The Detroit City Council voted to approve a $3.35 million contract to hire Jones Day as the financially crippled city’s restructuring counsel, but the vote came only after suspending the proceedings Tuesday for an hour amid a raucous protest by a group of angry city residents. After order was restored, the council voted 5-2 to retain the firm, prompting the still-riled crowd to erupt in a chant of "Shame! Shame! Shame!"
Detroit officials chose Jones Day for the assignment March 8 after 14 firms bid for the job of trying to help the city avoid bankruptcy and restructure $14 billion in long-term debt. Despite previous reports that the firm’s role would not become official until Detroit’s newly appointed emergency manager, former Jones Day partner Kevyn Orr, approved the contract, an Orr spokesman said Tuesday that because Jones Day signed an agreement letter before Orr officially started his job, his approval is likely not actually required.
Several city politicians question Orr’s close ties to Jones Day—as well as the firm’s representation of a bank that is also a Detroit creditor—in recent weeks, and more than a dozen citizens echoed those questions in strongly worded comments at Tuesday’s meeting.
One speaker insisted "a blind person can see that this is not right," while another said "If you vote for Jones Day, we will be everywhere where Jones Day is across the world. We will embarrass them, we will shine the light."
Orr was part of the Jones Day team that met with Detroit officials in January to bid for the job as the city’s restructuring counsel. At the time, Jones Day was one of five firms seeking the assignment. After opening the process to additional firms, Mayor Dave Bing’s office announced on March 11 that Jones Day had been hired. Three days later, on March 14, Michigan Governor Rick Snyder appointed Orr to serve as city manager. Orr resigned from the Jones Day partnership and began his new job the following day.
A trio of legal ethics experts contacted by The Am Law Daily last week said criticism of the ties between Orr and Jones Day is misplaced, that neither are violating any rules, and that Orr is obligated to hire the best counsel possible.
Politics appeared to be on display Tuesday. As council president Charles Pugh called for a vote on the Jones Day contract, the audience began singing "We Shall Not Be Moved." Pugh responded by calling a recess. While the remote-access stream of the meeting cut out for more than an hour, press attending the meeting reported on what was going on in the interim.
Two council members added their voices to the chorus of opposition. Council member Brenda Jones said that in previous Chapter 9 bankruptcy assignments for Stockton, Calif., and Jefferson County, Ala., Jones Day cited in its pitch to the city, the lawyers involved did not represent the distressed local governments. "They actually represented creditors," Jones said. "I see that as being a problem." (Jones Day lawyers represented Orange County, Calif., in its case before joining the firm).
Council member JoAnn Watson focused her attention on Jones Day’s work for Bank of America-Merrill Lynch, which holds city bonds: "The same firm representing the debtor clearly cannot represent the lender," she said. "That is a irrefutable, undeniable conflict that should have caused some pause in the review of the city’s law department."
David Whitaker, Detroit’s director of research and development, added during the meeting that his department concluded the firm faced conflicts because of its ties to Orr.
Even if Jones Day were hired, he told the council, "You should fight to maintain some supervision, some monitoring of the contract so that transparency and some semblance of democracy is had."
Edward Keelean, a lawyer with the city’s corporation counsel office, defended Jones Day to the council and said the firm received the highest rating in an analysis conducted by financial advisers with outside consulting firm Miller Buckfire.
Another city lawyer , Lewis Smith, voiced that he personally opposed hiring Jones Day, qualifying it not as that of the department.
"Though I believe the contract is clean, there is an appearance of impropriety," he said. "In light of the history of corruption we’ve seen in this city, the second-highest ranking firm should have been selected."
According to a document referenced by city council members at Tuesday’s meeting, and later provided to The Am Law Daily, Foley & Lardner ranked second on Miller Buckfire’s list with 20 points out of 24, compared to Jones Day’s 21.
Firms received scores for factors including a connection to Detroit and Michigan; experience in complex, debtor-side work, Chapter 9 bankruptcies, municipal restructuring, and public finance; strength of other practice areas at the firm; and disclosed conflicts.
Like Jones Day, Foley & Lardner also identified client conflicts and proposed hiring Klee, Tuchin, Bogdanoff & Stern to serve as conflicts counsel if they were selected.
Other firms considered for the assignment include Dykema (which got 18 points), McKenna Long & Aldridge (17); Orrick, Herrington & Sutcliffe (19); Sidley Austin (18); and Weil, Gotshal & Manges (17). Detroit-based Miller Canfield, which tied for third with 19 points, only sought a role as local counsel, according to the document.
Thomas Radom, a Butzel Long partner and part of his firm’s bid, said Butzel (which earned 12 points) still hopes to be called in as local counsel to handle matters in which Jones Day has a conflict or could benefit from lower-cost lawyers. Radom says he hopes the city can avoid filing for bankruptcy, but that "At this point it’s hard to say. … Some people feel they’ve already given and are not willing to give any more. If they have to give more, they might say, ‘Then let a judge decide.’"
Sara Randazzo writes for The Am Law Daily, a Daily Report affiliates.