Rod Meloni: Day 8 of Detroit's bankruptcy trial

DETROIT - Local 4's Rod Meloni is blogging from inside Detroit's bankruptcy trial - which is now in its 8th day.

Proceedings started late this morning. An unusually long line going into the federal bankruptcy court this morning because of the immigration and naturalization process that brings many people taking the oath to become citizens.

Former State Treasurer Andy Dillon stood in the security line about two dozen people ahead of me, in the one line that allows one person at a time into the courthouse going through the magneto/metal detector.

He was the witness to testify and he was still standing in the security line after 9 a.m.

When he was able to get up to the 7th floor and testify, he was greeted by pension fund attorney Jennifer Green. 

Her questioning surrounded Dillon's relationship with Kevyn Orr. Dillon testified he had an informal lunch just before Orr was hired as emergency manager. Green showed an email to Dillon regarding this meeting. 

Green: Did you offer Mr. Orr a list of key items you wanted him to focus on as emergency manager?

Dillon: No, I have no specific memory.

Green: Were you concerned about or expecting lawsuits?

[Eliciting a chuckle] Dillon: We get sued all the time. Our experience is that emergency management brings all kind of litigation all the time.

Green: Most likely referring to PA 436?

Dillon: We had all kinds of lawsuits, open meetings act, we had 100 lawsuits.

Green: What part of the Michigan constitution gives you your understanding of how you as treasurer could not lend credit by the state to a municipality?

Dillon: It was my general understanding as broadly construed that it was not permissible under the constitution 

Green attempted to introduce a memo, but was objected to and the judge did not allow the paperwork into evidence so at that point she completed her cross examination. 

Up next with Dillon is Attorney Lynn Brimer: retired police personnel.

Dillon is wearing a brown suit, gold colored tie and a white shirt. He is seated in the witness stand with a pair of reading glasses folded in his hands and is leaning over to make certain he speaks into the microphone.

Brimer is asking Dillon at the details of the consent agreement with the city in 2012 and the financial consulting firms, including Miller Buckfire and Huron Consulting, regarding how the consent agreement was negotiated.

10 a.m.

Lynn Brimer continues her cross examination of Dillon. She showed another email involving him. She wanted to know what happened surrounding the negotiation of the consent agreement and how it was formed. 

Dillon: We wanted the consent agreement to survive the repeal of PA 4, so we worked very hard to come up with language that would allow it to survive a PA 4 repeal. 

Brimer is now asking about an email from Miller Buckfire to Dillon regarding how to move forward with the consent agreement. It stated "The cleanest way to do all of this probably is new legislation that established the board and its powers AND includes an appropriation for."

Brimer wanted  to discuss how early in the process the consideration of an emergency manager came into play.

Dillon: The model we were following is the MAC put into existence in New York, this is related to PA 4 and PA 72 but it was also regarding what statutorily we could do as it pertains to a Financial Advisory Board.

Brimer: Was the the person pushing you to do this Miller Buckfire?

Dillon: Yes.

Brimer: And it was Miller Buckfire that brought in Jones Day?

Dillon: Yes.

Brimer is attempting to show, once again, that bankruptcy through an emergency manager was a preordained event, that negotiating a settlement with unions and unsecured creditors was never an option.

Brimer: The concern was just how much control the state would have over a city in the event an emergency manager was appointed?

Dillon: There's other provisions in state law that gave us the ability to have a consent agreement. Our goal was to be able to survive the possible repeal of PA 4. You go through all the effort, and we didn't rely on the other provisions of state law to get a viable consent agreement that work would have been lost.

10:25 a.m.

Brimer: At some point PA 4 was repealed?

Dillon: Correct

Brimer: What efforts were made to make changes in PA 4 after its repeal?

Dillon: We held meetings about how PA 4 could be improved. There were come criticisms to be addressed. I attended two to four meetings. The governor put a chart together to show what it would look like and staffers helped move it through the legislature. 

Brimer asked about the spending provisions included in PA 436.

Dillon: Under PA 4 we would put someone in place and they [the municipality] would pay for it. We looked to have the state pay for it and we did a calculation to cover the emergency managers in place and it was $780,000.

Brimer: What about the second spending provision in PA 436 that put into place funds to cover consultants in the amount of $5 million. Were those spending provisions adequate?

Dillon: I'm pretty certain the emergency manager was quite close as it was a constant number. [eliciting a chuckle again he said] when it comes to consultants, you never can trust them. They get really expensive. 

Brimer wanted to know about whether the money set aside worked in the real world.

Dillow: We haven't have to ask for additional money. so far, it's been it's been adequate. 

Later, Brimer wanted to know whether the spending provision included in PA 436 [which makes it so it cannot be repealed in another referendum like PA 4 was] regarding consultants. She wanted to know:

Brimer: As of June 11, 2013, the state was out of money for the consultant fees wasn't it?

Dillon: Yes, the money would not have been accurate. 

Brimer went on to press Dillon on Miller Buckfire's role in all of this and its relationship to Jones Day law firm. Her implication was that Miller Buckfire was a driving force behind all that has been done to get Detroit to a Chapter 9.

11 a.m.

Attorney Barbara Patek who represents the public safety unions. Her line of questioning surrounded the former treasurer wanted to know his position on what he knew and how he felt about the fact that public safety officers do not receive social security in retirement and what the state worked on regarding the costs involved with those officers in retirement to the city. 

Dillon: I was aware and it mattered to me. I did not see the numbers. 

Patek wanted to know about Dillon's involvement in contract adjustments with the police department under the consent agreement. 

Dillon: I was concerned about whipsawing the police. I did not want to make changes to their contract only had to have them redone under emergency management. The had already had wage cuts. Unfortunately they are under paid in comparison to other large cities. It is unfortunate.

Patek: Was the department understaffed?

Dillon: No. It was our understanding based on information from the city two thirds of the officers were behind desks and could better be utilized.

Patek then moved on to the possibility that the state would step in an pay for retiree pensions.

Dillon: Having served in Lansing six years and knowing how the people not from Detroit would feel about funding a city retirement obligations. In that they would not want to support the city. 

Patek concluded her cross examination by getting Dillon to admit that blight relief funding would have a much better chance of passing the Legislature than funding retirement obligations. 

Dillon steps down from the stand.

On the stand now is Richard Baird, aide to Gov. Rick Snyder and former manager of the "NERD Fund."

11:25 a.m.

Examining Richard Baird is William Wortheimer, the attorney for the so-called Flowers plaintiffs.

They attempted to sue the state to prevent a chapter 9 filing. It is his contention the Chapter 9 is unconstitutional because of the state constitution's requirement to have no changes to pension benefits. Wortheimer is heatedly questioning Baird.

Baird on going to Jones Day management as a representative of the NERD fund to ask to speak with Kevyn Orr about the emergency manager job. "I ask for the managing partner's permission to speak with Kevyn Orr. I wanted to make it clear whether it was granted or not, it should not hurt Jones Day one way or the other when it comes to whether the city should choose Jones Day as its turnaround counsel."
Wortheimer pressed Baird on why he was concerned about both issues. Baird snapped back: "I was never a representative of the state. I was an independent consultant and as a member of his [the governor's] team in talent sourcing. I was not working for the governor.

Wortheimer: You weren't working for the city?

Baird: No. I was working for the NERD fund.

Wortheimer: Which was a fund set up by the governor you understand that?

Baird: No I don't understand that.

Wortheimer: [heatedly] You pushed for Jones day to be hired by the city?

Baird: Define pushed?

Wortheimer: You wanted the city to hire Jones Day.

Baird: There were five firms being considered. I said any of those firms would be good.

Regarding Baird's desire to hire Kevyn Orr and not help or hurt Jones Day's chances of becoming turnaround counsel for the city Wortheimer asked:

Wortheimer: Did you tell Kevyn Orr when you were hiring him?

Baird: I believe I did.

Wortheimer: [heated again] You had said in emails you were pulling for Jones Day and you used the word "pulling."

Baird: I hoped they would be successful

Wortheimer: Was it a wish?

Baird: A hope

Wortheimer: You're the Governor's right hand man are you not?

Baird: There is nothing in my job description that says that.

Wortheimer: Is there any one closer to the governor?

Baird: It was my job to source talent… there were a lot of people being considered.

Wortheimer: Was part of sourcing talent was your determination that Orr would be good talent?

Baird: My job was to assess his talents and background.

Wortheimer: Your job was also to decide whether Jones Day would be a good law firm?

Baird: That was not my job… there is a difference between picking an emergency manager and a city looking at law firms that has to make its own decision.

Wortheimer: Did you speak with Kevyn Orr on the retention of Jones Day around the middle of February?

Baird: I don't recall explicitly but I probably had no right to say, but I wanted to talk with him about the prospects of his hiring and I did not want it to have any impact on his firm.

Wortheimer: Isn't pulling for Jones Day stronger than not wanting an impact either way?

Baird: No sir, I don't. 

Wortheimer did concluded his questioning.

11:37 a.m.

Sharon Levine of AFSCME asked only a handful of questions of Baird that were not especially informative.

Now, it's Jennifer Green attorney for the city's retirement funds.

Her line of questioning has been surrounding Baird's involvement in the process of the governor not offering a "contingency" in his recommendation for Chapter 9.

That contingency would have given the state responsibility to pay the city's pension liability. Green asked Baird about former Treasurer Andy Dillon's concerns regarding contingency and how he thought the state was moving too quickly and should consider a contingency.

Baird: I thought a contingence would be to control certain areas of concern.

Green: What were the concerns?

Baird: We covered any of the spectrum if liabilities of creditors and pension liabilities would be one of them.

Green: Former Treasurer Dillon wrote about the necessity to have a more deliberative approach.

Baird: As a longtime member of a large public accounting firm I thought it was advisable to have internal control over things in a plan of adjustment.

Green: Do you know what a contingency was not included in the governor's recommendation?

Baird: The governor did not agree but I would only be speculating as to why. 

Green repeated tried to have an email entered into evidence. Baird did not remember reading the email and could not authenticate it.

There was a lengthy set of questions and objections surrounding the email and its admissibility.

At one point Baird started answering one of Green's questions and the judge interrupted and told him not to answer until the admissibility issue is resolved. Later Green asked the same question about the email that caused the uproar and Baird elicited a large big of laughter from the courtroom when he responded "the judge just admonished me and I don't care to be admonished again." 

Green wrapped up her questioning.

Now cross examining Baird is Arthur Ruger from Denton's law firm representing the retirees committee.

Baird faced questioning by a number of attorneys, where they went back over emails that have been shown repeatedly and Baird gave no great insight into much like timetables for the hiring of Kevyn Orr, possible time tables of what the emergency manager might do when and if he took the job, about the change of consultant fees if a bankruptcy was filed [judge disallowed the email with this breakout] and more questions about Jone Day's involvement in the consent agreement and Kevyn Orr's relationship with Jones Day as he was transitioning out of the firm. Baird had little recollection or firsthand knowledge of any of this.

Court has adjourned for lunch.

Story: Former Mich. treasurer Dillon returns to witness chair in 8th day of Detroit bankruptcy trial

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