Jones Day Surpasses Cap on Detroit Contract
Back in April, before Detroit's bankruptcy was a foregone conclusion, Jones Day overcame fierce opposition from local politicians and residents to assume the role of restructuring counsel for the city under a $3.35 million, six-month contract that retroactively covered work from March 15 until September 15.
It took the firm half that time to burn through the money it was allocated, public filings show, even after writing off a considerable number of attorney hours.
Jones Day submitted bills to the city totaling $3.7 million for its work between mid-March and the end of June, according to copies of the most recent available bills obtained through a public records request. Weeks later, on July 19, Detroit became the largest municipality ever to seek bankruptcy protection, with some $18 billion in long-term debt.
As of mid-August, the firm had actually been paid $1 million of the amount it has billed since March, according to Bill Nowling, spokesman for Detroit's emergency financial manager Kevyn Orr, himself a former Jones Day partner. (Orr's ties to the firm fueled much of the opposition to Jones Day's hire, with critics citing what they saw as an ethical conflict in his working with his former firm. Legal ethics experts told The Am Law Daily that the criticism was misplaced, and the contract eventually won approval from both the city council and Orr.)
It was unclear Wednesday whether Jones Day will be paid for amounts it billed in excess of its contract maximum.
Since the bankruptcy filing, Jones Day's bills have been funneled through a court-appointed fee examiner instead of the city's law department, and all of those bills will eventually be publicly available on the bankruptcy docket.
Until then, the prebankruptcy bills shed some light on how the assignment has been going for the firm. Though most of the line items are heavily redacted, the records do show the breakdown of Jones Day's time among four categories related to "core restructuring work" and 10 "noncore" areas, including water and sewage matters, pension and labor and employment work, and, perhaps most important, Chapter 9 contingency planning.
Work in that category took up 13.5 hours ($9,925) of the firm's time in the first two weeks of March, rising to 175 hours ($112,081) in April, 223 hours ($115,900) in May, and 430 hours ($244,231) in June.
Core restructuring work was subject to a $475,000 monthly cap from March 15 through the earlier of August 31, 2013, "or the commencement of a Chapter 9 case," according to Jones Day's contract, resulting in significant write-offs for the firm. In the June bill, for instance, the firm didn't charge for $505,463 worth of work it spent in excess of the cap. In May, Jones Day logged, but didn't bill, $133,950 over the cap.
The $1.04 million bill for May and $1.3 million June bill also didn't account for "discretionary write-offs taken after internal review," in addition to the core restructuring area write-offs, totaling $838,190.
Partners continued to take on the bulk of the work for Jones Day in May and June, as was the case in the assignment's first six weeks. With hourly rates of up to $1,000, partners billed 2,150 hours in the two-month period, compared to 1,838 at the associate level. Heather Lennox, a bankruptcy lawyer who works in New York and Cleveland, billed the most at 285 hours. Others working heavily on the assignment include employee benefits and executive compensation practice group leader Evan Miller in Washington, D.C. (243 hours); bankruptcy partner Jeffrey Ellman in Atlanta (212); bankruptcy partner Corinne Ball in New York (182); bankruptcy lawyer David Heiman in Cleveland (172); real estate partner Brian Sedlak in Chicago (152); employee benefits partner Sarah Griffin in Los Angeles (136); and bankruptcy partner Bruce Bennett in Los Angeles (125).
Jones Day managing partner Stephen Brogan, who signed the firm's initial engagement letter in March, in which he wrote, "I will have overall primary responsibility for this engagement," does not appear in any line items of the firm's bills.
In addition to its hourly work, the firm asked for $31,359 in expense reimbursements in May and $33,940 in June. Of that, roughly half went toward travel expenses including airfare, food, hotels, and taxi rides.
Cleveland-based Heiman tells The Am Law Daily that the firm has split its bills into those occurring before the bankruptcy filing and those coming after, adding that from the firm's perspective, the $3.35 million contract became inoperable once the city went bankrupt.
The contract itself took the city's precarious condition into account, saying "the circumstances of this engagement are unpredictable, and the parties may extend the term of this contract . . . and/or increase the contract maximum . . . to the extent that it appears that the contract maximum may be exceeded for the attorney's work." Orr spokesman Nowling said Wednesday that Jones Day's initial contract, which expired Sunday, "has not yet been amended or extended."
So far, Detroit's bankruptcy has been moving at a fairly quick pace. U.S. Bankruptcy Judge Steven Rhodes has set a hearing date for late October to determine whether Detroit is eligible for Chapter 9 protection. If Rhodes allows the bankruptcy to go forward, Orr has said he hopes the city can emerge from bankruptcy by the time his term expires in October 2014.
"We're working hard to advance the case toward a confirmation of a plan of adjustment," Heiman said Wednesday.