Fiscal board accuses lawyer seeking to disqualify its legal adviser of misleading court
By The Star Staff
The Financial Oversight and Management Board and the law firm O’Neill & Borges (O&B) said a lawyer who wants to disqualify O&B from representing the board in the island’s bankruptcy case for failing to disclose an alleged conflict of interest wants to mislead the court and lacks standing.
Carlos Lamoutte, a lawyer from San Juan, filed a motion on May 18 in the Title III Bankruptcy Court as a private citizen informing the court that in violation of the Puerto Rico Recovery Accuracy in Disclosures Act of 2021 (PRRADA), a federal statute that requires professionals hired by the oversight board to disclose conflicts of interest to the U.S. Trustee and to other parties, O&B did not inform the court of a conflict of interest to “financially benefit several private clients of that firm, to the corresponding detriment of the bankruptcy estate of the debtor in this case, the commonwealth of Puerto Rico.”
Lamoutte said the law firm concealed from the court a $384.2 million loan made by the Economic Development Bank of Puerto Rico (EDB) that in 2018 was sold to PR Recovery and Development JV LLC and PR Recovery and Development REO, in order to benefit O&B clients. In the motion, Lamoutte also charged that oversight board executives, including general counsel Jaime A. El Koury and the board’s ethics adviser, Andrea Bonime-Blanc, helped O&B conceal the alleged conflict of interest.
In denying the allegations, the oversight board said in a footnote in its response motion that a partner at O&B is listed as a notice party for the buyer of the loan. However, the board said, it understands that O&B did not represent the buyer.
The oversight board said Lamoutte’s motion should be dismissed for lack of subject matter jurisdiction under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) Title III. The board said the motion complains about O&B’s alleged services to the oversight board in connection with a transaction involving a covered entity that is not a Title III debtor, the EDB, and is not covered by PRRADA.
On Sept. 7, 2018, the EDB sold the commercial $384 million loan portfolio to PR Recovery and Development JV LLC and PR Recovery and Development REO LLC. The agreement executing the sale was not submitted to the oversight board for review prior to its execution in violation of the board’s policy requiring certain contracts be submitted for review prior to execution.
On Sept. 29, 2019, after learning of the loan portfolio sale from press reports, the oversight board contacted EDB to inquire about the transaction and to determine why the loan portfolio agreement was not submitted for oversight board review.
“Although the EDB did provide the Loan Portfolio Sale agreement to the Oversight Board, it did not ask the Oversight Board to approve the contract,” the board said. “Rather, on November 7, 2019, the EDB initiated proceedings with the Commonwealth court to have the Loan Portfolio Sale nullified.”
The board insisted that the EDB is not in bankruptcy court and that the court cannot provide a remedy to Lamoutte, who represents the parties affected by the sale of the loan to a private entity.
“Put differently, if the Court were to grant the relief Mr. Lamoutte requests and disqualify O&B in this Title III case and to order the disgorgement of all O&B’s Title III fees, those remedies would not impact the Oversight Board’s retention of O&B outside Title III for covered entities such as EDB,” the board said. “O&B would still represent the Oversight Board in its own capacity in connection with non-Title III debtors. Indeed, the dispute Mr. Lamoutte raises in connection with EDB would exist regardless of whether the Commonwealth Title III case were ever commenced.”
To deprive the oversight board of its chosen and longtime Puerto Rico counsel, the board said, Lamoutte contends that O&B, along with oversight board staff and a retained adviser, concealed O&B’s purported conflict of interest from the court and the U.S. Trustee, allegedly in violation of PRRADA, which has no application outside Title III bankruptcy.
“Mr. Lamoutte’s motion appears to be an attempt to embarrass O&B and the Oversight Board with false allegations in the hope that it will somehow prevent the loan portfolio purchaser from collecting on the loans,” the board said.