Fast and Ferocious: Inside the lawyering of Puerto Rico’s historic bankruptcy
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(Reuters) – When lawyers from Proskauer Rose began working on the Puerto Rico debt restructuring five years ago and court filings started coming thick and fast, sometimes 25 or 30 lengthy ones each day, litigation department chair Timothy Mungovan likened the firm’s initial procedures to a makeshift life raft.
Think of Tom Hanks’ construction of bamboo and debris in the movie “Castaway,” he said.
It stayed afloat, but it wasn’t pretty.
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As the firm found its sea legs representing the Financial Oversight and Management Board for Puerto Rico in the $120 billion-plus bankruptcy and hundreds of related disputes, Mungovan said, “We built an ocean liner over time, while we were crossing the ocean.”
The proceedings reached an historic turning point on Jan. 18 when U.S. District Judge Laura Taylor Swain approved the largest-ever U.S. municipal debt restructuring, my colleague Maria Chuchian reported.
The “plan of adjustment” will cut billions from Puerto Rico’s debt, fix its broken pension system and return the commonwealth to balanced budgets.
The work isn’t over — the government-owned electric power company as well as the transit authority are still in bankruptcy, for example — but the biggest fights have now been resolved.
I had a chance to catch up with Mungovan to talk about the once-in-a-career legal experience, which in its “speed and ferocity” he said felt at times “like the Oklahoma land rush, with cases filed out of nowhere.”
To date, Proskauer has billed $219 million for the representation, according to public fee records, with 260 firm lawyers, about one-third of Proskauer’s total headcount, working on the matter.
Firm lawyers are charging a flat rate for their work. Initially, it was set at $730 an hour and has since been bumped up to about $830, the records show.
For junior associates, that’s pricey. But conversely, the lead Proskauer partners — who in addition to Mungovan include Martin Bienenstock, Brian Rosen, Michael Firestein, Margaret Dale, Michael Mervis, Ehud Barak, Paul Possinger and Jeffrey Levitan — have been working at bargain rates. And given the novelty and complexity of the matter, it doesn’t strike me as work that could be shuffled off in bulk to inexperienced lawyers.
Mungovan declined to comment on the fees.
The oversight board frames it as money well spent. In a January 2021 press release, it noted that creditors have filed 172,893 claims totaling roughly $44 trillion and that the legal team had succeeded in eliminating more than $43 trillion worth of them.
“The legal expenses incurred are a fraction of the savings that have been achieved and will be achieved in the future through a substantial reduction of debt service payments,” the board said.
In an interview, the board’s executive director, Natalie Jaresk, praised the Proskauer team’s “experience, creativity and strategic perspective,” adding that it “always felt like they’re more than lawyers. They’re our partners.”
The oversight board was created by the U.S. Congress in 2016 when it enacted the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA.
At the time, Puerto Rico was in dire financial straits. It had no cash flow to pay debt service on $75 billion in bonds or to cover unfunded pensions of about $50 billion, and neither did it have the ability to borrow more.
The bipartisan, seven-member oversight board was tasked with making difficult (and often unpopular) decisions to address the commonwealth’s fiscal crisis.
Soon after its formation, the board conducted a competitive process for selecting counsel and picked Proskauer from a pool of 48 applicants.
O’Neill & Borges serves as local counsel.
Mungovan recalled that he and his colleagues at the time recognized it would be “a huge commitment, and one that we knew would take away from our regular practices and everyday work.”
They were right, though he said he’s taken pains to continue handling litigation for other clients, “even though Puerto Rico is a full-time job.”
Traditional bankruptcy protection under Chapter 9 wasn’t an option because Puerto Rico is a U.S. territory. In place of that protection, the new law created a court-supervised, bankruptcy-like process known as Title III.
It’s new legal ground, with no direct case law to guide the way. Mungovan on a Zoom call showed me his bound copy of the 62-page PROMESA legislation – “my Bible” – he called it, a rainbow of highlighted text and flagged pages.
It strikes me as the litigator’s version of the old curse, “May you live in interesting times.” But the work has also been fascinating.
“We had many, many debates internally and with our client and with colleagues representing the (Puerto Rico) government and legislature over how to interpret the statute,” Mungovan said. “It’s never been examined before.”
According to Mungovan, work has included more than 100 adversary proceedings, which are separate from the main bankruptcy, and more than 400 contested matters within the main case.
Of the matters that have been appealed, he said Proskauer has won 17 cases and lost four, with one split decision.
Dozens of other firms have represented stakeholders in the proceedings, notably O’Melveny & Myers as counsel to the governor of Puerto Rico and the Puerto Rico Fiscal Agency and Financial Advisory Authority.
In total, the matter has racked up about $1 billion in legal fees to date.
It’s also come against the backdrop of a devastating natural disaster, when Hurricane Maria struck in September 2017, as well as the pandemic.
One of the things Mungovan said he’s most proud of is that the firm never missed a filing deadline. Normally, of course, that’s not something to brag about. It’s simply expected. But a normal case doesn’t have 60,000 substantive filings and more than 3,300 separate deadlines for pleadings.
The firm over time implemented customized software to track deadlines and scheduling.
Every day, dozens of Proskauer lawyers get an email – a chart listing what’s due that day and the next, that week, that month, and the following month, including internal deadlines such as when drafts are due for review by the lead partner and client. They also get an email with the daily filings by all parties.
With the work now winding down, I asked Mungovan, will it leave a Puerto Rico-shaped hole in his life?
“The transition downward is normal and natural and good,” he said. “As a litigator and a lawyer, I like new challenges.”
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