Did City Council breach its fiduciary duty by agreeing to sell DIA in Grand Bargain?

[majohnson]

My state representative, in a face to face meeting, told me that he voted for the Grand Bargain because it settled $5 Billion in retiree claims against the state for $200 Million. That is a good deal for the state.

The City Council on the other hand, approved selling the DIA for less than $1 Billion, without complete valuation or valuation by statistical sampling. [[Neither did it transfer only the assets it valued.)

The Council clearly has the duty of no self-dealing. It is also expected to engage in structured decision making, including the consideration of alternatives to the action actually taken. Council is to consider in/direct costs/benefits to the City and City citizens as opposed to the State and State citizens as a whole.

Did City Council violate its standard of care be it fiduciary in maximizing benefits and minimizing costs or public trust to act reasonably [[rational decision making)?


I didn’t write this about Orr, because I believe Orr has a fiduciary duty not to Detroit but rather to the State. I was speaking with one of my law professors today and he agreed with me that had a trustee been appointed, the trustee could not have engaged in the transactions [[DIA sale) that Orr has engaged in.

[Wesley Mouch]

...Did City Council violate its standard of care be it fiduciary in maximizing benefits and minimizing costs or public trust to act reasonably [[rational decision making)?...

To the contrary, it seems to me that for once they are actually exercising fiduciary responsibility by looking out for the financial future of the City and its residents. Fiduciary Responsibility does not always mean screwing others out of their mone -- but sometimes might mean creating a sustainable financial future.

[Gistok]

Meh.... here we go again... the "selling our crown jewels" tiresome shtick....

[douglasm]

Depends on how you look at it. I think it's a great deal because it puts the DIA out of play in any attempt to raise funds. If you're looking only to raise money, it's probably a bad deal because the Net Asset Value of the DIA is probably higher than the money that will be raised.

Government is not a business. Well, in a way it is, but unlike a business it has.....or should have.....a social responsability to it's residents, things like the DIA, parks and other things that do not raise or generate revenue, but probably cost a fair amount of money. By preserving the DIA, city government is fulfilling that part of their job. It's a tricky balancing act, but in this case I think they did the right thing.

[rjlj]

Extremely tiresome.

Meh.... here we go again... the "selling our crown jewels" tiresome shtick....

[Hermod]

Spinning off "assets" like DWSD, DIA, Belle Isle, or the zoo to regional governmental authorities can save the city money and retain them for the use of city [[and region) residents. Selling off such "jewels" is not a breach of fiduciary duty.

[majohnson]

I'm not questioning whether selling at all is a breach, but I am questioning selling without valuation.

[Hermod]

I'm not questioning whether selling at all is a breach, but I am questioning selling without valuation.

1. Do you want the DIA to remain as a cultural asset for the region?
2. Does the DIA produce any income for Detroit or does it cost money?
3. "Giving it" to some sort of regional authority to operate in perpetuity helps the city by relieving it of a responsibility without regard to the "value" of its collection.

[emu steve]

... Government is not a business. Well, in a way it is, but unlike a business it has.....or should have.....a social responsability to it's residents, things like the DIA, parks and other things that do not raise or generate revenue, but probably cost a fair amount of money. By preserving the DIA, city government is fulfilling that part of their job. It's a tricky balancing act, but in this case I think they did the right thing.

Agree.

Folks really need to think a little out of the box.

Folks in business schools think the purpose of an enterprise is to make money for the owners be it sole proprietor, partnerships, corporations, etc. [[and all of their legal variants, e.g., LLC, etc.).

But an enterprise has additional facets. It is like a 3-legged stool:

1). Make money for the owners [[whomever they might be) [[that is understood by all),

2). Produce a good or service which has value, is safe when used properly, not illegal, etc. etc. for the customer,

3). Produces fair wages and compensation and provides safe working conditions for employees. [[this strikes at the heart of sweatshops)

Three stakeholders: Owners, customers and workers.

Government [[should) work for the common good. Building a new highway is not a profit and loss proposition. Public education and public health aren't either. And certainly the fire department doesn't work on a profit and loss model. [[classic case: putting out a fire at one house to protect OTHER houses).

Pure research funded by NIH is a classic case where the 'mission' has nothing to do with dollars and cents.

[BankruptcyGuy]

The City Council on the other hand, approved selling the DIA for less than $1 Billion, without complete valuation or valuation by statistical sampling. [[Neither did it transfer only the assets it valued.)

The Council clearly has the duty of no self-dealing. It is also expected to engage in structured decision making, including the consideration of alternatives to the action actually taken. Council is to consider in/direct costs/benefits to the City and City citizens as opposed to the State and State citizens as a whole.

Did City Council violate its standard of care be it fiduciary in maximizing benefits and minimizing costs or public trust to act reasonably [[rational decision making)?


I didn’t write this about Orr, because I believe Orr has a fiduciary duty not to Detroit but rather to the State. I was speaking with one of my law professors today and he agreed with me that had a trustee been appointed, the trustee could not have engaged in the transactions [[DIA sale) that Orr has engaged in.

Can you elaborate about your questions? Did Council breach its duty to whom? Citizens?

Did your professor think that the trustee in a Chp 11 case could not have engaged in the transactions that Orr has engaged in? In what context was he speaking?

[majohnson]

City Council members are elected by Detroit voters. It is the interests of Detroit citizens that Council must take care to protect. I don't need to second guess the outcome on my first cut of analysis. Here, the procedure was flawed in a fundamental way, valuation. The valuation need not be perfect. Perhaps initially only valuing 6000/60000 of the art pieces.

Had the court empowered someone to represent Detroit in the proceedings with fiduciary duties only to Detroit, receiver, that person would have breached by failing to conducting a valuation.

Hermod:
1. I believe the DIA has regional appeal as a cultural attraction.
To more directly answer your question, that it remain is an ideal outcome.
2. I believe the DIA has a positive effect on businesses and landlords in that area. The regional DIA tax and philanthropy do or could make the DIA cost-free to the City of Detroit.
3. The Grand Bargain transfer of the DIA to a charitable trust is different from allowing a regional authority to operate the DIA. Also 'giving away' assets to a friendly third person during a bankruptcy while retaining access seems fraudulent.

BKGuy: The context is three part
a, The overall conversation was about how the circumstances of an attorney's hiring controls whether he is to represent a single employee's interests, a layer of management, a division of the corporation, or the corporation as a whole and how it differs/conflicts.
b, The limited circumstances when an attorney has a literal fiduciary duty.
c, That due to the circumstances of hire, [[not hired as Detroit's lawyer) and appointment by the state and perhaps by the statutes, Orr's duties are very likely to the state as a whole.

[mwilbert]

I can't speak to the legal question, but it seems clear that any plausible amount of compensation the city might have gotten for transferring ownership of the DIA and its collection would have gone to the creditors, so as a practical matter the people of the city would not seem to be harmed. Whether the deal is fair to the creditors within the context of Detroit's bankruptcy will presumably be dealt with by the bankruptcy proceeding.

[BankruptcyGuy]

BKGuy: The context is three part
a, The overall conversation was about how the circumstances of an attorney's hiring controls whether he is to represent a single employee's interests, a layer of management, a division of the corporation, or the corporation as a whole and how it differs/conflicts.
b, The limited circumstances when an attorney has a literal fiduciary duty.
c, That due to the circumstances of hire, [[not hired as Detroit's lawyer) and appointment by the state and perhaps by the statutes, Orr's duties are very likely to the state as a whole.

A. That, as you probably found out, is a very interesting question. Did you discuss the Kwame/Legal Department situation? That's almost the best example anyone could think of. The Legal Department, reporting to the Mayor, represents the City, not the Mayor, and violated their responsibilities by hiding info from the Council.
C. That discussion would be worth its own thread, certainly. But when the question comes to Orr, remember that while he is a lawyer, he is not operating as a lawyer. Attorneys in those circumstances are not bound by the Model Rules of Professional Conduct. [[You could take the question one step further--are attorneys hired by Orr duty bound to the state, the City, the EM or some combination? What if there are conflicts between the three? Interesting discussion, to say the least.)

[Wesley Mouch]

BG, isn't the whole idea here that an EM has a [[fiduciary?) responsibility here not to a single party, but to the functioning the City so its citizens have safety and stability? The goal for Orr isn't to protect or get more cash for the City [[or anyone else) but to make sure that the City is able to continue being a City -- something that was threatened.

I would suggest that territorial thinking isn't helpful. In fact that's what bankruptcy is trying to overcome. Thus, our representative in bankruptcy mainly has a duty to make sure our city government can continue to exist -- not that its assets are protected to the greatest degree.

The idea that the city is a warehouse of value of its citizens seems like an idea that should be tossed out. A city should not store wealth, but should only exist to serve its citizens.

[majohnson]

A. That, as you probably found out, is a very interesting question. Did you discuss the Kwame/Legal Department situation? That's almost the best example anyone could think of. The Legal Department, reporting to the Mayor, represents the City, not the Mayor, and violated their responsibilities by hiding info from the Council.
C. That discussion would be worth its own thread, certainly. But when the question comes to Orr, remember that while he is a lawyer, he is not operating as a lawyer. Attorneys in those circumstances are not bound by the Model Rules of Professional Conduct. [[You could take the question one step further--are attorneys hired by Orr duty bound to the state, the City, the EM or some combination? What if there are conflicts between the three? Interesting discussion, to say the least.)

Your c response, says don't forget he is not operating as a lawyer. Look to your quote of my statement. My statement in C says that Orr was "not hired as Detroit's lawyer".

Getting to your question-the attorneys hried by Orr.
Ostensibly, Jones Day was hired before Orr started by Bing. Bing can't attach power to an attorney sufficient to represent the state. So without knowing the terms of the contract, the firm could only have been hired to represent people or entities at the city level on down, unless hired with Detroit taxpayer dollars to represent a third party.
It is possible that Jones Day's terms of bankruptcy work are different from the terms of its City of Detroit restructuring, so perhaps it represent the state in the bankruptcy and the city in the restructuring work. But I believe Rhodes would have appointed sua sponte an attorney to represent the City in the bankruptcy if that were the case. The main litigant can't be without a representative, be it an existing CoD employee or new counsel.

[Dumpling]

Here's what I think: from the Syncora viewpoint, "the fix is in" with this Detroit bankruptcy
proceeding. I think Syncora will appeal it to the point of exhaustion. I think if they win on
appeal the DIA collection will be clawed back from the Grand Bargain, assessed as to its
fair market value which will most certainly be more than its Grand Bargain valuation, and
partitioned and sold so that Syncora recoups some of its money. In this scenario the
Grand Bargain art donors might get their money back from the retirees and the retirees
will be back to two thirds pensions with no recourse since they approved the Grand Bargain.
I'm not sure. They might be stuck having given their money to the retiree pension funds
and not being able to save the DIA art after all.

[Dumpling]

The DIA collection, while beautiful, and we will miss it if it all moves to the Getty in
Los Angeles, is not at all a necessary component of Detroit so as to assure five minute
police, fire and bureaucracy response in Detroit. What would be more helpful to Detroit
than having the DIA would be a financial cushion so that it can maintain an A level
credit rating so borrowing would be at low interest levels. If I am not mistaken again
Detroit City's bank is now JP Morgan Chase [[it used to be Comerica back in Archer's day). When Bing was elected mayor the largest contingent of his special advisors was from the downtown Detroit firm Miller Canfield which specializes in bankruptcy, so if anything "the
fix was in" starting from then.

[Dumpling]

In the Syncora win scenario, after the sad closing of the DIA, true art lovers that haven't
followed the DIA collection to Los Angeles can go to that new art warehouse in Highland
Park mentioned on a recent thread here. This new collection would thrive if tricounty
voters approve a comparable millage for it as there now is for the DIA.

[ABetterDetroit]

What would the cost be financially and in city services to the citizens of Detroit if the bankruptcy proceedings where dragged out in court for 3-6 years vs. making the grand bargain and settling it in 18-24 months? I would think that is the biggest question that all involved on the city's side of this deal are contemplating. Financial institutions have no problem waiting 5 years for a better number. The citizens of Detroit need a solvent city sooner not later. Later could be just to damn late.

[Dumpling]

I am a city employee that lives in Detroit. The ten percent pay cuts imposed on all employees amounted to maybe 25 million per year savings, maybe more. The annuity clawbacks came to 200+ million. The employee health care cuts and pension cost of living cuts are saving millions
more for the city. Privatizing garbage collection? More savings! In comparison, to donate a quantity of money sufficient to affect the city mayoral election would be about twelve million. There is usually a pro-business mayoral candidate who can "work with Republican members of the state legislature", who gets this twelve million [[usually by campaigning in the suburbs),
and is mentioned in both dailies frequently, even before formally announcing the candidacy for mayor, as someone who will bring the overpaid city workers to heel.
Then, city unions back the alternative candidate for mayor, who often has a corruption conviction and often as not takes money from scrap dealers, towing firms, liquor interests,
and strip bars [[sigh). So, yah, the city should be more solvent soon, all the Republicans will
get kudos, and it won't be too damn late for positive thinkers.

[BankruptcyGuy]

Your c response, says don't forget he is not operating as a lawyer. Look to your quote of my statement. My statement in C says that Orr was "not hired as Detroit's lawyer".

Getting to your question-the attorneys hried by Orr.
Ostensibly, Jones Day was hired before Orr started by Bing. Bing can't attach power to an attorney sufficient to represent the state. So without knowing the terms of the contract, the firm could only have been hired to represent people or entities at the city level on down, unless hired with Detroit taxpayer dollars to represent a third party.
It is possible that Jones Day's terms of bankruptcy work are different from the terms of its City of Detroit restructuring, so perhaps it represent the state in the bankruptcy and the city in the restructuring work. But I believe Rhodes would have appointed sua sponte an attorney to represent the City in the bankruptcy if that were the case. The main litigant can't be without a representative, be it an existing CoD employee or new counsel.

The City is a subdivision of the state. All power to the City is given by the state. I'm not sure that, by definition, the State and its subdivision can have competing legal interests. There certainly can been competing interests between City residents and residents of the State as a whole, but that's not the same thing.

[BankruptcyGuy]

Here's what I think: from the Syncora viewpoint, "the fix is in" with this Detroit bankruptcy
proceeding. I think Syncora will appeal it to the point of exhaustion.

Syncora will appeal, but it would be highly unusual for the effectuation of the bankruptcy plan to be stayed pending the appeal.

[Ray1936]

Syncora wants the financial status of all Detroit retirees. Retirees are chuckling!

[Wesley Mouch]

I am a city employee that lives in Detroit. The ten percent pay cuts imposed on all employees amounted to maybe 25 million per year savings, maybe more. The annuity clawbacks came to 200+ million. The employee health care cuts and pension cost of living cuts are saving millions
more for the city. Privatizing garbage collection? More savings! In comparison, to donate a quantity of money sufficient to affect the city mayoral election would be about twelve million. There is usually a pro-business mayoral candidate who can "work with Republican members of the state legislature", who gets this twelve million [[usually by campaigning in the suburbs),
and is mentioned in both dailies frequently, even before formally announcing the candidacy for mayor, as someone who will bring the overpaid city workers to heel.
Then, city unions back the alternative candidate for mayor, who often has a corruption conviction and often as not takes money from scrap dealers, towing firms, liquor interests,
and strip bars [[sigh). So, yah, the city should be more solvent soon, all the Republicans will
get kudos, and it won't be too damn late for positive thinkers.

Spotlight on this!

This is why municipal unions should not be able to be involved in politics. Especially in a closed-shop with required union membership -- God Bless the Freedom that RTW brings to workers.

If city workers want to work to elect a specific candidate, they can have a separate organization to which they can voluntarily contribute.