Weekly Update – September 6, 2017

Welcome to the weekly Title III update for September 6, 2017. Let’s recap a few important things from the last week.

First, the Board finally filed its complaint against Ricardo Rosselló for the implementation of the furlough of public employees, as per the March 13 certification of the fiscal plan. The Board seeks that the Court declare:

“[T]hat the Commonwealth Fiscal Plan certified by the FOMB includes the Amendments;”

 “[T]hat the Amendments are mandatory and binding parts of the Commonwealth Fiscal Plan;”

“[T]hat the Governor must enforce and comply with the entire Commonwealth Fiscal Plan, including its Amendments;”

And that it issue “an injunction prohibiting the Governor from refusing to enforce or comply with the Commonwealth Fiscal Plan (including the Amendments) and otherwise treating the Amendments as not part of the Commonwealth Fiscal Plan.”

As I have said many times, I believe the Board is correct in its claim that the furloughs are part of the Fiscal Plan (see here at page 2). The Board’s motion, however, has an interesting tidbit that anticipates its position in all the litigation. On page 9 of its motion the Board states, “Regardless of the path by which the FOMB certifies a fiscal plan, Congress provided it sole and complete discretion regarding fiscal plan certification decisions. PROMESA § 201(c)(3). Congress also provided that such certifications are beyond challenge, depriving the federal courts of subject matter jurisdiction to hear any challenge to a certification decision by the FOMB. PROMESA § 106(e).” Since several challenges to the Board’s Fiscal Plan have been filed, here we see that the Board is unwavering in its position: The Fiscal Plan cannot be changed. Now, we will see if Judge Swain agrees.

Adding to the theatrical atmosphere of the case, the American Federation of State, County and Municipal Employees, who mere days before this complaint had asked the Court to determine that the Board could not order the furloughs, filed a motion to stay the Board’s complaint, to consolidate cases or to intervene. This will further delay the prosecution of the issue of furloughs.

Another interesting tidbit: The Board did not file a motion for an injunctive relief hearing. As I stated above, the Board is seeking an injunction from the Court but did not ask for a hearing on the issue. In the case of the Municipality of San Juan, for example, Judge Swain quickly sent a schedule following the August 25 request for a hearing, giving PR until September 1 to answer and setting a hearing on September 11. Since both President Carrión and Ms. Jaresko have said that if furloughs were not started on September 1, there would be a need to have them further extended and even increased from 10% to 20%, it can be argued that the Board, as the representative of the Commonwealth in the Title III filings, can take “any action necessary on behalf of the debtor to prosecute the case of the debtor” (Sec. 315(a) of PROMESA). Clearly, the Board feels no urgency to proceed with the case, meaning that it could take months for Judge Swain to decide the issue.

Is this controversy a Kabuki Theater? Time will tell.

Although the final order is yet to come, the parties in the Commonwealth v. COFINA controversy filed a schedule whereas the Unsecured Creditors Committee on behalf of the Commonwealth will file a complaint no later than September 8 and discovery will move quickly with a trial December 4-8. On October 27, there is a fact discovery deadline followed by the expert discovery deadline on November 3. All interventions will be discussed in the omnibus on November 15. Given the fact that in the Peaje hearing post evidentiary hearing documents were filed as late as 20 days after the hearing and given the complexity of these issues, I don’t expect a decision before January or February of 2018, with appeals still to come later in the year. Moreover, if Judge Swain finds in favor of the Commonwealth, then GO’s will be able to claim they are entitled to the SUT proceeds.

Finally, in a slew of media interviews, José Carrión gave during the week, he said that PREPA must be privatized quickly. On the other hand, Ramón Rosario, the Commonwealth’s Public Policy Secretary, said that the Government is looking for public-private partnerships and PREPA’s executive director said there would be no privatization of the agency.

Who is telling the truth, I wonder? Again, only time will tell.