Judge Proposes Fast Pace in Detroit Bankruptcy Case
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Detroit’s $18 billion bankruptcy shouldn’t halt efforts by property owners to lower their taxes, a company that advises them said in a court filing seeking an exemption from federal court rules, Bloomberg News reported yesterday. Michigan Property Tax Relief LLC filed a motion asking Steven Rhodes, the judge overseeing the bankruptcy, to let property owners file tax appeals. The company has several dozen clients that have been blocked by the Michigan Tax Tribunal from appealing their tax bills because of the bankruptcy, the company said in a court filing. The company’s “clients desire to simply adjudicate the amount of their tax liability,” Michigan Property Tax Relief said in court papers filed yesterday. “They are not seeking to file any collection actions or pursue any tax refunds at this time.”
Of all the legal maneuvers so far in Detroit’s bankruptcy case by unions or the city’s emergency manager, the one that may have the most impact was when the judge decided to name a mediator, according to a Reuters analysis today. In a July 23 filing, Bankruptcy Judge Steven Rhodes said that he would appoint another federal judge, Gerald Rosen, as a mediator. “I think that’s going to be the key move in the case, in terms of getting it toward a solution,” said Bankruptcy Judge Christopher Klein, who is overseeing the bankruptcy of the town of Stockton, Calif., during an ABI media teleconference last week. Rosen is the chief district judge of the U.S. District Court for the Eastern District of Michigan. Judge Rhodes in his court filing deemed a mediator “necessary and appropriate” but did not specify which issues he feels should be mediated. He has scheduled a hearing on his proposal for Friday.
As Detroit settles in for a long, tortuous trip through bankruptcy court, the public financing deal for a new arena to house the Red Wings will likely skate by intact, the Wall Street Journal’s Bankruptcy Blog reported on Friday. “I don’t see this being the death knell of the arena project,” said Brian Holdwick, executive vice president for the Detroit Economic Growth Corporation, which staffs the DDA and is helping structure the deal. Michigan’s state legislature on Wednesday approved a $450 million bond offering that would form the public backbone of Ilitch’s Holding’s $650 million entertainment center and development district near the heart of downtown Detroit. The bonds will be floated by the Michigan Strategic Fund, which handles all of the state’s private development funds. The $283 million public portion of the bonds will come from the Downtown Development Authority, which earmarks a slice of downtown property taxes for reinvestment there.
Taking an opposing side to that of Gov. Rick Snyder (R) and Detroit emergency manager Kevyn Orr, Michigan Attorney General Bill Schuette said Saturday that he will defend the state’s constitutional protection of public pensions in Detroit’s bankruptcy filing, the Detroit Free-Press reported on Saturday. Invoking his role as “the people’s attorney,” Schuette said that he will submit a filing today to intervene in the city’s federal bankruptcy proceedings, even after his office opposed efforts in a state court earlier this month to halt the bankruptcy filing in challenges brought by pensioners and lawyers for the city’s pension funds. Schuette said that he will intervene “on behalf of southeast Michigan pensioners who may be at risk of losing their hard-earned benefits,” in accordance with his responsibility as attorney general to defend the Michigan Constitution.
Kevyn Orr, Detroit’s emergency manager, endorsed a mediation proposal by the judge in the city’s record $18 billion bankruptcy, saying it could prompt a “real discussion” with creditors after earlier talks failed, Bloomberg News reported yesterday. “I’m hoping the mediator provides a process by which we can stop talking past each other,” Orr said yesterday. Orr also said that he has already met most of the conditions required to ask the judge to impose cuts on creditors if talks fail, a procedure available to the court under the U.S. Bankruptcy Code. Bankruptcy Judge Steven Rhodes in Detroit has proposed appointing U.S. District Judge Gerald Rosen to mediate discussions between the city and its creditors, which include bondholders and current and retired city employees.
Republicans in the U.S. Senate want to make sure the federal government does not become involved in the financial maelstrom hitting Detroit, which filed for the largest municipal bankruptcy in U.S. history last week, Reuters reported yesterday. They have proposed at least three “No Bailout” amendments to spending bills that the Senate is currently considering, all of which would limit the U.S. government's ability to help cities in fiscal crisis. Even though the amendments will likely fail in the Democrat-dominated chamber, cities and counties are alarmed by legislation they say that could jeopardize funding for hundreds of local governments and are pushing back. Sen. Lindsey Graham (R-S.C.) yesterday introduced an amendment to a financial services and general spending bill that would bar the use of federal funds to buy or guarantee a municipal asset or obligation from a locality that has defaulted or is at risk of defaulting. It also would prohibit the U.S. government from issuing lines of credit to those municipalities or providing other aid to prevent bankruptcy.
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A U.S. bankruptcy court judge on Wednesday dealt a blow to Detroit’s public employee unions and pension funds opposed to the city’s historic bankruptcy filing by suspending legal challenges in Michigan state courts while he reviews the city’s petition for protection from creditors, Reuters reported yesterday. Bankruptcy Judge Steven Rhodes ordered three lawsuits filed by city workers, retirees and pension funds be halted and extended that stay to suits against Michigan’s governor, treasurer and Detroit’s emergency manager. Rhodes’s action ensures that the only path to fight the city’s chapter 9 bankruptcy petition runs through his courtroom in downtown Detroit. The city’s unions and pension funds had hoped to keep the fight in state court, where they felt Michigan’s constitutional protections of retiree benefits would prevail against efforts by Orr to scale them back. Now, barring an appeal of the Judge Rhodes ruling, their fight likely turns to convincing the judge that Detroit emergency manager Kevyn Orr has not negotiated with them in good faith since he was appointed by state officials in March.
http://www.reuters.com/article/2013/07/24/usa-detroit-idUSL1N0FU14G2013…
In related news, Bankruptcy Judge Steven Rhodes has proposed appointing a federal judge as mediator to hash out the most difficult disputes as the city struggles to resolve more than $18 billion in bond and pension obligations, Reuters reported yesterday. Judge Rhodes has proposed appointing federal judge Gerald Rosen to oversee confidential mediation, if it is needed. The proposal filed on Tuesday was included in a list of issues to be heard on Aug. 2. The proposed mediation order would allow Judge Rhodes to send any matters to Judge Rosen or another mediator of Judge Rosen’s choosing. The mediation sessions would be confidential and protected from discovery, according to the court filing.
http://www.reuters.com/article/2013/07/24/usa-detroit-mediator-idUSL1N0…
Harvey Miller, partner at Weil, Gotshal & Manges, tells Bloomberg Law’s Lee Pacchia that Detroit’s recently filed chapter 9 bankruptcy case will not be an easy restructuring. In addition to the profound economic challenges facing the city and the limited ability of a bankruptcy court to force changes on its government, the fundamental tension between bondholders, pensioners and taxpayers could mean Detroit will remain tangled up in litigation for a long time. To watch the video, please click here: http://www.youtube.com/watch?v=CLKmYqSMUyU&list=PL_500m6Wb0wjRwfUjzisq9…