Mediating Large/Complex Cases: The Mediator Must Have A Plan (In re City of Detroit)

By: Donald L Swanson

In large, complex bankruptcy cases:

• The mediator must have a plan;
• Otherwise, the mediator is going to get run over;
• These are tough cases with very experienced lawyers who often have significant resources to put into the fight; and
• The mediator has to be just as resourceful, just as strong, just as ready to engage as the lawyers.

That’s the view expressed by Judge Gerald Rosen (Chief Judicial Mediator in City of Detroit bankruptcy) [fn.1] in a May 2021 interview on the mediation process in the Detroit bankruptcy [fn. 2].

What follows is an example given by Judge Rosen, in the interview, of how this view works out – from the City of Detroit bankruptcy. 

The Beginnings of a Idea

In the early days of the City of Detroit bankruptcy, I [Judge Rosen] get up one morning and make myself a cup of coffee—about 5:00 or 6:00 o’clock:

• I sit down, and in front of me are notes on a legal pad of all my conversations as mediator—I’m going through all the pages of that pad, and then I get to the pad’s cardboard backing;
• At this point an idea comes to me—it isn’t a lightning bolt . . . more like a culmination of all my conversations with the lawyers, my reading, and my thoughts about the art and pensions that bookend the bankruptcy;
• I’m a compulsive doodler—often doodling about ideas and thoughts—and so I doodle this little schematic on the pad’s cardboard backing: in the far left I write “State” with a circle around it, in the middle I put “Art” with a circle around it, and on the right I write “Pensions.” 

The Idea

The idea is this:

• First, we’ll get the State to kick-start funding to save the art and mitigate the pensioner’s losses;
• Then, we’ll put the art into a public trust;  
• then, we’ll use that trust to flow money to the pensioners, getting the pensioners off the runway; and
• then, we’ll work at resolving all the other creditors’ issues.

It is a “pretty crazy idea”—but I draw a square around the art, indicating that we will lock it off from all other creditors. 

This idea will not be popular with the other creditors—taking the only asset the City has, giving it to one group of creditors, and keeping it away from everybody else.  But it has a chance.

Developing the Idea

Then I write a bunch of questions underneath it:

• How much will be needed? “I had no idea.” 
• How much time will it take?
• Can we get the federal government to participate?
• If the State does contribute money, what will the State get? Maybe the State can get art sharing around the State.  Maybe the State can be one of the owners or board of directors.

I know that we will not be able to get enough money from the State to do what needs to be done. Politically, it’s simply not possible.

So, I have some thoughts about other potential ways to do fundraising: I write down, private donors, foundations, and then the Detroit Institute of Arts itself.

I’m thinking, if we can buy the Institute’s independence from the City and from the City’s creditors, the Institute should have some skin in the game.

The “Grand Bargain”

At the end of the week, I take the little doodle and my notes on the pad, and put them with the rest of my reading in a travel bag, take it back with me to Detroit, take it out of the bag, put it in a pile behind my desk, and forget about it—totally forget about it, as just another doodle.

But I don’t forget about the idea.  It’s the idea that animates the ultimate resolution—and the plan around which the entire bankruptcy case proceeds.

Today that doodle is hanging in the Detroit Institute of Arts. And it’s called the “Grand Bargain.”

People refer to the entire bankruptcy as the Grand Bargain, but really the Grand Bargain, at least the core of the Grand Bargain and the core of the entire plan of adjustment, is the doodle idea.

Conclusion

In a large, complex bankruptcy case, the mediator must have a plan; otherwise, the mediator will get run over.  The City of Detroit bankruptcy provides an illustration of how that works.

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Footnote 1.  Hon. Gerald E. Rosen (Ret.) serves as mediator, arbitrator and neutral evaluator in high-level business cases for the JAMS office in Detroit.  While serving as Chief Judge of the U.S. District Court for the Eastern District of Michigan, he was appointed Chief Judicial Mediator in the City of Detroit bankruptcy.  Judge Rosen 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.”

Footnote 2.  Immediately below is a link to a YouTube video of a portion of the interview with Judge Rosen from which the information herein is taken (beginning at the 9:00 and 20:00 time marks).

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