Contract could be near in orchestra bankruptcy

A breakthrough in the Philadelphia Orchestra's Chapter 11 bankruptcy case could emerge as soon as Wednesday, as management and labor try to hammer out a deal under the supervision of a U.S. bankruptcy judge.

But if a new contract does not include continued participation in the national musicians' pension fund, the fund will begin litigation involving donors and board members, fund leaders say.

Sources reported "some movement" in talks Sunday and Monday under the supervision of Stephen Raslavich, chief judge of U.S. Bankruptcy Court, Eastern District of Pennsylvania.

Musicians had not received a final offer from management as of Tuesday, the sources said. Raslavich asked the musicians' union not to discuss a developing deal on wages and pension with players, who returned from vacation Tuesday for the start of the orchestra's 2011-12 season.

Raslavich does not have the authority to dictate the terms of a new contract. But he has impressed upon both sides that if a deal was not reached through court-supervised negotiations, a long stretch of expensive and unpleasant litigation lay ahead.

That would include a legal process in which the Philadelphia Orchestra Association would seek to impose a new contract on players.

It was still not clear whether, under the terms of a contract that may be coming together, the American Federation of Musicians and Employers' Pension Fund would continue to serve as the retirement plan for musicians.

If it is not, fund leaders say they will pursue litigation to recover what they say is between $23 million and $35 million the fund would be owed as part of a withdrawal liability.

"When they finish mediation, if the fund is still attached, then we're not going to be continuing the legal directions," said Ray Hair, president of the American Federation of Musicians and a trustee of the pension fund.

If the pension fund is cut out, he said, "we have to mitigate that withdrawal liability, and we'll look to the endowment to see if there are funds to help mitigate that."

In fact, the pension fund is already far along on its investigation of the endowment. In a teleconference with the court Tuesday, the fund revealed that it had sent letters to 18 to 20 donors, asking whether they spelled out that their donations be earmarked as restricted to remain in endowment for perpetuity.

Fund attorney Herman "Hank" L. Goldsmith told Judge Eric L. Frank that the strategy was proving "fruitful."

One donor who made a $2 million donation, Goldsmith said, had already responded that he made an "unrestricted gift, and the [Orchestra Association] kept writing back to say thank you for your restricted gift."

The orchestra contends that all $120 million or so of its endowment is restricted by donors' wishes to remain in the endowment, and is therefore unavailable to creditors as part of the bankruptcy. The legal theory under which the pension fund is operating is that perhaps up to $20 million in endowment gifts came with no clear instructions for their use and that the fund, as the largest creditor in the case, is entitled to the money as part of the bankruptcy process.

Anne M. Aaronson, the association's bankruptcy attorney, said she learned only Monday that donors were being contacted. She expressed concern that they were being pulled into the case and suggested that this course of action was "harassment or a vindictive act against the" association.

But Goldsmith contended that establishing the exact size of the estate was a standard component of bankruptcy and that the only way to do that was by contacting donors directly about the intended purpose of their gifts.

"They're going to be pursued," he said.