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Detroit Fee Examiner Gets Paid to Second-Guess Bills

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Oct. 21 (Bloomberg) -- The attorney charging $600 an hour to decide how much lawyers and other professionals should get paid for shepherding Detroit through its record bankruptcy gets his first batch of bills to review today.

Robert Fishman, 59, of Shaw Fishman Glantz & Towbin LLC in Chicago, is the rare fee examiner to be appointed in a municipal bankruptcy. His job is to inspect and approve, or reject, bills that so far total about $19 million and may reach $60 million under contracts approved by the city.

Detroit filed for bankruptcy in July after decades of decline, listing $18 billion in debt. The city’s proposal to cut pensions for municipal workers has already stirred protest, so expenses will be a sensitive subject even if they come in far below what comparable business bankruptcies cost, and nowhere near the $2 billion tab in the biggest corporate case.

“I don’t envy Bob. He’s got a difficult job,” said attorney Robert J. Keach, who reviews fees in the AMR Corp. bankruptcy and has worked with Fishman, a friend. “You are just going to have a heightened level of scrutiny.”

Some of the dissent stirred in municipal bankruptcies stems from the knowledge that taxpayers are footing the bill, said Keach, of Bernstein, Shur, Sawyer & Nelson PA in Portland, Maine.

The $29.6 billion bankruptcy of American Airlines parent AMR, filed in 2011, costs about $80 million every four months. Keach has so far won a reduction of about $10 million in fees.

Billing Rate

Fishman, a past president of the American Bankruptcy Institute, is the only fee examiner appointed in the recent spate of large municipal bankruptcies, including cases in California and Alabama. The lawyer, who declined to be interviewed, is billing the city $600 an hour for his services, according to court records.

He can draw on experience as a court-appointed-mediator, the lead bankruptcy lawyer for Telesphere Communications Inc. and other companies and a representative of bondholders in the bankruptcy of United Airlines Inc.

U.S. Bankruptcy Judge Steven Rhodes, 64, who oversaw the bankruptcy of auto-parts maker Collins & Aikman Corp. and is presiding over the Detroit case, has instructed lawyers and other advisers to submit their first set of bills today, and to include details explaining what they did and how long it took, broken down into six-minute increments where necessary.

The city has agreed to pay 85 percent of the monthly bills and withhold the rest while Fishman prepares a preliminary report about each firm.

Appeal Disputes

If he finds that a firm overcharged, or didn’t supply enough details about a fee, the firm can appeal to the judge. The remaining 15 percent of the fees are paid after any disputes are resolved.

This system is common in cases brought under the U.S. Bankruptcy Code’s Chapter 11, which companies use to reorganize by restructuring debt and renegotiating contracts. Keach and the other bankruptcy lawyers contacted for this story said they can’t remember such a system being used in cases under Chapter 9, which covers municipalities and doesn’t require cities to submit their fees to the judge for approval.

Early in its bankruptcy, Detroit agreed to have its bills reviewed by an examiner, saying it would improve the public’s understanding of the case.

Fishman is a good negotiator and doesn’t pound the table to get what he wants, said Keach. As a mediator, Fishman helped resolve several lawsuits filed as part of the bankruptcy of casino company Fontainebleau Las Vegas Holdings, and battles between Lauth Investment Properties LLC and its principal investor, according to his resume.

‘Knows How’

“He knows how to get people to ‘yes,’” Keach said.

Orange County, California, which listed billions of dollars in debt when it filed for bankruptcy in 1994, disclosed its fees to the court, said Lee Bogdanoff, an attorney who worked on that case. Bogdanoff, of Los Angeles-based Klee Tuchin Bogdanoff & Stern LLP, now represents Jefferson County, Alabama, in its bankruptcy, the second-biggest Chapter 9 case, after Detroit.

Union officials battling Detroit over proposed cuts have attacked the fees charged by the city’s law firm, Jones Day, and its restructuring advisers, Conway MacKenzie Inc. and Miller Buckfire & Co.

Jones Day, which advised Chrysler Group LLC on its reorganization and normally charges $1,050 for its senior bankruptcy lawyers, agreed to cut its usual fees by 10 percent. Detroit’s state-appointed emergency manager and the man leading the debt restructuring, Kevyn Orr, is a former Jones Day partner.

Public Attention

While $1,000 fees are often charged in similar-sized Chapter 11 bankruptcies, the public doesn’t pay attention to the cost of corporate cases, Mark N. Berman, a bankruptcy partner at Nixon Peabody LLP, said in an interview.

“Like Detroit, these are bet-the-company cases,” Berman said. “Don’t you want the best and brightest?”

Steve Christensen, an energy efficiency consultant who lives in the southwest section of Detroit, said that while he supports the bankruptcy, he was shocked by the cost.

“They make so much money compared to average people,” Christensen, 41, said in an interview last month while he was visiting the Detroit Institute of Arts.

Public scrutiny may shave some costs from a Chapter 9 case that are common in Chapter 11. Success fees, common in large corporate cases, would be more difficult to justify in a municipal bankruptcy, Keach said. Such payments are typically awarded for getting a plan approved by the judge and implemented.

‘Billing Judgment’

“Any time you focus people’s attention, you will get better billing judgment,” Keach said.

Orrick, Herrington & Sutcliffe LLP didn’t charge Vallejo, California, a success fee for its work as the city’s lead bankruptcy counsel, attorney Marc A. Levinson said in an e-mail. Vallejo, which listed about $436.9 million in debt when it filed for bankruptcy, paid all of its professionals, including Orrick, $13.3 million, according to city records.

The firm won’t seek a success fee for its work in the bankruptcy of Stockton, California, either, Levinson said.

Bogdanoff said his firm won’t seek a success fee for its work on Jefferson County’s case, which involved $4 billion in debt. So far the county has spent about $38.3 million, according to county records.

Fishman will probably seek guidance from Chapter 11 cases, where the rules to set “reasonable” fees are well known and have been tested repeatedly, Keach said.

Illinois Graduate

A graduate of the University of Illinois, Fishman got his law degree from the George Washington University School of Law in 1979, according to his law firm’s website.

His experience as a bankruptcy lawyer and work as past president of the American Bankruptcy Institute, a nonprofit research organization whose members include 13,000 attorneys, bankers, judges and other restructuring experts, will make it easier for him to win the cooperation of the professionals in the case, according to Berman.

“Bob Fishman is an exemplary bankruptcy attorney,” Berman said.

However high Detroit’s fees go, it will be hard to approach the cost of the biggest corporate bankruptcies, Keach said.

“One hundred million doesn’t strike me as a lot,” considering the size and complexity of the city’s case, he said.

Washington Mutual Inc., the former owner of the biggest U.S. bank to fail, ran fees as high as $30 million a month. The biggest U.S. newspaper company to file for bankruptcy, Tribune Co., paid its professionals more than $233 million to help reorganize $13 billion in debt.

The biggest U.S. bankruptcy was filed by Lehman Brothers Holdings Inc. in 2008. The company listed $613 billion in debt when it collapsed. Over the course of its bankruptcy, lawyers and other professionals involved in the case have been paid more than $2 billion.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporter on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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