A judge rejected Puerto Rico bondholders' request for compensation from the U.S. government for Oversight Board-incurred losses.
United States Court of Federal Claims Judge Richard Hertling released his opinion Monday in Altair Global Credit Opportunities Fund (A), LLC et al v. United States.
Although the case centered on the plaintiff investment funds' Puerto Rico Employers Retirement System bonds, if the judge ruled in their favor, the judgment could have been applied to other types of Puerto Rico bonds.
In 2018 a different U.S. Court of Federal Claims judge, Susan Braden, found several of the plaintiffs’ central arguments valid. In particular, she found despite the Puerto Rico Oversight, Management, and Economic Stability Act explicitly saying the board was part of the local government, the board should be considered part of the federal government. Braden held off on making a ruling because she wanted to see how other courts would rule in related cases that have since been decided.
In Monday’s ruling Hertling pointed to those subsequent rulings, in part, to justify rejecting the plaintiff’s three claims.
In the Financial Oversight and Management Board for Puerto Rico v. Aurelius Investments, the U.S. Supreme Court ruled Congress “gave the board a structure, a set of duties, and related powers all of which are consistent with” PROMESA’s provision establishing the board as an “entity within the territorial government.” Because of this, Hertling said the board should be considered part of the local and not federal government.
The plaintiffs had tried to make a monetary claim against the U.S. for the board’s actions under the Tucker Act. “The plaintiffs’ first claim therefore is not against the United States as required under the Tucker Act,” Hertling wrote.
Alternately, the plaintiffs argued the board’s actions could be attributed to the U.S. because the board, “as an instrumentality of Puerto Rico, acted under federal authority,” the judge wrote summarizing one of the arguments.
In response, he said Puerto Rico’s government, now including the board, enjoys significant autonomy from the U.S. Thus the U.S. shouldn’t be liable for its actions.
The plaintiffs had also asked the court for compensation for “an alleged taking of their liens on post-petition employer contributions to the ERS.”
Hertling referenced a recent First Circuit Court of Appeals decision that, in his summary, said the ERS’s “statutory authority to receive post-petition employer contributions was merely an expectancy, not a property right under Puerto Rican law.” He quoted the First Circuit, which said it “is impossible to have a lien on something that does not exist.”
Finally, the judge said the plaintiffs had made a claim seeking “just compensation for an alleged taking of a contractual right to timely payments of principal and interest from post-petition employer contributions to the ERS.”
Again, Hertling said the plaintiff’s had no “property interest” in the post-bankruptcy petition employer contributions to ERS.
Hertling cited the 1978 Penn Cent. Transp. Co. v. City of New York decision as informing his decision as to whether there had been a “regulatory taking.”
First, the bankruptcy’s impact on the value of the bonds remains unclear, so its economic impact on the plaintiffs is also unclear.
Second, the plaintiffs didn’t prove the U.S. “interfered with investment-backed expectations.” The possibility of a bankruptcy was mentioned in the 2008 bond resolution, Hertling pointed out.
Third, the U.S. government didn’t take the property for itself, as in another case the bondholders cited. “It merely enabled Puerto Rico to seek relief under the Bankruptcy Code.” The bondholders still have the right to defend their claim in the Title III bankruptcy process, Hertling said.
These three factors taken together, he said, weigh against finding the plaintiffs had their contract rights taken “sufficient to state a claim.”
The plaintiffs could appeal the decision. The plaintiff’s lead attorney didn’t immediately respond as to whether there’d be an appeal.
