Welcome to your weekly Title III update for August 6, 2018. Well, I don’t know about you, but it definitely seems like there is movements due largely to rising political pressures on the Oversight Board and the governor from Washington.
First, last week I mentioned that two independent sources have confirmed that the Commonwealth-COFINA deal is very close to completion. In a sign that there is still room to go, the Commonwealth and COFINA agents requested an extension until September 13, 2018 to complete the settlement, which interestingly is the same date as the Omnibus hearing. The motion seems to indicate the agreement does not have the necessary number of approvals. The Court gave the parties one day to object and since no one did, agreed to the extension. Both the Government of Puerto Rico and the GO bondholders had reserved their right to object, but did not raise one at this time. Either they did not have an objection or they realized the Court would grant it anyways and are bidding their time. My sources tell me that Fortaleza will sign-up to the deal, as the Governor desperately needs a win in the face of non-existent credibility outside of Puerto Rico in the lead up to his 2020 re-election campaign. Let’s wait and see.
Also of great importance, as I had predicted, the First Circuit set oral argument for the Aurelius case for September 10, 2018. If a decision comes down by November, not an unrealistic forecast, the case could be before SCOTUS by December. In addition, if certiorari were granted, a decision would come down no later than June 30, 2019. In the same vein, Assured filed an adversary proceeding challenging the Board’s appointment as unconstitutional. Last week, the Board and Assured filed a stipulated judgment, which the Court quickly entered, accepting the applicability of Judge Swain’s decision in Aurelius to the case. Right after the judgment, Assured filed a notice of appeal and it is likely the case will be consolidated with the Aurelius oral argument. Case moving right along.
A group of ERS bondholders filed a supplementary motion for the lifting of the stay, including 1,264 pages of documents, seeking a timetable for the hearing. The Board objected saying that the Court had ruled it would determine at the next Omnibus hearing whether the ERS bondholders have a lien. The Retirees Committee joined the Board. To me, it’s more efficient to have the whole thing at the Omnibus rather than piecemeal, but let’s see what Judge Swain decides.
I discussed the proposed PREPA bondholders deal in [another posting], but what is related to it is the Board’s certification of a new Fiscal Plan for the utility. In the past, the Board had insisted that the utility’s rate should be at or below 20 cents per kilowatt/hour. In the new Fiscal Plan however, the Board states that due to increase in fuel costs, in the next few years, the rate would fluctuate between 27-30 cents per kilowatt/hour. This is in addition to the Transition Charge that will be imposed on consumers if the agreement comes through. In addition, the Fiscal Plan mentions that in June and July there would be meetings with the unions to discuss different matters. I asked Utier’s attorney about said claims and he said there had been no such meetings. The Fiscal Plan calls for reductions of PREPA’s contribution to the employees’ medical plan and elimination of Christmas bonuses. Although PREPA may alter the collective bargaining agreement even before it is rejected, see, NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984), the common sense thing to do would be to meet with the union beforehand to see if there could be areas of agreement. The last thing PREPA and Puerto Rico need is for the Government to unilaterally impose changes to the collective bargaining agreement and have the unions go on strike without previous negotiations.
Predictably, Governor Rosselló instructed the PREPA Board to reject the Fiscal Plan or at least those parts dealing with the rate increase and labor provisions. As disagreeable as a rate increase may sound, there is no doubt that they would come given that PREPA’s fuel costs, as per the Fiscal Plan, have increased in 34%. In addition, the reduction of labor benefits is consistent with what the Board has mandated to the Commonwealth and the governor has resisted. More importantly, the actions from the Board and the governor over electricity rates is deplorable. They are simply not being honest with the Puerto Rican people or the courts. Clearly, the path to de-politicization has a long way to go.
Finally, in a little reported case in Federal Court named Consejo de Salud de PR v. USA, federal judge Gustavo Gelpi reserved his ruling on a petition by the U.S. Department of Health. The U.S. Agency is trying to dismiss a lawsuit filed by the Puerto Rico Health Center “MedCentro Centro” and several Medicare and Medicaid beneficiaries alleging violations of the Equal Protection clause in regards to unequal Medicare funds to U.S. citizens residing in Puerto Rico. Essentially, plaintiffs and the government are trying to convince Judge Gelpí that Puerto Rico is an incorporated territory, while the defendant U.S. Government warned the Court that Puerto Rico had cited with approval the territorial cases in the PROMESA litigation. If Puerto Rico is deemed an incorporated territory, then it will receive more Medicaid funds. But, with that decision, the Board, Puerto Rico and the U.S. Government’s arguments against the Aurelius case would be weakened. It seems that the parties need to decide what battle is worth fighting. The U.S. Government also reminded the Puerto Rican Government that it doubted it wanted to have the 5th Amendment challenges in several adversary proceedings to be reviewed under strict scrutiny, like it wants done in Judge Gelpí’s case. I warned about these actions by the Rosselló administration in a Caribbean Business column and specifically mentioned the doctrine of judicial estoppel, which is what the U.S. was clearly referring to. That is what happens when you put short-term goals ahead of long-term initiatives.
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.