Art Law Report

Detroit Creditors Press Bankruptcy Court for Action on Sale of Detroit Institute of Arts Collection, Motion Likely Premature and Unfounded

Posted by Nicholas O'Donnell on November 27, 2013 at 9:11 AM

Major creditors of the city of Detroit filed a request in the bankruptcy proceeding to hasten the process of evaluating the value of the collection of the Detroit Institute of Arts. The motion raises a few questions, but fundamentally it is off-base: in a municipal bankruptcy the creditors are never going to be able to force the sale of DIA's art. It will ultimately be, as it has always been, the decision of the city through its emergency manager Kevyn Orr. Significantly, though, this is the first actual filing in the bankruptcy related to DIA.

The city commissioned Christie’s a few months ago to appraise the museum’s collection, during which time Orr has been clear that he expects the collection to bring some value to the city’s finances, even if not through an outright sale. And while in a commercial bankruptcy creditors can petition the court to require the sale of certain assets to aid the value of the estate, the court cannot do so in a municipal bankruptcy. Why? 11 U.S.C. § 904 (Chapter 9 of the Bankruptcy Code), the law that governs municipal bankruptcies states:

Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with—

(1) any of the political or governmental powers of the debtor;

(2) any of the property or revenues of the debtor; or

(3) the debtor's use or enjoyment of any income-producing property.

The upshot of this provision (compelled by the Tenth Amendment) is that the court cannot compel the sale of DIA’s collection. This cannot be repeated enough, since coverage continues to miss that point. The only real question is if the city resolves to sell the collection, can the museum stop it? The view here is that it cannot, but expect much more ink to be spilled in court on that issue.

The creditors’ motion, well aware of this, tries a sneakier tack. They argue that the Christie’s valuation has not proceeded fast enough, and that the creditors will be left at a disadvantage when the city files its proposed plan of reorganization later this years, to be finalized early next, because only then will they be able to address Christie’s appraisal.

This is far more likely an attempt to pressure Detroit into either overvaluing and/or selling the art. References to pressures on Orr to take the collection off the table, or to the Attorney General’s non-binding opinion about deaccession, are pure distraction. Orr will sell the art if he wants to; whether he should is really a different question, and not a legal one. The motion’s disparagement of Christie’s approach is without basis; to say they the creditors don’t yet know Christie’s methodology in no way suggests that the venerable auction house is doing anything at all amiss. And the city has a plan deadline for a reason, but before then it does not have to explain what it might do.

Expect the motion to be summarily denied, perhaps even after the museum itself weighs in.

Topics: Syncora Guarantee Inc., NORD/LB Covered Finance Bank S.A., City of Detroit Retirees, 11 U.S.C. § 904, Syncora Capital Assurance Inc., Dexia Crédit Local, FMS-WM Service, Christie's, valuation, Ambac Assurance Corporation, Appraisal, Detroit, Detroit Institute of Arts, Bankruptcy, FMS Wertmanagement, DIA, Erste Europäische Pfandbrief-und Kommunalkreditban, Hypothekenbank Frankfurt International S.A., Dexia Holdings, Michigan Council 25 of the American Federation of, AFL-CIO and Sub-Chapter 98, Kevyn Orr, Hypothekenbank Frankfurt AG, Financial Guaranty Insurance Company, Detroit Bankruptcy, National Association

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