Naming mediator brings authority to fractious Detroit bankruptcy case

Mon Jul 29, 2013 12:05am EDT
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By Nick Brown

(Reuters) - Of all the legal maneuvers so far in Detroit's bankruptcy case by unions or the city's emergency manager, the one that may have the most impact was when the judge decided to name a mediator.

In a July 23 filing in U.S. Bankruptcy Court, Judge Steven Rhodes said he would appoint another federal judge, Gerald Rosen, as a mediator.

A mediator would be an authoritative voice for compromise in a contentious, messy case, the biggest-ever municipal bankruptcy filing in U.S. history. Detroit, which filed on July 23, has more than $18 billion in debt and 100,000 creditors ranging from retired city workers to Wall Street bond investors.

"I think that's going to be the key move in the case, in terms of getting it toward a solution," Christopher Klein, a bankruptcy judge in Sacramento, California, said. Klein, who is overseeing the bankruptcy of the town of Stockton, spoke last week on a panel organized by the American Bankruptcy Institute.

Rosen, a Republican, is chief district judge of the U.S. District Court for the Eastern District of Michigan. With a long career in Michigan politics and as a member of the conservative-libertarian Federalist Society, he brings a unique perspective to a case that touches on the subjects of states rights and property rights.

Rhodes in his court filing deemed a mediator "necessary and appropriate" but did not specify which issues he feels should be mediated. He has scheduled a hearing on his proposal for Friday.

With Rhodes yet to lay out how mediation will be used, Rosen's role is unclear. He could be asked to help broker a deal resolving the initial objections to Detroit's filing under Chapter 9 of the U.S. Bankruptcy Code, which governs municipal cases. Alternately, his services could be reserved for the more substantive fights over pay back.

COMPLEX ISSUES   Continued...

The word 'Bankruptcy' is seen painted on the side of a vacant building by street artists as a statement on the financial affairs of the city on Grand River Avenue in Detroit, Michigan July 26, 2013. REUTERS/Rebecca Cook