Puerto Rico bankruptcy judge says she, not local court, will decide COFINA legality

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Puerto Rico Title III bankruptcy Judge Laura Taylor Swain said she will decide the legality of the Puerto Rico Sales Tax Financing Corp. (COFINA) without a ruling from Puerto Rico’s Supreme Court.

On Feb. 26 the agent for COFINA, Bettina Whyte, filed a motion and memorandum of law in one of the Title III adversary proceedings. Whyte wanted the local court to rule on whether the sales and uses taxes apparently pledged by COFINA to secure the debt were property of Puerto Rico’s government or COFINA.

Since then several parties including the COFINA Seniors Coalition have joined the adversary proceeding supporting having the local court rule on the matter, under certain circumstances.

The Ad Hoc Group of General Obligation Bondholders, the Oversight Board, and other parties expressed their opposition to the idea.

“Because federal law issues are … necessarily bound up in the antecedent question of ownership, the Commonwealth-COFINA Dispute presents a mixed question of federal and Puerto Rico law that is inappropriate for certification” to the Puerto Rico Supreme Court, Swain said Thursday in a memorandum order.

Swain quoted from a Puerto Rico Supreme Court case that stated that it normally doesn’t accept cases that include both federal and Puerto Rico law.

Swain also said that referring the issue to the Puerto Rico Supreme Court would delay progress of the Title III case.

The dispute over whether the Puerto Rico government or COFINA owns the sales and use tax revenues allotted to pay the bonds is one of the central questions Swain is considering in the court case.

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PROMESA Commonwealth of Puerto Rico University of Puerto Rico Puerto Rico Industrial Development Co Puerto Rico Employees Retirement System Puerto Rico Public Buildings Authority Puerto Rico Public Finance Corporation Puerto Rico Sales Tax Financing Corp (COFINA) Puerto Rico