Governor Rick Snyder of Michigan named Washington, D.C.–based Jones Day restructuring partner Kevyn Orr to serve as emergency financial manager for Detroit on Thursday, less than a week after the city itself retained Jones Day to act as its restructuring counsel. Detroit ended last year with a $327 million deficit and is grappling with $14 billion in long-term debt.
It will now be up to Orr, 54, a University of Michigan Law School graduate and veteran of Chapter 11 proceedings in the 2009 bankruptcy of Auburn Hills, Michigan–based automaker Chrysler, to help return the Motor City to a semblance of fiscal stability.
One possibility looming on the horizon for Detroit, which is now the sixth city in Michigan with an emergency manager, is that it will file the largest municipal bankruptcy in U.S. history. While Orr said at a Thursday press conference called to announce his appointment that he wasn’t certain the Motor City would speed into Chapter 9, he did call his new assignment the "Olympics of restructuring." (Snyder and Detroit Mayor Dave Bing both flanked Orr at the press conference, for the moment putting aside differences over who should run the city.)
While neither Orr nor a Jones Day spokeswoman immediately returned requests for comment about how his role managing Detroit’s finances would mesh with the firm’s representation of the city, Bloomberg reports that Orr said at Thursday’s press conference that he had formally resigned from Jones Day as of Wednesday. Orr joined the firm in 2001, made partner three years later, and in 2010 became Jones Day’s firmwide diversity partner, according to sibling publication The Blog of Legal Times.
In assuming his new role, which officially begins on March 25, Orr is taking a substantial pay cut. The Detroit Free Press reports that the emergency manager’s job pays an annual salary of $275,000. According to the most recent Am Law 100 data available, Jones Day had average profits per equity partner of $870,000 in 2011, a year in which the firm reaped nearly $1.7 billion in gross revenue. (Public filings by the city of Detroit put its 2011–12 gross revenue at just over $3.1 billion.)
Orr has no illusions about the daunting task he is taking on—or how sweet success would be. "If we can do this, I will have participated in one of the greatest turnarounds in the country," he said Thursday of reversing the long, slow decline of the Motor City, as documented in haunting photo montages, magazine feature stories, and a well-received new book by a renegade writer no stranger to some local judges. "That is something I can tell my grandchildren about."
Reuters reports that as Detroit’s new emergency manager, Orr will inherit widespread powers, including the ability to renegotiate union contracts and potentially privatize or sell off certain city assets in order to raise much-needed cash.
Detroit itself has previously called on firms from afar to cope with its various legal and restructuring issues. Four years ago the city’s public school system, saddled with mounting debts and widespread corruption, hired former Cadwalader, Wickersham & Taft financial restructuring cochair Deryck Palmer to manage an out-of-court restructuring.
Palmer, who was not immediately available for comment Thursday about his Detroit work, led a team from the firm that negotiated contractual concessions with teachers, retirees, and other parties in order to keep the nation’s sixth-largest school system operational. (Palmer and two other Cadwalader restructuring partners left the firm last year to join Pillsbury Winthrop Shaw Pittman, according to our previous reports.)
The city’s struggling economy has had an impact on the local legal industry.
One Motor City mainstay, Butzel Long, recently approached the federal Pension Benefit Guaranty Corporation to seek relief from mounting pension obligations as it copes with the loss of more than 100 lawyers since 2009, according to a report in January by sibling publication The National Law Journal. Some local firms have turned to government bond work and tried to branch out into other practice areas as other income streams dry up, according to a report last year by Crain’s Detroit Business.
At the same time, the city itself has spent a portion of the little money it has had in recent years on outside lawyers and lobbyists tasked with putting Detroit on firmer financial footing. After some initial resistance, the city council approved a $300,000 legal services contract for Miller, Canfield, Paddock & Stone last December to serve as special bond counsel for Detroit as it sought to bring its budget under control. (Former Detroit deputy mayor and lifelong Motor City resident Saul Green joined Miller Canfield last year as a senior counsel in its litigation practice.)
The Hill reported last year that Bing’s office awarded a $330,000 lobbying contract to local firm Clark Hill to help the city secure federal funding for "municipal government activities." U.S. Senate lobbying records show that Clark Hill has so far been paid nearly $100,000 for its lobbying efforts. (Patton Boggs, meanwhile, was paid $120,000 over the past year for its work on behalf of the Detroit Economic Growth Corporation, a private nonprofit organization founded in 1978 to bring jobs and new investments to the Motor City.)
Clark Hill, which absorbed nine-lawyer local firm Kupelian Ormond & Magy last year to become a nearly 200-lawyer shop, could soon see its city lobbying contract subsumed by another firm. Earlier this year, sibling publication The Legal Intelligencer reported that Clark Hill has been in merger talks with Pittsburgh–based Thorp Reed & Armstrong since last year and that a deal on a combination could be struck soon.
Dickinson Wright, another longtime Detroit-based firm whose chairman emeritus and American Lawyer Lifetime Achiever Dennis Archer once served as the city’s mayor, inked an alliance last year in Macau with local shop MdME before agreeing in January to merge with a 60-lawyer, Phoenix-based firm called Mariscal, Weeks, McIntyre & Friedlander, according to our previous reports.