Federal judge rejects Puerto Rico fiscal board’s appointment of power utility ‘chief transformation officer’
SAN JUAN – Following arguments for and against the decision of Puerto Rico’s financial control board to appoint Noel Zamot to take over the Electric Power Authority (Prepa), federal Judge Laura Taylor Swain rejected the board’s action on Monday.
“Nothing [in Promesa] authorizes the unilateral takeover of an instrumentality,” said the judge during a hearing that began after 11 a.m. in New York.
Judge Swain said the law that established the fiscal board, Promesa, does not provide a framework to appoint a CEO at Prepa, nor the authority to create positions within entities. She further urged the local government and the fiscal board to collaborate and work together.
“Every moment spent in complicated and expensive litigation is a moment lost for Puerto Rico,” Judge Swain said following her decision. She added that while Promesa indeed gives the board “powerful tools” to compel action from the commonwealth, it doesn’t entail “unilateral power” over the management of the government and its instrumentalities.
For his part, Puerto Rico Gov. Ricardo Rosselló Nevares stated that his administration was pleased with the court’s ruling on Monday and that Judge Swain confirmed their position over the board’s limited powers.
“Since the first day, we have been clear in terms of the powers that the Board has and those it does not have. It is clear that the Financial Oversight and Management Board does not have the power to take full control of the Government or its instrumentalities,” said the governor, who added that the commonwealth government is willing to cooperate and receive “technical assistance” from the board.
“I will defend the democratic rights of my people over any challenge and in any forum,” Gov. Rosselló further stressed.
The role of the new “chief transformation officer” would have included the supervision and direction of all the public corporation’s employees.
The board’s counsel, Martin Bienenstock from Proskauer Rose, argued that Title III of Promesa empowers the fiscal panel as the sole representative of the debtor—in this case, Prepa—and as such had the power to appoint a CTO for the utility. He rejected that the board wanted to appropriate governmental powers, but rather wanted to control revenues and income-producing property of the bankrupt entity.
For his part, the commonwealth’s lawyer, Peter Friedman of O’Melveny, opposed the board’s action and argued that nothing in Promesa allows the board to name a figure like the proposed CTO. Other Prepa creditor groups also participated in the hearing and agreed with the legal arguments presented by the government’s lawyers.
In the end, the judge decided in favor of the commonwealth government and creditors and stated that the board cannot unilaterally appoint a person to take charge of the daily management of a public entity such as Prepa.
The court had scheduled addressing a discovery requested by the official committee of unsecured creditors regarding the contract between Prepa and Whitefish Energy Holdings. However, the government and the company reached an agreement with the creditor group to produce the documents.