Hearing Date: July 25, 2018 at 9:30 a.m. (AST) 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF PUERTO RICO 

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO 

RICO, 

as representative of 

THE COMMONWEALTH OF PUERTO 

RICO, 

et al. 

Debtors.1 

PROMESA 

Title III 

No. 17 BK 3283-LTS 

(Jointly Administered) 

URGENT MOTION TO COMPEL THE 

PUERTO RICO DEPARTMENT OF TREASURY 

TO COMPLY WITH THE FIRST AND SECOND AMENDED ORDERS 

SETTING PROCEDURES FOR INTERIM COMPENSATION AND 

REIMBURSEMENT OF EXPENSES OF PROFESSIONALS 

 

1 The Debtors in these jointly-administered PROMESA title III cases, along with each Debtor’s respective 

title III case number listed as a bankruptcy case number due to software limitations and the last four 

(4) digits of each Debtor’s federal tax identification number, as applicable, are: (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 (Bankruptcy Case No. 17 BK 3284) (Last Four Digits of Federal Tax ID: 

8474); (iii) Puerto Rico Highways and Transportation Authority (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 (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four Digits of Federal Tax 

ID: 9686); and (v) Puerto Rico Electric and Power Authority (Bankruptcy Case No. 17 BK 4780) (Last 

Four Digits of Federal Tax ID: 3747). 

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Table of Contents 

Preliminary Statement ...................................................................................................................1

Background ....................................................................................................................................3

A. The Retiree Committee’s Professionals And The Interim Compensation 

Orders. ................................................................................................................................3

B. Hacienda’s Erroneous Withholding And Failure To Timely Pay Fees. .......................4

Relief Requested .............................................................................................................................8

Request for Urgent Hearing ..........................................................................................................9

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URGENT MOTION TO COMPEL THE 

PUERTO RICO DEPARTMENT OF TREASURY 

TO COMPLY WITH THE FIRST AND SECOND AMENDED ORDERS 

SETTING PROCEDURES FOR INTERIM COMPENSATION AND 

REIMBURSEMENT OF EXPENSES OF PROFESSIONALS 

The Official Committee of Retired Employees of the Commonwealth of Puerto Rico (the 

“Retiree Committee”), respectfully files this urgent motion (“Motion”) for entry of an order 

directing the Puerto Rico Department of Treasury, part of the Commonwealth’s central 

government (“Hacienda”) 2 to comply with this Court’s First Amended Order Setting Procedures 

for Interim Compensation and Reimbursement of Expenses of Professionals [Dkt. No. 1715] (the 

“First Amended Interim Compensation Order”) and the Second Amended Order Setting 

Procedures for Interim Compensation and Reimbursement of Expenses of Professionals [Dkt. No. 

3269] (the “Second Amended Interim Compensation Order, together with the First Amended 

Interim Compensation Order, the “Interim Compensation Orders”). In support of this Motion, 

the Retiree Committee states: 

PRELIMINARY STATEMENT 

1. The Retiree Committee’s professionals have worked diligently to resolve the issues 

presented by this Motion without this Court’s intervention over the past several months. They have 

provided all requested summary information, all certifications, and all declarations. They have 

even enlisted—at their own expense—the services of Deloitte in Puerto Rico to provide tax and 

accounting assistance to Hacienda. Despite the Retiree Committee’s professionals’ best efforts, 

Hacienda has failed to pay amounts that are due under the Interim Compensation Orders. 

 

2 Hacienda is represented by counsel to AAFAF. In communications with counsel before the expiration of 

the original filing deadline of July 3, 2018 for matters on the July 25, 2018 omnibus hearing docket, counsel 

represented that it would not object to this Motion being set for hearing for the July 25, 2018 omnibus 

hearing date. 

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2. Hacienda’s failure to pay imposes a particular financial hardship on the Retiree 

Committee’s two Puerto Rico-based firms, both of which are smaller firms for which this 

engagement requires a significant amount of their time and resources relative to other matters. It 

is imperative that they are paid for their work consistent with the Interim Compensation Orders. 

The Retiree Committee’s stateside professionals have also devoted substantial time and resources 

to this representation. For them, Hacienda is not only failing to pay their fees and expenses when 

due, but it is also applying an arbitrary and erroneous 29% tax withholding to all fees without 

regard to whether they were incurred on- or off-Island. Hacienda has imposed this withholding 

despite the fact that the Retiree Committee’s professionals provided Hacienda with detailed 

statements reflecting their on- and off-Island billings, as well as registrations and waivers that 

make the maximum amount of withholding for on-Island fees 7% (and in the case of Jenner & 

Block, which obtained a partial waiver of the withholding tax, 3%). These erroneous tax 

withholdings are in addition to the 15% fee-rate discounts being provided by Jenner & Block and 

Segal Consulting and the 10% interim holdbacks under the Interim Compensation Orders.

3. The Retiree Committee’s professionals have been in regular contact with Hacienda 

and its counsel—even as late as yesterday afternoon—in the hopes of resolving these fee issues 

consensually. Hacienda does not dispute the amounts that are overdue, nor does it dispute that it 

over-withheld from prior payments. But Hacienda continues to request duplicative information 

and has not provided the Retiree Committee’s professionals with any certainty about when it will 

pay the amounts that are significantly overdue under this Court’s Interim Compensation Orders. 

Accordingly, the Retiree Committee seeks entry of an Order compelling Hacienda to pay the 

overdue amounts, including all amounts erroneously withheld from prior payments. 

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BACKGROUND 

A. The Retiree Committee’s Professionals And The Interim Compensation Orders. 

4. Pursuant to Orders of this Court, the Retiree Committee employed the law firms of 

Jenner & Block LLP (“Jenner”) and Bennazar, Garcia & Milián, C.S.P. (“Bennazar”) as its legal 

counsel, FTI Consulting (“FTI”) as its financial advisors, Segal Consulting (“Segal”) as its 

actuarial advisors, and Marchand ICS (“Marchand”) as its Information Agent (collectively, the 

“Retiree Committee’s Professionals”). [See Dkt. 1002, 1003, 1004, 1413, 1415.] Jenner, 

Bennazar, FTI, and Segal have been providing services to the Retiree Committee since June 2017. 

Marchand has been providing services to the Retiree Committee since July 2017. 

5. Bennazar and Marchand are Puerto Rico firms registered to do business in Puerto 

Rico. Jenner and Segal are each registered Foreign For-Profit Limited Liability Partnerships, and 

FTI is a registered Foreign For-Profit Corporation, under the laws of the Government of Puerto 

Rico, and each has provided Hacienda with copies of their registration. (See Group Exhibit A.)

6. On November 8, 2017, the Court entered the First Interim Compensation Order. 

[Dkt. 1715.] Pursuant to paragraph 2.c of the First Interim Compensation Order, following the 

expiration of the 10-day objection period to monthly statements, “the Debtors in whose cases such 

Professionals are retained and/or employed shall promptly pay, and in no event pay later than 

fourteen (14) calendar days after receiving the Monthly Fee Objection Statement, the Professional 

an amount equal to the lesser of (i) 90% of the fees and 100% of the expenses requested in the 

applicable Monthly Fee Statement. . . .” (First Interim Compensation Order ¶ 2.c.)

7. On June 6, 2018, the Court entered the Second Amended Interim Compensation 

Order. [Dkt. 3269.] The Second Amended Interim Compensation Order contained the same 

procedures for submitting monthly fee statements and receiving a 90% payment after the 

expiration of a 10-day objection period. (Id.) Its primary difference from the First Interim 

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Compensation Order was the addition of procures requiring professionals to comply with Puerto 

Rico law. (See Second Interim Compensation Order ¶¶ 9-14.) 

8. Specifically, it provides, “[e]ach Professional in the Title III case shall comply with 

Puerto Rico tax withholding law, to the extent applicable to such Professional.” (Id. at ¶ 9 

(emphasis supplied).) It also requires professionals to send their retention agreements to the 

Department of Treasury (id. at ¶ 10), to have principals retroactively certify all fee statements 

served prior to the entry of the Second Amended Interim Compensation Order (id. at ¶ 11), to have 

principals certify fee statements going forward (id.), and to provide certain certifications regarding 

their fees (id.). The Retiree Committee’s Professionals have complied with all aspects of the 

Second Amended Interim Compensation Order. 

9. Notably, the Government of Puerto Rico, through AAFAF, was a party to the 

proceedings that resulted in entry of the Court’s Interim Compensation Orders and supported and 

did not oppose the entry of these Orders.

10. Consistent with the Interim Compensation Orders, the Retiree Committee’s 

Professionals have timely served monthly statements for the fees and expenses incurred on behalf 

of the Retiree Committee on AAFAF and the Financial Oversight and Management Board (the 

“FOMB”), as well as the other notice parties. (Second Interim Compensation Order ¶ 2.) Neither 

AAFAF, nor the FOMB, nor any other party has objected to any of the monthly statements that 

the Retiree Committee’s Professionals have submitted.

B. Hacienda’s Erroneous Withholding And Failure To Timely Pay Fees. 

11. Over the past several months, Hacienda has failed to comply with the Interim 

Compensation Orders in two material respects: (1) it has failed to pay monthly statements and 

approved holdbacks as they become due, and (2) it has erroneously and arbitrarily imposed an 

inapplicable tax upon the entirety of the fees of certain of the Retiree Committee’s Professionals. 

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12. As of the date of this Motion, Hacienda has repeatedly failed to make payments on 

long overdue monthly statements and Court-approved interim fee applications. Hacienda has not 

paid Bennazar’s February fees and expenses nor its second interim fee application holdback. 

Hacienda has not paid Marchand’s March fees and expenses nor its first and second interim fee 

application holdback amounts. Hacienda has not paid Segal’s February or March fees and 

expenses, nor the full amounts due to Segal for January and April. Hacienda has not paid Jenner’s 

and FTI’s April fees and expenses nor their second interim fee application holdback amounts. 

13. In addition to these long overdue fees and expenses, Hacienda has wrongfully 

imposed a 29% withholding tax on certain of the Retiree Committee’s Professionals’ fees. 

Hacienda first advised of its intent to apply the withholding tax to professionals’ fees on May 1, 

2018. Counsel for AAFAF sent an e-mail to the Retiree Committee’s Professionals and other 

professionals in these Title III cases explaining: 

 For “Puerto Rico residents or foreign entities doing business in Puerto Rico,” 

“payments will be subject to a 7% income tax withholding pursuant to Section 

1062.03 of the PR Code.” 

 For “foreign entities not doing business in Puerto Rico, any payments considered 

Puerto Rico source income will be subject to a 29% income tax withholding 

pursuant to Section 1062.11 of the PR Code.” 

(See May 1, 2018 Email of P. Friedman, attached hereto as Exhibit B.) 

14. That same day, Jenner, FTI, Segal, and Marchand each received overdue payments 

(the “May 1 Payments”) for services rendered and expenses incurred in the months of January 

and February 2018,3 as well as for the fees held back for work performed in June through 

September 2017 that the District Court approved on March 7, 2018. (See Dkt. 2685.) But instead 

 

3 FTI also received payments on account of its November and December 2017 fee statements on May 1, 

2018. 

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of complying with the First Interim Compensation Order and paying 90% of fees and 100% of 

expenses, the May 1 Payments reflected an unexpected 29% reduction in payment of the requested 

and approved fees, notwithstanding that all but a small fraction of the billed fees pertained to 

services provided off-Island and that the stateside Retiree Committee’s Professionals are registered 

foreign entities doing business in Puerto Rico.4

15. Beginning with their March 2018 fee statements, the Retiree Committee’s 

Professionals also provided specific language in their cover letters regarding the applicability of 

any withholding tax, and the Retiree Committee’s stateside professionals bifurcated their bills 

between on- and off-Island time. For example, Jenner’s amended cover letter5 for its March fee 

statement provided, in boldface type:

Jenner is a registered Foreign for Profit Limited Liability Partnership under 

the laws of the Government of Puerto Rico. I enclose a copy of Jenner’s 

Certificate of Authorization to do Business in Puerto Rico. All of Jenner’s 

services reflected in the March Fee Statement were performed outside of 

Puerto Rico. Accordingly, the Government should not withhold any Puerto 

Rico taxes from the $485,931.29 that is now due and owing to Jenner. 

(Jenner’s March cover letter attached hereto as Exhibit C). Jenner’s cover letter for its April fee 

statement similarly provided: 

Please note that Jenner is a registered Foreign for Profit Limited Liability 

Partnership under the laws of the Government of Puerto Rico. I enclose a copy 

of Jenner’s Certificate of Authorization to do Business in Puerto Rico. 

Accordingly, to the extent the Government applies a 7% income tax 

withholding to amounts due to Jenner, it should do so only with respect to the 

fees in the amount of $16,302.15 under the category “Puerto Rico Fees”, which 

reflect all services rendered by Jenner on-lsland pursuant to this fee statement. 

 

4 Hacienda also did not even do what its counsel represented in his May 1, 2018 email. Even though 

Marchand is a Puerto Rico firm doing business in Puerto Rico and incorporated under the laws of Puerto 

Rico, Hacienda nonetheless withheld 29% of its fees, and not the 7% that counsel stated would be withheld. 

5 Due to the voluminous nature of the Retiree Committee’s Professionals’ monthly fee statements, the 

Retiree Committee attaches the cover letters for Jenner’s March and April monthly fee statements as 

illustrative of its professionals’ efforts to make the proper calculations clear for Hacienda. 

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(Jenner’s April cover letter attached hereto as Exhibit D.)6 Each of the stateside Retiree 

Committee’s Professionals’ cover letters have included similar language. 

16. Notwithstanding this language in their cover letters and all the other documentation 

and efforts provided by the Retiree Committee’s Professionals, when the stateside Retiree 

Committee’s Professionals received payment for their March 2018 monthly statements (on June 

28, 2018, several weeks overdue), Hacienda again applied a 29% withholding tax.

17. Hacienda’s response to the Retiree Committee’s Professionals’ efforts to resolve 

these issues has been disappointing. Hacienda has offered a variety of shifting reasons for why it 

is unable to pay the amounts due. Hacienda’s most recent position is that it cannot pay amounts 

due from Fiscal Year 2018 (July 1, 2017June 30, 2018) until it obtains approval from the FOMB. 

Of course, this explanation does not make sense: no such approval is needed (the payments are 

required by Court order and are accounted for in the Government’s budgeting process), and this 

does not explain why the requested fees, all of which were due and payable in Fiscal Year 2018, 

were not paid in Fiscal Year 2018. As to the erroneous withholding taxes, Hacienda has advised 

the stateside Retiree Committee’s Professionals that they need to file a tax refund form and wait 

to see what happens next. At their own expense, Jenner and FTI have engaged tax consultants to 

address these issues with Hacienda, and in fact completed and submitted forms to Hacienda in 

early June for the amounts wrongfully withheld, but their efforts have likewise proved 

unsuccessful to date. 

 

6 Jenner subsequently obtained a partial waiver of the withholding tax, making the maximum amount of 

any withholding for on-Island fees 3 percent. It provided a copy of that partial waiver to AAFAF on June 

29, 2018. A copy of the partial waiver is attached hereto as Exhibit E. 

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RELIEF REQUESTED 

18. By this Motion, the Retiree Committee’s Professionals respectfully request the 

entry of an Order: (a) directing Hacienda to comply with the Interim Compensation Orders and to 

pay to the Retiree Committee’s Professionals, on or before July 31, 2018, all fees and expenses 

due under the Interim Compensation Orders; and (b) directing Hacienda to remit the withholdings 

erroneously applied to the stateside Retiree Committee’s Professionals and Marchand on or before 

July 31, 2018. 

19. First, the Retiree Committee’s Professionals have complied fully with the Interim 

Compensation Orders. No party, including the FOMB, has formally or informally objected to any 

of the Retiree Committee’s Professionals’ monthly statements. This Court’s Interim Compensation 

Orders do not permit Hacienda to arbitrarily refuse to pay professionals’ fees. Hacienda’s failure 

to pay is in direct conflict with the mandates of this Court’s Orders, and it should be compelled to 

pay all fees and expenses due to the Retiree Committee’s Professionals on or before July 31, 2018. 

20. Second, Hacienda does not dispute that the blanket 29% withholding tax it applied 

to the stateside Retiree Committee’s Professionals and Marchand was inappropriate. The Retiree 

Committee’s Professionals have provided Hacienda with detailed spreadsheets reflecting the 

proper withholdings for their on-Island fees, and Hacienda does not appear to dispute the Retiree 

Committee’s Professionals’ calculations. Marchand is a Puerto Rico based firm and subject at most 

to 7% withholding. Accordingly, Hacienda should be ordered to remit excessive and erroneous 

withholdings to the Retiree Committee’s Professionals on or before July 31, 2018. 

21. In short, the Retiree Committee’s Professionals are providing necessary and 

valuable services to the Retiree Committee, have complied with every requirement of the Interim 

Compensation Orders and with the additional mandates of Hacienda, and are entitled to be paid.

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REQUEST FOR URGENT HEARING 

22. The Retiree Committee did not file this Motion on July 3, 2018 because it was still 

engaged in what it hoped would be productive discussions with Hacienda. To allow the opportunity 

to resolve the issues presented by this Motion, counsel for the Retiree Committee requested and 

obtained from counsel for Hacienda its agreement that the Retiree Committee could file this 

Motion on or before July 13, 2018 for hearing on July 25, 2018 and its corresponding consent to 

shortened notice on this Motion. The Retiree Committee’s undersigned counsel hereby certifies 

that the Retiree Committee engaged in good-faith communications with Hacienda regarding the 

contents of this Motion. The Retiree Committee anticipates that Hacienda may file an objection or 

other response to this Motion. Accordingly, the Retiree Committee respectfully requests that this 

Court set the Motion for hearing for the July 25, 2018 omnibus hearing date. 

 

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WHEREFORE, the Retiree Committee’s Professionals respectfully request entry of an 

Order: (a) directing Hacienda to comply with the Interim Compensation Orders and to pay to the 

Retiree Committee’s Professionals, on or before July 31, 2018, all fees and expenses due under 

the Interim Compensation Orders; (b) directing Hacienda to remit the withholdings erroneously 

applied to the stateside Retiree Committee’s Professionals and Marchand on or before July 31, 

2018; and (c) granting such other relief as may be just. 

July 13, 2018 

JENNER & BLOCK LLP 

By: 

/s/ Robert Gordon 

Robert Gordon (admitted pro hac vice) 

Richard Levin (admitted pro hac vice) 

919 Third Ave 

New York, NY 10022-3908 

rgordon@jenner.com 

rlevin@jenner.com 

212-891-1600 (telephone) 

212-891-1699 (facsimile) 

Catherine Steege (admitted pro hac vice) 

Melissa Root (admitted pro hac vice) 

353 N. Clark Street 

Chicago, IL 60654 

csteege@jenner.com 

mroot@jenner.com 

312-222-9350 (telephone) 

312-239-5199 (facsimile) 

Respectfully submitted, 

BENNAZAR, GARCÍA & MILIÁN, C.S.P. 

By: 

/s/ A.J. Bennazar-Zequeira 

A.J. Bennazar-Zequeira 

Héctor M. Mayol Kauffmann 

Edificio Union Plaza, 1701 Avenida Ponce de 

León #416 

Hato Rey, San Juan 

Puerto Rico 00918 

ajb@bennazar.org 

hector.mayol@bennazar.com 

787-754-9191 (telephone) 

787-764-3101 (facsimile) 

Counsel for The Official Committee of Retired 

Employees of Puerto Rico

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