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Court says Puerto Rico may withhold certain materials used to develop fiscal plans

By on February 27, 2018

SAN JUAN – A U.S. District Court issued an important ruling that will have an impact on the discovery of information requested by Puerto Rico bondholders and creditors. Magistrate Judith Dein, who works under Judge Laura Taylor Swain in the island’s Title III bankruptcy cases under Promesa, determined that certain documents used to prepare the commonwealth’s fiscal plans for 2017 and 2018 are privileged and may be kept confidential.

The ruling was issued Monday following an “urgent renewed joint motion” by the Ad Hoc Group of General Obligation Bondholders, Ambac Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., the Mutual Fund Group, and National Public Finance Guarantee Corp.

They sought to obtain communications between the commonwealth, Puerto Rico’s Fiscal Agency & Financial Advisory Authority (AAFAF) and its fiscal oversight board, as well as other 2017 and 2018 fiscal plan development materials. The government argued that these materials were protected by the deliberative process privilege, or the principle that the executive branch may withhold certain information.

The court agreed but ordered the government to record any such objections 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.

Judge Dein sets hearing on Puerto Rico bondholders’ discovery request

However, the judge said nonprivileged fiscal plan materials qualify as discoverable under the bankruptcy code. Magistrate Dein said, for instance, that the final 2017 and 2018 plans, as well as the “formula[e] and assumptions underlying those plans” are the final product of a governmental decision‐making process. As such, those final materials are not privileged. “It is this Court’s understanding that those post-decisional documents are currently being shared,” she said.

However, the internal communications or documents leading up to those documents, as well as the drafts preceding the final plans, fall within the deliberative process privilege and may be withheld. However, Dein said these are responsive to the request for fiscal plan materials and “could otherwise qualify for production in this proceeding.”

The government-material withholding log must not only identify the documents cataloged but also include the basis for withholding them.

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