The scope of the examination is pivotal, because it could lead to further legal wrangling over the possible liquidation of the orchestra's endowments - a critical issue for its future.
The orchestra is in Bankruptcy Court saying it will seek to withdraw from the musicians' pension plan and move the musicians into a defined-contribution plan, like a 403(b). Withdrawal from the pension plan would leave the orchestra with a liability estimated from $23 million to $35 million.
In court Thursday, lawyers from the pension fund of the American Federation of Musicians pressed for access to a decade of internal records - including e-mails and texts - in a quest to argue that the association should dip into its $140 million in endowments if it withdraws from the national union's multi-employer pension plan.
"After balancing the competing interests," the court said it wanted to "fashion a sequential discovery process" that did not impose "an undue burden" on the association but that "will nonetheless provide relevant information to the pension fund in a timely fashion."
In court last week, association lawyer Lawrence G. McMichael proffered, and chief financial officer Mario Mestichelli testified, that the "manpower" demands of the deep examination proposed by the union would have severely stressed the association, given its small administration of about 43 (plus staff shared with the Kimmel Center).
Both sides said they were pleased with the ruling, but the union continued to express unease.
"We are concerned that the association continues to hide other relevant information that is necessary to our examination," said AFM president Ray Hair. "It's obvious that they are concerned that a full examination will expose the fact that much of the endowment may be unrestricted rather than restricted. And if everything is as clean and nice in the endowment as McMichael says it is, then why are they trying to hide the documents?"
In court, Frank asked the pension fund's lawyer whether, if the union found evidence of manipulation - "something potentially inappropriate," in the judge's words - that would give rise to litigation and liquidation.
Herman L. "Hank" Goldsmith answered yes.
After the hearing, Goldsmith declined to expand on what he said in court.
Hair would not say anything further on future litigation or liquidation. But he said the ensemble's history and legacy were in danger of "being dismantled now, and we're going to fight that any way we can. One of the things we're using here is the company's actions in trying to say that $140 million that it likes to use as an asset under certain circumstances cannot be used now. They are trying to put blinders on the court. We're trying to get to the truth."
With the association and union having failed to agree on the scope of the probe, Frank outlined the discovery process:
By Wednesday, the association will provide the pension fund with a log of documents it has provided to Local 77 of the American Federation of Musicians, the Pension Benefit Guaranty Corp., the Official Committee of Unsecured Creditors, and Encore Series Inc.
By Monday, the association will provide the fund with those documents.
By Aug. 5, the fund will file a statement identifying categories of documents requested that it considers outstanding, and listing any new categories of documents that it now seeks and the date by which it expects to see the documents.
Also, the association was ordered to obtain estimates from outside firms on what it would cost to retrieve e-mails and other electronic documents from the association's hard drives. Rather, though, than the 10 years' worth of computer records requested by the union, Frank indicated he would approve a much shorter time frame - from Jan. 1, 2009, though April 15, 2011, the day before the association filed for Chapter 11.
Recovered communication among orchestra donors, staff, and the board may be important to the union as it attempts to show which donations to the endowment are restricted in perpetuity and which are not - and whether they were made that way at the behest of the donor or the association.
"We do now have the documentation on all of the gifts," McMichael said. "I don't want to be less than candid. Over 100-some-odd years and many generations, some of these documents are clearer than others."
The timing of recovered e-mails was potentially significant. McMichael, in arguing against the union's request for a decade's worth of e-mails, said in court that the orchestra's endowment had not received any major contributions since the 1990s. In fact, the largest campaign in the orchestra's history was launched in 2003 and closed in 2008, raising $130 million for the endowment.
Contact music critic Peter Dobrin at 215-854-5611 or email@example.com. Read his blog, "ArtsWatch," at www.philly.com/artswatch.