News out of the City of Detroit’s bankruptcy filing is that attorney fees are skyrocketing. U.S. Bankruptcy Judge Steven Rhodes, on whose docket the matter sits, has been known to be harsh on attorney fees for consumer bankruptcy attorneys. It will be interesting to see his take on attorneys working for a government organization.
The attorneys and consultants are appointed not by the tax payers or city they represent, but by elected officials in the executive branch for the state. It will be hard to reconcile Judge Rhodes’ consistent response that attorney fees must be reasonable in consumer cases where the client is fully informed and agrees to the fees and this case where the city government and residents who fit the tax bill have no say over their legal representatives.
One would hope that bankruptcy Judge Rhodes reign in excessive spending of tax payer dollars – part of the reason why Detroit ended up in bankruptcy.
Contracts approved for consultants and lawyers advising emergency manager Kevyn Orr’s team as it restructures city government and prepares for a likely Chapter 9 bankruptcy have skyrocketed to at least $62 million, with some firms getting more than $10-million increases, according to records reviewed by the Free Press.
The documents, obtained with a Freedom of Information Act request, show an increase of as much as $45 million for consulting and legal work above the initial contracts that were signed in recent months and shared with the City Council. The bills are an early indicator of just how expensive the bankruptcy case may end up being for the city and state and raise anew an often-asked question: How can a city that’s broke afford pricey lawyers and consultants?
Meanwhile, legal experts say the tab likely will rise even more if a federal judge finds Detroit eligible to enter bankruptcy, a battle that begins in earnest in federal court on Oct. 23.
Orr’s spokesman and others say it’s money well spent on high-powered lawyers and consultants battling creditors who are fighting for every penny they can get from a city Orr says has no money to pay its choking debts and liabilities.
“The fact of the matter is, we can’t afford not to,” his spokesman, Bill Nowling, said Friday. “They have expertise in a whole host of areas that we need for the restructuring and in bankruptcy court. We’re literally trying to do five decades of restructuring in 12 months.”
Two firms — restructuring consultant Conway MacKenzie of Birmingham and Jones Day, the Washington, D.C., law firm from which Orr resigned when he was appointed emergency manager in March — were given contract extensions as Detroit moved from a position of trying to avoid bankruptcy to capitulating and filing a Chapter 9 petition in July.
Conway MacKenzie’s contract grew to $19.3 million from an initial $4.2 million. Jones Day, originally contracted for $3.3 million, now may be paid up to $18 million, according to previously undisclosed documents obtained by the Free Press.
Other recipients of large contracts include Ernst & Young, which has conducted a cash-flow analysis for the city, and Miller Buckfire, the New York-based investment bank whose copresident, Kenneth Buckfire, is the city’s lead financial adviser. Both firms have received contracts that have reached or exceeded $8 million, records show.
Ernst & Young’s initial contract in 2011 was for $1 million, but the firm’s assignments grew as Detroit’s financial condition deteriorated throughout 2012, records show. Miller Buckfire’s initial contract in early 2013 was for $1.8 million for financial analysis, and its role has expanded to include liability restructuring and assistance to Orr in preparing the city’s Chapter 9 plan of adjustment, the statement of how Detroit plans to emerge from bankruptcy.
Council doesn’t know?Under the state’s emergency manager law, Public Act 436, Orr isn’t required to seek council approval for contracts or contract changes. Earlier this year, he pledged to share that information with the council. But that was not done with many of the most recent contracts.
Detroit Free Press: http://www.freep.com/article/20130929/NEWS01/309290063/detroit-bankrupt-consulting-contracts
