Autonomous Municipality San Juan v. Fin. Oversight & Mgmt. Bd. for Puerto Rico

301 F. Supp. 3d 314
CourtUnited States District Court
DecidedSeptember 27, 2017
DocketNo. 17 CV 2009–LTS
StatusPublished

This text of 301 F. Supp. 3d 314 (Autonomous Municipality San Juan v. Fin. Oversight & Mgmt. Bd. for Puerto Rico) is published on Counsel Stack Legal Research, covering United States District Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Autonomous Municipality San Juan v. Fin. Oversight & Mgmt. Bd. for Puerto Rico, 301 F. Supp. 3d 314 (usdistct 2017).

Opinion

LAURA TAYLOR SWAIN, United States District Judge

The autonomous municipality of San Juan ("San Juan," "Plaintiff," or the "Movant"), which is the largest municipality of the Commonwealth of Puerto Rico (the "Commonwealth" or "Puerto Rico") and the Commonwealth's capital, moves pursuant to Federal Rule of Civil Procedure 65 for a preliminary injunction enjoining, pending certain structural changes and disclosures, the solicitation, disclosure and collection of votes in favor of a proposed restructuring support agreement for the Government Development Bank for the *317Commonwealth ("GDB"), dated May 15, 2017 (the "RSA"), under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), 48 U.S.C. § 2231 (the "Motion"). The Court heard oral argument on the Motion on September 11, 2017, and has considered thoroughly the parties' oral arguments and written submissions. For the following reasons, the Motion is denied. This Opinion constitutes the Court's findings of fact and conclusions of law for purposes of Federal Rules of Civil Procedure 52(a)(2) and 65.

I.

FINDINGS OF FACT

San Juan has proffered very little in the way of evidentiary support for its contentions, confining its submissions in support of the Motion to its Memoranda of Law, the Declaration of its attorney Julissa Reynoso ("Reynoso Decl.") proffering newspaper articles, and the Declaration of Esperanza Ruiz ("Ruiz Decl."), the City Administrator of San Juan (the "City Administrator"), which proffers facts regarding San Juan's municipal services and interactions with GDB, the City Administrator's opinions regarding the terms of the RSA, and authentication of certain correspondence and additional documents.1 Defendants GDB and the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF") also proffered limited factual information in connection with their opposition to the motion, submitting the Declaration of Christian Sobrino Vega in Support of GDB and AAFAF's Opposition to Plaintiff's Motion for a Preliminary Injunction ("Vega Decl.").2 There seems, however, to be little dispute regarding the factual issues material to this motion practice. Accordingly, the Court makes the following findings of fact based on uncontroverted non-hearsay evidentiary proffers, the content of documents whose authenticity appears to be undisputed, and apparent concessions during oral argument.

The Commonwealth is a territory of the United States that is currently suffering a fiscal crisis that was decades in the making.3 GDB is a public corporation and instrumentality of the Commonwealth, organized under Act No. 17-1948 (the "GDB Enabling Act") that, until recently, served as fiscal agent, depository bank, financial advisor, and lender to the Commonwealth and its municipalities, and which issued bonds, backed by revenue streams including repayment of municipal loans, to outside investors. GDB holds general deposits belonging to, among other municipalities, San Juan.

On April 6, 2016, GDB's fiscal agent responsibilities and obligations were transferred to AAFAF, which had recently *318been created, pursuant to the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, Act No. 21-2016 (the "Moratorium Act"). The Moratorium Act granted AAFAF authority to oversee all matters in connection with the restructuring of certain covered obligations designated by then Governor García-Padilla. AAFAF supplanted GDB's fiscal agent responsibilities, and the government of Puerto Rico decided to wind down GDB's operations and restructure its debts. Pursuant to the Moratorium Act, executive orders were issued that stopped virtually all municipal transfers and withdrawals out of the GDB. Actions taken pursuant to the Moratorium Act and subsequent forbearance agreements in connection with the negotiation of the RSA have frozen payments to GDB bondholders as well and stayed pending litigation.

On June 30, 2016, Congress enacted PROMESA, Title VI of which permits the restructuring of bond debt through "Creditor Collective Action" under voluntary restructuring support agreements certified by the Oversight Board4 as "Qualifying Modifications," that are then voted upon by pools of similarly-situated bondholders after mandated disclosures concerning the terms of the proposed modifications. See generally, PROMESA § 601. Upon approval of the proposed modifications by the holders of at least two-thirds of the outstanding principal amount of each relevant pool, certification of the vote by the Oversight Board, and submission of the Qualifying Modification and vote to the United States District Court for the District of Puerto Rico for approval, the Qualifying Modification may be implemented. See PROMESA §§ 601(j); 601(m).

On January 18, 2017, the Commonwealth's legislature approved the Puerto Rico Fiscal Agency and Financial Advisory Authority Act, Act 2-2017 (the "AAFAF Enabling Act"), which was signed into law by the Governor on the same day. The AAFAF Enabling Act expanded the powers of AAFAF, designating it as the only government entity authorized to restructure, and negotiate with holders of, debt issued by the government or its instrumentalities, and authorized AAFAF to compel any governmental entity to take action to comply with a fiscal plan certified by the Oversight Board. AAFAF negotiated the RSA for GDB, which has since been approved by numerous investor-bondholders and certain municipalities who have signed the RSA. (See Vega Decl. ¶ 8.) San Juan alleges that it was not part of the discussions leading to the proposed RSA and San Juan opposes the RSA. (See Compl. ¶ 5; Motion at 2.)

The Oversight Board has certified the RSA as a Qualifying Modification under Title VI of PROMESA. See PROMESA § 601(g)(2). (Vega Decl. ¶ 14.) As relevant here, the RSA treats the municipalities' deposits currently held by GDB as unsecured claims and accordingly classifies the municipalities into the same voting pool as holders of unsecured GDB bonds. (Vega Decl. ¶¶ 9-10.)5 If the Court ultimately approves the Qualifying Modification and makes it binding on all creditors, see PROMESA § 601(g); 601(m), the unsecured claims will be mandatorily exchanged for securities issued by a new entity, with a face value substantially smaller than that of the deposits and currently-outstanding bonds, and payment terms supported by cash flow from the *319repayment of currently-outstanding loans to the municipalities, which will remain payable in full. (Compl. Exhibit B, Docket Entry No. 1-7, ECF pp. 27-28; Vega Decl. ¶ 9.) With a limited exception not relevant here, the RSA does not permit the setoff of the value of any municipal assets held by GDB against the municipalities' outstanding loan repayment obligations. (Id.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Kokkonen v. Guardian Life Insurance Co. of America
511 U.S. 375 (Supreme Court, 1994)
Pennsylvania Department of Corrections v. Yeskey
524 U.S. 206 (Supreme Court, 1998)
General Motors Corp. v. Darling's
444 F.3d 98 (First Circuit, 2006)
Jean v. Massachusetts State Police
492 F.3d 24 (First Circuit, 2007)
United States v. Pedro Rivera
131 F.3d 222 (First Circuit, 1997)
Darling's v. Ford Motor Co.
2003 ME 21 (Supreme Judicial Court of Maine, 2003)
Berkman v. Rust Craft Greeting Cards, Inc.
454 F. Supp. 787 (S.D. New York, 1978)
Northwest Bypass Group v. U.S. Army Corps of Engineers
453 F. Supp. 2d 333 (D. New Hampshire, 2006)
Phico Insurance v. Pavia Health, Inc.
413 F. Supp. 2d 76 (D. Puerto Rico, 2006)
Yates v. United States
135 S. Ct. 1074 (Supreme Court, 2015)
Respect Maine Pac v. McKee
622 F.3d 13 (First Circuit, 2010)

Cite This Page — Counsel Stack

Bluebook (online)
301 F. Supp. 3d 314, Counsel Stack Legal Research, https://law.counselstack.com/opinion/autonomous-municipality-san-juan-v-fin-oversight-mgmt-bd-for-puerto-usdistct-2017.