One week after the expected but seemingly surprising (for the Board) Aurelius decision, it is already jockeying to main power in Puerto Rico. Last Friday, Board Member David Skeel made it abundantly clear when he gave a speech to the Puerto Rico Chamber of Commerce essentially saying that the Board would seek certiorari review from the Supreme Court of the United States (SCOTUS) and hinted the U.S. Government would do the same. Mr. Skeel also hinted that the Board would seek a stay of the 90-day stay granted by the First Circuit. He insisted that the case is constitutionally very important and that he was confident the Supreme Court would reverse the decision by next fall. These are surprisingly precise predictions, perhaps suggesting he knows the outcome from the Robert’s Court from an important Board member, but they must be examined closely.
If in less than 90-days, the Board seeks certiorari review and requests that the SCOTUS issue a stay of the mandate until the case is decided or the cert is denied. This way it could circumvent the May 16, 2019 deadline to wield power. If the Supreme Court grants the certiorari, this could happen, but as I have explained many times, the likelihood of the grating of a cert is less than 1%. Also, while the SCOTUS reviews the petition, it occasionally grants stays even if it later denies the petition. Also, the issue of the Appointments Clause is constitutionally important, but that is not the litmus test for the granting of a petition for certiorari. SCOTUS watchers and Mr. Skeel has written amicus briefs to the Supreme Court, know that conflicts between the Circuits is the best way to have a certiorari granted. Another useful way is for the United States to seek the certiorari and then the odds increase to around 25%, which are still very bad. Even if granted, the Board risks having the Supreme Court reverse the First Circuit and decide all its work is for naught and invalidate the Title III’s. As to Mr. Skeel’s opinion on likelihood of success, let’s just say he filed a brief of amicus curiae supporting the Commonwealth’s Recovery Act. It didn’t work.
Moreover, Mr. Skeel said that the Court could decide this by fall. That is very strange since the Supreme Court term ends on June 30 and the next term starts on the first Monday in October. Even if the case is argued in October, usually decisions do not start coming in until late November or December. Additionally, just last term, June 21, 2018, the Supreme Court decided Lucia v. SEC, 138 S. Ct. 2044 (2018), a case having to do with the Appointments Clause, which albeit important, is an arcane part of Constitutional lore. Hence, there is no real need to discuss this again.
Why then risk this in a long shot cert? Why not accept the First Circuit judgment and wait to see if President Trump will nominate him? My sources tell me the Board has been lobbying in DC for their reappointment. Is it as Lord Acton said, “Power tends to corrupt, and absolute power corrupts absolutely”? Seems the Board wants to continue wielding power far beyond its time by stretching the request for cert as much as it possibly can in order to impose on creditors (including my clients, who are unsecured creditors) a plan of adjustment in the Commonwealth case. It is almost thumbing its nose at the Constitution. Not exactly what one would expect from a group of principal United States Officers, or from a leading member of the Federalist Society.
Mr. Skeel also repeated what he has said in the University of Puerto Rico Law Review and what Martin Bienestock told judge Swain this past November; the Board plans on filing a plan of adjustment for the Commonwealth this year. As to the plan of adjustment, there are a couple of things that must be pointed out. The Board has said that it will certify a new Fiscal Plan by April 22. Since the plan of adjustment must be consistent with the Fiscal Plan, it must be in place before the plan of adjustment may be filed. In addition, the Board and the UCC have stated that it is a threshold issue for the Court to decide the GO objection it filed before the plan of adjustment. Given the complexities of the issues involved and the notices to the different parties, I can’t see Judge Swain solving the issues before the end of the year. We will see.
And finally, Mr. Skeel writes in today’s Wall Street Journal a rather alarming claim:
Puerto Rico would collapse into chaos if the [Aurelius] ruling took immediate effect. The hedge fund that is the principal plaintiff in the case asked the court to dismiss the bankruptcy-like proceedings the oversight board began in May 2017. That would cause a mad scramble as creditors used every legal and political lever available to force Puerto Rico to pay.
Nothing is further from the truth. Although Aurelius in its complaint requested the dismissal of the Title III proceedings as ultra vires actions, which they are, during oral arguments at the district court and appellate level, it stipulated it would accept a stay of proceedings until the new Board was installed and decided what it would do with the previous board’s decisions. What Mr. Skeel does not tell you is that Utier, the union who filed the first complaint claiming the unconstitutionality of the appointments, has not offered such stipulation and continues to argue that not only is the Title III illegal and should be dismissed, but all Board actions are illegal in toto.
In addition, dismissal of the Title III would not create a mad scramble. There are several cases right now dealing with bondholder and non-secured creditor claims. Others are on appeal. The mad scramble already exists precisely because of the Board’s Title III and other actions. Most creditors would have no federal jurisdiction since GO claims have to be litigated in state court (even the 2014 claims may be litigated there) and Commonwealth law prohibits any embargo of governmental accounts. The First Circuit already has ruled that ERS bondholders hold a lien and even though the Board seems to deny payment, they are secured creditors under bankruptcy law and entitled to payment to the full extension of the lien. PREPA bondholders had a deal in place without the benefit of PROMESA and as of now, the Board has an RSA, which is not very different from the previous one. The monolines are still holdovers but that may change, even after a dismissal of the Title III. The COFINA deal is already done and very unlikely to become undone even with no Board. PRASA and the UPR have been paying its debts, as well as the Municipalities.
In sum, Mr. Skeel’s various public comments are intended to portray the situation as one as business as usual and that the Board will continue its “important” work. Let’s face it, the situation is NOT normal, an Appellate Court has just determined that its members were unconstitutionally appointed and hence have no power. To attempt to file a plan of adjustment right in the middle of a certiorari petition is desperate, to say the least.
What would change substantially with the Aurelius ruling is that this particular Board would probably be replaced, which seems to strike fear in Mr. Skeel. But the Board is not this superhero group, no League of Justice, without which would perish. After 2 years of continuous bickerings with local politicians, it seems to me that it would be best if PROMESA, including Title III, is dismissed and the local politicians left to do all the changes and schemes necessary to straighten our existence. There was no humanitarian crisis in 2016 and there is none now, only the lack of will and profiles in courage to act.
On the local front, the governor says the White House has refused to meet with him to discuss the reconstruction funds. The White House said it had not received the request for a meeting but Mr. Mercader, who is very serious public servant, countered saying that as executive director of the Puerto Rico Federal Affairs Administration he wrote White House Director of Intergovernmental Affairs, Douglas Hoelscher, on January 17 to request a meeting with Trump for Rosselló https://thehill.com/latino/431245-puerto-rico-governor-white-house-clash-over-meeting
This public conflict does not help the governor . . . or does it? If the Board is not reappointed by May 16, barring any SCOTUS extension, its power ceases to exist since it never was properly appointed. This means that any delay in the appointment of the Board members means that the Governor cannot not restrained by anyone. He can make whatever budget it wants, reassign any funds it wants, even if the Board imposes a budget before May 16 because no one can take him to Court. Governor Rosselló is already claiming his fiscal team achieved the COFINA deal. If we add to this that the PDP is clamoring for Puerto Rico to have control of the Title III, we have the perfect storm for local politicians; a recovering economy and no Board to tell them what to do.
The only problem with this scenario is that eventually a Board will be appointed which will not look at these actions with pleasure. In addition, 11 U.S.C. § 930(a)(1) and 930(a)(2) complicate the issues. It states:
(a) After notice and a hearing, the court may dismiss a case under this chapter for cause, including-
(1) want of prosecution;
(2) unreasonable delay by the debtor that is prejudicial to creditors;
Hence, if after a couple of months without action in the case, the creditors, including unsecured creditors, may seek dismissal of the Title III. Will the governor risk the Title III for power? Difficult to say for he will not get a chance for control over the Title III until 2021, if the Democrats win the White House and Senate. In the meantime, no one looks out for the well-being of the People of Puerto Rico.