June 13, 2014 at 11:53 am

Lawyer accuses Detroit creditor of harassing foundations

Several foundations asked U.S. Bankruptcy Judge Steven Rhodes to block holdout creditor Syncora Guarantee Inc. from learning more about negotiations that led to a $661 million plan to soften retiree pension cuts and shield the DIA collection from creditors. (Brandy Baker / The Detroit News)

Detroit — A holdout creditor is trying to annoy, oppress and harass several foundations because they are contributing millions of dollars to bolster pensions and protect the Detroit Institute of Arts collection, a lawyer representing the foundations said Friday.

Several foundations asked U.S. Bankruptcy Judge Steven Rhodes to block holdout creditor Syncora Guarantee Inc. from learning more about negotiations that led to a $661 million plan to soften retiree pension cuts and shield the DIA collection from creditors.

The “grand bargain” is a key part of Detroit’s plan to restructure $18 billion in debt and emerge from bankruptcy court.

“It appears Syncora's subpoenas are nothing but a cynical lashing out at entities that have some role in the plan, in order to annoy, oppress or harass them as part of an overly aggressive attempt to disrupt the orderly resolution of this matter,” lawyer Douglas Bernstein wrote in a filing Friday. “In short, Syncora's Subpoenas are not merely a fishing expedition; they are a fishing expedition in a pond with no fish.”

Bernstein represents several foundations that have pledged money for the grand bargain. The group features several local and national foundations, including Kresge, Hudson-Webber, Mott, Knight and the Ford Foundation of New York.

Facing hundreds of millions in potential losses, bond insurance giants Syncora and Financial Guaranty Insurance Co. have been pushing for a sale of city-owned art at the DIA, which Detroit Emergency Manager Kevyn Orr has resisted.

The bond insurers contend more money could be extracted from the DIA than the $466 million private foundations and the DIA have offered over 20 years, coupled with a $195 million lump sum payment for Detroit pensioners.

On Tuesday, Syncora called the city's debt-cutting plan, which includes a "grand bargain" to bolster pensions and protect the city-owned DIA collection from creditors, a politically popular, but unfair, attempt to emerge from Chapter 9 bankruptcy.

The foundations are the latest group fighting subpoenas served by Syncora. This week, Attorney General Bill Schuette asked the judge to block Syncora from questioning him about a legal opinion that the DIA collection cannot be sold because it is held in a charitable trust.

Rhodes will consider the requests during a June 26 hearing.

Syncora wants to question foundation leaders under oath and obtain documents.

“At best, the subpoenas are a classic fishing expedition to which several grounds for quashing them squarely apply,” Bernstein wrote.

The bond insurer’s subpoenas are overbroad, would burden the foundations and make public privileged or protected materials, Bernstein wrote.

“Clearly, the purpose of the scheduling of the depositions of the foundations' representatives and document production requests is to attempt to intimidate the foundations into dropping their support for the DIA settlement,” Bernstein wrote.

rsnell@detroitnews.com
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