Bloomberg News

Detroit Bankruptcy Judge Is Ponzi-Law Scholar Nearing Retirement

July 20, 2013

Detroit’s bankruptcy, the largest municipal collapse in U.S. history, will be overseen by a 28-year veteran of the bench and writer on Ponzi-scheme law who’s taking on the biggest case of his career.

U.S. Bankruptcy Judge Steven W. Rhodes, 64, was assigned the case by Alice Batchelder, the chief judge for the U.S. Court of Appeals in Cincinnati, following recommendations by lower-court judges in Detroit, according to a court order filed yesterday.

“It is our unanimous and very strong belief that Honorable Steven W. Rhodes is the bankruptcy judge best qualified to preside over the city of Detroit Chapter 9 case,” Phillip Shefferly, chief of the U.S. Bankruptcy Court in Detroit, wrote in a letter filed with the court.

Detroit filed the biggest U.S. municipal bankruptcy on July 18, a move the city’s emergency manager, Kevyn Orr, said was the only way to deal with a debt load of $18 billion. The city’s bid for a turnaround is now in the judge’s hands.

Rhodes, a graduate of the University of Michigan Law School, probably welcomes the challenge of overseeing the case, said Sheryl Toby, a bankruptcy attorney at the Dykema law firm in Bloomfield Hills, Michigan. He is set to retire at the end of the year and take on senior status as a judge, she said.

“He stepped up for it clearly, and he didn’t have to,” she said.

A call to the judge’s office in Detroit after regular business hours seeking comment on his appointment wasn’t immediately returned.

Madoff Trustee

Rhodes is a co-author of “The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes,” published by LexisNexis. The book’s website quotes Irving Picard, the bankruptcy trustee for Bernard Madoff’s defunct investment firm, as calling it “one-stop shopping for the facts needed to understand the complex fall-out from a collapsed Ponzi scheme.”

Rhodes handled the bankruptcy reorganization of Southfield, Michigan-based auto-parts maker Collins & Aikman Corp. In 2007, he approved a liquidation plan for the maker of auto interiors.

He also served as chief judge of the bankruptcy court in Detroit when it changed its rules at the end of 2008 in an effort to make it a more attractive venue for carmakers to reorganize. Still, General Motors and Chrysler filed for bankruptcy in New York the following year.

While under court protection, Detroit can stop paying some debts, is temporarily shielded from lawsuits and can ask the judge to cancel contracts, including union agreements.

Creditor Negotiations

The filing came after months of negotiations between Orr, who was picked by Republican Governor Rick Snyder, and creditors that included pension funds for retired city workers. The funds said they were “dismayed” by the filing and are still battling to get the bankruptcy rescinded.

Rhodes is a skilled manager of the courtroom who keeps cases moving and won’t be swayed by public opinion that will come with such a high-profile case, said Judy Calton, an bankruptcy partner at Honigman Miller Schwartz & Cohn LLP in Detroit.

“He’s sterling at managing everything and moving the case,” she said. “He’ll keep people’s feet to the fire, and he’ll rule.”

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net


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