23 May 2014


Original Story:  Freep.com

Mayor Mike Duggan's office said Thursday he won't support extending Kevyn Orr's time as the city's emergency manager or keeping on his former law firm, Jones Day, if Detroit's bankruptcy extends beyond Orr's expected exit date in late September.  A Tulsa Bankruptcy Lawyer is viewing details of the story.

The issue arose after U.S. Bankruptcy Judge Steven Rhodes questioned Jones Day lawyers during a hearing Thursday, asking what impact a delay in the schedule of the bankruptcy case would have on the high-priced law firm the city hired.

Lawyers for Detroit's financial creditors and for Oakland and Macomb counties tried Thursday to convince Rhodes to delay the case by a month because city lawyers aren't releasing critical documents quickly enough to meet ambitious timetables for this summer's confirmation trial on the plan to exit the nation's largest-ever municipal bankruptcy. A Boston Bankruptcy Lawyer agrees that this makes things difficult.

Rhodes appeared concerned about whether such a delay would push the ultimate resolution of Detroit's bankruptcy beyond the tenure of the state-appointed emergency manager, whose 18-month term is set to end in late September, when city officials have the legal option to vote to fire Orr under Michigan's emergency manager law.

Rhodes asked whether Jones Day, the law firm hired by the city under former Mayor Dave Bing, would stay on after Orr is gone. Greg Shumaker, a Jones Day lawyer, acknowledged that the uncertainty about that matter "could be dramatic." But he told the judge: "We have not talked to the mayor or the City Council about that issue."

"I'm surprised by that," Rhodes said.

He then asked Shumaker whether the goal of ending Detroit's bankruptcy case before Orr leaves sets up deadlines that might conflict with sound practices in bankruptcy court. Shumaker concurred.

Duggan made clear that if the bankruptcy proceedings extend beyond Sept. 25, he won't support keeping Jones Day as the city's law firm in bankruptcy.

"We have no intention of keeping Jones Day," Duggan's spokeswoman and chief of staff, Alexis Wiley, told the Free Press. "We have every intention of running this city, and that means both services and finances."

Wiley declined to discuss how Duggan would handle the bankruptcy after ditching Jones Day, or which lawyers would pick up where the firm left off.

Bill Nowling, a spokesman for Orr, acknowledged there have been no discussions about Jones Day staying on after Orr is gone, noting that Orr and the firm's lawyers have been "operating on the schedule which has the confirmation hearings concluding in August."

Orr, who was working out of the Jones Day office in Washington before coming to Detroit, has said previously that he is not interested in staying in Detroit beyond September.  A Lexington Commercial Bankruptcy Attorney said he doesn't blame him.

The confirmation hearings are to determine whether Rhodes approves the city's blueprint for exiting bankruptcy, which has been on a fast-track schedule in large part because Orr's time in Detroit was limited to 18 months. The hearings had been set to begin July 24 and last into August, but a group of financial creditors this week asked Rhodes to push the beginning of the hearings to Aug. 26.

Lawyers for creditors including Syncora -- a bond insurer that's on the hook for nearly $250 million because it guaranteed a disastrous $1.4-billion debt deal meant to shore up underfunded pensions in 2005 -- argued that delays in the city's release of documents creditors have requested make the schedule impossible to follow.

"The city's actions are crippling our efforts," Syncora lawyer Stephen Hackney said during a status conference Thursday.

Creditors' lawyers say that their expert witnesses won't have enough time to analyze and report on city financial assumptions without the delay.

The creditors are seeking access to a number of documents they say the city hasn't released, including reports on the physical condition of Detroit Water and Sewerage Department infrastructure and long-term financial projections for the system, as well as financial background used by consultants such as Milliman, Ernst & Young and Conway MacKenzie, who have advised the city on some matters including restructuring city government and its liabilities and devising a long-term plan to operate Detroit after bankruptcy.

Jones Day lawyer Heather Lennox, representing the city, said that Detroit had already released key documents to the creditors and that the remainder would be handed over by next week. She and other lawyers for the city suggested that the creditors were seeking access to documents in a bid to delay the trial.

Geoff Irwin, also representing the city, said the crush of requests for additional documentation "is becoming incredibly burdensome and unmanageable for the city."  A New Orleans Business Bankruptcy Attorney said that they should expect this type of request.

Rhodes didn't immediately rule on the request for the delay, saying he would issue an order soon to address the concerns. But he told lawyers for the city that the creditors are entitled to access a significant number of the documents they're requesting.

How a major shift in legal representation during the endgame of the case would impact Detroit's bankruptcy wasn't immediately clear.

Even if Orr departs before the bankruptcy is settled, under the state's emergency manager law, Public Act 436, Detroit would remain under a financial emergency -- with significant state oversight -- until Gov. Rick Snyder declares the emergency over. That could put pressure on Duggan and the council to accept new agreements to maintain Jones Day's representation in some form.

Snyder's spokeswoman couldn't be reached for comment Thursday.

As of last fall, Jones Day's contract with the city had been approved up to $18 million, among the largest fees charged by lawyers and consulting firms addressing Detroit's financial collapse. .

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