Detroit art museum will sue if city's bankruptcy plan not approved

By Lisa Lambert
People enter and exit the Detroit Institute of Arts in Detroit, Michigan December 7, 2013. REUTERS/Joshua Lott

By Lisa Lambert

DETROIT (Reuters) - The Detroit Institute of Arts is prepared to sue to prevent the sale of its collection if Detroit's plan for exiting bankruptcy is not approved, the museum's chief operating officer told U.S. Bankruptcy Court on Thursday.

When Detroit filed for the largest-ever U.S. municipal bankruptcy 14 months ago, the museum began preparing for possible litigation to keep its art works from being sold to pay city creditors, museum COO Annmarie Erickson told the court.

Some city creditors have contended that the art is a city asset that can be sold or monetized to enhance payouts to creditors. The Detroit Institute of Arts and Michigan's attorney general have countered that the collection cannot be legally sold to satisfy the city's debts.

In January, court mediators brokered a deal known as the "grand bargain" which led to pledges from foundations, the art museum and the state of Michigan to raise more than $800 million over 20 years to ease cuts to city pensions. In return, the museum's assets would be held by a perpetual charitable trust.

Michigan Attorney General Bill Schuette, who approved the grand bargain in June, has said it is in accordance with his legal opinion that the collection cannot be used to satisfy city debts or obligations.

If Detroit's bankruptcy exit plan is not approved by the court, that would blow up the grand bargain, and "we would be in litigation to protect the collection," Erickson said.

The major hold-out creditor in the bankruptcy case, Financial Guarantee Insurance Co, has $1.1 billion on the line and wants the city to monetize DIA assets.

This week the city called its consultants to testify on the collection's market value. Christie's auction house has valued the most marketable parts of it at $452 million to $866 million. Independent consultant Michael Plummer has said the collection could be worth as much as $4.6 billion, after adding his research to Christie's findings, though a sale would raise less than $2 billion.

Plummer, principal at Artvest Partners, testified on Thursday on risks to a sale, namely a slowing art market, major auction houses' possible unwillingness to host the sale, and American collectors' potential resistance to helping liquidate a well-respected collection.

He said a sale would take about six years to complete after resolution of any litigation, which he estimated would span five years, based on previous art-related lawsuits.

FGIC has worked this week to show that the museum and its collection are city-owned assets of high value that Detroit could liquidate in bankruptcy, referring to a 1919 sale of the museum to the city and a museum operating agreement that repeatedly mentions city ownership.

A consultant hired by the bond insurer has said the collection is worth more than $8 billion, and New York-based Art Capital Group has offered Detroit a $4 billion loan with the art works as collateral.

Erickson, though, considered ownership secondary, and said the museum was dedicated to the public. She pointed to voters in Detroit and surrounding counties in 2012 approving a millage to support the museum.

Judge Steven Rhodes, who is overseeing the case, began a trial on Sept. 2 to determine if Detroit's plan to shed about $7 billion of $18 billion in debt and obligations is fair and feasible.

Rhodes put numbers aside in his questions on Thursday, focusing instead on the museum's "noneconomic value" and its contributions to the community.

(Additional reporting by Karen Pierog in Chicago; editing by Matthew Lewis)