Detroit bankruptcy case judge proposes mediator for toughest disputes

Wed Jul 24, 2013 12:52pm EDT

1 of 3. Detroit firefighters hold signs during an informational picket about the downsizing of the fire department outside the federal courthouse during day one of Detroit's municipal bankruptcy hearings in Detroit, Michigan July 24, 2013.

Credit: Reuters/Rebecca Cook

(Reuters) - The bankruptcy judge overseeing Detroit's historic bankruptcy filing has proposed appointing a federal judge as mediator to hash out the most difficult disputes as the city struggles to resolve more than $18 billion in bond and pension obligations.

U.S. Bankruptcy Judge Steven Rhodes has proposed appointing federal judge Gerald Rosen to oversee confidential mediation, if it is needed.

The proposal was filed Tuesday afternoon, included in a list of issues to be heard on August 2.

The city filed the largest municipal bankruptcy in U.S. history last week. Its proposed restructuring of its obligations has sparked outrage from city retirees whose pensions and benefits could be cut drastically.

Rhodes heard opening salvos in court on Wednesday on the city's bid for bankruptcy protection.

The proposed mediation order would allow Rhodes to send any matters to Rosen or another mediator of Rosen's choosing. The mediation sessions would be confidential and protected from discovery, according to the court filing.

Rosen was nominated to the federal bench by President George H.W. Bush in 1989.

The bankruptcy case is in its early stages. On August 2 Rhodes will also consider deadlines for the city to file its formal plan for repaying its obligations and for rejecting collective bargaining agreements.

Bankruptcy judges often use mediators as a way to bring together parties in private who might find it difficult to reach a consensus through a more open court process.

A mediator helped reach a settlement of the complex bankruptcy of Residential Capital LLC, the mortgage unit of Ally Financial Inc. Ally was formerly known as General Motors Acceptance Corp until a government bailout in the wake of the 2008 financial crisis.

A mediator also helped resolve a bitter dispute in bankruptcy court between the owner of the Los Angeles Dodgers, Frank McCourt, and Major League Baseball's commissioner, Bud Selig. The settlement was never fully disclosed.

Rhodes also proposed an order appointing an examiner to review attorney fees to be paid by the city. Such examiners have been appointed in many of the largest bankruptcies, and they often recommend reductions where attorneys cannot justify hours worked or expenses.

(Reporting by Tom Hals in Wilmington, Del.; editing by Matthew Lewis)