CHICAGO — Bond insurer Syncora Guarantee suffered a pair of losses Thursday in its ongoing battle with bankrupt Detroit.
Bankruptcy Judge Steven Rhodes blocked the insurer's request to question various parties, and gave a limited green light to the city's proposal to take the court on a bus tour of the city as part of the upcoming plan confirmation trial.
Syncora Thursday also withdrew its controversial request to see retirees' personal financial information after Detroit agreed to withdraw its argument about the retirees' hardship as part of the trial.
The rulings come as the city and its creditors gear up for the trial on Detroit's plan of confirmation that it set to begin August 14.
Detroit has proposed taking Rhodes on a bus tour for three hours to view "relevant locations," accompanied by U.S. Marshals or other security of the court's choosing. Stops would include blighted areas, the Detroit Institute of Arts, and downtown redevelopment areas.
"You need to witness this," Detroit's attorney, Robert Hertzberg, told the judge, according to local reports. "You need to see what's going on in the city. Pictures aren't going to help you understand. You need to see it live, what is going on in the city."
Challengers said the tour is irrelevant, a waste of court time and resources, and could possibly be dangerous.
"There are a lot of risks here," Assured Guaranty Corp. attorney Robert Schwinger said. "The benefit of taking the court on the tour is very small."
Ballard Spahr attorney Vince Marriott, who represents some of the holders of the city pension certificates of participation, said the three-hour tour reminded him of the old television show Gilligan's Island, and that people "know how that turned out."
In his ruling, Rhodes said he would not yet issue an order authorizing the tour, but would allow planning to take place. He said he wanted to keep the date and route a secret to help ensure "personal safety."
"The court believes it is likely that the value of such an inspection would be outweighed by the effort it would take to organize the tour," he said, adding he thinks it's "appropriate to move the discussions forward."
He asked creditors to appoint one or two representatives to meet with him, the city and the U.S. Marshall's office to discuss details.
On a separate issue, Syncora had asked Rhodes to allow it to question Michigan State Attorney General Bill Schuette and a number of philanthropic foundations about contributions to the grand bargain, the plan that would generate revenue for the city's pensions while protecting its art collection. The insurer wanted to question Schuette about the basis of his legal opinion, given last year, that the city owned art collection held at the Detroit Institute of Art museum is protected from sale by Michigan law.
Rhodes granted Schuette's request that the subpoena be quashed.
Schuette's opinion is the equivalent of a legal brief, Rhodes said, that he will judge solely on its arguments, not who is making the arguments.
"In weighing any settlement in the case including what's been called the grand bargain here, the court will weigh the merits of the opinions, evidence, facts and law and not take into account the position of authority of the people who may have taken positions on one side or the other of the issues," the judge said.
Rhodes also granted the request from the foundations that Syncora's subpoenas be quashed, saying that the information being sought is not relevant.
He did allow the insurer to move forward with discovery on whether the foundations have the ability to make the payments they've promised as part of the grand bargain.
In a recent court filing, Syncora said that it would drop its request for individual retiree financial information if the city were willing to drop its argument that the financial position of the retirees is relevant to its plan of confirmation.
Both sides agreed to withdraw their arguments Thursday.
Like Syncora in its filing, Rhodes noted in his rulings that the relative hardships of creditors is not allowed to be considered under the bankruptcy code.
"If that door were opened here and that subject were relevant here, it would literally open up every single retiree as well as Syncora itself to these same inquires of hardship, assets, income, financial position," Rhodes said. "And that would be an extraordinarily burdensome and invasive process for all concerned."
