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 Judge Steven Rhodes chastised Syncora Guarantee Inc for claiming
in an Aug. 12 court filing that mediators, Chief U.S. District Court
Judge Gerald Rosen and attorney Eugene Driker, are biased.
"The court finds that the allegations concerning the mediators ...
are scandalous and defamatory," Rhodes' ruling stated.
It added that the bond insurance company's "highly personal attack"
on Rosen was legally and factually unwarranted, unprofessional and
unjust.
James H.M. Sprayregen, an attorney at Kirkland & Ellis representing
Syncora said they "respectfully disagree with Judge Rhodes."
"We still have concerns about the fairness of the mediation
process," he said in a statement. "These issues will be addressed
more specifically in further court proceedings.”
In its court filing, Syncora lashed out at mediators, including
Rosen, who brokered the so-called grand bargain, with allegations of
improper conduct and conflicts of interest.
The grand bargain taps into money pledged by philanthropic
foundations, the Detroit Institute of Arts and the state of Michigan
to ease pension cuts for city retirees. The deal is also aimed at
protecting the museum's artwork from being sold to pay Detroit
creditors.
Meanwhile, the city, which defaulted on pension debt insured by
Syncora and Financial Guaranty Insurance Co and is seeking to void
it altogether, is offering a recovery of only pennies on the dollar
to the bond insurers in its plan to adjust $18 billion of debt.
"The plain truth is that the mediators in this case acted improperly
by orchestrating a settlement that alienates the city’s most
valuable assets for the sole benefit of one creditor group,"
Syncora's filing stated.
Detroit's attorneys countered by accusing Syncora of making "false
and malicious allegations" and asking Rhodes to strike those
allegations from the court record. A hearing on Detroit's motion was
held Monday.
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Rhodes denied the city's request to also remove Syncora's assertion
that if approved by the court, the grand bargain amounts to a
"judicially sanctioned fraudulent transfer."
"The court concludes that Syncora’s fraudulent transfer argument is
based on evidence resulting from discovery and is therefore timely,"
Rhodes said in the ruling.
The judge also declined Detroit's request for a public apology to
the mediators from Syncora and its attorneys, who were given a Sept.
12 deadline to explain why they should not face sanctions.
While the city has won settlements with most of its biggest
creditors, Syncora, which has a $400 million exposure mainly from
insuring pension debt and related interest-rate swaps, has emerged
as Detroit's No. 1 opponent in the case.
The bond insurer was ordered into another round of mediation with
the city and others over the $1.4 billion of pension debt this week.
A hearing to determine if Detroit debt adjustment plan is fair and
feasible is scheduled to begin on Tuesday.
(Reporting by Karen Pierog; Editing by Jeremy Laurence)
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