UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF PUERTO RICO 

 

In re 

) 

) 

PROMESA 

Title III 

) 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

) 

) 

) 

) 

No. 17 BK 3283-LTS 

(Jointly Administered) 

As a representative of ) 

) 

Re: ECF No. 1416 

THE COMMONWEALTH OF PUERTO RICO

et al., 

Debtors.1

) 

) 

) 

) 

Objection date: Expired/none filed 

Hearing date: March 7, 2018 at 9:30 a.m. 

(Atlantic Standard Time) 

) 

FEE EXAMINER’S INITIAL REPORT 

I. SUMMARY OF UNCONTESTED FEE APPPLICATIONS FOR THE 

FIRST INTERIM COMPENSATION PERIOD (MAY 3-SEPTEMBER 30, 

2017) RECOMMENDED FOR HEARING AND COURT APPROVAL AT 

THE OMNIBUS HEARING ON MARCH 7, 2018 AT 9:30 A.M. (AST); 

AND 

II. NOTICE OF DEFERRAL OF TEN FIRST INTERIM FEE 

APPLICATIONS FOR CONSIDERATION AT THE 

APRIL 25, 2018 OMNIBUS HEARING OR A LATER DATE 

TO: HON. LAURA TAYLOR SWAIN, 

UNITED STATES DISTRICT JUDGE 

 

1

 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number and the last four (4) 

digits of each Debtor’s federal tax identification number, as applicable, are the: (i) Commonwealth of Puerto Rico 

(Bankruptcy Case No. 17 BK 3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales Tax 

Financing Corporation (“COFINA”) (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal Tax 

ID: 8474); (iii) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case 

No. 17 BK 3567-LTS) (Last Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the 

Government of the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four 

Digits of Federal Tax ID: 9686); and, (v) Puerto Rico Electric Power Authority (“PREPA”) (Bankruptcy Case 

No. 17 BK 4780-LTS) (Last Four Digits of Federal Tax ID: 3747) (Title III case numbers are listed as Bankruptcy 

Case numbers due to software limitations). 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 1 of 25
2 

PRELMINIARY STATEMENT 

With this report, the Fee Examiner: 

--Recommends Court approval of the 30 interim fee applications 

detailed on the first two pages of Exhibit A; and 

--Notifies the Court, consistent with paragraphs 2.h and 2.k of the 

First Amended Order Setting Procedures for Interim 

Compensation and Reimbursement of Expenses of Professionals 

[Dkt. No. 1715] (the “Interim Compensation Order”), that the Fee 

Examiner and the applicants listed on page three of Exhibit A are 

in productive discussions but have agreed—to allow for continued 

dialogue— to adjourn consideration of their applications to the 

April 25, 2018 omnibus hearing, or another date convenient to the 

Court. 

INTRODUCTION 

To recover, the Commonwealth of Puerto Rico needs expert assistance—from engineers 

who restore power, from contractors who restore homes, buildings and roads, from medical 

personnel who protect public health, and from technicians who provide safe drinking water. In 

addition, it needs assistance from lawyers and financial advisors, whose expertise is no less 

critical to the Commonwealth’s recovery. The financial and legal infrastructures of the island 

require repair and restoration no less than the physical infrastructure. The required assistance is 

expensive, whether to rebuild the power grid or to define and adjust, fairly, the Commonwealth’s 

financial obligations. Congress recognized both needs—most recently when it appropriated 

more than $16 billion as part of the 2018 budget legislation2

 and, in 2016, in enacting 

PROMESA to create a mechanism for the island’s financial restructuring under a plan being 

developed by the Financial Oversight and Management Board (the “Oversight Board”). 

 

2 See Bipartisan Budget Act of 2018, Pub. L. No. 115-123, §§ 21201-21210, 20301 (Division B—Supplemental 

Appropriations, Tax Relief and Medicaid Changes Related to Certain Disasters and Further Extension of Continuing 

Appropriations (Puerto Rico)). 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 2 of 25
3 

PROMESA addresses professional fees and expenses in sections 316 and 317. See Pub. 

L. No. 114-187, §§ 316, 317, 130 Stat. 549, 584-85 (2016). Largely incorporating the language 

of 11 U.S.C. § 330, the statute permits the interim or final award of compensation to a 

professional employed by the Commonwealth debtors, by the Oversight Board, or by a 

committee appointed under 11 U.S.C. § 1103. PROMESA limits the fee awards payable to 

“reasonable compensation for actual, necessary services” and “reimbursement for actual, 

necessary expenses.” The statute also provides standards for “determining the amount of 

reasonable compensation,” again echoing the analogous U.S. Bankruptcy Code sections. 

As of March 7, 2018, the Court will have before it 403

 separate and properly-noticed 

applications for professional compensation from a total of 30 financial firms and law firms, 

including eight based in the Commonwealth. The fees requested for the “First Interim Fee 

Period” from May 3 through September 30, 2017 total $75,040,699.50. The expenses requested 

total $2,051,412.42. Most of the applications were filed in mid-December, and no objections 

were filed within the timeframe set forth in the Interim Compensation Order.4 On or about 

March 19, 2018, the professionals may file applications for services performed and expenses 

incurred during the “Second Interim Fee Period,” which ran from October 1, 2017 through 

January 31, 2018. 

This initial report describes the fee review process pursuant to the October 6, 2017 Order 

Pursuant to PROMESA Sections 316 and 317 and Bankruptcy Code Section 105(A) Appointing a 

Fee Examiner and Related Relief (the “Fee Examiner Order”) [Dkt. No. 1416], an order 

expressly limited to “the title III cases.” The Fee Examiner Order complements the original 

 

3

 Two of these applications request only expenses for official committee members. 

4

 One objection has been made to one monthly application. See infra at 4 & n.5. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 3 of 25
4 

interim compensation order, entered on August 23, 2017 [Dkt. No. 1150], and the now amended 

Interim Compensation Order. 

Exhibit A, attached to this Report, lists all of the First Interim Fee Period applications 

now pending and the amounts of all fees and expenses initially requested. Of these, the Fee 

Examiner has either negotiated consensual adjustments to or verified the accuracy of 30 of the 

applications, which now are recommended for Court approval (the “Applications”), subject to 

the submission and approval of final fee applications at the conclusion of these proceedings. The 

remaining applications, listed on the third page of the exhibit, will be deferred for consideration 

at a subsequent hearing to allow the applicants to continue their discussions with the Fee 

Examiner pursuant to paragraph 2.h of the Interim Compensation Order. 

REVIEW PROCEDURE 

The fee review process employed in these cases is similar—with some variations—to the 

process in other large Chapter 11 cases. See, e.g., In re Energy Future Holdings Corp., 

No. 14-10979 (Bankr. D. Del., pending); In re AMR Corp., No. 11-15463 (Bankr. S.D.N.Y.); 

and, In re Lehman Brothers Holdings, Inc., No. 08-13555 (Bankr. S.D.N.Y.). Here, 

professionals may submit monthly fee and expense statements for which they are to be paid 

90 percent of the fees requested (with two exceptions) and 100 percent of the expenses 

requested. While the notice parties, including the Fee Examiner, have the right to object to any 

monthly statement, this has occurred only once.5 The focus of the Fee Examiner’s review 

process is interim—not monthly—applications filed as often as every four months pursuant to 

the Interim Compensation Order. 

 

5

 See The Puerto Fiscal Agency and Financial Advisory Authority’s Objection to the First Monthly Statement of 

Willkie Farr & Gallagher LLP for Allowance of Compensation and Reimbursement of Expenses as Counsel to 

Bettina Whyte, as the COFINA Agent for the Period From August 3, 2017 Through August 31, 2017. [Dkt. 

No. 1575]. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 4 of 25
5 

To comply with PROMESA, the Interim Compensation Order, and the Fee Examiner’s 

standards and guidelines (see infra p. 8, and Exhibit B), the Applications must be 

comprehensive both in narrative form and in the detailed electronic records of services provided 

and expenses incurred. For the First Interim Fee Period, the Fee Examiner and counsel reviewed 

more than 100,000 individual time and expense entries, encompassing the services of more than 

760 timekeepers—financial professionals, lawyers, paraprofessionals, and staff. 

The first applications were filed on or about December 15, 2017—some later.6

 Some 

applicants did not immediately submit supporting electronic data for all or a portion of their fees 

and expenses. Some applications demonstrated experience with the Chapter 11 compensation 

process and familiarity with the U.S. Trustee Guidelines, the local bankruptcy rules, and the 

relevant case law.7 Some applicants had neither filed a bankruptcy fee application nor been 

subject to a fee review process ever before. 

Procedural Context 

Beginning on May 3, 2017, with the filing of the initial petition, these cases quickly 

accelerated through four subsequent petitions, more than 30 adversary proceedings, and a series 

of hearings in San Juan, New York, and beyond. Even without the catastrophic September 2017 

hurricane, these cases faced daunting obstacles. PROMESA is a new and unique statute. The 

issues it raises are profound, constitutional and statutory, involving federal and Commonwealth 

law, and the U.S. and Puerto Rico constitutions. The financial and legal professionals working 

 

6

 The initial due date for the first interim period applications under the original interim compensation order was 

November 15, 2017 but, on the Fee Examiner’s motion and without objection, the Court moved the initial due date 

to December 15, 2017. One firm, based in Puerto Rico, filed its first interim application by the initial due date, and 

the Court approved it on the Fee Examiner’s recommendation without a hearing. [Dkt. No. 1994]. 

7 See Appendix B—Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses 

Filed under 11 U.S.C. § 330 for Attorneys in Larger Chapter 11 cases (the “Guidelines”). 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 5 of 25
6 

on these cases have confronted massive challenges of time and distance, analysis and advocacy, 

with little directly applicable precedent. While there have been municipal bankruptcies under 

Chapter 9, of course, the Commonwealth’s history and status as debtors are unprecedented. 

The evaluation of “reasonableness” of professional fees requires at least a general sense 

of the scope and direction of the proceedings. Here, that includes the shared or overlapping (or 

incongruent) responsibilities of the Oversight Board, the Commonwealth’s government, their 

respective agents, and the affiliated agencies—some of which are debtors. To that end, the Fee 

Examiner has monitored by telephone selected proceedings and has reviewed a sampling of 

hearing transcripts and filed pleadings. He has met with the professionals for the principal 

parties and, in many instances, the Fee Examiner and counsel have had extended telephone 

discussions with professionals. 

Specifically with respect to the COFINA Dispute, the Fee Examiner has reviewed a series 

of pleadings, including those filed late last month, to better appreciate the complex constitutional 

and statutory arguments and the roles of the agents and their professionals. The Fee Examiner 

has met with AAFAF’s counsel as well as the executive director (by phone) and counsel for the 

Oversight Board and its advisor on retention and compensation matters. The Fee Examiner and 

counsel have been in regular communications with the U.S. Trustee’s office, which has its own 

separate and independent standing under PROMESA section 316(b). In addition, the Fee 

Examiner and counsel have scheduled a briefing session on March 7, 2018, in San Juan, 

following the omnibus hearing, for any professionals—specifically those based in Puerto Rico 

but not limited to them—interested in sharing their perspective on the proceedings or asking 

questions about the fee review process. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 6 of 25
7 

Fee Review Process 

With this procedural background, the Fee Examiner’s counsel first reviewed the narrative 

fee requests for an overview of the nature of services for which compensation has been 

requested. Simultaneously, a specialist imported the supporting electronic data to a platform 

developed specifically for bankruptcy fee review, performing a series of automated analyses to 

verify the data and identify inconsistencies. The initial data review was followed by a detailed 

subjective review of the time and expense records with the Fee Examiner’s counsel applying 

experience and judgment to identify problematic timekeeping practices and other areas of 

concern. 

Counsel, under the direction of the Fee Examiner, then drafted a confidential letter report 

for each professional (some, more than 500 pages in length including appendices), as the Interim 

Compensation Order directs, “listing and explaining each reduction to the Professional’s fees and 

disbursements that the Fee Examiner recommends....” The letter reports identified concerns, 

sought explanation, and recommended adjustments supported, in most cases, by comprehensive 

exhibits that identified and quantified each problematic time or expense entry. The confidential 

letter report invited a negotiation and dialogue, including further submissions of data, 

documentation, and supporting information. 

As anticipated by the Fee Examiner Order, that process resulted in either a consensual 

resolution of the fee and expense request or a deferral of the application to permit additional 

discussion, as shown on Exhibit A. Though the Fee Examiner Order provides authority for the 

Fee Examiner to file formal objections, he generally disfavors that procedure, especially in the 

“first round” of fee review. Instead, the Fee Examiner sees the first interim reporting cycle as an 

opportunity to further inform professionals of the standards and guidelines and to illustrate their 

application with specificity. While negotiated adjustments have resulted, some professionals—

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 7 of 25
8 

particularly those without Chapter 11 experience—have not been subject to any suggested 

deductions. Instead, this group of professionals has received observations and suggestions for 

subsequent fee requests. 

The first interim fee period of any reorganization expected to be of significant length is 

not the place for lines in the sand or rigid application of rules and guidelines. Rather, it offers 

the Court, the professionals, and the public a renewed awareness of the massive costs of complex 

restructuring proceedings and begins the development of case-specific tools to monitor and—

hopefully—control those costs appropriately under the reasonableness standard. In subsequent 

interim periods, the Court can anticipate briefer and more pointed reports, including formal 

objections where appropriate, if problematic billing practices persist. 

LEGAL STANDARDS AND JUDICIAL PRECEDENT 

Soon after his appointment, the Fee Examiner promulgated a series of standards in a 

memorandum to all of the retained professionals.8

 That memorandum, attached as Exhibit B, 

outlined the statutory standards imposed by PROMESA and, by reference, the U.S. Bankruptcy 

Code and U.S. Trustee Guidelines, as well as some of the Fee Examiner’s own requests and 

suggestions. A second memorandum, attached as Exhibit C, on January 3, 2018 reflected initial 

observations on the filed applications and noted several categorical concerns. Taken together, 

PROMESA, the Bankruptcy Code and Rules, the Guidelines, the memoranda, and the rules 

adopted by the Bankruptcy Court for the District of Puerto Rico (e.g., LBR 2016-1) provide both 

general and specific standards governing professional compensation and reimbursement. 

 

8

 Several professional groups, including the COFINA Agent and her representatives, did not receive the first 

memorandum immediately because, without a publicly-filed retention application or disclosures, the universe of 

professionals subject to review was not readily apparent. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 8 of 25
9 

Reported Authorities 

While there is no shortage of reported opinions applying sections 328-330 of the 

Bankruptcy Code, there are relatively few from the First Circuit and even fewer from the 

bankruptcy court in Puerto Rico. While not binding or dispositive, the U.S. Court of Appeals 

made two potentially instructive points recently in a common fund case. A district court’s 

determination on reasonable fees, the court explained, is reviewable only for an abuse of 

discretion and only then in the event of a “serious mistake.” Heien v. Archstone, 837 F.3d 97, 

100 (1st Cir. 2016). Moreover, a district court’s reasoning in its evaluation of fees need not be 

“infinitely precise, deluged with details....” Id. at 101, quoting Vicor Corp. v. Vigilant Ins. Co., 

674 F.3d 1 (1st Cir. 2012). In a Chapter 13 context, the U.S. Bankruptcy Court for the District of 

Puerto Rico collected and applied general fee cases and principles. In re Parrilla, 530 B.R. 1 

(Bankr. D.P.R. 2015); see also In re Lopez, 405 B.R. 24, 33 (B.A.P. 1st Cir. 2009) (reversing 

bankruptcy court fee decision for emphasis on a single factor rather than the lodestar approach). 

Given the concerns expressed in this report about the number of professionals attending 

hearings, meetings, and mediation sessions, a recent unrelated decision by Judge Houser and one 

older Delaware decision are also noteworthy. See In re Frazin, No. 08-3021, 2017 WL 7050632 

(Bankr. N.D. Texas Dec. 22, 2017); In re Fleming Cos., 304 B.R. 85, 90-91 (Bankr. D. Del. 

2003) (Walrath, J.). Finally, a First Circuit decision more than 30 years ago nonetheless 

provides a general set of principles and detailed reasonableness analysis in the context of fee 

shifting in section 1983 litigation. Grendel’s Den, Inc. v. Larkin, 749 F.2d 945 (lst Cir. 1984); 

see also In re Fruits Int’l, Inc., 87 B.R. 769 (Bankr. D.P.R. 1988) (often cited in fee dispute 

decisions). 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 9 of 25
10 

Negotiated Parameters for Fee Review/the Fee Examiner Order 

Other than sections 316 and 317, PROMESA is silent on professional compensation. The 

legislative history of the fee provisions is sparse but, at its core, section 316 mirrors section 330 

of the Bankruptcy Code, imported almost but not quite verbatim. (The word “bankruptcy” in 

11 U.S.C. § 330(a)(3)(E), for example, has been replaced with the word “restructuring” in 

section 316(c)(5).) Given the limited jurisprudential and legislative guidance, the process 

governing these cases was developed by the principal parties in collaboration with and on the 

motion of the U.S. Trustee. The Fee Examiner Order provides standards for “assessing” fee 

applications that include the Interim Compensation Order [Dkt. No. 1715] and the U.S. Trustee 

Guidelines, supra n.7. The Fee Examiner Order expressly authorizes the Fee Examiner, subject 

to the Court’s oversight and approval, both to establish procedures for resolving disagreements 

over compensation and to develop “case-specific guidelines supplementing, but not in conflict 

with...” the existing standards for reasonableness. The Fee Examiner did so. See Exhibits B

and C. 

INITIAL OBSERVATIONS/FIRST INTERIM PERIOD PROFESSIONAL FEES 

The quality of the professional services provided here is generally not at issue in this 

report, nor is responsiveness to client needs or the commitment to the well-being of the 

Commonwealth and its residents. In reviewing fees and expenses, the Fee Examiner has tried to 

develop an appreciation for the extraordinary practical and legal circumstances presented by 

these cases and the formidable tasks facing professionals. Yet the statutory requirement that 

professional services be both “reasonable and necessary”—even in an unprecedented case—is 

not waivable. The reasonableness requirement should be indifferent to the financial interests of 

anyone—the debtors, bondholders and other creditors, guarantors, public employees or retirees. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 10 of 25
11 

Ultimately, however, ensuring that only reasonable fees are drawn from the debtors’ funds 

benefits the people of the Commonwealth. 

Hourly Rate Variations and Discounts 

With the exception of McKinsey & Co., Inc. (“McKinsey”) and Andrew Wolfe, 

consultants for the Oversight Board, the Applications for interim compensation reflect 

engagement letters or agreements based on an hourly rate. For the first interim period, the hourly 

rates involved vary widely—indeed, dramatically. 

The average attorney hourly rate for applying firms based in Puerto Rico is about $245. 

The average attorney hourly rate for firms based outside of Puerto Rico (most, but not all, in 

New York City) is just under $775 with the highest reported rate requested at $1,425.00 an hour. 

A variety of factors explain the differences, but they are summarized in a phrase: “market rates.” 

The compensation provisions of the Bankruptcy Code turn on the concept of reasonableness and 

market rates for professional services, a distinct departure from the Bankruptcy Act—replaced 

by the Code in 1978—which, in effect, had discouraged professionals from representing 

distressed corporations. See, e.g. 3 Collier on Bankruptcy ¶ 330.LH[4] (Richard Levin & Henry 

J. Sommer eds., 16th ed. 2017) (“The legislative history of section 330, specifically 

acknowledges that ‘[n]otions of economy of the estate in fixing fees are outdated and have no 

place in the bankruptcy code.’”). The rates being charged by Puerto Rico based firms seem to be 

at or below the market rate for legal services in Puerto Rico. The rates being charged by firms in 

New York or Los Angeles, for example, are at or below the market rates for experienced 

Chapter 11 counsel in those cities. 

One of the difficulties presented here is not in the market rates but, rather, in the presence 

or absence of discounts. Often as part of a competitive process, some firms agreed at the outset 

to discounted rates, which are reflected in the Applications. Other firms agreed to apply a 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 11 of 25
12 

discount at the conclusion of the proceedings but volunteered to accept a higher initial 

percentage holdback to account for potential reductions.9 Still other firms are providing no 

discount at all. In each instance where discounted fees are charged, the Fee Examiner has noted 

it in the confidential letter reports and on Exhibit A. 

Where a firm has chosen not to offer a discounted rate, or the client entity has not 

requested it, the Fee Examiner has suggested that some professionals consider a discount, but he 

can do no more than suggest. At some point in these proceedings, perhaps only at their 

conclusion, the Fee Examiner may ask the Court to address the disparity between 

similarly-situated and skilled firms in hourly rates, discounted or not. The disparate rates are too 

significant to ignore. So is the prospect of unreasonable rate increases—usually, though not 

always, imposed at the beginning of a calendar year—that could rapidly offset the savings from 

voluntary discounts. 

Duplication of Efforts and Overattendance 

Beyond rates, many of the problems or omissions in the Applications are not uncommon 

in major Chapter 11 proceedings, but two are of particular concern: duplication of effort and, 

related, the number of professionals attending hearings and proceedings. This concern extends 

to the extended mediation sessions that many believe present the best chance of an equitable 

outcome in the nearer term. Some duplication is unavoidable, particularly given the sometimes 

overlapping and, occasionally, conflicting interests of client entities that otherwise share ends 

and means.10 Several entities have engaged, for reasons that are obvious, more than one law firm 

 

9

 Several firms have offered a discount to be applied, retrospectively, in the firm’s “sole discretion.” 

10 The continuing dispute over the authority of the Commonwealth and COFINA Agents is an example. See, e.g.,

Dkt. Nos. 544, 996, 1461, and 1612. So is the dispute over PREPA’s management. PREPA Dkt. No. 471. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 12 of 25
13 

or financial advisor. The justification for multiple professionals in some instances, though, is not 

yet apparent. 

With respect to hearings, many firms are sending too many professionals to attend—by 

almost any standard—with significant hourly and travel expenses. The forthcoming mediation 

sessions provide an opportunity for restraint in this regard and the imposition by the client 

entities of some prospective limitations. If not, the problem will recur and the costs compound. 

To explain multiple attendance, it is not enough to respond, as some professionals have, merely 

that the issues addressed are of consequence or that the questioned timekeepers are “necessary” 

or “important.” 

PROMESA explicitly provides that the “court shall not allow compensation 

for...unnecessary duplication of services.” § 316(d)(1). Bankruptcy courts have left no doubt 

that estate compensation should be limited to professionals who actually participate in the 

proceeding or directly support that participation. See supra page 9. It is for the clients here, and 

no one else, to designate those they wish to represent their interests at hearings and in mediation. 

But the remarkable number of professionals in attendance, both in the aggregate and from 

individual firms, cannot be ignored and may lead to formal objection. 

The detailed confidential letter report and exhibits sent to each professional invited 

discussion and explanation on these and many other issues. In most instances, the professionals 

have accepted the invitation and the dialogue has been generally productive, with professionals 

providing explanations and context. Some professionals have emphasized that it is the client’s 

decision to designate who will represent the client and how. It is the client’s decision, of course, 

but always subject to the reasonableness standard. It is unreasonable, whether the clients or the 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 13 of 25
14 

professionals make the staffing decisions, to expect compensation for 12 attorneys from a single 

firm to attend an omnibus hearing at which only one or two were expected to speak. 

Pre-Petition and Pre-Appointment Fees 

PROMESA did not anticipate all of the challenges professionals would face in these 

proceedings, and new challenges seem to arise regularly. For some issues and professionals, 

there is little or no precedent on particular compensation questions. The timing of pre-petition 

and pre-appointment professional fees is one example. The Fee Examiner Order establishes the 

Fee Examiner’s authority to evaluate fees for “the title III cases” and those filed by affiliated 

debtors. But because PROMESA did not adopt the section 327 retention provisions of the 

Bankruptcy Code, some of the engagement agreements, accordingly, did not provide for the 

“nunc pro tunc” or retrospective retention authorization common in Chapter 11 proceedings. 

While professionals in Chapter 11 cases can never charge pre-petition fees as administrative 

expenses, this proceeding does not allow uniformity in this regard. Nothing prohibits 

professionals for the government or the Oversight Board from asking for payment of pre-title III 

fees. The committees, by contrast, cannot hire professionals and incur fees until the U.S. Trustee 

appoints them. The same would seem to be true for the COFINA Agent, who would not even be 

a party in interest but for the Oversight Board’s delegation of authority and the Court’s approval 

of it. 

Even had the standards for employment and retention been specific and uniform, 

moreover, the Fee Examiner Order seems to contain its own intrinsic limitations, suggesting that 

the Fee Examiner should review fees charged for services provided only after the 

commencement of the individual Title III cases and only after the formal retention of each 

professional. The Interim Compensation Order, in paragraph 9, covers “all Professionals 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 14 of 25
15 

retained in these cases...to the extent the professionals render services in the Title III Cases,” but 

it makes no reference to the timing of retentions. 

This issue directly affects some professionals and constituents. The pre-Title III fees and 

expenses are significant and, it has been represented, several parties would like the Fee Examiner 

to evaluate them. The COFINA Agent and her professionals began work immediately upon the 

negotiated agreement that resulted in her appointment, though the appointment did not take 

effect formally until the Court so ordered six weeks later. Equitable considerations that would 

justify a less rigid application of bankruptcy standards certainly deserve consideration. While 

the Fee Examiner is well-situated to review pre-filing and pre-appointment fees, his authority to 

do so is less than clear. Under these unique circumstances, the Fee Examiner seeks direction 

from the Court on this aspect of the scope of his assignment. For now, the pre-retention or 

pre-appointment or pre-petition fees have been reserved for later consideration. 

Professional Expenses 

The assessments required by the Fee Examiner Order involve both quantitative and 

qualitative judgments, objective as well as subjective. That is less true of expenses, where the 

standards are well-established and largely objective. The Fee Examiner initially identified more 

than $680,000 in apparently excessive or undocumented expenses out of the more than 

$2 million total sought. The follow up discussions with professionals provided many 

explanations and significant additional documentation, but expense reimbursements remain a 

serious concern—especially those incurred by traveling timekeepers who did not really need to 

travel—especially since the Court’s telephone appearance protocol is so accessible. 

The Fee Examiner identified several six-figure vendor charges for computer research, 

which seem challenging to justify—especially without any explicit record of the nature of the 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 15 of 25
16 

research performed.11 In fact, the total charged for vendor-provided research services in the 

Applications exceeds $535,000 altogether. While electronic research can save time and money, 

many sources are available at no cost, and some discipline is warranted. With or without 

tempering the overall volume of searches, the Fee Examiner encourages professionals to seek 

public service discounts from vendors for these proceedings. Electronic research services could 

easily be categorized as an overhead expense for a law firm, but most firms elect to pass the cost 

on to clients. Some professionals have sought compensation as well for expenses described as 

“overhead expenses,” which cannot be appropriate. 

While the Guidelines, local rules, and Fee Examiner’s expense standards are not 

ambiguous or unprecedented, some professionals routinely fail to observe applicable caps and 

prohibitions (such as first class airfare), relying on the fee examiner process to cull the excessive 

charges, rather than documenting and adjusting them. Some professionals contend that the 

Guidelines themselves are unreasonable and, no matter how uniformly applied, have sought 

exceptions and exemptions. The additional cost of specific expense items noted in the letter 

reports should be borne by the professional firms themselves, not the residents of Puerto Rico. 

In a proceeding of this magnitude, it may seem inefficient to call a professional’s 

attention to inappropriate charges under $50—a hotel charge for personal laundry, for example—

but when the expense rules are as bright as they are and if only for purposes of consistency and 

fairness, inappropriate expenses of any kind cannot be overlooked. The confidential letter 

reports consistently identified expenses that amount to relatively little when compared to the 

 

11 Some professionals have asserted that they cannot disclose the subject matter of their research because of 

confidentiality concerns. Those assertions may well be legitimate, but research expenses in particular are very 

difficult to assess without some detail. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 16 of 25
17 

professional fees that accompany them, but require a great deal more care by the professionals 

and their clients before requesting reimbursement. 

INDIVIDUAL PROFESSIONALS 

Four professional firms, excluding McKinsey, account for $47.35 million in initially 

requested fees and expenses, about 61 percent of the requested total in the first interim period. 

While the amounts sought may vary, that relative allocation probably will continue for much of 

the balance of the proceedings given the plenary role of the Oversight Board and its 

professionals, AAFAF and its professionals, and the official committees. 

Every professional firm that submitted a properly substantiated application received a 

confidential letter report.12 Almost every firm that was asked to do so adjusted their requested 

fees and expenses based on the letter report and the dialogue that followed. Every firm 

requesting an interim fee or expense award is listed on Exhibit A, though some requests are not 

before the Court at this time. Some of the applications, either quantitatively or qualitatively, do 

not warrant extended discussion or the Court’s particularized attention. The Puerto Rico based 

firms, for example, have been asked to accept modest, if any, adjustments to their fees, 

recognizing that some were unfamiliar with basic billing conventions, were following the 

instructions of lead counsel, or were directly affected by the hurricane. To the extent that the Fee 

Examiner identified concerns with local professionals’ billing practices, they have either 

provided explanations that meet the “reasonableness” test or agreed to remedy deficiencies 

prospectively. 

PROMESA permits compensation for reasonable professional services and 

reimbursement for reasonable expenses only for those professionals “employed by the debtor (in 

 

12 The applications of one firm that did not produce electronic billing records in a timely fashion has been deferred. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 17 of 25
18 

the debtor’s sole discretion), the Oversight Board (in the Oversight Board’s sole discretion), 

[and] a committee under section 1103 of Title 11....” Accordingly, the following summary 

groups the professionals in that fashion with the cumulative summary of each application 

appearing only on Exhibit A. 

Oversight Board Professionals 

Professionals representing or working directly on behalf of the Oversight Board 

collectively filed 12 of the interim fee applications. Of those, the applications of Proskauer 

Rose, LLP [Dkt. Nos. 2068, 2043, 2045, 2053, 2066]; McKinsey & Company, Inc. [Dkt. 

No. 2073], O’Neill & Borges LLC [Dkt. No. 2075], and Andrew Wolfe [Dkt. No. 2259] have 

been consensually deferred for the Court’s consideration in connection with the April 25, 2018 

omnibus hearing or another hearing date to be determined by the Court. The remaining group of 

Oversight Board professionals, for which compensation is recommended in this report, includes 

two financial advisors—Ernst & Young LLP [Dkt. No. 2036] and Deloitte Financial Advisory 

Services [Dkt. Nos. 2061 and 2149]—and two law firms, Cancio, Nadal, Rivera & Diaz, PSC 

[Dkt. No. 2135] and Luskin Stern & Eisler LLP [Dkt. No. 2077]. 

Many, if not all, of the general issues discussed above are relevant with respect to this 

group of professionals. In particular, the Fee Examiner remains concerned about the possibility 

of duplication and/or overlap of professional roles given the unique statutory foundation for the 

Oversight Board, its role in these cases, and the authority delegated to its Agents. The 

recommended adjustments to fees and expenses listed on Exhibit A do not include significant 

deductions for duplication or overlap, but the Fee Examiner will continue to carefully monitor 

this issue and, if possible, recommend an approach for limiting duplication to the extent that can 

be accomplished consistently with each professional’s duties of loyalty and confidentiality to 

their clients. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 18 of 25
19 

With respect to the two financial advisors for which the Fee Examiner recommends an 

award of compensation—Ernst & Young and Deloitte Financial Advisory—tasks seem to have 

been divided appropriately between the two firms with Deloitte focusing on operational issues 

and fiscal planning and Ernst & Young primarily supporting the debt adjustment plan process, 

including supporting the Oversight Board in mediation. Turning to the law firms, Cancio Nadal 

is a Puerto Rico Firm representing the Oversight Board, and Luskin Stern is a New York-based 

firm handling discrete litigation matters that generally predate these Title III proceedings and for 

which the Oversight Board’s lead counsel has delegated some portion of its responsibility. 

The Fee Examiner has met with the staff of the Oversight Board itself, including its 

counsel, beginning a dialogue about the costs inherent in multiple representation and the prospect 

of streamlining efforts. The Oversight Board has been receptive to these discussions, reflecting 

its commitment to controlling the cost of these proceedings. 

The Commonwealth Professionals 

The Commonwealth, through AAFAF and PREPA, employs four professional firms 

subject to review. O’Melveny & Myers LLP [Dkt. Nos. 2062, 2063, 2064, 2065] plays a central 

role, coordinating professional services across the Commonwealth’s government. Greenberg 

Traurig [Dkt. Nos. 2111 and 2112] brings particular energy regulatory expertise to its 

representation of AAFAF and PREPA—taking the lead, apparently without significant overlap 

with O’Melveny, in the PREPA proceedings. Though AAFAF’s professional team is expansive, 

the working groups appear to have been carefully delineated and tasks allocated to lessen the 

potential for duplication and overlap. Both firms’ applications contained many of the Guideline 

issues identified elsewhere in this report but, like the other professionals for whom compensation 

is recommended, promptly and comprehensively responded to the Fee Examiner’s concerns with 

supplemental and appropriate adjustments. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 19 of 25
20 

AAFAF itself, of course, is very concerned about the cost of these proceedings. Its 

lawyers not only have allowed the Fee Examiner to speak directly to government official clients 

but have actively encouraged such dialogue. This communication enables the Commonwealth’s 

public employees to observe and monitor professional fee expenditures through the fee review 

process, as well as on their own, and allows AAFAF to incorporate some of the bankruptcy fee 

metrics into its internal controls process. 

Official Committee Professionals 

This group includes professionals working for each of the two official committees—the 

Official Committee of Unsecured Creditors (the “UCC”) and the Official Committee of Retired 

Employees of the Commonwealth of Puerto Rico (the “Retiree Committee”). Each official 

committee employs one national law firm, one Puerto Rico law firm,13 and one financial 

advisory firm. In addition, the Retiree Committee also employs an actuarial firm and an 

information agency firm. Most of the Retiree Committee’s advisors have had experience with 

the fee review process in Chapter 11 cases in Delaware and New York. As a result, the Retiree 

Committee professional fee applications required relatively little comment and adjustment. 

The UCC counsel, Paul Hastings LLP [see Dkt. No. 2040], and financial advisor, Zolfo 

Cooper, LLC [see Dkt. No. 2041], have unusual retention terms. See Dkt. No. 1007 at pp. 18-23 

(August 9, 2017 hearing transcript addressing 20 percent holdback and discount). For each of 

them, with the exception of some erroneous billings identified on Exhibit A, all of the agreed 

deductions are “credited” against those firms’ agreed 20 percent fee reduction as part of their 

final fee application submissions. Neither firm is due any additional fee payments for this first 

 

13 O’Neill & Gilmore Law Office ceased performing legal services and officially withdrew as counsel to the UCC 

on July 21, 2017 (see Dkt. Nos. 698, 1145). The same day, the UCC engaged Casillas, Santiago & Torres, LLC as 

replacement Puerto Rico counsel (see Dkt. No. 701). While O’Neill & Gilmore has requested compensation on a 

final basis, the firm has agreed with the Fee Examiner to proceed with the application on an interim basis. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 20 of 25
21 

interim period, and neither firm is entitled to payment of the holdback that applies to most other 

professional firms. 

Because the UCC stands in the shoes of the Oversight Board for purposes of the 

COFINA Dispute, see supra pp. 6, 14-15, its professionals face similar questions about the 

appropriate scope of the UCC’s agency and the reasonableness and necessity of some of the 

work performed in the COFINA litigation. The Fee Examiner has not yet drawn any firm 

conclusions in this regard. Nor is he recommending any adjustments to professional 

compensation at this time, while reserving the right to revisit that issue and engage in dialogue 

with the Agents’ professionals on unnecessary professional expenses. For all professionals the 

issue of multiple attendance remains a paramount concern, the subject of continuing dialogue. 

The COFINA Agent Professionals 

The Court is all too familiar with the COFINA Dispute, and this report addresses it only 

in general terms. See supra pp. 14-15. For now, the Fee Examiner merely notes that he is 

following the litigation carefully, discussing with the COFINA Agent and her professionals—

two continental law firms and one Puerto Rico firm—concerns about the expense of the 

COFINA-Commonwealth litigation. That concern extends both to the appropriate scope of the 

Agents’ roles and to the risk of duplication of efforts between Willkie Farr [Dkt. No. 2031], on 

the one hand, and Klee Tuchin [Dkt. No. 2099], on the other. 

The COFINA Dispute and its resolution are obviously central to these proceedings and 

the just-filed summary judgment and certification materials leave no doubt of that. Last year, the 

Court limited the definition of the dispute in the Scope Order. Adv. Pro. No. 17-257 [Dkt. 

No. 167]. It has continued to address the Agents’ authority and immunity, [e.g. Dkt. No. 1612], 

without foreclosing any party’s ability to challenge them. The subsequent orders addressing the 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 21 of 25
22 

mediation of the defined issue and related issues affect—and, in some instances, delay—a 

complete reasonableness assessment for some professionals. 

For example, after the COFINA Agent’s appointment on August 3, 2017, one of the first 

issues the Court addressed was the request for a financial advisor [Dkt. No. 1273]. The Court 

denied the Agent’s motion without prejudice [Dkt. No. 1461]. It is black letter law, however, 

that “reasonableness” is not defined with perfect hindsight but, rather, at the time the services are 

provided. 1 Collier Bankruptcy Manual ¶ 331.02[6][a] (Alan N. Resnick & Henry J. Sommer 

eds., 4th ed. 2017) (“Thus, the statute itself supports a determination of whether the service was 

valuable based on what was known when the service was rendered and not based on what might 

or might not happen later.”) PROMESA in section 316(c)(3) reinforces the point. 

Here, in initially denying the advisor request, the Court said that the language of the 

stipulation defining the narrow role of the Agent was “unambiguous,” at least raising a question 

about the reasonableness of the request. Last month, however, the Court expanded the mediation 

role of the COFINA Agent and professionals [Dkt. No. 284 in AP 17-257]. As a result, the time 

spent on the advisor request (approximately $887,000) has been provisionally disallowed, but 

reserving every professional’s right to revisit the issue as the COFINA Dispute evolves and—

hopefully—resolves. 

McKinsey 

The $5.12 million in flat fee compensation sought by McKinsey is one of the largest 

totals sought in this interim period. At more than $2 million a month, the consulting firm’s 

services are a significant regular recurring obligation of the Oversight Board. Yet this report 

contains no recommendation with respect to the reasonableness of the amounts sought because, 

based on the available materials including the Application, no recommendation can be made. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 22 of 25
23 

The Fee Examiner met in person with McKinsey’s representatives, learning that 

McKinsey’s services are extensive, that it has devoted significant resources to the Oversight 

Board, and that it may well be indispensable to the Oversight Board’s mission. Though 

McKinsey affiliates have extensive experience in Chapter 11 proceedings—and in preparing 

applications for professional fees—the McKinsey governmental team for this assignment stated 

that it does not track, by individual professional, the time expended—by the hour, by the day, or 

by the week, nor does it record expenses, all of which are subsumed within its monthly flat fees. 

Like its other state and federal contracts, McKinsey reports, this engagement is not based on 

hours but on “deliverables”—that is, comprehensive project analyses, budgets, and fiscal plans. 

While McKinsey continues to articulate the precise contours of its work, without time or expense 

records of any kind, it is very difficult for anyone to apply PROMESA’s standards for 

reasonableness. 

PROMESA did not incorporate by reference section 328 of the Bankruptcy Code, which 

would have provided flexibility for professional engagements “on any reasonable terms and 

conditions...including...on a fixed or percentage fee basis...” and subject to adjustment only if, 

in hindsight, the terms and conditions prove to have been “improvident in light of developments 

not capable of being anticipated...” at the outset. Absent that kind of provision, only 

PROMESA sections 316 and 317 govern compensation, and they practically, if not explicitly, 

require some sort of quantitative metric as a primary assessment tool. That leaves few 

alternatives. 

The Court could remove McKinsey from the Fee Examiner’s process and, instead, entrust 

the reasonableness assessment to the Oversight Board itself—establishing and applying unique 

standards for McKinsey to meet the Court’s own mandate for fee review. Alternatively, the 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 23 of 25
24 

Court—after consultation and negotiation—could impose a quantitative reporting requirement 

that, at the least, has a time and expense-keeping and reporting component. The compensation 

sought by McKinsey is significant today, and it may well increase. Even were McKinsey’s 

engagement not to prove one of the Oversight Board’s most costly, however well warranted, 

PROMESA as drafted does not exempt any professional from a reasonableness review or 

provide an alternative for the recommendation or approval of McKinsey’s fees. 

CONCLUSION 

The Applications vary dramatically in amount and precision, in rates, and in the scope of 

services described. Nevertheless, Congress has mandated that the Court approve as reasonable 

the professional fees and expenses indispensable to the success of the PROMESA framework 

and the resolution of the legal and financial issues facing the Commonwealth. The Court, in 

turn, has mandated an interim compensation and independent fee review process to provide 

accountability and oversight. The fees and expenses paid by the estates must be both 

“reasonable” and “necessary.” Subjective as parts of that standard may be, painstaking and 

burdensome as their execution may be, the standards and the process are inescapable. 

For the reasons stated above, and in the absence of any objection to any Application, the 

Fee Examiner recommends that the Court enter the Order attached to this report approving, on an 

interim basis and subject to a final review at the conclusion of these proceedings, the interim fee 

requests of the listed professionals in the adjusted amounts that appear in the final two columns 

of Exhibit A. In addition, the Fee Examiner requests that the Court adjourn to the April 25, 

2018 omnibus hearing—without need for further notice—the Applications noted for deferral on 

the Order’s exhibit. 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 24 of 25
25 

Dated: March 1, 2018. 

WE HEREBY CERTIFY that on this date, we electronically filed the foregoing motion 

with the Clerk of the Court using the CM/ECF system that will send notification of such filing to 

all attorneys of record registered in the use of the CM/ECF system. 

EDGE LEGAL STRATEGIES, PSC 

 s/Eyck O. Lugo 

Eyck O. Lugo 

252 Ponce de León Avenue 

Citibank Tower, 12th Floor 

San Juan, PR 00918 

Telephone: (787) 522-2000 

Facsimile: (787) 522-2010 

Puerto Rico Counsel for Fee Examiner 

GODFREY & KAHN, S.C. 

One East Main Street, Suite 500 

Madison, WI 53703 

Telephone: (608) 257-3911 

Facsimile: (608) 257-0609 

Brady Williamson (Pro Hac Vice) 

Fee Examiner 

Katherine Stadler (Pro Hac Vice) 

Counsel for the Fee Examiner 

18553405.3 

Case:17-03283-LTS Doc#:2645 Filed:03/01/18 Entered:03/01/18 18:15:45 Desc: Main

 Document Page 25 of 25