Traverse City Record-Eagle

Michigan

October 23, 2013

City faces crucial trial in bankruptcy case

DETROIT (AP) — Is there really any doubt Detroit is broke?

A judge starts exploring that question today in an unusual trial to determine whether Detroit indeed is eligible to scrub its books in the largest public bankruptcy in U.S. history. Unions and pension funds are claiming the city failed to negotiate in good faith before filing for Chapter 9 protection in July.

Uunions and pension funds are challenging Detroit on the eligibility question. They claim emergency manager Kevyn Orr, who acquired nearly unfettered control over city finances following his appointment by Michigan Gov. Rick Snyder, was not genuinely interested in negotiating when they met with his team in June and July. Orr insists pension funds are short $3.5 billion and health coverage also needs to be overhauled.

Evidence will show that Orr “planned to file bankruptcy long before the purported negotiations had run their course, confirming that the ‘negotiations’ were no more than a check-the-box exercise on the way to the courthouse,” Babette Ceccotti, an attorney for the United Auto Workers, said in a court filing.

Earle Erman, attorney for Detroit’s public safety unions, said the city has cut wages and changed health care benefits without across-the-table talks. Another lawyer, Sharon Levine, representing AFSCME, said the city spent months “mapping out its path to Chapter 9,” not looking for compromises that could keep Detroit out of bankruptcy.

In response, however, attorneys for the city said a June 14 meeting and subsequent sessions with creditors were well-intended but fruitless. A bankruptcy filing was being prepared, they acknowledged, but “never set in stone.”

Spiotto said Judge Steven Rhodes will have much discretion to determine whether the city has met its “good-faith” burden.

“I don’t think courts require perfection,” he said. “Good faith is not measured solely by, ‘Did they offer what we want?’ It’s about providing opportunity.”

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