Welcome to your weekly Title III update for January 29, 2018. Things in the Puerto Rico’s bankruptcy are picking up and important activity in the political sphere is strongly impacting the litigation.

On January 22, 2018, Governor Rosselló gave a televised speech announcing that PR would sell PREPA. The short 15 minute speech only stated that legislation would be presented to allow the sale, that a period of negotiations would ensue and then the sale, all in the period of 18 months. It was also stated that the generation would be sold but transmission would be leased.

Immediately, political analysts in PR showed their ignorance of bankruptcy law and PROMESA by stating that Governor Rosselló could not sell PREPA without Court permission or the Board’s agreement. As to the first, PROMESA, the same as Chapter 9, did not adopt section 363 of the Bankruptcy Code which requires Court approval of any sale outside the ordinary course of business. As to the Board, let’s just remember what Judge Swain said in her opinion on the appointment of Mr. Zamot as CEO of PREPA, at page 16:

“The FOMB’s assertion that Title III creates or reinforces direct managerial power granted by Titles I and II rings hollow as well. PROMESA section 303 reserves the territory’s political and governmental powers to the territory or “any territorial instrumentality thereof,” subject only to Titles I and II. See id. § 303.6 As the Court has explained, nothing in Titles I and II permits the FOMB to displace local government structures and authority by declaration. Similarly, sections 305 and 306 do not empower the FOMB to interfere unilaterally with the debtor’s political and governmental powers, or with the debtor’s property or revenues.”

Since PREPA is owned by the Government of Puerto Rico, the Board’s agreement to the sale is not needed. The way the Governor wants to sell PREPA, however, free of liens and debts, however, requires the Board’s agreement since it is the only entity allowed by PROMESA to file a Plan of Adjustment, see PROMESA section 312 and page 18 of the Zamot opinion. But any Plan of Adjustment that impairs creditor classes must be approved by said creditors and if no such approval ensues, the Court may, but does not have to, cramdown the Plan, see, section 314(c) of PROMESA. If the Court does not allow the cramdown, however, the Title III petition must be dismissed, see, 11 U.S.C. § 930.

In addition, this sale creates many questions. Will the monopoly be extended to the purchaser or purchasers, creating then an oligopoly or cartel? What will happen to the employees? What will be the sale price? The new PREPA fiscal plan states that it has assets of $9.4 billion and debts of $11.4 billion. This was contradicted by the Board and AFFAF’s motion on Saturday for interim financing for PREPA where it states that the utility has debts of over $14 billion. It would be nice if the Government and the Board would make up their minds as to the actual numbers.

Also during the week, separate from the litigation, PREPA, PRASA and the Commonwealth filed their Fiscal Plans. Although Governor Rosselló insisted on January 10, that he was ready to hand in the plans, the three documents are clearly marked as drafts, something that is not what the Board wanted. The PREPA and PRASA fiscal plans are also filled with disclaimers which puts doubts as to the reliability of their numbers. The Commonwealth fiscal plan is long on what it is going to do, but short on how it will be done.

In addition, it postpones a balanced budget until 2022, making the Board a permanent fixture until at least 2026. In addition, the Commonwealth fiscal plan has no employee furloughs or reductions of pensions as was required by the Board in the past. Moreover, the fiscal plan does not define essential services and hence does not explain how they will be funded nor does it explain how it “respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality in effect prior to the date of enactment of this Act.” (Section 201(b)(1)(N) of PROMESA).

My view is that the Board will reject the plan for various reasons and will order the furloughs and the reduction of pensions. Since the Government will reject these changes, the Board will certify its own fiscal plan in order to dictate policy. The same will happen with the PREPA and PRASA fiscal plans for only that way will the Board ensure that it will call the shots. The Government will go to Judge Swain and the vicious cycle of infighting will continue to the detriment of the people of PR.

Meanwhile, creditors have become increasingly vocal about their own concerns with the revised fiscal plan. Given the plan’s lack of debt service, and mounting evidence of ample liquidity, this is not surprising. Assured Guaranty released the following statement, which points to their view of the broader implications of the plan, beyond just further litigation and delay in returning the Commonwealth to capital markets:

“This disregard for creditors’ rights would shake, on a nationwide basis, investors’ confidence in the enforceability of their contracts, the rule of law and public officials’ willingness to abide by the commitments they have made. In doing so, they will make it more expensive for municipalities throughout the United States to fund essential services and infrastructure for their taxpayers.”

Turning now to the litigation. As was to be expected, the Board opposed the GO’s motion to conduct discovery pursuant to Bankruptcy Rule 2004. What is new is the Board, the Commonwealth and AFFAF’s position as to the payment of prepetition debts. At page 6 of their motion they stated:

“While, as a practical matter, the Oversight Board and Commonwealth want to repay as much debt as is consistent with carrying out PROMESA’s directive to create fiscal responsibility and access to the capital markets, PROMESA § 314(b)(6) does not require the debtor to pay prepetition claimholders as much as it can. Rather, it provides the Court should “consider” what creditors could recover under applicable non-bankruptcy law, i.e., what a race to the courthouse would produce for “the creditors” under non-bankruptcy law.”

My take on this is that the Board and the Government of PR are taking the position they do not have to pay what they can but what they want to creditors. Doubt this was missed by all the bondholders who claim a lien on bond payments.

Finally, on Saturday, the Board and the Commonwealth filed a motion for interim financing of PREPA. As we have discussed before, FEMA and the US Treasury informed PR at the beginning of January that according to its own documents, it had too much money in its accounts to qualify for a CDL loan and that they would not lend to PREPA directly. The letter mentions that after the hurricanes, the Government account did not go below $1.5 billion and that recently it had informed the “discovery” of over 800 accounts with $6.875 billion. The Board and the Commonwealth, however, claimed in its motion that given the allegedly precarious economic condition of PREPA, they decided to proceed pursuant to 11 U.S.C. § 364 for an emergency approval of a loan. The motion states that the lender will be the Commonwealth of Puerto Rico and the debtor will be PREPA. The loan will have senior secured priming super-priority not to exceed $1.3 billion but initially the Commonwealth will only provide $550 million.

“The security interests, liens and superpriority administrative claim will be subject only to a carve-out for professional fees and costs of administration incurred during the Title III Case (defined below) of the Debtor (as approved by the Court), any state matching requirements of Federal grants and loans and certain fees due and owing to the Office of the United States Trustee as set forth in the Title III Order.”

In addition:

The proceeds of the Loans shall be used to make expenditures and disbursements: (i) for the Debtor’s operations including, without limitation, employee payroll and benefits, facilities maintenance costs that are not capital expenditures or infrastructure improvements, and normal operational materials, supplies, fuel and power supplies, vendor, and services payments (collectively, “Eligible Uses”) and (ii) for reimbursement of amounts expended for Eligible Uses from September 6, 2017 until the funding of the Loans. . .

“Unless otherwise specifically consented to in writing by the Lender and the Oversight Board, the proceeds of the Loans shall not be used for debt service; capital improvements; repair or restoration of damaged public facilities; paying the non-federal share of any Federal program; tax refunds; lobbying; Title III costs including but not limited to judgments arising from Title III cases and related cases, and legal or advisory fees; deposits, transfers, or payments to accrual accounts, reserve funds, or contingency accounts that do not represent an actual, immediate cash disbursement to continue current government operations for essential services; administrative costs of Federal disaster assistance grants and loans; or disaster related expenditures eligible for reimbursement from the Federal Government; or any expense that is not a “Current Expense” under the Trust Agreement (collectively, the “Ineligible Uses”). . . “

The motion also foresees the parties positions as to this loan. It states:

“Prior to filing this Urgent Motion, certain holders of general obligation (“GO”) debt of Puerto Rico advised the Oversight Board in writing that they oppose any lending from the Government of Puerto Rico to the Debtor without court approval, and that they oppose the concept of the Government of Puerto Rico borrowing from the federal government to lend to the Debtor. While the Government of Puerto Rico and the Debtor never intended to enter into this loan transaction without court approval in the PREPA Title III case, the Government of Puerto Rico cannot necessarily assuage the GO debtholders’ general opposition or their statements that they might seek stay relief and oppose any plan of adjustment.”

The motion dispenses with PREPA bondholders claims of lien in the following fashion:

“As explained below, the existing lien securing bonds under the Trust Agreement already provides for “Current Expenses” (including a sixty-day operating reserve) to be paid from revenues. Because the Lender’s loan to the Debtor can only be used to pay Current Expenses, the existing lien is not diminished or impaired by the first lien to be granted to the Lender because Current Expenses already have a prior right to be paid from the Debtor’s revenues before any positive net revenues exist that could go to creditors. This situation is unique because the priming lien the Lender is requesting, does not subordinate the existing creditors’ lien to anything to which it is not already subordinated. For example, in the ordinary course, if the Debtor had $1 billion of revenue and $1 billion of current expenses, the revenues would pay the Current Expenses, not creditors. If instead, the Debtor has $200 million of revenues and $1 billion of Current Expenses, the $200 million of revenues and the next $800 million of revenues would be paid to cover Current Expenses before there would be collateral available to creditors.”

In other words, the Board claims that PREPA bondholders have only a net lien; that is, they get paid only after all expenses are paid. PREPA bondholders on the other hand, claim a gross lien, meaning that they get paid from the stream of income irrespective of expenses. What this means is that before the loan is approved, Judge Swain will have to weigh on these objections.

The motion also alleges there are no other alternatives but it only mentions one offer from a group of bondholders. On the other hand, the motion mentions that “[b]eginning on January 21, 2018, the Debtor, through Rothschild, initiated a marketing effort to obtain alternative financing.” If, as the motion states, AFFAF has been negotiating with Treasury for the CDL loan, whose funds were appropriated by Congress in October, why the delay in searching for other sources? Could it be that the Board and the Government of PR have been playing hide the potato (funds) and now have been caught in their own web of deceit? After all, as mentioned in the last update, the Board and the Government knew about the “discovered” accounts since July of 2017 and did not then proceed with an audit to determine what part of those funds were available. In fact, neither of the two have proceeded with the hiring of said auditors. Interesting indeed.

In any event, there are 7 entities that have signed non-disclosure agreements to have access to a data room to commence the process  The interest rates of 0% for the first semiannual period, .50% for the second semiannual period, 1% for the third semiannual period, 1.5% for the fourth semiannual period, 2% for the fifth semiannual period, 2.5% for the sixth semiannual period and 3% thereon.  This does not appear to be a serious effort on behalf of the Commonwealth or the Oversight Board in seeking private financing for PREPA.  Perhaps they still believe the Trump Administration will provide a CDL directly to the Commonwealth or PREPA itself.

All of this leaves me with many other questions. How does the Commonwealth lend to PREPA if its agencies and the Municipalities still owe PREPA more than the $550 million? What happens if Judge Swain determines that PREPA bondholders have a gross lien? Will the sale still go through? Does the lien follow the stream of income if PREPA is sold? If the Commonwealth is broke, how can it lend to PREPA? Given the Board’s statements as to the net lien, do the pension funds in PREPA have to be paid as part of the “current expenses” definition of the 1974 Bondholders Agreement? These and many other questions will have to be answered and soon.

In addition, the parties have been filing slight modifications to the Board’s motion for Bar date. It is likely that the Board will accommodate any reasonable suggestion since it is in everyone’s interest that this issue be dealt with without litigation.

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.

Welcome to your weekly Title III update for January 22, 2018. Things in the Puerto Rico bankruptcy are picking up, but developments outside the case, which were for the most part political in nature, dominated the week.

On January 17, 2018, El Nuevo Día reported that FEMA and the US Treasury were denying PR’s requests for a loan pursuant to the Community Disaster Loan Program, commonly known as CDL. The letter, however, has a print of received on January 9, 2018, more than a week before it was reported. In the letter, the agencies told AFFAF Director Gerardo Portela that the Commonwealth, PREPA and PRASA projected in late September that they would exhaust their operating funds by October 31, 2017, but as of December 29, the Commonwealth had $1.7 billion cash balance and “discovered” $6.875 billion in over 800 accounts. The letter continued saying:

“Because the Commonwealth’s central cash balance, as publicly reported, has consistently exceeded $1.5 billion in the months following hurricanes, and considering the implications of the reported $6.875 billion of total cash across the Commonwealth, the Federal Government will institute, as a matter of policy, a Cash Balance Policy, that will determine the timing of CDLs to the Commonwealth and its instrumentalities, including PREPA and PRASA. Under this Cash Balance Policy, funds will be provided through the CDL Program when the Commonwealth’s central cash balance decreases to a certain level.”

In response to FEMA and US Treasury, Mr. Portela attempted to downplay these newly discovered monies writing in a response to the Federal Government, “The disclosure in the Initial Report reflects a preliminary analysis of hundreds of bank accounts of the Commonwealth and Commonwealth instrumentalities, but it does not provide an accurate picture, or should not be construed as indicative, of governmental liquidity for unrestricted general use.”

Similarly, Mr. Portela told Politico late Friday that PREPA and PRASA faced severe liquidity problems and that the Commonwealth had provided the Federal Government all that it requested. Politico reported, however, that a “Treasury spokesperson pointed the finger back at Puerto Rico’s government for failing to provide information that the administration wans to fulfill the loan request. ‘We are closely monitoring Puerto Rico’s liquidity and stand ready to support the island’s needs,’ the spokesperson wrote. ‘The Government of Puerto Rico has the responsibility to demonstrate liquidity needs in a transparent fashion to ensure appropriate program use and stewardship of taxpayer dollars.” Yet, another sign that the Trump administration is not buying the claims of the Commonwealth or the Board.

Predictably, the Oversight Board, on that same date of January 17, announced a hearing to discuss the “discovered” cash. The meeting was nothing more than a blatant attempt to whitewash the Commonwealth’s cash situation. The AFFAF presentation, has several caveats that make it of questionable use for either the Federal Government, the mediation team or Judge Swain. In its disclaimer section, AFFAF states that the information contained in the presentation is preliminary and subject to further analysis, the account balances have not been confirmed through an audit in accordance to the generally accepted auditing standards and it makes no representation with respect to the information it presents.

“Discovered” Monies: What the Board Knew and When

The Board’s attempt to whitewash the “discovered” funds, however, fails for several reasons. Andrew Scurria, a reporter for The Wall Street Journal, wrote an article in the Bankruptcy section of the daily, revealing that the Board knew of these accounts not in December of 2017 but in July 2017. See here for the proof. There are several email exchanges between the Board and AFFAF pertaining to these accounts. This begs the question of why the Board continued to tell Judge Swain in the summer of 2017 that the Commonwealth’s finances were so bad that it would have to borrow from COFINA in November. Later the Board changed its tune to December, but after the hurricanes, upped the ante. On November 7, 2017, Natalie Jaresko told Congress PR needed $3.6 billion before the end of the year and between $13-$21 billion for the next 7 quarters. Clearly, the Board has some explaining to do to Congress and Judge Swain.

Without a CDL, Puerto Rico Seeks to Finance PREPA Directly

This leaves the Rosselló administration in a bind. It desperately needs to reestablish electrical power in Puerto Rico in order to run again in 2020. Hence, it needs to fund PREPA and PRASA. Since the Federal Government told the Governor, for now, to use his own funds, it has decided to lend these corporations money. This was previously reported by The Wall Street Journal, and I have examined this draft Commonwealth-PREPA term sheet.

In short, the Commonwealth would provide for and initial $250 million loan and up to $1.5 billion, but the latter only if there is a CDL. The loan would be secured by a lien on the net revenues of PREPA and would not be for payment of debt. Although the loan would be secured, its payment would be as an administrative expense, after lawyers and experts are paid. The loan will be without interest unless Puerto Rico has to pay interest from the CDL and then the same rate will apply.

Profound Implications for Title III Case

All this mess has profound implications for the Title III litigation and PROMESA in general. For example, if the Treasury demands a lien over Commonwealth funds, and it probably will, this would affect the GO Bondholders claim they have a lien over the same funds. Hence, pursuant to 11 U.S.C. § 363(c)-(f), Judge Swain would have to intervene, determine the validity of the GO claim and if she finds they have a lien, make sure this is paid in full in the Plan of Adjustment before she can grant the US any lien. Even with this guarantee, it is questionable if Puerto Rico could pay the Federal Government and GO’s. In addition, the Federal Government could claim a lien on the SUT, angering the COFINA bondholders who claim they have a lien and to which there is ongoing litigation.

None of the Board’s dire predictions, made both to Congress and Judge Swain, has been proven true. In December, AFFAF and the Board stated that each would hire an auditor to determine, what, if anything of those $6.875 billion could be used. But neither had done so. Moreover, AFFAF and the Board knew about these funds since July 2017. Why didn’t they hire an auditor then? Probably because they would have to change the Fiscal Plan and would change the nature of the mediation talks. This lack of transparency has consequences. If a federal judge thinks you lied to them once, it will never again believe a word you say. This applies to Judge Swain and the six federal judges in the mediation team.

Moreover, if the Commonwealth is to lend to PREPA, it also needs to enact new legislation authorizing it to do so and would have to again go through Judge Swain in order to secure a lien. This is not something that can be done in a couple of days and the legal storm will be severe.

In addition, any audit will take time, at least 60-90 more days. This means the middle of March or April before Puerto Rico could come out and seek a CDL loan. It would then have to wait for the FEMA bureaucracy, slow at its best, to disburse the money. Puerto Rico, far from being a pauper, has enough money to operate and lend to its public utilities, if it has not already done so. Not a good scenario for the Governor and the Board.

During the weekend, the Governor Rosselló announced he would address the people of Puerto Rico via TV, later today. The topic will be the CDL, fiscal plan, etc. It is clear the Board will move quickly to approve either the Governor’s plan or its own, probably by February. It will then file the Plan of Adjustment to forestall the economic growth that insurance and FEMA money always brings after a hurricane. In addition, this plan will not reflect any CDL loans or any Medicaid/Medicare future funds. That way, the Board will be able to argue to Judge Swain that PR cannot pay a penny in debt service.

The problem with this scenario is that the audit of the “discovered” accounts will not be finished by the end of February since neither the Board nor the Commonwealth have hired the firms to perform it. Nevertheless, Mr. José Carrión admitted that the Fiscal Plan was a changeable document. Hence, if in June new money comes into PR, the Fiscal Plan should reflect it and more importantly, the plan of adjustment must be consistent with the Fiscal Plan. See PROMESA section 314. The Fiscal Plan may vary but the Plan of Adjustment and the Disclosure statement that accompanies it, should not be changed every couple of months. A quick approval by the Board of an incomplete fiscal plan will underscore their approach is not serious, and further erode what’s left of their credibility before the Court.

In any event, a Plan of Adjustment that has no debt service for 5 years, and even then only growth bonds, is highly unlikely to be approved by creditors. The Board will then request from Judge Swain that she cramdown the plan as in the best interest of creditors. Given the situation, I find that unlikely, although clearly it has been the Board’s plan from the beginning. If Judge Swain does not cramdown the plan, the Bankruptcy would have to be dismissed pursuant to 11 U.S.C. § 930. Then what? PR would not have the automatic stay to hide behind and would be faced by very angry bondholders who have not been paid in two years. That’s why Congress envisioned Title VI as the best option but the Board and Governor Rosselló preferred bankruptcy over negotiations.

Turning now to the actual litigation, the American Federation of State, County and Municipal Employees International Union, AFL-CIO (“AFSCME”) and the American Federation of Teachers, AFL-CIO (“AFT”), International Union sought an order to lift the automatic stay to continue all the labor arbitration that were initiated before the filing of the petition. The Service Employees International Union (“SEIU”) and International Union, United Automobile, Aerospace and Agricultural Implement Workers of America joined the petition. Seems to me a fair request but the Commonwealth is sure to oppose it.

National filed a Rule 2004 request for discovery for the following purposes:

“National seeks authorization to take discovery of the Government Development Bank for Puerto Rico (“GDB”) regarding the existence, historical treatment, and status of a State Infrastructure Bank (“SIB”) trust account (the “PR SIB Trust Fund”) created at GDB for the benefit of Puerto Rico Highway and Transit Authority (“PRHTA”) bondholders pursuant to an agreement (the “Puerto Rico Infrastructure Bank Agreement” or the “Bank Agreement”) between the Puerto Rico Department of Transportation and Public Works (“the Department”), PRHTA, and GDB on June 12, 1998 and to conduct examinations of designated representatives of GDB.”

The Court has been changing its view on Rule 2004 discovery and may very well grant this but likely with limitations. Let’s see what happens.

The Ad Hoc Group of PREPA Bondholders, National Public Finance Guarantee Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., Syncora Guarantee Inc., and U.S. Bank National Association and PREPA came to a stipulation pertaining to Rule 2004 discovery and presented it to Judge Swain. Good to see some good faith cooperation.

As I suspected, Judge Swain granted the UCC’s leave to file amended constitutional claims against COFINA and said:

“The twelfth and thirteenth causes of action, as amended, plead plausibly claims that can properly be litigated in connection with the determination of the binary asset ownership issue framed by the Stipulation. Although they also implicate issues that may be relevant to other, out of scope, questions that were raised in the pleadings filed in this adversary proceeding, such potential overlap is not preclusive of in-scope consideration of the claims.”

The UCC promptly filed its amended complaint and this could be a game changer in the Commonwealth v. COFINA challenge. As we discussed before, not only does the UCC claim the COFINA transfer is unconstitutional but so do the GO bondholders. And if indeed COFINA is unconstitutional, the full SUT would belong to Puerto Rico and the GO’s would be in a perfect position to argue via an adversary proceeding or contested matter, that these funds must be used to pay their bonds. Let’s see what transpires.

The Board filed its motion requesting the entrance of an order as to proof of claim bar dates. The proposed date is May 29, 2018. This is a long motion which must be examined by anyone that has a claim in the case. Those who do not already have one, please hire an attorney. The Board also filed a motion to extend the time to accept or reject leases.

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.

Welcome to your weekly Title III update for January 8, 2018. After a short vacation, we are back to discuss the happenings in PROMESA. While not much happened, much will happen soon.

Foremost for this week, and even for this year, is the oral argument of the Aurelius and Utier constitutional challenge to the appointment of the members of the Board. Aurelius’s Objection and Motion to Dismiss presents a single yet fundamental question: Whether the members of the Board should be secretly hand-picked by four members of Congress or selected by the President and publicly confirmed by the Senate.

After a lengthy delay, the US Office of the Solicitor General informed the Court that it would defend the PROMESA appointments’ clause. Nothing surprising there since the office of the Solicitor General defends the overwhelming majority of constitutional challenges to acts of Congress. The last time I remember the Solicitor General deciding not to defend a law was when President Obama changed his mind about the Defense of Marriage Act.

The US Solicitor General wisely steered as far away as it could from the “Insular Cases,” especially the racist piece of resistance, Downes v. Bidwell, deciding instead in concentrating on cases before the 1898 dawn of the Imperial American Age.

The Board and AFFAF, however, in their motions reinforced the Territorial Clause of the US Constitution and Downes, which is the basis for Congressional discrimination against Puerto Rico in most federal programs. The Board claimed in its opposition to Aurelius motion that “[i]n a series of cases, the Court recognized that the U.S. Constitution applies ‘only in part in unincorporated Territories.’” The reference ends with a footnote citing Downes for the proposition that the Appointments Clause of the US Constitution does not apply to PR as an unincorporated territory. This probably explains why AFFAF did not argue in its brief that PR is an incorporated territory as Judge Gelpí decided in Consejo de Salud de Playa de Ponce v. Rullan. It seems that “[i]n the eyes of the Board and Governor Rosselló, it is better to have 100 more years of colonialism and discrimination than to have to pay the island’s debt.” See my Caribbean Business column, http://caribbeanbusiness.com/column-et-tu-ricky-and-jose/. Interestingly, Aurelius’ argument did not make any mention of the Territorial Clause.

Contrary to what some commentators believe, this challenge is important enough for the Board to have hired Donald Verrilli, President Obama´s former Solicitor General to argue its case and even used a reply to the US Solicitor General’s brief to further snipe at Aurelius, forcing the Court to allow the latter for file an unusual sur-reply. Anticipating the importance of the case, Aurelius hired Ted Olsen, George W. Bush’s Solicitor General and Matthew McGill, who successfully argued the Franklin California challenge to the Puerto Rico Recovery Act.

In addition, some of the same commentators that argued that the Aurelius challenge was not to be taken serious now claim that to grant the bondholder’s request would mean the dismissal of the Title III cases. In its reply to the Board’s motion to dismiss, Aurelius made clear how it envisioned the result of its successful challenge:

“In fact, the Opposing Parties agree with Aurelius that the proper remedy here is narrow andeminently practical: The Court should simply sever the offending portions of Section 2121(e). Board Opp. 34–35. That would cure the constitutional problem by allowing the President to decide for himself, with the Senate’s consent, who is best suited to serve on the Board. The parties also agree that the Court has procedural tools to ensure an orderly transition from the current Board to one that complies with the Appointments Clause. See, e.g., Dkt. 1627 (“GO Bondholders’ Stmt.”) at 2–3; see also Board Opp. 34; Dkt. 1629 (“Retiree Comm. Opp.”) at 35; Dkt. 1640 (“AAFAF Opp.”) at 31; Dkt. 1631 (“Unsecured Creditors Opp.”) at 28. In particular, this Court could simply stay its order of dismissal pending appeal, and the First Circuit, following appellate review, could stay its mandate pending the nomination and confirmation of a new Board. The Opposing Parties’ prophecies of disaster are belied by their own view of the remedies. They are also revealing. The Opposing Parties presuppose that the President would not select, or the Senate would not confirm, the same people who currently occupy the Board’s seats—even if that were necessary to prevent the sky from falling in Puerto Rico. If the President did determine that the current members are unworthy of their offices or not capable of discharging the Board’s important responsibilities in the wake of the hurricanes, and the Senate did not disagree, that would be to the good. There is no legitimate reason to shield the Board from this public scrutiny.”

The oral argument is going to be epic and lengthy. Judge Swain has allotted 90 minutes for each side. Argument starts at 11 am AST and 10 am EST in New York. Given the importance of the issue, I have no doubt Judge Swain will decide quickly and any appeal to the First Circuit will be expedited

The Aurelius constitutional challenge, however, is not the only thing in the agenda. At 3 pm AST and 2 pm EST, there will be the consideration of the UCC’s request for reconsideration on Judge Swain’s dismissal of some of its causes of action for allegedly going beyond the scope of its appointment in the Commonwealth v. COFINA case. Specifically, the UCC, quite correctly, points out that although its causes of action challenging the constitutionality of the COFINA structure were struck down, similar causes of action presented by the Ad Hoc Group of GO bondholders and Bettina Whyte as COFINA agent were not. Let’s see what Judge Swain decides.

In addition, several bondholders had filed requests for Rule 2004 discovery and the Court signaled its agreement to it subject to specific objections. The parties filed a report informing the Court where they agree and where (surprise surprise) they did not and subsequently, the Ad Hoc GO Group filed a motion objecting to following:

“Some of these Fiscal Plan Development Materials—such as the live model that underlies the Commonwealth Fiscal Plan, certified in March 2017—were provided to Movants in the “data room.” Those data room materials are subject to the strict constraints of an NDA (or in some cases, the mediation agreement), which prohibits their use in any way in the litigation. Among other things, they cannot be used as evidence-in-chief or for impeachment purposes, nor can they ever be shown to the Court. As for the rest of the Fiscal Plan Development Materials—such as versions of the new fiscal plan submitted to (but not certified by) the Oversight Board—Respondents refuse to produce them at all. Joint Rpt. at 3. Either way, Respondents, who continue to tout their “commitment to transparency” (Dkt. 1928 at 1), insist that these Fiscal Plan Development Materials must never see the light of day.”

As I have mentioned many times before, the Board is anything but transparent and will fight to the end to continue obfuscating the truth. Some Supervisory Board!

Also this past week, Gregorio Igartua, who has filed many cases to get Puerto Rico to vote for President, filed a petition for permission to file a brief of amicus curiae and included it with his pleading. In essence, it requests:

“As it can be seen, for Federal Courts to follow the Insular Cases, the case of Balzac, and/or the case of Harris v Rosario to legally support Puerto Rico’s special relation with the U.S. as a non-incorporated territory is today legally unfounded and incorrect. The practice of treating Puerto Rico as a non-incorporated territory where constitutional dispositions do not apply, and as an incorporated for others, must end.”

Finally someone arguing what the Government of Puerto Rico should have argued, for example, that Puerto Rico is an incorporated territory and the full power of the Constitution applies to it. Too bad that this is too little, too late.

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.