By: Donald L Swanson
Judge Gerald Rosen [fn. 1] served as Chief Judicial Mediator in the City of Detroit bankruptcy. He is credited with masterminding an $820 million deal that rescued the City of Detroit from bankruptcy.
In a fascinating discussion, Judge Rosen recently explained and illustrated his Four “C’s” approach to mediation (Candor, Cooperation, Creativity and Courage), as applied in the City of Detroit bankruptcy.
What follows is a summary of that discussion.
The first “C” is candor. A mediator has to be candid. And the parties have to be candid with the mediator. And they all have to be candid with themselves.
Very often, the parties are in denial. They’ve fallen in love with their own arguments and are in denial about the realities of their circumstances.
“I always tell them a line from Steve Rhodes” (the presiding Bankruptcy Judge in the City of Detroit bankruptcy): “Denial is a river in Egypt, it’s not a solution to a problem.”
The second “C” is cooperation. Very often, there is a lot of scar tissue that has developed between the parties.
In the City of Detroit bankruptcy, there was huge scar tissue:
- Everybody was angry at the City;
- Everybody told us stories about how the City had been screwing them for years, and in some cases for decades; and
- Everybody was angry.
You have to let the process ventilate for a while: let scar tissue ventilate.
But in the end, it’s important that the mediator try to focus the parties on what the real issues are:
- Not just the scar tissue and how those issues came to be; but
- What are the possible paths to resolution?
This will often get parties in a more cooperative mode.
The third “C” is creativity.
Everyone has to be creative in the tough cases—not not just the mediator.
The mediator’s got to encourage a free, robust flow of ideas from the parties.
The parties are trying to put the mediator in a box. So, the mediator must think outside the box and get the parties to think outside that box too—then, good things happen.
Creativity is what happened in the Detroit bankruptcy. Every deal had its own creativity:
- not just the grand bargain;
- not just the UTGO (unlimited tax general obligation bonds) deal—which was very creative, but
- every deal we did was creative!
The water department deal is an example. We took the Detroit water and sewer department and made it a regional authority with representation from the suburbs. From that we got:
- $113 million for infrastructure; and
- $50 million a year for 40 years to fund infrastructure repair.
The water system and sewer system desperately needed those funds.
That was a very creative deal. I had appointed Judge Sean Cox mediator for that dispute because he handled the water and sewer case itself—and they came up with very, very creative ideas. Keven Orr, the mayor of the City of Detroit, Mike Duggan, the Oakland County Executive, the Macomb County Executive, the Wayne County Executive, were all involved—and it was truly a team effort.
The water department deal was one of the toughest mediations, but people got very creative and found a solution.
The fourth “C” is courage.
Courage is needed, not just from the mediator, but from the parties.
In every deal, somebody’s got to take a leap of faith. In every deal, somebody’s got to take that first step.
The mediator’s job is to create an environment where people don’t feel like they’re losing face or giving up something, if they take that step.
In the City of Detroit bankruptcy, everybody showed courage:
- The bond holders and their insurers;
- Certainly, the retirees;
- The State, by coming in the way it did—every deal, the State was part of;
- The City;
- Kevin Orr was really the real hero of the bankruptcy because, not only did he have to deal with me and the bankruptcy, but he had to run the City at the same time—which was a huge deal.
All of the deals took a lot of courage. The foundations, for example, did something they had never done before: every foundation made the largest grant they had ever made—every one of them! That was unusual and courageous.
Judge Rosen’s comments on the City of Detroit are always fascinating! His discussion of the Four “C’s” of mediation is one example.
Below is a YouTube video of his Four “C’s” discussion (appearing between the 13:45 and 18:35 time marks).
Footnote 1: Hon. Gerald E. Rosen (Ret.) now 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. He was serving in such role 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.
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