Puerto Rico Bonds and the Courts

During the presentation to bondholders by Puerto Rico, Mr. James Millstein stated that without restructuring any litigation involving bonds would take at least 5 years. I beg to differ. Bond litigation will commence with the exception of $3.9 billion, which I will discuss later, in the Federal District Court for the District of Puerto Rico or in the Court of First Instance in San Juan. Since I litigate in both, I think I am in a better position to describe what could happen.

 

At the get go, the immense majority of issues in any PR Bond litigation will of interpreting bond documents, including the Constitution of Puerto Rico. I cannot think of many factual issues that would require discovery, except maybe to determine the actual available resources of the Commonwealth. In any event, these can be disposed of as I discuss infra.

 

If different cases are filed in the PR Federal District Court, pursuant to the Rule 42 of the Federal Rules of Civil Procedure, if cases “involve a common question of law or fact, the court may:

(1) Join for hearing or trial any or all matters at issue in the actions;

(2) consolidate the actions; or

(3) issue any other orders to avoid unnecessary cost or delay.” The actual procedure to do it in PR is described in Local Rule 42.

 

Now lets go to certain examples. In Franklin California v. Commonwealth, the PR Recovery Act case, the complaint was filed on June 28, 2014. The District Court issued the injunction declaring the law unconstitutional on February 6, 2015. No discovery was done. Defendants appealed to the First Circuit and the Court, recognizing the importance of the issues, expedited matters and issue its opinion on July 6, 2015. Defendants’ requested certiorari to the Supreme Court, which obliged and the case will be decided on or before June 30, 2016, two years after the case was filed.

 

More recently, Wal-Mart sued the Commonwealth of PR for constitutional violations in December of 2015, discovery ensued, there was a 4-day hearing in February and we are waiting for a decision from Judge Fusté. Fast indeed.

 

But what about state court? First, the same Rule of Consolidation of Cases exists in state court, to wit, Rule 38 of the Puerto Rico Rules of Civil Procedure. Moreover, PR has a set of Rules for the Litigation of Complex Cases, and they provide for the consolidation of all cases of the same nature with one judge. Hence, there will not be multiple judges deciding issues.

 

Two examples show how fast it cases can proceed in PR. In January of 2014, the Teachers Union sued the Commonwealth for Constitutional violations. After discovery and an evidentiary hearing, the PR Supreme Court decided the case in a intrajurisdictional certification in April of 2014. In the Doral v. ELA case, the complaint was filed in July of 2014, the case went three times to the Supreme Court for intrajurisdictional appeal, which was not granted, the Supreme Court ordered the case to move quickly, went twice in interlocutory appeals to the Appellate Court, there was discovery and a four-day hearing, which Doral won. Defendants’ appealed to the Appellate Court, which overruled the Court of First Instance on February 25, 2015 and the Supreme Court of PR denied certiorari on February 27, 2015. As we can see, the Courts in PR can move very quickly indeed.

 

There is, however, a $400 million issue by the Highway Authority in 2013 and a $3.5 billion issue of GO’s that are governed by NY law and to which NY courts will have jurisdiction as per bond documents. The bond documents, however, do not require that the cases be filed in NY and gives the parties the flexibility to file in San Juan. Also, the same situation of simply interpreting legal documents applies to these two bond issues. Moreover, if bondholders have cases in Federal District Court in PR and NY, any party may seek for the Judicial Panel for Multidistrict Litigation to consolidate for discovery, etc., the cases in one Court. If the cases are pending in Federal and State or Commonwealth Court, this cannot occur, however. Nevertheless, I have no doubt that NY Federal or Supreme Court’s would decide the issues in these cases in a very swift manner as their counterparts in PR have done.

 

 

 

 

 

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2 comments

  1. Thanks for the very simple explanation which blows Millstein’s argument out of the water. Of course, he was trying to muddy the waters in his own behalf.

    Like

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