Puerto Rico bond underwriters are trying to get a Puerto Rico court to dismiss bond insurers' National Public Finance Guarantee and Ambac Assurance suits against them, but the judges in the cases so far have not ruled in favor of the underwriters.
MBIA and its subsidiary National Public Finance Guarantee and Ambac Assurance have filed various suits since 2019 with the insurers arguing the underwriters deceived them in offering documents about the creditworthiness of the issuers from bonds sold years ago.
National is seeking monetary damages from the underwriters in an amount to be determined at the trial.
The suits have moved courts and now both cases are being heard under Puerto Rican local law, which is heavily influenced by Spanish law since Puerto Rico was a Spanish colony until 1898.
On Feb. 9 the underwriters filed a motion for an oral hearing on their motion to dismiss the Ambac case. Judge Maria Cabrera Torres denied the motion “for the time being.” There have not been any further entries in the case since then.
The underwriters also filed a motion for an oral hearing on their motion to dismiss in the National case, but the judge has also yet to rule on that motion.
In 2019, insurer MBIA and its subsidiary National Public Finance Guarantee filed suit in the Court of the First Instance, Superior Court of San Juan, against several large underwriters. MBIA and National said the underwriters had deceived them in the Official Statements they prepared about the creditworthiness of the bond issuers when the bonds were sold years ago. In February 2020 Ambac Assurance filed a similar suit in local court.
The underwriters moved the cases to the United States Court for the District of Puerto Rico. In July, this federal court, which is handling the bond bankruptcy, said the two cases, which had been argued together, should be handled in local court.
Since then the cases have been handled separately. MBIA and NPFG filed its suit against the underwriters on Aug. 2, 2020. Ladi Buono de Jesus is the judge.
Ambac filed a case on Oct. 29. Maria Cabrera Torres is the judge.
They are in the Court of the First Instance in San Juan.
In its filing for the third quarter of 2020, MBIA said, “National alleges that when the defendants solicited bond insurance, they represented through their acts that they would investigate certain information they provided to National and that they had a reasonable basis to believe that information was true and complete. National further alleges that the defendants did not perform such investigations and that key information was untrue or incomplete.”
In the MBIA/NPFG case, the underwriters filed a motion to dismiss on Sept. 20. National filed a motion in opposition on Oct. 7.
On Nov. 25 NPFG filed a further motion in opposition to the dismissal. National quoted from a 1989 decision that said good faith is an elementary requirement. National’s suit “alleges in more than sufficient detail the ‘particular circumstances’ that establish how the defendant banks breached their obligations when they assured National that they would carry out due diligence on the information reflected in the Official Statements of the issuers, but later they did not carry out that diligence.” Because of this the court must refuse the defendants’ request for dismissal, National said.
The underwriters have sought to move the case to New York State. In this motion National argued it doesn’t have a cause of action in that state and the case should remain in Puerto Rico.
On Nov. 30 the underwriters motioned for an oral hearing concerning its motion to dismiss. “The briefs presented by the parties related to the request for dismissal have been extensive and include more than 100 pages of arguments and citations to jurisprudence and legal authorities,” the underwriters said.
They continued, “The four briefs address at least six difference controversies: (1) the appropriate forum to address the dispute; (2) if Article 7 of the Civil Code applies to the dispute; (3) if the claimants have adequately argued a claim that justifies the granting of a remedy under the doctrine of unilateral declaration of will; (4) if the claimants have adequately argued a claim that justifies the granting of a remedy under the doctrine of proper acts; (5) if the claimants meet the causation requirement of the alleged loss; and (6) if the claimants’ claims are prescribed.”
On Dec. 1 Judge Buono de Jesus entered an order saying she was aware of the motion for an oral hearing and would order one if he thought it appropriate.
Later on Dec. 1 National filed a motion explaining its position that an oral hearing was unnecessary. “The matter before this tribunal is a simple one, it has been widely argued by the parties, the tribunal allowed replies and duplicates, and therefore, the matter is duly submitted to the consideration of the tribunal.”
“There is no doubt that the defendants are trying to delay as much as possible the adjudication of the claims presented by National in the action brought against the banks,” National continued.
On Dec. 3 the judge acknowledged having received National’s submission. There have not been any substantive filings in the case since then. This may be a sign the judge will rule on the motion to dismiss without an oral hearing.
The Ambac suit has followed a similar path though is at a slightly earlier stage because the suit was filed later. The judge is also considering a motion to dismiss.
The Bond Buyer gave MBIA, Ambac and the defending underwriters opportunities to comment on the cases. MBIA provided a quote from a quarterly statement. The others did not comment.
