Regular Detroiters get their day in bankruptcy court

Steven Wojtowicz retired from the Detroit Water and Sewerage Department. He’s one of the individual objectors who testified during the city’s bankruptcy trial.

Most were retired Detroit workers. A few have law degrees. One is a former city councilwoman.

They’re 15 “pro se” objectors in the city’s bankruptcy case, individuals without attorneys whom U.S. Bankruptcy Judge Steven Rhodes has allowed to testify, present evidence and question witnesses during the city’s ongoing bankruptcy trial.

It’s not a normal part of a bankruptcy cases. But Wayne State University law professor Laura Bartell said Rhodes’s inclusion of the individual objectors during the bankruptcy trial is consistent with his ongoing solicitude for individuals affected by the case.

“He wants to give them every opportunity to make their points publicly because part of that is an emotional resolution,” Bartell said. “If you can have the sense that you have made your point, it has been heard by the authority figure, that is Judge Rhodes. Then, even if he overrules your objection, you at least feel you’ve gotten a fair shake.”

The trial, which started in early September, is where the city is making its case to the judge to approve the city’s restructuring plan, formally called a Plan of Adjustment. In the plan, the city proposes how it will shed about $7 billion of its $18 billion in debt. Ultimately, the judge will decide whether to approve the plan, based, in part, on its feasibility and the reasonableness of its financial projections.

Part of the city’s debt restructuring includes a reduction in payments to financial creditors, including the city’s roughly 32,000 pensioners. The retirees as a class voted earlier this year in favor of smaller reductions to pension payments and health care benefits than Orr had originally proposed.

But hundreds of individuals filed objections to the deal in bankruptcy court, challenging certain provisions of the plan. In July, Rhodes scheduled 80 of them to testify in a procedural hearing, more than a dozen spoke. After subsequent requests to be heard at the trial, he allowed 15 individual objectors to be part of the court hearings. Most of them appeared Wednesday.

“An objector doesn’t lose the right to object merely because he or she does not have counsel,” said Bartell, the law professor.

Those that appeared produced a dramatically different courtroom dynamic than the lawyers who represent a variety of creditors, employees and retirees in the case. Most did not know courtroom protocol. Some read rambling remarks. Others asked insightful questions.

Most of the individual objections raised this week related to the “clawback” of annuity savings fund monies from some general service retirees. (When employees retired, they had the option of a full payout or monthly payments, according to court filings. Workers who paid into the annuity plan contributed up to 7 percent of their salaries with guaranteed rates of return of 7.9 percent. The pension fund covered the difference between the promised 7.9 percent and any lower, actual return rates, a policy the city contends drew down the pension fund and contributed to its underfunding by millions of dollars.)

As part of the bankruptcy restructuring negotiations, attorneys for employees and retirees had agreed to a 20 percent “clawback” or “recoupment” on their annuity funds.

Retiree Wanda Jan Hill questioned Emergency Manager Kevyn Orr and city attorney Heather Lennox, of the Jones Day law firm, about how retirees were notified about a 6.75 percent interest rate attached to the amount of the recoupment.

The pensioners’ ballots for voting on the Plan of Adjustment contained the phrase “other factors” but did not mention the interest payments. Hill and others have complained they should have disclosed it.

“It should have been explained to us what the clawback was,” Hill told Lennox in court. “I still say that ‘other factors’ was a ruse to allow you to come back at any time to say, ‘Oh, that was easy. Let’s try to get that money from them on other factors.’”

Former Detroit city council member Joann Watson testified that she objected to the emergency manager law and the state’s involvement in causing and filing the bankruptcy. She cited a Michigan Municipal League report that found the state reduced Detroit’s revenue sharing monies by $732 million during the last four years, and she asserted the state “defaulted” in a 1998 agreement for about $224 million in funding for the city. Watson also said the state’s reluctance to help collect $600 million in unpaid taxes from residents and businesses has cost the city dearly.

“That’s $1.5 billion that the state has played a role in the city not receiving,” Watson said Wednesday. “Yet they’ve [the state] shepherded the bankruptcy. That’s a conflict, Your Honor.”

Retired Detroit Water and Sewerage worker Steven Wojtowicz also appeared in court, and also complained about the lack of information about the interest payment on the annuity savings fund recoupments from pensioners. He questioned whether the interest was included in the information about pension payment reductions retirees received as they voted on the Plan of Adjustment.

Rhodes did not rule on any of the objections but said he would ask attorneys for the city and retirees to answer Wojtowicz’s question.

Closing arguments in the case are scheduled for Tuesday and Wednesday of next week. Rhodes will then rule on the Plan of Adjustment.

Sandra Svoboda blogs about the bankruptcy at NextChapterDetroit.com and covers the case for WDET, Detroit’s public radio station. She is an occasional Bridge contributor as part of the Detroit Journalism Cooperative, which includes Bridge.