Detroit bankruptcy fees top $170M

Christine Ferretti and Robert Snell
The Detroit News

Detroit — Lawyers and restructuring consultants charged the city $170.2 million in fees and expenses during Detroit's landmark bankruptcy case, city officials disclosed on Tuesday.

The final tally also accounts for a state reimbursement of $5.29 million, which brings the total fees paid from the city's general fund to $164.91 million.

The numbers were made public in accordance with an order from the city's bankruptcy judge that called for the final bills to be filed by the end of the year.

Tuesday's filing, however, does not reveal any specifics about concessions reached with individual firms in a deal announced earlier this month that's expected to cut the total fees by about $25 million. Those discussions are kept private under a mediation order.

Among the top paid firms are the city's lead bankruptcy firm, Jones Day, which earned a payout of $57.9 million; investment banking firm Miller Buckfire, $22.82 million; financial restructuring advisory firm Ernst & Young, $20.22 million; and the operational restructuring firm Conway MacKenzie, $17.28 million.

The city's list also shows that Dentons US LLP, a law firm that acted on behalf of an official committee of city retirees fighting pension cuts, will get $15.41 million.

The disclosure also revealed the city's two pension funds paid attorneys at Clark Hill $6.25 million and financial advisers at Greenhill & Co. $5.71 million.

The filing shows that Detroit's bankruptcy mediator firms were paid $980,000 and that the city's two pension funds paid consultants and attorneys about $12 million to fight the bankruptcy case. Federal judges who helped mediate the case were not compensated.

U.S. Bankruptcy Judge Steven Rhodes will have up to 14 days to rule whether the fees are reasonable, officials said.

"We were very pleased with the mediation process and thankful to Judge (Gerald) Rosen and his team (of mediators) for their hard work throughout," Detroit Corporation Counsel Melvin Butch Hollowell said. "Now, we will look forward to Judge Rhodes' ruling on the reasonableness of these fees."

Earlier this month, sources told The News that law firms and consultants agreed to trim about $25 million from the overall bill, which by October had reached more than $140 million. The city's plan of adjustment allotted $177 million for legal and consulting fees.

The reduction will free up funding for public safety and other services and give Detroit additional breathing room to implement the restructuring plan reached through the bankruptcy case, a source familiar with the deal said.

The deal was reached during several days of closed-door negotiations after Mayor Mike Duggan expressed concern about escalating fees eating up money needed to revitalize the city and possibly derailing the debt-cutting plan.

Some of the companies, the source has said, cut fees, some gave back as "in kind" contributions and others agreed to not seek payment for future services that Detroit will continue to use after the bankruptcy.

Before the deals were reached, federal mediators held at least four formal sessions over the plausibility

of the fees billed to the city.

The team held talks with about a dozen firms, while the city held earlier talks with another dozen smaller firms to reach settlements.

By late October, Jones Day had charged $52.31 million. Their final payout of $57.90 million equates to fees totaling $5.59 million over the past two months during the city's trial and its exit from receivership.

Miller Buckfire had renegotiated its contract with the city twice, most recently in June.

In its newest agreement, the firm was to receive a flat fee of $28 million for all of its services. Prior to revising its contract, the firm had already given the city a discounted rate, according to former Emergency Manager Kevyn Orr's office.

But the documents released Tuesday by the city show the firm was paid $22.82 million, which represents an 18.5 percent reduction.

Reached Tuesday, a representative for Miller Buckfire declined to comment, as did a spokeswoman for Dentons.

As of Oct. 24, Dentons had billed Detroit $15 million for its services. Last week, the global law firm announced it was donating $500,000 to the city's fire department for the purchase of hoses, winter coats and gloves and other essential gear for Detroit's first responders.

A spokesperson with The Segal Group, a New York-based human resources and benefits consulting firm, also declined to comment, citing an order for the judge. Calls to several other firms were not returned.

The Miller Canfield law firm was paid nearly $7 million for its work with Detroit. Reached Tuesday about negotiations over its fees, CEO Michael P. McGee said the firm "thought it was a fair process." He declined further comment.

The state's $5.29 million contribution paid for restructuring consultants who started working at City Hall in 2013 — before the bankruptcy filing — and came out of last year's budget, said Sara Wurfel, spokeswoman for Gov. Rick Snyder.

Separate from the city's expenses, the state had spent $1.84 million through August on private attorneys at the firm Dickinson Wright to represent the governor's office and other state officials, according to the Treasury Department.

Duggan has said that the role of consultants in the city will be "dramatically reduced" as full-time employees are brought in to take over. All of the consultants, he added, "are being phased out."

Orr, a former Jones Day attorney, told The News as he departed from office that the fees are not unreasonable for a case of Detroit's magnitude.

The bankruptcy, he said, allows the city to rid itself of $7 billion in debt and to restructure another $3 billion. "You have to recognize there's a cost to getting that kind of result in this time frame to deal with 50 years of issues," Orr said.

Staff Writer Chad Livengood contributed.

Top payouts

■Jones Day: $57.9 million

■Miller Buckfire: $22.82 million

■Ernst & Young: $20.22 million

■Conway MacKenzie: $17.28 million

■Dentons US LLP: $15.41 million

■Consultants and attorneys for city's two pension funds: about $12 million

■Bankruptcy mediators: $980,000