In an unexpected decision, the United States Bankruptcy Court ruled it will review bankruptcy lawyer billings for two of Detroit’s major creditors – the Police and Fire Retirement System and the General Retirement System.
The court made its decision finding that since the bankruptcy debtor, the City of Detroit, funds those pension plans, the city is the responsible party.
In Chapter 7 and Chapter 13, bankruptcy attorney fees for creditors are not brought into account or determined by the bankruptcy court. Here, however, the court felt there was strong enough reasoning to bring the bankruptcy lawyer fees into the fold.
Bankruptcy lawyer fees are reviewable for the court in all cases with regards to the bankruptcy debtor’s attorney. In any case, the bankruptcy lawyer will have to show that his or her fees are reasonable for the work accomplished. Reasonableness always considers the bankruptcy attorney’s time spent and experience with the matter.
The attorneys and financial consultants who represented Detroit’s two pension funds during the city’s bankruptcy will have their fees subjected to the same scrutiny as other highly paid professionals.
U.S. Bankruptcy Judge Steven Rhodes ruled Wednesday that the Police and Fire Retirement System and General Retirement System should be subjected to the court’s review of costs associated with litigating the largest bankruptcy in U.S. history.
Robert Gordon, an attorney for the pension funds, argued in court Monday that they should not be subject to fee examiner Robert Fishman’s ongoing reviews because Detroit taxpayers are not directly footing their legal bills.
Rhodes disagreed, while acknowledging there’s no legal precedent for having a creditor’s legal fees subject to court review in a Chapter 9 municipal bankruptcy.
“Simply stated, the city funds the plans and the plans pay its professional fees and expenses from those funds and their earnings,” Rhodes wrote in a five-page ruling. “Contrary to the retirement systems’ assertion, the application of the statute does not depend on a line-item administrative expense paid directly by the city.”
The final cost of millions of dollars in fees charged by an army of city consultants and attorneys remains one of the last hurdles to Detroit’s exit from bankruptcy. Fees from financial advisers, restructuring consultants and law firms had topped $140 million, according to Emergency Manager Kevyn Orr’s office.
Jones Day, the city’s lead bankruptcy firm, billed $52.3 million, the largest amount to date, through the end of September, according a city report.
Rhodes ruled earlier this month that the city’s debt-cutting plan can be implemented. But the judge has ordered mediation sessions next week over outstanding legal bills.
Mayor Mike Duggan has expressed concerns that cost overruns from legal bills could endanger the city’s plan of adjustment, the budgetary blueprint that will govern Detroit’s finances for the next decade.
On Monday, an attorney for Greenhill & Co. disclosed that the financial firm has billed the two retirement systems $3.55 million for its services. The firm’s advisers helped General Retirement System and Police and Fire Retirement System officials negotiate with Orr’s legal team over changes to pensions and long-term investment assumptions.
The Detroit News: http://www.detroitnews.com/story/news/local/wayne-county/2014/11/27/legal-fees-detroit-pension-funds-reviewed/19594383/
