Judge Arthur Gonzalez is a senior fellow at the New York University Law School and the former chief judge of the United States Bankruptcy Court for the Southern District of New York, a position in which he served from 2010-2012.

Judge Gonzalez is highly respected in the bankruptcy law community, having forged a long career over the last three decades, which has included two judicial appointments to the bankruptcy court. During that time he has presided over some of the most noteworthy corporate bankruptcy cases in recent memory, including Enron in 2001, WorldCom in 2002, and Chrysler in 2009.

As The New York Times said in a 2011 profile of the judge, “Many judges are lucky to handle just one era-defining case during their tenures on the bench. In his 16 years as a federal bankruptcy judge, Arthur J. Gonzalez has handled three.” This experience is why Judge Gonzalez will likely garner serious consideration for a board seat.

In Enron, during which I had the pleasure of appearing before him, Gonzalez was praised for his handling of the high-profile Chapter 11 that came on the back of Enron’s highly-publicized scandal. The case involved $62 billion in assets, and Gonzalez won plaudits for achieving higher returns to creditors than were expected at the outset, including 93 cents on the dollar for energy traders with guaranteed claims.

He again won nearly universal admiration for his handling of the even-larger WorldCom bankruptcy, which involved over $100 billion in assets and began while Enron proceedings were still ongoing. The company was eventually purchased by telecommunications giant Verizon after it emerged from bankruptcy.

However, in his last major case, Chrysler, has more of a mixed legacy. The 2009 bankruptcy was famously quick – a fact that was praised by some, but derided by creditors who felt they got a raw deal. The main point of contention, of course, was the treatment of Chryslers UAW pensioners – an issue that will again play a major role in Puerto Rico’s restructuring – where union pensions received a better deal than the companies’ secured creditors, which included other pension and retirement funds.

This is widely seen as the precedent that allowed for similar treatment of secured creditors in the General Motors and Detroit bankruptcies and, without doubt, it will loom large here in PR, where creditors have seemingly been pitted against public pension funds by our government and others.

Verdict:  Yellow-Red Flag – Judge Gonzalez is immensely experienced and has won praise for his handling of “era-defining” corporate bankruptcy cases. However, Congress should be wary that his appointment is not a political ploy from those who would seek a similar result to the GM case with regard to the treatment union pensions either in practice or perception. If it is, then it will surely serve as a major point of contention amongst stakeholders.

 

 

 

Following up on my Antonio Weiss post, Pedro Pierluisi is another name that most observers of the Puerto Rico debt situation over the last couple of years will be familiar with and, like Weiss, many will probably be surprised to hear that Pierluisi is actively lobbying for a role with the board either as an appointee or as the board’s executive director.

Pierluisi is, of course, the outgoing resident commissioner who ran unsuccessfully for his party’s nomination for governor earlier this year. After his own Chapter 9 legislation failed in the House last year, Pierluisi became, along with Governor Garcia Padilla and Weiss, one of the most visible proponents of the PROMESA legislation over the last several months – testifying in multiple hearings, and acting as a key player behind the scenes during the drafting process.

Prior to political life, Pierluisi practiced for 24 years as an attorney, serving as Attorney General of Puerto Rico from 1993-1996, in between stints in the private sector. Given his role in advancing PROMESA, which saw him fight fiercely with some stakeholders, while forming alliances with others, a role on the board, as a consultant to the board, or as executive director seems misguided.

Further, many Puerto Ricans who oppose the board hold Pierluisi responsible for its strength and, regardless of whether those people are correct, his involvement in any capacity would be nothing but divisive on the island.

Even more problematic is his wife’s work as a financial advisor to Wall Street companies, some of which hold PR bonds. This, of course, is a major conflict that should rule Pierluisi out immediately from any involvement in the board.

Additionally, as far as a board seat is concerned, I am of the view that Pierluisi is not even eligible, and that his appointment would be a clear violation of PROMESA, which holds that current and former territorial elected officials are barred from participating. This is intended to make sure that the board is entirely non-political at a local level, which is a key component of the board’s mission. Some have argued that, because Pierluisi served in Congress, he may not be considered a “territorial” official.  But that is mere semantics – Pierluisi served the people of PR, was elected by PR voters, and is a member of a PR political party. Whether or not you subscribe to this loophole, it is clear that his appointment would be a violation of the spirit of this rule. In my view, having missed out on the governorship, this is just Pierluisi looking to continue his rule over PR from another avenue.

Verdict: Red Flag – Pedro Pierluisi has major conflicts of interest through his wife’s financial advisory work that should rule him out from any involvement with the board. His involvement in any capacity would be hugely divisive in Puerto Rico and his role in the politics leading up to the board’s creation would raise questions over his independence. Further, his appointment would undermine the apolitical nature of the board and is a clear violation of PROMESA, as he is a former territorial elected official.

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