Saved But Not Forgotten

In the spring of 2013, after decades of dwindling population and financial mismanagement, Gov. Rick Snyder appointed an emergency manager to take control of the city of Detroit’s crumbling finances. That manager, Kevyn Orr, found the city would finish the year $162 million short on cash with hundreds of millions of dollars of additional debt looming in the coming months.

By that summer, the city would file for Chapter 9 in what would become the largest municipal bankruptcy case in American history. What followed was a complex negotiation between the city, its creditors, and the retirees who had been promised pensions the city could no longer pay.

Tensions ran high. Retirees faced the prospect of losing more than a third of their benefits, and the Detroit Institute of Arts risked losing its collection to pay for the city’s debts. 

It ultimately concluded with a so-called “Grand Bargain” that saved the city’s prized art collection, cut retiree benefits by 4.5%, created a new regional water and sewer authority, and settled the city’s debts with creditors for less than it originally owed.

The deal is seared into the memory of every attorney who worked on it. More than 10 years after it was struck, we spoke with five attorneys who played crucial roles in helping the parties get through the bankruptcy to a more resilient Detroit:

• Amanda Van Dusen was the lead public finance lawyer working for the city, including managing nearly all the financial transactions for the city and overseeing the splitting of the water and sewage departments into local and regional systems
• Melvin “Butch” Hollowell was corporation counsel for the city
• Brian O’Keefe advocated for retirees, who stood to lose significant portions of their health care and pension benefits
• Marc Swanson defended the Grand Bargain in appeals before the U.S. 6th Circuit Court, filed motions to enforce the plan, and managed thousands of claims filed against it
• Richard Mack represented thousands of municipal union workers fighting for stable wages and benefits

Here are their stories.

First Reactions

Amanda Van Dusen, Miller Canfield Paddock and Stone; Government Finance; Detroit: You could feel this coming. Both as a Michigander and as a public finance lawyer, I just felt dread at the prospect. But then the filing happened and it was almost a sense of relief that that suspense was over. And the financial markets were due for a wake-up call on what creditworthiness is.

Richard Mack, Miller Cohen; Employment & Labor; Detroit: We felt that the city did not need to go into bankruptcy. We realized that the pension problems were real, that the default swaps that were done created real dilemmas for the city. But we also realized that under the mediation process they were supposed to meet with their creditors and try to resolve the debt. … We felt that there was a lot of opportunity [to raise revenue] and they just didn’t.

Melvin B. Hollowell, The Miller Law Firm; Business Litigation; Detroit: I felt mixed, honestly, because while there was an inherent danger as it related to the pensions, to other critical assets like water and the general infrastructure that makes the city work, we had a chance to shed a lot of debt from a lot of bad deals over many, many years. We shed just north of $8 billion, which was able to be earmarked for quality of life and reinvested into the city’s core services.

The Hard Lessons

Brian O’Keefe, Lippitt O’Keefe; Business/Corporate; Birmingham: This was 30 years of kicking the can down the road. So I think it would have been better for everyone had these problems been faced earlier on—had there been dialogue between the city and the unions many years prior to the filing of the bankruptcy. This was a problem that had been festering for decades.

Van Dusen: One of the first things you learn when you’re learning about bankruptcy is that if you just have a pledge of a revenue stream, it is a promise to pay. In bankruptcy, promises are broken. So you need something more than that pledge or promise to pay to be truly secure in your investment. I think some creditors have learned that lesson, but I think others really haven’t.

Hollowell: The city’s core services had just fallen apart through a bunch of bad, bad decisions. We didn’t have a lot of cash that we could use to pay [the creditors] back. The thing that I feel most bad about is that in the legal profession we had always presumed that, even in bankruptcy, pensions were sacrosanct. And the judge ruled that they weren’t.

O’Keefe: Ours was the central problem and the most politically sensitive problem. These are all middle-class to lower-middle-class individuals who gave their lives to the city, who may have over time not pursued more lucrative opportunities for their love of the city. Police and firefighters are doing things out of their love for their jobs. And just like school teachers or other quasi-government employees, a lot of what they’re working for are the promises of good retirement benefits. That was being threatened and there was a potential for a lot of loss. 

Van Dusen: There’s never been a bankruptcy like this in the United States. It was mostly the size, but also the different kinds [of debt] that the city had. It was way broader than any prior municipal bankruptcy, and there are remarkably few court opinions on the relative strength of different kinds of debt. 

Being at the Center of the Case

O’Keefe: It was nerve-wracking, but it was exciting—it was one of the biggest cases I had ever participated in. A national case that would be written about and read about for 50 to 100 years. But on the other hand you’re dealing with people’s retirement, livelihood, security. So it was very tense. 

Van Dusen: It was fascinating. I will never forget one of the very first conference calls that I got on [with creditors]. There were probably 30 people on the call. I had no idea whose voice belonged to whom and they were all yelling all the time. … I’m a lawyer where everybody is supposed to leave the table happy because you achieved all your goals. But in bankruptcy, there are definite winners and losers. People were really going for the jugular. So I had to get a lot tougher.

Mack: It was heart-wrenching. People lost tens of thousands of their annuities. People lost 4.5% of their pension. People who retired between ages 55 and 65 lost all their health care. [When the deal was finalized] the leadership behind it celebrated. I said, “I don’t know that I’m in the mood to celebrate.” It was more bitter than sweet.

On the Human Impact

Mack: I met with the workers to get and tell their stories. There was this woman who was making $24,500 a year as a full-time employee as a service attendant on a bus. She bragged about how she was saving money. I asked how she did it. She just lived this minimalist lifestyle with a smile on her face. She was going to retire. It was heart-wrenching to have to go to her and say, “I need 10% of your income,” and then for Gov. Snyder to say, “We’re not taking that because we want more.” There’s a verse in the Bible that says the destruction of the poor is their poverty. It’s not that they’re poor, it’s that the way people treat them can destroy them.

Van Dusen: The biggest human impact was on the retirees because, instead of getting unlimited retiree health care, they have a stipend to go purchase health insurance. Their pension payments were cut as well. It was very, very stressful for them. … But it was really between the money that the state kicked in, the foundations, and then the [Detroit Institute of Arts] that put the pensioners in a way better position than they would’ve been had those resources not been there.

Hollowell: We were really worried about making sure we could take care of people who had given their entire lives to the service of the city and who had worked for their pensions. To have them potentially trimmed, that was really difficult. 

What They Learned

Marc N. Swanson, Miller Canfield Paddock and Stone; Bankruptcy; Detroit: I started to become really active in the case after the plan went effective, and I was in court extremely frequently arguing different claim objections. Getting that type of court experience was extremely valuable to me. I think it’s served me well.

O’Keefe: Hard work and attention to detail and understanding all of the problem, from a multitude of positions, is what helps you solve cases. And empathy for all of the individual issues.

Mack: A lot of the intricacies of bankruptcy. I learned about some of the politics of this stuff—which City Council members would help and which ones wouldn’t. I started in labor law because I wanted to use my degree to be a blessing to those in need. It gave me an even greater appreciation for why it’s important to get it right.

Van Dusen: We came up with some very creative solutions to achieve objectives, and sometimes we solved problems by getting new law. Sometimes we had to think very creatively about who had what rights, and who had to consent to different changes. That’s all in the weeds, but those weeds really mattered in this case.

Hollowell: Cooperation. I’ve always tried to get consensus in my practice, even with a lawyer who is on the other side. Here there had been a long and unfortunate history of the mayor and City Council not working very well together. This was quite the opposite and it was unprecedented. It was pure gold.

The Biggest Challenge

Van Dusen: Time, because we were moving really fast. All of the problems were really big and really challenging, and people were very stuck in their positions. It was just keeping all the balls in the air, all at the same time. I was working seven days a week, 80 to 90 hours, for a year and a half. 

O’Keefe: Trying to fashion a solution that would honor the promises that the city had made to all of the stakeholders and addressing the needs of the city going forward in solving what was a very real problem, which was the liabilities far exceeding the assets.

Swanson: Just the fact that it was such a massive case involving billions of dollars of claims. And the timeframe was fairly quick: Under the emergency manager law, Kevyn Orr had 18 months to obtain plan confirmation. So you’re dealing with a massive amount of claims in a short period of time. 

The Most Exciting Part

Van Dusen: The day we exited. It was a crescendo because we closed—I can’t tell you how many transactions—on the day we exited. And there were cliff-hangers right to the very end.

Mack: Watching the fight of the union leaders and the union members. If there’s ever an example you want to point to for why we need unions, it’s this case.

Swanson: Arguing the appeal in the 6th Circuit—plan confirmation. We asserted that the claims of the appellants were moot because the plan had already gone into effect and money had changed hands. It’s the theory that you can’t unscramble an egg. It turned out to be successful.

O’Keefe: Trying to solve a vast, multilayered problem with all kinds of different viewpoints and stakeholders. And getting to a solution that, while not optimal, still allowed my clients to get a lot of what they were promised and yet give up enough so that we could get the problem solved.

Hollowell: When it all got done and you could drive the city and see the difference. Detroiters deserve the very best in city service delivery. We’re now giving it to them.

What Most People Don’t Know

Van Dusen: Bankruptcy doesn’t really end on the day you exit. In this case, there was a plan of adjustment that took 10 years to implement. 

O’Keefe: There was a real possibility that the city would have to sell the artwork at the DIA. Through creative negotiations, through hard work, Judge Rosen came up with solutions and saved what was something that everyone in the city should want to save, which is our art history.

Swanson: The speed in which the case was able to progress. It was the largest municipal case at the time and to come to an agreement with all major stakeholders in 18 months is truly remarkable. Bankruptcy cases oftentimes last three to five years or more.

Hollowell: It was a dangerous time for the city. There was a lot of unelected power in the emergency manager’s hands. I’m not sure it’s widely known how much power that was. As a lifelong civil rights lawyer, I have a problem with that as it relates to the impact on voting rights. 

The Legacy of the Case

Hollowell: You have the responsibility to honor the public’s trust in how you use their tax revenues. Be judicious with the people’s money. Make good decisions. Make decisions that can pass not just the test for your budget this year, but for a budget looking forward 30 years. We started to think like that, that was a big change.

Swanson: Detroit’s doing fantastic. You see it every day—the new restaurants and the new hotels that are popping up all over the city. The case provided a springboard for a lot of this increased investment and economic activity you’re seeing in downtown Detroit.

Van Dusen: The bankruptcy, combined with the great talent that [Detroit Mayor] Mike Duggan brought into his administration, has really been a huge reset for the city. It allowed the transformation that was already underway to make Detroit a city that now is on the list of places you have to go see.