Orchestra at a juncture

Now five months old, the Philadelphia Orchestra Association's bankruptcy case has come to a critical fork in the road.

Wednesday's hearing before Judge Eric L. Frank was a subdued affair, with only a few lawyers present and no orchestra players or staff, but it was important for laying out two possible imminent paths - a quick resolution or a long, acrimonious battle that could stretch on for some time and have tragic consequences for the orchestra.

The more hopeful possibility first. Musicians and management continue to meet for mediation with Stephen Raslavich, chief judge of U.S. Bankruptcy Court, Eastern District of Pennsylvania, in an effort to strike a deal on a new labor contract (which would include an agreement for how musicians' pensions will now be structured - whether under the existing arrangement or a new one). "I believe mediation is actually making some progress," Anne M. Aaronson, an association bankruptcy lawyer, told Frank.

That could mean a relatively quick exit from bankruptcy, assuming the association and the Kimmel Center agree on a new lease arrangement or relationship, or decide to handle those talks apart from the bankruptcy process.

In that case, the orchestra would open its Verizon Hall season next month with the bankruptcy cloud largely lifted.

A more unpleasant - and potentially disastrous - scenario promises to unfold if mediation fails to produce a truce between musicians and management. If that happens, it's fair to expect the American Federation of Musicians and Employers' Pension Fund to come out swinging.

Fund lawyer Herman L. "Hank" Goldsmith told the court that some of the tens of thousands of e-mails culled from the association's computer servers and other documents supported the fund's assertion that some of the money in the association's endowment does not, for one reason or another, belong there and is therefore available to creditors.

"Millions appear to be in endowment," Goldsmith said, "and shouldn't be."

He also said money coming in designated as restricted was "getting swept back and forth into a global investment account and commingling with unrestricted, which makes it impossible to trace the flow."

The national musicians' pension fund, with about $2 billion in assets, may be the largest creditor in the case. If the association chooses to withdraw from the pension plan, that will trigger a withdrawal liability estimated at between $23 million and $35 million. The association hopes to shed that liability through its Chapter 11 bankruptcy proceedings.

Goldsmith said the discovery process so far had produced enough leads on potential millions available for creditors that he would file a request for more documents from the association, such as bank statements and other records that would assist in tracking how endowment money was handled.

He also raised the possibility of issuing deposition notices that would put orchestra chief financial officer Mario Mestichelli and others on the witness stand.

The association, too, would take aggressive steps if mediation failed to produce a new contract. Aaronson confirmed that management could file to abrogate the musicians' current labor deal within days if mediation ended unsuccessfully. That process - throwing out the old contract and imposing a new one - takes weeks, and if it begins, bankruptcy proceedings shift into trial mode, with potential witnesses, examination, and cross-examination of orchestra staff, board, and others.

Further litigation could potentially begin, fund officials have said, against other parties with various relationships to the orchestra.

That won't be pretty. And it will be costly and time-consuming. But as far as the listening public goes, all this will be playing out, if noisily, on some other stage. The real danger of this second, more contentious, scenario is the possibility of a musicians' strike.

Strike talk hasn't drawn much interest from musicians so far, but insiders say the idea is gathering steam. Management interpreted the players' recent rejection of its strategic plan as a shot across the bow. If the association files to abrogate the current contract, some sources close to the situation believe more musicians would move into the pro-strike column. Then what has been a legal battle would become an obstreperous and very public one.

The danger? Any interruption in the orchestra's season, no matter how brief, would likely accelerate the migration away from subscriptions toward single tickets. Because a subscription is several times less expensive for the orchestra to sell than a single ticket, a deepening of that trend would add financial stress. This is hardly a time to give listeners a reason to get out of the orchestra habit.

According to filings submitted for court approval, the case has so far cost the association more than $4.4 million: $3.2 million in legal and professional fees, and $1.25 million in a severance agreement with Peter Nero and the Philly Pops.