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Judge Swain’s Puerto Rico bankruptcy rulings favor discovery

By on May 14, 2018

Editor’s note: The following article originally appeared in the May 10-18, 2018, issue of Caribbean Business.

Ever since the Commonwealth of Puerto Rico and other entities filed in 2016 for bankruptcy under Title III of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa), the issue of the free flow of information between the Financial Oversight & Management Board (FOMB) and the government to creditors and even journalists has been a heated issue.

Roadblocks to the free flow of information and a lack of transparency have had an impact not only on creditors’ ability to do legal discovery, but also on the ability of journalists and citizens to obtain information.

However, the roadblocks may begin to crumble following a series of recent court rulings.

In April, U.S. District Court Judge Laura Taylor Swain sustained an objection raised by several bond insurers who were seeking to overturn a magistrate court decision that declared certain documents used to prepare Puerto Rico’s fiscal plans could be kept confidential.

Judge Swain told Magistrate Judge Judith Dein to revise her Feb. 26 determination and clarify what information the government could consider confidential.

Judge Swain accepted the objections raised 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. The creditors wanted to obtain communications between the commonwealth, its Fiscal Agency & Financial Advisory Authority (Fafaa) and its fiscal oversight board, as well as other fiscal plan development materials from 2017 and 2018. The government had argued these materials were protected through the deliberative process privilege, or the principle that the executive branch may withhold certain information.

The insurers used a recent court ruling in a lawsuit brought by former Senate President Eduardo Bhatia to establish that there have been changes to local law regarding access to documents. The P.R. Supreme Court had ruled in March that the drafts of the government’s budget were public documents.

Judge Swain agreed, arguing that the “deliberative process privilege” does not extend to factual information in predecisional fiscal plan documents, but left it up to Judge Dein to determine if communications between the fiscal board and the commonwealth and Fafaa are privileged.

The Congress giveth?

Last week, another victory for the free flow of information was issued in U.S. District Court, not as part of the Title III process but rather in a civil suit brought by the Centro de Periodismo Investigativo (CPI, or the Center for Investigative Journalism).

U.S. District Court Judge Jay García Gregory virtually put limits on the broad powers of the Financial Oversight & Management Board. The judge refused to dismiss a lawsuit brought by the CPI Board seeking access to certain documents. The CPI Board not only said the FOMB could be sued but also that it must obey local laws that say all government documents are public and must be disclosed.

García Gregory referred the matter to a magistrate judge for further proceedings.

Judge García dismissed the FOMB argument that under case law it was immune from lawsuits in federal court seeking relief pursuant to Puerto Rico law. In a ruling issued May 4, the court “held that pursuant to its plenary powers, Congress waived, or in the alternative abrogated, the [Financial Oversight & Management] Board’s sovereign immunity,” which means it allowed the board to be sued in federal court.

–Read the rest of this story in Caribbean Business’ epaper here.

 

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