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  • Writer's pictureThe San Juan Daily Star

Judge holds off ruling on motion ordering delivery of conflict-of-interest reports

U.S. District Court Judge Laura Taylor Swain

By The Star Staff

U.S. District Court Judge Laura Taylor Swain on Thursday stayed a motion to order the U.S. Trustee Office to deliver to the court reports on investigations into conflicts of interest by professionals hired by the Financial Oversight and Management Board or, in the alternative, order the Trustee to investigate the oversight board’s leading firm O’Neill & Borges (O&B) for conflict of interest.

Swain, who is overseeing Puerto Rico’s Title III bankruptcy cases, said she wanted to rule first on certain jurisdictional matters before ruling on the motion.

R&D Master Enterprises sued to disqualify O&B on Jan. 19, after a similar motion by Carlos Lamoutte, the company’s lawyer, failed because he lacked standing.

R&D said O&B had illegal undisclosed conflicts of interest because in addition to representing the oversight board, it represented a group of funds that acquired a $384 million commercial loan portfolio from Puerto Rico’s Economic Development Bank (EDB). R&D is one of the borrowers whose loans were the subject of that transaction, which the local government is trying to nullify.

“R&D Master opts to pursue the same tactics of innuendo, invective, illogical conclusions, and unsupported factual statements as to which it simply lacks any personal knowledge, to − once again − pursue its evident ultimate goal here, a declaration that the EDB Agreement is null and void ab initio,” O&B argued.

When Swain dismissed Lamoutte’s suit, she left the door open for R&D Master Enterprises to attempt to disqualify O&B because of its condition as creditor to Puerto Rico, which would prevent the court from dismissing the case for lack of standing.

Lamoutte filed a mandamus in court seeking to have the oversight board review the EDB loan contract, which, he said, the government has already declared fraudulent. He believes the oversight board has not acted because of O&B. After the lower court failed to act, the matter is before the U.S. First Circuit Court of Appeals in Boston, which has scheduled oral arguments in the case for next Thursday, March 9.

Separately, the EDB is also trying to nullify the agreement in the local courts. A hearing in the case is slated for April.

In her ruling, Swain said the court set a briefing schedule with respect to R&D’s motion to disqualify O&B for unresolvable conflicts of interest.

Opponents have said the Title III court lacks jurisdiction to see the disqualification motion arguing, among other things, that R&D lacks standing to prosecute the disqualification motion and that the court lacks jurisdiction to adjudicate the disqualification motion. R&D filed a reply in support of the disqualification motion.

“Accordingly, the Disqualification Motion is now fully briefed and under consideration by the Court. The objections to the Disqualification Motion raise substantial threshold issues concerning the Court’s jurisdiction and Movant’s standing with respect to the Disqualification Motion. The resolution of those issues is likely to be pertinent to adjudication of the Motion,” the judge said. “As such, in the exercise of its reasoned discretion and in the interests of efficiency and judicial economy, the Court hereby stays the motion (for the U.S. Trustee) pending the Court’s consideration of the Disqualification Motion.”

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