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No Immediate Decision On Detriot Bankruptcy

12:21 PM, Nov 9, 2013   |    comments
Photo: Detriot Free Press
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Brent Snavely and Nathan Bomey, Detroit Free Press

DETROIT -- The ninth and final day of Detroit's historic trial to qualify for Chapter 9 bankruptcy ended Friday, but not before the judge took swipes at the city and state's lawyers on the question of good-faith negotiations and the creation of Michigan's emergency manager law.

Federal Bankruptcy Judge Steven Rhodes challenged Bruce Bennett, the Jones Day lawyer who is representing the city, to explain how Detroit can argue that it negotiated in good faith with creditors while also arguing that it became impossible to negotiate with them.

"It strikes me as factually impossible" for the city to simultanously to make both claims, Rhodes said.

Bennett said everybody involved knew that negotiations would be extremely difficult given the depth of the city's financial crisis and the depth of the concessions necessary.

Negotiations with creditors became impossible because many of them said they were not authorized to deal on behalf of the city's 23,500 retirees and others declined to consider any concessions at all, Bennett said.

To gain the protections provided under bankruptcy law, Detroit must prove that it is insolvent and tried to negotiate in good faith with creditors before it filed. Rhodes is expected to make a decision sometime after Wednesday.

The last day of trial also included allegations that Gov. Rick Snyder and Detroit emergency manager Kevyn Orr lied and misled Detroiters for political purposes.

William Wertheimer, a lawyer for a group of Detroit pensioners that oppose the city's bankruptcy, said all of Snyder's actions in the past two years related to Detroit's crisis have been politically motivated.

"We are not saying the governor did anything evil," Wertheimer said. "His political position has been no financial support from the state and that has driven everything that has happened here."

Matthew Schneider, lawyer for the state, challenged that allegation.

"What political juice does the governor get out of this? It's not a popular move," he said of Detroit's bankruptcy filing.

Instead, Schneider painted Snyder not as a politically power-hungry governor but as a hero who has done all he can to help rescue a crumbling city. Schneider compared Detroit's financial crisis to a massive storm bearing down on its residents.

"Years ago, the people of Michigan and the people of this city started to learn that a tremendous and terrible storm was headed to the city of Detroit, and this was no secret," Schneider said.

From the time Snyder took office, Schneider said the governor monitored Detroit's financial crisis as it grew worse. Snyder also took a number of steps to help the city control the problem, including a consent agreement between the state and the city in spring 2012.

But by fall 2012, the lawyer said Detroit already was unable to meet the terms of that agreement. That prompted the state to escalate discussions with additional consultants to figure out what should be done, which led to Orr's appointment as emergency manager in March.

"The governor took on an enormous task," Schneider said. "He saw that the problem was getting worse and nobody was solving it."

But lawyers for unions picked apart the analogy, suggesting Snyder orchestrated a planned takeover of the city and has withheld direct financial aid for his own political purposes.

"The governor took more time to interview the consultants than they took to negotiate the restructuring itself," said Sharon Levine, a lawyer for the American Federation of State, County and Municipal Employees. "That's absurd."

 

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