Monday, September 23, 2019

‘Aurelius risk’ cited as roadblock in Puerto Rico fiscal board effort to pursue claims

By on May 15, 2019

U.S. Court of Appeals for the First Circuit in Boston (Screen capture of www.ca1.uscourts.gov)

Judge Swain expected to evaluate the matter during Thursday’s hearing

SAN JUAN – The Unsecured Creditors Committee (UCC), the Puerto Rico financial oversight board and its Special Claims Committee (SCC) are citing what they call the Aurelius risk in their effort to seek standing to pursue claims against creditors of the island’s Highways and Transportation Authority (HTA) and Employees Retirement System (ERS).

The Financial Oversight and Management Board, the SCC and the UCC want U.S. District Court Judge Laura Taylor Swain to approve a stipulation that ensures causes of action are preserved for HTA and ERS as the statute of limitations on avoidance actions for the two agencies expires May 20. Avoidance actions are those brought by a debtor after filing for bankruptcy to recover money that may have been paid fraudulently.

As part of the stipulation, the UCC, the SCC and the board are asking the court for derivative standing to pursue claims on behalf of the HTA and ERS, citing what they see as a threat created by the U.S. First Circuit’s decision in Aurelius v. Puerto Rico, which declared the board unconstitutionally appointed because its members were not confirmed by the U.S. Senate.

They say the Aurelius ruling created potential challenges to the board’s authority to bring causes of action.

“The HTA/ERS Stipulation is designed to address the Aurelius issue by appointing the members of the Special Claims Committee, on the one hand, and the (Unsecured Creditors) Committee, on the other hand, to assert causes of action before the expiration of the statutes of limitations, which causes of action the Oversight Board would otherwise assert on its own,” the document filed May 14 reads.

Judge Swain is expected to evaluate the stipulation at a hearing Thursday.

Parties objecting the board and the committees’ request argued that the Aurelius ruling is not a concern because the First Circuit Court extended the stay of its mandate to legalize the board through July 15.

They also say President Trump has announced his intention to reappoint the current members of the board for the remainder of their term. The objecting parties also say members of the SCC, on the one hand, and the UCC on the other hand, cannot be appointed as co-plaintiffs because they have not met certain legal criteria.

However, the board and the committees said the stay extension and the Trump’s announcement do not mitigate the “Aurelius risk.”

“The expiration of the stay of the mandate is not what animates the need to have the HTA/ERS Stipulation approved—rather, it is the risk that others will later challenge the Oversight Board’s authority to commence adversary proceedings, absent reversal of the Aurelius decision by the Supreme Court,” the committees and the board said.

The committees and the board oppose having the Retirees Committee be declared co-plaintiff in the cases brought by ERS because the latter is an official committee in the commonwealth bankruptcy case, not in the ERS case.

The UCC also dismissed arguments that it suffers disabling conflicts because it mostly comprises commonwealth creditors.

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