Detroit Institute of Arts' Legal Brief

UNITED STATES BANKRUPTCY COURTEASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

In re:

CITY OF DETROIT, MICHIGAN,

Debtor.

Chapter 9

Case No. 13-53846

Hon. Steven W. Rhodes

RESPONSE OF THE DETROIT INSTITUTE OF ARTS TOOBJECTIONS TO THE CITYS AMENDED PLAN OF CONFIRMATION

13-53846-swr Doc 5054 Filed 05/27/14 Entered 05/27/14 15:32:06 Page 1 of 30

TABLE OF CONTENTS

I. INTRODUCTION ...............................................................................................................1II. BACKGROUND .................................................................................................................3

A. The Museum Was Established For The Sole Charitable Purpose OfMaking Art Available To The Public. .....................................................................31. The Museum Begins With The Incorporation Of The DIA Corp.

As A Public Art Institute............................................................................. 32. The Museum Is Continued With The Formation Of The Arts

Commission Of The City Of Detroit With The City Acting As Co-Trustee With The DIA Corp. ...................................................................... 4

3. The Museum Continues Under The 1997 Operating AgreementWith The DIA Corp. Assuming All Responsibilities For OperatingThe Museum For The Benefit Of The Public. ............................................ 8

B. The Museum Is The Product Of More Than A Century Of Public AndPrivate Charitable Acts. ...........................................................................................9

C. A Century Of Public-Private Contributions Has Resulted In A MuseumThat Benefits The People Of Detroit And The State Of Michigan........................10

III. ARGUMENT.....................................................................................................................11A. The Museum Art Collection Is Not A City Asset That May Be Liquidated

To Satisfy The Citys Obligations. ........................................................................121. The Museum Art Collection Is Held In Charitable Trust. ........................ 122. The Museum Art Collection Is Protected By An Implied Trust............... 183. The Museum Art Collection Is Protected By The Public-Trust

Doctrine..................................................................................................... 194. The City is Bound by Promises, Representations and Restrictions

relating to Gifts to the Museum and the Museum Art Collection............. 19B. Any Attempted Sale Of The Museum Art Collection By The City Would

Result In Protracted, Expensive Litigation. ...........................................................21C. The DIA Settlement As Part Of The Plan Is In The Best Interests Of The

City And The Creditors..........................................................................................221. The Plans Treatment Of The Museum Art Collection Is Better

Than The Alternatives............................................................................... 222. The DIA Settlement Promotes Plan Feasibility. ....................................... 24

IV. CONCLUSION..................................................................................................................26


The Detroit Institute of Arts, a Michigan non-profit corporation founded in 1885 (DIA

Corp.), has served continuously for over 125 years as the steward of the museum now known as

the Detroit Institute of Arts (Museum) and as a trustee of a charitable trust protecting the

Museum. It currently manages the Museum under a 1997 Operating Agreement with the City of

Detroit (City). The DIA Corp. is a party to a proposed settlement (Grand Bargain or DIA

Settlement), which has been made part of the Citys Fourth Amended Plan of Adjustment

[Docket No. 4392] (Plan). The DIA Corp. submits this Response in support of the Plan and in

response to the objections filed by certain bondholders, creditors, and the insurers of City

obligations (Financial Creditors).

I. INTRODUCTION

For more than 125 years, the people of the City of Detroit and the State of Michigan (the

Public) have contributed their funds, family treasures, time, and goodwill to the Museum.

These contributions were given in charitable trust, by the people, for the people. As a result, the

Public has access to one of the worlds most important encyclopedic public collections of

artwork (the Museum Art Collection) housed in a building (the Museum Building)

specifically dedicated to the Knowledge and Enjoyment of Art.

As the Citys chapter 9 case and creditor demands posed an existential threat to the

Museum and the Museum Art Collection, the Court-appointed mediators broached the possibility

of a Grand Bargainunprecedented in its scope and ambition, benefiting the City, the Public,

creditors, and other interested parties in the bankruptcy case. After months of negotiations, the

parties agreed to a proposed DIA Settlement that would make $466 million available to satisfy

City obligations to certain creditors, preserve approximately $250 million of county millage


2support, and safeguard the Museum Art Collection, and also serves as a condition of the State

contribution at a discounted present value of $195 million. The City included the terms of the

DIA Settlement in its Plan.

The Financial Creditors have filed Plan objections (Objections) arguing that the City

must instead sell, transfer, or convey some or all the Museum Art Collection. The Objections

contend the Museum Art Collection is a non-core asset whose value can be used to satisfy City

obligations and the Plan is not in the best interests of creditors because the DIA Settlement does

not derive sufficient value from the Museum Art Collection.

The Financial Creditors are mistaken. In determining whether to approve the DIA

Settlement, the Court normally considers the likelihood that the Museum or the Museum Art

Collection can be sold to satisfy the Citys obligations; the potential amount at stake in litigating

any such claim; the inherent difficulty in realizing value from a sale; and the best interest of the

City and its creditors. Each of these factors points to approval of the DIA Settlement as part of

the Plan. The law of trusts, contract, and equity, backed by over a century of history, belie any

suggestion that the City may sell or pledge the Museum Art Collection to satisfy City

obligations. Any such attempt would be fraught with litigation, delay, and legal and market risk,

jeopardizing the Citys ability to receive sale proceeds based on the aggregate estimated values

of individual objects. The DIA Settlement is in the best interest of the City and its creditors, as it

will preserve one of the Citys most important cultural institutions, an anchor of the Midtown

community, and an essential component of the Citys revitalization.

For these reasons, the Court should approve the DIA Settlement as part of the Plan.


3II. BACKGROUND

A. THE MUSEUM WAS ESTABLISHED FOR THE SOLE CHARITABLE PURPOSE OFMAKING ART AVAILABLE TO THE PUBLIC.

1. THE MUSEUM BEGINS WITH THE INCORPORATION OF THE DIA CORP.AS A PUBLIC ART INSTITUTE.

The DIA Corp. was organized in 1885 as the Detroit Museum of Art (the DMA)

through the efforts of public-spirited Detroit residents who donated funds, land and artwork and

who erected the Museums first building on Jefferson Avenue. The DMA was founded as a

public art institute pursuant to Public Act 3 of 1885 (the 1885 Act), which obligated the

DMA to faithfully use its property for art purposes and prohibited the DMA from selling,

encumbering, or disposing of its general art collection:

Section 15. All gifts, devises, or bequests made to any suchcorporation, and all of its income, shall be faithfully used for thepurposes for which such corporation was organized; and nodividend in money or property shall ever be made by suchcorporation among its members.

Section 16. The character and purposes of such corporation shallnot be changed, nor its general art collection be sold, incumbered,or disposed of, unless authorized by the legislature of this state . . ..

(Exhibit 1 (P.A. 3 (1885)); see also MICH. COMP. LAWS 10759-10776 (1915); see also MICH.

COMP. LAWS 10777-10787 (1915).

Mirroring this legislative mandate, the DIA Corps initial articles of incorporation (1885

Articles) state that the DIA Corp. was established for the purpose of the:

founding of a public art institute in the City of Detroit, which mayacquire and hold such real estate as may be suitable for the site ofsuch art buildings as it may erect or maintain thereon; receive anduse such gifts, contributions, devises and bequests, as may be madeit, for art purposes; receive, acquire, collect and own paintings,sculpture, engraving, drawings, pictures, coins and other works ofart, and may institute, maintain or assist schools for the teaching of


4art, and may do all other things authorized by [the 1885 Act], andhave and enjoy all the privileges and franchises given thereby.

(Exhibit 2 (1885 Articles)). The DIA Corp. was initially funded with, among other things, cash

gifts totaling $40,000 from 40 private individuals. (Id.).

In the ensuing years, it became clear that a combination of public and private support

would better serve the Publics interests. In 1899, legislation was passed to allow the City to

make appropriations to support the Museum. P.A. 429 (1899) (as further amended by P.A. 489

(1903)). Thereafter, the City supported the Museum, which helped ensure the art collection

would be freely available to the Public.

After several years of private/public cooperation, the Michigan Supreme Court held the

DIA Corp. was not a municipal agency and, thus, the City could not constitutionally commit its

credit to the private corporation even though it served a public purpose and provided a public

benefit. Detroit Museum of Art v. Engel, 153 N.W. 700, 703 (Mich. 1915).

2. THE MUSEUM IS CONTINUED WITH THE FORMATION OF THE ARTSCOMMISSION OF THE CITY OF DETROIT WITH THE CITY ACTING ASCO-TRUSTEE WITH THE DIA CORP.

To resolve the constitutional problem Engel created, the DIA Corp. agreed to place title

to some (but not all) of its assets in the City, including the existing Museum building, lands, and

Museum Art Collection, with the understanding that the City would assume the responsibility to

properly care for, maintain, and exhibit the Museum Art Collection for the Publics benefit. But

the DIA Corp. did not have the authority to transfer its assets. Under the DIA Corp.s enabling

legislation and Articles, the Museums assets could be used only for art purposes and could

only be disposed of in a way that best promoted and perpetuated the purposes for which such

corporation was originally organized. P.A. 3, 3, 15, 16 (1885). The Legislature enacted

Public Act 67 in 1919 (1919 Act) to allow the DIA Corp. to convey its property, including real


5estate and the art collection, to the City, subject to the express limitation that said property so

conveyed shall in the hands of said city be faithfully used for the purposes for which [the DIA

Corp.] was organized. (Exhibit 3 (P.A. 67 20 (1919)).1

Although the Legislature had previously authorized cities to receive gifts of real and

personal property for public purposes, P.A. 380, 1 (1913) (the 1913 Act), the City lacked the

mechanism to undertake responsibility for the Museum. To permit the City to do so, the City

amended its Charter in 1918 (the 1918 Charter) to create a new municipal department, known

as the Arts Commission, to receive the DIA Corp. property, continue the Museums activities,

receive charitable gifts, and establish the Detroit Institute of Arts for the Publics benefit.

The 1918 Charter amendment creating the Arts Commission gave the City the authority

to take and hold charitable gifts for art purposes and the obligations to acquire, collect, own

and exhibit Museum quality objects and works and to build and operate a museum for the

Publics benefit. 2 In June 1919, the DIA Corp. agreed to convey title to land on Woodward

1 The 1919 Act was repealed in 1921 as part of the consolidation of the corporations law but contained asavings provision that continued the effect of the act on corporations existing at the time. 1921 P.A. 84;see also MICH. COMP. LAWS 9053 (1921).2 The 1918 Charter provided in relevant part:

(a) The commission shall hold, in the name of the City, such real estate as may benecessary for the accomplishment of its objects;

(b) Shall build, operate and maintain suitable buildings to be used for the exhibitionof paintings and works of art and auditorium purposes, to be known as the DetroitInstitute of Arts, and to which, under proper rules and regulations, the public may haveaccess free of charge . . . .

(c) Shall acquire, collect, own and exhibit, in the name of the City, works of art,books and other objects such as are usually incorporated in Museums of Art.

* * *


6Avenue, its art collection, and certain other assets to the City so that both public and private

support could continue to be used to care for, maintain, and grow an art collection for the Public.

(Exhibit 4 (Excerpts of the January 27, 1920 Board Minutes of the Trustees of the Detroit

Museum of Art)).3

The parties understood that the Museums charitable purpose would continue and that the

City would be bound by the obligations created by law, statute, and agreement. The DIA Corp.s

contemporaneous board minutes reflect that the DIA Corp.s leaders expressly relied on the 1919

Act to prevent the City from utilizing the transferred property for any purpose other than the

public exhibition of the Museum Art Collection for the Publics benefit. (Id.) The DIA Corp.s

president, Ralph H. Booth, noted in the year preceding this transaction that the city in its new

charter has provided for an arts commission, contemplating that you will convey the property

and trusts you hold to the city, as the basis for the Detroit Institute of Arts. (Exhibit 5 (Excerpts

of DMAs 1918 Annual Report at 7)).4 Similarly, at the time of the conveyance, Mr. Booth

reiterated:

[S]teps have been taken looking to the conveyance of our propertyand collections to the City of Detroit with due regard for the trustwe hold and of the obligations attached thereto. . . . Under suchconveyance the property can only be used for such purposes as wehave received it or for some kindred purpose so indicated by theCircuit Court. . . . If you should convey the real estate and thecollections to the city in conformity with the amended legislation it

(e) May, with the approval of the common council, in the name of the City, take andhold, by purchase, gift, devise, bequest or otherwise, such real and personal property asmay be proper for carrying out the intents and purposes for which it is established.

(Exhibit 6 (Charter of the City of Detroit, Ch. XIX, Arts Commission 7 (1918))). The 1918 Detroit CityCharter is available online.3 To avoid filing excessively voluminous exhibits with the Court, certain exhibits have been filed inexcerpted form. Full copies of these exhibits can be provided on request.4 The DMA Annual Reports and DIA Annual Bulletins are available online.


7should be noted that the property can be used only for suchpurposes as this permits, and further the conveyance would bemade to the Arts Commission, who would hold the property inbehalf of the city for its uses in accord with the provision of the citycharter . . . .

(Exhibit 7 (Excerpts of DMAs 1919 Annual Report at 11-13)) (emphasis added).

With the DIA Corp. and the City acting together on behalf of the Museum, a historic

period of private-public collaboration for the Publics benefit began. As announced in the first

Bulletin of the Detroit Institute of Arts issued in October 1919:

This change marks the beginning of an epoch in the history ofDetroit when it shall become a civic function of the municipality tofoster art, by operating and maintaining a museum for the peopleof the city. It is an era when art shall become in its broadest sensedemocratic, with the museum and its valuable collections actuallybelonging to the people.

(Exhibit 8 (Excerpts of October 1919 Bulletin of the Detroit Institute of Arts at 1)).

The City and the DIA Corp. collaborated on the construction of a new Museum Building

to house the growing Museum Art Collection. Completed in 1927, the buildings charitable

purpose was affixed to its faade: Dedicated by the People of Detroit to the Knowledge and

Enjoyment of Art. At the dedication of the Museum Building, Mr. Booth acknowledged the

charitable objects and purposes implicit in this statement of dedication:

[T]he beauty of art and the spiritual and moral beauties which liebeyond and above the beauty of art alone, are as essential in thelife of a community as are the material comforts and modernfacilities and improvements which it is the pride of everyprosperous, enlightened community of today to furnish its citizens.. . . And in this spirit today, in behalf of the people of Detroit, letus dedicate this building to the lofty purpose for which it wasconceived: The Knowledge and Enjoyment of Art, believing thatwe have seen the completion of a building that will stand forcenturies to come, because of the enduring character of art; andthat if we cling to our spiritual ideals we shall best advance thehigh destiny of generations to come.


8Detroit News, Monument to Detroit, Speakers Call New Art Institute, Oct. 8, 1927.

This collaboration continued through the Citys prosperous years. But as the Citys

fortunes declined, the City ceased providing funds for art acquisitions and experienced difficulty

meeting its obligations to care for the Museum Art Collection and Museum Building. As a result,

the DIA Corp. rededicated itself to the continued support of the Museum. This resulted in a new

partnership of the private and public sectors.

3. THE MUSEUM CONTINUES UNDER THE 1997 OPERATING AGREEMENTWITH THE DIA CORP. ASSUMING ALL RESPONSIBILITIES FOROPERATING THE MUSEUM FOR THE BENEFIT OF THE PUBLIC.

After decades of (sometimes tempestuous) joint management and inadequate City

financial support, the City materially decreased its appropriation to Museum operations. Private

and state support helped maintain Museum operations, but as the State began to experience its

own financial difficulties, the State withdrew its support as well.

To address these threats to the Museum, the DIA Corp. and the City changed their roles

once again. The City understood that to obtain private support for the Museum and to build an

endowment, it was crucial that the DIA Corp., a non-profit entity, take over management of the

Museum. To address these and other issues, the City entered into an Operating Agreement with

the DIA Corp. in 1997 (Operating Agreement). Among other things, the Operating Agreement

confirmed that the Museum Art Collection was held in trust and could only be used for art

purposes. The Operating Agreement approved the Museums Collections Management Policy

(Exhibit 9 (Operating Agreement, F2(a))), which states that, in deaccessioning works from the

Museum Art Collection, the Museum must be ever aware of its role as trustee of the collection

for the benefit of the public. (Exhibit 10 (Collections Management Policy, V.A.)). The

Operating Agreement affirms the Collections Management Policy on deaccessioning, which


9prohibits using deaccessioning proceeds as operating funds. (Operating Agreement, F2(b);

Collections Management Policy, V.F.).

B. THE MUSEUM IS THE PRODUCT OF MORE THAN A CENTURY OF PUBLIC ANDPRIVATE CHARITABLE ACTS.

Over the course of more than 125 years, property, funds, and services have been given to

cultivate and preserve the Museum Art Collection, maintain the Museum Building, and keep the

Museum open to the Public for the Publics benefit.

The DIA Corp. has contributed artwork, funds and services to the Museum for the

Publics benefit. Private individuals, institutions and foundations have contributed property for

the Publics benefit, including works of art. Funds have been contributed to care for, maintain

and exhibit the Museum Art Collection, as well as to maintain and expand the Museum Building.

These donors have gone to great lengths to grow an endowment that will help ensure that the

Museum and its collection and services will be available to the Public in perpetuity. In most if

not all cases, donors gave their personal treasures or funds to the DIA Corp. with the express or

implied restriction or understanding that those objects and funds would be used solely to benefit

the Detroit Institute of Arts and the Public the Museum serves.

The State of Michigan has contributed significantly and generously as wellover $180

million just since 1989including an equity grant, purportedly to reimburse Detroit for

services provided to non-Detroit residents, because the City could not fully support Museum

operations. Wayne, Macomb, and Oakland Counties have also contributed. Under the Art

Institute Authorities Act, MICH. COMP. LAWS 123.1201 et seq., the counties electors approved

a millage to support the Museum through Art Institute Services Agreements with the DIA

Corp. They will remit approximately $23 - 25 million in each year over the ten-year period of the

millage to help support the Museum.


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The City also has contributed to the Museum and to its public and charitable purpose. On

and off over the years, as its financial circumstances permitted, it has supported Museum

operations. It helped finance and construct the Museum Building, dedicating it to the

knowledge and enjoyment of art, and later provided funds to help maintain and renovate the

Museum Building. The City also has appropriated specific funds to acquire works of art for the

Museum Art Collection, which (unlike other municipal artwork) were accessioned into the

Museums permanent collection. The City does not treat or account for these objects as assets

that are subject to sale. (Exhibit 11 (Excerpts of the City of Detroit 2012 Comprehensive Audited

Financial Report at 74, 95) (listing $29 million in City-owned works of art)).

C. A CENTURY OF PUBLIC-PRIVATE CONTRIBUTIONS HAS RESULTED IN AMUSEUM THAT BENEFITS THE PEOPLE OF DETROIT AND THE STATE OFMICHIGAN.

As a result of this century of public-private collaboration, the Museum has become a

world-class art instituteone of the top six encyclopedic fine arts museums in the United

Statesthat is a source of civic pride and an irreplaceable Public institution. The Museum Art

Collection comprises a multicultural and multinational survey of human creativity from

prehistory through the 21st century. The Museums iconic Detroit Industry murals by Diego

Rivera have been described as one of Americas most significant monuments to itself and a

summons to renewed greatness of the City.

The Museum is a center of arts and culture in Michigan and the anchor of the Citys

Cultural Center Historic District, helping to drive businesses, residents, and talented recruits to

Detroit. The Museum provides the premier venue for arts education in the Detroit area. Visitors

and students of all ages benefit from access to the unique and irreplaceable collection and

services provided by the Museum, including innovative educational and interpretive


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programming and critical social services. The DIAs education programs reach approximately

150,000 participants annually. The Museum is home to the Mosaic Youth Theater and provides

programming to veterans at the Dingell Veterans Hospital, clients of Mariners Inn, and patients

at Childrens Hospital of Detroit.

The Museum is an economic and social engine in Detroit and southeast Michigan. In the

past year, the Museum drew more than 600,000 visitors, with more than 300,000 residents from

Macomb, Oakland, and Wayne counties taking advantage of the free admission policy adopted

following millage approval. These visitors spend millions of dollars in Detroit each year as a

result of their visits. The Museum has more than 28,000 members, 700 volunteers, and 300

employees, many of whom are City residents who pay property and other taxes in addition to

City income taxes. The DIA Corp. has an operating budget of approximately $32 million with a

large percentage of that total budget spent in the City.

III. ARGUMENT

In determining whether to approve the DIA Settlement as part of the Plan, the Court

normally considers the likelihood of success on the merits of any claim that the Museum or the

Museum Art Collection can be sold to satisfy the Citys obligations; the difficulty inherent in

realizing value from a hypothetical sale; and the best interests of the City and its creditors. See

Protective Comm. For Ind. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414,

424 (1968); 11 U.S.C. 901(a), 943(b)(6), 1129(b); see generally Bauer v. Commerce Union

Bank, 859 F.2d 438, 441 (6th Cir. 1988). As the DIA Corp. is prepared to show at the Plan

confirmation hearing, the City would be unlikely to prevail on any claim that it could sell the

Museum or the Museum Art Collection; the litigation associated with resolving these issues


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would be complex and expensive and provide only speculative benefits; and the DIA Settlement

is in the best interest of the City and its creditors, because it is better than the alternatives.

A. THE MUSEUM ART COLLECTION IS NOT A CITY ASSET THAT MAY BELIQUIDATED TO SATISFY THE CITYS OBLIGATIONS.

1. THE MUSEUM ART COLLECTION IS HELD IN CHARITABLE TRUST.

Under the Michigan Estates and Protected Individuals Code, a trust includes, but is not

limited to, an express trust, private or charitable, with additions to the trust, wherever and

however created. MICH. COMP. LAWS 700.1107(n). A charitable trust is defined as a

relationship where the trustee holds property for a charitable purpose. MICH. COMP. LAWS

14.252(b). Michigan law further provides that a charitable trust may be created for the relief

of poverty, the advancement of education or religion, the promotion of health, scientific, literary,

benevolent, governmental, or municipal purposes . . . or other purposes the achievement of

which is beneficial to the community. MICH. COMP. LAWS 700.7405(1). It is the purpose to

which the property is to be devoted which determines whether the trust is charitable and it is

sufficient if [the settlor] shows an intention that the property should be held subject to a legal

obligation to devote it to purposes which are charitable. Knights of Equity Meml Scholarships

Commission v. University of Detroit, 102 N.W.2d 463, 467 (Mich. 1960) (citation omitted).

There is no prescribed form for the declaration of a trust; whatever evinces the

intention of the party that the property of which he is the legal owner shall beneficially be

anothers is sufficient. Faulds v. Dillon, 204 N.W. 733, 735 (Mich. 1925) (citation omitted);

see Frost v Frost, 131 N.W. 60, 61 (Mich. 1911) (The creation of a trust does not depend upon

the use of a particular form of words, but it may be inferred from the facts and circumstances of

the case.). A trust may be established through the formation or organization documents of a

charitable entity:


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The only document of record which could establish that an expresstrust was created is the articles of incorporation of the AmericanaFoundation. The articles of incorporation contain no explicitdeclaration of a trust. However, the articles of incorporation doshow beyond reasonable doubt that a trust was intended to becreated.

In re Americana Foundation, 378 N.W.2d 586, 588-89 (Mich. Ct. App. 1985).

Charitable gifts and trusts are favorites of the law and of the courts, and the courts will

declare valid, and give effect to, such gifts and trusts where it is possible to do so consistently

with established principles or rules of law. In re Roods Estate, 200 N.W.2d 728, 738 (Mich.

Ct. App. 1972) (quoting 14 C.J.S. Charities 6, p. 427). A determination that a charitable trust

is created needs only a finding that some charitable purpose exists. Id. at 733.

Under these standards, the DIA Corp.s initial Articles of Incorporation established a

charitable trust for the benefit of the Public (the DIA Charitable Trust) with the DIA Corp as

the trustee. Under the 1885 Act and the DIA Corp.s Articles, the DIA Corp. was established as a

public art institute, whose purpose was the founding of a public art institute in the City of

Detroit which may receive and use such gifts, contributions, devises and bequests, as may be

made to it, for art purposes (1885 Articles); whose duty was the public exhibition of [the

corporations] collection of works of art (1885 Act 4); who was required to faithfully use

[a]ll gifts, devises, or bequests . . . for the purposes for which such corporation was organized

(1885 Act 15); and whose character and purposes could not be changed, nor its general art

collection [] sold, incumbered or disposed of . . . . (1885 Act 16) The 1885 Act, which

provided the DMA with special statutory authority to incorporate for the purpose of founding a

public art institute and required that the DMAs trustees publicly exhibit the art and use all of

the DMAs income and resources to advance its charitable purposes, had the effect of

establishing a charitable trust with the DIA Corp. as trustee.


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The transfer of the DIA Corp.s assets to the City, the creation of the Arts Commission,

and the 1918 City charter confirmed and continued the DIA Charitable Trust, and established the

City as a co-trustee. When the City accepted the transfer of the DIA Corp.s land on Woodward

Avenue, its art collection, and certain other assets, it did so subject to the 1919 Acts limitation

that said property so conveyed shall in the hands of said city be faithfully used for the purposes

for which [the DIA Corp.] was organized. P.A. 67 20 (1919). Under the 1913 Act and Chapter

XIX of the 1918 Charter, the Arts Commission had the same charitable duties and obligations of

the DIA Corp., including: the duty to build and operate a building for the exhibition of paintings

and works of art . . . to be known as the Detroit Institute of Arts, and to which, under proper rules

and regulations, the public may have access free of charge; the duty to acquire, collect, own

and exhibit, in the name of the city, works of art, books and other objects such as are usually

incorporated in Museums of Art; and the right with the approval of the common council, in the

name of the city, [to] take and hold, by purchase, gift, devise, bequest or otherwise, such real and

personal property as may be proper for carrying out the intents and purposes for which it is

established. (1918 Charter 7). Like the DIA Corp.s Articles, the Charter did not give the Arts

Commission the power to sell artwork for municipal purposes but, instead, required the Arts

Commission to take and hold such property as may be proper [to] carr[y] out the intents and

purposes for which it [was] established. (Id.).

The Operating Agreement also confirms and continues the DIA Charitable Trust. The

Operating Agreement recognized and affirmed that the Arts Commission and the DIA Corp. had

worked together for the benefit of the Museum and that the Operating Agreement was necessary

for the Museum to continue to advance its charitable purposes, including by increasing the

opportunity to secure federal, state, regional, county, City and other financial support, the


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gifts of works of art to the [Museum] and the contributions to the [DIA Corp.s] endowment

funds held on behalf of the [Museum]. (Operating Agreement, Recitals, 6). The Operating

Agreement likewise recognized through the Collection Management Policy that the Museum Art

Collection was held in trust, that such artwork could not be encumbered, and that the policy of

the Museum required that any proceeds from deaccessions be used solely to acquire additional

artwork for the Museum Art Collection.

The acts of donors, who made contributions to advance the Museums charitable objects

and purposes, with the expectation that such contributions would be held for charitable purposes,

also confirm the existence of the DIA Charitable Trust. More than 100 years of deeds of gifts,

conveyance documents, and other records establish donors intentions to convey property to the

Museum to advance its charitable object and purpose, not to benefit the municipality generally;

for example, one of the museums largest early benefactors, Ralph H. Booth, required that all of

his gifts be permanently exhibited in the Museum at least eight months of the year. (See, e.g.,

Exhibit 12 (January 17, 1933 Letter from Arts Commission to Mayor Frank Murphy)). When he

served as the DIA Corp.s president, Mr. Booth remarked in the year preceding the 1919

transaction, the city in its new charter has provided for an arts commission, contemplating that

you will convey the property and trusts you hold to the city, as the basis for the Detroit Institute

of Arts. (DMA Annual Report 1918 at 7; see also DMA Annual Report 1919 at 11).

The City cannot now deny the existence of the DIA Charitable Trust. Under the doctrine

of election, a party cannot avail itself of the benefits of a trust relationship and then later reject it.

See Holzbaugh v. Detroit Bank & Trust Co., 124 N.W.2d 267, 268 (Mich. 1963). Likewise,

equitable estoppel applies where: (1) a party by representations, admissions, or silence,

intentionally or negligently induces another party to believe facts; (2) the other party justifiably


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relies and acts on this belief; and (3) the other party will be prejudiced if the first party is allowed

to deny the existence of the facts. In re Beglinger Trust, 561 N.W.2d 130, 131-32 (Mich. Ct.

App. 1997); see also Wiersma v. Mich. Bell Tel. Co., 401 N.W.2d 265, 269 (Mich. Ct. App.

1986) (state may be estopped by its acts, conduct, silence, and acquiescence).

The City has acknowledged that it holds the Museum Art Collection in trust for the

Publics benefit. (See, e.g., Exhibit 13 (Letter from Mayor David Bing to Macomb, Wayne, and

Oakland Commissioners) (stating that the City hold[s] [the Museum Art Collection] in trust for

the public); Exhibit 14 (Excerpts of City of Detroit Proposed Capital Agenda FY 2013-14

Through FY 2017-18 at 63) (stating that the DIA collects and holds in trust for the people of

Detroit, Michigan, and the world, examples of the highest quality of fine arts from all times and

cultures throughout the world)). It has solicited and accepted funds and property for the

Museum; the DIA Corp., the State, the Counties, the taxpayers, foundations, institutions, and

others gave gifts of art and funds in reliance on the Citys representations and conduct; and the

Public would be harmed if the City were to sell, transfer, or convey any portion of the Museum

Art Collection to satisfy municipal debts and obligations. Indeed, the City has taken affirmative

steps over the years to convince the Public that charitable assets would not be sold because it

wished to ensure continued gifts to the Museum. (Letter from Mayor David Bing to Macomb,

Wayne, and Oakland Commissioners; Excerpts of City of Detroit Proposed Capital Agenda FY

2013-14 Through FY 2017-18 at 63). Whether by election or estoppel, the City cannot deny that

it holds Museum assets solely in trust.

Similarly, the City cannot avoid the effect of its dedication of property to charitable

purposes. [I]f a dedication is made for a specific or defined purpose, neither the legislature, a

municipality or its successor, nor the general public has any power to use the property for any


17

other purpose than the one designated, whether such use be public or private . . . . 2000 Baum

Family Trust v. Babel, 793 N.W.2d 633, 640 (Mich. 2010) (quoting Baldwin Manor, Inc. v. City

of Birmingham, 67 N.W.2d 812, 815 (Mich. 1954)). As the Michigan Supreme Court has stated

when describing the doctrine of dedication:

[I]t would be dishonest, immoral, or indecent, and in someinstances even sacrilegious, to reclaim at pleasure property whichhas been solemnly devoted to the use of the public, or infurtherance of some charitable or pious object. The law thereforewill not permit any one thus to break his own plighted faith; todisappoint honest expectations thus excited, and upon whichreliance has been placed. The principle is one of sound morals andof most obvious equity, and is in the strictest sense a part of thelaw of the land. It is known in all courts, and may as well beenforced at law as in equity.

Id. at 641 (quoting Patrick v. Young Mens Christian Assn of Kalamazoo, 79 N.W. 208, 211

(Mich. 1899)).

The City dedicated the Museum to art purposes. Although Michigan courts have not yet

applied this doctrine to personal property, it would be dishonest, immoral, and indecent for the

City to attempt to claim the right to sell any property for its own benefit that the City represented

the Museum would hold for the Publics benefit.

Nor can the City ignore the Michigan Attorney Generals formal Opinion issued on June

13, 2013 (Opinion No. 7272, the AG Opinion):

[T]he art collection of the Detroit Institute of Arts is held by theCity of Detroit in charitable trust for the people of Michigan, andno piece in the collection may thus be sold, conveyed, ortransferred to satisfy City debts or obligations.

(AG Opinion at 22). Empowered by the Michigan Legislature to enforce charitable trusts under

MICH. COMP. LAWS 14.251, the AG Opinion confirms that the Museum Art Collection cannot

be used by the City to address municipal debts and obligations.


18

More compelling than any formal trust agreement, the Museum itself is the evidence of

the DIA Charitable Trust. It has served for more than a century as a vessel into which thousands

of donors, both public and private, have poured their goods and goodwill to advance the

knowledge and enjoyment of art. To borrow a maxim usually employed in tort law, the thing

speaks for itself.

2. THE MUSEUM ART COLLECTION IS PROTECTED BY AN IMPLIED TRUST.

Implied trusts arise by operation of law as contradistinguished from those that arise

from agreements of the parties, and are raised by law for the purpose of carrying out the

presumed intent of the parties, or without regard to such intention for the purpose of asserting

equitable rights or frustrating fraud. Digby v. Thorson, 30 N.W.2d 266, 272 (Mich. 1948)

(citation omitted). A resulting trust is an implied trust that arises from presumed intent, where a

person makes or causes to be made a disposition of property under circumstances which raise an

inference that he does not intend that the person taking or holding the property should have the

beneficial interest therein . . . . Potter v. Lindsay, 60 N.W.2d 133, 135 (Mich. 1953). Moreover,

[a] gift [to a city] shall not be invalid because of an informality in the instrument evidencing the

gift, if the intent can be determined from the instrument . . . . MICH. COMP. LAWS 123.871.

Here, the City and the DIA Corp., acting separately and together from time to time for the

benefit of the Museum, (1) constructed a building dedicated to the knowledge and enjoyment of

art to house the Museum Art Collection; (2) solicited charitable donations for the Museum as a

separate entity for the benefit of the Public; (3) represented that works would be held in the

permanent collection for use and display at the Museum for the Public; (4) adopted policies that

strictly limited deaccessioning; and (5) represented to the Public that the City held the Museum

Art Collection in trust, leading to the conclusion that the donors and the Citys presumed intent


19

was that the City held the Museum Art Collection in trust and does not have a beneficial interest

therein that it may use for its sole benefit.

3. THE MUSEUM ART COLLECTION IS PROTECTED BY THE PUBLIC-TRUSTDOCTRINE.

Under the public-trust doctrine, governmental entities have a duty to preserve and protect

resources held in trust for the public. See Illinois Central R.R. Co. v. Illinois, 146 U.S. 387, 452

(1892) (noting certain navigable waters were not held for sale but in trust for the people of the

State). In declaring that the public trust doctrine is alive and well in Michigan, the Michigan

Supreme Court has stated:

The State may not, by grant, surrender such public rights any morethan it can adjudicate the police power or other essential power ofgovernment. . . . The State of Michigan has an undoubted right tomake use of its proprietary ownership of the [land] in question[subject only to the paramount right of] the public [to] enjoy thebenefit of the trust.

Glass v. Goeckel, 703 N.W.2d 58, 65 (Mich. 2005) (quoting Nedtweg v. Wallace, 208 N.W. 51,

53 (Mich. 1926)). Although the AG Opinion notes that no Michigan court has addressed whether

the public-trust doctrine applies to cultural property such as art held for public exhibition, strong

consideration should be given to expanding the scope of the doctrine to other public resources.

The City retains legal title to the Museum Art Collection, but consistent with the public-trust

doctrine, the Museum Art Collection is subject to the paramount right of the public to enjoy the

benefit of the trust. Glass, 703 N.W.2d at 65.

4. THE CITY IS BOUND BY PROMISES, REPRESENTATIONS ANDRESTRICTIONS RELATING TO GIFTS TO THE MUSEUM AND THE MUSEUMART COLLECTION.

A promise that the promisor should reasonably have expected to induce action of a

definite and substantial character that is relied on is enforceable to prevent injustice. Novak v.


20

Nationwide Mut. Ins. Co., 599 N.W.2d 546, 552 (Mich. Ct. App. 1999). Evidence of such a

promise may be taken from all the facts and circumstances. State Bank of Standish v. Curry, 500

N.W.2d 104, 109 (Mich. 1993). Policies and procedures may form the basis for an enforceable

contract or promise. See Rood v. Gen. Dynamics Corp., 507 N.W.2d 591, 606 (Mich. 1993);

Toussaint v. Blue Cross & Blue Shield of Michigan, 292 N.W.2d 880, 885 (Mich. 1980).

Similarly, under the 1913 Act, which permits cities to receive gifts for public purposes,

conditions, limitations, and requirements imposed on gifts to the City are enforceable, and no

provision in the 1913 Act allows a recipient city to sell or transfer a gift of real or personal

property given for such public purposes. MICH. COMP. LAWS 123.871.

Here, the City has described the Museum as a cultural resource of the State to solicit and

obtain hundreds of millions of dollars in funds and objects. (Exhibit 15 (June 25, 1975 Letter

from Mayor Coleman Young to Frederick Cummings) (stating that the City would seek State

funding in order to [open] the doors of the Detroit Art Institute to the people); Letter from

Mayor David Bing to Macomb, Wayne, and Oakland Commissioners). The City has approved

policies, both formal and informal, that prohibit the sale of objects accessioned into the

permanent collection to fund operations. (See, e.g., Exhibit 16 (Journal of the City Council, City

of Detroit May 22 Dec. 6, 1989 at 2551-52) (unanimously approving the Museums

deaccessioning policy)). The City has kept those objects off the Citys books and declared in its

annual financial reports that those works are held in trust. (See, e.g., Excerpts of the City of

Detroit 2012 Comprehensive Audited Financial Report at 74, 95; Excerpts of City of Detroit

Proposed Capital Agenda FY 2013-14 Through FY 2017-18 at 63). Donors to the Museum,

including the DIA Corp., had a reasonable and legitimate expectation that those policies would

be followed and that the City would not treat the promise contained therein as illusory, and


21

provided gifts to the Museum with express or implied conditions, limitations, and requirements

that objects be displayed at the Museum or be used to support the Museum. In addition, some

important gifts had express detailed restrictions on their use and transferability. (See, e.g.,

January 17, 1933 Letter from Arts Commission to Mayor Frank Murphy). Others that did not

have express restrictions still were made under deeds of gift and other documents to the Detroit

Institute of Arts for inclusion in the permanent collection, subject to policies that prohibit using

deaccession proceeds to pay even the Museums operating expenses or debts (Operating

Agreement, F2; Collections Management Policy, V.F.), or otherwise limited in the use to

which they could be put. These restrictions and conditions, both categorical and on an object-by-

object basis, are binding on the City, both under the common law and the 1913 Act. Any attempt

by the City to sell or transfer the Museum Art Collection or other property to satisfy municipal

debts and obligations would break the Citys promises and commitments or violate gifts

conditions, limitations and requirements.

B. ANY ATTEMPTED SALE OF THE MUSEUM ART COLLECTION BY THE CITYWOULD RESULT IN PROTRACTED, EXPENSIVE LITIGATION.

Until recently, there has been little reason for the DIA Corp. or the City to define their

ownership interest in the Museum Art Collection or to address transferability restrictions. If the

City attempts to transfer its interest in the Museum Art Collection to satisfy creditors, the DIA

Corp. (and likely the Attorney General) would institute proceedings to prevent the City from

doing so. Based on the fact-intensive nature of the dispute and the need to address more than a

century of information regarding the Museum, the litigation would likely take years to resolve.

Donors and heirs also would challenge any purchasers right to continue to retain transferred

objects. The City would have to spend substantial time and resources in litigation whose likely

outcome is uncertain at best.


22

C. THE DIA SETTLEMENT AS PART OF THE PLAN IS IN THE BEST INTERESTS OFTHE CITY AND THE CREDITORS.

To determine whether a settlement is in the best interest of the City and its creditors, the

bankruptcy court must form an educated estimate of . . . all other factors relevant to a full and

fair assessment of the wisdom of the proposed compromise. Protective Comm., 390 U.S. at 424.

In this case, two factors stand out: The Citys and the creditors alternatives to the Plans

treatment of the Museum Art Collection, and how the Plans treatment of the Museum Art

Collection enhances the Citys ability to rehabilitate itself and perform its obligations under the

Plan. These factors support approval of the DIA Settlement as part of the Plan.

1. THE PLANS TREATMENT OF THE MUSEUM ART COLLECTION ISBETTER THAN THE ALTERNATIVES.

Outside funders, which have no obligation to the City or its pensioners, will provide at

least $466 million to address the Citys obligations to the pensioners, but only on the condition

that the City transfer any interest it might have in the Museum and the Museum Art Collection to

the DIA Corp., which must keep them in the City in perpetuity. The Financial Creditors argue

that the funders largesse is not better than the creditors alternatives, because the City may and

must sell the non-core Museum and Museum Art Collection to satisfy the Citys obligations.

But Michigan law does not permit a court or creditor to force a sale of municipal assets outside

of bankruptcy. See MICH. COMP. LAWS 600.6021(1) (No execution may issue upon a

judgment against [any city].). Chapter 9s policies as well as state law protecting municipal

assets from levy militate against including a citys property in a chapter 9 case as a source of

repayment. See Newhouse v. Corcoran Irr. Dist., 114 F.2d 690 (9th Cir. 1940) (municipalitys

assets and property cannot be liquidated to pay creditors); cf. Faitoute Iron & Steel Co. v. City of

Asbury Park, 316 U.S. 502 (1942) (city has only its taxing power).


23

These limitations are even more pronounced when the subject property is imbued with a

charitable purpose and with charitable restrictions. See generally MCQUILLIN THE LAW OF

MUNICIPAL CORPORATIONS 47.21 (3rd ed. 2014) (A gift to a municipal corporation for a

charitable purpose cannot, after the municipality accepts it, be renounced or conveyed away so as

to defeat the charity.). Indeed, given the evident restrictions on its interest in the Museum Art

Collection, the City would be confronted outside of chapter 9 with the same inability to derive

value from the Museum Art Collection that it faces in this chapter 9 case. Cf. 11 U.S.C.

541(c)(2) ([A] restriction on the transfer of a beneficial interest of the debtor in a trust that is

enforceable under applicable nonbankruptcy law is applicable in a case under this title); 11

U.S.C. 541(d) (Property in which the debtor holds, as of the commencement of the case, only

legal title and not an equitable interest . . . becomes property of the estate under subsection (a)(1)

or (2) of this section only to the extent of the debtor's legal title to such property, but not to the

extent of any equitable interest in such property that the debtor does not hold.); Butner v. United

States, 440 U.S. 48, 55 (1979) (Property interests are created and defined by state law.). Thus,

the Financial Creditors suggestion that, outside of bankruptcy, the City acting rationally and

with due care likely would seek to monetize the Museum Art Collection or other purportedly

non-core assets and that this would result[] in higher recoveries for unsecured creditors is

incorrect. (Docket No. 4660 at 12).

In addition, any attempt by the City to place any object of the Museum Art Collection in

jeopardy would likely result in complex, lengthy litigation in which the City is unlikely to be

able to show that it can monetize any portion of the Museum Art Collection. Even if a court of

competent jurisdiction did not conclude that the entire Museum and Museum Art Collection

were held in charitable trust, the litigation that would be generated by any attempt to sell works


24

could take years as the donative intent and restrictions associated with each significant object

would be subject to separate examination.

The value the City derives from the DIA Settlement is not unreasonably low compared to

the alternatives; the City is not squandering an asset. (See Docket No. 4643 at 20). The $466

million that would be obtained from the DIA Settlement is well within the range of values that

properly reflect the risk of litigation and difficulty of collection. Moreover, the DIA Settlement is

a condition to the funding of the State Contribution. And the DIA Settlement amount reflects a

material percentage of the nominal value of the entire collection under any estimation.

Finally, the transfer of Museum assets as part of the DIA Settlement does not constitute a

fraudulent transfer. A fraudulent transfer is a transfer of an interest of the debtor in property with

actual intent to hinder, delay or defraud creditors or for less than reasonably equivalent value. 11

U.S.C. 548(a)(1). In this case, the transfer would occur only upon Court approval of the

transfer, after full disclosure of its purpose and effect, as a reasonable settlement of disputed

claims. Such approval would rule out any later attack on the transaction as a fraudulent transfer

by an implicit, if not explicit, determination that the transfer was made in good faith, not for any

fraudulent purpose, and for reasonably equivalent value in settlement of disputed claims. Any

such determination would be binding on the debtor and all creditors. See 11 U.S.C. 944(a).

2. THE DIA SETTLEMENT PROMOTES PLAN FEASIBILITY.

The continued operation of a vibrant Museum would maintain a significant positive

economic impact on the fiscal stability and prospects of the City. The Museum generates at least

$32 million a year (its annual budget) of direct economic activity at no cost to the City. Museum

operations pump money directly into Detroits economy and result in indirect economic activity

from tourism and other spending, with a multiplying effect on City economic activity generally.


25

The City directly benefits from property and payroll taxes and the taxes associated with visitor

spending, which would be lost if the Museum were shuttered.

These direct economic and fiscal consequences are obvious but only touch the Museums

true benefit to the City. The Museum is a core feature of the Citys future. It is the cultural

cornerstone of Midtown Detroit, providing a stable anchor for the cultural district and for the

surrounding neighborhoods. The Museum draws economic investment to Midtown Detroit, is a

selling point for businesses attempting to attract and recruit talent to the City, and is an important

factor in decisions by businesses that are seeking to locate in the City. The current City Charter

declares that [t]he people have a right to expect city government to provide for its residents . . .

cultural enrichment, including libraries and art and historical museums . . . . See Charter of the

City of Detroit, Declaration of Rights at 1. With formal art educational programs being cut, the

need for the Museum is even more pronounced. A cultural institution is not a luxury; the

Museum is as important to the Citys future as it has been to its past.

The Financial Creditors consultants have told potential purchasers that the Museum is a

legacy City asset with no direct linkage to the Citys financial recovery and a tenuous cultural

relevance to Detroits current citizens, suggesting they believe that the Museum Art Collection

can be monetized without harming the Citys rehabilitation and viability. (See Corrected Motion

of Creditors for Entry of an Order Pursuant to Section 105(a) of the Bankruptcy Code Directing

the Debtor to Cooperate with Interested Parties Seeking to Conduct Due Diligence on the Art

Collection Housed at the Detroit Institute of Arts [Docket No. 3925] at Exhibit 5B, p.5). But as

the Financial Creditors seem to concede, any sale or transfer of the Museum Art Collection

would devastate the Museum (and result in a loss of the proceeds from the DIA Settlement). The

monetization of artwork to pay the Citys obligations would negatively impact the [Museum]


26

(Id. at Exhibit 5B, p.9), and the Museum likely would lose its accreditation and any reasonable

possibility of receiving funds and artwork from donors who saw prior gifts spent on City

obligations. The counties have said they would cancel the $250 million millage, and they

effectively control the flow of funds. With no other funding prospects, the Museum almost

certainly would close. If the Museum were forced to close, the City would be required to spend

millions of dollars to mothball the Museum Building, protect the sensitive, valuable Museum Art

Collection until it could be properly disposed of, and engage in other liquidation activities. The

Museums closure would have a significant adverse impact on the welfare of the City and its

citizenry, especially on the newly vibrant and growing Midtown area and the arts community

that the Museum anchors, impairing the Citys revitalization and the Plans feasibility.

IV. CONCLUSION

One of the attorneys for the Financial Creditors stated their position succinctly when he

said the Museum Art Collection is a glittering link to the glory days of Detroit that must yield

to grubby creditor losses. (5/15/14 Hr. Tr. at 26-27). He misses the point. The Museum is as

important to Detroits future as it has been to its past. The creditors never had any rights to the

Museum Art Collection or any expectation that such charitable property would be available to

satisfy their debts. This is the grubby reality to which the Financial Creditors must yield.


27

Respectfully submitted,

HONIGMAN MILLER SCHWARTZ AND COHN LLP

By: /s/Arthur T. OReillyArthur T. OReilly (P70406)Scott B. Kitei (P78064)Daniel N. Adams (P72328)2290 First National Building660 Woodward AvenueDetroit, MI 48226-3506Telephone: (313) 465-7628Email: [email protected]

May 27, 2014 and

CRAVATH, SWAINE & MOORE LLP

Richard LevinWorldwide Plaza825 Eighth AvenueNew York, NY 10019-7475Telephone: (212) 474-1000Attorneys for The Detroit Institute of Arts


28

CERTIFICATE OF SERVICE

I hereby certify that the foregoing document was electronically filed with the Clerk of the

Court using the ECF system, and will send notification of such filing to all ECF participants

registered in this matter.

HONIGMAN MILLER SCHWARTZ AND COHN LLP

By: /s/Arthur T. OReillyArthur T. OReilly (P70406)Scott B. Kitei (P78064)Daniel N. Adams (P72328)2290 First National Building660 Woodward AvenueDetroit, MI 48226-3506Telephone: (313) 465-7628Facsimile: (313) 465-7629Email: [email protected]

May 27, 2014 and

CRAVATH, SWAINE & MOORE LLPRichard LevinWorldwide Plaza825 Eighth AvenueNew York, NY 10019-7475Telephone: (212) 474-1000Attorneys for The Detroit Institute of Arts


INDEX OF EXHIBITSExhibit Number

Public Act 3 of 1885 1

DIA Corps initial articles of incorporation 2

Public Act 67 of 1919 3

Excerpts of the January 27, 1920 Board Minutes of the Trusteesof the Detroit Museum of Art

4

Excerpts of the DMAs 1918 Annual Report 5

1918 Charter of the City of Detroit 6

Excerpts of the DMAs 1919 Annual Report 7

Excerpts of October 1919 Bulletin of the Detroit Institute of Arts 8

1997 Operating Agreement 9

Museums Collections Management Policy 10

Excerpts of the City of Detroit 2012 Comprehensive AuditedFinancial Report

11

January 17, 1933 Letter from Arts Commission to Mayor FrankMurphy

12

Letter from Mayor David Bing to Macomb, Wayne, and OaklandCommissioners

13

Excerpts of City of Detroit Proposed Capital Agenda FY 2013-14 Through FY 2017-18

14

June 25, 1975 Letter from Coleman Young to FrederickCummings

15

Journal of the City Council, City of Detroit May 22 Dec. 6,1989

16

13-53846-swr Doc 5054-1 Filed 05/27/14 Entered 05/27/14 15:32:06 Page 1 of 1

Exhibit 1



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Exhibit 2



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Exhibit 3


PUBLIC ACTSNo. 67. 125

[No. 67.] AN ACT to amend act number three of the Public Acts of

eighteen hundred eighty-five, entitled "An act for the for-mation of corporations for the cultivation of art," being sections ten thousand seven hundred fifty-nine to ten thou-sand seven hundred seventy-six, both inclusive, of the Compiled Laws of nineteen hundred fifteen, by adding thereto two new sections, to be numbered sections nineteen and twenty.

The People of the State of Michigan enact: SECTION 1. Act number three of the Public Acts of eight-

een hundred eighty-five, entitled "An act for the formation of corporations for the cultivation of art," the same being sec-tions ten thousand seven hundred fifty-nine to ten thousand seven hundred seventy-six, both inclusive, of the Compiled Laws of nineteen hundred fifteen, is hereby amended by adding thereto two new sections numbered sections nineteen and twenty, to read as follows:

SEC. 19. Any of the real estate of a corporation organized under this act may be used for any purpose which the circuit court in chancery, of the county in which said corporation is situated determines to be a purpose kindred to that for which the corporation is organized.

SEC. 20. Any corporation organized under this act situ-ated in a city empowered to maintain a public art institute like or similar to that described in this act, may convey all or any of its property to said city upon such terms, in such manner and at such time or times as may be agreed upon by its trustees and the legislative body of said city ; and said property so conveyed shall in the hands of said city be faith-fully used for the purposes for which such corporation was organized: Provided, however, That any real estate so con-veyed may be used for a kindred purpose as provided in section nineteen of this act. Said trustees are hereby empow-ered, in the event of their conveying to the city all of the property of said corporation, to wind up its affairs by taking appropriate proceedings in the circuit court in chancery, above mentioned.

Approved April 15, 1919.

Act amended.

Sections added.

Use of real estate.

Transfer of property to city.

Proviso.

AP' 13-53846-swr Doc 5054-4 Filed 05/27/14 Entered 05/27/14 15:32:06 Page 2 of 2

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Exhibit 4


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Detroit Michigan January 27 1920

special meeting of the Trustees of the Detroit Museum of

Art was held at the University Club at oclock

There iere present Messrs Ralph Booth William Gray

Horace Caulkins Henry Stevens Pope Ferry Jr William13 Stratton Francis Paulus and the Secretary

communication from the Arts Commission was read assuming

the operation and maintenance of the Museum beginning July 1st 1919

as per the request of the Trustees

In behalf of the officers Mr William Gray presented the

following report which was ordered spread upon the records

You will recall that at meeting of the membersof the Association held December 6th 1918 the Trustees were authorized to convey the property.of the corporation both its collection of art and its real estateon Woodward Avenue to the City of Detroit and subsequently at meeting of the Trustees on February 18ththe President and Treasurer were authorized to executeand deliver to the City of Detroit Deed of Con.eycnceof said real estate the Deed to be in such form andwith such conditions as should to them appear sufficientto insure the use of said property for the purpose forwhich the Detroit Mtiseum of Art was incorporated or forsome purpose kindred to said purpose

Your President and Treasurer thereupon conferredwithMr Spalding and he prepared Deed whichcontained provision for the reversion of the title tothe Detroit Museum of Art upon the happening of eitherof the following conditions

If the city should at any time use or permitthe use of said premises or any part thereof for anyother purpose than the one contemplated by Charter 19 TiTitle iv relating to an Arts Commission of thepesent charter of the City of Detroit

If the city should fail within given numberof years to erect and complete on said premises building costing lot less than an agreed sum suitable forthe housing and exhibition of works of art or

DIAINSFO19856


If the city should at any time fail to

provide for and continue the proper care maintenance and exhibition of the art collection then ortheieafter belonging to the City of Detroit

Your Treasurer had number of interviewswith Mr William Webber and his attorney JanetSwan and finally agreed with them upon the formof the Deed which Mr Weber would be willing tounite in signing The matter was then taken up withthe Common Council sitting as Committee of thewhole and all of the councilmen and the CorporationCouncil were of the opinion that no Deed would beaccepted except one without conditions Accordinglyyour Treasurer agreed to recomment the delivery ofthe Deed with the foregoing conditions eliminated

This situation was explained to the members ofthe Association at their Annual Meeting held lastJune and Resolution was adotd authorizing theTrustees notwithstanding this demand of the cityto execute and deliver Deed of the real and person-al property of the Association and subsequently onSeptomber 12th the Trustees authorized the Presidentand Treasurer to make the conveyance to the city

Accordiztgly in November your President andTreasurer on behalf of the Detroit Museum of Artexecuted and delivered Warranty Deed of the realestate and Bill of Sale of the collection of Artboth running to the City of Detroit and deliveredthe same to the Arts Commission which in turntransmitted the sane for approval to the CommonCouncil This Deed was accepted by the Council together with Deed from William Weber and wifecovering the undivided half of the northerlyThlockthe Council at the same time directing the Comptroller-to pay off the two mortgages against the propertyone held by William Weber and one by the Dime Savings Bank and also to pay $4500 attorneys bills toJames Swan and Richard Lawson attorneys for Mr Weberin the pending litigation At the seine time the Common Council accepted the Bill of Sale of the collectionof Art

On account of the provision for the payment ofMr Tlebers attorney bills the Mayor vetoed the acceptance of the documents but the resolution wasadopted by -a unanimous vote over his veto and in December the transaction entirely closed -the two mortgages paid off and the Deeds placed on record

You will recall that Act 67 of the Public Actsof the State of Michigan approved April 15th 1919

DIAINSFO19857


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--------------.-----

.----

under which authority was granted for the conveyanceby Art Associations to the municipality of their property contained provision that the property soconveyed should in the hands of the city be faithfullyused for the purpose for which the particular corporation was organized In the Deed to the City of Detroitit was expressly recited that the conveyance was executed and delivered under and in pursuance of said actThis fact together with the fact that the Deed wasdelivered to the Arts Commission seemed to us sufficiently to give assurance that the property cannot beused excepting for the same purposes as were providedfor in the incorporation of the Detroit MuseS of Artor some kindred purpose as provided in the Act of theLegislature referred to

The Secretary gave report of the audits made by the Detroit

Trust Company covering the period from July 1918 to Jund 30 1919

MOVED supported and carriqd- that the expenditure of $335

in additiBn to the $500 appropriated at the meeting of iiay 2nd for the

purchase of laces be approved

The Secretary was authorized to make such entries on the

books of the corporation as a-re necessary to make them comply with

present conditions

iv0VED supported and carried that the painting Child with

Kitten by William Owen be purchased for the sum of $7500 from the

General Membership and Donations Fund

Mr Ferry offered the following resolution vihieh was unan

imously adopted

VUWREAS all of the property and collections ofthe Detroit Museum of Art with the exceptions of itsinvested trust funds have been conveyed and transferred to the City of Detroit to be aaministered bythe newly created Arts Commission of the City of Detroitand

V1IFEAS it is believed that the following enumerated

objects can be obtained by the continuance of present corporation

____ __

DIAINSFO19858


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cc

To promote public interest in and appreciationof art in Detroit

To cooperate in every way with the DetroitInstitute of Arts and to augment it collections frommembership funds and contributions

To administer the funds and endowments nowin the hands of the corporation and to encourage andreceive in trust and to administer future gifts endlegacies

Now therefore be it

.RESOLVED that this corporation vtith its memberships end funds be continued and also be it

BESDLVED that committee of two be appointed bythe President himself acting as exofficio member forrecommending of such changes and revisions as will best

carry out the intentions herewith expressed

Inaccordacrwith this resolution President Booth appointed Mr

Ferry and Mr Gray as committee for the revision of the bylaws

The Secretary was instructed to call meeting of all mem

bers of the corporation for Friday February 6th at IL for

the purpose of taking such action as is necessarywith reference to

the future of the Museum corporation

Meeting adjourned

Resiectfully

DIAINSFO19859


Exhibit 5



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Exhibit 6



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Exhibit 7



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Exhibit 8



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Exhibit 9


OPERATING AGREEMENTfor

THE DETROIT INSTITUTE OF ARTS

Between

THE CITY OF DETROIT

and

FOUNDERS SOCIETYDETROIT INSTITUTE OF ARTS

City Contract No 77009

IAI NSP00029O


OPERATING AGREEMENT

for

THE DETROIT INSTITUTE OF ARTS

TABLE OF CONTENTS

Page

RECITALS

SOCIETYS REPRESENTATIONS AND WARRANTIESSocietys AuthoritySociety Has No Conflicting Contractual ObligationsSociety Has No Conflictof InterestSociety Has No Conflictwith Law

DEFINITIONS444Agreenient e3.Associates

City

City art collection

City Charter

City CouncilCIt je garage and lots e3Clty intellectual properti

10 Clam11 Con7i77ission

Contract terir.4

13 DIA.4

14 DIA building.4

15 DIA records.4

DIA properties.4

17 EffectivedateFiry Street properties .4Force n/eure event

20 Fredericklotgroundlease.5..

21 Society22 Societ art collection23 Societyintellectualproperty ...24 Society properties

-5-

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DIAINSP00029I


OPERATING AGREEMENT BETWEEN ThE CITY OF DETROIT ANDFOUNDERS SOCIETY DErRorr INSTITUTE OF ARTS


CITYSREPRESENTATlONSANDwARNTlEs-6-

Citys AuthorityCity Has No Conflicting Contractual Obligations .... -6-CIty Has No Conflictof Interest.....CityHasNoConflictwithLaw

......... -7-

ENGAGEMENT OF THE SOCIETY RELATIONSHIPBETWEEN THE PARTIES

... .... -7-

Engagement..7_

lndependentContractorRelationship.....

-7-

Scope of the Societys Duties........ -8-

Final Accounting Under 1994 Contract..-8-

RETENTION OF ASSETS BY THE CITY-8-

CityRetainsTitietoAssets-8-

Acquisition of NewAssets-8-

Licensing of Intellectual Property 8-

AGREEMENTSBYTHESOCIflY-9-

Compliance with Laws Standards-9-

Societys Duty to Manage the City Art Collection-10-

Situs of the Collection Loans of Works of Art-10-

Societys Duty to Inventory the City Art Collection -11-Societys Duty to Maintain the DIA Building and Parking Lots -11-Additions Improvements and Modifications to the DIA Buildingand Parking Lots 11SocietyHasNoRighttoEncumber

-11-

Societys Duty to Pursue Funding -12-Use of Revenues 12

10 Societys Duty to Provide Operating Expenses. -12-11 Societys Pre-Effective Date Liabilities

-12-12 Solicitation of Donations of Works of Art Certain Art

Acquisitions 1213 Societys Duty to Establish Disaster Recovery Plan -12-14 Societys Duty to Establish Risk Management Programs -13-15 Societys Duty to Place Certain Insurance Policies

-13-16 Societys Duty to Place Uquor Uability Insurance -16-17 Modifications to Terms or Conditions of Insurance Policies

RequiredbySubsectionsFl5andFI6-16-

18 Societys Duty to Administer Insurance Policies Handle InsuranceClaims and Manage Insurance Proceeds

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DIAl NSP000292


OPERATING AGREEMENT BETWEEN ThE CITY OF DETROIT ANDFOUNDERS SOCIETY DETROIT INSTITUTE OF ARTS


19 Societys Duty to Reimburse the City for the Placement of OtherInsurance Policies 17

20 Societys Duty to Renegotiate Insurance Coverages -17-21 Societys Subcontractors to Carry Certain Insurance Coverages -17-22 Societys Waiver of Subrogation

-17-23 Society to Follow Generally Accepted Accounting Principles -17-24 Compliance with Executive Orders Construction Contracts

-17-25 Residency Requirement 1826 Affirrrtatlve Action 1827 NonDiscrimination Policy 1928 Non-Discrimination Clauses in Subcontracts

-19-29 EmployeeSelectionProcedures.........

-20-30 RecruitmentofVolunteers

-20-31 Purchase of Utilities Other than Electricity Water and Sewage

Services and Regular Trash Collection Services-20-

32 Purchase of Electricity Water and Sewage Services and RegularTrash Collection Services 20-

33 Use of the DIA Building and Parking Lots for City-SponsoredFunctions 20

34 Continuation and Possible Future Expansion of the DIAs Hours -21-35 GeneralAdmissiontotheDlABuilding -21-36 Policy Amendments Require Commission Approval -21-37 Societys Duty to Submit Quarterly Reports on Employment

Iviatters 2138 Societys Duty to Submit Internal Quarterly Financial

Statements 2239 Societys Duty to Submit Annual Reports -22-40 Societys Duty to Submit Audited Financial Statements

-24-41 Correction of Societys Reports 24-42 Societys Duty to Provide Other Information Requested by the

Commission 2443 Societys Duty to Notify the Commission Concerning Emergent

lIdlatters 2444 Societys Duty to Establish Document Retention Policy -24-45 SocietysDutytoSubmittoAudit

-24-46 SocietysDutytoSubmittolnspection

-24-47 Societys Duty to Appear Before the Commission

-25-

ROLE OFTHE COMMISSION-25-

Arts Commission Oversight of Agreement -25-Commission to Prescribe the Form of Receive and ReviewSocietys Reports

II

DIAl NSP000293


OPERATING AGREEMENT BETWEEN ThE CITY OF DETROIT ANDFOUNDERS SOCIETY DETROIT INSTITUTE OF ARTS


CommissionMay Request Additional Information -25-Commissions Duty to Renegotiate Insurance Coverages -25-Commissions AuditRights -25-Inspection Rights 25Commissionto Receive Review and Approve Certain SocietyPoliciesandAmendmentsmereto

.. -26-Commissionto Receive Review and Approve CertainAmendments to Society Articles of Incorporation and Bylaws -26-

Hearings 2710 Commissionto Review and Approve the Societys Director and

Deputy Director of the DIA 2711 CommissiontoReporttotheMayor -27-12 Commissionto Evaluate Societys Services and to Provide

Evaluation to the City Council and to the Society -27-

AGREEMENTS THE CY 28Citys Pre-Effective Date Liabilities

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Citys Duty to Operate and Maintain Cultural Center Garage .. -28-Feesfor Central City Services..... -28Annual Grantbythe City 28Citys Duty to Transfer Funds Received by the City for the Benefitof the DIA 29CitySaleofCertainBonds -29-Citys Duty to Place Certain Insurance Policies -30-Modifications to Terms or Conditions of Insurance PoliciesRequiredbySubsectionH7

-32-

First-Party Claims in Excess of Insurance Limits-32-

10 Citys Waiver of Subrogation 32-11 SocietysPurchaseofUtilities 3212 Citys Responsibility for Property Taxes on the D1A Properties and

the City Art Collection 3313 City to Transfer to the Society Certain Tangible Personal Property

AssetsforDlAOperations-33-

14 Limited Warranties 3315 Assumption of Leases and Service Contracts

-34-16 Use of DIA Records 3417 Society Retains Title to Its Assets

-34-

ESTABLISHMENT AND GOVERNANCE OF THE SOCIETY ABOLITION OF..OIIsIT COMMITTEES 34

BoardofDirectors-34-

Certain Amendments Require Commission Approval -35-

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DIAl NSP000294


OPERATING AGREEMENT BETWEEN THE CITY OF DETROIT ANDFOUNDERS SOCIETY DETROIT INSTITUTE OF ARTS


Ethical Standards 36AbolitionofJointCommfttees 36

INDEMNITY ASSUMPTION OF RISK........ -36-

Indeninification Obligation 36Assumption of Risk 37SafeguardingofPersonalProperty

.................. -37-Indemnification Not Umited by Workers Compensation orEmployee Benefit Acts 37Duty to Notify 38Duty to Cooperate 38

EMPLOYMENT MA1rERS 38Employment of Non-Unionized City Employees .. -38-Employment of Unionized City Employees Negotiation with LaborOrganizations 10LimitedRighttoReturntoCityEmployment

-44-Financial Responsibility for Pensions Earned by Former CityEmployees 47lRSApprovalofPerisionPlans

-47-

Hiring of Personnel 47Societys Director and Deputy Director of the DIA -47-CooperationinEmployeeTransitions

-48-

TERM OFAGREEMENT TERMINATION-48-

Initial TermExtensions of Term 48Termination

Material Breach.49.

Cure 49Resolution of Disputes

-49-EffectofTerminatiori 50

ARBITRikTIONArbitration 51Covenant Not to Sue 51

NO ASSIGNMENT NO THIRD-PARTY BENEFICIARIES-52-

No Assignment 52NoThirdPartyBeneficiaries 52

DIAl NSP000295


OPERATING AGREEMENT BE

Detroit Institute of Arts' Legal Brief

Documents

Transcript of Detroit Institute of Arts' Legal Brief