judge steven rhodes | Pension360

Detroit Pension Funds’ Legal Fees to Be Reviewed

U.S. Bankruptcy Judge Steven Rhodes said Wednesday that there will be a review of the legal fees incurred by Detroit’s pension funds – the Police and Fire Retirement System and General Retirement System – during bankruptcy proceedings.

More details from Detroit News:

U.S. Bankruptcy Judge Steven Rhodes ruled Wednesday that the Police and Fire Retirement System and General Retirement System should be subjected to the court’s review of costs associated with litigating the largest bankruptcy in U.S. history.

Robert Gordon, an attorney for the pension funds, argued in court Monday that they should not be subject to fee examiner Robert Fishman’s ongoing reviews because Detroit taxpayers are not directly footing their legal bills.

Rhodes disagreed, while acknowledging there’s no legal precedent for having a creditor’s legal fees subject to court review in a Chapter 9 municipal bankruptcy.

“Simply stated, the city funds the plans and the plans pay its professional fees and expenses from those funds and their earnings,” Rhodes wrote in a five-page ruling. “Contrary to the retirement systems’ assertion, the application of the statute does not depend on a line-item administrative expense paid directly by the city.”

The final cost of millions of dollars in fees charged by an army of city consultants and attorneys remains one of the last hurdles to Detroit’s exit from bankruptcy. Fees from financial advisers, restructuring consultants and law firms had topped $140 million, according to Emergency Manager Kevyn Orr’s office.

[…]

Mayor Mike Duggan has expressed concerns that cost overruns from legal bills could endanger the city’s plan of adjustment, the budgetary blueprint that will govern Detroit’s finances for the next decade.

On Monday, an attorney for Greenhill & Co. disclosed that the financial firm has billed the two retirement systems $3.55 million for its services. The firm’s advisers helped General Retirement System and Police and Fire Retirement System officials negotiate with Orr’s legal team over changes to pensions and long-term investment assumptions.

Group of Retirees To Appeal Detroit’s Pension Cuts

The judge overseeing Detroit’s bankruptcy, Judge Steven Rhodes, said this month there was a 25 percent chance his ruling allowing pension cuts could be overturned if appealed.

That was enough to give a small group of retirees hope. The group, consisting of 133 working and retired city employees, is appealing the city’s pension cuts and asked Rhodes on Monday to delay the cuts until after an appeal can be heard.

From the Detroit News:

In a court filing, the group of retirees, survivors and city workers cited the 4-to-1 odds the Denver Broncos will win Super Bowl XLIX on Feb. 1 as part of their justification for time to appeal.

“Therefore, there is a reasonable likelihood of prevailing on the merits,” retired Detroit police officer and attorney Jamie S. Fields wrote in court motion for a limited stay of Rhodes’ ruling.

The appellants asked for a limited stay that wouldn’t impact other settlements tied to Detroit’s plan to fix city services and shed $7 billion in debt.

Fields, who retired in 2010 as a deputy police chief, argued Detroit should not be able “to avoid any meaningful appellate review of the unprecedented approach” used to forge settlements with labor unions, retiree groups, the city’s pension funds and financial creditors.

[…]

In his Nov. 7 ruling from the bench, Rhodes acknowledged the pension reductions could be a “real hardship” for some retirees.

“The pension reductions in the pension settlement are minor compared to any reasonably foreseeable outcome for these creditors without the pension settlement and the grand bargain,” Rhodes said.

The pension cuts were voted on and approved by city workers over the summer. They include a 4.5 percent benefit cut for general city retirees, and a reduced COLA (from 2.25 percent to 1 percent annually) for public safety retirees.

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Detroit Bankruptcy Judge Asks: Why Should City’s Pensioners Should Get Better Treatment Than Its Creditors?

Closing arguments are underway in Detroit’s bankruptcy trial. But even if the trial is almost over, the drama isn’t.

Judge Steven Rhodes wondered aloud on Monday whether the city’s pensioners were getting more favorable treatment than its creditors – pension benefits were cut as part of the bankruptcy deal, but those benefits could be restored in the future.

From the Detroit Free Press:

Judge Steven Rhodes today pressured Detroit’s bankruptcy attorneys to justify better treatment for pensioners than financial creditors, making for an unexpectedly dramatic exchange during closing arguments of the city’s historic bankruptcy trial.

In a discussion of the complicated math underpinning the city’s financial projections, Rhodes noted that pensioners could eventually get all their pension cuts restored if the city’s pension investments perform well over the next several years.

“Tell me why that isn’t a 100% recovery,” Rhodes told Detroit bankruptcy lawyer Bruce Bennett.

“The math gets a little tricky here,” Bennett responded.

The exchange underscores the importance of the unfair discrimination issue in Detroit’s bankruptcy. Although all major creditors have struck settlements, bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) argued earlier in the case that pensioners were getting extraordinarily favorable treatment.

[…]

Bennett said the largely amicable [pension] plan is “very remarkable” after a tumultuous negotiation period with retirees, insurers, bondholders and unions.

“We had litigation with everybody about something,” Bennett said.

He said the plan of adjustment is feasible and concluded that raising taxes to pay off debts was not workable, in part because the city has reached its legally allowable property tax rate.

“It’s frankly easy to decide taxes should not be increased. The harder question is, should taxes be reduced?” Bennett said.

Core to the city’s bankruptcy restructuring plan is the grand bargain, which Bennett defended. The plan aims to shield the city-owned Detroit Institute of Arts from having to sell masterworks while also providing the equivalent of $816 million to reduce pension cuts to city workers and retirees.

As part of Detroit’s bankruptcy, civilian pensioners accepted 4.5 percent cuts to monthly benefits and the elimination of COLAs.

Police and Fire retirees saw their COLAs reduced from 2.25 percent to 1 percent.

Oral Arguments by Pension Funds and Unions Pushed Back in Detroit Bankruptcy Hearing

When Detroit first raised the issue of cutting pension benefits for the city’s workers, unions and pension funds balked at the idea.

So when a Detroit bankruptcy court ruled that the city could indeed cut pension benefits as part of bankruptcy proceedings, several parties immediately filed appeals, including two public employee unions and one pension fund. They wanted their day in court; a chance to stand in front of a judge and make their arguments face-to-face.

That day was supposed to be Wednesday. But there will be no appeals heard that day, as the Appeals Court in question has postponed the oral arguments that were previously scheduled to be given by the Detroit Fire Fighters Association, Detroit Police Officers Association, the city’s two pension funds and the Retired Detroit Police Members Association.

The groups were going to argue that Detroit is ineligible for bankruptcy because Michigan law does not allow a city to file for bankruptcy. From Detroit News:

A federal appeals court Tuesday canceled oral arguments for two public safety unions, a retiree group and the city’s pension funds, which were trying to overturn the city’s eligibility for bankruptcy and its ability to slash pensions.

The cancellation comes one day before the groups were scheduled to deliver arguments in the U.S. 6th Circuit Court of Appeals in Cincinnati, Ohio, and following a request to delay the hearing by a city bankruptcy lawyer, who cited ongoing negotiations. The groups impacted by the cancellation are the Detroit Fire Fighters Association, Detroit Police Officers Association, the city’s two pension funds and the Retired Detroit Police Members Association.

Oral argument was set for 1:30 p.m. Wednesday and posed one last legal obstacle that could derail an Aug. 14 trial to determine whether Detroit can shed $7 billion in debt and emerge from the biggest municipal bankruptcy in U.S. history. Legal experts, however, believe appeals from pension funds, unions and retiree groups will fail and the bankruptcy case will continue to trial next month.

Robert Gordon, a lead attorney for Detroit’s retirement systems, said the appellate court’s clerk’s office called attorneys involved late Monday and informed them of the cancellation.

A spokeswoman for the Retired Detroit Police Members Association confirmed Tuesday morning the group had struck a deal with the city late Monday night to avoid Wednesday’s planned hearing. That group has argued Michigan’s emergency manager law is unconstitutional because of its similarities to a previous law voters repealed in November 2012.

Detroit has settled with most of its creditors as part of its bankruptcy proceedings. But there has been one notable holdout: Syncora Guarantee Inc, which is facing millions of dollars in potential losses due to the drastic decline in value of the Detroit bonds the corporation holds.

Photo: “DavidStottsitsamongDetroittowers” by Mikerussell – Own work. Licensed under Creative Commons