Friday, November 22, 2019

Fee examiners raise alarm about Puerto Rico board petition for extension

By on May 15, 2019

Say the ‘duplicative’ request’s cost, signed by 20 attorneys, would be significant

SAN JUAN – Fee examiners in Puerto Rico’s bankruptcy-like process raised the alarm about a petition filed in U.S. District Court by the island’s Financial Oversight and Management Board that seeks to extend the 90-day term to serve more than 1,200 defendants sued in relation to certain Commonwealth general obligation bonds that have been challenged.

The petition is “duplicative” and its cost would be “significant,” a motion signed by Eyck O. Lugo Rivera, one of the lawyers for fee examiner Brady Williamson, said.

The financial oversight board, its Special Claims Committee and the Unsecured Creditors Committee filed earlier this month hundreds of adversary proceedings to challenge the issuance of about $6 billion in GO bonds or to seek to recover money paid to government suppliers illegally.

Earlier this week, however, the fiscal board filed a petition to extend the time to service defendants as well as the stay on avoidance actions. The problem is the 10-page petition was signed by six law firms, with 20 individually named attorneys.

Because of the retrospective nature of the fee review process, no one will know the cost to prepare and file the 10-page procedural document until a fee application has been filed, the fee examiner said.

“However, assuming ethical rules and good practices compelled each of the 20 attorneys to review and approve the motion they apparently signed, that cost could be significant,” the examiner added.

To avoid disputes on legal fees, the fee examiner said that in addition to requiring staffing plans to be filed with fee applications, it may require professionals working in the Title III bankruptcy case under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) to provide detailed staffing plans before rendering services, just as they do for the monthly budgets they already submit to the fee examiner.

“Duplicative advocacy and inefficient staffing remain of great concern. Anticipating Fee Examiner comment on staffing issues before fees are incurred will be a useful tool for promoting the efficiency that PROMESA and the circumstances of the Commonwealth require,” the document states.

In the latest disbursement of funds, Judge Laura Taylor Swain authorized payment of $14 million in fees to nine firms for services rendered in compensation periods dating back to June.

The fee examiner expects costs to rise with the latest avoidance actions and a new set of claims the fiscal board is expected to file.

In the petition signed by the 20 lawyers, the board said that on May 2, it launched 15 adversary proceedings against more than 1,200 defendants relating to the about $6 billion in commonwealth GOs challenged.

Eight of the adversary proceedings are clawback actions to recover certain principal and interest payments as, “among other things, fraudulent transfers from defendants that owned or currently own certain Challenged GO Bonds,” according to the board. The remaining seven adversary proceedings, known as “Lien Avoidance” actions, assert lien-avoidance claims against more than 470 defendants that have asserted the challenged GOs they own are secured by commonwealth assets.

Because it would be “extraordinarily difficult” to serve all defendants within the 90 days required by Federal Rule of Civil Procedure, the committees said they need an extension to November or a stay of proceedings.

“Granting this relief will benefit not only Movants and the Commonwealth, but all parties in interest,” the document reads. “Movants intend to use the additional time for service to potentially settle or otherwise resolve their claims against certain defendants. This process will benefit all defendants, including especially those who are individuals, as Movants are sensitive to the hardship that this litigation may impose on individuals and may ultimately decide not to prosecute claims against some or all of them who are small holders.”

Judge Swain referred the matter to U.S. Magistrate Judge Judith Dein for follow-up

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