Orchestra asks court to stop pension fund from harassing donors

Posted: November 08, 2011

Philadelphia Orchestra Association to U.S. Bankruptcy Court: Please stop the national musicians' pension fund from harassing our donors.

In a motion filed last week in the association's Chapter 11 case, orchestra management says the American Federation of Musicians and Employers Pension Fund is seeking financial information from 16 philanthropists "only in a continued effort to embarrass and harass the [association] and their donors."

Such an inquiry will have a "tremendous and devastating impact" on fund-raising, the association asserts.

"If donors find themselves subject to litigation and have to incur related expenses solely as a result of their benevolence, they and others who contemplate supporting the Debtors' organization may be deterred from making future gifts," the filing states.

The orchestra estimates it needs to raise about $165 million over several years to fund its bankruptcy case and operating expenses in coming seasons, and to boost endowment to an adequate level.

Additionally, the filing reserves the right to seek sanctions against the fund for "vexatious and harassing discovery tactics" and litigation.

Sanctions, if sought by the association and approved by the judge, could include shifting the association's legal fees for part of the discovery process onto the fund, said the association attorney, Lawrence G. McMichael.

"Our mission is to protect the endowment and protect the orchestra, and their mission is to try to get paid as much as possible," McMichael said. "But all litigants have an obligation to work within the facts and not make stuff up. There is no problem with our endowment, and by now they should know that."

As of Monday, the matter is to be heard Wednesday by Judge Eric L. Frank.

McMichael said it would not hold up the orchestra's exit from bankruptcy, which he once forecast for Dec. 31 but now said would happen in early 2012.

But the association's relationship with the Kimmel Center, its landlord, is still under discussion and best resolved as part of the bankruptcy, he said. The solution, McMichael said, could range from something as small as "adjustments to existing leases, to as large as a complete restructuring of the organizations."

The pension fund contends that determining the size of the orchestra's "estate" - the pool of money available to creditors - requires it to determine whether the "endowment owes the estate money; whether the Debtors acted deliberately or in bad faith, and if with others, with whom, to create or accelerate the liquidity crisis that led them into bankruptcy (so they could achieve their purpose of withdrawing from the Fund); or whether the Debtors commingled the funds in the general operating account, which under relevant law could significantly increase the size of the Debtors' estates."

McMichael called these ideas "nonsense" and "fantasies" and said the orchestra's handling of its endowment had cleared outside scrutiny.

"The creditors' committee has looked into it, the Pennsylvania attorney general has looked into it, and no one has suggested that there is any impropriety here."

Ray Hair, president of the American Federation of Musicians and a trustee of the pension fund, said Monday that the fund's actions were rooted in the question of the original intent of the donors. "Originally these donors were saying that their money was unrestricted. And now they're saying that it is restricted, so they're changing their story. I think that strengthens our claim," he said.

As part of its bankruptcy petition, the association is withdrawing from the pension fund, which bundles participation from a number of U.S. orchestras and others, while moving its own musicians to a defined-contribution plan. The fund says withdrawal triggers a liability of up to $35 million and is looking to the orchestra's endowment to satisfy that claim.

McMichael said that it was the association's belief that it was liable for no more than about $1 million.

The fund said that it believed that more than $20 million in endowment money was misclassified as restricted, and, in letters to donors sent in late September, it sought further documentation. It has raised the possibility of putting donors on the witness stand for questioning.

In its response, the association filed affidavits from donors - some of whom it says are "out of the country for the winter" - stating their intentions for the money's use. It says it has spent "countless hours and incurred substantial expense" complying with the fund's requests for information, producing "nearly three quarters of a million pages of documents in a very short time."

The association says, in essence, enough is enough.

"The Fund is clearly misrepresenting the facts to the Court in an effort to convince the Court that justification exists to continue the Fund's incessant discovery requests."


Contact Peter Dobrin at 215-854-5611 or pdobrin@phillynews.com. Read his blog at www.philly.com/artswatch.

 

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