Thursday, July 19, 2018

Puerto Rico creditors relying on Superior Court ruling to access fiscal plan data

By on April 5, 2018

SAN JUAN – Several of Puerto Rico’s creditors in its bankruptcy case under Title III of the Promesa federal law are relying on a local Superior Court ruling to convince a U.S. District Court judge to allow them unrestricted access to documents that were used to design the commonwealth’s fiscal plan.

Assured Guaranty Corp., Assured Guaranty Municipal Corp. and National Public Finance Guarantee Corp., as well as the Ad Hoc Group of Bondholders, are objecting a federal court order that states they cannot have access to pre-decisional fiscal plan documents because they are subject to the deliberative process privilege, a common-law principle that says internal processes of the executive branch are immune from normal disclosure or discovery in civil litigations and other proceedings.

In a Feb. 26 order, U.S. Magistrate Judge Judith Gail Dein, who works under U.S. District Judge Laura Taylor Swain, ordered the government to record any objections to disclosing such documents in a “categorical privilege” log, whereby pre-decisional communications and documents related to the development of the fiscal plans may be withheld as long as the log is maintained. However, the Magistrate said nonprivileged fiscal plan materials qualify as discoverable under the bankruptcy code.

Puerto Rico creditors ask court for access to data used for fiscal plans

The creditors and monoline insurers contend that pre-decisional fiscal plan documents contain factual information that is not protected by the privilege, including documents shared between the commonwealth and the island’s Fiscal Agency & Financial Advisory Authority (AAFAF by its Spanish initials), on one side, and the island’s fiscal oversight board, on the other, as well as those  between professionals.

They dispute government assertions that it has produced “extensive materials” for the public and creditors and has “committed” to producing additional documents once the new fiscal plan is certified.

“As an initial matter, (the commonwealth, Fiscal Board) have refused to produce pursuant to Rule 2004—i.e., outside the restrictions of the data room—any of the ‘Fiscal Plan Development Materials’ that the Magistrate Judge held were discoverable,” the creditors said.

They also argue that Puerto Rico’s Supreme Court, regarding deliberative process privilege, held that “the State has the burden to prove the application, if any, of the exceptions…to validate its claim to confidentiality.”

They were referring to the Bhatia Gautier v. Roselló Nevares ruling in which Senate Minority Leader Eduardo Bhatia filed a petition for Gov. Ricardo Rosselló and the commonwealth to publish copies of draft budgets that had been provided to the fiscal board. After several findings, the Supreme Court remanded the case back to Superior Court.

The lower court then ruled that for the government to withhold documents it must impose restrictions that respond to a compelling government interest. The Superior Court found that the draft budgets were not protected by the deliberative process privilege because the defendants “invoked the privilege over official information in a generalized manner, without proving in any way that the disclosure of the draft Fiscal Plan would be detrimental to the interests of the State.”

While the government disclosed the draft budgets as ordered by the Superior Court, it continues to resist disclosure of the pre-decisional fiscal plan documents and, the creditors said, has not established a compelling reason for doing so, only asserting a “privilege in a generalized manner.”

In Bhatia Gautier v. Roselló Nevares, the Superior Court ordered the draft budgets to be disclosed because they contained “numbers and data.” Like the draft budgets, the draft fiscal plans are largely, if not entirely, made up of factual information, including data, inputs, projections and assumptions, the creditors said.

The creditors also argue their interests as well as the public in having access to the pre-decisional fiscal plan documents far outweigh the “respondents’ undefined interest in blocking their disclosure, especially since the governor is changing the fiscal plans without following board recommendations.”

The government is expected to submit new fiscal plans to the fiscal board on Thursday for the panel’s certification.

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