February 19, 2014 at 2:44 pm

Judge questions need for new team of lawyers in Detroit bankruptcy case

Brandy Baker / The Detroit News)

Detroit — The city’s bankruptcy judge on Wednesday questioned the need for a new team of high-cost attorneys to get involved in the city’s seven-month-old Chapter 9 case.

During a court hearing Wednesday, U.S Bankruptcy Judge Steven Rhodes peppered the U.S. Trustee’s office with questions about its December appointment of a Committee of Unsecured Creditors and grilled a lawyer seeking to work for the committee.

Brett H. Miller, a New York attorney who charges $1,050 an hour, found himself under fire by the judge when trying to justify his law firm’s services at this juncture in the case. The city plans to file its debt-cutting reorganization plan this week.

“You’re going to cost the city millions of dollars,” Rhodes told Miller. “...Every dollar they spend on you is a dollar less for a police officer.”

Detroit’s bankruptcy attorneys want Rhodes to disband the committee, arguing it could inflate legal bills city taxpayers are already footing for a committee of retirees in the largest municipal bankruptcy in U.S. history.

“This could be another millions of dollars that the city doesn’t have that it can’t really afford that would be diverted from other purposes,” city attorney Jeffrey Ellman told the judge.

Rhodes appeared sympathetic to the city’s argument that the new committee would be a costly redundancy, but didn’t issue a ruling Wednesday.

Miller is a partner at the global law firm Morrison Foerster, whose proposed legal fees range from $405 an hour to the $1,050 Miller charges, according to a court document. Miller said his firm could agree to a $1 million cap on the total fees it would charge the city.

The Committee of Unsecured Creditors also proposes hiring the Southfield law firm of Steinberg Shapiro & Clark, whose attorney fees range from $195 to $300 per hour, court records show.

Rhodes also took Miller and other attorneys vying to represent the committee to task for saying in court papers they would not join ongoing mediation negotiations in the bankruptcy case.

“What’s the committee going to do, given your statement that you’re not going to participate in mediation? That leaves litigation,” the judge said.

Miller said the committee “may now have to rethink” its earlier strategy, given the judge’s prodding for all parties in the case to negotiate a consensual resolution of paring down Detroit’s $11. 5 billion in unsecured debts.

“Mediation won’t be over until every last single issue has been settled or decided by me,” said Rhodes, who later added: “But I’m glad to hear you’re rethinking it.”

Maria Giannirakis, an attorney for the U.S. Trustee’s Region 9 office, an administrative arm of the federal bankruptcy court system, said the office felt legally compelled to create the committee, which includes a major bond insurer and Detroit’s two pension funds.

Those creditors have already been actively engaged in the bankruptcy case for months and are “represented by multiple law firms,” city attorney Ellman said.

“So your view is Congress intended to impose millions of dollars in costs on the city of Detroit with no value?” Rhodes asked Giannirakis.

“We don’t know if there’s no value,” she replied.

Giannirakis said the committee will represent “thousands” of individuals and vendors who had legal claims and unpaid bills prior to the city’s July 18, 2013 bankruptcy filing.

“There are thousands of creditors who aren’t represented,” Giannirakis told the judge.

Ellman, Detroit’s attorney, ended his argument by saying even if the judge allows the committee to remain in place, the city cannot be forced to pay the committee’s legal bills.

Rhodes said he would take the issue under advisement and issue a written opinion at a later date.

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