PROMESA will go through another litmus test, on Wednesday, when the Fiscal Agency and Financial Advisory Authority (FAFAA) will try to convince Judge Judith Dein that the budget to be implemented for the current year is the one approved and signed by Governor Ricardo Rosselló Nevares early this month.
This is the first formal complaint filed by the governor against the Oversight Board, the agency created by Congress with the task of renegotiating the island's debt and restoring fiscal discipline. But also, the litigation is one of the more than 75 lawsuits filed against the government or the Board - which acts as alter- ego for restructuring purposes - that, one way or another, question the scope of the federal statute approved two years ago.
So far, it could be said that municipal insurers that finance the island's debt; groups of bondholders, contractors and even professional organizations or unions -except those linked to requests for access to information- have failed in their claims against the actions of the Board or the government or in the questionings the constitutionality of PROMESA.
Now, requests for injunction and declaratory judgement come from the elected officials of Puerto Rico, who in the light of PROMESA, would be called upon to execute the dual mandate granted to the Board. In these cases, several parties have already received denials from Court.
Last week, for example, Judge Dein denied a request from the Puerto Rican Association of University Professors of the University of Puerto Rico in Mayagüez to intervene in the litigation between the government and the Board. The Board has asked to dismiss the litigation, stating that it acts in accordance with the powers conferred by PROMESA.
In the case of the lawsuit filed by legislative presidents Thomas Rivera Schatz and Carlos "Johnny" Méndez against the Board and that would also be discussed in the general hearing next Wednesday, Judge Dein -to whom Judge Laura Taylor Swain entrusted to resolve the controversy - denied the request of the Popular Democratic Party lawmakers.
An uphill attempt
Although PROMESA is an amorphous institutional framework, both from the scope of constitutional rights and principles of self-government and from the level of reorganization and bankruptcy processes provided in the Bankruptcy Code, for constitutionalist Carlos I. Gorrín Peralta and former Judge President of the Bankruptcy Court in Puerto Rico Gerardo Carlo Altieri, it is unlikely that the statute will be declared unconstitutional.
According to Gorrín Peralta, professor at the School of Law of the Inter-American University of Puerto Rico (UIPR), it is unlikely that Judge Swain would declare unconstitutional the statute that, among other things, created her special position, appointed by the Associate Justice of the Supreme Court of the United States. Swain was entrusted to preside over Puerto Rico Title III cases.
He explained that the Supreme Court pronouncements about Puerto Rico two years ago only served as a message to the US Congress to take action regarding Puerto Rico and the actions of that legislature have not been different from what they have been done for more than a century.
"Puerto Rico does not even have sovereignty to accuse a person of drug dealing, who has already been prosecuted by federal authorities, and then, the second message was the declaration of unconstitutionality of the Debt Restructuring Law," said Gorrín Peralta, referring to the cases Puerto Rico v . Sánchez Valle and Puerto Rico v. Franklin California Tax-Free Trust.
In the case of the institutional funds that successfully challenged the Debt Enforcement and Recovery Act, which was approved by the Puerto Rican government in 2014, Gorrín Peralta recalled that the Supreme Court ruling was the same day on which the U.S. Senate was to decide on PROMESA. "The Congress has exercised its colonial strength," said Gorrín Peralta.
Now, the dispute between the Board and the government is the result of the "conceptual ambiguity" that Puerto Rico has suffered for decades, said the professor. This ambiguity is seen in Law 600 when the language "the nature of a pact" was adopted in the statute that gave way to the Constitution of Puerto Rico, although in practice, there was no agreement between the United States and the Island.
For Gorrín Peralta, in PROMESA, the vehicle that is meant to serve the restructuring of the Island’s debt actually is a statute designed to protect the economic interests of the United States, contain the effect that the Puerto Rican debt would have in the market of municipal bonds and releasing that economy from responsibility of the debt issued by a territory that was authorized to do so by Congress.
Meanwhile, Carlo Altieri considered that the allegations of Rosselló Nevares and legislative presidents regarding a possible usurpation of powers are of great importance. The same, he added, applies to the case of Aurelius Capital Management, which alleges that the body created by PROMESA is null because its members were not appointed with the consent of the Senate as dictated by the US Constitution.
However, according to the former Judge President of the Bankruptcy Court in Puerto Rico, the backdrop to settle the dispute between Rosselló Nevares, the Legislature and the Board is not a purely civil or a constitutional rights claim case, but the procedures provided by the Federal Bankruptcy Code and that are oriented to pragmatism and the rapid resolution of - mainly monetary - disputes.
"In Bankruptcy Courts, fast, practical, technical and efficient processes are sought. Of course, PROMESA is a special law, it is not chapter 9 or chapter 11 (of the Bankruptcy Code), it is a very special law and definitively, attacks on constitutionality are not usual in traditional bankruptcies cases, either municipalities or Chapter 11 cases. These constitutional arguments are very important, but they have the effect of delaying cases and resolving cases, they confuse and add excessive costs," explained Carlo Altieri.
Opposing decisions
According to Carlo Altieri, Swain's recent ruling in the Aurelius case points to Rosselló Nevares and the Legislature having little space to prevail.
In short, Swain refused to dismiss the request of Title III as requested by the investment fund because Puerto Rico is a US territory and as such Congress “can thus amend the acts of a territorial legislature, abrogate laws of territorial legislatures, and exercise full and complete legislative authority over the people of the Territories and all the departments of the territorial governments´".
For Swain, the Board is an entity of the Commonwealth and therefore, US Senate confirmation for its members is not required.
In the opinion of Carlo Altieri, as it is highly probable that these litigations will continue, the process of Puerto Rico´s debt adjustment will be delayed.
"I would not be surprised if the Court ruled against the Legislature and the government," said Carlo Altieri, adding that to date, it seems that what Swain understands of PROMESA is that the Board has authority to approve fiscal plans and budgets and that the court does not have space to take part on those issues.
However, Carlo Altieri made it clear that in the future, especially for the confirmation process of the adjustment plan, the scope of the Board on the fiscal plan could change. He also recalled that while Swain believes that the Board is a territorial government agency, Judge Susan Braden from the US Court of Federal Claims, has concluded otherwise in the lawsuit filed by Oaktree Capital Management, Glendon Capital and others. In that lawsuit, which is on hold until the constitutional challenges filed by Aurelius are resolved, Braden concludes that the Board is a federal agency and therefore, its actions are in themselves, the actions of the United States.
Political move
Beyond the constitutional approaches or spirit of pragmatism that rule bankruptcy proceedings, Gorrín Peralta and Carlo Altieri agreed that the litigation filed by Rosselló Nevares and legislative leaders do not respond to altruistic purposes. These are moves to advance political interests.
Carlo Altieri says that the move of the government and legislative leaders "seems to be a sterile effort to cover their backs before an impatient electorate". This, because the fiscal plan requires adopting controversial measures, including the repeal of Law 80, which was the issue that caused the dispute between the government and the Board and that will be addressed next Wednesday.
According to the former Judge, Swain could rule against the government by determining that Rosselló Nevares' requests are aimed at seeking an opinion and that, in reality, there is no controversy regarding the authority of the Board to certify the fiscal plan and the budget, as stated in PROMESA.
"They are eminently political reasons," said Gorrín Peralta, adding that as PROMESA begins to have an effect on the citizen's finances, rejection of the Board will grow on the island.
According to Gorrín Peralta, if the court ruled in favor of Rosselló Nevares government and defined the powers of the Board, the truth is that the body created by Congress will continue to have "gigantic" powers to impose its criteria on the government of Puerto Rico.
On the opposite side, for Gorrín Peralta, even if Rosselló Nevares and legislative leaders lost their cases, they will remain as "paladins" because they went to court in an alleged defense of the people, an argument that will undoubtedly be used in the next elections.
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