Federal demand for a 10-15 week break in the process of confirming Puerto Rico’s adjustment plan along with the related constitutional challenge to the underlying missouri bankruptcy law may threaten the Puerto Rican debt deal Rico.
Five attorneys at the U.S. Department of Justice, led by Acting Assistant Attorney General Brian Boynton, have asked Puerto Rican bankruptcy judge Laura Taylor Swain to give them until Jan. 31 to say whether they will defend the constitutionality of the oversight, management and management of Puerto Rico. Economic Stability Act and the United States Bankruptcy Code. If the DOJ decides to defend these things, it asks until March 2 to file its case missouri bankruptcy
Several bankrupt parties have filed US Constitutional challenges against PROMESA in the Puerto Rico bankruptcy since October 13.
The Puerto Rico Supervisory Board on Thursday filed a response to the DOJ’s request for additional time, asking Swain to reject it.
“The successful reorganization of debtors with reasonable speed is of the utmost importance for the public interest,” said the board of directors. The attorney general’s request, “if granted, could unduly delay the reorganization by casting doubt on the effectiveness of the plan for months.”
On Friday afternoon, Boynton filed a response defending his request for more time to consider the challenges.
The board’s rejection of the challenges does not address “whether the United States has shown a reason for enlargement, but rather whether the challenges are meritorious – the very issue over which the United States has the statutory right to ‘be heard,’ Boynton said.
Swain said she would rule on the request without an oral hearing, and her decision could come early next week.
The challenges that have been filed come from PFZ Properties and Finca Matilda, who based theirs on the so-called Fifth Amendment take-up clause of the Bill of Rights. They have claims against the central government of Puerto Rico on the basis of eminent domain actions before the bankruptcy.
Peter Hein, Puerto Rican bondholder and New York City lawyer, challenged PROMESA saying it was not a “one size fits all” law “on the subject of bankruptcies across the States. United â, as he claims is required by the US Constitution. The Constitution states that Congress will have the power to establish “uniform laws on the subject of bankruptcy throughout the United States.”
He also attacks PROMESA by using other clauses which, according to him, make illegal all or part of the adjustment plan proposed by the Supervisory Board.
Boynton said Hein, PFZ and Finca Matilda, Pastor SucesiÃ³n Mandry Mercado, Arthur Samodovitz, Suiza Dairy and Puerto Rican credit unions have all filed constitutional challenges.
Puerto Rico attorney John Mudd said judges usually grant extensions. Hein and Puerto Rican bondholder Arthur Samodovitz have indicated their consent to the extension.
Apart from any threat from constitutional challenges, the debt deal is also threatened by Boynton’s demand for a substantial delay in the confirmation process. Currently, as part of the Bond Plan Support Agreement that supports the Adjustment Plan, bondholders who are party to the agreement have the right to opt out of the PSA if the effective date of the adjustment plan is after December 15. The board of directors and the PSA local government parties have the right to extend the date until January 31.
If the federal demand were granted and Boynton submitted a comment in early March, as he suggests, it would require time for the other parties to respond before Swain eventually approves the adjustment plan. . And the parties are calling for the adjustment plan’s effective date to be 15 days after Swain ordered its approval.
And if the adjustment plan is terminated due to the expiration of the deadlines, the PSA bondholder has the right, under the plan support agreement that he signed with the board of directors, to demand $ 100 million from the government of Puerto Rico.
On Thursday afternoon, the PSA bondholders filed a statement in the case saying they wanted to be flexible in the speed of confirmation but preferred quick confirmation.
They said Swain is expected to rule on Hein’s claims as part of the ongoing confirmation process. The last day of the confirmation of charges hearings is set for Monday. Swain said she would decide in writing whether to confirm the adjustment plan, presumably in the days or weeks that followed.
The bondholders said if the United States attorney general wanted to comment on constitutional challenges, he should do so “in a timely manner that does not unduly compromise or delay the plan.”
The bondholders also said Swain could decide the eminent domain claims “regardless of the confirmation and completion of the plan.” They note that the council said all eminent domain claims could be paid in full without seriously threatening the council’s tax plan. They suggest that Swain approve the plan, with the board setting aside a reservation in case the court ultimately sided with PFZ and Finca Matilda.
Regarding the Finca Matilda attacks and the PFZ take-up clause, the board said PROMESA does not prevent litigants from using the Tucker Act to make claims against the federal government. If the court rules against their claims, they could file claims in Federal Claims Court using Tucker’s Law, the board said.
The board appears to be saying that if there is no revenue at the end of the day, litigants cannot challenge PROMESA on the basis of the revenue clause. In view of this, Swain should treat PROMESA as constitutional and if she does, under federal civil proceedings, she does not have to delay the case for the attorney general’s comments.
As for Hein’s various constitutional challenges against PROMESA, Hein explained them too briefly to justify postponing the hearing to fully address them, the board said.
Mudd agreed with the PSA bondholders that PFZ and Finca Matalida’s claims were small enough that they did not threaten the fiscal plan and the related adjustment plan.
If the current deal were postponed to March or beyond, PSA bondholders and possibly bond insurer Ambac Assurance could opt out of the deal, which would kill it, Mudd said. If this were to happen, there would be two possible paths. The board could try to create a new adjustment plan with different terms. Mudd said he believed Swain would only be willing to devote a month or so to this process and not the many months that led to the current plan.
Alternatively, Swain could dismiss the bankruptcy. This would lift the suspension of the prosecution of bondholders to collect their debts. And that would lead to lawsuits in local Puerto Rican courts, with Puerto Rico’s general obligation and secured debts best placed for collection.
Besides the delay, Mudd said there is a real threat of Hein’s challenge to PROMESA based on the uniformity clause of the US Constitution. According to Article I, Section 8, Clause 4, the federal government can pass bankruptcy laws as long as they are uniform across the country. PROMESA was created only for Puerto Rico.
PROMESA editors were concerned about this type of challenge and included PROMESA section 3 (b) to address it. It states that if a court finds the law invalid on these grounds, the court can remedy the situation by offering an oversight board to any U.S. territory the government requests.
Mudd said the provision was a bad defense.
PROMESA says that if a court were to declare its Title III section regarding bankruptcy illegal, its Title I and Title II sections should also be found to be illegal. These sections deal with the creation and all the responsibilities of the Supervisory Board. Indeed, if a court were to agree that PROMESA was illegal on the uniformity clause, the council’s work would also have to be dismissed and “that could derail the whole thing,” Mudd said.
Even existing bond deals created through PROMESA, like those of Puerto Rico Sales Tax Financing Corp. (COFINA) and the Government Development Bank for Puerto Rico, could be compromised.
Earlier in Puerto Rico’s bankruptcy, Ambac presented arguments against PROMESA on the basis of the uniformity clause. On the opening day of the confirmation hearings, lead counsel for the board, Martin Bienenstock, said in his arguments against Ambac that the board had argued at length that the uniformity clause did not apply. in this case.
In the end, Ambac settled the issue with the board and withdrew its uniformity challenge without Swain ruling on it.
“As the Oversight Board noted in its opposition, none of the levy arguments put forward would make the plan unworkable or PROMESA unconstitutional,” said an Ambac spokesperson. “Accordingly, even if the DOJ’s motion is accepted, it should not delay confirmation of the plan.”
First, it will be up to Swain to rule on the challenge to Hein’s uniformity clause. However, should Swain rule against Hein, he would have the option of appealing to the United States Court of Appeals for the First Circuit, which could set it aside, Mudd said.
Mudd said Hein’s other constitutional challenges against PROMESA were unlikely to succeed.
Even the United States v Vaello Madero case over federal supplemental security income benefits, which the United States Supreme Court is considering, could affect bankruptcy, Mudd said. In its decision, the court could redefine the federal government’s relationship with the territories and this could affect the validity of PROMESA.