Klarinet Archive - Posting 000065.txt from 2011/04

From: "Steve Boardman" <sboardman@-----.com>
Subj: [kl] Philadelphia Orchestra in Chapter 11
Date: Thu, 21 Apr 2011 12:14:24 -0400

The state of the arts appears to be getting critical. The Philadelphia
Orchestra just filed for Chapter 11 bankruptcy protection. (The Philadelphia
Orchestra!!!!) Here is the article from today's (April 21, 2011)
Philadelphia Inquirer:

Bankruptcy Court hears opening statements on Philadelphia Orchestra's
Chapter 11 petition

By Peter Dobrin

Inquirer Music Critic

Arguing that there are aspects of the musicians' contract "we can no longer
afford," lawyer Lawrence G. McMichael on Wednesday ushered the Philadelphia
Orchestra Association's Chapter 11 petition into U.S. Bankruptcy Court.

In opening statements, McMichael invoked the orchestra's history and
stature, saying the ensemble's economic ripples were in the "hundreds of
millions" of dollars, and calling it "one of the three or four premiere
orchestras in the world."

However, the orchestra's labor and pension costs; its relationship with the
owner of its hall, Kimmel Center Inc.; and its obligations to Peter Nero and
the Philly Pops were burdens, he said.

"Things have to change, and they are going to change - the kind of change to
put the Philadelphia Orchestra, the Academy of Music," and Encore Series
Inc., the Pops' legal name, "on a sound financial platform," he said.

Orchestra musicians strongly opposed the association's filing on Saturday in
U.S. Bankruptcy Court for the Eastern District of Pennsylvania, and their
attorney Wednesday called the action unnecessary and a mistake.

The "Orchestra of Firsts" is "now the first major cultural institution in
this country to file Chapter 11," lawyer Bruce Simon told Judge Eric L.
Frank and a courtroom of about 60 participants and observers, including
lawyers, orchestra staff and board, and a few musicians.

Lawyers for management and musicians had agreed a few minutes before the
start of Wednesday's hearing that the afternoon's proceedings would not
include a motion by management to impose a new contract on musicians.
Negotiations for a new deal with the players continue, as do all concerts.

Much of the hearing was devoted to procedural matters, but both sides
quickly outlined one of the central issues in the case: Whether the
orchestra, which is seeking to wipe the slate clean on tens of millions of
dollars that it may be obligated to pay for the musicians' pension plans,
could be compelled to use some of its $140 million in endowment to satisfy
that obligation.

The nest egg ($120 million belonging to the orchestra, $20 million owned by
the Academy of Music) is meant to be kept in perpetuity, the income from it
spent for various projects or general operating costs.

The orchestra says it has spent nearly all its unrestricted endowment -
funding that had no restrictions placed on it by donors. Only
donor-restricted endowment remains, and the association's position is that
it cannot be spent.

Simon, the musicians' lawyer, suggested that bankruptcy supersedes such
agreements. "Restrictions are not restrictions in this court," he said.

The case combines the bankruptcy petition of three organizations: the
orchestra, the Academy of Music (which the orchestra owns), and Encore
Series.

Frank will have to navigate a complex series of relationships and contracts,
including the now-expired merger agreement between the orchestra and the
Pops, and the still-current contract between the orchestra and Nero, as well
as the contract between the orchestra and the Kimmel that grants the
orchestra a lowered rent ($2.3 million a year) in Verizon Hall in exchange
for giving the Kimmel the right to book and the responsibility to maintain
the academy.

The orchestra's position on whether it wants to keep its relationship with
Nero, and whether it wants to keep the Pops, is not entirely clear. But the
orchestra refused to announce a 2011-12 season for the Pops, and Nero
exercised a clause in his contract calling for mediation and arbitration.

Last Thursday, Nero took away a victory from JAMS Arbitration, a private
dispute-resolution group, in which Judge Diane M. Welsh ordered the
association to commit to concert and rehearsal dates, and to "publicly
announce same and issue notice to the Philly Pops subscribers within 15 days
of the date hereof."

That order was superseded by the Chapter 11 filing and will now become part
of the proceedings.

"We can't afford what the injunction requires us to do," McMichael said.

Pops lawyer Paul R. Rosen told the court that the association had
consistently neglected its relationship with Nero and the Pops.

He also said he would object to the association's choice of a law firm
because of a conflict of interest: McMichael is a partner at Dilworth
Paxson, of which orchestra board member Joseph H. Jacovini is chairman.
Dilworth would then be representing the Pops in bankruptcy, while opposing
it in certain matters.

McMichael called the issue a red herring. But apart from Rosen's objection,
Frank raised the question himself and said rulings had been divided. He said
he would consider the matter after Rosen filed his objection.

The association's filing yielded a cache of information about its business
operations. Among them:

The orchestra will put in escrow money being sent in by subscribers to its
2011-12 season as a gesture of reassurance.

Orchestra management is paying McMichael $750 an hour, and paid Dilworth
Paxson $319,000 in the 90 days before Saturday's filing.

Orchestra president Allison Vulgamore could be the recipient of certain
incentives under the terms of her employment contract.

The association listed about $1.1 million in debts to its vendors at the
moment of the filing. But the bankruptcy move was not primarily about its
short-term cash position.

What the orchestra seeks, long-term, was spelled out in a declaration in
support of first-day motions by orchestra chairman Richard B. Worley:

"The debtors seek in the Chapter 11 process to achieve the following
outcomes: (1) relief from pension obligations, (2) relief from current
contractual obligations to Peter Nero and others, (3) renegotiated
contractual agreements with kCi [the Kimmel], (4) a new collective
bargaining agreement with Local 77 [the musicians], and (5) a court-approved
plan with all these elements that will attract donor support."

McMichael told the court he hoped to work with Nero and the Pops on a
resolution with "the maximum amount of consent and the minimum amount of
hostility."

The next significant hearing is to be May 9.

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