Detroit Bankruptcy Mediation, Part II

I wrote in April about the mediation team being used to facilitate the Detroit bankruptcy. I was intrigued about how it would work, and impressed at the novelty of using mediators. I’m now realizing that these folks are not “mediators” in the normal sense of the word. As we read more about the active efforts of this team to fashion specific outcomes, it appears that they may not be “neutral,” and that they may not be promoting party self-determination, which is the first principle of ethics for mediators.

Last month, one of the City’s creditors, Syncora, accused two of the mediators, Judge Gerald Rosen and Eugene Driker, of bias in the way they “designed and later executed a transaction in furtherance of their own personal vision” of preserving DIA assets, and of favoring city pensioners, at the expense of other creditors like Syncora. Syncora Brief 8-14

One of the proofs cited by Syncora to support their argument that Gene Driker was biased was the fact that his wife was a long-time board member of the DIA. Syncora this week apologized for saying that Mr. Driker hadn’t disclosed his wife’s connection to the DIA, when it turns out he had. It also apologized for casting aspersions on Judge Rosen’s character. Syncora’s apology – issued in the face of an order to show cause why it shouldn’t be sanctioned for accusing the mediators of bias – is so flattering of the two mediators as to leave one puzzled, especially given that Syncora has now settled with the City and withdrawn its objections to the bankruptcy plan.

It doesn’t undo the fact that one of the bankruptcy “mediators” has close ties to the DIA, that arguably should have disqualified him from serving, or at least from working on any aspect of the “grand bargain.” These “mediators” perhaps should be called “special masters” or some other term that recognizes the scope of their power in this case.

 

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