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MSU College of Law

Detroit Bankruptcy Judge Reflects on “Unprecedented” Case

With the decision whether to allow Detroit to exit bankruptcy just days away, Hon. Steve W. Rhodes, U.S. Bankruptcy Court judge, told more than 100 members of the MSU Law community that he wouldn’t talk about his pending decision.

MSU Law leaders welcome Judge RhodesBut he did discuss and respond to questions for nearly 90 minutes about the decisions he’s already ruled on and legal issues that likely will carry statewide and national implications about future municipality bankruptcy cases.

Rhodes called the Detroit case “unprecedented” for a number of reasons: the political backdrop; the speed at which the settlements have been reached with creditors; the use of mediation; the so-called Grand Bargain that brought in more than $460 million from foundations; intense media scrutiny; and the roles of state and city political leaders.

 “Bankruptcy was not a voluntary act by the city of Detroit,” Rhodes explained. “That made a lot of people in Detroit really mad. They felt their city was being taken away from them.”

Questions about the Detroit Institute of Art and its collection of art, Detroit’s underfunded pension system and contributions from the state of Michigan all played out in a court that Rhodes felt had to be transparent for the media.

“The smartest thing I ever did, and the first thing I ever did, was get a mediator,” Rhodes said.

U.S. District Judge Gerald Rosen, Rhodes’ boss, became the mediator and created what became known as the “Grand Bargain.”

“He had the weight of his office, the political connections, the grit, the determination and the love for Detroit,” Rhodes explained. “He put the Grand Bargain together.... It was unprecedented in bankruptcy cases or in any kind of mediation for a mediator to go outside the parties of the case and get additional money that resolved the debts.”

Judge Rosen’s efforts saved the pensions of some 20,000 retirees from substantial cuts. Instead, police, fire and other uniformed safety workers will not see a cut in base pension, but a cut in cost of living increases. Other retirees will see a 4.5 percent cut in their base pension and cuts in cost of living increases.

Judge RhodesThe mediated settlements didn’t always go as planned. The first time Rhodes rejected a settlement, “there was a woodshed involved,” Rhodes explained as the audience laughed. “But I did get a free dinner out of it.”

Ultimately, the two men came to an understanding of their roles in the case and worked through the difficulties. Rhodes does know that his decision on Friday will commend all the attorneys and legal professionals who worked on the case.

“It has been a dream case, with interesting issues and good lawyers who have been civil, respectful, zealous advocates,” Rhodes said. “I certainly do intend to express my appreciation to the lawyers for their service.”

Updated November 5, 2014

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