Day 19: Detroit’s Bankruptcy Trial

Day 19: Detroit’s Bankruptcy Trial

It’s fewer attorneys and more pensioners today in bankruptcy court. Judge Steven Rhodes has scheduled several “pro se” objectors who will testify and question witnesses. Pro se objectors are individuals without attorneys, and today’s hearing will include their opposition to parts of the Plan of Adjustment.

One of them already appeared: Estella Ball questioned Detroit Emergency Manager Kevyn Orr on Day 16 of the confirmation hearing.

10:22 a.m.

After she questioned Emergency Manager Kevyn Orr and city attorney Heather Lennox, of Jones Day (see below), city retiree Wanda Jan Hill had a few minutes to testify.

She told Judge Steven Rhodes that he should “strike the 6.75 percent interest rate from the clawback” of annuity payments some general service retirees will make as part of the bankruptcy settlement.

“Just as deals or adjustments were made for Syncora and FGIC and I can sort of say the police and fire, Id’ like for you to strike a moderate deal with the retirees. I’d like for you to allow Mr. Orr or someone in his camp to provide us with information about the makeup of this clawback. … There are a lot of questions that are not answered that we need to know. “

Here is Hill’s objection filed last summer against the city’s Plan of Adjustment.

10:05 a.m.

With city attorney Heather Lennox on the witness stand, retiree Wanda Jan Hill continued her questioning about if and how retirees were notified about the 6.75 percent interest rate attached to retirees’ annuity savings fund recoupments before they voted on the Plan of Adjustment earlier this year.

According to Hill, the ballots relied on the term “other factors” and did not disclose a 6.75 interest rate would be part of retirees’ payback of some of their annuity savings funds to the city. After Emergency Manager Kevyn Orr couldn’t sufficiently answer Hill’s questions (see below), Lennox took the stand to discuss the issues Hill raised about the interest rate on the “clawbacks.”

Here are some excerpts of their exchanges.

Hill to Lennox: “What did you know and when did you know it?”

Lennox responded by recounting the development of what attorneys called the “plain language statement” that was include with pensioners’ ballots. “We reached stipulation with the Retirees Committee,” Lennox said. “In that stipulation that was filed with the court on June 4th, we did specifically include that interest percentage because people had been asking about it. It was also in a letter dated June 4th that went out to retirees who were affected by the correction and the recoupment.”

Hill: “You said it was not exact. Nowhere in those documents did it tell you there was a 6.75 percent interest tacked on to the ASF recoupment amount so it was not exact. That’s one of the reasons I’m standing here. It was not exact. … That plain language document was, in my view, the ideal document for you to spell everything out, the 6.75 percent. The ‘other factor’ phrase should have fallen by the wayside. … Since it was a plain language document, it should have been plainly explained to us what the clawback was. I think that has a lot of retirees, including myself, all up in arms because you’re taking money away from us but you’re not giving us the right to know what is all the money going for?  … I stil say that “other factors” was used as a ruse to allow you to come back at some other time to say, ‘oh, that was easy. Let’s try to get that money from them on “other factors.” ‘ “

Hill: “Who came up with the word phrase ‘other factors?’ Who’s responsible for that?”

Lennox: “The language that was included in all of the documents that you received was drafted initially by the city but it was heavily, heavily reviewed and edited by many, many people who represent the retirees such as the Retirement Systems counsel, the Retirees Committee counsel. We had counsel for the two largest retirees associations in the city that reviewed and comment on that. We also had counsel for the public safety unions, for AFSCME and for the UAW … I would say that those word phrases were the combination for very, very many people who were trying to make things clear and simple for the retirees.

Hill: “So you don’t know who came up with the word phrase “other factors” therefore you don’t know what “other factors” entails?”

Lennox: “No ma’am. I said that working was … a very collaborative process to put that language you refer to in those document. I think many people had a hand in that.”

9:45 a.m.

The first pro se objector was Wanda Jan Hill, who criticized the lack of communication between the city and retirees about the 6.75 percent interest attached to the recoupment of some annuity savings fund monies.

Hill wanted to question Heather Lennox, a Jones Day attorney working for the city. City attorneys objected, and Judge Steven Rhodes first had her question Emergency Manager Kevyn Orr.

Here are excerpts of that exchange.

Hill: “My motion was relevant to the nondisclosure of the 6.75 percent (interest rate attached to the “clawback” of Annuity Funds from some general service retirees). I don’t know how much of the workings you were involved with that information not being disclosed, but can you explain to me and the court how much involvement did you have with the 6.75 percent interest not being provided in the relevant documents that Class 11 in particular needed in order to make a sound decision?”

Orr: “I was involved in that process.”

Hill: “To what extent, relevant to it being a nondisclosure issue?”

Orr: “I don’t want to mislead you. I don’t look at it as a nondisclosure issue. Without getting into the discussions that occurred between counsel, between the retirement committee (during) the mediation process in terms of getting to that number. I think what I can say is there was no affirmative decision made not to include it in the Disclosure Statement. The concept was there was going to be communication with the Retirees Committee, which we asked this court to empanel, so there would be a conduit of information going back and forth to retirees. My understanding is that information was provided in at least one slide deck that the committee put out to retirees. There were a number of other fliers and communications that went out to retirees prior to the deadline for voting … In addition, I understand there were special discussions with members of that committee as well as members of other groups to try and explain that process. I don’t think there was an intent necessarily not to include it in the Disclosure Statement.”

Hill: “I beg to differ. In my research I found that the phrase “other factors” was used instead of being forthright and putting all the cards on the table therefor that gave me the impression that it’s something that you don’t want us to know. So when “other factors” was used in at least 10 different documents, it raised a red flag.”

Then Hill presented a chart of various documents the city filed in the case. She highlighted when the phrase “other factors” was used and when the 6.75 interest rate was specifically mentioned.

“It was under the guise of ‘other factors,’” she said. “The 6.75 percent interest was a very important number. … this report shows the research that I did relative to life expectancy and ‘other factors.’ …. Every time it was mentioned in a document, this was the phrase that was used. “

Hill: There was enough space and enough room to break down “other factors” I have a real problem with the fact that ”other factors” was not explained.

She directed Orr to the April 17 document that corrected how voting by pensioners on the Plan of Adjustment would occur.

“You can let me know: was the information relevant to the clawback and the ASF … was that known at that time? Did you know you were going to do the clawback?” she asked Orr.

He replied, “Ma’am. Sitting here right now, I can’t recall. I’d have to look at my notes.”

Hill: “I’m going to assume you had some idea of what you were going to take from the retirees.”

Orr: “There were general discussions that I think are covered by the mediation order (preventing public discussion about them), but I think it’s fair to say around that time there were discussions going back and forth.

Hill: “So the money was an issue at that time.”

Orr: “I believe there were discussions being had.”

Hill: There was enough space and enough room to break down “other factors” I have a real problem with the fact that ”other factors” was not explained.

She directed Orr to the April 17 document that corrected how voting by pensioners on the Plan of Adjustment would occur.

“You can let me know: was the information relevant to the clawback and the ASF … was that known at that time? Did you know you were going to do the clawback?” she asked Orr.

He replied, “Ma’am. Sitting here right now, I can’t recall. I’d have to look at my notes.”

Hill: “I’m going to assume you had some idea of what you were going to take from the retirees.”

Orr: “There were general discussions that I think are covered by the mediation order (preventing public discussion about them), but I think it’s fair to say around that time there were discussions going back and forth.

Hill: “So the money was an issue at that time.”

Orr: “I believe there were discussions being had.”

Hill: “I think so too because the media talked a lot about what they were going to take from us. … There was an idea of how much money was going to be needed. … By the time we got to Plan of Adjustment Three, you knew that other factors were going to be an issue. I don’t think you would have included ‘other factors’ if you didn’t think it was going to be an issue.”

Then the judge interrupted.

“I think what Miss Hill is trying to get to here is whether any of the city’s filed documents specifically disclosed that there was a 6.75 interest rate associated with the ASF recoupment or clawback,” Rhodes explained to Orr.

Orr: “What I recall, your Honor, is I don’t think it was include with th Disclosure Statement. … There were other documents included on the city’s website. I don’t know if the fliers” and other information provided to retirees included the number.

“In the circumstances, I think we have to have Miss Lennox testify to the extent to which she can fill in what Mr. Orr doesn’t know.”