Detroit Emergency Manager Settled with Museum to Avoid Legal Fight

by | October 2, 2014

By Brent Snavely and Matt Helms

Detroit emergency manager Kevyn Orr said finding a way to settle the issue of ownership of the art held by the Detroit Institute of Arts was critical to avoiding a prolonged, costly legal battle.

One of the central issues in the city's bankruptcy case, which began in July 2013, has been the ownership of the art held by the museum and whether Detroit could or should sell the art to raise money to pay off its creditors.

Orr testified Thursday in bankruptcy court in downtown Detroit that the city believed it owned the art and sought to find out how much the art was worth last year. Nevertheless, the city also realized quickly that attempting to sell the art could be difficult.

"The DIA said it would fight and litigate every piece of art that the city would sell. The intent was that they would make it a very lengthy and painful piece of litigation," Orr said today in U.S. Bankruptcy Court. "It would have been very expensive for the city."

Orr said the city's investment banker, Ken Buckfire, and Jones Day attorney Bruce Bennett met with DIA officials several times starting in April 2013. The city also hired internationally renowned art auction house Christie's to assess the value of the DIA's collection.

"We felt it was our obligation to value our assets," Orr said.

Orr said the city ruled out Sotheby's because Alfred Taubman, a DIA honorary director, once served as chairman of Sotheby's.

Orr's testimony Thursday was the 17th day of a hearing about the city's plan of adjustment, a restructuring plan that the city is asking Judge Steven Rhodes to approve. If Rhodes approves the plan, the city will be able to exit bankruptcy. Orr also said Detroit would have faced a major legal battle with Michigan Attorney General Bill Schuette.

"I met with Schuette a number of times and he expressed under no uncertain times that he felt it was his duty" to protect the DIA's art, Orr said.

Questions about the fate of the DIA began to emerge in the spring of 2013 even before the city filed for bankruptcy because of the city's unusual ties to the museum.

In 1919, with the Detroit Institute of Arts in dire financial straits and Detroit's economy booming, museum leaders ceded ownership of the art and building to city hall in exchange for annual funding. However, people and institutions that have donated art to the museum did so with the understanding that the museum would take care of the art and protect it.

In order to settle the legal issues, and resolve the ownership issues, the city agreed to accept $100 million from the DIA as part of the so-called grand bargain that will help the city emerge from bankruptcy. In return, the DIA will be spun off into an independent charitable trust that would own the collection and building.

Orr said a number of other proposals were considered, including using the museum's art as collateral to obtain a loan. Orr did not like that idea. "We are trying to get the city out of the debt business," Orr said.

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