Regular Detroiters get their day in bankruptcy court

Most were retired Detroit workers. A few have law degrees. One is a former city councilwoman.

They’re 15 “pro se” objectors in the city’s bankruptcy case, individuals without attorneys whom U.S. Bankruptcy Judge Steven Rhodes has allowed to testify, present evidence and question witnesses during the city’s ongoing bankruptcy trial.

It’s not a normal part of a bankruptcy cases. But Wayne State University law professor Laura Bartell said Rhodes’s inclusion of the individual objectors during the bankruptcy trial is consistent with his ongoing solicitude for individuals affected by the case.

“He wants to give them every opportunity to make their points publicly because part of that is an emotional resolution,” Bartell said. “If you can have the sense that you have made your point, it has been heard by the authority figure, that is Judge Rhodes. Then, even if he overrules your objection, you at least feel you’ve gotten a fair shake.”

The trial, which started in early September, is where the city is making its case to the judge to approve the city’s restructuring plan, formally called a Plan of Adjustment. In the plan, the city proposes how it will shed about $7 billion of its $18 billion in debt. Ultimately, the judge will decide whether to approve the plan, based, in part, on its feasibility and the reasonableness of its financial projections.

Part of the city’s debt restructuring includes a reduction in payments to financial creditors, including the city’s roughly 32,000 pensioners. The retirees as a class voted earlier this year in favor of smaller reductions to pension payments and health care benefits than Orr had originally proposed.

But hundreds of individuals filed objections to the deal in bankruptcy court, challenging certain provisions of the plan. In July, Rhodes scheduled 80 of them to testify in a procedural hearing, more than a dozen spoke. After subsequent requests to be heard at the trial, he allowed 15 individual objectors to be part of the court hearings. Most of them appeared Wednesday.

“An objector doesn’t lose the right to object merely because he or she does not have counsel,” said Bartell, the law professor.

Those that appeared produced a dramatically different courtroom dynamic than the lawyers who represent a variety of creditors, employees and retirees in the case. Most did not know courtroom protocol. Some read rambling remarks. Others asked insightful questions.

Most of the individual objections raised this week related to the “clawback” of annuity savings fund monies from some general service retirees. (When employees retired, they had the option of a full payout or monthly payments, according to court filings. Workers who paid into the annuity plan contributed up to 7 percent of their salaries with guaranteed rates of return of 7.9 percent. The pension fund covered the difference between the promised 7.9 percent and any lower, actual return rates, a policy the city contends drew down the pension fund and contributed to its underfunding by millions of dollars.)

As part of the bankruptcy restructuring negotiations, attorneys for employees and retirees had agreed to a 20 percent “clawback” or “recoupment” on their annuity funds.

Retiree Wanda Jan Hill questioned Emergency Manager Kevyn Orr and city attorney Heather Lennox, of the Jones Day law firm, about how retirees were notified about a 6.75 percent interest rate attached to the amount of the recoupment.

The pensioners’ ballots for voting on the Plan of Adjustment contained the phrase “other factors” but did not mention the interest payments. Hill and others have complained they should have disclosed it.

“It should have been explained to us what the clawback was,” Hill told Lennox in court. “I still say that ‘other factors’ was a ruse to allow you to come back at any time to say, ‘Oh, that was easy. Let’s try to get that money from them on other factors.’”

Former Detroit city council member Joann Watson testified that she objected to the emergency manager law and the state’s involvement in causing and filing the bankruptcy. She cited a Michigan Municipal League report that found the state reduced Detroit’s revenue sharing monies by $732 million during the last four years, and she asserted the state “defaulted” in a 1998 agreement for about $224 million in funding for the city. Watson also said the state’s reluctance to help collect $600 million in unpaid taxes from residents and businesses has cost the city dearly.

“That’s $1.5 billion that the state has played a role in the city not receiving,” Watson said Wednesday. “Yet they’ve [the state] shepherded the bankruptcy. That’s a conflict, Your Honor.”

Retired Detroit Water and Sewerage worker Steven Wojtowicz also appeared in court, and also complained about the lack of information about the interest payment on the annuity savings fund recoupments from pensioners. He questioned whether the interest was included in the information about pension payment reductions retirees received as they voted on the Plan of Adjustment.

Rhodes did not rule on any of the objections but said he would ask attorneys for the city and retirees to answer Wojtowicz’s question.

Closing arguments in the case are scheduled for Tuesday and Wednesday of next week. Rhodes will then rule on the Plan of Adjustment.

Sandra Svoboda blogs about the bankruptcy at NextChapterDetroit.com and covers the case for WDET, Detroit’s public radio station. She is an occasional Bridge contributor as part of the Detroit Journalism Cooperative, which includes Bridge.

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Comments

Charles Richards
Thu, 10/16/2014 - 1:32pm
Ms. Svoboda says, "Part of the city’s debt restructuring includes a reduction in payments to financial creditors, including the city’s roughly 32,000 pensioners." I would like to know the annual reduction in those payments. The Economist, in a recent story about Detroit's bankruptcy, said the bankruptcy benefitted Detroit's balance sheet more than it did their income statement. I would like to know to what extent that is true and why. After all, annual cash flow is critical to Detroit's prospects of success. Joann Watson "cited a Michigan Municipal League report that found the state reduced Detroit’s revenue sharing monies by $732 million during the last four years, and she asserted the state “defaulted” in a 1998 agreement for about $224 million in funding for the city." No doubt she is correct about the reduction in revenue sharing, but were Detroit's cuts out of proportion to other cities' cuts? But she does have a legitimate complaint about the state reneging on an agreement to maintain revenue sharing if Detroit cut its income tax. And she has a legitimate complaint when she"said the state’s reluctance to help collect $600 million in unpaid taxes from residents and businesses has cost the city dearly." Obviously, the state should have helped (as it is now belatedly doing) Detroit to collect income taxes that were owed the city. That was $824 million that would have been extremely helpful to the city.
William C. Plumpe
Wed, 10/22/2014 - 6:13pm
From the beginning I will tell you I'm a Detroit retiree. Here is what I have to say about the "plan of adjustment". There is no doubt something had to be done. The City was running out of cash and the disastrous "swaps deal" engineered by convicted criminal Kwame Kilpatrick was coming due.... Now due to Kwame's wheeling and deaIing not only am I trying to deal with considerable increases in health care costs (I estimate $600 a month) I also face an 11% cut in my pension check. That's a pretty big hit for someone who just tried to do their job, (and did that job well under often difficult circumstances), did no wrong and voted "YES" to the bankruptcy plan to move the process along and get the City out of bankruptcy as quickly as possible. We cooperated and banks and insurance companies who caused the bankruptcy hold out, don't cooperate and get prime downtown land that the City could have sold for cash when they should have gotten prison time like their good buddy Kwame? Or DIA execs get big raises after the tri-county tax is passed and then act all snooty like they're too good to make a sacrifice? I don't think so. Does that seem fair to you? Sure doesn't seem fair to me, Not at all. Retirees work hard, are promised a pension and did no wrong and the crooks get rewarded for not cooperating and retirees have to bear the burden? Judge Rhodes how about a 1.5% increase in COLA for all retirees or some help with the increased health care costs we are already paying? I hope you are listening and can give us a hand. We voted yes and should be rewarded for our cooperation. We didn't lie, cheat and steal like some others.