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Magistrate must clarify which data used for Puerto Rico fiscal plans are privileged

By on April 25, 2018

SAN JUAN – U.S. District Court Judge Laura Taylor Swain has sustained an objection raised by several bond insurers that are seeking to overturn a magistrate court decision declaring that certain documents used to prepare Puerto Rico’s fiscal plans can be kept confidential.

Judge Swain remanded her decision back to Magistrate Judge Judith Dein so she could revise her Feb. 26 determination and clarify what information the government can consider privileged.

The judge 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.

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

Puerto Rico creditors relying on Superior Court ruling to access fiscal plan data

Judge Dein 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.

The magistrate had said nonprivileged fiscal plan materials qualify as discoverable under the bankruptcy code. 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.

The monoline insurers objected Judge Dein’s determination contending that the deliberative process privilege does not protect factual information that is included in the pre-decisional fiscal plan documents. They also said the magistrate improperly extended the privilege to communications between the fiscal board, on one hand, and the commonwealth and Aafaf instead of the communications with their lawyers.

They also said Judge Dein erred in contending that the interests of the government in non-disclosure outweigh the interests of creditors and the public in accessing pre-decisional documents.

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 Supreme Court ruled last month that the drafts of the government’s budget were public documents.

Judge Swain agreed that the deliberative process privilege does not extend to factual information in pre-decisional fiscal plan documents, but left it up to Judge Dein to determine if communications between the fiscal board and the commonwealth and Aafaf are privileged, contending that the Supreme Court ruling in the Bhatia case was made after the magistrate issued her decision.

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

“On remand, Judge Dein may determine in the first instance whether additional or different procedures and proceedings should be undertaken in light of the Bhatia-Gautier decisions and the particular roles and responsibilities of the Commonwealth Entities, the Oversight Board and their respective professionals in developing positions and taking actions on behalf of the Commonwealth under PROMESA [Puerto Rico Oversight, Management, and Economic Stability Act] in determining whether the deliberative process privilege should be analyzed on an entity by entity or other basis in this context,” Judge Swain said.

The government says the insurers’ objections are a “thinly-veiled effort to obtain reconsideration of the Court’s Feb. 26 discovery order regarding the use of Fiscal Plan Development Materials and should be denied.”

Meanwhile, Judge Swain also set a hearing for May 21 to determine if the rules of disclosure should apply to the Puerto Rico Electric Power Authority.

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