Sunday, May 20, 2018

Appeals Court stays Lex Claims suit

By on March 20, 2017

Judge Francisco Besosa (Image of painting via

Judge Francisco Besosa (Image of painting via

SAN JUAN – The U.S. First Circuit Court of Appeals in Boston on Monday stayed the Lex Claims lawsuit in which general obligation (GO) bondholders are challenging the constitutionality of the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym).

The Financial Oversight and Management Board for Puerto Rico moved for an interim stay of the entire district court action pending the circuit court’s decision in the Promesa appeals. The court granted the oversight board’s request to stay the suit until further notice, overturning District Court Judge Francisco Besosa’s decision against stopping the process.

The First Circuit Court of Appeals said it took into consideration: (1) whether the applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent relief; (3) whether issuance of relief will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.

The justices said that while the plaintiffs’ attempt to split the claims in their complaint, their allegations are basically the same.

“We need not consider at this time whether the Promesa stay should ordinarily be applied to the entire ‘action or proceeding,’ as the oversight board argues; or claim by claim, as the district court ruled. Given the unitary nature of the complaint and the requested relief, we see a substantial likelihood that the entire action should have been stayed,” the appeals court said.

Without an interim stay, irreparable harm to the oversight board’s Promesa negotiations–now entering their critical stage–would be easy to foresee, the court said.

The stay was intended to provide “a limited period of time during which [the Commonwealth] can focus its resources on negotiating a voluntary resolution with its creditors instead of defending numerous, costly creditor lawsuits,” the court added.

The Promesa stay is set to expire on May 1, less than one-and-a-half months from now. “In these circumstances, we find that the Board would be irreparably harmed by the plaintiffs’ continued pursuit of the instant lawsuit. Participation in these proceedings would take valuable time and resources away from the Board’s crucial work of negotiating voluntary resolutions between the Commonwealth and its creditors. For these same reasons, we hold that the public interest weighs in favor of staying the district court action. The 3.5 million American citizens who reside in Puerto Rico are depending upon the successful restructuring of the Commonwealth’s debt,” the middle court said.

On the other side of the balance, the court said it does not believe that the issuance of a stay will result in substantial injury to the plaintiffs. Besides challenging the constitutionality of Cofina, the GO bondholders in the Lex Claims lawsuit also wanted money used to pay Cofina to be considered available resources and be used to pay them instead as they have a constitutionally protected priority.


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