City of Detroit’s Chapter 9 Plan of Adjustment Confirmed

Honigman Guides Longtime Client, The Detroit Institute of Arts, through the City of Detroit’s Municipal Bankruptcy

Press Release

On Friday, November 7, Judge Steven W. Rhodes of the United States Bankruptcy Court for the Eastern District of Michigan issued an oral summary of his opinion confirming the City’s plan for exiting the largest municipal bankruptcy case in history. The decision was announced 16 months after the City filed for bankruptcy protection and after a 24-day contested confirmation hearing. 

Honigman served as lead counsel for The Detroit Institute of Arts throughout the City's Chapter 9 bankruptcy case. The City's financial creditors, bond insurers, and other municipal creditors took the position that the museum and its world-renowned art collection were municipal assets the City was required to monetize to satisfy municipal debts and obligations. Honigman advanced the position of the DIA, supported by the Attorney General of the State of Michigan, that the museum art collection could not be used to satisfy municipal debts because the art collection was held in charitable trust and public trust and because donors had placed transfer and sale restrictions on artwork that were enforceable under Chapter 9.

After mediation sessions spearheaded by Chief Judge Gerald Rosen (United States District Court for the Eastern District of Michigan) and Eugene Driker (founding partner of Barris, Scott, Denn & Driker P.L.L.C.), the City, the DIA, retiree representatives, the State of Michigan, charitable foundations and other constituencies entered into a settlement, known as the Grand Bargain, which transfers the museum art collection to the DIA to be held in perpetual charitable trust for the benefit of the people of the City of Detroit and the State of Michigan. After vigorously opposing the Grand Bargain settlement during the plan confirmation hearing, the City’s major financial creditors and bond insurers, including Syncora Guarantee Inc. (SYCRF) will recover about 14 percent on what it’s owed in a deal that includes $44.8 million in new debt and Financial Guaranty Insurance Company (FGIC), withdrew their objections and reached separate settlements with the City. 

In his bench ruling, Judge Rhodes approved the Grand Bargain settlement and overruled the remaining objections, finding that the DIA would "almost certainly prevail" in litigation to protect the museum art collection, referring to the settlement as the “cornerstone” of the City’s plan of adjustment, and stating that maintaining the museum art collection was critical to the feasibility of the City’s plan of adjustment and to the City’s future. 

Alan S. Schwartz, Vice Chairman of Honigman Miller Schwartz and Cohn LLP and senior general counsel to the DIA, said, “Honigman was founded here in Detroit in 1948 and has served as the DIA general counsel for more than thirty years. We share in the celebration of this historic event, not only because we have been intimately involved with the DIA as it has worked through its greatest challenges, including in connection with the City’s bankruptcy, but also because we, along with our colleagues, are so personally invested in the success of Detroit and the region and in the prosperity of our great art museum, the DIA.” 

More than 35 Honigman attorneys and staff helped guide the DIA through the City’s bankruptcy, including representatives of the following disciplines: bankruptcy; corporate; government relations; litigation; mergers and acquisitions; non-profit; real estate; tax; and trusts and estates.       

Schwartz, who has been general counsel to the DIA for more than thirty years, was senior counsel on this matter. Judy B. Calton served as bankruptcy counsel. Charles Nida led the trust and estates and non-profit teams. Joshua F. Opperer, who serves as co-general counsel of the DIA with Schwartz, led the Grand Bargain transaction team; also working on the Grand Bargain transaction team were Jonathan R. Borenstein (real estate), James H. Combs (tax), Barbara A. Kaye (corporate) and Matthew J. Moussiaux (corporate). Working on the litigation team were Jason R. Abel and Scott B. Kitei. John D. Pirich led the government relations team.

Also working on these matters for the DIA were Kirk Profit, Governmental Consultant Services Inc., as government relations advisor and Richard Levin, Cravath, Swaine & Moore LLP, as special bankruptcy counsel.