A trial over how Detroit should end costly financial contracts with two big banks was suspended Monday after more than a foot of snow fell, paralyzing much of the city and closing the federal courthouse there.
Creditors of the city had been scheduled to make their closing arguments on Monday against a plan for Detroit to pay $165 million to exit the contracts, known as interest-rate swaps. The creditors say that termination fee improperly favors the two swap counterparties, Bank of America and UBS.
The storm also stopped the trial just as a group of creditors accused the mediator who negotiated the swap-termination deal of misconduct. The creditors filed an objection last week, contending that the mediator, Gerald Rosen, exceeded the limits of his authority when he publicly praised the $165 million deal and said he would recommend that the bankruptcy court approve it.
The creditors, including both financial institutions and labor groups, complain that the swaps were invalid from the time Detroit signed them, in 2005. They say that if Detroit took legal action against the two banks, instead of paying them to end the contracts, the city could obtain a much better deal.
Detroit’s emergency manager, Kevyn Orr, said in a deposition last week that his legal team had reviewed the prospects for such a lawsuit but decided against it because it would have just a 50-50 chance of success. Mr. Orr said that the city did not have time for protracted and uncertain litigation. It needs to get out of the swaps quickly as a prerequisite for a special new loan to finance its operations in bankruptcy.
If Detroit cannot obtain the new loan, proposed by Barclays Capital, the city has warned that it soon will soon be out of cash and unable to pay its workers.
It was not clear when the trial might resume.
