Monday Update – March 4, 2019

Welcome to your weekly Title III update for March 4, 2019. The Aurelius case continues to dominate Aurelius the PROMESA news.

As I predicted, the Board announced on February 28, 2019, that it will seek certiorari from the Supreme Court on the Aurelius decision and a stay on the First Circuit judgment. In addition, Mr. David Skeel told the Puerto Rico Chamber of Commerce that the decision from the Supreme Court could come in the fall. Caribbean Business reported, however, that this decision was not unanimous. Would love to see the transcript of that meeting. Was it a 4-3 decision? Was it only the Claims Committee members? My sources tell me it was but I doubt if we will ever find out.

Add to this, the Board objection to the GO challenge and you can see the Board’s strategy. If the Board files late April the petition for certiorari, there will be no time for the case to be seen this term and the petition would be set, if granted, for the start of the Supreme Court term, first Monday in October 2019. If the oral arguments are in October, the decision would not come down until late November or early December. Moreover, the Supreme Court frequently grants stays in cases that later it does not grant a certiorari. Also, the Board may seek an extension of time to file the petition for certiorari and seek the stay on the First Circuit decision. This would take the time for the decision to come denying the certiorari into late 2019 and if granted, any decision into 2020. All the while, the Board could continue to operate even if later ruled unconstitutional by the Supreme Court.

Finally, today Utier filed a motion for rehearing en banc for the entire First Circuit to review the Aurelius decision. The Utier motion states at pages 15-17:

The court must reconsider its decision. First, the Court must determine that the actions taken by the Oversight Board members after the filing of the complaint on August 6, 2017, are null since its good faith ended when the legality and constitutionality of their appointments were questioned. Therefore, the actions taken by the Board, after the filing of the complaint, were taken in bad faith and with full knowledge of the vice in their appointments. Also, the Court must reconsider its decision to allow the Board to continue operating for 90 days since at this time its appointments are unconstitutional. We, respectfully submit, that the Court must not allow an Oversight Board with unprecedented and unlimited powers, that was unconstitutionally appointed, to make vital decisions about a country that is going through one of its worst economic, political and social crises as if it they had a constitutional appointment.

If the Court allows the Oversight Board to continue operating, its members would be acting without legal authority or credibility, in bad faith, subject to attacks questioning its motivations and they would be making important decisions and determinations for Puerto Rico without the power to do so.

Utier asked for the following remedy:

For the above stated reasons, UTIER prays for a Panel Rehearing or a Hearing En Banc to modify the Judgment in this case to declare void and null all the Oversight Board’s actions and decisions since the filing of the Complaint on August 6, 2017. Furthermore, this Court should stay all the Oversight Board future determinations or proceedings after the Judgment of this case was issued on February 15, 2019, until its members are reappointed, or the Oversight Board is reconstituted with the advice and consent of the Senate.

Rule 13.3 of the Supreme Court of the United States, reads as follows:

The time to file a petition for a writ of certiorari runs from the date of entry of the judgment or order sought to be reviewed, and not from the issuance date of the mandate (or its equivalent under local practice). But if a petition for rehearing is timely filed in the lower court by any party, or if the lower court appropriately entertains an untimely petition for rehearing or sua sponte considers rehearing, the time to file the petition for a writ of certiorari for all parties (whether or not they requested rehearing or joined in the petition for rehearing) runs from the date of the denial of rehearing or, if rehearing is granted, the subsequent entry of judgment.

This means that now the Board has more time to file its petition for certiorari and extend their appointment. This would allow the Board to finish the GO challenge or settle it and then move for the Plan of Adjustment. Once the Plan of Adjustment is filed, it will have a momentum of its own and maybe influence the Supreme Court to overturn the First Circuit for practical reasons. Not likely, but possible. Since last Friday, Mr. Skeel has been in the press pushing an agenda that has only one thing in mind: the filing of the Commonwealth Plan of Adjustment, which obviously is the only thing the Board cares about.

To top it all off, Bond Buyer quotes Congressman Bishop saying that the First Circuit opinion should be appealed because the Court got the powers of the Board all wrong. Even if he is right, which he is not, that has nothing to do with the appointments clause. Let’s see what happens.

Moreover, although the Board members’ term ends in August, PROMESA section 101(e)(5)(C) establishes that “[u]pon expiration of a term of office, a member of the Oversight Board may continue to serve until a successor has been appointed.” Hence, if President Trump decides not to bother with new appointments, the present Board members can continue in place. But section 101(5)(D) states that “[a]n individual may serve consecutive terms as appointed member, provided such reappointment occurs in compliance with paragraph 6.” Section 101(e)(6) states “[a] vacancy on the Oversight Board shall be filed in the same manner in which the original member was appointed.” The present members were appointed in a manner not available anymore unless the First Circuit opinion is overturned. Would this be the real reason they will seek certiorari?

The wild card in all of this is President Trump. He could decide to join the Board in its request for certiorari and stay of proceedings. He could, however, decide to appoint a new Board and possibly moot the Board’s petition for certiorari. Moreover, Aurelius and Utier could push for the Supreme Court to determine that all of the Board’s actions are invalid, overturning part of the First Circuit’s holding. This could push the Supreme Court to quickly deny certiorari or deny any stay petition, under the idea that it is better to have a new Board than risk having the whole Title III and other decisions be rendered invalid.

Seems to me that the best thing for Puerto Rico and its Title III cases to have the present Board cease litigating these issues and remove any possibility of its decisions be rendered invalid. That, however, would mean relinquishing power. Reminds me of what James F. Byrnes once said: “Power intoxicates men. When a man is intoxicated by alcohol, he can recover, but when intoxicated by power, he seldom recovers.”

The Board, in reaction to the ERS bondholders’ motion for appointment of a trustee, filed a stipulation between this agency and the Commonwealth the following effect:

The period in which Avoidance Actions of the Commonwealth, on the one hand, and ERS, on the other hand, must be commenced against one another pursuant to sections 546(a) and 549(d) of the Bankruptcy Code (the “Statutory Deadlines”) shall be tolled such that the Statutory Deadlines shall expire (a) two hundred seventy (270) days from and after the date on which the Statutory Deadlines would have expired in the absence of this Stipulation unless (b) the Commonwealth or ERS provide written notice of early termination (the “Termination Notice”) in accordance with clauses (A) and (B) below, in which case, the Statutory Deadlines shall expire on the date that is one hundred fifty (150) days from the delivery of such Termination Notice plus the number of days between the Stipulation Effective Date, as defined below, and the date on which the Statutory Deadlines would have expired in the absence of this Stipulation to: (A) the Court, through the filing of an informative motion, and counsel to the Bondholders, by serving a copy of such Termination Notice upon (B) (i) Jones Day, 250 Vesey Street, New York, NY 10281, Attn: Bruce S. Bennett, Esq., by hardcopy and email transmission ([email protected]), and (ii) White & Case LP, 200 South Biscayne Boulevard, Suite 4900, Miami, FL 33131, Attn: John K. Cunningham, Esq., by hardcopy and email transmission ([email protected]); provided, however, that, the foregoing is without prejudice to (y) the rights, interests and defenses that may be raised by either the Commonwealth or ERS in connection with any such Avoidance Actions, other than the applicable statute of limitations, laches, or any other time-related defense and, (z) the treatment of the Statutory Deadlines as may be provided in a plan of adjustment for the Commonwealth or ERS, subject to the effectiveness and consummation of any such plan of adjustment.

  1. The Commonwealth and ERS shall have the right to extend the period set forth in Paragraph 1(a) above for a period specified in writing upon thirty (30) days’ prior written notice and service of such notice upon the Court and counsel for the Bondholders in the matter set forth above.

Judge Swain promptly approved the stipulation. The whole process in the ERS will be interesting to watch.

A new Group of GO called the Lawful Constitutional Debt Coalition that holds or manages PBA and GO bonds filed appearance in the Commonwealth Title III. The group hired Susheel Kirpalani from Quinn Emanuel who successfully represented the COFINA Senior Bondholders during Title III. It is not clear what position they will take on the bonds. Will they oppose the Board and the UCC defending those challenged bonds? Will they instead be the class that is needed to accept the Plan of Adjustment for the cramdown pursuant to PROMESA sec. 314(c)? We need to watch this group, and its members. We will soon find out more.

Finally, we cannot let today’s update go by without acknowledging the intense lobbying being undertaken by the Board and her advocates to project confidence, control and to influence the legal process.  Simon Johnson, the famed British-American economist and proponent of PROMESA claims a “tragedy looms” in Puerto Rico following the First Circuit’s decision.  His doom and gloom view was prominent in 2016.  He writes that adhering to the Constitution’s Appointments Clause is a “purely procedural issue” and suggesting the U.S. Constitution is not as important when the lights could get shut off.  These claims are as tired as the Board and Governor Rosselló’s bickering.  As a refresher from our British friend turned U.S. citizen, the U.S. Constitution was written after the defeat of British Tyranny. It appears though Mr. Johnson would like the Oversight Board to be more like the British Monarchy. In fairness, Johnson does get one thing right when he writes, “Trump could immediately nominate, and the Senate could confirm, the current oversight board members, or, as Skeel points out, a new set of board members could be chosen.”  I guess we all wait on Mr. Trump.

Judge Dein denied the Board’s urgent motion for production of certain documents it requested. The Board, however, was not deterred. On March 2, 2019, the Board filed a motion for reconsideration stating that new documents were being reviewed and would renew its motion by March 4. The litigation so loved by the Board continues.

Each day more and more notices of participation in the GO litigation are being filed but for the most part as pro se. I urge these persons to hire an attorney. The issues are of Puerto Rican law and are not simple.

This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.