UPDATE, 12/6/13, 6:30 p.m. EST: U.S. Bankruptcy Judge Steven Rhodes issued a ruling Friday afternoon clearing the way for a $210 million bond sale intended to fix Detroit’s outdated and broken streetlights. Rhodes, who had previously held off on approving the deal after questioning whether it was appropriate for Miller, Canfield, Paddock & Stone to represent both the Public Lighting Authority of Detroit and the city itself in the bond negotiations, concluded after further briefing on the issue that the deal is a product of “good faith, arms-length negotiations” and can proceed.
Miller, Canfield, Paddock & Stone insisted in a Wednesday filing that its role as counsel to the Public Lighting Authority of Detroit in bond negotiations aimed at ensuring that all of the hard-pressed city’s 80,000 streetlights remain lit does not constitute a conflict despite the firm’s concurrent representation of Detroit itself on the bond deal and in its just-approved bankruptcy proceedings.
The Miller Canfield brief—along with related filings made by Detroit’s primary bankruptcy counsel, Jones Day, and the lighting authority’s lead law firm, Allen Law Group—come a week after U.S. Bankruptcy Judge Steven Rhodes caught Miller Canfield lawyers off-guard by asking them during a court hearing how the firm could justify representing both the authority and the city on the deal.
The authority was created in February following the passage of a 2012 state law intended to fix the city’s spotty street lights—an estimated 40 percent of which don’t work. The success of the agency’s mission hinges on a planned $210 million bond sale backed by up to $12.5 million in Detroit utility user tax revenue per year.
Under a complex scenario prompted by the bankrupt city’s virtual inability to access credit markets directly, the PLA is to sell the bonds to the Michigan Finance Authority. The state agency will then sell the bonds to Citibank, with the proceeds going back to the city to pay for the streetlight repairs. Citibank has asked Rhodes—who is overseeing the city’s historic Chapter 9 case—for an order assuring the tax money is used for its intended purpose and not to help pay off Detroit’s massive debts.
Until several days ago, Miller Canfield was advising the city, the PLA and the state authority in the bond negotiations. That changed after Rhodes delayed ruling on the deal in light of his questions about what he viewed as the firm’s potentially conflicting roles. Though the judge did not challenge the firm’s representation of the Michigan Finance Authority, that agency said in a Wednesday court filing that “an abundance of caution” had led it to drop Miller Canfield as its adviser on the deal in favor of fellow Detroit-based Am Law 200 firm Dickinson Wright. (Miller Canfield noted in its filing that the switch happened Monday.)
As for the possible conflict that originally attracted Rhodes’ scrutiny, Miller Canfield, Jones Da, and Allen Law Group all argue in their Wednesday filings that though Miller Canfield is advising multiple clients in the matter, it is essentially only on one side of the transaction.
“In short, because the PLA and the city’s interests are not adverse, and are, in fact, completely aligned, no conflict exists,” Miller Canfield partner Jonathan Green says in the firm’s brief. In matters that may pit the agency and the city against one another, Jones Day and the Allen Law Group have done the negotiating, the three firms say. (Miller Canfield chairman Michael McGee declined to comment on behalf of his firm.)
Jones Day also argues that because the lighting authority has no real stake in the bankruptcy—and will collect the utility tax revenue regardless of how the case unfolds—Miller Canfield’s work on Chapter 9–related matters is irrelevant in the context of the bond deal.
As The Am Law Daily has previously reported, Miller Canfield’s work for the city is covered by a $1.2 million contract for restructuring assignments and another $750,000 contract to provide collective bargaining advice. Jones Day, meanwhile, is operating under an $18 million contract whose value has already been increased once since the firm was hired in March. The firm has been paid at least $11 million so far for its work on the assignment.
Defending its multiple roles in the bond deal, Miller Canfield further explains in its filing that “there is simply no aggrieved party” and that none of the principals involved in the transaction, including Citibank, have objected. If the firm is disqualified, the filing argues, “not only would PLA be deprived of its chosen counsel, but the entire transaction would be delayed”—something Miller Canfield claims would not be in the public’s best interest. “The city and the PLA simply want to turn the lights back on for thousands of Detroit residents without any further delays,” the filing states.
Contrary to Miller Canfield’s position, one aggrieved party is objecting to the firm’s dual roles in the matter.
Represented by Dentons, an official committee of retirees formed by Rhodes in the Chapter 9 case argued in a Wednesday filing of its own that “Miller Canfield’s representation of the PLA in the public lighting negotiations is directly adverse to the city.” The firm is intimately familiar with the city’s financial condition through its bankruptcy work, the retirees argue, and likely used its knowledge, “whether consciously or subconsciously, to the advantage of the PLA and the detriment of the city.”
Citibank has not publicly taken a position in the issue. Reached Thursday, Kutak Rock partner Debbie Sinclair Ruskin, who represents the bank in the bond negotiations, said her client is referring all questions to the Michigan Department of Treasury. A department spokesman pointed to the state’s filing that it has replaced Miller Canfield as its counsel with Dickinson Wright, which he said was already involved in the deal.
Dickinson Wright CEO William Burgess declined to comment Thursday on the firm’s role. (The firm’s chairman emeritus, Dennis Archer, is a former Detroit mayor and a 2009 American Lawyer Lifetime Achiever.)
