A $300,000 contract to provide restructuring advice to financially crippled Detroit awarded to Miller, Canfield, Paddock and Stone in December—over strong city council opposition—is about to become considerably more lucrative for the Michigan law firm.
Initially executed while Detroit and Michigan officials sought to restructure the city's finances under an agreement struck in April 2012, the contract in question now encompasses the much larger task of helping Motor City as it seeks to become the largest U.S. municipality to ever go bankrupt. That additional workload raises the contract's value to $1.2 million, according to details on the revisions available in public documents obtained by The Am Law Daily. And with Detroit's emergency financial manager, Kevyn Orr, serving as the city's sole decision maker, that revised pact is set to be approved without input from the council that resisted it so fiercely in the first place because of conflict-of-interest questions stemming from Miller Canfield's work drafting the state law that created Orr's job and serving as Detroit's longtime bond counsel.
The contract, which runs from August 2012 through June 2014, is one of two currently in effect between the city and Miller Canfield. The other, a labor advice agreement dating to 2003, is set to be capped at $750,000 for work conducted from June 2012 through the end of 2014, the same public documents show. Unlike Detroit's lead bankruptcy counsel, Jones Day, which is a relative newcomer to Detroit, the nearly $2 million to be awarded under the two contracts are the latest assignments for Miller Canfield, which has deep ties to Detroit government and whose headquarters is just down the street from City Hall.
Orr spokesman Bill Nowling said Wednesday by email that both contracts are still being finalized by the city's corporation counsel and require Orr's signature. The revised fee figures included in each, Nowling says, reflect that the scope of the work Miller Canfield is being called on for "has increased because of the workload created by the city's restructuring efforts."
Public documents show the amendments have been in the works for several months. An email sent May 20 by Detroit deputy corporation counsel Edward Keelean to Maurice McMurray, an attorney hired last year to advise Mayor Dave Bing, details the new contract caps and also suggests boosting the blended hourly rate charged by Miller Canfield lawyers after May 1 from $285 to $385.
Legal bills submitted by Miller Canfield to the city show that lawyers began charging $385 an hour in May, a month that saw 22 lawyers and one paralegal at the firm invest nearly 600 hours for a total of $228,803. A complete picture of how much Miller Canfield has earned under the life of the two contracts is unclear based on documents received in response to a request for the firm's bills, but letters sent between the firm and the city's lawyers offer a glimpse of some of the challenges that come with working for a financially bereft municipal government.
In an email sent April 4 by Miller Canfield CEO Michael McGee to Kriss Andrews, a program management director in the mayor's office, and Jack Martin, Detroit's now-former chief financial officer, the law firm leader writes of the need to update the contracts. After noting that $249,000 in bills had already been logged under the $300,000 restructuring contract as of March 1, McGee writes, "We are seeking a predictable arrangement which works for the city and for us, as soon as possible. We have made an effort to be flexible under the circumstances and expect that others on the turnaround team are being flexible as well. But our effective discount at the moment is around 75 percent. That simply does not work for us as a business model. I know you each appreciate that view."
In the same email, McGee says that the firm was still seeking approximately $670,000 from the city for work performed in connection with the two contracts. McGee writes that $360,000 in unpaid bills from the labor agreement "[stretch] back to the CETs"—a reference to the dozens of union contracts, known as city employment terms, the firm helped rewrite following the passage of the Financial Stability Agreement reached between the city and state in April 2012. In an email sent later in April, McGee outlines concessions Miller Canfield had agreed to make on those outstanding bills, including a 25 percent discount on more than $100,000 the firm billed for its work related to the financial stability agreement before its contract was approved. (McGee declined to comment this week on the firm's role in Detroit's restructuring. Several Detroit City Council members, as well as Keelean and McMurray, did not respond to requests for comment.)
Detailed bills submitted from February through the end of May give a hint of what Miller Canfield has been working on, though most of the specific line items are heavily redacted. The February bills show 10 Miller Canfield principals (the firm's term for partner), three other lawyers, and one paralegal billing 124 hours for a total of $34,209 in fees. By April, the number of hours had grown to 757 ($205,024). In May the number of hours dipped slightly, but the dollar value of the work rose because of the new rates.
Nonredacted snippets describing the work Miller Canfield has been doing show the firm's lawyers communicating with their Jones Day counterparts and other city advisers, making trips to the clerk's office to grab documents related to lawsuits against the city, and meetings with a pension task force.
Miller Canfield is one of several legal and advisory shops expected to profit from Detroit's failure, either as counsel to the city or to creditors and others with a stake in the Chapter 9 proceedings. As lead bankruptcy counsel, Jones Day is still operating under a $3.35 million contract set to expire September 15. That deal is also likely to be updated. As The Am Law Daily previously reported, Jones Day had already billed $1.4 million in its first six weeks on the job.
The next bankruptcy hearing in the Detroit case is scheduled for Friday.