Tag Archives: Pleadings

Detroit Bankruptcy Update and Court Filings: July 19

19 Jul 2013

Late last night and this morning, the City filed a number of pleadings that help to set the stage for the initial eligibility phase of this Detroit’s bankruptcy.  The following is a summary.

These are all pleadings intended to satisfy the City’s burden of showing that it meets the eligibility requirements for being a debtor in chapter 9 that are set forth in section 109(c) of the Bankruptcy Code.  Many expect that the specific eligibility requirements of section 109(c) of the Bankruptcy Code that will be challenged are (c)(2) (regarding whether the municipality was properly authorized to file under state law), (c)(3) (insolvency) and (c)(5) (requiring that the debtor establish that it unsuccessfully negotiated with creditors in good faith or that such negotiations are impracticable).  For those interested in the City’s eligibility arguments, the Memorandum in Support of Statement of Qualifications Pursuant to Section 109(c) of the Bankruptcy Code may be consulted as a comprehensive document .  It is supported by the various declarations listed above as evidence.

This document is a list of the 20 largest creditors holding unsecured claims.  It consists of: (i) the General Retirement System (with a whopping $2 billion plus claim), (ii) the Police and Fire Retirement System, (iii) U.S. Bank, in its capacity as trustee for several different bonds/debt including the COP obligations and various general obligation bonds, and (iv) the Downtown Development Authority.

This motion seeks to assume an executory contract ­– namely, a forbearance agreement among the City, the Emergency Manager of the City, the Detroit General Retirement System Service Corporation, the Detroit Police and Fire Retirement System Service Corporation, UBS AG and Merrill Lynch Capital Services, Inc.  The key provisions of the forbearance agreement that City seeks to assume are recited in paragraph 27 of the motion. Amongst other arguments, the City claims that the settlement is in the best interests of the estate because if frees up approximately $11M per month in casino revenues for the City.

This motion seeks approval of procedures for providing notice of the commencement of the bankruptcy case.  More importantly, however, it sets forth a proposed deadline and procedures for objections to the City’s eligibility to be a debtor. The City requested the following timeline for the eligibility fight:

  • 8/19/13 – Deadline for eligibility objections.
  • 8/26/13 – Deadline for written discovery requests.
  • 9/25/13 – Deadline for production of written discovery.
  • 10/7/13 – Deadline to complete non-expert depositions.
  • 10/7/13 – Expert designations due.
  • 10/17/13 – Expert counter-designations due.
  • 10/22/13 – Close of discovery.
  • 10/29/13 – Deadline for factual stipulations and the exchange of witness lists.
  • 11/4/13 – Deadline for pre-trial briefs.
  • TBD – pretrial conference and trial.

In this motion, the City requests the appointment of an official committee of retirees.  The City notes that currently there is no party in interest that it can negotiate with on behalf of the retirees, pension funds etc. (who make up the overwhelming majority of the unsecured creditor pool).  According to the City, there are over 50,000 retirees, 10,000 active employees, 47 distinct bargaining units and 28 unions, most of whom acknowledge that they do not have authority to represent their constituents.

This motion is a request by the City for the bankruptcy court to enter an order establishing certain procedures including provisions addressing a special service list, special service rules, omnibus hearings, etc.

Judge Steven Rhodes was appointed as the Bankruptcy Judge for this case by Alice Batchelder, Chief judge of the United States Court of Appeals for the Sixth Circuit.   This is the notice of his appointment.

The first motion seeks to confirm that the automatic stay extends not just to the City but also to its officers (including the emergency manager) and inhabitants.

The second motion appears to be targeted directly to the retirement funds and retirees that brought suit against Governor Snyder in state court and, obtained a preliminary injunction after the filing of the City’s bankruptcy petition.  The motion seeks to extend the Bankruptcy Code’s automatic stay to State entities (including the Governor, the State Treasurer and the loan board), non-officer employees of the City and the City’s agents.

Currently no objection deadline or hearing date has been set for any of these motions.  The City just filed an ex parte motion requesting a hearing on: (i) the commencement of case notice/eligibility objection procedures motion; (ii) the case management procedures motion; and (iii) the two automatic stay motions for Tuesday, July 23rd.