Subchapter V Trustee’s Facilitation Role (Part 4)—A CITY OF DETROIT MODEL

“(b) Duties.—The [Subchapter V] trustee shall— . . . (7)facilitate the development of a consensual plan of reorganization.”

• From 11 U.S.C § 1183(b)(7)(emphasis added).

Facilitation is, by statute, a duty of every Subchapter V trustee—something a Subchapter V trustee must do.  But the nature and boundaries of the facilitation role have always been fuzzy and, therefore, misunderstood. 

My purpose in this multi-part series is to provide observations on the facilitation role.

City of Detroit Model

Mediators in the City of Detroit bankruptcy fill a crucial role in developing and confirming a consensual Chapter 9 plan. 

Their actions as proactive mediators provide a model for how the Subchapter V trustee’s “facilitate” duty might be exercised.

I’ll try to explain.

Detroit’s Mediator Team

Here’s what happens—a decade ago—in the City of Detroit bankruptcy (Case No. 13-53846; Eastern Michigan Bankruptcy Court).

In the early days of the City of Detroit bankruptcy, the Bankruptcy Judge:

• appoints the Chief Judge of the U.S. District Court for the same District as lead mediator in the case (the District Judge then appoints others to comprise a mediator team); and
• directs the mediator team to mediate all issues that might relate to a plan of reorganization.

Then, the mediator team:

• identifies, throughout the bankruptcy case, disputes to be mediated; 
• orders the pertinent parties to participate in mediation of each dispute; and
• conducts the mediation sessions.

Early in the mediation process, an impasse develops around this provision in Art. IX § 24 of the State of Michigan Constitution:

• “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby” (emphasis added). 

Pensioners and retirees insist that this provision protects their benefits from being diminished or impaired in bankruptcy.  Other stakeholders insist otherwise.  So, mediation efforts come to a standstill.   

The mediator team realizes that the constitutional issue needs to be resolved by the Court, before the impasse can be broken.  So, the mediator team assures that the impasse issue is brought before the Bankruptcy Court for determination.

Then, the Bankruptcy Court rules against the pensioners and retirees.  The Bankruptcy Judge says, in making its ruling: “We in bankruptcy impair contracts all day, every day . . . That is what we do.”

This ruling breaks the impasse, enabling the case to proceed, ultimately, to the mediated and consensual confirmation of a plan of reorganization.  The plan of reorganization centers on a “Grand Bargain” that preserves the Detroit Institute of Arts and uses money obtained therefrom to fund a consensual plan.

Model for Facilitation

What happens with the proactive mediator team in the City of Detroit bankruptcy serves as a model for the facilitation role of Subchapter V trustees.

Based on the Detroit model, a Subchapter V trustee might, for example, take the following types of actions:

• As the § 341 meeting is approaching and attorneys have entered appearances, the Subchapter V trustee might invite all attorneys and their clients to a Zoom facilitation meeting, occurring shortly after the § 341 meeting, to discuss debtor’s intended plan, creditor concerns, and what is needed to achieve a consensual plan;  
• When a court hearing is upcoming on a disputed issue, the Subchapter V trustee might invite disputing parties to a Zoom facilitation meeting to discuss the issues at hand and how an agreed-upon resolution might be found;
• Utilize creative efforts to break through any impasse that arises; and
• Take other creative actions that might help resolve issues standing in the way of a consensual plan. 

Authority for a Subchapter V trustee to do such things exists by statute—via the “facilitate” duty.  No further permission is required.

Similarly, authority for Detroit’s mediator team to do similar things arises from an initial court order.  No further permission is required.

Conclusion

Proactive practices of the mediator team in the City of Detroit bankruptcy provide a model for actions a Subchapter V trustee might take under the statutory “facilitate” duty.

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