Joe Guillen

Detroit Free Press

Using explosive language and personal attacks, the Jones Day law firm unloaded on Detroit Mayor Mike Duggan in a letter responding to the mayor's public threats to sue the firm for allegedly misleading him during the city's bankruptcy.

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In a 13-page letter sent to the city on Feb. 23, Jones Day Managing Partner Stephen Brogan dismissed Duggan's comments as those of a "political hack" who is using the threat of a lawsuit to distance himself from the bankruptcy.

Brogan's letter also attempts to dismantle any legal argument the city would use to sue Jones Day for its performance as Detroit's lead bankruptcy counsel. Brogan's detailed rebuttal of the city's claims against Jones Day is based on a draft lawsuit the city shared with the firm prior to Duggan's comments.

"Filing this action would place the mayor in a long line of corrupt Detroit politicians who placed personal political ambition above an objective determination of the city's best interest," Brogan wrote in his letter, obtained by the Free Press through the Freedom of Information Act.

"If this case goes forward, we will prove that it does not — and cannot — serve the interest of your real client, the city of Detroit, but instead is designed only to serve the venal interests of a political hack who has placed personal animus and self-interest ahead of the truth," Brogan continued. "If any complaint is filed against Jones Day, the firm will aggressively pursue all available defenses and remedies, including sanctions against the city and its lawyers."

Brogan sent the letter the same day Duggan accused former emergency manager Kevyn Orr of concealing information from both him and Detroit CFO John Hill about calculations used to predict the city’s future pension payments. Duggan leveled the accusations during a budget presentation to City Council.

The city is considering a suit against Jones Day because the alleged miscalculations underestimated the city's pension payments. As a result, the city now is setting aside tens of millions of dollars because the pension payments are expected to be much higher than expected when they begin in 2024. Detroit filed for bankruptcy July 17, 2013 citing debts and projected liabilities of more than $18 billion.

Duggan, who is running for re-election this year, initially raised the prospect of a lawsuit against bankruptcy consultants last year when the city discovered an estimated $491-million shortfall between pension payments estimated in the bankruptcy exit plan — approved in 2014 — and more recent figures. The consultants underestimated the pension payments because they used outdated mortality tables, which predict how long retirees are expected to live and, in turn, receive pension checks.

Duggan spokesman John Roach directed the Free Press to the city's outside counsel in this matter, David Fink.

Fink provided the following statement:

"Mayor Mike Duggan and CFO John Hill have stated that they were not informed or briefed regarding the risks associated with the mortality tables and other factors that lead to inadequate funding of the city's pensions under the plan of adjustment. While there is a fair amount of name-calling in the Jones Day letter, nothing in that letter contradicts the statements of the mayor and the CFO. Specifically, the letter states that there was discussion of the mortality assumptions, but never claims that this critically-important information was shared with Mayor Duggan or CFO Hill.

"The city is continuing to review the facts and the law to determine whether it should proceed with a claim against Jones Day. The city may also seek revisions to the emergency manager laws to ensure that local elected officials are fully briefed in the future."

The city of Detroit could have planned better for the looming pension shortfall if Orr had been up front with Duggan, the mayor said last month in his initial comments to city council.

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“The discussions between the actuary and other people of Mr. Orr’s team were concealed from (Detroit CFO Hill) and me,” Duggan told City Council Feb. 23. “We did not know that these assumptions were being based on these optimistic set of criteria. Had we known that, we would’ve dealt with it very differently.”

Brogan's letter outlines 10 reasons why the city's lawsuit would be baseless.

Central to Jones Day's response is that the firm was hired to give the city legal advice — not to determine actuarial assumptions used to calculate future pension payments. Jones Day also contends it did not dictate the calculations. The numbers were a product of "court-ordered and court-supervised mediation" that "included three leading actuarial firms," Brogan wrote.

Jones Day also contends it would not be responsible for keeping Duggan in the loop because neither it nor emergency manager Kevyn Orr were obligated to report to the mayor. Since leaving Detroit, Orr is now partner-in-charge of Jones Day’s Washington, D.C., office.

"The complaint and the mayor's comments today ignore the fact that the emergency manager, not the mayor, had full authority to act for the city throughout the bankruptcy," Brogan wrote. "There are no allegations that any information or actuarial risks were concealed from, or in any way misrepresented to, the emergency manager. Because there can be no basis for such a claim, there is no breach of duty to the city."

Finally, Brogan wrote that Jones Day essentially is immune from claims of professional malpractice during the city's bankruptcy. The federal bankruptcy court reviewed Jones Day's legal bills and, after mediation, concluded they were reasonable. "This reasonableness determination necessarily included a determination by the bankruptcy court on the quality of the professional services rendered by Jones Day and bars any later complaint of professional malpractice," Brogan wrote.

Jones Day eventually collected nearly $54 million for its work on the city's bankruptcy. The firm cut $17.7 million off its bills under court-ordered mediation.

Prior to Duggan's public criticisms last month, it appears talks between the city and Jones Day over the city's pension obligations were more cordial.

In fact, Jones Day had been under the impression Duggan was holding off on any legal action. Duggan's instructions to Fink, the city's outside counsel, were to "stand down," according to Brogan's letter.

But Duggan's comments about Orr and Jones Day in front of City Council on Feb. 23 apparently crossed the line.

Brogan's letter ended with a shot at Duggan for what Brogan said was a failure to handle his job, despite the financial freedom he is afforded by the bankruptcy exit plan, also known as the plan of adjustment (POA).

"Mayor Duggan wanted the POA for its clear benefits but now wants to blame court-sanctioned compromise because he is apparently too incompetent to do the job he took on. No mayor in the history of this country has received the assistance that the POA gave Detroit -- removed $7 billion in liabilities from its balance sheet -- and yet he appears singularly incapable of taking advantage of that fresh start to help the people of Detroit, who Jones Day served well and proudly."

Contact Joe Guillen: 313-222-6678 or jguillen@freepress.com.