Jones Day has received $11 million so far for its work advising the financially crippled city of Detroit in connection with its restructuring efforts, according to the latest tally provided by Detroit emergency manager Kevyn Orr. With the city’s Chapter 9 bankruptcy petition still awaiting court approval, Jones Day appears likely to hit the fee cap contained in its current contract before that pact expires next fall.
Jones Day started the Detroit assignment in March under a six-month, $3.35 million contract. The firm’s hire was announced days before Michigan Gov. Rick Snyder installed Orr, a former Jones Day partner, as the city’s emergency manager. As The Am Law Daily previously reported, the city increased the official cap on Jones Day’s contract to $18 million on the eve of Detroit’s July 19 bankruptcy filing while extending the contract through fall 2014.
Since the July bankruptcy filing, Jones Day lawyers have worked to convince the city’s creditors and, more critically, a federal bankruptcy judge, that the city is legally eligible to restructure its estimated $18 billion in debt via Chapter 9 proceedings. A nine-day eligibility trial designed to resolve the issue concluded several weeks ago, and U.S. Bankruptcy Judge Steven Rhodes could rule at any time on whether the bankruptcy will move forward, the Detroit Free Press reports.
Bankruptcy law requires that a municipality seeking Chapter 9 protection meet four criteria: that it is insolvent; that it has received state approval to file for bankruptcy; that it intends to execute a plan to adjust its debts; and that it has either obtained the blessing of its creditors, negotiated in good faith with them, or determined it was impractical to conduct such negotiations.
The $11 million Jones Day has received so far—a sum that covers payments made to the firm from March through October 1—represents nearly half of the $22.8 million paid out during that time to six of the city’s outside advisers, according to a detailed accounting provided by Orr spokesman Bill Nowling. Jones Day partner David Heiman, who has been one of the lead partners on the assignment, declined to comment Thursday on either the work the firm has done or the fees it has earned.
The list of payments to outside advisers also includes $4.6 going to financial advisory firm Conway MacKenzie and $4.2 million for accounting firm Ernst and Young. (An earlier spreadsheet provided by Nowling to The Am Law Daily in October listed higher payments made to E&Y and other city advisers. Nowling said Thursday that spreadsheet may have been erroneous and that he was looking into the discrepancy.)
Though the amounts they have been paid to date have not yet been disclosed, several other law firms have landed assignments connected to what is poised to be the largest municipal bankruptcy in U.S. history.
Detroit-based Miller, Canfield, Paddock & Stone has two contracts with the city. One, under which it is providing Detroit with collective bargaining advice, is capped at $750,000; the other, which covers the firm’s role assisting Jones Day on restructuring-related matters, is capped at $1.2 million.
Pepper Hamilton, meanwhile, is serving as the city’s conflicts counsel under an $850,000 contract, and Detroit employee benefits firm Stevenson & Keppelman is set to receive up to $100,000.
The U.S. Department of Justice tapped Dentons in August to advise an official retiree committee given a voice in the bankruptcy proceedings. In its proposed employment application, which Rhodes approved Nov. 12, Dentons said its hourly rates would not exceed those being charged by Jones Day’s lawyers, who are billing between $250 and $1,000 an hour. Dentons partner Carole Neville will charge $985 an hour, according to the proposed retention letter, partner Sam Alberts will charge $705 per hour, and partner Claude Montgomery will bill at $750 per hour. Though Dentons’ fees will be paid out of city’s coffers, no contract cap or payments made to the firm have appeared yet in public filings.
