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

PROMESA

 Title III

 No. 17 BK 3283-LTS

MOVANT’S REPLY TO OBJECTION

BY THE COMMONWEALTH OF PUERTO RICO

RE THE MOTION FOR RELIEF FROM STAY

REGARDING THE SECOND CAUSE OF ACTION (ATTORNEYS FEES)

IN ARES ET AL V, SECRETARY OF LABOR.

TO THE HONORABLE JUDGE LAURA TAYLOR SWAIN:

NOW COMES the attorney for Petitioners inthe Mandamus action entitled

Ares et al v. Secretario del Trabajo, Civ. No. SJ 2017 CV02280, before the Superior

Court of Puerto Rico, and hereby submits this reply to the Objection raised by the

Commonwealth of Puerto Rico (Docket No. 23992) to the request presented by the

undersigned at Docket No. 23894 for additional relief from the Stay imposed by this

Court, allowing the Puerto Rico court to address the issue of attorneys fees.

1

As argued in more detail below, under the law of Puerto Rico, the claim for

attorneys fees is entirely separate from that of the underlying claim, for which the Stay

1Although the undersigned submitted the referenced motion on March 30, 2023, it bore

the incorrect filing date, dating to September of 2019. The undersigned regrets the error. 

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was long ago lifted. Also, as argued in more detail below, the instant request concerns

a claim which accrued only six months ago, in December of 2022, when the petitioners

were finally granted their pension rights. This, in turn, was long after the end of any

period for which claims in Puerto Rico have been stayed - either through the initial stays

after the presentation of this Title III action, or the application of the discharge order

and adjustment plan to claims arising between May 3, 2017 and March 21, 2022.

The petitioners in the 2017 mandamus action were seventeen (17) long-time

employees of the Department of Labor of the Commonwealth of Puerto Rico, who

requested mandamus relief against the Secretary of the Department, who had violated

his ministerial duty to honor their right to an early retirement pursuantto Law 211-2015

(the pre-retirement program). Among other things, the petitioners in the abovereferenced case indicated that their inclusion in the above retirement plan would

represent a savings for the Government of Puerto Rico.

By motion submitted on March 31, 2023, at Docket No. 23894, the undersigned

asks this Court to lifting original Stay, to allow her to pursue her claim for statutory

attorneys fees, since that Stay should not have applied to a claim which had not yet

accrued.Importantly, under Puerto Rico law, a claim for attorneys fees for representing

employees is not a “fee-shifting” like that typically found in federal statutory schemes

such as Title VII employment claims. On the contrary, this is a separate claim, under

a law which prohibits other forms of compensation to an employee’s attorney, and

which obliges the employer to pay those fees. Because of the particular structure of the

applicable Law 402-1950, 32 LPRA sections 3114 to 3117,this claim did not accrue until

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the clients of the undersigned actually obtained their earned pension rights.

The Commonwealth opposed the motion on April 13, 2023. See, Docket No.

23992. By Consent Motion submitted at Docket No. 24233, the parties requested

additional time for the undersigned to Reply, due to a serious accident she suffered on

April 9, 2023, requiring surgery and extensive therapy. By Order at Docket No. 24236,

this Court granted an extension to Reply until June 13, 2023.

In the instant motion, the undersigned will address only new issues raised by the

Commonwealth, concentrating on the question of “accrual.” Her earlier arguments, set

forth at Docket No. 23894, should be understood to be incorporated herein.

I. Pertinent background

On October 31, 2017, seventeen petitioners, all reaching retirement eligibility

after decades of work at the Puerto Rico Department of Labor, filed a mandamus action

in the Superior Court of Puerto Rico, affirming that the Secretary of Labor had failed to

comply with his ministerial duty to retire them pursuant to Commonwealth Law 211-

2015 (the “Preretiro” program).

In their mandamus petition, which was presented just short of six months after

the filing of this Title III action before this Court, the petitioners set forth two causes of

action. First, they alleged a ministerial obligation on the part of the Secretary of the

Labor to honor their rights to a “pre-retirement” pension. Second, the undersigned, as

their attorney, requested payment of the attorneys’ fees which accrued upon the

conclusion of the underlying claim of their clients.

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In December of 2022, after several years of litigation, including the successful

defense of two interlocutory appeals to the Puerto Rico Appellate Court, as well as a slew

of motions and hearings before the Superior Court, and several motions before this

Court, the claims of each and every one of the petitioners represented by the

undersigned came to a successful conclusion, with the petitioners receiving their earned

pension rights. Four of the original 17 petitioners retired on their own. Through the

efforts of the undersigned and the supervision of the Superior Court, the remaining 13

employees received their full participation in the “pre-retirement” program (which, in

fact, represented a savings to the Government as compared to their continued

employment with the Department of Labor.)

At the current juncture, all that remains to be decided by the Superior Court is

the claim of the undersigned for attorneys fees. As noted, and as will be explained in

detail in Section II below, this is a claim which is entirely separate from the claim of the

employees for whatever reliefthey are asserting. See,Berkan/Méndez v. Mead Johnson,

204 D.P.R. 183 (2020). Also, the claim for attorneys fees did not accrue until December

of 2022, when the final pension rights were established. This is long after the approval

of the Adjustment Plan for the Commonwealth and the issuance of the discharge

injunction and the approval of the adjustment plan for the Commonwealth.

In response to the motion presented by the undersigned, the Commonwealth

relies primarily on a supposed procedural defect - the fact that the undersigned did not

submit a post-discharge order claim against the Commonwealth. According to the

Commonwealth, the instant claim is barred, because it is either a pre-petition claim or

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a post-petition (pre-discharge) claim. If the former, then a claim should have been filed

years ago. If the latter, then, according to the Commonwealth, as an “administrative

expense” which “fits squarely within the discharge provision ofthe Commonwealth Plan

and Confirmartion Order.” Opposition to request, Docket No. 23,992, at ¶3, page 9.

As will be explained in more detail below, the Commonwealth’s position fails to

examine the nature ofthe claim now before this Court. TheCommonwealth erroneously

poses a one-size-fits-all resolution of this matter, a wholly misguided proposal which

fails to take into account the nature of the claim and Law 402 which governs the same.

This claim plainly does not “fit squarely” within either the Stay provisions of 2016 and

2017 (the oiginal PROMESA Stay and the Title III petition Stay) or the more recent

(2017-2022) extinction of claims for the period between May 3, 2017 and March 21,

2022, following the March, 2022 discharge order.

Any obligation to file a claim applied only to those claims which existed at the

time ofthe aforementioned “effective date.” It does not apply to the instant controversy.

The Sonnax factors are likewise inapplicable. Since Puerto Rico law provides that the

instant case for attorneys fees did not arise until after all both the filing of the petition

and the claims which were covered under the March 21, 2022 discharge order, the

instant claim cannot be considered to be part of the estate.

II. ARGUMENT

A. Puerto Rico Law on accrual applies

At page 9 of its Objection at Docket Number 23992, the Commonwealth boldly

affirms in footnote 5 that “state law is not determinative of when a claim arises.” In

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support of that notion, the Commonwealth cites one isolated order of the district court,

in PR Elec. Power Auth v. Maxon Engineering, 2007 U.S. Dist LEXIS 108800 (D.P.R.,

May 10, 2007), which was amended on reconsideration of several points thereafter, at

2007 U.S. Dist LEXIS 108984 *October 3, 2007), and was never the subject of appellate

review. This unsupported point is simply wrong; “Accrual” must indeed be determined

under the law of the forum, i.e. under the law of Puerto Rico. See, for example, Cusano

v. Klein, 264 F.3d 936, 945-47 (9

th Cir. 2001).

A claim which has not yet accrued under the applicable law is simply not part of

the estate in bankruptcy. As observed by the Second Circuit, “[a] debtor's cause of

action automatically becomes property of the chapter 7 bankruptcy estate ‘if that cause

of action had already accrued [under state law] at the time of filing.’ " Id, citing

Osborne v. Tulis, 594 Fed. App'x 39, 40 (2d Cir. 2015)(citing Chartschlaa v. Nationwide

Mut.Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008)(further internal cites omitted; emphasis

supplied). See, also, Winick & Rich, P.C. v. Strada Design Assocs. (In re Strada Design

Assocs.), 326 B.R. 229, 235 (Bankr. S.D.N.Y. 2005) ("... [C]auses of action that accrue

under state law prior to the filing of a bankruptcy petition become 'property of the

estate.'")A cause of action that has accrued prior to the debtor's petition date is an estate

asset that must be scheduled. Boland v. Crum (In re Brown), 363 B.R. 591, 604 (Bankr.

D. Mont. 2007)(citing In re Cusano, 264 F.3d at 947). However, a debtor generally has

no duty to schedule a cause of action that did not accrue prior to bankruptcy.

B. Law 402's provisions and accrual

Whether the undersigned can raise her claim for attorneys fees or is barred

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under this Court’s stays and its recent injunction depends, in the first instance, upon an

analysis of the particular cause of asserted in this case and the substantive law of Puerto

Rico.

The undersigned has come before this Courtto assert her claim for attorneys fees,

a claim which is separate from the underlying claim asserted by her clients in their

mandamus action. The dispositive question is: When did this claim arise? The answer,

to this question, while it may seem odd to someone unfamiliar with the specifics of the

labor law of Puerto Rico, is quite clear. Under Puerto Rico law 402-1950, 32 LPRA 3114

et seq., a uniquely and distinctive law of Puerto Rico which is unlike labor law provisions

handled daily by practitioners outside of this jurisdiction, a claim for attorneys fees in

a labor case arises only when the underlying claim is settled or determined to be in favor

of the employee. Then, and only then, does a claim arise. Before this occurs, or indeed

if the underlying employee claim is deemed without merit, no claim for attorneys fees

“exists.”

There appears to be no equivalent to Law 402 in any other jurisdiction which

operates under the United States flag. Law 402 absolutely prohibits attorneys who

represent employees against their employers from charging any amounts to their

clients.By law,the undersigned is prevented from charging her clients — or anyone else

for that matter — any amounts whatsoever for her attorneys fees. See, Berkan/Méndez

v. Mead Johnson, supra; Hernández Maldonado v.The Taco Maker,Inc., 181 D.P.R. 281

(2011); Belk Arce v. Martínez, 163 D.P.R. 196 (2004); López Vicil v.IttIntermedia,Inc.,

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142 D.P.R. 857 (1997).

2

On the other hand, as a result of partial or complete success to the benefit of the

employee, an attorney may not, under any circumstances,take a portion of any amounts

obtained. On the contrary, the obligation to cover the attorneys’ fees is exclusively that

of the employer. This obligation arises, moreover, only if the employee is successful in

his/her claims. This leads to the inexorable conclusion that such a claim for attorneys

fees arises only when the underlying claim is successful.

Let us examine the case at bar. Although the undersigned had extraordinary

success in assuring that the Secretary of Labor comply with his ministerial duties, at no

cost to the Commonwealth, she has not received any compensation for her professional

work. Nor could she have received such compensation at an earlier stage of the

proceedings, because the law would have prohibited her claim.

Once the claims ofthe petitioners were successfully resolved,however, a separate

claim for attorneys fees, which belongs to the attorney, not to the client, accrued. It was

only upon the successful completion of the litigation, when the employees finally

obtained their well-deserved pensions, that a claim for attorneys fees existed.

An examination of the provisions of the law on point is instructive:

Puerto Rico Law 402, as amended, originally passed on May 12, 1950, is codified

at 32 LPRA 3114 et seq. The policy of Puerto Rico is set forth in Article I of the law, 32

LPRA § 3114: (entitled “Attorney’s fees—Government policy”), which provides as

2

It should be observed that a Law 402 claim is entirely different from a claim of “temerity”

under Rule 44.1 of the Puerto Rico Rules of Civil Procedure. In the latter case, “belong” to the client

and are intimately tied into the litigation. Cf. Berkan/Méndez, op cit.

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follows:

The Legislature of Puerto Rico hereby declares that to permit collection of

attorney’s fees from workers or employees who need to file claims against their

employers under federal or local labor legislation or under an individual or

collective work contract is equivalent to permitting the worth of their hire to be

reduced by the amount they pay their attorneys ...

It is therefore declared that the policy of the Government of Puerto Rico

is to safeguard workers and employees against such reductions in the worth of

their hire and to protect the public interest against said percentage basis

contracts, inasmuch the same redound to the detriment of industrial peace.

For its part, Article II of the Law, codified at 32 LPRA Sec. 3115, provides that it

is the obligation of the employer to pay for the attorneys fees of the employee’s

representative, when that employee is successful in his/her claim (and only atthat point

in time). Article II, entitled in pertinent part, “Attorney’s fees—Payment by employer,”

provides that “[i]n every case filed in the courts of Puerto Rico by a worker or an

employee in which any right or sum of money is claimed against his employer under

federal or local labor legislation or an individual or collective work contract and in which

the claim is granted in whole or in part, the attorney’s fees shall be levied on the

employer (with one exception not pertinent herein) (emphasis supplied).

The following two articles, Articles III and IV of the Law, 32 LPRA sections 3116

and 3117, respectively, declare the nullity of all contracts allowing for an attorney in

such cases to be paid by his or her client, and provide that an attorney who attempts to

obtain fees from his/her client must pay double damages to his/her client. Ironically,

under Article IV of Law 402, the Puerto Rico Secretary of Labor and Human Resources

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is authorized to present the claim against the attorney on behalf of the employee. 32

LPRA section 3117.

This plainly is not a typical fee-shifting provision. To the contrary, the Legislature

of Puerto Rico saw fit to distinguish this particular kind of claims from all others.

Whereas in all other kinds of cases, contingency fees and hourly, flat-fee or hybrid fee

arrangements are permitted (even if applicable law contemplates potential fee-shifting),

these are not permitted in the labor context, because such contracts are deemed to be

“in detriment to industrial peace.” 32 LPRA sec. 3114. The Legislature declared this

measure as public policy in protection of workers, because allowing attorneys to charge

for their services in this field would be tantamount to reducing the value of the

employee’s services to the employer by the amount they pay to their attorneys.” 32

LPRA 3114. The Supreme Court of Puerto Rico has also heldy that an attorney who

charges his/her client in such circumstances violates the ethical rules of the profession.

See, Berkan/Méndez, op. cit; In re Martí, 194, DPR 467 (2016) and In re Rivera, supra.

The claim before this Court at this moment is not the claim of the mandamus

petitioners. The claim for attorneys fees commenced its existence (i.e. accrued) some

six months ago, not before. It is a claim which was not covered by any Stay or Order

issued by this Court.

Since this claim did not “arise” until the underlying claims ofthe petitioners were

resolved in December of 2022, the claim simply cannot be part of the estate of the

“bankrupt” Commonwealth. See, Krohn v. Glaser, 816 Fed. Appx 103, 104 , (9

th Cir.

2020) (applying state law, the Ninth Circuit determines that a debtor’s claim for legal

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malpractice, is not part of the bankruptcy estate.)Since the claim for attorneys fees did

not exist either at the time of the initial bankruptcy filing or in the five years thereafter,

culminating in the Confirmation Order and the discharge injunction, it is not covered

thereby.

C. The purported procedural failings - a look at the Commonwealth’s

contentions

As a final matter, it is respectfully submitted that one must consider the

implications of several contentions made by the Commonwealth. Crediting the

Commonwealth’s contention at paragraph 3, on page 2 ofthe Objection,thatthe instant

claim is covered by Section 1.135 of the referenced Plan of Adjustment, would lead to an

endless bankruptcy, as newly accrued claims would continue to enter into the pot.

Plainly, the discharge injunction cannot be thought to apply to unaccrued claims which

do not yet exist, even if the Plan’s language speaks of unliquidated, pre-judgment, and

immature claims, whether “asserted or unasserted.” There would be an endless

bankruptcy proceeding, applying the stay and injunction to all events subsequent not

only to the bankruptcy petition, but also to the conclusion of the period covered by the

discharge injunction. Certainly, this language is not meant to apply to claims which

have not yet accrued and which could not have been asserted at an earlier date.

Similarly fallacious is the notion advanced by the Commonwealth that the claim

in the case at bar is an “administrative expense” for which a claim had to be presented

on or before September of 2022 (later extended to early 2023).

The inclusion of “administrative expenses” is not as expansive as the

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Commonwealth posits. This is demonstrated by the language of the Adjustment Plan

itself, which in its Section 1.52 defines an “administrative expense” as “a Claim against

the Debtors or their Assets constituting a cost or expense of administration of the Title

III Cases ..... in accordance with sections 503(b) and 507(a)(2) of the Bankruptcy Code

(emphasis supplied by plaintiff.) Of the aforementioned provisions of the Bankruptcy

Code, it is Section 503(b) which defines what constitutes an administrative expense.

3

The term refers to those which are “the actual, necessary costs and expenses of

preserving the estate,” i.e. what is necessary to keep the Commonwealth of Puerto Rico

operating. Thus, the term includes obligations such as “wages, salaries and

commissions for services rendered after the commencement of the case” and certain

taxes,fines or penalties, and reasonable compensation for certain “professional services

rendered by an attorney or an accountant of an entity” or a “trustee” and expenses for

fees and mileage. Id. 11 USC §503(b). Plainly, this is inapplicable to the instant case.

Independently of the definition question, however, it is beyond serious question

that the undersigned cannot be faulted for her supposed “failure” to file a proof of claim,

assserted by the Commonwealth at paragraph 2 of its Objection. Even if one were to

consider a claim for statutorily obligated attorneys fees to be an “administrative

expense,” the Plan and the discharge injunction apply only to those claims which arose

on or before March 21, 2022.

4 This does not apply to the claim at bar.

3Section 507, for its part, does not address the definition issue; rather it addresses the

priority given to administrative claims in the bankruptcy process.

4Remarkably absent from the Objection is any reference the effective date of the discharge

injunction and the Plan’s approval. This is not surprising, since such a reference clearly would have

signified that the discharge order is not applicable to the request for attorneys fees in this matter.

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III. CONCLUSION

The Commonwealth has filed a standard Objection to a legitimate request to this

Court to allow for the pursual of a claim for attorneys fees which accrued in the last six

months. Its Objection fails to take into account the nature of the claim and its recent

accrual. The plaintiff’s motion should be granted.

Respectfully submitted in San Juan, Puerto Rico this 12

th

day of June, 2023.

Berkan/Mendez

O’Neill St. G-11

San Juan, P.R. 00918-2301

Tel. (787) 764-0814;Fax (787) 250-0986

berkanmendez@gmail.com

By: /s/ JUDITH BERKAN

USDC No.200803

berkanj@microjuris.com

CERTIFICATION: This is to certify that this motion is being submitted today

through the ECF filing system, which will automatically notify all counsel of record.

/s/ JUDITH BERKAN

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