Orr returns for third day of testimony in Detroit bankruptcy trial

Emergency Manager Kevyn Orr will spend a second day on the witness stand today, one day after historic, and slippery, testimony from Gov. Rick Snyder.

Orr will continue his quest at 9 a.m. to convince U.S. Bankruptcy Judge Steven Rhodes that the city is insolvent and that he negotiated in good faith with creditors but could not secure concessions that would keep Detroit out of bankruptcy court.

The trial will determine whether Detroit is eligible for Chapter 9 bankruptcy relief. If not, expect chaos, Orr said Monday.

“If we do not go through Chapter 9, Orr warned, “this city will continue to fail.”

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Detroit Emergency Manager Kevyn Orr isn’t ruling out forcing unsecured creditors to accept involuntary cuts against their will if the city’s Chapter 9 bankruptcy case is allowed to proceed.

Testifying Tuesday in the fifth day of a trial over whether Detroit is eligible for bankruptcy, Orr was asked about whether he would carry out a “cramdown” of creditors during the debt-cutting plan of adjustment process.

“We hope to reach a negotiated solution,” Orr testified. “If I don’t, we will address that situation and certainly cramdown is an opportunity available to us.”

A “cramdown” is bankruptcy speak for a debtor getting one impaired class of creditors to agree to be paid less than their owed and the debtor using that willingness to “cram down” the other creditors.

To get to the plan of adjustment phase, U.S. Bankruptcy Judge Steven Rhodes first has to find Detroit eligible. The judge also has to approved Orr’s debt-cutting plan.

Kevyn Orr

Kevyn Orr

Detroit Emergency Manager Kevyn Orr has repeatedly said one of the reasons he filed for bankruptcy is because labor unions refused to represent retirees in debt negotiations this summer.

But what effort did Orr make to reach out to more than 20,000 retirees about his plans to reduce pensions and health insurance before filing for bankruptcy on July 18?

That was the basis of a line of questioning Orr faced Tuesday afternoon from city pension fund attorney Jennifer Green during his cross-examination in Detroit’s bankruptcy eligibility trial.

When Green asked whether the city mailed retirees information about this proposed pension cuts, Orr replied: “I don’t know.”

Green then asked if the city attempted to divide up retirees in subgroups to negotiate concessions.

After a long pause, Orr fell back on his safety answer: “I don’t know.”

Attorneys for labor unions and retirees are trying to poke holes in the city’s claim it made good faith efforts to negotiation with its creditors before seeking bankruptcy protection.

Kevyn Orr

Kevyn Orr

The Detroit bankruptcy judge issued a terse scolding to Emergency Manager Kevyn Orr after repeatedly failing to simply answer questions from creditor lawyers with a “yes” or “no.”

U.S. Bankruptcy Judge Steven Rhodes repeatedly prodded Orr during testimony today. Before breaking for lunch, the judge addressed his concerns to Orr’s lawyer, Greg Shumaker.

“I have obviously been ineffective with having the witness answer questions,” the judge said. “Please counsel with your client over the lunch break the absolute criticality of just answering the question.”

“I apologize your honor,” Orr said.

“I will accept your apology if you accept my advice and your attorney’s advice,” the judge said.

Emergency Manager Kevyn Orr continued to be prodded by a bankruptcy judge today over his answers to questions involving the city’s restructuring.

U.S. Bankruptcy Judge Steven Rhodes interrupted an exchange between Orr and UAW lawyer Peter DeChiara, who asked about discussions the emergency manager had with Gov. Rick Snyder.

“Have you ever spoken to the governor about having the state assume some or all of the city’s pension liabilities?” DeChiara asked.

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.

Orr has estimated the city’s pension funds have a $3.5 billion shortfall.

“I don’t recall,” Orr said.

“You don’t recall having done that?” the lawyer asked.

“I don’t,” Orr said.

“So you may have, but don’t recall?” DeChiara asked.

“Yes,” Orr said.

At that point, Rhodes interrupted.

“You do not remember asking the governor to write a check for $3.5 billion?” the judge asked.

“This is the problem with a yes or no,” answer, Orr said. “The number may not have been $3.5 billion but the question might have been for some assistance. I don’t remember it in that context.”

U.S. Bankruptcy Judge Steven Rhodes displayed frustration with Emergency Manager Kevyn Orr today, urging him to simply answer questions with a “yes or no” answer.

“Please just answer the question. We are going to be here a really long time if you go on and on,” Rhodes told Orr, who was facing questions about possible cuts to Detroit retiree pensions.

The comment came during the fifth day of testimony of a trial that will determine whether Detroit is eligible for Chapter 9 bankruptcy relief.

 

Mayor Dave Bing, left, Gov. Rick Snyder and Emergency Manager Kevyn Orr.

Mayor Dave Bing, left, Gov. Rick Snyder and Emergency Manager Kevyn Orr.

The state worked “hand-in-glove” with powerful law firm Jones Day to circumvent the Michigan constitution and slash Detroit retiree pensions, a lawyer said Tuesday.

UAW lawyer Peter DeChiara produced an email as evidence for his argument that there was a scheme hatched to slash pensions months before Detroit filed Chapter 9 bankruptcy.

DeChiara pointed to a Feb. 2 email sent to Emergency Manager Kevyn Orr by Richard Baird, a top aide to Gov. Rick Snyder.

At the time, Orr was still a partner at the Jones Day firm and was considering accepting an appointment from the governor to become Detroit’s emergency manager.

“This shows the intimate relationship between the state and Jones Day,” DeChiara told U.S. Bankruptcy Judge Steven  Rhodes.

In the email, Baird and Orr are discussing the potential working relationship Orr might have with Mayor Dave Bing.

“I told him that there were certain things I would not think we could agree to without your review, assessment and determination (such as keeping the executive team in its entirety),” Baird wrote.
Bing’s executive team has lost several members since Orr accepted the emergency manager job in March.

During Bing’s deposition related to the bankruptcy case, the mayor said his department heads are “frustrated as hell” by the city’s restructuring consultants and said Orr is “not doing a competent job” restructuring city operations.

“City government is a tough animal to manage. You just can’t come in here and think you can run city government,” Bing told reporters earlier this month. “Kevyn came in with an expertise in bankruptcy, and we wanted to fix that balance sheet. We had an agreement that he would focus on that and leave the day-to-day running of the city to the administration. That has not happened, and I’m very frustrated with that.

postman van gogh

Vincent van Gogh’s 1888 painting of “Postman Roulin” is one of the DIA’s many masterpieces

Proceeds from the sale of city-owned art could be used to pay retiree pensions, Detroit Emergency Manager Kevyn Orr testified this morning.

Under cross-examination by a retiree attorney, Orr was asked about the city’s efforts to put a price tag on the masterpieces at the Detroit Institute of Arts. New York-based international auction house Christie’s is currently valuing a portion of the 60,000-piece collection.

Anthony Ullman, an attorney for the retiree committee, asked the emergency manager whether the proceeds of a sale could be used to pay Detroit’s 23,500 pensioners, who are owed as much as $3.5 billion.

“It might,” Orr replied.

But earlier Orr attempted to downplay the significance of the assets in terms of satisfying the city’s debts.

“It is valuable,” Orr testified. “I don’t know if it’s a large source of cash for the city.”

 

Emergency Manager Kevyn Orr

Emergency Manager Kevyn Orr

Emergency Manager Kevyn Orr testified today he is unaware of any legal precedent for an emergency manager or city to use Chapter 9 bankruptcy to trump state constitutional protections of vested pensions.

Orr’s comment in response to a question from Detroit retiree lawyer Anthony Ullman speaks to the potential precedent-setting impact of Detroit’s bankruptcy and restructuring. Orr wants to slash vested retiree pensions while restructuring $18.5 billion in city debt.

“I generally was aware…that federal law takes over state law,” Orr testified today. “I was not aware of any specific case involving an emergency manager authorizing Chapter 9 to trump state filings. I don’t think there are any specific cases…but I was aware of federal preemption.”

Kevyn Orr

Kevyn Orr

Emergency Manager Kevyn Orr testified today that he had other options available to slash vested pension benefits in June aside from filing Chapter 9 bankruptcy.

Orr was questioned by retiree lawyer Anthony Ullman about his options one month before he decided Detroit needed to file bankruptcy to restructure $18.5 billion in debt.

“There were other options, but I don’t know if they were viable or not,” Orr said.

He did not elaborate or describe those options.

In a June 14 proposal, Orr said he wants to pare an estimated $3.5 billion in pension debt — a figure the city’s pension funds dispute as over-inflated by at least $2 billion.

Orr contends federal bankruptcy laws empowering insolvent municipalities to cut debts override the state’s constitutional protection of contractual pension obligations.

Aretha Franklin

Aretha Franklin

Thanks to a calendar change, the Queen of Soul avoided running into the Mother of all Bankruptcy cases Tuesday in federal court.

A civil lawsuit involving singer Aretha Franklin originally was scheduled for jury trial in front of U.S. District Judge Patrick Duggan on Tuesday, at the same time and date of Detroit’s bankruptcy eligibility trial. It was recently rescheduled.

Franklin was named on witness lists filed in a fight over royalties between a songwriter and Franklin’s publishing company.

Songwriter Norman “Ace” West claims Franklin’s Springtime Publishing Inc. has refused to pay royalties or sign an agreement for his song “Put It Back Together Again.” The song is listed on Franklin’s 2011 release, “A Woman Falling Out of Love.”

West also sued Springtime for federal copyright infringement, claiming the publishing company fraudulently claimed an interest in one of his earlier songs “Watch My Back.”

West wants a judge to order Franklin’s company to sign the royalty agreement and award unspecified damages.

Detroit's historic bankruptcy case is being held before U.S. District Judge Steven Rhodes.

Detroit’s historic bankruptcy case is being held before U.S. District Judge Steven Rhodes.

U.S. Bankruptcy Judge Steven Rhodes on Monday denied a retired city attorney’s request to join the eligibility trial proceedings.

Detroiter Dennis Taubitz filed a motion Monday in bankruptcy court asking Rhodes for permission to join the ranks of the creditor attorneys representing labor unions, retiree associations, the city’ pension funds and a committee of retirees.

In a court filing, Taubitz said he wanted to join the trial because the city “failed” to respond to his discovery request for records and that his “interest is not represented by the attorneys and groups that are participating in the trial.”

“Creditor attempted to participate in the eligibility trial and was informed by several attorneys that he could not,” Taubitz wrote.

City attorney Bruce Bennett filed a response in September to Taubitz’s discovery requests, calling them”overbroad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.”

In a court order, Rhodes concluded Taubitz did now show “good cause” to be added to the lineup of creditor attorneys taking turns questioning witnesses in the trial, which enters its fifth day Tuesday.

In August, Taubitz filed an objection to Detroit’s eligibility for bankruptcy in August, arguing the city is not insolvent because it “failed” to determine the value of Belle Isle, the Coleman A. Young International Airport or the Detroit Institute of Arts masterpieces prior to the July 18 bankruptcy filing.

UAW general counsel Michael Nicholson outside federal court Monday.

UAW general counsel Michael Nicholson at the federal courthouse on July 24, 2013. (David Coates/The Detroit News)

United Auto Workers general counsel Michael Nicholson delivered blistering remarks about Gov. Rick Snyder’s testimony to reporters standing outside the federal courthouse Monday afternoon.

They were remarks Nicholson made with the help of three UAW attorneys who coached him before he spoke to reporters.

That’s because Nicholson himself was not in court Monday because he had to be sequestered from other witnesses while he waits to take the witness stand next week in the trial.

But that didn’t stop him from joining a chorus of union criticism of Snyder’s frequent invocation of an attorney-client privilege concerning deliberations over possible pension cuts in the bankruptcy during his nearly three-hour live testimony.

“The governor of the state of Michigan disrespects (retirees), disrespects their constitution and disrespects the truth,” Nicholson said. “Let the truth come out. Let’s hear what they said behind closed doors about gutting people’s pensions.”

The UAW represents a small number of unionized city employees, such as librarians and attorneys in the city’s law department. But the labor union has taken on Detroit’s bankruptcy case because of its potential sweeping impact on the treatment of public pensions in municipal bankruptcies.

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