On July 18, 2013, the City of Detroit filed for bankruptcy – the largest municipal bankruptcy in U.S. history. After many long months of negotiations and deals, the city emerged from bankruptcy on Dec. 10, 2014. At the Capital Conference’s closing general session, we brought together the three judges who were intricately involved in guiding Detroit through a complicated maze on the way to restoring solvency:

• Judge Steven Rhodes, retired, U.S. Bankruptcy Court for the Eastern District of Michigan
• Chief Judge Gerald E. Rosen, U.S. District Court for the Eastern District of Michigan
• Judge Michael F. Gadola, Michigan Court of Appeals, Fourth District

Judge Rosen

Judge Rosen began the discussion by reading from the introduction to a book he’s writing about Detroit’s bankruptcy – Detroit’s Big Bang Theory. In the book, he relates how the city was $18 billion in debt. The media and observers around the country were writing Detroit’s obituary. The world-renowned art collection at the city-owned Detroit Institute of Arts was the city’s only asset. But 16 months later, Judge Rhodes approved a plan to get Detroit out of bankruptcy – the Grand Bargain plan, which saved the DIA art collection by raising $800 million from other sources.

Rosen said keeping the art collection off the table was quite a challenge. Kevyn Orr, Detroit’s emergency manager, had the collection in his gunsights, and all the major creditors wanted to monetize the art. As an alternative, Rosen had the idea to get foundations involved in kickstarting a funding drive. The Ford Foundation was the first to step up, with a commitment of $125 million. The Kresge Foundation offered $100 million. Everything spiraled from there and eventually 18 foundations had made financial commitments.

Next, Rosen met with Governor Snyder to inform him that foundations had committed about $350 million to save the art, but they wouldn’t follow through unless the state and other stakeholders contributed,too.  He urged the governor to match the foundation’s $350 million and get additional private donations to make the deal work. The governor agreed.

Thirteen different deals with creditors arose out of that deal. “Deals started falling into place,” said Rosen. “Like a train depot, the people who buy the first tickets get the best seats.”

Judge Rhodes

Judge Rhodes had the task of presiding over the bankruptcy proceedings. He said the case was particularly challenging because it was as much political as legal. It was political because every single Detroit resident and business had a personal and direct stake in the outcome. With that in mind, he felt he had to do everything he could to proactively establish himself as a fair arbiter. He did that by being as inclusive as he could in the decisions that affected people’s lives. He invited members of the public to file objections and talk to him directly about their issues. He also gave the press as much access as possible to the proceedings.

“I heard their anger. The same anger they expressed in demonstrations in the street,” said Rhodes. “I felt that one of the ways I could help people deal with that was to give them a voice in court.”

Rhodes vividly remembered the tsunami of paperwork, which he dealt with by adopting a “pedal to the metal” judicial management strategy. Every decision made and date set was designed to get the city in and out of bankruptcy as soon as possible. He did whatever he could to promote settlements because they were faster and less expensive than litigation.

In his mind, the DIA art collection was never really at play in the case for two reasons: (1) The DIA’s art collection is a jewel that attracts people from around the country and the world. Detroit needed that art to have any chance to revitalize, and (2) Outside of bankruptcy, creditors would never have had access to the art collection. He didn’t think they should have more rights under bankruptcy.

Judge Gadola

Judge Gadola was serving as Governor Snyder’s legal counsel at the time of the Detroit bankruptcy. He said the situation Detroit was facing in 2013 was incredibly bleak, which makes what happened a miracle. He praised the governor’s leadership, part of which involved encouraging the legislature to pass a successor statute to PA 4, an emergency manager statute which was rejected by voters in November 2012. Under the new statute, the governor was able to declare a financial emergency for Detroit and appoint Kevyn Orr as the emergency manager.

When the governor was urged to bring $350 million in state money to the table, they were able to get legislative leaders to sign onto the effort. Through a series of bills, the state committed $350 million over 20 years. They also established a financial review committee to oversee the state’s finances in this matter.

For more information on Detroit’s bankruptcy proceedings, click here.