Investors Sue Government to Paralyze Moratorium Act
SAN JUAN – A group of individuals and corporation owners holding $100 million worth of Government Development Bank (GDB) and Puerto Rico Public Finance Corp. (Prifa) bonds are challenging the constitutionality of the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act.
In a lawsuit filed last week, the plaintiffs, which include the heirs of the late writer Rosario Ferré as well as other prominent Puerto Ricans, said the moratorium law essentially serves to transfer GDB assets that could be used to fund payments to bondholders. The plaintiffs say this transfer to a “bridge bank” or a receiver, purportedly contemplated and authorized by Gov. Alejandro García Padilla’s executive orders declaring a “state of emergency,” deprives them of their proprietary right to existing and future funding for the contractually scheduled payments.
They are seeking an injunction to paralyze the statute.
“Such deprivation pursuant to the Moratorium Act, without just compensation nor due process of law constitutes unlawful taking in violation of the takings clauses of the Fifth and Fourteenth Amendments of the U.S. Constitution and Article II Sec. 7 of the Constitution of the Commonwealth of Puerto Rico. The Moratorium Act, serves to substantially impair the obligations of GDB and [Prifa] under the bonds, in an unreasonable and unnecessary manner, which is not narrowly tailored to promote a legitimate, important or compelling governmental interest, thereby violating the contract clause of the United States Constitution (see Article I §10) and the Puerto Rico Constitution,” they said.
The provisions of the Moratorium Act analogous to bankruptcy legislation are preempted by the Bankruptcy Clause of the United States Constitution because they permit the Governor to adjust debts, they added.
The plaintiffs noted that they acquired the bonds relying on the government’s promises and representations but that defaults have occurred with respect to scheduled payments for the bonds issued by GDB beginning on May 1, 2016. Defaults have occurred with respect to the bonds issued by Prifa and owned by the plaintiffs beginning Aug. 1, 2015.
The plaintiffs are Dionisio Trigo González, Carmen Regina Suárez Sein,and their conjugal property partnership; Benigno Trigo González, Teresa Zapata Bird, and their conjugal property partnership; Trigo Corp.; Guillermo l. Martínez, Bertita Martínez Martínez, and their conjugal property partnership; Gustavo Hermida Cela, Gloria Colón Suárez, and their conjugal property partnership; Ramón González Cordero, Ketty Simounet de González, and their conjugal property partnership; Jorge Hess, Regina Trigo de Hess, and their conjugal property partnership; Trimar Investments Corp.; San Rafael Holdings; Ceci Montilla Rojo; 322 de Diego Holdings; José A. Valdés Muzaurieta, Adrienne Muentes Ortiz, and their conjugal property partnership; Valmu Trust; Eduardo Artau Gómez, Carmen Feliciano Vargas, and their conjugal property partnership; First Medical Health Plan Inc.; Adriel Longo Ravelo; Ernesto A. Smith a/k/a Ernesto Antonio Smith Bringas, Saress E. Smith a/k/a Saress Ellerbe Smith a/k/a Saress Ellerbe Mcdaniel, and their conjugal property partnership; Federico M. Stubbe Arzuaga; Federico Stubbe González; Stugo LLC; FSA Investments, LLC; Northshore Management, Corp.; and the heirs of the estate of Rosario Ferré Ramírez de Arellano composed by Benigno Trigo Ferré, Rosario Lorenza Trigo Ferré, and Luis Alfredo Trigo Ferré.