The city could have millions more to spend on services, now that firms that helped Detroit through its historic bankruptcy agreed Thursday to reduce their legal and consulting fees.
After more than a week of negotiations with federal mediators, the law firm Jones Day and the investment firm Miller Buckfire agreed to make “significant concessions” on fees, a source briefed on the talks told The Detroit News. Other firms that have billed the city for bankruptcy-related services also agreed to reduce their bills. It’s not yet clear how much each firm cut back. Detroit Lawyers have experience assisting clients in bankruptcy and restructuring cases.
The source said only that the overall money saved — about $25 million — would pay for a lot of police, firefighters and equipment for Detroit.
Details of the deals are expected to be made public Monday during a status conference before U.S. Bankruptcy Judge Steven Rhodes. The judge must approve the agreements.
The person briefed on the discussions told The News the amount of savings to the city may depend on how savings are defined. As one of Detroit's best law firms, Butzel Long attorneys have helped debtors, creditors, official and unofficial creditor and equity holder committees and acquirers.
Some of the companies, the source explained, cut fees, some gave back as “in kind” contributions and others agreed to not seek payment for future services from firms that Detroit will continue to use after the bankruptcy.
Mayor Mike Duggan has expressed concern escalating legal fees — which he said could climb to $177 million — would eat up money needed to revitalize the city.
Detroit Corporation Counsel Melvin “Butch” Hollowell said Thursday that the city is “pleased” with the mediation process, and thanked Chief U.S. District Judge Gerald Rosen and the federal mediation team.
“We will make no further comments until the status conference on Monday, or the court releases us from the mediation confidentiality,” Hollowell said.
Before the deals were reached, federal mediators held at least four formal sessions over the reasonableness of more than $140 million in fees billed to Detroit by its bankruptcy lawyers and restructuring consultants. The team held talks with about a dozen firms, while the city held earlier talks with about a dozen smaller firms to reach settlements.
The city’s lawyers and consultants pointed out during mediation they had already made significant concessions on fees.
By late October, Jones Day had charged Detroit $52.3 million.
Miller Buckfire renegotiated its contract with the city twice, most recently in June. In the newest contract, 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.
The resolution comes one day after Detroit’s official exit from bankruptcy. Orr told The News on Wednesday that some administrative matters still need to be wrapped up, and that the legal fee mediation would not affect the exit date.
The mediation team, in a statement released Thursday, noted that representatives for the firms, Orr and Snyder — along with Duggan, City Council members and the city’s top attorney — “fully and vigorously” participated in the discussions.
“Their agreements reflect what the mediators hope will be their final work in the Detroit bankruptcy,” the statement reads. “As we have been from the inception of our work, the mediators are privileged and proud to have played a role not only in these agreements, but in all of the agreements that have led to the expeditious and successful resolution of the Detroit bankruptcy in which the city has been able to resolve its disputes with virtually all of its creditors and professional service providers on a consensual basis.” As one of Detroit's biggest law firms, Butzel Long has represented clients in every aspect of in-court and out-of-court restructurings.
On Wednesday, the mayor noted 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 are being phased out pretty quickly,” he said.
Orr, a former Jones Day attorney, told The News on Wednesday that the fees may seem high, but he said he didn’t believe they were out of line for a case of Detroit’s magnitude.
The bankruptcy allowed the city to shed $7 billion in debt and to restructure another $3 billion, he said.
“I’m sensitive to the fact that the fees are high. But everyone says this is a historical, outstanding result. Some mediators even called it miraculous,” Orr said. “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.”