Bankrupt Chester is refusing to pay the legal team representing pensioners, a court motion says

The legal team representing Chester’s retirees — whose pension payments may be cut when the city emerges from a rare bankruptcy — said in a court motion filed Monday the city was playing “bait and switch” by backing out of an agreement to pay it over a half-million dollars in fees.

With $350 million in benefits at stake, the petition said, by withholding payment, Chester is “creating an uneven playing field that unfairly exposes the rights of retirees,” who “do not have the economic ability to hire counsel and protect themselves.” As per bankruptcy procedures, the city is paying for their representation.

By contrast, the petition said, the fees of the staff of the state receiver Michael Doweary — who is overseeing Chester’s finances and who filed for bankruptcy on the city’s behalf in November — are secure because they are paid by the Commonwealth of Pennsylvania.

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It asked U.S. Bankruptcy Court Judge Ashely M. Chan to order the city to pay the bills. It also said that if the city couldn’t, the state should assume the responsibility.

The receiver is “disappointed” in the motion, said Vijay Kapoor, Doweary’s chief of staff, adding that it “contains numerous crucial factual inaccuracies.” He added that “several” requests for the fee estimates before the bills were submitted received no response.

He said the office would “fully respond to and defend against” the motion in court.

The retirees represent the biggest creditor class in the city’s bankruptcy, which was driven by a monumental pension underfunding crisis that municipal-finance experts have described as among the worst in the nation.

The pension crisis notwithstanding, the city’s financial woes have been 70 years in the making, as it has endured the erosion of manufacturing jobs, population, and a diminished tax base, exacerbated by crime and a high poverty rate.

At one point during World War II, its shipyard employed 36,000 people. Today, even the city’s total population is smaller — 33,000 live there.

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While its woes are common to other postindustrial cities, municipal bankruptcies are rare, with only about 30 occurring among the nation’s 38,000 towns in the 85 years that Congress has offered the option as a lifeline.

Under the law, debtors are required to pay the fees of attorneys and other professionals who represent creditor groups, such as the Chester retirees, who otherwise couldn’t afford to foot the bills themselves.

“We are deeply disappointed to hear that the City has reneged on its commitment,” Alan Davis and Charles Bolgunas, co-chairs of the retirees’ group, said in a statement. “This sudden change of position is simply unacceptable.”

They added that it “undermines” efforts to “represent the interests of retirees impacted by Chester’s bankruptcy.” Davis is a 27-year veteran of the police force, and Bolgunas, a former fire battalion chief.

In this case, the bills submitted by the four entities representing the retirees came to $517,173.41, for the March through May period, according to the motion.

“Months” before receiving those bills, Kapoor said, “the receiver’s office had asked the retiree representatives “several times for a fee estimate to manage how the fees could be paid, but they declined to do so.” He said that through the month of June, the amount had grown to nearly $700,000.

He added, “to be clear, the receiver recognizes the City’s obligation to pay the reasonable fees of the retirees’ professionals.” He said the receiver’s office had “approved paying the retirees’ professionals $100,000 per month toward these bills, which is currently a manageable level for the city given its financial situation” and the need “to provide vital and necessary services to Chester residents.”

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The motion counters that the city’s “compensation procedures order does not condition payment … on the city’s budgetary processes.”

“It provides that the City shall promptly pay … fees as to which the receiver has not objected,” the motion stated.

While the filing of the motion was “unfortunate,” the attorneys said, it was necessary because “the receiver and the commonwealth seem intent upon tilting the playing field in their favor.”