Judge Rosen: On Mediation In City Of Detroit Bankruptcy (Part II, The Concept & The Human Element)

By: Donald L Swanson

Hon. Gerald E. Rosen (Ret.) serves as mediator, arbitrator and neutral evaluator in high-level business cases for the JAMS office in Detroit.  

Previously, Judge Rosen served as Chief Judge of the U.S. District Court for the Eastern District of Michigan, when the City of Detroit filed its Chapter 9 bankruptcy.  Shortly thereafter, the presiding bankruptcy judge appointed Judge Rosen as Chief Judicial Mediator in the City of Detroit bankruptcy case.

Judge Rosen, as Chief Judicial Mediator, is recognized as the person who “masterminded an $820-million deal that rescued Detroit” out of bankruptcy and as “the Judge who helped save Detroit.”

The interview linked above is Part II, of a three part series. This second part is on “The Concept & The Human Element.” What follows is an index to subjects discussed in this second part of the interview, with time notations where each item can be found on the video.

Part II: The Concept & The Human Element

Problems

(00:05) Getting started

(00:30) Book ended: Billions of dollars of retiree claims on one side

(01:50) City had no assets—exception: Detroit Institute of Art on the other side

(02:20) Value estimates for the art were high, but restrictions from donors were an issue for creditors

(03:10) Worldwide discussions on whether art could be liquidated for creditors

(03:40) Race issues involved

(04:20) Binary equation: liquidate art vs. large losses for retiree claims—which were relatively small to begin with

(05:00) All questions came down to: What about the Art?

(06:20) Possible legacy: the guy who sold off Detroit’s art?

(06:50) Art Museum—in center of some growth for the City, and liquidating the Art would devastate the City

(07:20) Art representatives were gearing up for a fight and raising funds for litigation

(08:00) Time and delay would be Detroit’s enemy

(08:30) Population losses and urgency

The Central Idea

(09:00) Story about how, one morning, the central idea for the case arose

(09:30) The idea: State funding for putting art into a public trust and using the funds for retiree claims

(11:00) Early questions

(11:40) Would not be able to get sufficient funds from the State, so needed to look for other sources

(12:10) This was the idea that animated the ultimate resolution—became known as the “Grand Bargain”

(13:10) Governor’s involvement and the Detroit Institute of Art

(14:00) Story of most expensive breakfast in history      

(41:20) “The Haircut at the Haircut” story

The Mediators’ Role

(16:15) Proactive role of mediators: facilitative vs. evaluative spectrum

(17:25) The greater the complexity of the case and the issues, the greater is the need for evaluative and proactive action from the mediators

(19:00) In large and complex bankruptcy cases, a purely facilitative approach will be very difficult

(19:40) In a complex case, the mediator must have a plan or will get run over by highly resourceful attorneys with deep pocket funding

(20:50) Even in the most proactive role, a mediator still must fulfill an facilitative function

(21:30) The City of Detroit mediators identified the issues to be mediated and required participation by the parties, with extensive mediation statements

The Human Element

(22:00) Every creditor thought it was ahead of every other creditor for gaining access to funds

(22:25) One issue involved a State Constitution provision preventing impairment of retiree benefits

(23:00) Contract rights are impaired all the time in bankruptcy—that happened here, but with a large human dimension

(23:35) The first meeting between mediators and retiree representatives was dramatic

(23:50) Story about input from a retiree representative / grandmother

(24:30) Story about input from a representative for street cops and fire fighters

(25:50) Legal issues are difficult, especially amid the entire context

The State of Michigan

(26:10) Did State of Michigan have any financial responsibility because of its Constitution provisions?

(27:00) Bankruptcy Judge ruled on priority of Bankruptcy Code’s ability to impair contract rights vs. Michigan’s constitutional protection of retiree benefits—but not to be done lightly

(28:30) A consensual plan of reorganization resulted from 16 months of work by the mediation team

The Foundations

(28:30) Heroes of the bankruptcy case—the foundations

(28:45) Story about a chance meeting with a foundation leader and results that followed thereafter

(29:30) Proposed the Grand Bargain idea for foundations to help, and discussed difficulties of joint action and short time frame

(31:20) Representative committed to talking with colleagues at other foundations, and a joint meeting resulted quickly with long and robust conversations

(32:00) Many further conversations promptly ensued

(32:50) November 5 meeting with foundations resulted—made the pitch there.

First Part of Interview

The first part of this interview (on “Getting Started”) is linked here.

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