A report by an expert witness designated by the City of Detroit for the upcoming bankruptcy trial has been released concerning the value of the full collection of the Detroit Institute of Arts.  The report puts the full collection value at $2.7 to $4.6 billion, but estimates that the price it would fetch if the collection were actually liquidated in the real world would be closer to $1.1 to $1.8 billon, and possibly as little as $850 because of the notoriety that would accompany such a sale.  It also supplements an earlier appraisal performed by Christie’s of the most significant objects in the collection.

Mark Stryker at the Detroit Free Press posted a copy of the report here, which was presumably exchanged already between the parties.  Litigants need not typically file their expert witness reports, but they are made available to each other in advance of either depositions or trial.  The reports enable parties to assess the credibility, assumptions, and analysis of the opposing expert.  That, in turn, allows the attorneys to prepare their cross examination so that the fact finder (Judge Rhodes of the Bankruptcy Court, in this case) will discount the testimony offered by the opposing expert.  Michael Plummer of the firm Artvest Partners LLC is the designated expert and author of the report.  Plummer was identified on the city’s witness list (which, unlike reports, is always filed publicly).

The release, and indeed the very commissioning, of the report is an interesting development.  Detroit’s primary argument has been, and remains, that the collection is not an asset available for any creditors in the bankruptcy.  A key selling point of the “Grand Bargain”—the contribution of hundreds of millions of dollars from national foundations, automakers, and the State of Michigan—is that it is essentially a windfall to creditors.  That is, if the collection is off the table as an asset for creditors, then so much as a penny that the city obtains in relation to the collection is money they creditors would otherwise never have gotten.  In any event, we have read rulings on motions from creditors that tried to compel more information about, or full access to, the collection, to meant that by and large Judge Rhodes agrees and is not going to permit any drastic action with respect to the collection.

Even if Judge Rhodes will not (and under the Bankruptcy Code and 10th Amendment almost certainly may not) order the sale of the collection, he can still turn down the plan of adjustment proposed (with the Grand Bargain in it).  The question is, how does having an expert testify about the value of the entire collection further approval of the plan and the Grand Bargain?  It may simply be that the city expects creditors to argue that the value is higher still, and this report would rebut that.   The lower the total collection value, the higher the proportion that the Grand Bargain monetized on a non-usable asset.  That makes the plan look better to the judge.  I don’t see indication yet of what creditors intend to try to prove at the trial as far as the value, but they previosuly pegged it at roughly $2 billion.

There is another side to that coin, however.  The creditors’ response to the Christie’s partial appraisal was essentially to say “says you.”  That is, they asked for an opportunity to test that appraisal themselves, and were turned down.  Instead, they turned to the market, and cited potential buyers as evidence of the collection’s value.  If the city tries to put even more information into the record, the creditors may cry procedural foul, and they may find a sympathetic ear in the court.  Basically, they could argue that the city should not be allowed to put proof on concerning an issue on which discovery was less than the creditors wanted.  Which could serve the creditors’ purpose not necessarily to reject the plan of adjustment outright, or force the sale of the art, but to require the city to revisit portions of the plan and give the creditors some leverage in the ensuing negotiation.

So one choice the city faces at trial is whether to use the Artvest report offensively or defensively: does it use it affirmatively to show the windfall value of the Grand Bargain but risk complicating approval of the plan of adjustment, or does it wait to see what the creditors do on the valuation question, which lets the creditors seize the initiative?  These are the sorts of judgments that are required at trial, which should be riveting.