Detroit’s bankruptcy has lead to a number of interesting and challenging issues, but the public apology from law firm Kirkland & Ellis and its client, a bond insurer, has been somewhat extraordinary.
The apology was for “any unfounded aspersions” that were cast on the mediators acting on the city’s bankruptcy and were made by the lawyers and their insurer client Syncora Guarantee Inc, part of a settlement to resolve the bankruptcy.
The deal gives Syncora a greater stake in vehicle tolls for the Detroit-Windsor tunnel. Next Chapter Detroit has posted the apology.
The mediators were U.S. District Judge Gerald Rosen, chief judge for the Eastern District of Michigan, and Eugene Driker.
The apology stems from an Aug. 12 filing (PDF) in which Kirkland and its client attacked the mediators for proposing the so-called “Grand Bargain” that would transfer assets from the Detroit Institute of Arts to a trust benefiting city pensioners, rather than all the creditors. “The plan fails the good-faith test,” the filing alleged, because it is “the product of agenda-driven, conflicted mediators who colluded with certain interested parties to benefit select favored creditors to the gross detriment of disfavored creditors and, remarkably, the city itself.”
Neither mediator “ever disclosed any biases or conflicts of interest that might affect their ability to serve as impartial mediators in this case, but, while Syncora takes no pleasure in saying it, both were biased and conflicted from the beginning,” the Kirkland filing said. The document went on to say that Driker’s wife was a longtime former member of the board of directors of the Detroit Institute of Arts, and to say that Rosen is “strongly biased” in favor of the pensioners.
The law firm representing Detroit, Jones Day, responded in an Aug. 18 filing that Kirkland had received an email last year about Driker’s wife’s position as a former board member, according to the Am Law Daily story. “Desperation is seldom pretty, and here it is particularly ugly as it has led Syncora into a strategy of distortions, half-truths, and outright falsehoods,” Jones Day said.
U.S. Bankruptcy Judge Steven Rhodes issued an Aug. 28 order to show cause (PDF) why Kirkland and Syncora shouldn’t be sanctioned for asserting the mediators were biased in favor of pensioners. “It is readily apparent that Syncora’s allegations of failure to disclose conflicts, collusion, favoritism and bias on the part of the mediators are false,” Rhodes wrote.
In addition, Rhodes wrote, “Syncora’s highly personal attack on Chief Judge Rosen … was legally and factually unwarranted, unprofessional and unjust.” He went on to strike Kirkland’s Aug. 12 filing from the record. Rhodes has now vacated the order to show cause.
Kirkland now praises “the tireless efforts of the mediators” and admits it had received notice of Driker’s wife’s association with the Detroit Institute of the Arts. “We are deeply sorry for the mistake we made and for any unfounded aspersions it may have cast on Chief Judge Rosen and the Drikers,” the notice of settlement says.