Detroit Judge praises expensive lawyers & advisors

11 March 2015 Consultancy.uk

The Detroit bankruptcy was both painful for its people as well as expensive on the City’s coffers – with professional services from a variety of private and public entities charging or costing a total of $184 million to settle the affair. Controversy about the fees from private providers saw sitting bankruptcy Judge Steven Rhodes instigate a fee review. In a recent ruling the judge praised the work of the private sector in securing the city’s finances, unburdening them of the perception of overcharging.

Earlier this year Consultancy.uk reported on the bankruptcy case faced by the City of Detroit after it financial position became untenable in July of 2013. After a lengthy process, the City of Detroit successfully left municipal bankruptcy with all finances handed back to the city beginning at midnight on December 11, 2014. In the 16 month period the long term debt burden was reduced to a more manageable $7 billion with $3 billion restructured.

Fees paid to consulting firms

The costs associated with this bankruptcy were high however, which after intervention from the sitting Judge Steven Rhodes were disclosed to be $184 million – paid to lawyers, financial and tax advisors, management consultants, bankers and other related advisors.

Fees slashed
Controversy reigned however about the height of the fees charged by the various parties involved in the bankruptcy proceedings, with the city’s dwindling funds – intended to serves its citizens – being consumed by hefty rates. The controversy extending to the point where mediators, the honourable Chief Judge Gerald Rosen of the U.S. District Court for the Eastern District of Michigan, were called in, and after confidential discussions the fees for many of the professional services were reduced. Jones Day, which led the city's legal case, cut $17.7 million off its bill, eventually collecting more than $50 million, while Miller Buckfire, which negotiated debt deals and asset transactions, slashed $9.6 million off its fees, eventually collecting $22 million. The Dentons law firm cut more than $3.8 million off its fees, eventually collecting $15.4 million and The Clark Hill law firm, which represented the pension funds, slashed its bills by 15% and collected $6.25 million. EY collected $20.2 million, Conway MacKenzie received $17.2 million and city law firm Miller Canfield got $7 million, but it's not clear how much they reduced their fees.

Yet even with these concessions, Judge Steven Rhodes was so concerned with the high costs that he called for full disclosure of the fees charged and instigated a review of those fees. After more than a month of deliberation the judge returned with his unequivocal approval of the fees – expressing praise for the professionals that helped bring the bankruptcy to a clean and closed conclusion. “Profound thanks to the attorneys and other professionals in the case. You conducted yourselves with the highest degree of civility, respect, and professionalism, both to each other and to the Court. At the same time, you demonstrated zealous advocacy as well as loyalty to your oaths and to your clients.”

Detroit

Reflecting on the state of affairs before and bankruptcy and the turnaround that Detroit has experienced, Rhodes reflects that “now is the time to appreciate and credit that accomplishment and all of the effort and skill of those professionals in achieving it. The City is now on a path to success precisely because of the expertise, skill, commitment, endurance, personal sacrifice, civility and proficiency of all of the professionals in the case, including most certainly those whose fees are subject to review in this opinion.”

“It is therefore proper now to recognise in particular the contribution of the City’s advisors, EY, Conway MacKenzie, and Miller Buckfire. It is also proper now to specially recognise the singular and extraordinary contribution of the City’s attorneys, Jones Day”, Rhodes remarks.

The positive judgement may now put to rest the concerns fostered from Detroit’s emergency manager Kevyn Orr's critics and concern from Mayor Mike Duggan. Although as often happens in large cases involving considerable funds, time may still bring further controversy to light.

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