Deconstructing Bankruptcy in Detroit
 
The most interesting aspect of Judge Steven Rhodes’ heavily-reported December 5, 2013 opinion – effectively approving in all respects the Jones Day petition for Detroit’s Chapter 9 bankruptcy[i] – is Judge Rhodes’ little-noticed, remarkable ‘straw-man’ version of real Detroiters’ actual objections to Gov. Snyder and Jones Day’s corporate-oriented ‘restructuring.’
Quoting verbatim from the opinion, at Pp. 130-134:[1]
“The Objectors’ Theory of Bad Faith
In section 3, below, the Court will review the factors upon which it relies in finding that
the City filed this case in good faith. First, however, it is crucial to this process for the Court to give voice to what it understands is the narrative giving rise to the objecting parties’ argument that the City of Detroit did not file this case in good faith. The Court will then, in section 2, explain that there is some support in the record for that narrative.
It must be recognized that the narrative that the Court describes here is a composite of the objecting parties’ positions and presentations on this issue. No single objecting party neatly laid out this precise version with all of the features described here. Moreover, it includes the perceptions of the objecting parties whose objections were filed by attorneys, as well as the many objecting parties who filed their objections without counsel. Naturally, these views on this subject were numerous, diverse, and at times inconsistent.
The Court will use an italics font for its description of this narrative, not to give it
emphasis, but as a reminder that these are not the Court’s findings. As noted, this is only the Court’s perception of a composite narrative that appears to ground the objectors’ various bad faith arguments:
 
According to this composite narrative of the lead-up to the City of Detroit’s
bankruptcy filing on July 18, 2013, the bankruptcy was the intended consequence
of a years-long, strategic plan. The goal of this plan was the impairment of pension rights through a bankruptcy filing by the City.
 
Its genesis was hatched in a law review article that two Jones Day attorneys
wrote. This is significant because Jones Day later became not only the City’s
attorneys in the case, but is also the law firm from which the City’s emergency
manager was hired. The article is Jeffrey B. Ellman; Daniel J. Merrett, Pensions
and Chapter 9: Can Municipalities Use Bankruptcy to Solve Their Pension
Woes?, 27 EMORY BANKR. DEV. J. 365 (2011). It laid out in detail the legal
roadmap for using bankruptcy to impair municipal pensions.
 
The plan was executed by the top officials of the State of Michigan, including
Governor Snyder and others in his administration, assisted by the state’s legal
and financial consultants – the Jones Day law firm and the Miller Buckfire
investment banking firm. The goals of the plan also included lining the
professionals’ pockets while extending the power of state government at the
expense of the people of Detroit.
 
Always conscious of the hard-fought and continuing struggle to obtain equal
voting rights in this country and an equal opportunity to partake of the country’s
abundance, some who hold to this narrative also suspect a racial element to the
plan.
 
The plan foresaw the rejection of P.A. 4 coming in the November 2102
election, and so work began on P.A. 436 beforehand. As a result, it only took 14
days to enact it after it was introduced in the legislature’s post-election, lameduck
session.
 
It was also enacted in derogation of the will of the people of Michigan as just
expressed in their rejection of P.A. 4.
 
The plan also included inserting into P.A. 436 two very minor appropriations
provisions so that the law would not be subject to the people’s right of referendum
and would not risk the same fate as P.A. 4 had just experienced.
 
The plan also called for P.A. 436 to be drafted so that the Detroit emergency
manager would be in office under the revived P.A. 72 on the effective date of P.A.
436. This was done so that he would continue in office under P.A. 436, M.C.L.
§ 141.1572, and no consideration could be given to the other options that P.A.
436 appeared to offer for resolving municipal financial crises. See M.C.L.
§ 141.1549(10) (“An emergency financial manager appointed under former 1988
PA 101 or former 1990 PA 72, and serving immediately prior to the effective date
of this act, shall be considered an emergency manager under this act and shall
continue under this act to fulfill his or her powers and duties.”); see also id.
§ 141.1547 (titled, “Local government options . . .”).
 
The plan also saw the value in enticing a bankruptcy attorney to become the
emergency manager, even though he did not have the qualifications required by
P.A. 436. M.C.L. § 141.1549(3)(a).
 
Another important part of the plan was for the state government to starve the
City of cash by reducing its revenue sharing, by refusing to pay the City millions
of promised dollars, and by imposing on the City the heavy financial burden of
expensive professionals.
 
The plan also included suppressing information about the value of the City’s
assets and refusing to investigate the value of its assets – the art at the Detroit
Institute of the Arts; Belle Isle; City Airport; the Detroit Zoo; the Department of
Water and Sewerage; the Detroit Windsor Tunnel; parking operations; Joe Louis
Arena, and City-owned land.
 
The narrative continues that this plan also required active concealment and
even deception, despite both the great public importance of resolving the City’s
problems and the democratic mandate of transparency and honesty in
government. The purposes of this concealment and deception were to provide
political cover for the governor and his administration when the City would
ultimately file for bankruptcy and to advance their further political aspirations.
Another purpose was to deny creditors, especially those whose retirement benefits
would be at risk from such a filing, from effectively acting to protect those
interests.
 
This concealment and deception were accomplished through a public
relations campaign that deliberately misstated the ultimate objective of P.A. 436 –
the filing of this case. It also downplayed the likelihood of bankruptcy, asserted
an unfunded pension liability amount that was based on misleading and
incomplete data and analysis, understated the City’s ability to meet that liability,
and obscured the vulnerability of pensions in bankruptcy. It also included
imposing an improper requirement to sign a confidentiality and release
agreement as a condition of accessing the City’s financial information in the
“data room.”
 
As the bankruptcy filing approached, a necessary part of the plan became to
engage with the creditors only the minimum necessary so that the City could later
assert in bankruptcy court that it attempted to negotiate in good faith. The plan,
however, was not to engage in meaningful pre-petition negotiations with the
creditors because successful negotiations might thwart the plan to file
bankruptcy. “Check-a-box” was the phrase that some objecting parties used for
this.
 
The penultimate moment that represented the successful culmination of the
plan was the bankruptcy filing. It was accomplished in secrecy and a day before
the planned date, in order to thwart the creditors who were, at that very moment,
in a state court pursuing their available state law remedies to protect their
constitutional pension rights. “In the dark of the night” was the phrase used to
describe the actual timing of the filing. The phrase refers to the secrecy
surrounding the filing and is also intended to capture in shorthand the assertion
that the petition was filed to avoid an imminent adverse ruling in state court.
 
Another oft-repeated phrase that was important to the objectors’ theory of the
City’s bad faith was “foregone conclusion.” This was used in the assertion that
Detroit’s bankruptcy case was a “foregone conclusion,” as early as January
2013, perhaps even earlier.
 
Finally, post-petition, the plan also necessitated the assertion of the common
interest privilege to protect it and its participants from disclosure.”[2]
Deconstructing Bankruptcy
The following issues – in the order they occur in Judge Rhodes’ “composite narrative,” are some of the major concerns and revealing aspects of this highly unusual recounting:
  • As a preliminary matter, Judge Rhodes’ invocation of the alleged need “for the Court to give voice to what it understands is the narrative” is legally inappropriate, perhaps unprecedented, in effect further silencing and suppressing the actual voices, objectors, narrative, and even more crucially, the legal claims and grievances[ii]
  • Judge Rhodes’ mash-up of views that he describes as “numerous, diverse, and at times inconsistent” obviously sets up the objector’s claims of bad faith for failure.  Critique of union and pension system attorney’s legal strategies and their (substantial lack of any real) relationship to broader political, economic and social understanding and struggle around the corporate white supremacist ‘restructuring’ of Detroit would involve this already-long and –demanding essay in even more difficult and contentious hot button debates.  But some reply to this aspect of Judge Rhodes’ reasoning may be instructive.
Extraordinarily wide-ranging debates among labor, community, human rights and other critical perspectives are central to our contemporary global crises of economy, energy and ecology, and also to the triple crises’ local manifestation in Detroit’s social ‘restructuring’ and government fiscal bankruptcy.  But it should be obvious to even the most jaded and casual observer of Detroit’s grim battles with blight, crime, unemployment, arson, health challenges and the whole gamut of serious social, political, economic and cultural issues underlying the superficial ‘ruin porn’ narrative, that the age-old elite strategy of ‘divide-and-conquer’ is a primary means of silencing and defeating the basic human rights of the most vulnerable victims of elite ‘solutions’ to such problems.
Judge Rhodes’ conscious lumping together the ‘numerous, diverse, and at times inconsistent’ positions of residents, radicals (like me), liberals, unions, spiritual leaders, pensioners, city workers and others who see and denounce the massive, systemic injustice being facilitated by the particular Wall Street-engineered bankruptcy in his court for what it is, each from our own perspectives and in terms of our own personal truths, is a sophisticated, but ultimately transparent example of this essentially lawless divide-and-conquer dynamic.  In a nutshell, it is designed to fabricate a bogus sense of ‘inevitability’ in support of a specific set of policy choices for ‘restructuring’ Detroit on behalf of rich Wall Street financial interests, which has absolutely nothing to do with ‘fixing’ Detroit or benefiting 99% of Detroiters.
  • Judge Rhodes’ delicate statement that “some who hold to this narrative also suspect a racial element” is too precious.  Veteran Detroit media commentator Frank Joyce has eloquently refuted the standard corporate and white-privileged resorts to weasel words like ‘racial tensions’ and ‘the racial divide:’[iii]
Nonsense.  What it was and what it remains, is white racism pure and simple.  Bloviators love to talk about the “unsustainable legacy” costs of pensions for city workers.  They never talk about the “legacy” costs of racism. 
By 1980, African Americans out numbered whites within the city limits of Detroit.  Yes, capital started leaving Detroit in the 1940’s. But the population disinvestment is just as important.  Make no mistake about it.  The extreme segregation that has long characterized Southeast Michigan was anything but accidental. 
 
For decades, it was the policy of the Federal Housing Administration to deny loans to African Americans trying to buy houses in the suburbs.  To this day, if you buy a suburban house that hasn’t changed hands in a long time, the deed may well contain a “restrictive covenant” that explicitly prohibits the sale of the house to Negroes. 
 
That’s not all.  Twenty-three out of twenty-three attempts to create a tri-county transportation authority to improve region-wide public transit went down to defeat in the white controlled state legislature.  So,  not only was it impossible for African Americans to buy homes near where the jobs were moving,  it was difficult to get to suburban jobs that came along with suburban growth.
 
And just to add insult to injury,  the financial institutions that wouldn’t lend money to African Americans to move out of the city wouldn’t lend it for home improvement in the city either.  But they would charge more, far more, for home and car insurance.  For those too young to remember, that practice was called redlining.  It’s still prevalent today. 
 
One dramatic example of the cost of racism born by Detroit is this:  Detroit has an income tax on those who work within the city limits.  The two-tier tax is lower for those who work in the city but live in the suburbs.  In enacting the tax, the state legislature required employers based in the city to collect the tax via payroll deduction as they do with federal and other taxes.  Suburban based employers are not required by the law to collect the tax.  Most of them don’t.
The revenue lost to Detroit per year is estimated to be as much as $142 million.   
 
Zooming out our historical lens even further, we see the unbroken pattern of white supremacy even more clearly.  The counterrevolution to the civil war was the Jim Crow system.  The counterrevolution to the end of Jim Crow is mass incarceration and other components of the institutionalized racism that perpetuate and in some ways intensify white privilege today.  Detroit’s history as the national leader in residential segregation and all that flows from it definitely underpins today’s Detroit crisis and that of Flint,  Pontiac,  Benton Harbor and Muskegon as well. 
 
While observers sometimes notice that a majority of predominately African American cities in Michigan are under some form of emergency management.  The question they don’t ask is, why are there predominately African American cities in the first place?
In the face of the savage inequalities that structured Detroit’s downfall, Judge Rhodes’ basing his composite narrative of bad faith on a “suspect[ed] racial element” betrays the arbitrary, white supremacist denial of due process and equal protection at work in Jones Day’s bankruptcy scam.  Weighty historical grievances that shape the present reality are first minimized and mischaracterized by the device of stolen voice; then the fake version of the real narrative that accurately describes Detroit’s reality is dismissed as insufficient evidence of Snyder’s white/corporate bad faith.  ‘Judicial activism’ doesn’t quite get it.  More like extra-legal gangsterism.
Throughout the first phase of the Chapter 9 proceeding between the filing on July 18 thru this December 5 opinion, Judge Rhodes repeatedly voiced his desire to alleviate intense anxieties suffered by pensioners and residents.  That he has tried to serve this ameliorative humanitarian objective by doing exactly what Governor Snyder and Jones Day’s $1000/hr legal mercenaries instructed him to do – including an unprecedented holding that state-guaranteed pensions can be stolen in bankruptcy court – is ‘explained’ by class bias, narrow legalistic distortion of social reality, and most of all by his expressed perception of Detroit’s brutal history of racist injustice as merely a ‘suspected racial element.’
·       Judge Rhodes’ apprehends ‘concealment and deception’ by powerful officials behind the bankruptcy, an assessment which he acknowledges is part of the ‘substantial truth in the factual basis for the objectors’ claim.’  Such findings, especially in the context of fairly and impartially weighing evidence of ‘good’ vs. ‘bad’ faith, would reasonably be expected to have decisive impact.  In Judge Rhodes’ opinion however, such admitted ‘concealment and deception’ has no impact whatsoever on the legal or equitable result.
Such arbitrary and result-oriented ‘justice,’ rather than any preconceived quasi-conspiratorial ‘plan’ (discussed further below), in the context of a bankruptcy proceeding serving as a legal veneer for corporate pillage, is the essence of Detroiters’ objections.  That our government and its laws are tools of wealthy corporate special interests; that they blatantly and systematically favor white suburban interests; that local government authority is now embodied in a single Jones Day bankruptcy lawyer who is completely unaccountable to our People and community, makes their ‘concealment and deception’ not merely relevant, but indeed a critical element of the constitutional, class and racial abuse at issue.
Judge Rhodes’ misapprehension and biased weighing of the evidence even he could not deny (as opposed to distorting and diminishing its character and importance) marks another step in the unconstitutionally obscene, destructive and unethical ‘restructuring’ of our community by liars and thieves.  Heckuva job, Steve.  Your legacy is established.
  • Finally, Judge Rhodes’ repeated (almost fetishistic) references to “the plan” to file the Detroit Chapter 9 bankruptcy illustrate his essential – whether inadvertent or intentional – misunderstanding of the objectors’ claims; Challenging emergency management and the corporate ‘restructuring’ of Detroit-the-community as implemented thru Jones Day’s Wall Street-oriented bankruptcy is not dependent on the existence of any ‘years-long, strategic plan,’ whether observed in real time, conceived in advance or retrospectively reconstructed.  Indeed, Judge Rhodes’ suggestion that such a far-reaching ‘plan’ was instigated (‘hatched’) by a Jones Day law review article is insulting, and reveals his deep contempt for Detroiters in its narrow frivolity.
The corporate and political actors apparently using Judge Rhodes as their sock puppet have no need to conspire; they openly flaunt their exercises of economic and political power that most People can barely imagine, on a daily basis.  Not to deny the existence of any and all long-term planning on the part of major players in US corporate right wing circles, such plans extend far beyond the systematic pattern of disinvestment, deindustrialization, institutionalized racism and neoliberal oppression that has long dominated Detroit’s decline from its status as the arsenal of democracy.
Rather than grounding the narrative on the presumption of a quasi-conspiratorial ‘plan,’ understanding Detroiters’ challenge to Snyder, Jones Day and the interests they support depends on understanding the nature of socioeconomic class, class conflict, government powers theoretically constrained by the rule of law, and the nuances of multi-level relationships between race, regional power, political economy and ‘development’ as ideology and domination.  No wonder everyone (including me) is so confused!  And no wonder what is happening in Detroit today is of such earth-shaking historical importance.
A central instrument of covering up the critical counter-narrative regarding Detroit’s bankruptcy – widely discussed on the internet outside Detroit[iv] but largely suppressed in Detroit corporate media for important propaganda reasons – is the obdurate refusal to give or heed ‘voice’ to the most vulnerable Detroiters whose vital interests are most pressingly at stake.
The bankruptcy court’s highly innovative (perhaps even unprecedented) privileged, imperial “giv[ing] voice to what it understands is the narrative,” rather than stating and objectively assessing the actual legal and constitutional claims and grievances as stated by the real People involved in this struggle,[v] significantly escalates the silencing of the vast majority of Detroiters, which is an essential part of the process of ‘restructuring’ Detroit under the policy regime of Governor Snyder.  It must and will be resisted by any means necessary.
Tom Stephens
December 9, 2013
[1] With bold italics emphasis added by me regarding the specific concerns elaborated below.

[2] Judge Rhodes subsequently states: “The Court finds … that in some particulars, the record does support the objectors’ view of the reality that led to this bankruptcy filing.” (P. 131)  Specific examples of such evidence are set forth in the quotations from the opinion included in the last end note below.  “The Court must acknowledge some substantial truth in the factual basis for the objectors’ claim that this case was not filed in good faith.” (P. 135)


[i] Judge Rhodes’ ‘Opinion Regarding Eligibility’ is posted at:
Section 3 of the opinion, referred to at the outset of the quoted portion, states the four reasons why, ‘like ships passing in the night,’ the bankruptcy court paradoxically finds ‘good faith’ in the presence of “substantial truth in the factual basis for the objectors’ claim” of bad faith. (P. 135)
Those four reasons are: a) The City’s financial problems are of a type contemplated for chapter 9 relief; b) The reasons for filing are consistent with the remedial purpose of chapter 9; c) The City made efforts to improve the state of its finances prior to filing, to no avail; and d) The City’s residents will be severely prejudiced if the case is dismissed.
Other than observing that we “will be severely prejudiced” either way as long as Jones Day is running our city on behalf of Governor Snyder and hostile right wing extremist corporate and white-supremacist interests, represented by the likes of the American Legislative Exchange Council (ALEC), the Mackinac Center for Public [sic] Policy, and the Regional Chamber of Commerce, I find little basis to disagree with such reasons, as far as they go.
It is the decisive weight that Judge Rhodes chooses to give such essentially undisputed facts as ‘reasons’ for his decision that is objectionable.  He does so in order to justify the predetermined result of knocking down his ‘straw man’ composite narrative parody of the bad faith challenge.  He thereby fabricates a thin veneer of alleged ‘legality’ for the brazenly trumpeted ‘inevitability’ of a state-sponsored gangster enterprise.
[ii] Courts normally structure such opinions in a more-or-less-standard format taught as ‘legal writing’ in law school: First, quote or accurately paraphrase the objector parties’ own statement of their claim; Second, recite the applicable rules of law to the claim; Third, apply those rules to the issues raised by the claim; and Fourth conclude by articulating result of the legal reasoning process in terms of the issues in the particular case.
Judge Rhodes’ immediate short-circuiting of this whole well-established chain of formal legal reasoning and discourse regarding the positions of objectors to the bankruptcy, by himself “giving voice” to the “narrative” as he partially [mis]understands it, is a frantically waving red flag that speaks volumes about the essential, debased role of legal authority and power in this historic, global precedent-setting dispute over the quality of civic life.
However, having said all that, one thing is very clear from the fact that Judge Rhodes felt he had to resort to such a strange sleight-of-mind device in order to address the Detroit community members’ grievances: we had a major impact on his reasoning process, especially in terms of his attempts to justify the outcome he seeks to legitimize on behalf of Gov. Snyder, Jones Day, and the incredibly powerful class and political economic forces they represent.
“Detroit’s bankruptcy is, at its core, a cash flow problem caused by its inability to bring in enough revenue to pay its bills. While emergency manager Kevyn Orr has focused on cutting retiree benefits and reducing the city’s long-term liabilities to address the crisis, an analysis of the city’s finances reveals that his efforts are inappropriate and, in important ways, not rooted in fact. Detroit’s bankruptcy was primarily caused by a severe decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay its expenses at greater risk. To address the city’s cash flow shortfall and get it out of bankruptcy, the emergency manager should focus on increasing revenue and extricating the city from these toxic financial deals.”
“We know who did this.  Michigan Governor Snyder and Wall Street have joined to strip the people of their homes, their pensions and their democratic rights as citizens.  In imposing the illegal and unconstitutional Emergency Manager, they have preempted the leadership of the duly elected representatives of the people, leaving the citizens without Constitutional or democratic safeguards.  These same powers are accelerating the robbery of the City’s assets through privatization and other unethical financial and banking schemes.   The model of dispossession being fashioned here in Detroit began in the third world with structural adjustment, and is being imported to communities of working class and poor people throughout the United States. The African American communities in Michigan have been particularly targeted.”
Compare the beyond-superficiality of Judge Rhodes’ non-weighing evidence on a crucial issue in the bankruptcy eligibility ruling: “The Court concludes that the evidence overwhelmingly established that the City does desire to effectuate a plan in this case. Mr. Orr so testified.” (P. 112)  Well, that decides it then!  And in the face of the following impeachment evidence taken directly from Judge Rhodes’ opinion:
[Judge Rhodes’ opinion continues] “The evidence in support of the objectors’ theory is as follows:
  • The testimony of Howard Ryan, the legislative assistant for the Michigan Department of Treasury who shepherded P.A. 436 through the legislative process. He testified that the appropriations provisions in P.A. 436 were inserted to eliminate the possibility of a referendum vote on the law, and everyone knew that. Ryan Dep. Tr. 46:1-23, Oct. 14, 2013. To the same effect is Exhibit 403, a January 31, 2013 email from Mr. Orr to fellow Jones Day attorneys, stating, “By contrast Michigan’s new EM law is a clear end-around the prior initiative that was rejected by the voters in November. . . . The news reports state that opponents of the prior law are already lining up to challenge this law. Nonetheless, I’m going to speak with Baird in a few minutes to see what his thinking is. I’ll let you know how it turns out. Thanks.” Ex. 403.
  • Email exchanges between other attorneys at the Jones Day law firm during the time period leading up Mr. Orr’s appointment as Emergency Manager and the retention of the Jones Day law firm to represent the City. For example, Exhibit 402 contains an email dated January 31, 2013 from Corinne Ball of Jones Day to Mr. Orr, which states: Food for thought for your conversation with Baird and us – I understand that the Bloomberg Foundation has a keen interest in this area. I was thinking about whether we should talk to Baird about financial support for this project and in particular the EM. Harry Wilson-from the auto task force-told me about the foundation and its interest. I can ask Harry for contact info-this kind of support in ways ‘nationalizes’ the issue and the project.  Ex. 402 at 2. Exhibit 402 also contains an email dated January 31, 2013, from Dan T. Moss at Jones Day to Mr. Orr, which states: Making this a national issue is not a bad idea. It provides political cover for the state politicians. Indeed, this gives them an even greater incentive to do this right because, if it succeeds, there will be more than enough patronage to allow either Bing or Snyder to look for higher callings whether Cabinet, Senate, or corporate. Further, this would give you cover and options on the back end. Ex. 402 at 2.
  • Exhibit 403, containing an email dated February 20, 2013, from Richard Baird, a consultant to the governor to Mr. Orr, stating: “Told [Mayor Bing] there were certain things I would not think we could agree to without your review, assessment and determination (such as keeping the executive team in its entirety). Will broker a meeting via note between you and the Mayor’s personal assistant who is not FOIA ble.” Ex. 403 (emphasis added). The Court finds that “FOIA” is a reference to the Freedom of Information Act. Generally, FOIA provides citizens with access to documents controlled by state or local governments. See M.C.L. § 15.231.
  • The Jones Day Pitch Book. As part of its “Pitch Presentation,” the Jones Day law firm presented, in part, the following playbook for the City’s road to chapter 9: (i) the difficulty of achieving an out of court settlement and steps to bolster the City’s ability to qualify for chapter 9 by establishing a good faith record of negotiations, Ex. 833 at 13; 16-18; 22-23; 28; (ii) the EM could be used as “political cover” for difficult decisions such as an ultimate chapter 9 filing, Ex. 833 at 16; (iii) warning that pre-chapter 9 asset monetization could implicate the chapter 9 eligibility requirement regarding insolvency, thus effectively advising the City against raising money in order to will itself into insolvency, Ex. 833 at 17; and (iv) describing protections under state law for retiree benefits and accrued pension obligations and how chapter 9 could be used as means to further cut back or compromise accrued pension obligations otherwise protected by the Michigan Constitution, Ex. 833 at 39; 41.
  • The State’s selection of a distinguished bankruptcy lawyer to be the emergency manager for Detroit. Orr Dep. Tr. 18:12-21:20, Sept. 16, 2013 (discussing how Mr. Orr came with the Law Firm in late January to pitch for the City’s restructuring work before a “restructuring team [of] advisors”); Baird Dep.Tr. 13:11-15:10, Oct. 10, 2013. During that pitch, Mr. Orr (among other lawyers that would be working on the proposed engagement) was presented primarily as a “bankruptcy and restructuring attorney.” Orr Dep. Tr. 21:3-6, Sept. 16, 2013; see also Bing Dep.Tr. 12:7-13:7, Oct. 14, 2013 (indicating that Baird explained to Mayor Bing that Baird was “impressed with him [Mr. Orr], that he had been part of the bankruptcy team representing Chrysler” and that Mr. Orr primarily had restructuring experience in the context of bankruptcy).
  • Jones Day provided 1,000 hours of service without charge to the City or the State to position itself for this retention. Ex. 860 at 1 (Email dated January 28, 2013, from Corinne Ball to Jeffrey Ellman, both of Jones Day, stating: “Just heard from Buckfire.  . . . Strong advice not to mention 1000 hours except to say we don’t have major learning curve”). See also Eligibility Trial Tr. 103:23-109:17, November 5, 2013; (Dkt. #1584) Ex. 844.  Exhibit 844 provides a list of memos that attorneys at Jones Day prepared prior to June 2012, “in connection with the Detroit matter.” Heather Lennox of Jones Day requested copies of these memos for a June 6, 2012, meeting with Ken Buckfire, of Miller Buckfire, and Governor Snyder. Some of the memos include:
(1) “Summary and Comparison of Public Act 4 and Chapter 9”
(2) “Memoranda on Constitutional Protections for Pension and OPEB Liabilities”
(3) “The ability of a city or state to force the decertification of a public union”
(4) “The sources of, and the ability of the State to withdraw, the City’s municipal budgetary authority.”
(5) “Analysis of filing requirements of section 109(c)(5) of the Bankruptcy Code (“Negotiation is Impracticable” and “Negotiated in Good Faith”)
  • Exhibit 846, an email dated March 2, 2012, from Jeffrey Ellman to Corinne Ball, both of Jones Day, with two other Jones Day attorneys copied. The subject line is, “Consent Agreement,” and the body of the email states: We spoke to a person from Andy’s office and a lawyer to get their thoughts on some of the issues. I though MB was also going to try to follow up with Andy directly about the process for getting this to the Governor, but I am not sure if that happened. . . . . The cleanest way to do all of this probably is new legislation that establishes the board and its powers, AND includes an appropriation for a state institution. If an appropriation is attached to (included in) the statute to fund a state institution (which is broadly defined), then the statute is not subject to repeal by the referendum process.  Tom is revisiting the document and should have a new version shortly, with the idea of getting this to at least M[iller]B[uckfire]/Huron [Consulting] by lunchtime.
  • Exhibits 201 & 202, showing that Jones Day and Miller Buckfire consulted with state officials on the drafting of the failed consent agreement with the City. They continued to work on a “proposed new statute to replace Public Act 4” thereafter. Ex. 847, Ex. 851. See also Ex. 846.
  • The testimony of Donald Taylor, President of the Retired Detroit Police and Fire Fighters Association. He testified about a meeting that he had with Mr. Orr on April 18, 2013: “I asked him if he was – – about the pensions of retirees. He said that he was fully aware that the pensions were protected by the state Constitution, and he had no intention of trying to modify or set aside . . . or change the state Constitution.” Eligibility Trial Tr. 140:9-13, November 4, 2013. (Dkt. #1605)
  • At the June 10, 2013 community meeting, Mr. Orr was asked a direct question – what is going to happen to the City employee’s pensions? Mr. Orr responded that pension rights are “sacrosanct” under the state constitution and state case law, misleadingly not stating that upon the City’s bankruptcy filing, his position would be quite the opposite. In response to another question about whether Mr. Orr had a “ball park estimation” of the City’s chances of avoiding bankruptcy, Mr. Orr responded that, as of June 10, there was a “50/50” chance that the City could avoid bankruptcy, knowing that in fact there was no chance of that.
  • State Treasurer Andy Dillon expressed concern that giving up too soon on negotiations made the filing “look[] premeditated” Ex. 626 at 2.
  • The City allotted only thirty four days to negotiate with creditors after the June 14 Proposal to Creditors. Ex. 43 at 113.”
Compare the following excerpts from my own formal objections filed in the court record:
The State of Michigan, Governor Rick Snyder, Treasurer Andy Dillon and Emergency Manager Kevyn Orr and Restructuring Counsel Jones Day acting as their agents and as the illegitimate and unconstitutional government of the City of Detroit are violating the United States Constitution, as well as the Constitution of the State of Michigan and other applicable laws, inter alia, in the following ways:
    1. Abridging First Amendment rights;
    2. Deprivation of liberty and property without Due Process of Law;
    3. Equal Protection of the Law;
    4. Voting Rights discrimination;
    5. State Constitutional violations, including but not limited to separation of powers and local charter violations of state constitutional rights;
    6. Republican Form of Government violations;
    7. Impairment of the obligation of contracts and right to collective bargaining violations; and
    8. Thirteenth Amendment violations.
 Defendants in the pending litigation, Kevyn Orr and Jones Day negotiated the joint appointment and retention of Orr and Jones Day as Detroit’s government, with extraordinary ‘emergency’ powers and without any effective checks or balances at all.  The unethical conflicts of interest implicated by these facts and the interests of Jones Day and its clients, including but not limited to Bank of America/Merrill Lynch – a counter party to interest rate swaps with the City of Detroit – are inescapable; and in light of the allegations in the pending litigation they raise issues of constitutional dimension that are outside the scope of this Chapter 9 proceeding. (emphasis in original)
Subjecting the people of Detroit to Kevyn Orr’s one-man rule, assisted by his law firm as ‘restructuring counsel,’ violates the most fundamental principles of constitutional governance under the rule of law.  This unprecedented form of local government and comprehensive restructuring of the City with a law firm acting as local government faces no mechanism of accountability whatsoever toward the people of Detroit.  Indeed, insulating local government from the will (and the wrath) of the local voters is a central purpose of Public Act 436, but doing so in Detroit by putting Kevyn Orr and his law firm in charge of the City’s restructuring is another significant level of unconstitutionality that should be addressed before proceeding with this bankruptcy.
Public Act 436 and appointment of Kevyn Orr and Jones Day as the City of Detroit’s local government with emergency powers violates the United States Constitution in ways that should be litigated before proceeding with bankruptcy, including but not limited to:
·       Permitting Kevyn Orr to act for and in the place and stead of the local governing body of Detroit and to assume all the powers and authority of the local governing body and local elected officials. See provisions including but not limited to MCL §141.1549, §141.1550, and §141.1552;
·       Vesting the full powers of the local government of the City of Detroit, legislative, executive, administrative, police power, taxing power, powers to sue and be sued, to sell, lease, or purchase assets, to make governmental decisions regarding economic development, public safety, environmental health and, without limitation, all other powers of local government, concentrated and held by a single entity represented by Kevyn Orr and the Jones Day law firm;
·       Concentrating all local government powers in this way in a single entity abridges the rights of people who are citizens and residents of the City of Detroit to engage in core protected First Amendment activities to petition government, to organize, assemble, engage in political, social and economic activities to advance their views and interests;
·       Allowing concentration of all local government powers in this way in a single entity, offering opportunities to Kevyn Orr, Jones Day and their clients to exploit, profit, sell, lease, purchase, develop, contract and otherwise use their powers of local government for their own private and political as well as economic benefit, and that of their clients and associates, with no significant check or balance because of the disenfranchisement of residents of the City of Detroit from participation in any of the decisions of local government, in violation of the First Amendment and the State Constitution.
Before Defendants in the pending litigation imposed what may most accurately be referred to as ‘the Jones Day form of government’ on the City of Detroit, Detroit’s residents were represented by elected officials subject to the City Charter, ordinances and the State Constitution and laws, including the Home Rule Cities Act.  Other Michigan cities have similarly had their legal rights to participate and hold local officials accountable violated, and the constitutionality of those actions is at issue in the pending litigation as well.  But no other city in Michigan has had a major law firm imposed on it as its de facto local government, including the law firm’s ongoing fiduciary duties to major corporate clients, at least one of whom is in direct conflict with the City in terms of the core restructuring work for which the law firm has been retained.  This is the negation of the fundamental relationship between citizens and government envisioned by the constitution, including but not limited to the First Amendment.  It is unlawful. At a minimum, it raises genuine and extremely important issues of that must be litigated in an Article III court before proceeding with this Chapter 9 bankruptcy.
Glen Ford of Black Agenda Report aptly characterized the intended result of the Snyder administration emergency management and Jones Day-implemented ‘restructuring’ as a “New American Apartheid:”
“What is emerging in the second decade of the 21st century is a new version of American Apartheid, in which the inhabitants of largely Black urban centers are denied a meaningful vote or the legal capacity to safeguard their collective and individual property from the grasping hands of the rich.
Detroit is the epicenter of the African American economic and political crisis, an 85 percent Black metropolis whose citizens have been stripped of their fundamental democratic rights so that their public assets and private pensions can be confiscated by the finance capitalist class. Wall Street now runs the city outright, through an emergency financial manager.  A similar regime prevails in all of Michigan’s largely Black cities, resulting in the disenfranchisement of more than half the state’s Black population.  In the language of declining capitalism, this is called austerity, but in America it takes the form of a racialized order in which concentrated populations of Blacks have no rights that the bankers are bound to respect.”
The relationship between: 1) this Chapter 9 bankruptcy proceeding; 2) emergency management; and 3) restructuring, is like a pyramid.  Bankruptcy is the narrowest part of the edifice, at the top.  Restructuring is the broadest segment at the social base of the structure.  In between is emergency management, executing a structurally flawed, democratically challenged and unconstitutional, top-down ‘restructuring.’  If the lawful constitutional authority of Governor Snyder, Treasurer Dillon, Emergency Manager Orr, Jones Day and their associates is not even permitted to be tested in court before Chapter 9 is applied, the resulting plan of adjustment and the vital restructuring process will lack legitimacy in the eyes of most Detroiters.  The plan and proceedings in this Court will fail to achieve its ostensible purposes…
Under these conditions, emergency management is effectively the 21st century equivalent of 20th century de jure Jim Crow racial segregation and discrimination – a new American apartheid.  In the social context of Michigan it is legalized discrimination by both race and poverty.
I’m somewhat ironically honored that Judge Rhodes apparently felt it was necessary to parody such claims in order to refute them and reach a predetermined result dictated by illegitimate power.
For those truly dedicated citizens who read this far, Lenny Bruce’s great “Comedy of Errors” bit, beginning at 2:07 of this video:
is the best I can do right now in terms of justice to the surreality of the last month, particularly Judge Rhodes’ attempted refutation… “Dirty Lenny” lives!