(Adds background on bond insurers, comments from attorneys and
DETROIT, Sept 2 A federal judge on Tuesday
denied motions by two bond insurance companies that sought to
block Detroit from presenting certain evidence at a key hearing
on the city's plan to exit bankruptcy.
U.S. Bankruptcy Judge Steven Rhodes said that while he
rejected the pretrial motions by Syncora Guarantee Inc and
Financial Guaranty Insurance Co, the companies were not
precluded from bringing up their objections during the
confirmation hearing on Detroit's debt adjustment plan.
While Detroit has settled with most of its major creditors,
including the city's two pension funds, Syncora and FGIC have
emerged as its biggest hold-out creditors. Both guaranteed
payments on $1.4 billion of pension debt the city is seeking to
void and both are facing recoveries of just pennies on the
Attorneys for the insurers argued that their clients would
be harmed during the hearing if Detroit were allowed to bring up
matters that the insurers were blocked from investigating.
Those included mediation sessions that were subject to a
court gag order and that resulted in the so-called grand bargain
in which foundations, the Detroit Institute of Arts and the
state of Michigan would contribute money to ease pension cuts
for city retirees and protect the museum's collection from being
sold to pay creditors.
Edward Soto, an attorney at Weil, Gotshal & Manges,
representing FGIC, said his client would be hurt if the city
were allowed to pick and choose what it wants to reveal from
"The city cannot be able to use this court's (mediation)
order as a sword and a shield," he said, adding that any
evidence that objecting creditors were not "fully able to
explore in discovery" should be excluded from the trial.
The city contended that the insurers were seeking a remedy
that would preclude it from introducing evidence regarding the
results of mediation.
"The back and forth doesn't matter, the results matter,"
said Detroit's attorney Gregory Shumaker from Jones Day.
Rhodes said he planned to enforce his mediation
confidentiality order during the hearing, adding he would take
up issues related to mediation on a "question by question
Other matters involved Detroit's contention that the pension
debt was illegally issued and the possible financial hardships
that retirees could face without recoveries they are set to
receive under the city's plan.
Rhodes said that the impact of the plan on any individual
creditor is not relevant to the plan's confirmation, once again
adding he would take up specific questions on this during the
confirmation hearing, which is scheduled to begin later on
(Reporting By Karen Pierog; Editing by Tom Brown)