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Federal Judge Describes, Then Supports Plot to Rob Detroit Pensioners

This is what it looks like when a federal judge declares a city bankrupt—to the surprise of its residents and elected officials.

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The plan also saw the value in enticing a bankruptcy attorney to become theemergency manager, even though he did not have the qualifications required byP.A. 436. M.C.L. § 141.1549(3)(a).

Another important part of the plan was for the state government to starve the City of cash by reducing its revenue sharing, by refusing to pay the City millionsof promised dollars, and by imposing on the City the heavy financial burden ofexpensive professionals.

The plan also included suppressing information about the value of the City’sassets and refusing to investigate the value of its assets - the art at the DetroitInstitute of the Arts; Belle Isle; City Airport; the Detroit Zoo; the Department ofWater and Sewerage; the Detroit Windsor Tunnel; parking operations; Joe LouisArena, and City-owned land.

The narrative continues that this plan also required active concealment andeven deception, despite both the great public importance of resolving the City’sproblems and the democratic mandate of transparency and honesty ingovernment. The purposes of this concealment and deception were to providepolitical cover for the governor and his administration when the City wouldultimately file for bankruptcy and to advance their further political aspirations.Another purpose was to deny creditors, especially those whose retirement benefitswould be at risk from such a filing, from effectively acting to protect thoseinterests.

This concealment and deception were accomplished through a publicrelations campaign that deliberately misstated the ultimate objective of P.A. 436 –the filing of this case. It also downplayed the likelihood of bankruptcy, assertedan unfunded pension liability amount that was based on misleading andincomplete data and analysis, understated the City’s ability to meet that liability,and obscured the vulnerability of pensions in bankruptcy. It also includedimposing an improper requirement to sign a confidentiality and releaseagreement as a condition of accessing the City’s financial information in the“data room.”

As the bankruptcy filing approached, a necessary part of the plan became toengage with the creditors only the minimum necessary so that the City could laterassert in bankruptcy court that it attempted to negotiate in good faith. The plan,however, was not to engage in meaningful pre-petition negotiations with thecreditors because successful negotiations might thwart the plan to filebankruptcy. “Check-a-box” was the phrase that some objecting parties used forthis.

The penultimate moment that represented the successful culmination of theplan was the bankruptcy filing. It was accomplished in secrecy and a day beforethe planned date, in order to thwart the creditors who were, at that very moment,in a state court pursuing their available state law remedies to protect theirconstitutional pension rights. “In the dark of the night” was the phrase used todescribe the actual timing of the filing. The phrase refers to the secrecysurrounding the filing and is also intended to capture in shorthand the assertionthat the petition was filed to avoid an imminent adverse ruling in state court.

Another oft-repeated phrase that was important to the objectors’ theory of theCity’s bad faith was “foregone conclusion.” This was used in the assertion thatDetroit’s bankruptcy case was a “foregone conclusion,” as early as January2013, perhaps even earlier.

Finally, post-petition, the plan also necessitated the assertion of the commoninterest privilege to protect it and its participants from disclosure.[1]

Continuing at Pp. 131- 134 of the opinion:

The evidence in support of the objectors’ theory is as follows:

  • The testimony of Howard Ryan, the legislative assistant for the Michigan Department of Treasury who shepherded P.A. 436 through the legislative process. He testified that the appropriations provisions in P.A. 436 were inserted to eliminate the possibility of a referendum vote on the law, and everyone knew that. Ryan Dep. Tr. 46:1-23, Oct. 14, 2013. To the same effect is Exhibit 403, a January 31, 2013 email from Mr. Orr to fellow Jones Day attorneys, stating, “By contrast Michigan’s new EM law is a clear end-around the prior initiative that was rejected by the voters in November. . . . The news reports state that opponents of the prior law are already lining up to challenge this law. Nonetheless, I’m going to speak with Baird in a few minutes to see what his thinking is. I’ll let you know how it turns out. Thanks.” Ex. 403.
  • Email exchanges between other attorneys at the Jones Day law firm during the time period leading up Mr. Orr’s appointment as Emergency Manager and the retention of the Jones Day law firm to represent the City. For example, Exhibit 402 contains an email dated January 31, 2013 from Corinne Ball of Jones Day to Mr. Orr, which states:

Food for thought for your conversation with Baird and us - I understand that the Bloomberg Foundation has a keen interest in this area. I was thinking about whether we should talk to Baird about financial support for this project and in particular the EM. Harry Wilson-from the auto task force-told me about the foundation and its interest. I can ask Harry for contact info-this kind of support in ways ‘nationalizes’ the issue and the project. Ex. 402 at 2. Exhibit 402 also contains an email dated January 31, 2013, from Dan T. Moss at Jones Day to Mr. Orr, which states: Making this a national issue is not a bad idea. It provides political cover for the state politicians. Indeed, this gives them an even greater incentive to do this right because, if it succeeds, there will be more than enough patronage to allow either Bing or Snyder to look for higher callings whether Cabinet, Senate, or corporate. Further, this would give you cover and options on the back end. Ex. 402 at 2.