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Bankruptcy could cost Detroit $100 million in legal fees

July 10, 2013 at 1:03 PM   |   Comments

DETROIT, July 10 (UPI) -- Legal fees for Detroit could reach $100 million if the city declares bankruptcy, an attorney with a prominent Michigan law firm said.

"It is certainly one of the reasons that you want to get a resolution more quickly, because the longer it goes, the more money gets burned by paying professionals," said Douglas Bernstein, a partner at Plunkett Cooney in Birmingham, Mich.

Detroit, which could file the largest municipal bankruptcy in U.S. history, has already committed to spend $14 million professional services and has contracts with nine firms -- including financial adviser Jones Day, which has billed the city $1.4 million already for just six weeks of work -- The Detroit Free Press reported Wednesday.

The city's emergency manager, Kevyn Orr, said Detroit needs "the A team. We need the best available."

Orr resigned from Jones Day when he was appointed by Michigan Gov. Rick Snyder to the position of Detroit's emergency manager, the newspaper said.

While both creditors and taxpayers are concerned the city is burning through assets to pay administrative costs, Orr said creditors were hiring the best attorneys they could find to negotiate the best deal they could get. He said the city needs to respond in kind.

Detroit would be the largest U.S. city ever to file for bankruptcy protection.

The Free Press said Orange County, Calif., paid $86 million for legal fees in a bankruptcy case that lasted for 18 months, ending in 1996.

Jefferson County, Ala., is currently in bankruptcy and has racked up $20 million in legal fees in about 10 months, the newspaper said.

In other cases, Chrysler paid more than $43 million in legal fees when it declared bankruptcy in 2009.

General Motors burned up $72 million during its stay in bankruptcy in the same year.

"The fees tend to be very high. Part of that is the work is very intense and part of the issue is ... the professionals involved sometimes end up sort of running everything," said Justin Klimko, president of Butzel Long, a local firm that is not working on Detroit's case.

"It's unfortunate in a case when you are talking about preserving assets that so much of it gets eaten up in administrative costs," Klimko said.

Topics: Rick Snyder
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