Detroit’s Bankruptcy Case Incurs $23 Million Professional Fees in First 75 Days

Posted on April 23rd, 2014 by Legal Fee Advisors

The City of Detroit, Michigan filed for Chapter 9 bankruptcy on July 18, 2013. It is by all accounts the largest municipal bankruptcy filing in U.S. history with an estimated debt of $18.5 billion. According to Reuters, Detroit has paid almost $23 million in fees to lawyers, consultants and financial advisers through October 1, including nearly $11 million to law firm Jones Day, which is representing the city in bankruptcy court.[1]

In order to try to keep professional fees in check, Judge Rhodes, who is overseeing Detroit’s case, appointed Chicago attorney Robert Fishman as a fee examiner to ensure bills are reasonable. Fishman is tasked with the responsibility to review all of the invoices to ensure they are in compliance with strict guidelines and must submit quarterly reports with the fees and expenses. Furthermore, when Fishman was appointed, the court clearly spelled out allowable fees, and the parameters of what constitutes a legitimate expense. Fishman’s first report provides 1,600 pages of details of how each professional hired by Detroit has spent their time, broken down into six-minute intervals.

“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.[2] However, although the fees were “significant” they were also necessary given the circumstances according to Fishman.

What kind of oversight is needed in these circumstances? With top lawyers billing their time at $1,000 an hour, it is paramount to have a fee examiner in this case to prevent unjustifiable spending of tax payer dollars. Accordingly, such supervision will likely save the city millions on potentially inflated fees and unreasonable expenditures.

A. Vays