THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO v. THE COMMONWEALTH OF PUERTO RICO et al.
Case No. 17-3283-LTS
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
March 3, 2022
PROMESA Title III (Jointly Administered)
LAURA TAYLOR SWAIN, United States District Judge
BUFETE EMMANUELLI, C.S.P.
By: Jessica E. Méndez-Colberg
Rolando Emmanuelli-Jiménez
P.O. Box 10779
Ponce, Puerto Rico 00732
Counsel for the Federación de Maestros de Puerto Rico, Inc.; Grupo Magisterial Educadores(as) por la Democracia, Unidad, Cambio, Militancia y Organización Sindical, Inc.; Unión Nacional de Educadores y Trabajadores de la Educación, Inc.
ALMEIDA & DÁVILA
By: Enrique M. Almeida
PO Box 191757
San Juan, PR 00919-1757
Attorneys for Credit Unions
PROSKAUER ROSE LLP
By: Martin J. Bienenstock
Jeffrey W. Levitan
Ehud Barak
Eleven Times Square
New York, NY 10036
and
Paul V. Possinger
70 West Madison, Suite 3800
Chicago, IL 60602
and
Timothy W. Mungovan
One International Place
Boston, MA 02110
and
Michael A. Firestein
2029 Century Park East, Suite 2400
Los Angeles, CA 90067
Attorneys for the Financial Oversight and Management Board for Puerto Rico as representative for the Debtors
A&S LEGAL STUDIO, PSC
By: Luis F. del Valle-Emmanuelli
434 Avenida Hostos
San Juan, PR 00918
Co-Attorneys for the Financial Oversight and Management Board for Puerto Rico as representative for the Debtors
LAW OFFICES JOHN E. MUDD
By: John E. Mudd
P. O. BOX 194134
SAN JUAN, P.R. 00919
Counsel for Salud Integral de la Montaña, Inc.
By: Isabel M. Fullana
Eduardo J. Capdevila
The Hato Rey Center Bldg.
268 Ave. Ponce de León Ste. 1002
San Juan, Puerto Rico 00918
Counsel for Finca Matilde, Inc.
G. CARLO-ALTIERI LAW OFFICES, LLC
By: Gerardo A. Carlo
254 San Jose St., Third Floor
San Juan, Puerto Rico 00901
MORRISON & FOERSTER LLP
By: James M. Peck
Gary S. Lee
James A. Newton
Lena H. Hughes
Andrew R. Kissner
250 West 55th Street
New York, New York 10019
and
Joseph R. Palmore
2100 L Street, NW, Suite 900
Washington, D.C. 20037
Counsel for Ad Hoc Group of Constitutional Debtholders
REICHARD & ESCALERA
By: Rafael Escalera
Sylvia M. Arizmendi
Carlos R. Rivera-Ortiz
255 Ponce de León Avenue
MCS Plaza, 10th Floor
San Juan, Puerto Rico 00917-1913
QUINN EMANUEL URQUHART & SULLIVAN, LLP
By: Susheel Kirpalani
Daniel Salinas
Eric Kay
Zachary Russell
51 Madison Avenue, 22nd Floor
New York, New York 10010-1603
Co-Counsel for the Lawful Constitutional Debt Coalition
By: Mark T. Stancil
1875 K Street, N.W.
Washington, DC 20006
Counsel for the Ad Hoc Group of General Obligation Bondholders
CORREA-ACEVEDO & ABESADA LAW OFFICES, PSC
By: Sergio Criado
Centro Internacional de Mercadeo, Torre II
# 90 Carr. 165, Suite 407
Guaynabo, P.R. 00968
MORGAN, LEWIS & BOCKIUS LLP
By: Kurt A. Mayr
David L. Lawton
David K. Shim
One State Street
Hartford, CT 06103-3178
and
Sabin Willett
One Federal Street
Boston, MA 02110-1726
Co-Counsel for the QTCB Noteholder Group
CASELLAS ALCOVER & BURGOS P.S.C.
By: Heriberto Burgos Pérez
Ricardo F. Casellas-Sánchez
Diana Pérez-Seda
P.O. Box 364924
San Juan, PR 00936-4924
CADWALADER, WICKERSHAM & TAFT LLP
By: Howard R. Hawkins, Jr.
Mark C. Ellenberg
Casey J. Servais
William J. Natbony
Thomas J. Curtin
200 Liberty Street
New York, New York 10281
Counsel for Assured Guaranty Corp. and Assured Guaranty Municipal Corp.
By: Eric Pérez-Ochoa
Luis A. Oliver-Fraticelli
208 Ponce de León Avenue, Suite 1600
San Juan, PR 00936
WEIL, GOTSHAL & MANGES LLP
By: Jonathan Polkes
Gregory Silbert
Robert Berezin
Kelly DiBlasi
Gabriel A. Morgan
767 Fifth Avenue
New York, NY 10153
Attorneys for National Public Finance Guarantee Corp.
REXACH & PICÓ, CSP
By: Maria E. Picó
802 Ave. Fernández Juncos
San Juan PR 00907-4315
BUTLER SNOW LLP
By: Martin A. Sosland
2911 Turtle Creek Blvd., Suite 1400
Dallas, TX 75219
and
James E. Bailey III
Adam M. Langley
6075 Poplar Ave., Suite 500
Memphis, TN 38119
Counsel for Financial Guaranty Insurance Company
FERRAIUOLI LLC
By: Roberto Cámara-Fuertes
Sonia Colón
221 Ponce de León Avenue, 5th Floor
San Juan, PR 00917
By: Dennis F. Dunne
Atara Miller
Grant R. Mainland
John J. Hughes, III
Jonathan Ohring
55 Hudson Yards
New York, NY 10001
Attorneys for Ambac Assurance Corporation
MCCONNELL VALDÉS LLC
By: Arturo J. García-Solá
Nayuan Zouairabani
270 Muñoz Rivera Avenue, Suite 7
Hato Rey, Puerto Rico 00918
Attorneys for AmeriNational Community Services, LLC
CASILLAS, SANTIAGO & TORRES LLC
By: Juan J. Casillas Ayala
Israel Fernández Rodríguez
Juan C. Nieves González
Cristina B. Fernández Niggemann
PO Box 195075
San Juan, Puerto Rico 00919-5075
PAUL HASTINGS LLP
By: Luc A. Despins
Nicholas A. Bassett
G. Alexander Bongartz
200 Park Avenue
New York, New York 10166
Counsel to the Official Committee of Unsecured Creditors
Before the Court are the Teachers’ Associations’ Motion for Stay Pending Appeal Regarding: Order and Judgment Confirming Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (Docket Entry No. 19969 in Case No. 17-3283)2 (the “Associations Motion“), filed by Federación de Maestros de Puerto Rico, Inc., Grupo Magisterial Educadores(as) por la Democracia, Unidad, Cambio, Militancia y Organización Sindical, Inc., and Unión Nacional de Educadores y Trabajadores de la Educación, Inc. (collectively, the “Associations“), and the Credit Unions’ Joint Motion for Stay Pending Appeal of Order and Judgment Confirming Modified Eighth Amended Title III Plan of Adjustment of the Commonwealth of Puerto Rico, et. al. (Docket Entry No. 20035) (the “Cooperativas Motion” and, together with the Associations Motion, the “Motions“), filed by Cooperativa de Ahorro y Crédito Abraham Rosa, Cooperativa de Ahorro y Crédito de Ciales, Cooperativa de Ahorro y Crédito de Rincón, Cooperativa de Ahorro y Crédito Vega Alta, Cooperativa de Ahorro y Crédito Dr. Manuel Zeno Gandía, and Cooperativa de Ahorro y Crédito de Juana Díaz (the “Cooperativas” and, together with the Associations, the “Movants“). The Motions each request entry of an order staying the Order and Judgment Confirming Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority (Docket Entry
Oppositions to the Motions have been filed by Salud Integral de la Montaña, Inc. (Docket Entry Nos. 20077, 20112), Finca Matilde, Inc. (Docket Entry No. 20079), the PSA Creditors (Docket Entry Nos. 20081, 20116),4 and the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board“) as the sole Title III representative of the Commonwealth of Puerto Rico (“Puerto Rico” or the “Commonwealth“) (Docket Entry No. 20085 (the “Oversight Board Response to Associations“); Docket Entry No. 20115 (the “Oversight Board Response to Cooperativas“)).5 Replies in further support of the Motions were filed by the Associations (Docket Entry No. 20145) (the “Associations Reply“) on February 15,
The Court has considered carefully all of the arguments and submissions made in connection with the Motions. This Court has jurisdiction of these matters pursuant to
I. BACKGROUND6
A. The Plan of Adjustment
On January 18, 2022, the Court approved the Plan of Adjustment for the Commonwealth, the Puerto Rico Public Buildings Authority (“PBA“), and the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS” and, together with the Commonwealth and PBA, the “Debtors“). The Plan, which is the culmination of years of litigation, negotiation, and mediation, reflects negotiated resolutions of disputes with numerous key creditor constituencies. It resolves tens of billions of dollars in debt, deals with sixty-nine classes (not counting sub-classes) of claims including claims based on bonds, public pension liabilities, claims stemming from various lawsuits against the Debtors, claims arising under federal law, and many others. The Plan also includes settlements of a broad range of disputes, including claims about the validity of bonds issued by the Commonwealth and its instrumentalities. If the Plan is implemented, the Commonwealth‘s general obligation and
On May 31, 2019, the Oversight Board entered into a plan support agreement with holders of about $3 billion of General Obligation (“GO“) and PBA Bond Claims, which was later replaced on February 9, 2020, with an agreement encompassing over $10 billion in Claims (the “2020 PSA“). (See id. ¶¶ 17, 19.) On June 7, 2019, the Oversight Board reached an agreement with the Retiree Committee regarding the treatment of accrued retirement system benefits under the Plan, as well as a plan support agreement with the American Federation of State, County and Municipal Employees regarding the return of contributions of all public employees to the ERS and modifications to a collective bargaining agreement pursuant to the Plan. (See id. ¶ 18.) After further negotiations with PSA Creditors, on February 23, 2021, the Oversight Board announced the termination of the 2020 PSA and the execution of an initial 2021 plan support agreement (the “Initial PSA“) dated February 22, 2021, between the Oversight Board (on behalf of the Debtors), and the initial GO/PBA PSA Creditors. (See id. ¶¶ 20-23.)
Building on the progress achieved by the Initial PSA, the Oversight Board entered into a stipulation with certain ERS bondholders on March 9, 2021 (id. ¶ 24), and a separate plan
B. Treatment of Pension Rights under the Plan
Under the Plan, retirees (who are receiving pensions or annuities) and other participants who have accrued rights to receive future pensions or annuities in the ERS, Judiciary Retirement System (“JRS“), or Teachers Retirement System (“TRS“) are entitled to receive their full pension benefits on account of their allowed pension claims, subject to a “freeze” of any existing right to accrue post-Effective Date defined benefit pension benefits and the elimination of post-Effective Date cost of living adjustments (“COLAs“). (See Plan §§ 55.1-55.9.) For each such class of creditors in the Plan, the Plan recognizes that all Commonwealth laws concerning employee pension and other benefits are preempted by PROMESA to the extent they are inconsistent with the treatment of the relevant claims under the Plan. (See Plan §§ 55.1(b), 55.2(b), 55.3(b), 55.4(b), 55.5(b), 55.6(b), 55.7(b), 55.8(c), 55.9(c).) The Plan provides that the contractual rights of such TRS and JRS participants to accrue post-Effective Date pension are
C. The Court‘s Rulings Concerning Act 53-2021
Act 53-2021 (“Act 53“) was enacted by the Commonwealth to permit the issuance of the securities contemplated by the Plan, but the authority provided by Act 53 was expressly conditioned on elimination of a provision (the “Monthly Benefit Modification“) of the then-existing version of the proposed Plan that would have reduced pension payments for retirees who receive pension benefits in excess of $1500 per month. The Oversight Board eliminated the Monthly Benefit Modification from the proposed Plan, and it requested rulings from the Court confirming that elimination of the Monthly Benefit Modification satisfied Act 53‘s conditions and permitted the issuance of the securities pursuant to the Plan. (See Urgent Motion of the Financial Oversight and Management Board for Puerto Rico for Order (i) Approving Form of Notice of Rulings the Oversight Board Requests at Confirmation Hearing Regarding Act 53-2021 and (ii) Scheduling Objection Deadline, Docket Entry No. 19002.)
Several parties objected to those proposed rulings and argued, among other things, that the Plan‘s “freeze” of pension accruals and its elimination of COLAs were inconsistent with Act 53 and that Act 53 therefore proscribed issuance of the securities unless those provisions were eliminated from the Plan. (See, e.g., Objection to Urgent Motion of the Financial Oversight and Management Board for Puerto Rico for Order (i) Approving Form of Notice of Rulings the Oversight Board Requests at Confirmation Hearing Regarding Act 53-
II. DISCUSSION
The Motions each request entry of an order staying the effectiveness of the Confirmation Order pending resolution of Movants’ respective Appeals. In reviewing an application for a stay pending appeal, a court must consider the following four factors:
(1) [W]hether the stay applicant has made a strong showing that [it] is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.
Bos. Parent Coal. for Acad. Excellence Corp. v. Sch. Comm. of City of Bos., 996 F.3d 37, 44 (1st Cir. 2021) (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)). “The party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion.” Nken v. Holder, 556 U.S. 418, 433-34 (2009). The first two of the applicable factors are the “most critical.” Id. at 434-35 (“It is not enough that the chance of success on the merits be ‘better than negligible.’ ... By the same token, simply showing some ‘possibility of irreparable injury,’ ... fails to satisfy the second factor.” (citations omitted)). However, “[t]he sine qua non
1. Whether Movants Are Likely to Succeed on Appeal
i. Associations
The Associations Motion identifies three bases for objecting to the Confirmation Order. First, the Associations contend that the Court erred in determining that Act 53 authorizes the issuance of securities by the Plan. Second, the Associations argue that the Court erred in determining that the Plan provides a basis for the preemption of certain Commonwealth statutes that impose pension-related obligations on the Commonwealth, and that the Plan therefore cannot freeze pension accruals under public employees’ defined benefit plans and prospectively eliminate COLAs. Third, the Associations contend that the Plan lacks essential enabling legislation that is required to implement a defined contribution retirement plan for those employees.
With respect to Act 53, the plain meaning of that statute was addressed thoroughly in the Findings of Fact and Conclusions of Law issued in connection with the Confirmation Order, and the Court declines to repeat its analysis here. (See FFCL ¶ 90 & n. 25.) In short, the operative provisions of Act 53 condition authority to issue securities under the Plan on the elimination of the Monthly Benefit Modification. The Monthly Benefit Obligation was eliminated from the version of the Plan that was ultimately confirmed. Moreover, Act 53 only concerns accrued pension rights of pension plan participants and retirees; Act 53‘s plain text is clear that the statute does not prohibit the Plan‘s defined benefit “freeze” and the prospective elimination of COLAS. (Id.)
The Associations’ argument that the Plan cannot preempt otherwise valid Commonwealth laws misconceives the role of
The Plan contemplates that any post-Effective Date rights to accrue additional defined benefits under the TRS are rejected pursuant to the Bankruptcy Code. (See Plan § 55.9(b).) Prior to entry of the Confirmation Order, the Associations did not address the legal significance of or authority for that rejection of expected future pension rights, other than to “reserve the right to file proofs of claim on behalf of [their] members for any damages arising from the rejection of their contractual right to pension benefits and to fully litigate such claims to their conclusion.” (Assocs. Obj. at 30.)8 In fact, the Associations’ objections to the Plan and
In the Associations Reply, the Associations now contend that “there has not been a request to reject pension obligations under
Furthermore, as set forth in the FFCL, “[o]bligations arising from Commonwealth statutes, including statutes providing employees the right to accrue pension or other retirement benefits, give rise to claims which can be impaired and discharged pursuant to the Plan.” (FFCL ¶ 153 (citing
As to the Associations’ argument that enabling legislation is required to “change the nature of the [Commonwealth‘s] retirement systems” (Assocs. Mot. ¶ 66), the prospective elimination of defined benefit accruals and cost of living adjustments are, consistent with the preemption rationale explained above and in the Confirmation Order and FFCL, logical results of the rejection and discharge of ongoing obligations under federal law. The establishment of provisions detailing how such claims are to be treated and handled following the Effective Date
The Associations are thus unlikely to prevail on appeal.
ii. Cooperativas
The Cooperativas assert that the Court erred in confirming the Plan over their objection for three reasons. First, the Cooperativas argue that the impairment and discharge of their claims arising from their purchase and ownership of bonds issued by the Debtors violates the Takings Clause of the United States Constitution. (Cooperativas Mot. ¶¶ 8-10, 13 (“The gist of the takings claim of the Credit Unions ... is the government[‘s] regulatory compulsion over the Credit Unions of value impaired investments that were knowingly issued by the Commonwealth while in insolvency. This is a per se or physical taking that cannot be erased or discharged in a bankruptcy proceeding ....“).) Second, the Cooperativas argue that a discharge of the Commonwealth‘s debts is inequitable due to the Commonwealth‘s alleged “dishonesty, fraud and disregard of [its] fiduciary duties.” (Id. ¶ 14 (“Discharge, its legal principles and factual surroundings are equitable in nature. The Order Confirming the Plan should not foster debtor‘s dishonesty and fraud.“)). Third, the Cooperativas argue that the Court‘s dismissal of the Cooperativas’ claims in the case captioned Cooperativa de Ahorro y Crédito Abraham Rosa v. Commonwealth of Puerto Rico, Adv. Proc. No. 18-00028 (the “Cooperativas Adversary Proceeding“)9 is not a final and unappealable judgment, and the Court therefore should not have
The Cooperativas Motion largely reiterates the basic arguments made by the Cooperativas in their objections to confirmation of the Plan of Adjustment and in support of their claims in the Cooperativas Adversary Proceeding. As set forth in the FFCL, the Court thoroughly considered and addressed the dischargeability of claims arising from the Takings Clause that were asserted by numerous parties. (See FFCL ¶¶ 161-78.) That analysis included consideration of the proper framework for evaluating such claims, which, in the context of claims by bondholders, included application of the factors set forth in Penn Central Transport Co. v. New York City, 438 U.S. 104 (1978). (See FFCL ¶¶ 172-74.) The Court determined that all of the Penn Central factors supported the conclusion that discharge of those claims pursuant to the Plan does not violate the Takings Clause. (See id. ¶ 174.) The Court has also already considered and rejected the Cooperativas’ arguments that the Plan was proposed in bad faith and that the discharge of liabilities in the Plan is precluded by the Debtors’ allegedly inequitable and fraudulent conduct. (See id. ¶¶ 116-18, 261; Adv. Proc. Dismissal Ord. at 28-31.) The Cooperativas have advanced no new arguments here that lead the Court to conclude that there is more than a negligible likelihood that the Cooperativas will prevail on appeal with respect to those arguments.
Accordingly, neither the Cooperativas nor the Associations have demonstrated that there is a better than negligible chance that their respective Appeals will succeed on the merits, and this factor therefore weighs against granting their Motions.
2. Whether Movants Have Established Irreparable Injury
Movants contend that the irreparable injury requirement for granting a stay pending appeal is satisfied here because, absent a stay, their appeals are likely to be determined to be equitably moot. (Assocs. Mot. ¶ 77; Cooperativas Mot. ¶ 20.) The Associations further assert that implementation of the Plan will result in unspecified “chaos and disarray,” cause an “exodus of teachers from the public school system,” and result in materially smaller pensions that will make it difficult for teachers to support themselves. (Assocs. Mot. ¶¶ 84-85, 86, 87.) They also contend that the teachers who have already applied to retire will be “excluded from opting to purchase the remaining months of their service and advance their retirement.”10 (Id. ¶ 85.) Furthermore, the Cooperativas argue that the absence of a stay pending appeal will “expose[] them and their members to the irreparable harm of financial and regulatory distress caused by the bankrupt government in contravention to the duties that same government has to safeguard the credit unions and their members.” (Cooperativas Mot. ¶ 17.)
Movants’ primary claim of irreparable harm arising from implementation of the
That discrepancy may well be significant here because, while the First Circuit denied certain appeals of this Court‘s confirmation of a plan of adjustment for the Puerto Rico Sales Tax Financing Corporation (“COFINA“) on the basis of equitable mootness, the procedural history and facts of those cases showed a pervasive failure of the appellants to diligently protect their rights by, among other things, seeking a stay of the confirmation order. The First Circuit repeatedly emphasized in those cases that the appellants had failed to be diligent in pursuing available remedies at practically every opportunity. See Pinto-Lugo, 987 F.3d at 183-85 (“The Pinto-Lugo objectors . . . have done anything but diligently seek to prevent third parties from building reliance interests in the confirmation of the Plan. . . . Like the Pinto-Lugo objectors, the Elliott objectors failed to object to the waiver of the automatic stay of confirmation, did not seek any stay pending appeal, neither sought to expedite the appeal nor objected to requests for extension, and in fact sought to extend the briefing schedule themselves.“); Cooperativa de Ahorro y Credito Dr. Manuel Zeno Gandia, 989 F.3d at 130 (“[Appellants] were anything but diligent in seeking to obtain a stay or prevent delay. They
The Cooperativas also contend that, even after the Effective Date of the Plan, the Commonwealth will retain sufficient cash and capacity in its fiscal plan so as to be able to pay the Cooperativas’ claims in the event that they prevail on their Appeal. (See Cooperativas Mot. ¶ 23 & n.3 (“The evidence submitted and argued by the Oversight Board showed that there is a remaining cash of $532 million on the effective date of the plan, which would enable the Commonwealth to sustain feasibility in the event of a non-dischargeability determination by any appellate court of the taking claimants’ claims.“).) That assertion, if true, may aid the Cooperativas in establishing that success on appeal would not require the unwinding of complex transactions or otherwise affect reliance interests created by confirmation and implementation of the Plan. Cf. Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 144 (2d Cir. 2005) (“If a stay was sought, we will provide relief if it is at all feasible, that is, unless relief would ‘knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court.‘“); Varela v. Dynamic Brokers, Inc. (In re Dynamic Brokers, Inc.), 293 B.R. 489, 494 (B.A.P. 9th Cir. 2003) (“Even assuming that debtor‘s plan is substantially consummated, debtor has not demonstrated that we cannot provide effective relief if the confirmation order were to be reversed. . . . [The] debtor [does not] assert that the plan would be
In the near-total absence of any discussion of these issues by the parties, it suffices to say that Movants have relied upon the prospect of equitable mootness as a basis for finding that denial of the Motions presents an “actual and imminent” risk of irreparable injury, P.R. Asphalt, LLC v. Betteroads Asphalt, LLC, Civ. No. 19-1661 (ADC), 2020 WL 698249, at *7 (D.P.R. Feb. 11, 2020), without providing any reasoned analysis as to why the doctrine would apply. It is Movants’ burden to demonstrate that there is more than “some possibility of irreparable injury,” Nken, 556 U.S. at 434, and their failure to do so, in combination with their low probability of success on the merits, counsels strongly against imposing the “extraordinary remedy” that they have requested. MEDSCI Diagnostics, Inc. v. State Ins. Fund Corp. (In re MEDSCI Diagnostics, Inc.), Adv. No. 10-0094, 2011 WL 280866, at *3 (Bankr. D.P.R. Jan. 25, 2011); Charlesbank Equity Fund II v. Blinds To Go, Inc., 370 F.3d 151, 162 (1st Cir. 2004) (“A finding of irreparable harm must be grounded on something more than conjecture, surmise, or a party‘s unsubstantiated fears of what the future may have in store.“).
Because it is Movants’ burden to demonstrate the basis for imposing the “extraordinary remedy” of a stay pending appeal, In re MEDSCI Diagnostics, Inc., 2011 WL 280866, at *3, their failure to put flesh on their analysis of the probability and effect of equitable mootness provides the Court with no grounds upon which to determine there is more than “some possibility of irreparable injury” in the absence of a stay. Nken, 556 U.S. at 434.
3. Whether Granting the Stay Will Substantially Injure Other Interested Parties
Regarding the effect of a stay on other interested parties, the Cooperativas argue that the Debtors and other creditors would not be affected by a stay, “especially considering that preservation of the rights and claims” of the Cooperativas in the Cooperativas Adversary
Movants’ interests are, however, outweighed by the potential harm resulting from a delay in the effective date, which could, at the very worst, undermine the Plan and cause it to unravel, undoing five years of extensive negotiations, because each day the effective date is delayed, the probability increases that opponents of the restructuring will seek new legislation to undermine it, and there is less ground for certainty that the supporting parties will further extend key deadlines. ACC Bondholder Grp. v. Adelphia Commc‘ns Corp. (In re Adelphia Commc‘ns Corp.), 361 B.R. 337, 354 (S.D.N.Y. 2007) (“[T]here are additional harms that are substantial but not easily quantifiable, such as the risk that the Plan will fall apart and that the parties will fail to reach a new agreement given the uncertainty associated with what could be a [several]-month stay.“); In re Sabine Oil & Gas Corp., 548 B.R. 674, 683 (Bankr. S.D.N.Y. 2016)
Even if the only consequence of the stay were a delay in the Plan‘s implementation, such a delay in the Commonwealth‘s financial recovery would not be inconsequential: preserving the “status quo” would prolong the state of emergency that the Plan addresses and delay new investments in the Commonwealth and the access of the Commonwealth to capital markets, stunting economic growth for as long as appeals remained pending. (Oversight Bd. Resp. to Assocs. ¶ 60; Oversight Bd. Resp. to Cooperativas ¶ 39.)
As to other creditors, the Cooperativas argue that there is no risk that the Debtors will deplete or lose any sources of payment under the Plan if a stay is imposed pending appeal, and that the payments to be paid in cash are already segregated from the Debtors’ operational
The fact remains, however, that a stay would delay the distribution of about $10.8 billion to creditors and the debt instruments that will replace the currently-outstanding bonds, causing creditors to lose the opportunity to earn investment income on cash that would otherwise be distributed to them under the Plan, and accruals of income on the new instruments. (See Docket Entry No. 20085-1 ¶ 7.) The sheer amount of expected interest at stake in any further delay is sufficient to outweigh the benefit gained by Movants from a stay of the entire Plan pending appeal. See In re Efron, 535 B.R. 516, 520 (Bankr. D.P.R. 2014) (“Delay caused to creditors receiving their payment is also a significant harm warranting denial of a stay.“) (quoting In re Public Serv. Co., 116 B.R. 347, 350 (Bankr. D.N.H. 1990); see also In re Adelphia Commc‘ns Corp., 361 B.R. at 342 (noting the “weighty interest[]” of “the right of the majority of creditors to receive their distributions.“); In re Great Barrington Fair & Amusement, Inc., 53 B.R. 237, 240 (Bankr. D. Mass. 1985) (“The chief harm which will be caused by a stay is the delay which will be suffered by the other creditors.“). That it has taken five years from the date of the Debtors’ petition for them to be in a position to pay financial creditors accentuates (rather than minimizes) the harm of additional delay: the Debtors, the other creditors, and the people of Puerto Rico have suffered long enough.14
Although it is unnecessary to determine whether a supersedeas bond would be appropriate because Movants have failed to carry their burden of demonstrating that a stay is justified, the harm that would be suffered by the Debtors and other creditors in the event of a stay is underscored by the magnitude of the potential losses—running into hundreds of millions of dollars that would have to be covered by an appellate bond. In re Adelphia Commc‘ns Corp., 361 B.R. at 368; see also Triple Net Invs. IX, LP v. DJK Residential, LLC (In re DJK Residential, LLC), 2008 WL 650389, at *5 (S.D.N.Y. Mar. 7, 2008).
As the Debtors’ experts have indicated in their declarations, based on the conservative assumption that an appeal would be resolved quickly, the value of a bond would have to cover (i) tens of millions of dollars in additional pension liability to active TRS and JRS participants if the Plan‘s implementation is delayed (Docket Entry No. 20085-2 ¶ 23); (ii) millions of dollars in administrative fees owed to professionals, who would be retained beyond the projected effective date until the Plan‘s implementation (see, e.g., Oversight Bd. Resp. to Assocs. ¶ 72 & n.22 (basing estimate on recent past fee applications)); (iii) the net loss to the Pension Reserve Trust (“PRT“) which, in the event of a delayed effective date beyond June 30, 2022, would result in a total reduction of the PRT‘s funding over ten years by $960 million (see Docket Entry No. 20085-1 ¶¶ 18-20); and (iv) the net deprivation to creditors of interest
The Oversight Board argues, based on these estimates, that an appellate bond in anticipation of a six-month stay should be set in the amount of $1.5 billion, an amount that still would not account for the risk that delay would pose to the viability of the entire Plan. (See, e.g., Oversight Bd. Resp. to Assocs. ¶ 76.) Even if, as the Movants argue, the proffered declarations and estimations are not admissible as expert testimony (see Assocs. Reply ¶¶ 127-35; Cooperativas Reply to Oversight Bd. ¶¶ 23-24), the basic logic identifying the categories of harms that would result from a stay, and which would factor into the calculation of potential losses, is sound, and the Court is familiar enough with the magnitude and scope of creditors’ claims in these cases (as well as the fact that creditors have waited years to receive any recovery on their claims) to conclude that, regardless of the precise figures, the dollar amounts involved would be substantial.
Therefore, while it is unnecessary to impose or even determine the precise amount of a potential bond at this juncture, considerations that would underpin the computation of a bond demonstrate that the balance of interests tips dramatically against the Movants.15
Regarding the effect of a stay on the public interest, the Cooperativas argue that the preservation of their claims is required for the protection of the capital and resources of depository institutions and is thus aligned with the Commonwealth‘s policy objectives of protecting and serving citizens, particularly a constituency of over 1.3 million credit union members and depositors who rely on the preservation of the Cooperativas’ rights and claims. (Cooperativas Mot. ¶ 25.) They argue that protecting such rights does not impede the formulation and confirmation of a feasible plan, and “any financial contingency resulting from that preservation does not adversely affect third parties, as the [Cooperativas‘] claims are not material amounts as compared to the” debts adjusted under the Plan, “not even reaching seven tenths of one percent (0.658%) of the restructured debt.” (Id. ¶ 26.)
The Associations argue that the rights of retirees are a matter of public interest that would not be addressed absent a stay, they argue, with the consequence that the balance of equities favors the rights of the retirees over the desire to expedite the effective date. (Assocs. Mot. ¶ 91.) The Associations also argue that one benefit of staying the proceedings is that more certainty can be provided concerning the terms to be implemented, allowing public officials to prepare for any impending changes. (Id.)
These arguments fail for several reasons. First, the total values of the Movants’ interests are but satellites, dwarfed by the central interests of the public in the prompt recovery of Puerto Rico‘s economy. Any delays in implementing the widely supported Plan, which would allow the Commonwealth to restructure tens of billions in bond debt, regain access to capital markets more rapidly, grow economically, and create many new jobs, would be gravely detrimental, to say nothing of the catastrophic effects that could result from unravelling the Plan altogether.
Third, in light of the Court‘s conclusions regarding Movants’ unlikelihood of success on the merits of their Appeals, it must be further concluded that the unlikely benefit of a different outcome on appeal does not justify the imposition of a stay.
III.
CONCLUSION
For the foregoing reasons, the Motions are denied. This Opinion and Order resolves Docket Entry Nos. 19969 and 20035 in Case No. 17-3283.
SO ORDERED.
Dated: March 3, 2022
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
United States District Judge