhile, negotiations and mediation sessions continue between the city and various creditors.

     

     

  • From the Weekend: Detroit readings not to miss

    The Detroit Free Press had a slew of stories over the weekend related to the city’s bankruptcy. Here’s the most essential reading:

    It’s been widely reported that Detroit’s bankruptcy has highlighted flaws in its pension financing and administration, and that’s drawn attention to how public worker pension systems operate. In a look at proposed reforms, their promises and their drawbacks, John Gallagher writes:

    Some maintain government pension funds will stay healthy as long as the stock market remains high. Others believe America faces a genuine crisis in which millions of retired teachers, cops, clerks and other government pensioners face cuts to their monthly checks. Just last week, the nonprofit Society of Actuaries released a report by a panel of experts that said the total amount of unfunded liabilities in public pension plans in the U.S. amounts to nearly $1 trillion. Other experts peg the underfunding at three or four times that.

    Kevyn Orr spoke with Detroit Free Press writers, telling them he’s frustrated the city’s pensioners haven’t accepted his plan that cuts 26 percent from retired general workers’ payments and 10 percent from police and fire retirees.

    The offer is fair, he said, and delaying could jeopardize creation of an $815-million rescue fund meant to boost pensions and protect Detroit Institute of Arts masterpieces from being auctioned to pay off creditors.

    Meanwhile, as debate continues about whether (or how) gains made in the downtown and Midtown areas could spread to neighborhoods, the new hockey arena complex is moving ahead with $261 million in public funds. Editorial  Page Editor Stephen Henderson weighs in and explains how the structure and management of the arena deal contradicts much of the broader discussion about the city’s future:

    Detroit is lost, it seems, when it comes to translating big wins in the city’s core into benefits for most of the people who live here, and we need both city and state government to step it up when it comes to balancing the swell of good fortune that’s overtaking parts of the city.

    Under terms of the new stadium deal, Detroit loses the $7 million the team pays the city from percentages of ticket and suite sales, food and beverage concessions, souvenir sales and parking. The deal is raising other questions, the Free Press reports:

    Publicly and privately, some residents and elected officials have questioned whether negotiators should have gotten more in the deal for state taxpayers — who are footing much of the construction costs — as well as more financial sweeteners for the City of Detroit, even though its contribution was limited to land for the arena site.

     

     

     

     

     

     

  • A Detroit Lesson: Washington Post weighs in on what’s next

    Much has been made of the pensions versus art, Detroit creditors versus everyone in the city’s bankruptcy case. The sides are usually predictably drawn.

    But this weekend, the Washington Post weighs in with an editorial picked up by newspapers around the country. It recounts, of course, a bit of how the city got to this situation, citing “mismanagement” on several levels. Then, the authors get to the municipal bond-related portion of the story:

    Lenders have come to treat tax-backed municipal debt as nearly risk-free, and no doubt Detroit’s bankruptcy experience may cause some to reprice the risk of financing municipal governments, not only in Michigan but also around the country.

    That future, WaPo writes, may not “be an entirely bad thing” if the effect is better managed municipalities. Then we get the discipline that seems to have been so badly missing for decades:

     

    Surely banks that took fees to help Detroit fund its pensions with $1.4 billion in dodgy “certificates of participation”deserve to be taught a lesson. 

    We’ll see what kind of teacher Bankruptcy Judge Steven Rhodes is later this year.