UPDATE: 7/20/13, 6:20 p.m. EST. A statement from Clark Hill has been added to the 15th paragraph of this story.
In filing for Chapter 9 protection Thursday, Detroit took its first legal step toward the largest municipal bankruptcy in U.S. history—and set off a scramble among a bevy of firms eager to land assignments on the record-setting case.
The 207-year-old city
, which for years served as a
beacon of American industrial might
before beginning its long, slow descent into insolvency, has seen its population drop from nearly 2 million people in 1950 to just 650,000 today, according to a bankruptcy court filing detailing the city’s deteriorating finances.
Even before Rhodes approves Detroit's Chapter 9 petition, many large firms with Motor City roots have been retained by clients with interests—some of them not always aligned—in the proceedings.
Ronald King—a Clark Hill commercial litigation partner and executive committee member—and Lansing office managing partner Aaron Matthews are representing the plaintiffs in the suit, who went to court in a preemptive move aimed at blocking any attempt to slash the benefits of the Detroit police officers and firefighters whose funds they represent. Joseph Turner, a partner in Clark Hill’s education and municipal group,
was elected in June to serve as interim general counsel
for The Police and Fire Retirement System of Detroit.
U.S. Senate records show
that Clark Hill government policy partner Reginald Turner, another member of the firm’s executive committee, was working with director of governmental affairs Lucius Vassar in handling lobbying work for the city of Detroit before Congress, primarily on transportation issues involving “law enforcement grants, tracking diminution in funds or programs, and opportunities to increase funding in future budget amendments.”
The blowback from Clark Hill’s decision to represent pensioners in litigation against Orr while also handling lobbying work for Detroit didn’t take long to materialize.
“We believe it’s a huge conflict,” says
Orr spokesman Bill Nowling
, who spoke Friday with
The Am Law Daily
. Nowling adds that Detroit’s Water and Sewerage Department has already severed its ties to Clark Hill and that the city itself is going to “take a close look” at its relationship with the firm. (Richardo Kilpatrick of Detroit's
Kilpatrick & Associates
filed a notice of appearance in the bankruptcy court Friday on behalf of the Water and Sewerage Department.)
Turner, Vassar, King, and Matthews did not respond to requests for comment about their firm’s dual roles in the Detroit case. And though John Hern Jr., CEO of Clark Hill, declined a request for comment Friday, a firm spokeswoman sent
The Am Law Daily the following statement over the weekend to clarify the situation.
"[Clark Hill] has represented both the City of Detroit and the pension funds for a number of years—and had a conflict waiver in place to do so," according to the firm's spokeswoman. "In light of the recent court filings related to [Detroit's] bankruptcy, it was mutually determined—by both our firm and the City of Detroit—to end our representation of their federal lobbying interests."
Nowling says that while Orr and other city officials want Detroit taxpayers to feel that they are getting value for their money, having what he calls an “A-Team” of advisers is
key to turning the city around
. Unfortunately, Nowling adds, it “costs money” to get people to Detroit in order to assist in its potential recovery. And as substantial as those costs are likely to be, a key distinction between Chapter 9 cases and other forms of bankruptcy will make them somewhat difficult to track.
As Douglas Bernstein, head of the banking and bankruptcy practice at Detroit-based
, notes, law firms and other professional advisers working on Chapter 9 cases do not require court approval in order either to work for—or be paid by—the debtor that hires them. So even while Orr will have to file periodic reports that include expenses related to the bankruptcy if it proceeds, Bernstein says, the kind of itemized billing records open to public scrutiny in a Chapter 11 case won’t exist in the Detroit matter.
(Unlike many local lawyers, Bernstein does not have a role in the Detroit case. He has, however,
quickly become a go-to source for local media
seeking insight into the legal proceedings. Bernstein says he has been inundated with calls from journalists over the past 24 hours and plans to appear regularly as a commentator on Detroit’s NBC affiliate.)
Meanwhile, Miller Canfield,
which has long-standing legal ties to Detroit
, is among several large firms with local roots advising various clients with a vested interest in the future fiscal solvency of the Motor City. One of the firm's current assignments involves its representation of Olympia Development, an entity controlled by Detroit Red Wings owner and Little Caesar’s Pizza billionaire Michael Ilitch that is
pushing to build a new 18,000-seat downtown arena
for the National Hockey League franchise.
Dickinson Wright CEO William Burgess declined a Friday request for comment about the work his firm is doing related to Detroit’s Chapter 9 filing, though he did confirm that the firm,
which has a robust gaming practice
, is advising a client with a more direct role in the proceedings. Documents filed with the bankruptcy court Friday, as well as U.S. district court records filed earlier this month, show that the client in question is the MGM Grand Detroit casino, with Dickinson Wright gaming and regulatory partner Peter Ellsworth leading the firm's efforts.
Detroit's municipal bond insurers and creditors have retained their own teams of Am Law 100 firms.
Arent Fox is advising Ambac Assurance; Sidley Austin and Michigan’s
Jaffe, Raitt, Heuer & Weiss
are representing the National Public Finance Guarantee Corporation; Winston & Strawn has been retained by Assured Guaranty; and Weil, Gotshal & Manges is counseling the Financial Guaranty Insurance Company.
Edwin Smith, cochair of the financial services practice at Bingham McCutchen, and complex commercial and bankruptcy litigation partner Jared Clark, bankruptcy partner Steven Wilamowsky, and finance counsel E. Marcus Marsh III are advising Swiss banking giant UBS in connect with the secured swaps negotiations. None were available Friday to discuss the nature of their work with
The Am Law Daily.
Cadwalader, Wickersham & Taft partner Lary Stromfeld, founder and head of the firm’s municipal derivatives practice and cohead of the firm’s distressed municipal finance practice, is counseling Bank of America, along with financial restructuring cochair Mark Ellenberg, financial institutions partner Howard Hawkins Jr., and litigation partner Jason Jurgens. Stromfeld declined to comment about his firm’s role when reached by phone Friday afternoon.
Dykema Gossett, which along with
a slew of other firms earlier this year lost out
in the bidding for the job of serving as Detroit's restructuring counsel, has teamed up with K&L Gates to serve as cocounsel to the Health Alliance Plan of Michigan.
Other firms filing appearances with the bankruptcy court include Katten Muchin Rosenman (for AT&T Michigan); Kramer Levin Naftalis & Frankel and
(for both BlackRock Financial Management and Nuveen Asset Management);
(Blue Cross Blue Shield of Michigan);
Gold Lange & Majoros
(Birmingham, Michigan–based US Health and Life Insurance Company); and
Gudeman & Associates
(for both Enjoi Transportation Solutions and Upright Wrecking Demolition).
Additional reporting by Sara Randazzo.