Puerto Rico
Oversight Board Addresses ‘Materially Defective’ Plan Provisions Flagged by Judge Swain; Will Modify Plan to Pay Inverse Condemnation, Eminent Domain Claims If Needed; Board Prepared to Pursue Litigation to Nullify Acts 80, 81, 82
Wed 12/15/2021 11:36 AM
Relevant Document:
Agenda
At an omnibus hearing in the Puerto Rico Title III cases this morning, the PROMESA oversight board addressed Judge Laura Taylor Swain’s Dec. 14 memorandum order flagging “problematic” issues with the plan of adjustment, indicating that it intends to submit an analysis that is responsive to the court’s concerns by the Dec. 20 deadline.
Martin Bienenstock of Proskauer Rose, appearing for the oversight board, walked Judge Swain through a handful of the court’s concerns, providing guidance on next steps or otherwise justifying the oversight board’s decisions. Beginning with the court’s issues with pre-emption, Bienenstock indicated that the oversight board will be submitting analysis for each of the statutes identified in the plan as pre-empted with the aim of being responsive to the court’s concerns. He said that with respect to the oversight board adding Acts 80, 81 and 82 to the pre-empted laws list, he recognized the court had “a timing concern.”
Bienenstock reiterated the oversight board’s reasoning for adding these statutes “at the very end,” explaining that the Puerto Rico Legislature passed a Senate resolution that compels the governor to enact the laws despite an agreement between the oversight board and the government to refrain from implementing the laws until they were amended to make them “palatable.” “These are of extreme importance,” Bienenstock stressed, adding that “they basically recreate defined benefits plans” that would in most cases end up paying defined benefits claims “more than in full.” He noted that the oversight board will be explaining why these laws can be pre-empted in its submission.
Alternatively, Bienenstock said, the oversight board is prepared to file a complaint seeking to nullify those acts because of the “multitudinous impacts on the fiscal plan, budget and plan of adjustment.” He added that the oversight board is “prepared to go in different directions” if the court determines it was too late to add those statutes to the list of pre-empted laws.
Bienenstock also spoke to the court’s determinations regarding the Fifth Amendment claims - broadly, that the plan is “materially defective” because it does not provide for payment in full of the unsecured portions of eminent domain claims and inverse condemnation claims, and the Takings Clause prohibits the debtors from impairing and discharging any obligation to provide just compensation. Bienenstock indicated that as the oversight board had said before, it believes that “the money involved to compensate those claims is doable.”
The oversight board will make a revision to the plan to provide for that payment if that is the court’s ultimate ruling, he added. Bienenstock said that the oversight board might also seek to show cause as to why the plan should be confirmed “as is,” but he said that the board is under “no illusions” and read the court’s order carefully.
Peter Friedman of O’Melveny & Myers responded on behalf of AAFAF, asserting that the oversight board is merely reiterating its closing arguments. He said that the oversight board “misportrays” the new Senate resolution and the overall effect of Acts 80, 81 and 82, adding that the laws have been in the Legislature for over a year and the oversight board should have addressed them earlier.
Friedman expressed concern that the issue would impede the parties’ efforts toward a meaningful meet and confer process regarding all statutes that are pre-empted. He said the oversight board may simply file a sizable response to the court’s order, which may result in AAFAF seeking more time beyond Dec. 23 to file a response in order to be able to do so meaningfully. Friedman stressed, however, that AAFAF supports the plan and “does not want to be an obstacle.”
Judge Swain responded that she “put that meet and confer in [the order] for a reason, hoping there can be some meaningful efforts to come to an agreement.” She added that she “urged people to speak candidly, meaningfully and with an eye towards reaching consensual language and concepts on at least some of these issues.”
After discussing the court’s order, Judge Swain turned to the agenda items for today’s hearing, which related exclusively to contested claims.
Agenda
At an omnibus hearing in the Puerto Rico Title III cases this morning, the PROMESA oversight board addressed Judge Laura Taylor Swain’s Dec. 14 memorandum order flagging “problematic” issues with the plan of adjustment, indicating that it intends to submit an analysis that is responsive to the court’s concerns by the Dec. 20 deadline.
Martin Bienenstock of Proskauer Rose, appearing for the oversight board, walked Judge Swain through a handful of the court’s concerns, providing guidance on next steps or otherwise justifying the oversight board’s decisions. Beginning with the court’s issues with pre-emption, Bienenstock indicated that the oversight board will be submitting analysis for each of the statutes identified in the plan as pre-empted with the aim of being responsive to the court’s concerns. He said that with respect to the oversight board adding Acts 80, 81 and 82 to the pre-empted laws list, he recognized the court had “a timing concern.”
Bienenstock reiterated the oversight board’s reasoning for adding these statutes “at the very end,” explaining that the Puerto Rico Legislature passed a Senate resolution that compels the governor to enact the laws despite an agreement between the oversight board and the government to refrain from implementing the laws until they were amended to make them “palatable.” “These are of extreme importance,” Bienenstock stressed, adding that “they basically recreate defined benefits plans” that would in most cases end up paying defined benefits claims “more than in full.” He noted that the oversight board will be explaining why these laws can be pre-empted in its submission.
Alternatively, Bienenstock said, the oversight board is prepared to file a complaint seeking to nullify those acts because of the “multitudinous impacts on the fiscal plan, budget and plan of adjustment.” He added that the oversight board is “prepared to go in different directions” if the court determines it was too late to add those statutes to the list of pre-empted laws.
Bienenstock also spoke to the court’s determinations regarding the Fifth Amendment claims - broadly, that the plan is “materially defective” because it does not provide for payment in full of the unsecured portions of eminent domain claims and inverse condemnation claims, and the Takings Clause prohibits the debtors from impairing and discharging any obligation to provide just compensation. Bienenstock indicated that as the oversight board had said before, it believes that “the money involved to compensate those claims is doable.”
The oversight board will make a revision to the plan to provide for that payment if that is the court’s ultimate ruling, he added. Bienenstock said that the oversight board might also seek to show cause as to why the plan should be confirmed “as is,” but he said that the board is under “no illusions” and read the court’s order carefully.
Peter Friedman of O’Melveny & Myers responded on behalf of AAFAF, asserting that the oversight board is merely reiterating its closing arguments. He said that the oversight board “misportrays” the new Senate resolution and the overall effect of Acts 80, 81 and 82, adding that the laws have been in the Legislature for over a year and the oversight board should have addressed them earlier.
Friedman expressed concern that the issue would impede the parties’ efforts toward a meaningful meet and confer process regarding all statutes that are pre-empted. He said the oversight board may simply file a sizable response to the court’s order, which may result in AAFAF seeking more time beyond Dec. 23 to file a response in order to be able to do so meaningfully. Friedman stressed, however, that AAFAF supports the plan and “does not want to be an obstacle.”
Judge Swain responded that she “put that meet and confer in [the order] for a reason, hoping there can be some meaningful efforts to come to an agreement.” She added that she “urged people to speak candidly, meaningfully and with an eye towards reaching consensual language and concepts on at least some of these issues.”
After discussing the court’s order, Judge Swain turned to the agenda items for today’s hearing, which related exclusively to contested claims.
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