Puerto Rico Oversight Board Calls for Continued Stay on Debt Suits

The Puerto Rico Oversight Board urged the judge in four key Puerto Rico debt cases to continue a freeze on the litigation.

The board filed its statement in the Brigade, NPFG, Trigo-Gonzalez, and U.S. Bank Trust cases on Friday.

On June 30 President Obama signed the Puerto Rico Oversight, Management and Economic Stability Act. Among other things, the law included a stay on Puerto Rico debt-related litigation until at least Feb. 15 unless cause could be shown.

Plaintiffs in the four cases, as well as in other cases, have asked Judge Francisco Bessoa to lift the stay.

The board "believes that ongoing litigation is a major distraction that interferes with the Oversight Board's congressional mandate and that all parties' time and resources would be better spent negotiating the fiscal plans required by PROMESA," the board said in a statement of opposition to the plaintiff's motion to lift the stay. "It does not appear to the Oversight Board that any of the plaintiffs would suffer irreparable or even material harm during the pendency of the stay."

The board quoted from the Peerless Ins. Co. v. Rivera case which said, "generally speaking, 'cause' is said to exist when the harm that would result from a continuation of the stay would outweigh any harm that might be suffered by the debtor or debtor's estate if the stay is lifted." The board argues that the need for Puerto Rico's government to spend its resources on providing services to its constituents in the midst of a fiscal crisis is paramount. It also says that the government should use its resources working on a fiscal plan rather than defending itself in court.

The board asked the judge to deny the plaintiffs' request for a lift to the stay. In order for the board to get as much as possible accomplished during the stay, the board asked the judge in the case to order:

  • The commonwealth to account for security interest funds, future revenues and expenditures, and any transfers to and from the Government Development Bank for Puerto Rico since the spring;
  • That reserve funds be used to make debt payments;
  • The commonwealth provide the board with already requested information by deadlines this month;
  • The commonwealth provide an explanation of the procedures and priorities that guide its disbursement of funds;
  • The commonwealth to be allowed to use security interest funds including intercepted funds for essential government services.

The board also asked the judge to schedule a conference in 30 days for the board to report back to the judge.
For its part, on Sept. 21 the U.S. Department of Justice argued that a argued that a lift of the stay would undermine Congress's clear purpose in enacting PROMESA. "If Puerto Rico's revenues are diverted from essential services for the health, safety, and welfare of the inhabitants of Puerto Rico to payments of debt service, the human costs of such a decision would be significant."

On Sept. 21 the department asked the judge to use a strict measure of when there was cause to lift a stay and to wait for any potential action by the board in the cases.

The board is being represented by attorneys Luis del Valle-Emmanuelli, based in Carolina, Puerto Rico, and Michael Luskin and Stephan Hornung of Luskin, Stern & Eisler LLP, based in New York, N.Y.

 

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