Judge says Puerto Rico Board cannot replace PREPA leader

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Title III bankruptcy Judge Laura Taylor Swain ruled that the Puerto Rico Oversight Board didn’t have the power to replace the leader of the Puerto Rico Electric Power Authority.

Early Wednesday afternoon Swain said that there was nothing in the Puerto Rico Oversight, Management, and Economic Stability Act that gave the power to the board.

The board had asked Swain to confirm its appointment of Noel Zamot as PREPA’s Chief Transformation Office. In this role he would have the power of a chief executive officer. If this had been permitted, Zamot would have replaced Ricardo Ramos as executive director.

Swain called on the board and the government of Gov. Ricardo Rosselló to work collaboratively to solve Puerto Rico’s problems.

After the ruling, Gov. Rosselló released a statement saying, “We are very pleased with the decision issued today by Judge Laura Taylor Swain, since it reiterates our position regarding the limit of power of the Financial Oversight and Management Board.… It is clear that the Financial Oversight and Management Board does not have the power to take full control of the government or its instrumentalities.

“We recognize that the reconstruction and recovery of the island requires a union of wills; therefore, we welcome any collaboration or technical support that the board wishes to offer to the government elected by Puerto Ricans to ensure the best interests of the people of Puerto Rico,” the governor continued.

In the courtroom following the ruling, the Puerto Rico Fiscal Agency and Financial Advisory Authority’s chief case lawyer Peter Friedman said on behalf of the Rosselló administration, “I think we understand very clearly the judge’s expectations about cooperation.”

After lawyers had presented their sides to Swain orally on Wednesday morning but before Swain ruled orally in the afternoon, attorney John Mudd said it would be “huge” if she ruled against the Oversight Board, as she ended up doing. Mudd said this would hamper the board’s ability to get things done and would force the board to repeatedly return to the judge for rulings.

Mudd is representing a municipality in the Title III case and comments on Title III proceedings through his Control Board Watch web site.

As Mudd noted, the Oversight Board’s principal lawyer at the hearing, Martin Bienenstock, had also warned that the board without the ability to appoint leaders might have to frequently come back to the court for court orders aimed at compelling actions.

Bienenstock pointed to the ruling Swain made against the Ad Hoc Group of PREPA Bondholders in September, where she said the group could not appoint a receiver without the board’s approval. In the September decision she said that the board was the sole “trustee” of PREPA.

At Wednesday morning’s arguments, Friedman said the board’s powers were strong but limited. He said that the U.S. Congress had considered giving the board the power to appoint an emergency manager but decided against this.

On Wednesday afternoon Swain said in PROMESA there is a path for the board to force its way on authorities and the government but that this only is supposed to come after there is interaction between the two sides concerning implementation of a fiscal plan. She said PROMESA didn’t give the board broad power to appoint personnel.

Congress may have made things easier for the board if it had given it direct authority over Puerto Rico’s government and public entities, Swain said. However, it didn’t do this; instead it deliberately split power between the board and the local government, she said.

“I urge you to work together,” Swain said regarding the board and the Rosselló administration and perhaps also the other parties to the Puerto Rico debt crisis gathered in the court room. Every moment spent on complicated and expensive litigation is time lost for Puerto Rico people, she said.

Swain said she would issue a written opinion later this week further explaining her oral decision Wednesday afternoon.

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PROMESA Puerto Rico Electric Power Authority Commonwealth of Puerto Rico Puerto Rico