Detroit has added more than $500,000 in expert witness fees to its growing short term debt accrued as a result of the city’s bankruptcy filing. Massachusetts financial advisor Marti Kopacz will receive payment of $514,736.71 for work performed in April and May that resulted in a financial expert witness report that assesses the feasibility of Detroit’s bankruptcy plan. Detroit will present its bankruptcy plan to US Bankruptcy Judge Steven Rhodes in a trial this summer in an effort to have the restructuring strategy approved.
Detroit Pays for Financial Expert Witness
Marti Kopacz, manager of Boston’s Phoenix Management Services, has a background in public-sector turnarounds and was appointed by Judge Rhodes as the court’s expert witness. Judge Rhodes hired Kopacz to give him the information he needs to understand the “issues of municipal finance and viability” that will come into play while he oversees Detroit’s bankruptcy restructuring. Kopacz’s primary responsibility is to present an expert witness report analyzing the city’s plan for addressing its $18 billion in debt in order to determine whether or not the strategy is feasible, and she may also be called upon to testify during the bankruptcy proceedings.
Last week, Judge Rhodes ordered the city to pay the over $500,000 in fees that Kopacz and her firm have accrued in two months of work. Kopacz’s financial management team have reviewed financial documents, interviewed current and former city officials, consulted with judges and other financial professionals, and compiled the report requested by Judge Rhodes at the time he appointed Kopacz as his expert witness. How Judge Rhodes will use Kopacz’s report and potential testimony remains to be seen, but her work will undoubtedly influence the outcome of Detroit’s bankruptcy trial as the judge has indicated he will rely heavily on her expert analysis to understand municipal finance.
Judge Rhode’s use of Kopacz and her financial management team comes as no surprise – courts often rely on the reports of independent expert witnesses to evaluate strategic and financial planning before approving a course of action. Given that a city of Detroit’s size has never filed for bankruptcy protection, it is expected that the presiding judge would need to tap a top-dollar expert witness to assist him through relatively uncharted territory. Detroit, which is responsible for the administrative and court costs of its bankruptcy filing, has little say in the matter and must pay Kopacz’s expert fees as part of its bankruptcy proceedings.
Detroit’s Bankruptcy Costs Rise
The expert witness fees owed Kopacz and her financial team are added to the over $36 million in costs Detroit has accrued as part of its bankruptcy filing. The bulk of the fees have been paid to its legal restructuring firm, Jones Day, which has billed over $17 million in fees and expenses accrued while creating the city’s bankruptcy plan. Fifteen other consulting firms and bankruptcy professionals filled out the remaining balance, and now Kopacz’s expert report adds another 1/2 million to the total.
Although the fees associated with Detroit’s bankruptcy are substantial, the law firm appointed by Judge Rhodes to track the costs has found every dollar spent to be justified. The Fee Examiners at Chicago-based bankruptcy law firm Shaw Fishman Glantz & Towbin wrote, “Due to the magnitude and complexity of the Case, the novelty of the legal issues, the extremely tight time frames imposed by the Court and the strong differences in opinion between the various parties about what to do and how to do it, it was (and continues to be) inevitable that the costs associated with the services provided by the various Professionals were going to be significant.” Finding that the unprecedented nature of Detroit’s bankruptcy has created a unique situation, Judge Rhodes seems to be taking all the necessary steps to ensure the process is properly managed, regardless of the costs. Marti Kopacz’s financial expert witness report is simply the latest in a growing use of financial, legal, and bankruptcy professionals who have been tapped to assist the bankruptcy court in approving Detroit’s massive restructuring strategy.