On July 18, 2013, the City of Detroit (the “City”) petitioned the United States Bankruptcy Court for the Eastern District of Michigan for relief under chapter 9 of the Bankruptcy Code. Detroit’s bankruptcy is the largest U.S. municipality chapter 9 filing to-date.
The City is in the process of marshaling its property in hopes of monetizing some assets to create liquidity to satisfy claims of creditors. Some of these creditors are pushing for the sale of the art collection (the “Art”) in possession of the Detroit Institute of Arts (“DIA” or the “Museum”). This collection is possibly worth billions of dollars and is owned by the City and operated by a non-profit organization, the Detroit Institute of Arts Founders Society (the “Society”). The City retained Christie’s International Plc to appraise the collection.
The potential sale of the Art has raised general moral and legal questions. Morally, some have asserted that a collection of art is a priceless community treasure and should not be subject to a bankruptcy fire sale. In fact, in an opinion, Bill Schuette, the Michigan attorney general (the “AG”) takes this exact position predicated on a charitable trust argument. The pertinent question in the Detroit case is whether the City of Detroit owns the Art without restriction or whether the City is merely a trustee required to hold the Art in trust for the benefit of the City’s citizens. This article examines the charitable trust argument and provides suggested solutions and best practices that may provide guidance to municipalities and other related parties faced with issues similar to those presented in the Detroit case.