Michigan Gov. Rick Snyder

CHICAGO — Michigan Gov. Rick Snyder will be questioned under oath Wednesday about the decisions leading up to Detroit's historic bankruptcy filing, while parties battling over the city's only pre-bankruptcy settlement resumed talks as they seek an out-of-court agreement.

Union and retiree attorneys are deposing Snyder to try to prove that local and state officials did not make their July 18 Chapter 9 filing in good faith. The good faith test is one of several that must be met for Detroit to formally enter into bankruptcy. State Treasurer Andy Dillon and top Snyder aide Richard Baird will be deposed Thursday.

Judge Steven Rhodes will begin hearing legal challenges to eligibility on Oct. 15, with a trial set to begin Oct. 23.

The state won a pre-deposition concession late Monday from creditors' attorneys, who agreed not to question Snyder or the others about the names of emergency manager candidates under consideration before the state formally tapped Kevyn Orr in March.

The state filed a court motion last week arguing that disclosing the names may injure the candidates, partly because some of their employers were unaware they were under consideration for another job. Under Monday's agreement, the unions reserved the right to ask for the names at a later date.

Talks resumed Tuesday morning in an effort to resolve a dispute over Detroit's proposed settlement with Merrill Lynch Capital Services Inc. and UBS AG, the banks that are the counterparties on eight interest-rate swaps hedging $800 million of the city's pension certificates.

The parties have been in mediation, under the oversight of U.S. Bankruptcy Judge Gerald Rosen, for several weeks. The talks were productive enough to prompt the parties to postpone a Sept. 24 hearing asking Rhodes to rule on the dispute. Talks were scheduled to resume Tuesday morning and go through Wednesday.

A total of 31 parties are involved in the swap mediation talks, including several bond insurers, among them Berkshire Hathaway Reinsurance Group, the city's two pension funds, several retiree groups, the city's three casinos, three European banks that hold the pension certificates, and other COP holders.

At a hearing Tuesday, Rhodes gave Detroit 35 days to come up with a plan for disposing of more than 500 lawsuits pending against the city. The ruling came after a 90-minute hearing in which Rhodes heard from a woman who wants the court to lift the automatic stay so she can proceed with a lawsuit against the Detroit Police Department.

"It is clear ... that neither counsel for the city nor management of the city has yet spent any time focusing on this very issue of what should the process be to liquidate these claims," Rhodes said at the hearing.

Detroit's July 18 filing froze all litigation against the city as part of the automatic stay. But Rhodes can lift the stay for individual cases, and has considered several requests. Last week, he briefly lifted the state to allow a state judge to rule on a labor dispute.

Rhodes suggested the city form a committee of claimants to negotiate with the city.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.