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  • Writer's pictureThe San Juan Daily Star

Judge tosses out petitions to disqualify San Juan law firm as fiscal board legal adviser

By The Star Staff

U.S. District Court Judge Laura Taylor Swain, who oversees Puerto Rico’s bankruptcy cases under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), on Thursday dismissed petitions to disqualify the firm O’Neill & Borges (O&B) as the legal counsel to the Financial Oversight and Management Board due to a conflict of interest.

San Juan-based O&B is the leading firm in the bankruptcy cases.

Carlos Lamoutte, a lawyer from San Juan, filed a motion on May 18 in the Title III Bankruptcy Court 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 firm concealed from the court a $384.2 million loan made by the Economic Development Bank that was in 2018 sold to PR Recovery and Development JV LLC and PR Recovery and Development REO, in order to benefit law firm 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.

The oversight board asked the court to dismiss Lamoutte’s motion for lack of subject matter jurisdiction under 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 Economic Development Bank of Puerto Rico, and is not covered by PRRADA.

On July 12, the law firm submitted a verified statement under PRRADA stating its disinterestedness.

The court noted that O&B has not yet filed any application for compensation and reimbursement of expenses that is subject to PRRADA.

While PRRADA permits the United States Trustee to file with the court comments on professionals’ verified statements before the professionals filing such statements seek compensation, neither the statute nor the court’s order implementing the statute invites other parties in interest or members of the public to respond to PRRADA disclosures, Swain said.

Rather, under the compensation procedures approved by the court, a party in interest may object to an application seeking compensation and payment of expenses, she said.

“Accordingly, the Objection is hereby terminated without prejudice as premature in the absence of an application by O&B for compensation and reimbursement of expenses,” the judge said. “Termination of the Objection is not an expression by the Court of any view concerning Mr. Lamoutte’s standing to raise any such objections, and all parties’ rights are reserved concerning that issue should Mr. Lamoutte file an objection to any application. To the extent that the Objection raises issues that have already been raised in connection with the Motion to Disqualify, such issues will be addressed by the Court in due course in the context of that motion.”

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