Assured Guaranty Corp. v. Commonwealth (In re Fin. Oversight & Mgmt. Bd. for P.R.)
| Decision Date | 30 January 2018 |
| Docket Number | Adv. Proc. No. 17–155–LTS in 17 BK 3283–LTS, Adv. Proc. No. 17–156–LTS in 17 BK 3567–LTS,No. 17 BK 3283–LTS (Jointly Administered),17 BK 3283–LTS (Jointly Administered) |
| Citation | 582 B.R. 579 |
| Parties | IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of Commonwealth of Puerto Rico, et al., Debtors. Assured Guaranty Corp.; Assured Guaranty Municipal Corp.; Financial Guaranty Insurance Company; and National Public Finance Guarantee Corporation, Plaintiffs, v. Commonwealth of Puerto Rico; Financial Oversight and Management Board for Puerto Rico; Puerto Rico Fiscal Agency and Financial Advisory Authority ; Puerto Rico Highways and Transportation Authority ; Hon. Ricardo Antonio Rosselló Nevares; Gerardo Portela Franco; Carlos Contreras Aponte; José Iván Marrero Rosado; Hon. Raúl Maldonado Gautier; and Natalie A. Jaresko, Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
ADSUAR MUÑIZ GOYCO SEDA & PÉREZ–OCHOA, P.S.C., By: Eric Pérez–Ochoa, Luis A. Oliver Fraticelli, Alexandra Casellas–Cabrera, Lourdes Arroyo Portela, 208 Ponce de Leon Ave, Suite 1600, San Juan, Puerto Rico 00936, WEIL, GOTSHAL & MANGES LLP, By: Jonathan Polkes, Marcia Goldstein, Salvatore A. Romanello, Gregory Silbert, Kelly DiBlasi, Gabriel A. Morgan, 767 Fifth Avenue, New York, New York 10153, Attorneys for National Public Finance Guarantee Corp.
CASELLAS ALCOVER & BURGOS P.S.C., By: Heriberto Burgos Pérez, Ricardo F. Casellas–Sánchez, Diana Pérez–Seda, P.O. Box 364924, San Juan, Puerto Rico 00936–4924, CADWALADER, WICKERSHAM & TAFT LLP, By: Howard R. Hawkins, Jr., Mark C. Ellenberg, Ellen Halstead, Thomas J. Curtin, Casey J. Servais, 200 Liberty Street, New York, New York 10281, Attorneys for Assured Guaranty Corp. and Assured Guaranty Municipal Corp.
O'NEILL & BORGES LLC, By: Hermann D. Bauer, Daniel J. Perez Refojos, 250 Muñoz Rivera Avenue, Suite 800, San Juan, Puerto Rico 00918–1813, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Stephen L. Ratner, Eleven Times Square, New York, NY 10036, and Timothy W. Mungovan, One International Place, Boston, Massachusetts 02110, and Michael A. Firestein, Lary A. Rappaport, 2049 Century Park East, Suite 3200, Los Angeles, California 90067–3206, Attorneys for the Financial Oversight and Management Board for Puerto Rico and the Financial Oversight and Management Board for Puerto Rico, as representative of the Commonwealth of Puerto Rico
THE LAW OFFICES OF ANDRÉS W. LÓPEZ, P.S.C., By: Andrés W. López, 902 Fernández Juncos Avenue, San Juan, Puerto Rico 00907, Co–Attorneys for the Puerto Rico Fiscal Agency and Financial Advisory Authority and Gerardo Portela Franco
REXACH & PICÓ, CSP, By: María E. Picó, 802 Ave. Fernández Juncos, San Juan, Puerto Rico 00907–4315, BUTLER SNOW LLP, By: Martin A. Sosland, 5430 LBJ Freeway, Suite 1200, Dallas, Texas 75240, and Stanford G. Ladner, 1700 Broadway, 41st Floor, New York, New York 10019, and Christopher R. Maddux, J. Mitchell Carrington, 1020 Highland Colony Parkway, Suite 1400, Ridgeland, Mississippi 39157, Attorneys for Financial Guaranty Insurance Company
O'MELVENY & MYERS LLP, By: John J. Rapisardi, Suzzanne Uhland,
Peter Friedman, 7 Times Square, New York, New York 10036, and Elizabeth L. McKeen, 610 Newport Center Drive, 17th Floor, Newport Beach, California 92660, Attorneys for the Puerto Rico Fiscal Agency and Financial Advisory Authority and the Hon. Geraldo Portelo Franco
WANDA VÁZQUEZ GARCED, Secretary of Justice of Puerto Rico, By: Wandymar Burgos Vargas, Deputy Secretary in Litigation, Department of Justice, P.O. Box 9020192, San Juan, Puerto Rico 00902–0192, Attorney for Hon. Ricardo Antonio Rosselló Nevares and Hon. Raúl Maldonado Gautier
PROMESA
Before the Court is Defendants' Motion to Dismiss Plaintiffs' Amended Complaint Pursuant to Fed. R. Civ. P. 12 (b)(1) and (b)(6) filed in each of the above-captioned adversary proceedings (docket entry2 no. 46 (the "Motion") ). The Court heard argument on the Motion on November 21, 2017 (the "Hearing"), and has considered carefully all of the arguments and submissions made in connection with the Motion. For the reasons that follow, the Court finds that it has jurisdiction pursuant to 48 U.S.C. § 2166 of all but one element of Plaintiffs' Claims. The remainder of Plaintiffs' Claims are dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.3
The following recitation of facts is drawn from the amended complaint (Docket Entry No. 39, the "Amended Complaint"), except where otherwise noted.
Plaintiffs are financial guarantee insurers that have insured various bonds issued by certain public corporations of the Commonwealth of Puerto Rico (the "Commonwealth" or "Puerto Rico"). (Am. Compl. ¶¶ 31–32.) Specifically, Plaintiffs Assured Guaranty Corp. and Assured Guaranty Municipal Corp. (collectively, "Assured") and Financial Guaranty Insurance Company ("FGIC") insure bonds (collectively, the "Authority Bonds") issued by the Puerto Rico Highways and Transportation Authority ("PRHTA"), the Puerto Rico Convention Center District Authority ("PRCCDA"), and the Puerto Rico Infrastructure Financing Authority ("PRIFA", and together with PRHTA and PRCCDA, the "Authorities"). (Id. ¶ 32.) Plaintiff National Public Finance Guarantee Corporation ("National") also insures bonds issued by PRHTA. (Id. ) Plaintiffs assert that the Authority Bonds are secured by statutory and contractual liens on specific pledged special revenue streams (collectively, the "Pledged Special Revenues"). (Id. )
PRHTA was created in 1965 pursuant to Act No. 74–1965 (the "Enabling Act") to, among other things, oversee and manage the development of roads and various means of transportation in Puerto Rico. (Id. ¶ 33; see generally 9 L.P.R.A. § 2002.) PRHTA issued several series of bonds (the "PRHTA Bonds") pursuant to Resolution No. 68–18 () and Resolution No. 98–06 (). (Id. ) Plaintiffs assert that, pursuant to the Enabling Act and the Resolutions, the PRHTA Bonds are secured by a gross lien on (i) the revenues derived from PRHTA's toll facilities (the "Pledged Toll Revenues"); (ii) gasoline, diesel, crude oil, and other special excise taxes levied by the Commonwealth (the "PRHTA Pledged Tax Revenues"); and (iii) special excise taxes consisting of motor vehicle license fees collected by the Commonwealth (the "Vehicle Fees" and, together with the PRHTA Pledged Tax Revenues, the "PRHTA Pledged Special Excise Taxes"). (Id. ¶ 34.)
The PRHTA Resolutions established sinking funds (collectively, the "Sinking Funds"). (Resolutions § 401.) Each Sinking Fund includes three separate accounts (the "Accounts"): (i) a bond service account, (ii) a redemption account, and (iii) a reserve account. (Id. ) Pursuant to the Resolutions, PRHTA is required to deposit pledged revenues on a monthly basis with the fiscal agent. (Id. ¶ 37; Resolutions § 401.) Once the funds are received, the fiscal agent is required to deposit the funds in the Accounts based on the protocol established by the Resolutions. (Resolutions § 401.)
In 2016, the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA") was enacted by the U.S. Congress and signed into law to provide, among other things, federal statutory authority pursuant to which the Commonwealth and its instrumentalities may restructure their debts.4 See PROMESA § 405(m). Pursuant to PROMESA, a Financial Oversight and Management Board (the "Oversight Board") was established with the purpose of developing "a method [for the Commonwealth] to achieve fiscal responsibility and access to capital markets."Id. § 101(a). "Among other things, PROMESA (i) establishes a process for the Oversight Board to approve fiscal plans ... and budgets of the Commonwealth and its instrumentalities, including PRHTA;" (ii) establishes a process for the Oversight Board to file a bankruptcy-type petition on behalf of the Commonwealth and its instrumentalities, including PRHTA; and (iii) establishes "an alternative mechanism for adjusting the Commonwealth's bond debt or the bond debt of its instrumentalities outside of a bankruptcy proceeding ...." (Am. Compl. ¶ 57.)
The Oversight Board has thus far certified, as relevant here, two fiscal plans: (i) the Commonwealth's 2017–2026 fiscal plan (attached as "Exhibit A" to the Amended Complaint, the "PR Fiscal Plan") and (ii) PRHTA's 2017–2026 fiscal plan (attached as "Exhibit B" to the Amended Complaint, the "PRHTA Fiscal Plan" and, together with the Commonwealth Fiscal Plan, the "Fiscal Plans"). (Id. ¶ 3.) To implement certain measures consistent with the Fiscal Plans, the Commonwealth enacted a Fiscal Plan Compliance Law (H.B. 938, Commonwealth Act No. 26–2017, the "Compliance Law") on or about April 29, 2017. (Id. ¶ 68.) Plaintiffs assert that the Fiscal Plans authorize the Commonwealth to redirect and misappropriate the Pledged Toll Revenues and the PRHTA Pledged Special Excise Taxes (collectively, the "PRHTA Pledged Special Revenues") from PRHTA to the Commonwealth unlawfully. (Id. ¶ 58.)
On July 1, 2016, PRHTA defaulted on a debt service payment on PRHTA Bonds aggregating approximately $4.5 million. (Id. ¶ 42.) Approximately $4 million of the default amount was insured and paid to holders of PRHTA Bonds (the "PRHTA Bondholders") by National and $83,039.34 was reinsured and paid to the PRHTA Bondholders by Assured. (Id. ) PRHTA subsequently defaulted on a debt service payment on January 1, 2017, totaling approximately $1 million on certain bonds insured and paid to the PRHTA Bondholders by National. (Id. )
On May 3, 2017, the Oversight Board commenced a debt adjustment proceeding on behalf of the Commonwealth under...
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