Harrisburg, Pa., has settled with attorney Mark Schwartz, agreeing to pay him $80,000.
Schwartz, a Bryn Mawr, Pa., solo practitioner, had been seeking $300,000 in unpaid legal fees. He represented the City Council in its attempted bankruptcy filing late in 2011, over the objections of then-Mayor Linda Thompson.
Federal Judge Mary France invalidated the filing, citing Thompson's objection and a state law that banned capital city Harrisburg from filing under Chapter 9.
The council and new Mayor Eric Papenfuse recently signed off on the settlement with Schwartz over legal fees.
In a letter to Papenfuse, Schwartz said he hoped to use Chapter 9 proceedings to claw back the $300 million from those who profited, including bond counsel, underwriters and consultants. In an interview, Schwartz likened the $300 million worth of bond financings related to an incinerator retrofit project - which piled on debt and pushed Harrisburg to the brink of insolvency - to a Ponzi scheme.
"The whole reason I took this case was to go after the bad guys," said Schwartz. "Instead of the bad guys paying up, the city lost two assets. Bond counsel approved the incinerator deals and should not have done so."
Harrisburg late in 2013 finalized a financial recovery plan whose main components were the sale of the city incinerator to the Lancaster County Solid Waste Management Authority and the long-term leasing of parking assets from the city and the Harrisburg Parking Authority to the Pennsylvania Economic Development Financing Authority.
Schwartz, a former bond lawyer and investment banker, began his career as a legislative assistant to Pennsylvania House Majority Leader K. Leroy Irvis. Once fired by Prudential-Bache Securities after accusing the company of forcing its employees to make political contributions, Schwartz has represented whistleblowers in various legal disputes.
He blames Thompson and former Gov. Tom Corbett for holding up his Harrisburg legal fees.
"It was very clear that the old mayor was against me in all respects and Corbett was against me in all respects," he said.
Schwartz said he had hoped through the Harrisburg case to set a good precedent for the pending Chapter 9 filing by Detroit. The Motor City filed for bankruptcy on July 18, 2013 and officially exited Dec. 10, 2014.
"I'm bothered about the fees coming out of Detroit," he said. "It would have been nice to achieve a model for bankruptcy even though Harrisburg was smaller financially. I have a bad taste in my mouth regarding the whole situation in Detroit, which benefited people with six- and seven-figure salaries."
According to Schwartz, 49,000-population Harrisburg's situation is still tenuous. "Their revenue base is gone and they have to make do with an archaic [property tax] system based on real estate, which is regressive. We need a new model."
In his letter to Papenfuse, Schwartz said: "I don't envy your job tending to Harrisburg's finances."
