Wednesday, February 22, 2017

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S&P500
2365.38
+14.22
+0.60%
NASDAQ
5865.95
+27.37
+0.47%
NYSE
11578.25
+67.34
+0.59%
GOOG
831.66
+3.59
+0.43%
YHOO
45.5
+0.4
+0.89%
AAPL
136.7
+0.98
+0.72%
AMZN
856.44
+11.37
+1.35%
FB
133.72
+0.19
+0.14%
BPOP
45.42
+0.05
+0.11%
EVTC
17.25
+0.05
+0.29%
OFG
13.45
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FBP
6.54
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GTS
18.75
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+2.29%

Fiscal Oversight Board appeals Judge Besosa’s decision

By on December 2, 2016

On Nov. 28, 2016, the Financial Oversight & Management Board filed a notice of appeal in the Altair case at federal district court. Its purpose is for the First Circuit Court of Appeals to revoke Judge Francisco Besosa’s decision to deny, without damages, its request of intervention.

Judge Besosa denied the request for intervention arguing, correctly, that the board had not included a pleading with its request. Rule 24(c) requires that the motion for intervention include a pleading on the claim or defense on which the intervention is requested. Even though the board stated in its motion that its position regarding the intervention was the continued stay of the suits, it did not include a pleading. Rule 7(a) of the Federal Rules of Civil Procedure states that pleadings are a complaint, answer to the complaint, an answer to a counterclaim, an answer to a cross claim, a third-party complaint, or an answer to a third-party complaint.

john mudd

Attorney John Mudd

It seems to me that the board did not want to reveal in its pleading its position regarding the allegations of the plaintiffs, and that is why it did not amend its request. This makes even more sense when we see that in a Nov. 23, 2016, letter the board points out on page 4 that in the week of Dec. 19, a revised fiscal plan would be distributed to the public as well as an Invitation to Good Faith Negotiations with the creditors. One does not reveal one’s position on the bondholder’s allegations until there isn’t any other alternative.

Furthermore, this appeal may signal a more open conflict with the federal courts. In my practice, when a judge points out to me what Besosa pointed out, the farthest thing from my mind is to appeal, but to amend any defect the judge may have indicated. It is more economical and consumes less time. That the board has appealed seems to be a message to the judge that it, and not the judge, is “the queen of the ball.”

However, the board has other obstacles in its case. Judge Besosa’s determination was one without prejudice and thus cannot be considered a final decision that could be appealed under 28 U.S.C § 1291. See also Wafford v. US, 195 F.3d 488 (9th Cir. 1997; unpublished opinion). Also, the board did not request an appealability order under 28 U.S.C. § 1292(b), which is a sine qua non requirement to appeal an interlocutory order. However, on the appeal regarding Peajes on the same matter, Judge Jeffrey Howard denied, without prejudice, a motion to dismiss for lack of jurisdiction, leaving the issue for the argumentation of the case. This could happen here.

As I mentioned earlier, the board said that in the week of Dec. 19, it will invite creditors for good faith negotiations. Considering that Promesa’s stay of litigation, unless the board issues an extension, expires on Feb. 15, there is very little time to reach agreements and that if these are not reached, the board can file, after the Fiscal Plan is approved (Jan. 31, 2017), the bankruptcy of the whole Puerto Rico government under Title III of Promesa.

This could mean three or four years of intense and costly litigation within the bankruptcy procedures that could be detrimental to Puerto Rico’s efforts of economic growth even if the local public debt is reduced. The hurry to complete the Fiscal Plan on or before Jan. 31, even when on Jan. 2 a new government will be sworn in, could indicate the intention of taking the commonwealth to Title III. Let’s wait and see what happens.

— John Mudd is an attorney and legal analyst in Puerto Rico with over 30 years of experience. He is admitted in Puerto Rico, the U.S. District Court for Puerto Rico and the First and Fourth Circuit Courts of Appeals. For more than three years, he has been analyzing the possibility of a control board for Puerto Rico. You can follow him on Twitter @muddlaw and on his blog www.johnmuddlaw.com.

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