A Puerto Rico court has said the struggling bank Doral Financial will be able to have a court hearing for its claim against Puerto Rico's Treasury Department.
Doral is seeking $229 million from the Treasury. The Federal Deposit Insurance Corp. has pressured Doral to add hundreds of millions of dollars of Tier 1 capital in the next few weeks.
The three major ratings agencies have indicated they believe the FDIC will liquidate Doral in the near future.
Doral has over $150 million in outstanding municipal debt, issued through Puerto Rico conduit agencies.
Doral claims that it had over-paid taxes from 2002 to 2004 and was entitled to a refund.
On June 16 a Puerto Rico Court of the First Instance declined to hear Doral's case against the Treasury, saying the Treasury should consider Doral's appeal in an administrative hearing.
Doral appealed the court's decision to the Puerto Rico Court of Appeals.
On Tuesday the Court of Appeals found that the lower court had erred.
The higher court directed the lower court to hold an evidentiary hearing where the Treasury Department will have the burden to prove the alleged fraud, malfeasance or misrepresentation of material that would allow the Treasury to set aside an agreement the Treasury had made with Doral.
"The Treasury Department believes this lawsuit and the allegations contained within are without merit," the department said in a written statement in June. "Doral's request for a tax refund is not valid and its alleged overpayment of taxes never took place."
The 2012 agreement is null and void for several reasons, Treasury Secretary Melba Acosta Febo said in May.
"Doral's request is akin to taking the future depreciation of an asset and having the Treasury Department pay in the present for possible tax savings that may be obtained from that depreciation," Acosta Febo said.
