At a time when Detroit’s $11.5 billion debt threatens its ability to continue meeting its obligations to retirees dependent upon their pensions, law firms and other consultants could add another $100 million in costs to the struggling city, according to one estimate offered by the Detroit Free Press.
Moreover, the costs of the bankruptcy filing are already outstripping previous estimates. Jones Day, the elite law firm where Detroit emergency manager Kevyn Orr used to be a partner, is burning through its contract at twice the expected rate. Jones Day’s contract anticipated $3.3 million in legal fees over a six month period — it’s billed nearly half that in just six weeks.
And, for all these expenses, it’s not even clear that this bankruptcy is lawful. Detroit may not have had the legal authority to file for bankruptcy because of a state constitutional provision protecting pensions. And the it’s not clear that Detroit met its legal obligation to “negotiate in good faith with creditors” prior to filing for bankruptcy. Indeed, emails between Orr and his then-partners at Jones Day suggest that he may have rushed to get the city into bankruptcy.