The Detroit Bankruptcy Creates “An Ideal Model for Future Municipal [and Other?] Debt Restructurings”

An ideal.

By Donald L. Swanson

Bankruptcy Judge Steven Rhodes declares in his Detroit plan confirmation opinion (Doc. 8257) that the mediated settlements:

–Are “an extraordinary accomplishment in bankruptcy”; and

–Create “an ideal model for future municipal debt restructurings.”

With the benefit of hindsight, we can all agree with Judge Rhodes on both points.

But why not expand his “ideal model” finding beyond Chapter 9 to Chapter 11 restructurings and other bankruptcy disputes as well?

A proactive mediation process is at the heart of the “ideal model” that Judge Rhodes created. Why wouldn’t proactive mediation work in other types of cases as well?

The following are observations about the Detroit case that could apply to any number of bankruptcy disputes – and are certainly not the exclusive province of municipal cases under Chapter 9

A Difficult / Emotional Case

The Detroit bankruptcy case, from its beginning, is difficult and complex. Relationships among disputing parties are acrimonious. Distrust abounds. Politically, it’s an if-you-touch-it-you-will-die problem [metaphorically, of course].

The City’s lead bankruptcy attorney, David Heiman, publically describes the Detroit bankruptcy (to Law360) like this:

–The proceedings were “unbelievably contentious and hostile” at times
–“Everything happened at once and on a very intensive scale”
–“We had three or four crises a day for the duration”
–As to degree of difficulty, “approaching impossible,” it seemed at times
–The results achieved seem, at the beginning, ”unlikely” at best and “bleak” at worst
–The case is “massive” and “demanding”
–The case deals with “a large number of novel and unprecedented legal issues”

As to acrimony, consider this September 15, 2014, Reuters report:

“Detroit has reached a settlement with [a specified creditor], its fiercest opponent in its historic bankruptcy case, a lawyer for the city said on Monday.
. . .
[This creditor], which until last week fought almost every aspect of Detroit’s bankruptcy, apologized in its Monday court filing for accusing court-appointed mediators of improper conduct and conflicts of interest in the case. [Bankruptcy Judge] Rhodes, who last month called the allegations scandalous and defamatory, said on Monday he would no longer consider sanctioning [the creditor] and its attorneys in light of the apology.”


But such observations and descriptions could apply to a multitude of bankruptcy proceedings outside Chapter 9. They are not unique to municipalities.

Perseverance and A Proper Attitude

Mediated settlements establish the foundation for Detroit’s plan confirmation. What it took to achieve the mediated settlements, says Eugene Driker, a Deputy Mediator, are the following qualities:

image–“Patience, careful listening, and respecting the positions of others”
— Avoiding “frustration and anger” — everyone must “keep cool and be respectful”
–“Perseverance” and a “not give up” approach

Such qualities are the basis for achievement in every endeavor – municipal reorganizations have no corner on the need for such qualities.

Hard Work and Sacrifice

“People worked very, very hard — 24/7,” says Mr. Driker, who cites the following example: he received an email at 3:00 o’clock one morning from one of his co-mediators. Mr. Driker says he couldn’t tell whether the co-mediator had “stayed up late or got up early.” But such sacrificial efforts are common throughout the process, he says.

Hard work and sacrifice are a common denominator in nearly every successful enterprise.

Creativity and Learning From Trial and Error

Mr. Driker notes, “there are no instruction books on how to proceed” in a case like the Detroit Bankruptcy. “There is no law review article” on what to do next, he says. Instead, there is a trial and error approach to learning quickly: “we try one approach, and if it doesn’t work, we try something else.”

Such qualities are the essence of what it takes to make anything work.

Footnote: This is the fifth in a series of five articles about the Detroit mediation process, based on interviews with Eugene Driker, a Deputy Mediator in the Detroit Bankruptcy.

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