When is it advantageous to hire a lawyer with no bankruptcy experience to handle the bankruptcy finances of a local government? Harrisburg, Pennsylvania, the capital city of a U.S. state, showed that this is feasible. When complex political issues are involved in city bankruptcy cases, it is best to hire a lawyer well versed in the politics of the area rather than the intricacies of the laws of bankruptcy. Politicians are tough when it comes to saving their necks for the next elections and therefore, it does not pay to ask them to sacrifice their future just to settle an on-going city bankruptcy case. Politicians are very result-oriented like any other businessperson and therefore it is essential to point out to them the probability of accomplishment rather than lay out actions that will antagonize voters.
Harrisburg’s City Council hired Cravath, one of the largest American law firms to represent them in bankruptcy proceedings. Soon after the City Council dropped Cravath and instead turned to Atty. Mark Schwartz, a one-man law firm in Bryn Mawr, Pennsylvania. Atty. Mark Schwartz worked as a legislative assistant in the Pennsylvania House of Representatives, which is part of the House Rules Committee. There, he gained much experience in legislative horse-trading and maneuvers in sensitive issues like municipal restructuring.
A number of large law firms hire lawyers with experience in municipal restructuring. Atty. Levin, who worked at Cravath, was a former staff member of the House Judiciary Committee and was involved in the drafting of the 1978 Pennsylvania Bankruptcy Code. He represented the city of Gardena in California and the New York City Off-Track Betting Corp, and a number of small towns in financial restructuring. However, there are large law firms specializing in municipal bankruptcy. One of these is Klee Tuchin Bogdanoff & Stern headed by Atty. Kenneth Klee. The law firm successfully represented Jefferson County, Alabama, to weather away a financial crisis that started in January of this year. Another firm is Chapman and Cutler and Associates headed by Atty. James Spiotto. He successfully negotiated a bankruptcy case involving bondholders in the Sierra Kings Health Care District municipal restructuring case in the bustling state of California in 2009.
Chapter 9 of the 1978 Pennsylvania Bankruptcy Code is too rare an instance for classification as a separate specialization for lawyers. Atty. Bruce Bennett, who is an associate of the law firm Dewey & LeBoeuf, said that there are too few cases involving municipal structuring and bankruptcy covered under Chapter 9. Only 630 cases covered Chapter 9 of the bankruptcy law in comparison with the 13,000 cases filed under Chapter 11.
There is a lot of work available for financial advisers and bankruptcy consultants when municipalities are in serious financial trouble. Novak Consulting Group, which was founded in 2009, was organized for this purpose. It helped in forming a rescue plan for Harrisburg that was unfortunately rejected by the City Council. Another is the law firm Alvarez & Marsal that was involved in the famous 2008 Lehman Brothers Bankruptcy case. The Harrisburg municipality tapped this law firm after its City Council rejected its proposed bankruptcy proposal and restructuring.
Many cities facing bankruptcy procedures are hesitant to seek professional help from legal consultants that would be able to help them. This has always been the case with private firms dealing with government offices. Perhaps political issues are too complicated for private firms to handle. While many feel that it is time for more competent private bankruptcy legal firms to take on government agencies, resistance comes from within the government agencies. Maybe they do not want to be involved in tedious controversies or conflict of interest cases.