Monday, October 22, 2018

Puerto Rico creditors prevail in document-disclosure dispute

By on May 25, 2018

SAN JUAN – This week, the magistrate judge in the Title III case under the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) issued a ruling that will allow creditors to obtain documents used to develop the island’s fiscal plans to prepare their cases in the bankruptcy-like process.

Magistrate Judge Judith Dein–who had initially allowed certain fiscal plan documents to remain confidential, but changed her decision following Judge Laura Taylor Swain’s request–ordered some 47 documents to be released, including seven involving the Puerto Rico Electric Power Authority (Prepa). Judge Dein ordered the parties to draft a protective order by May 31.

On Feb. 26, the magistrate judge had said the documents were privileged, but 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. raised objections.

U.S. District Judge Laura Taylor Swain remanded her decision back to Judge Dein so she could revise her Feb. 26 determination and clarify what information the government can consider privileged.

The creditors were 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 argues that these materials were protected by the deliberative process privilege, or the principle that the executive branch may withhold certain information.

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 judge 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 bond 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 creditors 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 judge issued her decision.


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