Bankruptcy birthed in Snyder’s office
By A. Jones
The Michigan Citizen
DETROIT — E-mails between Gov. Rick Snyder’s administration, Kevyn Orr and Jones Day law firm reveal the governor’s early plan to take Detroit into bankruptcy before City Council approved any of the steps or the mayor made the choices public.
The timeline also raises questions of Jones Day having an unfair advantage in the Request for Proposal (RFP) selection process.
“Kevyn Orr held more than 100 meetings with creditors, stakeholders and unions in the last three months before deciding that the best course for restructuring the city was to seek federal bankruptcy protection,” says Emergency Manager spokesman Bill Nowling. “The e-mails mentioned by (Robert) Davis show nothing more than the proper due diligence between the city, a potential vendor and a candidate for emergency manager. The notion that Chapter 9 filing was a forgone conclusion is absurd.”
However, a critical reading of the e-mails, received by union member Robert Davis through a lawsuit, reveal something different.
The e-mails, beginning in January 2013, highlight detailed conversations between Mayor Dave Bing’s office, the Snyder administration, Kevyn Orr and Jones Day regarding bankruptcy, the emergency manager appointment and the Jones Day contract.
According to the Snyder administration, at a Feb. 18, 2013, meeting, Orr would act as “agent of the state.” This was before the Detroit City Council approved the Jones Day contract or the RFPs were sent to law firms to bid on Detroit’s restructuring. Jones Day may have had access to information other bidders were not privy to, which undermines the integrity of the process and creates credibility issues for the governor and emergency manager.
The e-mails also reveal the new emergency manager law, Public Act 436 — passed in a December 2012 lame-duck session — follows the steps for a Chapter 9 filing. In a statewide vote, November 2012, over two million Michigan voters defeated the former emergency manager law, Public Act 4. When PA 436 was rushed through the legislature, without hearings, many saw it as a calculated move by the Snyder administration to pave the way for an EM-led bankruptcy filing.
On Jan. 31, Orr himself called PA 436 a “clear end-around the prior initiative that was rejected by voters in November.”
Orr also wrote: “(PA 436) is essentially a redo of the prior rejected law and appears to merely adopt the conditions necessary for a Chapter 9 filing.”
The e-mails also reveal an 11-point Summary of Partnership was developed between Mayor Bing, Snyder’s Chief Transformation Officer Rich Baird and Orr in February 2013, before law firms were invited to submit proposals.
Snyder did not declare a financial emergency in Detroit until March 1, 2013. At that time, he said he was still considering candidates for the emergency manager position.
A ‘Summary of Partnership’
In February, Mayor Dave Bing began working on a plan for emergency management based on an outline given to him by Snyder’s Transformation Manager Rich Baird. Baird occupies the office next to Snyder but is not a state employee and is (supposedly) barred from making policy decisions in his current role. He is paid by undisclosed private sources. The document would become the Summary of Partnership, an 11-point plan.
The Summary of Partnership outlines the relationship between the emergency manager and mayor’s office. It adopts the Detroit Future City plan as a framework for the city’s restructuring and outlines the mayor’s participation in the emergency manager announcement, efforts to reconsider a lease of Belle Isle and an attempt to keep the mayor’s staff in place without changes to their compensation. The Summary of Partnership also assigns a public relations role to the mayor; it states the mayor will help “establish and maintain community legitimacy for the EFM process.”
Despite some inclusion of Mayor Bing in the development of the Summary, Baird said he would not accept Mayor Bing’s recommendations without Orr’s approval.
“(I) told (Mayor Bing) there were certain things I would not think we could agree to without your review, assessment and determination such as keeping the executive team in its entirety,” wrote Baird.
Then, Baird reveals a clear attempt to evade public scrutiny. He says he would broker a meeting between the two men via the mayor’s personal assistant “who is not FOIAble,” — meaning not subject to Freedom of Information Act. Snyder consistently claims to practice “transparency in government.”
This week, in response to the e-mails that were made public, Bing said he wanted to work in “partnership with Lansing to protect the interests of the citizens of Detroit.”
“I did not cut any type of secret deal with Lansing,” said Bing. “Throughout this process, I have been very vocal about being against an emergency manager.”
Orr goes to work in February
As of February, Orr was acting as an “agent of the state” at the behest of Baird.
In a Feb. 22 e-mail, Baird indicated Orr should be the one to deliver the Summary of Partnership to Mayor Bing and that Orr’s approval and review of the Summary was necessary for it to go forward. Baird also gave Orr an official role in a restructuring that had not yet been announced.
“You should be the one to provide it to the mayor, as fully endorsed by the governor and the treasurer (Andy Dillon) and you. Then I think that clearly establishes that you are already behaving as an agent of the state committed to getting Detroit back on track,” wrote Baird.
At this time, the city of Detroit had not yet closed bidding on the city’s Request for Proposals to law firms soliciting their plans and costs to restructure Detroit. Bids from competing law firms were due March 6.
In the RFP, the city indicated it was looking for firms with experience in Chapter 9 municipal bankruptcies and with the fewest potential conflicts of interest.
Fourteen firms submitted bids, yet Jones Day was selected by Mayor Bing’s office March 8. It was not the lowest bid.
In a March 11 press statement, Bing said, “The experience of the Jones Day law firm will be a valuable asset as we proceed with our plan for restructuring the city of Detroit.”
On March 14, Gov. Snyder appointed Orr as emergency manager.
On March 15, Snyder’s spokesperson Sara Wurfel told MLive that Snyder and Orr had first contact “two weeks” ago. Wurfel also said Orr had not been involved in the bid process and did not know the details of the RFP.
City Council did not approve the Jones Day contract until April 2013.
Chapter 9 bankruptcies are attractive contracts for consultants. In a Chapter 9 bankruptcy, costs between adviser and client are confidential and may not be revealed in court but could be subject to FOIA.
Jones Day wants the business
Experts say Jones Day and other contracted law firms can expect to net $100 million from Detroit’s bankruptcy.
Orr knew some of his associates, including Jones Day Partner Corrine Ball, wanted him to take the position.
“Clearly CB (Corrine Ball) wants me do this,” wrote Orr, Jan. 31 to an associate.
After a conversation with Baird that same day, Orr, who was not yet sure if he was interested in an emergency manager appointment, indicated Baird liked Jones Day and would support the firm in representing the city.
“(Baird) also mentioned that irrespective of whether I take the job. As far as he’s concerned, he liked our presentation and is pulling for us to represent the city. I then reiterated that even if I did not take the EM position, I and the firm are committed to working in lockstep with the city and I would be more than willing to undertake any role in this respect,” wrote Orr.
Ball, who works out of the New York City offices, was a central player in the Jones Day’s bid; she is listed as the “overall lead” on a contract. She viewed the firm’s pitch to Baird as a launching pad to a broader project at the national level.
One of Ball’s ideas included engaging the Bloomberg Foundation that she believed might be interested in or could even finance “this project and in particular the EM.” Ball believed the issue could be “nationalized.”
Yet, another Jones Day associate, Dan Moss, didn’t like the Ball plan, indicating it “echoes liberal talking points of a fascist takeover of a local government by the right.”
Orr also didn’t like the idea: “It would just bring the Demo-Repub polarization on a national scale.”
Moss, however, wrote the EM appointment and restructuring could benefit Orr personally, the Jones Day firm, Gov. Snyder and even Mayor Bing.
“Making this a national issue is not a bad idea. It provides political cover for the state politicians. Indeed, this gives them an even greater incentive to do this right because if it succeeds, there will be more than enough patronage to allow either (Mayor) Bing or (Gov.) Snyder to look for higher callings — whether cabinet, Senate or corporate. Further, this would give (Orr) cover and options on the back end to make up for lost time.”
Orr resigned from Jones Day March 25, after his EM appointment, and said he would recuse himself from the law firm RFP preparation to the city.
Emergency management to bankruptcy timeline
(E-mails reveal bankruptcy was Gov. Snyder’s plan for Detroit when signing new EM law.)
Nov. 6, 2012:
Michigan voters defeat emergency manager law (Public Act 4)
Dec. 19, 2012:
Snyder appoints six-member financial review team
Dec. 27, 2012:
Snyder signs Public Act 436 (new emergency manager law)
Five law firms make airport presentations to Snyder’s team in bid to become restructuring counsel for Detroit (Jones Day, Foley & Lardner, McKenna Long & Aldrige, Stutman Treister & Glatt, and Weil Gotshal & Manges)
Jan. 30, 2013:
Snyder’s office privately expresses interest in appointing Kevyn Orr as EM
Feb. 20, 2013:
Internal e-mails indicate Kevyn Orr has decided to accept EM position
Feb. 27, 2013:
Bing’s office invites 18 firms to submit official proposals by March
March 1, 2013:
Snyder announces Detroit needs emergency manager
March 6, 2013:
Deadline for official proposals; 14 firms submitted
March 8, 2013:
Bing’s office selects Jones Day as restructuring counsel
March 14, 2013:
Snyder appoints Kevyn Orr EM for 18-month term
March 20, 2013:
Jones Day begins its $3.35 million, six-month contract
March 25, 2013:
Orr starts his 18-month term as EM