Detroit — A managing partner of the Jones Day law firm is striking back against Mayor Mike Duggan, calling him a “political hack” concerned only with “self-interest” amid the mayor’s claims the city was misled on assumptions that determined future payments to its pension funds.
In a Feb. 23 letter to an attorney retained by the city and the mayor’s deputy chief of staff, Stephen Brogan of Jones Day called Duggan’s belief that a lawsuit against the global law firm could be viable a “delusion.” Brogan rejected Duggan’s assertion that former Emergency Manager Kevyn Orr and his team made efforts to mislead city officials on negotiated pension assumptions in the historic debt-reduction plan.
In a 13-page response, obtained by The Detroit News under the Freedom of Information Act, Brogan went on to pick apart a draft lawsuit shared with the firm, saying it wouldn’t stand up in court.
“If this case goes forward, we will prove that it does not — and cannot — serve the interest of your real client, the City of Detroit, but instead is designed only to serve the venal interests of a political hack who has placed personal animus and self-interest ahead of the truth,” Brogan’s letter reads. “No mayor in the history of this country has received the assistance that the POA (plan of adjustment) gave to Detroit — removing $7 billion in liabilities from its balance sheet — and yet he appears singularly incapable of taking advantage of that fresh start to help the people of Detroit, who Jones Day served well and proudly.”
Brogan added if a suit is filed by the city, Jones Day will “aggressively pursue all available defenses and remedies, including sanctions against the city and its lawyers.”
The letter — first reported by the Detroit Free Press and sent on the same day Duggan reiterated during an annual budget presentation to City Council his claim that Orr and his team “concealed” the range of assumptions used to project future pension payments — surfaces after Jones Day released only a brief statement earlier this month, saying it “categorically denies” Duggan’s claim.
Duggan, who recently announced his bid for a second mayoral term, has said Detroit will only file the suit if it believes there’s a strong likelihood of prevailing and the move wasn’t to score “political credit.”
The mayor first raised concern over the assumptions last year. Orr, who is partner-in-charge at Jones Day’s Washington office, has not commented.
Duggan contends Orr and his team adopted the “most optimistic” assumptions in the plan and “it made the numbers work.” Duggan argued he and Detroit’s Chief Financial Officer John Hill were kept in the dark while testifying on the feasibility of the city’s plan during the bankruptcy trial.
Duggan’s spokesman, John Roach, on Tuesday deferred comment on the letter to David Fink, an attorney hired by the city for the pension matter.
Fink said Tuesday that he was retained several months ago and that “nothing has been publicly filed.”
“Mayor Mike Duggan and CFO John Hill have stated that they were not informed or briefed regarding the risks associated with the mortality tables and other factors that lead to inadequate funding of the city’s pensions under the Plan of Adjustment,” Fink said in a provided statement. “While there is a fair amount of name-calling in the Jones Day letter, nothing in that letter contradicts the statements of the mayor and the CFO. Specifically, the letter states that there was discussion of the mortality assumptions, but never claims that this critically important information was shared with Mayor Duggan or CFO Hill.
“The city is continuing to review the facts and the law to determine whether it should proceed with a claim against Jones Day. The city may also seek revisions to the emergency manager laws to ensure that local elected officials are fully briefed in the future.”
Fink was to meet with Jones Day representatives on Feb. 20 at the request of the mayor’s office to review issues regarding Jones Day’s potential liability. On March 1, Jones Day was informed that Fink was no longer instructed by the city to “stand down” and the review process would continue.
Brogan in his February letter said the city’s claims are “devoid of any factual or legal merit.” Any litigation, Brogan warns, would embroil the court-appointed mediators and other bankruptcy case witnesses.
The letter goes on to list various reasons why there isn’t a basis for the claims. Among them, Brogan notes, there is no claim in the draft complaint provided by the city that Jones Day provided incorrect or improper legal advice.
The pension assumptions, Brogan adds, were the product of court-ordered and court-supervised mediation negotiated by a task force.
The mayor, Brogan stressed, has overlooked the fact that Orr had full authority to act for the city throughout bankruptcy. Even so, Duggan had access to all the information he requested and testified at trial that he reviewed “every plan of adjustment document,” supported the plan and believed it was feasible.
“Neither the court nor the mayor was misled. There is no evidence to support a claim otherwise,” Brogan wrote. “Filing this action would place the mayor in a long line of corrupt Detroit politicians who placed a personal political ambition above an objective determination of the city’s best interests.”
Detroit was relieved of much of its contributions to the General Retirement System and Police and Fire Retirement System through 2023 under the terms of its bankruptcy plan.
But in 2024, the city will have to start funding a substantial portion of the pension obligations from its general fund. The initial payment was first contemplated at $113.9 million, but city officials later said they were misled and the estimates had been off because they were based in part on outdated mortality tables.
If earnings meet the bankruptcy plan’s assumed return rate of 6.75 percent, the city’s contribution in 2024 will be closer to $167 million. If there are no earnings, it could soar to $344 million or more.
The Duggan administration has unveiled plans for a dedicated fund they project will pull together $377 million in the coming years to help address the pension shortfall.
Jones Day was selected in 2013 to guide Detroit’s financial turnaround. The Cleveland-based firm was paid about $57 million in fees for its work.