Council 5 approves Jones Day
Arrests follow protest in Council Chambers
By Zenobia Jeffries
The Michigan Citizen
DETROIT — “Shameful” is how many Detroit residents described the 5-2 City Council vote April 16 to approve a controversial $3.5 million contract with Jones Day law firm.
Council members JoAnn Watson and Brenda Jones voted no.
Council President Charles Pugh, Pro tem Gary Brown and members Saunteel Jenkins, James Tate and Andre Spivey voted in favor of the contract. Members Kwame Kenyatta and Kenneth Cockrel Jr. were absent.
In early March, Mayor Dave Bing announced that the Cleveland, Ohio-based firm is his choice of representation to help restructure the city’s finances. Kevyn Orr, a Jones Day partner, was appointed as emergency manager of Detroit days later. EM Orr has since resigned from Jones Day and claims he has no pecuniary interest in the mega-firm.
Representatives from Jones Day have yet to confirm if Orr has any existing interest as an equity partner or otherwise. Jones Day has not responded to any requests for information.
Council focused on the conflicts of interest in hiring Jones Day at the meeting.
In a report, City Council’s Research and Analysis Division described the potential conflicts.
“The most important thing (in the report) is the conflict of interest that I think exists between Jones Day and Kevyn Orr,” RAD director David Whittaker said. “Under the contract, Mr. Orr would direct and maybe even supervise (his former firm). Unlike the retention of most outside firms to the city that are managed by the law department, this particular contract will be managed by Mr. Orr. ”
Because Orr has all the powers of both branches of government “and then some,” he could direct the work of the contract in many different ways without any checks, Whittaker said. The relationship between Orr, who will direct the restructuring contract and his former firm Jones Day, could spur litigation that might arise from that relationship alone.
Although interim Corporation Counsel Edward Keenan acknowledged potential conflicts, in a presentation last week to Council and during the April 16 session, Keenan vouched for both Jones Day and EM Orr.
“They both represent strong ethics,” Keenan said indicating that Jones Day fully disclosed the firm’s client list, which includes financial institutions the city must negotiate against.
Keenan says the disclosures are helpful and believes they demonstrate sufficient separation.
But RAD sees conflict and says they’re not convinced.
“In negotiating down those payments, where the city would be trying to pay less and (the banks) would be trying to get more….It’s an inherent conflict, given the nature,” said Whittaker. RAD questioned the relationship between the city and two Jones Day clients, Merrill Lynch and Bank of America.
As this paper reported, JP Morgan Chase, Deutsch Banke AG, Goldman Sachs, Wells Fargo, Lehman Brothers Holdings, Pershing Square Capital Management, and Royal Bank of Scotland, among others, are client’s of the law firm and also have complex financial agreements with the city.
“We indicated problems in the report. There are problems with Bank of America and Merrill Lynch, although they say problems only arrive if litigated,” said Whittaker.
According to Keenan, Jones Day received a waiver from Bank of America, which was also one of the largest home foreclosing entities in the city of Detroit. It is not clear if the waiver only referred to the city’s obligation to a trigger payment after the emergency manager’s appointment. In Detroit’s debt obligation to Bank of America, the city of Detroit agreed to pay fees and possibly additional interest if the Governor had to appoint an EM.
Mayoral candidate Krystal Crittendon, who was present during the April 16 council session but did not speak publicly, said ater the vote, that she was disappointed by the decision and Corporation Counsel Keenan’s opinion of Jones Day and EM Orr.
“I am disappointed. He was my deputy for four years, I had the mayor appoint him,” said Crittendon, the city’s former corporation counsel.
Orr’s resignation from Jones Day is meaningless, according to Crittendon. “It is like someone said, ‘I stole the money but I put it back,’” she said.
She added that emergency managers, by law, are not democratic or equitable.
“(Orr) can make sure (financial institutions represented by Jones Day) are paid well, 100 cents on the dollar and then take the rest of the city’s debt through bankruptcy, so that the banks get all their money.”
A bankruptcy, she says is far more equitable, “Everybody wins, everybody loses.”
The RAD report also indicated the contract does not adequately or specifically outline Jones Day’s scope of work.
“The core restructuring work largely deals with balance sheet issues. Issues that would try to take the city’s balance sheet … debt that has been articulated many times and get that under control and try to reduce the amount of overall debt the city has after they complete their work,” Whittaker said. “But there are a number of issues expected of a firm getting this contract that are outside the scope of work.”
According to Whittaker, the lack of specifics could mean the six-month, $3.5 million contract could cost more and take more time. Whittaker urged Council to reject the contract or supervise the work closely for transparency.
“If council elects to approve this contract or council rejects it and, it is subsequently approved by Mr. Orr, it is RAD’s position that this contract needs to be monitored by a body that has to meet under the Open Meeting’s Act so that the public can be fully aware of the extent of work or type of work that will be undertaken under the contract….Because with the absence of transparency and critical review, in my explanation, the only elected body that has that responsibility, is your honorable body. …If approved, Council should fight to maintain some supervision or monitoring of the contract so that transparency and some semblance of democracy is had. Otherwise, I think there are a lot of things that can happen. Not that we think Jones Day is unethical. But because it could happen, because you’re talking about expenditure of tax dollars, local people should have some say in how that is spent.”
Under his Order 3, Orr indicates council has all its power. Whittaker suggests, until powers are lessened by the EM, they should exploit them.
Demonstrators sit in on council session
Nearly a hundred residents showed up for the vote on the controversial Jones Day contract. Many spoke during public comment urging council to vote no.
“Don’t do (Orr’s) dirty work,” one resident told Council.
Demeeko Williams, a Business student at Wayne County Community College expressed his disappointment with council’s votes to enter into Consent and Milestone Agreements with the state. He asked, “What will it take for us to fight back Republican oppression and malfeasance. This is a new form of corruptive government.”
Following discussion on the Jones Day contract, residents stood, linked arms and sang, “We shall not be moved.” Some kneeled and refused to leave.
Council President Pugh called a five minute recess. He left the table with members Brown, Jenkins, Tate and Spivey behind him. Only Councilmembers JoAnn Watson and Brenda Jones remained at the table.
The peaceful demonstration continued for over an hour, only quieting down for comments from Councilmembers Watson and Jones.
“I appreciate citizens of the city who are standing up for this city on this critical issue,” Watson said. “My position is, if the EM had to write an executive order to give the council power and the mayor power, clearly we don’t have to vote on anything. If a decision is to be made he should make it.
“Council should never vote on anything it thinks is illegal,” Watson said.
Her last reason to reject the contract, she said, is the federal lawsuit, which was filed to regain constitutional protections. “When we win the federal lawsuit, the last thing you want is a lawsuit approved and the legislative body voluntarily voting it away,” said Watson.
Singing, “We shall overcome” and chanting, “Jones Day must go!” “Kevyn Orr must go!” “Gov. Snyder must go!” demonstrators, led by DetroitPublic Schools Board Member Elena Herrada and Rev. Bill Wylie-Kellerman of St. Peter’s Episcopal Church, refused to leave council chambers.
Detroit Police were called. Herrada and Kellerman were arrested following the vote. “Shame!” they shouted, “Shame!”