Detroit bankruptcy hearings resume in federal court

U.S. Bankruptcy Judge Steven Rhodes met with lawyers in the Detroit bankruptcy case Wednesday to tackle a host of issues, including a civil spat involving millions in casino revenue and a separate dispute involving indicted Highland Park activist Robert Davis.

On tap was a request from New York insurer Syncora Guarantee Inc. to dissolve a temporary restraining order stemming from a fight with the city over $180 million worth of annual revenue from the city’s three casinos. Syncora wants to depose city officials and conduct discovery in connection with a lawsuit that is playing out on the sidelines of the Detroit bankruptcy case.

The city has asked Rhodes to approve a deal that would give Detroit access to the revenue, which would bankroll Emergency Manager Kevyn Orr’s $1.25 billion plan to improve city services.

Rhodes set a 3 p.m. hearing today that could resolve a civil spat involving access to $180 million in annual casino revenue that is playing out on the sidelines of the city’s bankruptcy case.

Davis, meanwhile, wanted Rhodes to clarify whether the city’s bankruptcy case froze his lawsuit challenging whether Orr’s appointment violated the Open Meetings Act.

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U.S. Bankruptcy Judge Steven Rhodes questioned why the city was being so secretive about giving people access to financial projections and expert reports.

Rhodes was the latest person to weigh in on the city demanding creditors in the bankruptcy case to sign non-disclosure agreements before being allowed to view financial reports and other data.

In early July, union leader Ed McNeil of AFSCME complained about the secrecy agreements before a closed-door meeting with Orr’s team.

From The News:

“What the hell is that? McNeil said when asked about the secrecy agreement. “It’s public records…”

On Wednesday, Rhodes questioned the city’s use of non-disclosure agreements.

“Doesn’t the city want everyone of its citizens to know what the financial future is?” Rhodes asked city bankruptcy lawyer Gregory Shumaker.

“Yes,” the lawyer said.

“What’s the problem?” the judge said.

“There are a lot of scenarios played out in those projections,” the lawyer said. “The city believes it would not be in its best interest for it to be disseminated in the public.”

“Ok,” the judge countered, “but why not? What would the harm be?”

“Your honor, it is hard to imagine the different scenarios that might develop with the information,” Shumaker said.

“Generally speaking, speculation and conjecture are not the basis for confidentiality,” Rhodes countered.

Emergency Manager Kevyn Orr and two other unnamed individuals must sit for depositions that will last six hours, U.S. Bankruptcy Judge Steven Rhodes ordered today.

Orr will face questions in relation to a civil lawsuit over casino cash between the city and New York insurer Syncora Guarantee.

A deposition date was not set but Rhodes recommended they be scheduled as “promptly as possible.”

U.S. Bankruptcy Judge Steven Rhodes set a 3 p.m. hearing today that could resolve a civil spat involving access to $180 million in annual casino revenue that is playing out on the sidelines of the city’s bankruptcy case.

Rhodes will hear arguments about whether the city’s July 18 bankruptcy filing froze any attempt by New York insurer Syncora Guarantee from trying to trap revenue from the city’s three casinos.

The city sued Syncora in early July, claiming the insurer was improperly withholding casino revenue and endangering a settlement with two creditors.

casino shot

U.S. Bankruptcy Judge Steven Rhodes flashed his quick wit Wednesday, which has periodically broken the dry and complex set of arguments dominating the city’s bankruptcy case.

Rhodes spoke up frequently during a debate about a civil spat between the city and New York insurer Syncora Guarantee over access to $15 million in monthly casino revenue.

U.S. Bankruptcy Judge Steven Rhodes plays rhythm guitar in the cover band The Indubitable Equivalents.

U.S. Bankruptcy Judge Steven Rhodes plays rhythm guitar in the cover band The Indubitable Equivalents.

The city blamed Syncora for trapping the cash, which the city says it needs to fund essential city services.

A city lawyer said the cash was held up earlier this summer for several weeks.

“And you have damages from that?” Rhodes asked.

“There might be,” the city’s lawyer said, hesitantly.

“What do you seek?” Rhodes demanded, asking the city lawyer if he wanted an order clarifying that Syncora is restrained from trapping the casino cash.

“That would be fine with us,” the lawyer said.

“I’m not offering anything,” Rhodes cracked.

Later, Syncora’s lawyer approached the lectern. Rhodes asked if the insurer would try to trap the casino cash if the judge dissolves a temporary restraining order that lets the city collect the money.

“I have two answers,” Syncora’s lawyer said.

“Are they both yes, or no?” Rhodes replied, triggering a wave of laughter throughout the courtroom.

The city is fighting attempts by a New York insurer to capture $180 million worth of annual revenue from the city’s three casinos.

City lawyers believe the bankruptcy filing blocks Syncora Guarantee Inc. from capturing the casino cash, which Emergency Manager Kevyn Orr wants to spend on public safety and other city services.

In a civil lawsuit filed by Detroit against Syncora, a temporary restraining order was imposed by a state court judge before the city filed bankruptcy July 18. The bankruptcy filing freezes all lawsuits against the city but Syncora wants to dissolve the restraining order and continue its fight against the city.

City lawyers are pushing Rhodes to approve a deal that would give Detroit access to $180 million of annual revenue from the city’s three casinos.

The judge already has authorized Syncora to conduct limited discovery in relation to the cash fight. Rhodes ordered the city to file a list of witnesses and relevant documents and will later order the city to make certain witnesses — including possibly Orr — available for depositions.

The cash, one of the city’s few income streams, is at the center of a fight between Detroit and Syncora. The city sued the insurer in July to recover $15 million per month in casino payments. The city also accused Syncora of keeping Detroit from receiving all the money it should be getting from its three casinos, which, Orr said, could jeopardize the city’s restructuring efforts.

The city said Syncora’s actions brought Detroit’s restructuring efforts — particularly negotiations with UBS A.G. and Merrill Lynch Capital Services Inc. to restructure about $340 million in secured debt — “to a virtual standstill.”

Since filing the Syncora lawsuit, the city has reached settlements with two creditors — Bank of America Corp. and UBS AG. The two have agreed to accept 75 cents on the dollar for approximately $340 million in swaps liabilities, according to a source familiar with the deal.

Syncora said Orr exaggerated and omitted key information in its suit. Wayne County Circuit Judge Annette Berry on July 5 granted the city’s request for the temporary restraining order.

“Though the (city’s lawsuit) paints the city as a victim pushed to the brink of financial disaster by Syncora Guarantee Inc. … the city’s (suit) tells just half the story, conveniently mischaracterizing or omitting those parts that would reflect poorly on the City and its Emergency Financial Manager, Mr. Kevyn Orr,” the lawsuit reads.

Lawyers David Heiman and Heather Lennox, on right, are seen leaving the federal courthouse after giving arguments in Detroit's bankruptcy hearing last week.

Lawyers David Heiman and Heather Lennox, on right, are seen leaving the federal courthouse after giving arguments in Detroit’s bankruptcy hearing last week.

City bankruptcy lawyer David Heiman is concerned Highland Park activist Robert Davis would try to oust Emergency Manager Kevyn Orr and derail the city’s historic bankruptcy case.

“I am obviously concerned about anything that would in anyway question the role or authority of the executive decision-maker of the city,” the Jones Day lawyer told U.S. Bankruptcy Judge Steven Rhodes. “I cannot imagine anything that would be more disruptive to a Chapter 9 case than that.”

Rhodes said he would rule later after receiving a motion that ensures Davis would not try to oust Orr.

Davis photo

Highland Park activist Robert Davis will not try to remove Emergency Manager Kevyn Orr from office if a bankruptcy judge lets his Open Meetings Act lawsuit continue amid the city’s bankruptcy case, according to a lawyer Wednesday.

Attorney Andrew Paterson wants U.S. Bankruptcy Judge Steven Rhodes to make clear whether the lawsuit can continue or is frozen like dozens of other lawsuits frozen since the city filed Chapter 9 bankruptcy July 18.

Davis is challenging Orr’s appointment as emergency manager of the city of Detroit.

Rhodes grilled the attorney about his client’s ultimate goal.

“What do you intend to do with the declaration if you obtain it?” Rhodes asked.

“We would use it to guide the conduct of public bodies,” Paterson said. “I will seek an injunction prohibiting the state from violating the Open Meetings Act Again.”

He also will seek attorney fees.

“I’m asking is it your representation that your client will not seek to use that judgment to remove Mr. Orr from office in the future?” Rhodes countered.

“That is, in fact, our stipulation,” Paterson said.

The state believes the bankruptcy stay should freeze Davis’ lawsuit.

Courthouses are something of a home away from home for indicted Highland Park activist and serial plaintiff Robert Davis. Except at court, the FBI won’t show up with search warrants and haul away boxes o’ evidence and later accuse you of stealing money from kids.

Davis is due back in federal court at 10 a.m. when U.S. Bankruptcy Judge Steven Rhodes is expected to clarify whether the Detroit bankruptcy froze his lawsuit challenging whether Emergency Manager Kevyn Orr’s appointment violated the Open Meetings Act.

The hearing comes one day after Davis popped up in the courtroom of U.S. District Judge Arthur Tarnow, he’s the tall guy photobombing Kwame Kilpatrick in the photo below. Davis will stand trial in front of Tarnow on charges he stole $125,000 from Highland Park schools.

On Monday, Tarnow let Davis’ lawyer withdraw from the criminal case, citing a breakdown in the attorney-client relationship. The move indefinitely delays Davis’ trial, which was scheduled for next month.

In Davis’ criminal case, the FBI says the stolen cash bankrolled an $84,000 spending spree at car dealerships, hotels, bars, restaurants and a custom-clothing store, according to court records.

Davis is free on $10,000 unsecured bond. If convicted, he faces up to 10 years in prison and could be ordered to pay a $250,000 fine.

Former Detroit mayor Kwame Kilpatrick makes his way into the Federal Court House for the last time as a free man Monday March 11, 2013.

Former Detroit mayor Kwame Kilpatrick makes his way into the Federal Court House for the last time as a free man Monday March 11, 2013.

The second hearing over Detroit's bankruptcy filing drew scores of lawyers and protesters to Detroit's federal courthouse earlier this month. (Clarence Tabb Jr. / The Detroit News)

The second hearing over Detroit’s bankruptcy filing drew scores of lawyers and protesters to Detroit’s federal courthouse earlier this month. (Clarence Tabb Jr. / The Detroit News)

Reporters and photographers outnumbered protestors outside U.S. District Court ahead of a 10 a.m. hearing in the landmark bankruptcy case, a sharp contrast to prior court dates.

Unless they were wearing invisibility suits, there were no protestors, no banners, no picketers visible at 9:30 a.m.

And there are fewer lawyers and spectators inside U.S. Bankruptcy Judge Steven Rhodes’ courtroom. Plenty of open seats available, so far.

Convicted political consultant Sam Riddle called the other day. And for a man who works in profanity the way other artists might work in oils or clay, he never swore.

Taubman

Taubman

riddle

Riddle was responding to a story Tuesday about the objection he filed in the Detroit bankruptcy case. Pointing out he is an ex con is fair game, Riddle said.

But make sure when we write about A. Alfred Taubman, mention that the billionaire mall mogul also spent time in the hoosegow, Riddle politely demanded.

Fair point. Or is it?

In November, we wrote about Taubman being sued by a flight attendant, who alleged the billionaire fondled her, tried to rip off her clothing during flights and told her she ruined her life by getting pregnant and should have had an abortion.

The story included this paragraph:

“He served nine and a half months in prison after being convicted by a federal jury in 2001 for fixing prices at Sotheby’s Auction House, which he owned. He was released in May 2003.”

Weeks later, we mentioned Taubman’s turn at the gray bar hotel when the flight attendant mysteriously dropped her $29 million sexual harassment suit.

Robert Snell
Robert Snell is the Detroit News federal courts reporter. He can be reached at rsnell@detnews.com or (313) 222-2028.