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Michigan Governor To Testify in Detroit Bankruptcy

CHICAGO - Michigan Gov. Rick Snyder agreed Tuesday to testify in Detroit’s bankruptcy trial.

U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, also Tuesday pushed back by nearly a month the first part of the trial to determine if the city is eligible for Chapter 9 protection to give parties more time to argue legal issues.

The move, a victory for the city’s unions and retirees who had asked for additional time, may slow Detroit’s effort to keep the historic bankruptcy case on a fast track toward a late 2014 conclusion. A final decision on eligibility, however, is still likely to come at the end of October.

Snyder agreed to testify as part of a settlement between the state government and city employee unions and other retiree groups, who last week subpoenaed Snyder, Treasurer Andy Dillon and other top state officials.

In exchange for their depositions, the unions agreed to limit the scope of their questioning and to limit the depositions to three hours each, according to local news reports.

The American Federation of State, County & Municipal Employees and the United Auto Workers last week subpoenaed the state officials, saying they want to learn the steps leading to the city’s historic July 18 Chapter 9 filing in an effort to prove that the city did not file its petition in good faith.

“We just got discovery from the emergency manager and the city but not the who, what, why, when and how the governor and the state made decisions that led up to the filing,” AFSCME attorney Sharon Levine said during the hearing.

State Attorney General Bill Schuette’s office originally pushed back hard against the creditors’ request, saying it was privileged information and irrelevant to the question of whether Detroit is eligible for Chapter 9 protection.

But after a skirmish in court Tuesday morning, during which Rhodes repeatedly scolded the AG’s office for filing late objections to the creditors’ subpoenas, the state agreed to the deposition. The state waived its objection that the governor is protected by executive privilege.

Schuette filed several objections, saying that the unions were seeking information protected by executive privilege, that the depositions are outside the scope of discovery and would constitute an “unnecessary and undue burden.”

At the hearing, Assistant Attorney General Margaret Nelson argued that unions are trying to improperly investigate the governor’s motive to allow the city’s bankruptcy and that the question is not relevant to legal challenges to the city’s eligibility.

“What creditors want is to inquire into the governor’s motive, why he signed it, why he signed it the way he did,” Nelson said.

Rhodes repeatedly scolded the AG’s office for not filing the motion asserting Snyder’s privilege until late Monday afternoon, days after the office filed other objections to the unions’ subpoenas. Rhodes also questioned whether it was in Detroit’s and Michigan’s best interest to prevent Snyder’s testimony.

The settlement came after a court break during which attorneys for both sides huddled, according to local reports.

Meanwhile, Rhodes pushed back the date for the first part of the eligibility trial to Oct. 15 from Sept. 18.

Rhodes will stick to the move to divide the trial into two phases. The judge will now hear legal challenges to eligibility on Oct. 15, and hear factual challenges Oct. 23 as originally scheduled, with a final decision likely following soon after.

The city’s creditors, including unions and pension funds, over the past week launched a fresh effort to fight the schedule, arguing they need more time for discovery and for the eligibility trial itself.

Jones Day attorney Bruce Bennett, representing Detroit, Tuesday urged Rhodes to keep to a schedule that allows a final decision on whether the city is eligible to file for Chapter 9 by the end of October.

“What’s important to us is that this process is concluded as rapidly as possible,” Bennett said.

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