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Detroit's bankruptcy tab at $13.7 million and growing

A man walk past graffiti in Detroit, Michigan, December 3, 2013. REUTERS/Joshua Lott
A man walk past graffiti in Detroit, Michigan, December 3, 2013. REUTERS/Joshua Lott

(Reuters) - Detroit's price tag for lawyers, consultants and other professionals hit $13.7 million in the first 75 days of its historic bankruptcy, according to a report filed late Tuesday by a court-appointed fee examiner.

The tab for professional services covers the period beginning with Detroit's July 18 bankruptcy filing until the end of September and likely has mushroomed since then, as lawyers spent significant time before U.S. bankruptcy judge Steven Rhodes, even throughout the holiday season.

The fees and expenses Detroit incurred through the end of September were "substantial" but also unavoidable given circumstances of the bankruptcy, wrote Robert M. Fishman, who was appointed fee examiner in August, in his first quarterly report to the U.S. bankruptcy court.

"Due to the magnitude and complexity of the case, the novelty of the legal issues, the extremely tight time frames imposed by the court and the strong differences in opinion between the various parties about what to do and how to do it, it was (and continues to be) inevitable that the costs associated with the services provided by the various professionals were going to be significant," Fishman said in the report.

The fees date from July 18, when Detroit filed the biggest municipal bankruptcy in U.S. history in an effort to address more than $18 billion in debt and other liabilities. The city's labor unions, pension funds, bond insurers and other creditors have fought various aspects of the case, efforts that have churned up large fees for Detroit's team of bankruptcy professionals.

Detroit's bill for fees was $11.4 million, with the biggest fees, $6.59 million, coming from Jones Day, the law firm that previously employed Kevyn Orr, the city's state-appointed emergency manager.

Jones Day's top bankruptcy attorneys, Bruce Bennett and Corinne Ball, both billed at the highest rate of any of the firm's lawyers, at $1,000 per hour. That is a raise for both from what they received in major cases of recent years. Ball led Chrysler through its Chapter 11 case, initially billing $900 per hour, while Bennett took the Los Angeles Dodgers through its bankruptcy at $975 an hour, according to public records in those cases.

Expenses from Jones Day and other parties working on Detroit's case totaled about $348,000, according to Fishman's report. Detroit also is responsible for bills incurred by a committee of its retired workers that was created by the federal court at the city's request. The committee's fees totaled nearly $1.96 million while the expenses were $61,500.

By comparison, fees and expenses in the first 90 days of Chrysler's bankruptcy case, also led by Jones Day, totaled about $36 million for armies of lawyers, bankers and advisers from 13 different firms, according to court records in that case. Professional fees eventually topped $100 million in the Chrysler bankruptcy.

Jefferson County, Alabama, which was the largest municipal bankruptcy before Detroit, spent about $25 million on its two-year stay in court protection, according to court records.

The fee examiner's report provides 1,600 pages of details of how each professional hired by Detroit has spent their time spending taxpayer money, broken down into six-minute intervals.

On the first day of the bankruptcy filing, Bruce Bennett spent 96 minutes on conference calls regarding Ernst & Young, another 12 minutes on calls with Miller Buckfire and 96 minutes discussing an alternative restructuring proposal with insurance companies. Total bill: $3,400. Corinne Ball spent nine hours and 36 minutes the first day dealing with issues relating to the city's water and sewer department for a little under $10,000.

Bankruptcy is normally practiced in a fish bowl compared with other areas of law. Lawyers, accountants and other advisers have to provide detailed logs of their time billed on a case, broken down into six-minute intervals.

But thanks to a quirk in the bankruptcy code, Chapter 9 municipal cases do not require disclosure of what is spent on lawyers and advisers. Despite that, Judge Rhodes, who is overseeing Detroit's case, appointed a fee examiner to ensure bills were reasonable.

While no one likes to have their bills picked over, some attorneys said Fishman's appointment to review invoices might actually be welcome, because it may be seen in some quarters as evidence that lawyers billing $750 an hour might be considered reasonable.

(Reporting By Karen Pierog and Tom Hals Editing by David Greising and Ken Wills)

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