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Crucial mediation process starts in Detroit bankruptcy case

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Detroit officials and some of the city’s creditors will sit down for their first official mediation session Tuesday.

The mediation was ordered by Judge Steven Rhodes, who’s in charge of Detroit’s Chapter 9 bankruptcy case. Rhodes has appointed chief federal district court judge Gerald Rosen as mediator.

The city’s major labor unions will be there, as will both its retiree systems. State officials, including representatives from Michigan Attorney General Bill Schuette’s office, will also be at the meeting.

Judge Rhodes's orderstates that the "facilitative mediation" will deal with sorting out the competing claims of various creditors, and "the negotiation and re-negotiation of collective bargaining agreements."

John Pottow, a bankruptcy law professor at the University of Michigan, says mediation gives everyone a chance to stake out their positions in Detroit's historic banruptcy case--and see where there might be room for compromise.

“The more effective the mediator is at getting the parties to close out issues that don’t require fighting, the less there is for the bankruptcy judge to do,” Pottow says. “And indeed, it does mean that the bankruptcy judge will be focused on the most contentious issues.”

Pottow says the idea behind mediation is to facilitate agreements between the city and its creditors outside of court. “The mediator is just a facilitator who tries to get the parties to talk to each other,” he says. But the mediator doesn’t have the power to force deals between any of the parties.

Unions and retirees have some of the biggest stakes in Detroit’s bankruptcy. One especially contentious issue: whether a state constitutional guarantee for public employee pensions will hold up in federal bankruptcy court.

Detroit emergency manager Kevyn Orr has said cutting pension obligations might be the only way Detroit can effectively restructure its roughly $11 billion in unsecured debt. Unions and retiree groups say they’re prepared to fight that.

Sarah Cwiek joined Michigan Public in October 2009. As our Detroit reporter, she is helping us expand our coverage of the economy, politics, and culture in and around the city of Detroit.
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