DETROIT Nov 8 Detroit tried in good faith to
negotiate an out-of-court settlement with creditors before
declaring bankruptcy on July 18, even though it suspected that
default was unavoidable, a lawyer for the city told a court on
"I think what the city did was they said: 'This is extremely
difficult to achieve, but we're going to try anyway,'" city
attorney Bruce Bennett, of Jones Day, said at a trial to
determine if the city is eligible for bankruptcy.
"You absolutely can believe in your head that this is never
going to work, but try anyway. And I think that is the situation
in this case."
The start of closing arguments marked the ninth day of the
trial that has stretched across three weeks and included rare
testimony from a sitting governor, Michigan Governor Rick
Snyder; Detroit Emergency Manager Kevyn Orr; and a parade of
other city and state officials, consultants, retirees and union
Lawyers for the city and the state of Michigan gave closing
arguments in the morning in favor of Detroit's eligibility for
bankruptcy. The unions, retirees and pension funds objecting to
Detroit's bankruptcy were expected to present their closing
arguments on Friday afternoon.
Bennett's remarks about Detroit's decision to forego further
negotiations came in response to a question from U.S. Bankruptcy
Judge Steven Rhodes, who questioned whether the city's arguments
were internally inconsistent.
"It strikes me as factually impossible for it to be
impracticable for that party to negotiate with other parties in
any circumstance, and to negotiate with them in good faith,"
Detroit's unions, retirees and two pension funds are trying
to keep the city out of bankruptcy and the city must prove to
Rhodes that it meets the criteria for eligibility.
To declare Detroit eligible, Rhodes will need to decide that
the city proved it is insolvent, and that it acted in good faith
when it decided negotiations with creditors were impractical.
Detroit has $18.5 billion in debt and liabilities, about
half of which come from retirement benefits, including $5.7
billion for healthcare and other obligations, and $3.5 billion
involving pensions, the city says.
The city presented its financial liabilities on June 14 in a
report that offered unsecured creditors, including retirees,
only pennies on the dollar to settle their claims. But Bennett
said it would be harder to get a deal done out of court as the
city's financial situation deteriorated.
In his argument, Bennett invoked testimony from earlier in
the trial, when one of the city's top financial advisers
testified Detroit was operating on a "razor's edge" and at risk
of running out of cash prior to the bankruptcy filing. He stated
that it did not have enough time for additional negotiations,
especially when creditors were not putting forward what the city
considered sufficient counter proposals.
"What would more time have led to? There was no evidence or
any other indication that the city could have looked at and said
there was a path to a deal," Bennett said.
Matthew Schneider, who represents the State of Michigan in
the case, made his closing statement on Friday morning, arguing
that a "tremendous storm" was headed toward the city.
"The evidence shows the health, safety and welfare of the
people of Detroit are at risk," Schneider said.
He noted there are some 78,000 abandoned buildings in the
city, about 40 percent of the street lights do not work and the
average police response time is 58 minutes.
Rhodes could make a decision on whether Detroit invoke
bankruptcy protection as early as this month. The city has
indicated that, if it is found eligible, it would like to submit
a plan of adjustment to the court by the end of the year.