Good Law | Bad Law #101 - Detroit’s Amazing Rebirth from Bankruptcy w/ Judge Gerald Rosen
Aaron Freiwald: [00:00:00.06] Welcome back to Good Law Bad Law. My guest on today's episode is Judge Gerald Rosen. He is the recently retired chief judge of the U.S. district court in Michigan and he was the chief mediator in one of the biggest and most important bankruptcies in American history, the bankruptcy of the great city of Detroit. This is an incredible story one with so many fascinating twists and turns and it really is a cautionary tale as you'll hear for all American cities facing the fiscal challenges that our cities face. From Philadelphia to California and all the cities along the West Coast and everyone in the middle too. The dangers that cities face with all the demographic, economic, and social changes that have come about in the last 30, 40 years. Detroit was the first great large American city to file for bankruptcy but it may not be the last. And so Judge Rosen offers a lot of fascinating stories about what happened, how the issue got resolved, and how this also is a story about people from all different backgrounds, economic positions, political persuasions, coming together to resolve a great and important issue. Fascinating episode. Stay tuned.
Aaron Freiwald: [00:01:31.37] My guest today on Good Law Bad Law is Judge Gerald Rosen. Judge Rosen is the former Chief Judge of the Federal Court the court in Detroit Michigan. And we're going to be talking today about a fascinating story of a city in financial trouble and its recovery. And Judge Rosen's very central role along with some other people as well in the resolving of this financial crisis. The Detroit bankruptcy. So first of all Judge Rosen thank you so much for being on the program.
Gerald Rosen: [00:02:05.18] Thanks for having me Aaron.
Aaron Freiwald: [00:02:08.5] This is. I've been reading about this is we've been getting ready for this episode. What an incredible story. And as we'll hear Judge a story that really has not only some great lessons in it about how people in the city come together to resolve a really dire situation and one facing a lot of cities around the country today. But as you point out I know you're going to tell us about this is a city of people really coming together from all different backgrounds to save a great city in this country. So I thought maybe we could start by just having you give us a little bit of background on yourself, how you came to the court and how you then came to play a central role as the lead mediator in this in this great bankruptcy crisis.
Gerald Rosen: [00:03:02.53] Well I think.
Aaron Freiwald: [00:03:03.62] That's a big intro I know.
Gerald Rosen: [00:03:05.26] It is how long do we have here. So I grew up in the Detroit area, lived here most of my life other than six years in Washington D.C. getting a law degree and working on the hill and came back practiced law for about 11 years at a large firm here in Detroit. Had some unsuccessful political forays which on reflection were very successful in the end for me.
Aaron Freiwald: [00:03:38.92] You might have been spared you might have been spared.
Gerald Rosen: [00:03:42.51] Because I lost. And in 1990 I was nominated to the federal court here by President Bush 41.
Aaron Freiwald: [00:03:56.76] Bush the first.
Gerald Rosen: [00:03:57.31] On the court for 27 years until last year when I retired and am now with JAMS which is the world's largest mediation and arbitration service in the world. So that's as much as I can encapsulate what's been a great ride.
Aaron Freiwald: [00:04:20.29] Right. And that's and that's a big court that the Federal Court in Detroit and starting in the I guess that what the 2012 2013 time period Detroit goes from bad to really worse in terms of the city's economy right. And faces being on the edge of bankruptcy and ultimately having to file for bankruptcy. Can you give us a little bit of the overview as to what was going on in the city at that time because again I think there are lessons in what Detroit faced then for others. For other great cities in the country.
Gerald Rosen: [00:04:59.28] Sure I'll try to do it as quickly as I can. So it is you know Detroit in the 50s was one of the world's great cities. It was the fourth largest city in the country. It was robustly well off visa vie other cities that had very stable government very stable workforce. The auto companies what we used to call the Big Three GM, Chrysler, and Ford were clicking along. People were coming from all over the world to work in Michigan and particularly the Detroit area in the plants and making good lives for themselves. It was the you know it was the ultimate middle class dream.
Aaron Freiwald: [00:05:47.61] Right.
Gerald Rosen: [00:05:48.5] And doing very very well. And you know lots of different demographic issues happened. Certainly the growth of the suburbs as in many cities began to take root. Racial issues in 1967. July of 1967 we had probably the worst race riot in the country and in our nation's history. And we had a series of ineffective Mayors and polarizing mayors that accelerated both business and residential flight from the city. And things began to spiral. And as is so often the case when these sorts of things happen the spiraling was exponential. The residential and business tax base was declining population was declining precipitously in the mid 50s Detroit had almost 2 million people. And by the filing of the bankruptcy in 2013 Detroit was under 700,000 people. So with the decline of the population the revenue base was disappearing with the disappearance of the revenue base Detroit was stacking debt upon debt and Detroit was becoming what bankruptcy experts often refer to as service delivery insolvent. Which basically means that a city is really not a city anymore. It cannot provide the most basic services to its citizenry. In Detroit for example the average run time for 911 calls was running close to an hour. Many many fire calls were not being answered at all. EMS calls were running 25 minutes at points. And snow wasn't being picked up, trash wasn't being picked up. Forty percent of the city's 90,000 lights were out and the copper innards that would be needed to repair them had been scrapped by scavengers so they couldn't be repaired. Detroit's bond rating was at junk status and falling so it couldn't even if it wanted to it couldn't borrow. But it couldn't borrow really because back in 2005 it had already hit its statutory borrowing limit and had done a very risky borrowing at the time probably illegal to circumvent the statutory borrowing limit to shore up its failing pensions. Municipal pensions which at that point were already a billion and a half dollars underwater and they borrowed a billion and a half dollars.
Aaron Freiwald: [00:09:03.49] Explain that part Judge because that's something that I think for many cities large cities and medium size and small cities that factor right there the pension issue. That's a real problem that not only Detroit had but many cities have dealing with all these other factors coming together declining job people moving out of the suburbs. So all the revenue that you enjoy is going down and then they're stuck with these burdens. Can you explain that a little bit. That is pretty crucial.
Gerald Rosen: [00:09:40.73] Well you're absolutely right Aaron this problem was not unique to Detroit. Many cities are facing it. Most if not all are in absolute denial. And you know denial is a river in Egypt it's not a path to re-surge.
Aaron Freiwald: [00:10:00.4] Right.
Gerald Rosen: [00:10:01.93] It's not a path to solving problems. I mean just one example that I think many people are familiar with is Chicago. The municipal debt in pension debt in Chicago conservatively is estimated at north of 30 billion dollars. It's probably for reasons we can get into but are fairly technical involving discount rates and those sorts of things. It's probably more like 50 million dollars. Atlantic City Philadelphia you can go on California of course is in the it's between it's CAL PERS pension debt and the municipal debt as well north of a trillion dollars in debt. And as I often say to people you know Hollywood continues to make these fantastical movies about climate change and tsunamis washing over cities. The real tsunami that's washing over cities is municipal debt. And you know you can't make very exciting movies about it although The Big Short did a pretty good job of capturing financial explosion.
Aaron Freiwald: [00:11:06.71] Yeah. Well and that and that of course becomes that becomes maybe the I don't know if you agree. Maybe the last big generator of the tsunami wave that takes over because of course you have the Wall Street crisis of 2008 2009 and those big three automakers that fueled the you know the the Renaissance and growth of Detroit are themselves facing insolvency. And but for the rescue of the of the car companies the automakers it could have been a lot worse.
Gerald Rosen: [00:11:47.1] Yeah. And that was certainly a major factor in 2008, 2009. On Detroit's problems it was it was just one of any number of accelerators. Detroit also had very serious corruption problems as you may have read about our former mayor Neil Patrick is now a guest of the federal government bureau prisons for 28 years and 42 of his associates were indicted and convicted of various types of Ponzi schemes fraud. Rico charges.
Aaron Freiwald: [00:12:26.93] I do remember reading about that in fact there was a book that came out a couple of years ago about Detroit kind of history of the city and up through the present time.
Gerald Rosen: [00:12:36.92] So it was it was very much a pay to play in Detroit and you know businesses weren't investing. One of the great stories that Detroit's incredible recovery I don't know how how much you're following but Detroit is now the hottest investment city in the country, one of the hottest in the world. But what does not get a lot of attention is the fact that in addition to having successfully moved through the bankruptcy and having one of the cleanest bottom lines of any city in the country. It also has one of the cleanest governments now. The culture of corruption that prevailed for so many years in Detroit was cleaned up and businesses are coming in they don't have to pay an entry fee you know to come in and play and businesses from all over the world are coming into Detroit now. And the fact that real estate is much less expensive than in other major cities is certainly a part of that.
Aaron Freiwald: [00:13:41.97] Well take us to the moment then which is the lead in to you're getting involved in this which is the actual filing or attempting to file bankruptcy. And then finally filing for bankruptcy. I know unfortunately a lot of people understand the idea of having debt greater than assets or greater than income. Unfortunately many many people as individuals and as businesses end up filing for bankruptcy. But the idea of a city actually filing for bankruptcy in our country's history is not a very frequently occurring event. And Detroit is the largest city that ever had to reach that point. So give us if you would that background just a little bit because that's the lead in to how you get involved and then we're going to have to talk about Winston Churchill.
Gerald Rosen: [00:14:39.21] So you know Detroit was sliding toward oblivion as I said gradually and then exponentially for decades. And all of the governors and all of the mayors were kicking the can down the road and sweeping the problems, the underlying debt structural problems, the underlying financial problems, the underlying service insolvency problems, they were just sweeping it under the rug and nothing was being addressed. Rick Snyder became governor in 2010 and he made Detroit his priority and he is by background he is both a business guy, a venture capitalist used to doing turnarounds but also a CPA. So these kinds of financial dysfunction issues really excite him. And he appointed a team he did a very deep dive not only into Detroit's financial dysfunction but also into its more complex demographic and service delivery problems and he appointed an emergency manager Kevyn Orr from the Jones Day law firm to come in under the state statute and basically he was sort of a municipal dictator. He had complete authority to run the city and to pay down debt. He tried to do it through negotiations for several months. He made a what he called it published and gave to all of the city's creditors what was called a proposal for creditors which was much more really it was a deep dissection of Detroit's financial and service delivery status. But Kevyn could not could not come to any agreements with any of the stakeholders. Not the unions not the pensioners. Detroit was by this time three and a half billion dollars its pensions both the civilian pensions and the uniform pensions were very very optimistically stated three and a half billion dollars underwater. It was probably more like five or six billion dollars under water and Kevyn for months tried to negotiate and it wasn't working. And Detroit was continuing to circle the drain. People were continuing to leave businesses were continuing to leave. Bankruptcy was clearly on the horizon and the governor authorized the filing of the bankruptcy on July 18 2013. You may have read about some of the problems they had filing. There was a race to the courthouse because the pensioners and the unions were trying to enjoin the governor from filing. They got to the courthouse at about 4:00 the state had tried to file its bankruptcy petition which was massive and it crashed our courts electronic filing system. I got a panic call from our court administrator saying the city trying to find all of our PACER system is our electronic filing system has crashed. So the judge was beginning the proceeding up in Lansing and state court and she was clearly headed toward enjoining the governor from filing. When they finally got it filed it 4:06pm and some clerk walked out and told her there was an automatic stay so that was the end of that lawsuit. Lots more happened.
Aaron Freiwald: [00:18:27.51] In other words finally when the federal bankruptcy gets filed that that puts a stop to all the other state court lawsuits that were trying to be filed.
Gerald Rosen: [00:18:40.31] Every every lawsuit state federal every lawsuit is immediately stayed. So the race to the courthouse ended with the filing of the bankruptcy and we had seen it coming of course. I say we those of us in the court it was obvious that it was going to come and negotiations had broken down. So as Chief Judge I was getting ready. You know this is a huge case. You have issues of security issues of just physical capacity to handle a case like this. You have media issues. So as Chief Judge all of that fell on my plate and I had been meeting with the chief judge of the bankruptcy court making arrangements for use of our physical facility because their bankruptcy court would not have been able to handle it. So we were doing that I was meeting with the marshal and then Judge Shefferly who was the Chief Judge came over asked if he could see me and told me that under Chapter 9 of the bankruptcy code which is the municipal bankruptcy code. The chief judge of the Federal Circuit Court of Appeals appoints the bankruptcy judge which I didn't know I thought it was random selection like everything else. And he asked me if I had a candidate to talk to the Chief Judge about if she called me and you know this came out of left field. So I hadn't really thought about it but there was one person who I knew well he was a former chief judge of the bankruptcy court I knew him very well and we had many talented bankruptcy judges. But Steve Rhodes was in my estimation the best. I should have mentioned Steve came over with Phil. And so when he asked me that if I have a thought about who I might recommend if Judge Batchelder called me. I certainly have a thought but it was a delicate question.
Aaron Freiwald: [00:21:01.1] You know you want somebody qualified and capable but you also have to you know know that you are you are giving somebody a responsibility that they might resent you for in the future.
Gerald Rosen: [00:21:12.98] There was one other complication Steve was planning to retire at the end of the year. And at that point I think all of us thought that the bankruptcy would go on for years not months. And I know we had another meeting about it I had done what a good chief judge should do which is poll the bench. You don't want to get to an issue like this you don't want to get too far out in front of your court and pretty much everybody thought that Steve was the one. But you know he had to promise me wasn't he was going to serve for the duration no matter how long it was. He couldn't just he couldn't just bail out halfway.
Aaron Freiwald: [00:21:54.92] Pun intended judge he couldn't bail out right away.
Gerald Rosen: [00:22:01.21] I had this might have been the first deal of the bankruptcy actually Steve and I and Phil the Chief Judge of the bankruptcy court had what the diplomats call a full frank and candid conversation. I told Steve if Judge Batchelder called me I wanted to be able to recommend him but I couldn't recommend him if he was still planning on retiring at the end of the year. I needed a commitment from him that he'd be in it for the duration. And he looked at me and he said well he said I know that I had a talk with my wife about it but I have a thought about that. And I said OK. He said how about you serve as the chief mediator that came out of left field that came out of outer space.
Aaron Freiwald: [00:22:52.3] You were you were you were asking him to step up. I mean he had to postpone his retirement not just to handle a bankruptcy but to handle a historic bankruptcy, to handle a complicated matter where the you know the future of the city is hanging in the balance and then he turns around and he asked you to make a sacrifice too to get involved in this.
Gerald Rosen: [00:23:19.94] I didn't know what to say Aaron. The first thing I said I said something like Steve I think you just want some company in the bull's eye. You know he laughed and I laughed but that was what I thought was my immediate reaction. Because we all knew this was going to be a highly contentious, deeply controversial. We were already having demonstrations very angry demonstrations every morning at our courthouse. And you know so when I said that I was only half joking but you know. But I you know I thought about it. I mean I'm a Detroiter. I love my city. And I thought that this maybe was an opportunity to make a contribution. But I knew there were problems. I began talking to some of my colleagues not all of whom were enthusiastic about the idea of their Chief Judge jumping into the middle of something like this as one of my colleagues said not wrongly. One of my colleagues said you know this is going to be very very difficult highly contentious. It may very well not end well and you're going to be bringing our court into this as Chief Judge of this. So I understood that and there were also issues because of appeals from the bankruptcy court come into our court. So my colleagues would be in the position of deciding whether deals that I had put together should be improved because certainly if you deal with one creditor other creditors might well and did oppose it. So there were lots of issues. And I was quite honestly I was very torn. My wife didn't want me to do it. I was very busy being you know just a judge I had a full docket and with the administrative responsibilities of being chief judge I was teaching I was writing you know she was already not happy. And so I was getting a lot of pushback. And it was a hard decision. And the more I got push back the harder the decision was. So there was one.
Aaron Freiwald: [00:25:39.91] I know. I know your 15 year old son at the time had a big part in helping you make the decision that you would get involved and be the chief mediator in this. How did that come about you have to tell that story because it's a good one.
Gerald Rosen: [00:25:57.31] Yeah. So we were driving out to play golf on a Saturday morning. I know it sounds like all I do is play golf. I'm a terrible golfer and I have just recently after a lifetime of disdaining it taking it up but Jake is a very good golfer. And we were driving out to play golf and Steve Rhodes called and he needed a decision about whether I was going to do this and I told him I was getting pushback from my colleagues. There were serious issues and Steve said OK I understand that but you've got to make a decision here. So I told him I would make the decision over the weekend and call first thing Monday. So Jake didn't say anything. You know he was listening to the conversation on Bluetooth when we were driving back all of a sudden he just looks at me and he's so dad. Are you really thinking about not doing this bankruptcy thing. And I said Well Jake you know you heard this is a very difficult thing not all of my colleagues think it's a great idea. I have to think about the court first and he looks at me just intently. And I've been a Churchill guy Winston Churchill guy ever ever since college and Churchill's about Churchill's heroism and courage and he looks at me and he says. What do you think Churchill would have done dad. Do you think Churchill would have refused. Everybody has a time to stand up. This is your time. And you know it's like a two by four just between the eyes you know. And it just crystallized. I had no idea how he figured that out but it just crystallized.
Aaron Freiwald: [00:27:42.53] It gives you chills to think of that. But the 15 year old understood that this was a moment this is the moment to step up. And obviously you did. We know that and you had to then take all these different stakeholders interest you know Wall Street banks, the unions, other creditors. There were you know tens and tens of thousands of creditors owed money. The Detroit Institute of Art. You know world class art museum that's sitting on billions of dollars worth of paintings. You know how did I mean this is such a huge story. And I know we can't you know we can't get into all of it. It's a big ask to say tell us what happened and how did you do this. But picking up on the point that you know we talked about in the beginning about this is a moment where it's more than just a bankruptcy it's really people having to come together to everybody sacrifice for in the interest of saving the city. How did you. Tell us a little bit about that and how what was the role you played. How did you do that.
Gerald Rosen: [00:28:56.7] So again another golf story here sorta. Jake and I had a long planned golf vacation down to Florida right after just turned out right after I was appointed Chief Mediator. And I had a court librarian put together a lot of reading for me and I took it down with me. I was getting up very early in the morning reading about the history of Detroit's debt it's service insolvency and trying to get my hands around it. And I was talking to all the lawyers as well. And it quickly became apparent that Detroit had no assets other than the art collection at the Detroit Institute of Arts which was one of the great art collections in the world that had been gifted to the city by its founding fathers. And it's you know it's philanthropists in the early part of the 20th century. Sixty six thousand pieces. All of the major masters the Diego Rivera murals. And it was the only asset the city had. And all of the creditors it became very clear all of the creditors wanted it. Every conversation I had with the creditors and for that matter with Kevyn Orr and his lawyers ended with the same. They were all great conversations very positive but they all ended with the same question. What about the art? And at the same time there was an ugly narrative beginning to develop that had a racial undertone to it and it was very, very ugly. Which was that the art was sort of the preserve of the cultural elite suburbs and the pensioners who were largely African-American had had nothing and their pensions. Kevyn Orr the emergency manager was threatening to cut municipal pensions by 40 to 50 percent and that these pensions were not plush. The average civilian pension was about nineteen thousand dollars a year. The average uniform pension for the police and firefighter retirees was 32,000. But they didn't get Social Security. So it would have devastated these folks. So there was this narrative that was developing you know sort of pensions versus art. Why not just liquidate the museum.
Aaron Freiwald: [00:31:27.19] Right. So on the one hand save a 50 million dollar Van Gogh painting at the expense of you know African-American retired city workers cops, firefighters.
Gerald Rosen: [00:31:40.89] And that is not just retirees the financial creditors wanted to liquidate the art.
Aaron Freiwald: [00:31:45.52] Yeah right.
Gerald Rosen: [00:31:46.93] As I began to read. And talk to the lawyers I began to think about the bankruptcy as really bookended by the art in the pensions and I was still down in Florida at a friend's condo and I got up very early one morning and this had just been you know really percolating in my mind and it had become clear that I had to find some way to monetize the art. But I did not want to liquidate it. And in my mind liquidating this museum and its collection would have been the exclamation point on Detroit's obituary. And in addition to that Aaron for what Detroit had been cannibalizing its heritage to mortgage its future for decades. And where had it gotten us this was just going to be another one. And beyond that you know the Detroit Institute of Arts was in Midtown and anchored midtown and really it was the one area of the city that was kind of beginning to percolate and thrive and nascently grow. And I went on this website just for the heck of it. And I saw that the museum was bringing in 550,000 people a year to Detroit. And I thought you know if you liquidate this museum it's going to be like a hydrogen bomb in the middle of the city. And so it was there was that reason in there and there was a political side to it too. The museum was already. They weren't going to just go quietly. They were already building a litigation fund. They had hired two very large law firms one from New York one from Detroit. They believed that the art could not be impaired or liquidated in the bankruptcy. There were lots of good legal arguments about that. So it would have been a war and you know the museum's board was sort of a who's who in Detroit and indeed all over the state and it would have pitted those folks against you know the pensioners and all of the city's unions and creditors. It would have been a civil war almost.
Aaron Freiwald: [00:34:15.49] Well and like any and like any litigation judge we know this as litigators and judges it's not just war it's an expensive war and the lawyers you know in those battles end up doing very well. And so if there is a way to cut through all these varying interests and conflicts and find a way. I mean we're really talking about how mediation and resolution can avoid not only solve a problem but avoid all kinds of very expensive problems that you'd otherwise have to deal with.
Gerald Rosen: [00:34:49.51] No you're so right Aaron. I mean the lawyers there would have been nothing left of Detroit but dust. With five years or seven years of bankruptcy. Businesses continuing to leave residents continuing to leave services continuing to dissolve in the city. There would have been nothing left of Detroit. I felt a real urgency and I know Steve Rhodes felt a real urgency in trying to get Detroit to the other side. And the only way to do that expeditiously was through consensual agreement by the creditors with the city and the way to do it was in the context of our mediation. And I'll never forget you know when I was reading the background I was reading about the city's assets. There were no assets and I remember sitting there down in this little condo in Florida thinking you know this is great. My legacy is going to be selling off one of the great art collections in the world to sheiks in Dubai and oligarchs in Russia.But it seemed the only way. So I got up one morning and I had I just had this idea and it wasn't just my idea. I mean I'd heard it from I had heard aspects or variations from different lawyers that I was talking to. And I got up one day I'm a kind of a compulsive doodler and I made myself a pot of coffee sat down at the table and the legal pad was in front of me except that I had gone through all the pages taking notes. So the only thing that was there was the cardboard backing. So I just doodle this idea that I had which was to get the state. I drew a circle to the left and I put state and in the middle I put art in on the right. I put pensions both in circles and I drew arrows from the state with dollar signs to the art and then arrows from the art to the pensions. And the idea was to get the state to kick start some funding to save the museum put the museum into a public trust. Then I drew a square around the art to in my mind any way indicate we were going to walk the art off from all of the other creditors use the trust to flow any money we could raise through to the pensions to mitigate the losses for the retirees of their pensions. And then I thought you know this is a pretty crazy idea. The governor was saying you know no bailout for Detroit and the legislature which was controlled by the Republicans both houses in largely by the Tea Party were screaming no bailout for Detroit. So I knew it was pretty I knew it was pretty crazy idea but I had some ideas and I wrote them down under this little under this little doodle. So that was the germ of the idea that I had to bring in outside funding monetize the art give all of it to the retirees get the retirees off the runway because they were the largest creditor between their health insurance and their pensions. They were the largest single creditor and I thought if we could get them off the runway Detroit could then begin to address some of the other creditors debts and So that was just an idea. It was just an idea. And in fact I took this cardboard doodle and put it in the stack of stuff that I had put it in when I left the next day. Put it in my carry on bag took it back to Detroit took it to my office took it out put it in a pile behind my desk and forgot about the doodle. Just totally forgot about it. I didn't forget about the idea.
Aaron Freiwald: [00:38:49.78] But the doodle has now is no longer in a pile behind your desk. Right. The doodle which in very simple terms outlined the plan that becomes really the framework for how this gets resolved over the next couple of years a year or so where because I love this story too. Where is that cardboard doodle now sitting. Or now hanging.
Gerald Rosen: [00:39:20.05] It's hanging in the DIA.
Aaron Freiwald: [00:39:24.71] Great piece of history right now.
Gerald Rosen: [00:39:27.46] It's certainly not art but it is history I guess. You know the continuation of the grand bargain, what became known as the grand bargain story was I wasn't getting anywhere with the governor. And I ran into a friend of mine who was the president of the community foundation here in Detroit or greater Southeast Michigan anyway. And she but she's much more than that she is truly an international player in the philanthropy world and ran into her at the deli across the street from the courthouse about a month later and she asked me how things were going. And I said not so great. You know. I've got no revenue I've got no assets that can be monetized and so not so great. And she said well let me know if you need help. And I here's an idea. I've got an idea Miriam. This was Miriam and I said come on over to my chambers sometime this week I'll tell you about it. So she came over and I spun out this idea and I told her I wasn't getting anywhere with the governor. But maybe the foundations could kickstart the funding and she looked at me like I was crazy. She asked me how much I knew about foundations and I said nothing. I know they have a lot of money for worthwhile causes and we have a very worthwhile cause and we need a lot of money. And she said well first of all foundations don't work together. Even in 9/11 and Katrina they don't work together. They have their own mission silos. And second of all they don't make grants quickly even small grants and I think you need a lot of money fast. And I said yeah I said but just get it. Can you bring as many people to Detroit. I'll bring my whole mediation team and we'll tell them the inside story of the bankruptcy and I'll tell them about this idea I have and the amazing thing is. She gave me their email addresses. I sent out a letter and within 18 minutes. I got an email back from Darren Walker the brand new president of the Ford Foundation saying he would come to Detroit on November 5th. And by the next morning I had responses from 13 foundation presidents all coming so they came to Detroit on November 5th. I had my whole mediation team. I had eight mediators including myself. And ultimately and a consultant and we told the story and made my pitch for to ask them to help get started and then Miriam had a dinner at her house for a few of them and me and my what was really my right hand guy Eugene Driker at her house. And we were we were about two hours late getting there. We had thought the meeting would take about an hour and a half it took three and a half hours. And people were excited about the idea. I mean Darren and Alberto Ibarguen from the Knight Foundation and Bill White from the Mott Foundation. They were excited about and wanted to talk about the idea. We talked about a lot of other things. We talked about baseball and we talked about Churchill, about a lot of things but it kept coming back to this idea. And so over the next month I spent a lot of time on the phone with the foundation leaders and I'm speeding this story up because I know we're running low on time. About a month later Darren Walker called me. I was had just come back in from the court room from a sentencing and Darren called me and he said Judge he said we are inspired by your idea and Ford is going to make the largest commitment in its history. It really didn't know what that was. He said we're going to commit 125 million dollars. And I was just stunned.
Aaron Freiwald: [00:43:35.29] Incredible. Wow. And the others did too. I mean I understand within days.
Gerald Rosen: [00:43:40.04] Within two days I had 291 million dollars of commitments but they were all conditional upon the state's participation and other stakeholders Aaron. And so I called Eugene and I said it's time to go back up and see the governor. And you know we kept this very close. This was not. This was not public at all. I mean the idea had become public which I thought was going to deep six the whole idea because I thought the foundations would get cold feet. But we drove up to see the governor a couple of days after that. And I had planned this little speech. He asked me how things were going and I said not so great. You know we don't have any assets Rick. Rick Snyder who I had known he worked on my congressional campaign in 1982. So I had known him for a long time. And I said but we're beginning to get commitments from the foundations. And he said well tell me about that. And so I had done a. I started doing a tally sheet and I opened up my portfolio to the tally sheet and they said Well Ford Foundation has committed 125 million dollars and just like that he said really! I said yes the Kresge Foundation has committed a hundred million and he said really! And you know I went on and he's a CPA so he was adding the numbers up I was going to roll them out with a lot of drama and give him the total. But he was already there. So you've got two hundred ninety one million dollars and I said yeah. He said well how much more do you think you'll get. I said I think we're going to get the 350 million and then you know I rolled out my speech which was basically I said you know Rick I said putting Detroit into bankruptcy was a courageous decision and it was absolutely the right decision. It was a decision that all of your predecessors had avoided and kicked down the road but you can't throw up your hands now and say not my problem. I said all of this money is conditional upon the states participation. And you know as well as I do that these numbers are all going to become public. If we in this asset list bankruptcy if we don't take advantage of this and if the state doesn't commit we will be weighed by history in the balance and found wanting. And it just changed just like that. And he looked at me and he said so what are you asking. And I said I think the state has to match the state has to come up with at least 350 million dollars. And he he's a very smart guy. He says you know we're going to get one shot at this it's going to be very difficult. You can't come back and re-trade me and so you need more. I said I know that. He said the legislature is going to be just impossible very difficult to persuade. So I said I know that and then he looked at me and he said you know there are very few dramatic moments in life but this was one and he said do you think it will be enough. That was the big question. You know if it's not enough to get Detroit out of a bankruptcy then what's the purpose. It's just more good money after bad. So I looked at Eugene who looks a little like Yoda and he was sitting across from me and he had these big bushy eyebrows and he had his eyes scrunched together and he just almost imperceptibly nodded. And I said I said Rick I said if the state matches the foundations comes to 350 million we get 350 from the from the foundations we're still going to need probably another 100 million but we'll make it work. With that he reached across we shook hands and that was it. And so I had the state and the foundations but we needed more the DIA many of the politicians wanted the DIA to have as they said some skin in the game. So I started negotiating with the DIA for contribution and that was very.
Aaron Freiwald: [00:47:54.6] This is the Detroit Institute of Art.
Gerald Rosen: [00:47:57.86] Yes. And their chairman Gene Gargaro who's a real hero. You know he was the DIA was already strapped and had made a lot of commitments and you know he finally pledged 50 million dollars to raise it. And I called the governor and I said Gene has said that he believes he can commit 50 million and the governor said Well I'm not sure that's going to be enough. So he said but I'm getting an award in Washington for being supportive of the arts. It was a group called the Americans for Art I think. And he said I asked Gene to go with me. He said I'll talk to him. This was a couple weeks. So the night before that. And I've been talking to the governor and to Gene. You know you know things hadn't moved at all. So the night before the governor calls me I'm sitting at home it's about 11:00 o'clock and the governor calls and says guess what I've been doing it for the last hour and a half. And I said What's that. He said I've got the DIA's alternate Financials. He said I see how we can save them four to six million dollars a year. I said Really. I said all right. And then he dove into this accountant speak which you know went right pass me. So I said well what are you going to do with that. He said I'm going to ask Gene for 100 million dollars tomorrow. I said Rick get the award first. So
Aaron Freiwald: [00:49:32.13] And got it. He got it right.
Gerald Rosen: [00:49:33.98] Yeah so next morning I'm sitting at my desk and he calls and his voice was just ebulient he said I had a very productive breakfast with Gene Gargaro. I said OK how productive? He said I got your 100 million dollars. So you know my first instinct was to call Gene and kind of confirm it. But I decided not to. I wanted to you know people have different memories of these kinds of things so I wanted to kind of beta test it. And Gene called me a little later and I said have it you're out of your breakfast with the governor go in Washington. He just he still sounded sort of befuddled then he said. That was the most expensive breakfast in history.
Aaron Freiwald: [00:50:19.54] Well Judge obviously there are more pieces to this. The bankruptcy judge he had to beat up some banks to get them take home you know a fraction of what they had what they were owed technically.
Gerald Rosen: [00:50:34.32] In the mediations in the mediation sessions. We did a lot of we all did a lot of beating up and getting beaten up and there were deals. Once the grand bargain got put together though, deals started coming together the first deal we got with a financial creditor was a really important deal we had been negotiating with them for months and we ended up going over to my 78 year old Italian barber's shop with me and two of the city's lead attorney and the lead guy for the insurance companies and UTGO bonds. And I got the governor on the phone because the state had a role to play in this. And in three hours with three of us going getting our haircut and Frankie my barber listening we put the outlines of the UTGO deal together and it worked. It stuck. And so that was the first municipal creditor deal we got then we got the LTGOs and the media started referring to it as the grand bargain express because I was telling it got out to the media that not by me that I was telling the creditors that you know a bankruptcy is like a train waiting at a station. The people who buy the first tickets get the best seats. People buy the next tickets get the next best. People who buy the last tickets are on the train. They may not get the best seats but they're on the train. And then people who don't buy tickets end up in front of the train. And so that became sort of a mantra for me and also the media began to call the grand bargain express. You know it just came together all.
Aaron Freiwald: [00:52:20.92] That's great I think I've used something similar to that settlement negotiations. What I'm trying to persuade one defendant to get on board and get out of the way of the game I called it a runaway train in one case. But that might be a different analogy.
Gerald Rosen: [00:52:36.37] When Judge Rhodes approved the plan of adjustment. The courthouse was full. I had an open house in my chambers. His courtroom down the hall was full. Everybody was there and people who had been screaming at each other and yelling at each other. And you know I can't describe the emotions in this. During our mediations we're hugging each other and high fiving and talking about how great the experience was and very optimistic about the future for Detroit. Every deal we did had some that some creativity to it and you know. When I was going through this Aaron it was a series of deals. You know head down. Get to the finish line. Do this deal do this deal do another deal you know get what became known as the haircut at the haircut the deal we did at the barber shop. You know do that deal. But as I look back on it now with five years of perspective it was really more about people. I call it Detroit's Big Bang Theory of unrelated people and events colliding together in the same space and coming together to save an iconic American city. And to overcome distrust and rigidity and self-interest to come together find common ground. Plant a flag on that common ground and rescue as I said rescue a great city. And in today's politics of dysfunction and polarization and people shouting at each other you just don't see that.
Aaron Freiwald: [00:54:34.65] Well and we talked about that and I want to finish with this idea and but to get there I'll just reflect for a second. When I when I first moved to Philadelphia in 1990 Ed Rendell was then the mayor and he went on to become governor of Pennsylvania later. And I remember soon after I moved to Philadelphia I was at a speech that Rendell gave and it was he was looking back on the city's history and some of the economic problems the city was facing at that time. And I'll never forget it made such a deep imprint in my thinking at the time I remember then mayor Rendell saying that in the prior 25 years so from 1990 going back 25 years Philadelphia had lost 250,000 manufacturing jobs. And I just it was staggering because of course every one of those is a good paying job that goes to support a family that goes to support the community and the city because those those wage earners are paying taxes. And I just think about today. Now we talk about automation in industry and a lot of the structural changes in our economy and the things that that hit Detroit you know the pension issue. The changes in the economy locally financial crises and Wall Street the impact that had. It just seems like this is not a situation that is unique to Detroit and other cities. You mentioned Chicago so and we do live in a very very difficult political time. What I mean. What if you were if you were asked and I guess I'm asking you what advice do you have or what warnings do you have or what lessons do you think we should be paying attention to from that from this incredible Detroit experience.
Gerald Rosen: [00:56:37.29] Well first they ought to put a plug in for a Philadelphia guy right. A lot of your listeners would know from Philadelphia is now a documentary filmmaker. I know he ran for mayor of Philadelphia. But Sam has is making a documentary about the Detroit bankruptcy and a larger context that you're talking about. So I think Detroit is a cautionary tale for every American city that you cannot continue to pile structural debt upon structural debt. It's the road to oblivion. You have to restructure the basics of the financial of the financial underlayment and structure. You just can't keep borrowing and the other. The other is that you can't keep raising taxes. Many municipalities are trying to tax their way out of their debt. And what will happen is what's happening in Detroit. People will leave because and the tax base will the tax base will dissolve. And then the services dissolve and all of a sudden you have a situation where people are paying enormously high taxes both property taxes and income taxes and sales taxes and all the other fees and getting less and less for it. People vote with their feet. So that's that's the cautionary tale part of it I think. I think the optimistic piece of it is that people really can come together Aaron. They can overcome distrust they can overcome self-interest they can overcome the deep the ghosts of past mistakes. Detroit had certainly made many of them. But people can come together they can find common ground and they can they can save a city.
Aaron Freiwald: [00:58:39.95] Judge. what a fascinating story and such a privilege to have you on Good Law Bad Law to talk about this. Not only fascinating in and of itself and the incredible story from haircuts to doodles and famous art museums but also what we should all be thinking about in our own cities and communities about what so much there is to learn from this. So Judge Rosen thank you so much for being on the program. I can't thank you enough.
Gerald Rosen: [00:59:10.64] Well thanks Aaron and I hope maybe you and I get a chance to meet some time either in Philadelphia or come to Detroit and see what's happening here.
Aaron Freiwald: [00:59:18.53] I would love it. I would love it. I hope so as well thanks again.
Gerald Rosen: [00:59:22.34] Thank you.