In re Fin. Oversight & Mgmt. Bd. for P.R.
| Decision Date | 16 November 2017 |
| Docket Number | No. 17 BK 3283–LTS (Jointly Administered),No. 17 BK 4780–LTS,17 BK 3283–LTS (Jointly Administered),17 BK 4780–LTS |
| Citation | 583 B.R. 626 |
| Parties | IN RE: the FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of the Commonwealth of Puerto Rico, etal., Debtors. In re: the Financial Oversight and Management Board for Puerto Rico, as representative of Puerto Rico Electric Power Authority, Debtor. |
| Court | U.S. District Court — District of Puerto Rico |
O'NEILL & BORGES LLP, By: Hermann D. Bauer, 250 Muños Rivera Ave., Suite 800, San Juan, Puerto Rico 00918, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Paul V. Possinger, Ehud Barak, Maja Zerjal, Eleven Times Square, New York, New York 10036, Attorneys for Financial Oversight and Management Board for Puerto Rico, as representative of the Commonwealth of Puerto Rico and the Puerto Rico Electric Power AuthorityAGRAIT LAW, By: Fernando E. Agrait, 701 Avenida Ponce de Leon, Edificio Centro de Seguros, Oficina 414, San Juan, Puerto Rico 00907, Attorneys for Instituto de Competitividad y Sostenibilidad Económica de Puerto Rico
PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY, By: Mohammad S. Yassin, Robert Sánchez Vilella (Minillas), Government Cetner, De Diego Avenue, Stop 22, San Juan, Puerto Rico 00907, O'MELVENY & MYERS LLP, By: John Rapisardi, Suzzanne Uhland, William J. Sushon, 7 Times Square, New York, New York 10036 and M. Randall Oppenheimer, 1999 Avenue of the Stars 8th Floor, Los Angeles, California 90067 and Peter Friedman, 1625 Eye Street, NW, Washington, D.C. 20006, Attorneys for the Puerto Rico Fiscal Agency and Financial Advisory Authority
TORO, COLÓN, MULLET, RIVERA & SIFRE, P.S.C., By: Manuel Fernández–Bared, Linette Figueroa–Torres, Nayda Pérez–Román, P.O. Box 195383, San Juan, Puerto Rico 00919, KRAMER LEVIN NAFTALIS & FRANKEL LLP, By: Amy Caton, Gregory A. Horowitz, Thomas Moers Mayer, Alice J. Byowitz, Douglas Buckley, 1177 Avenue of the Americas, New York, New York 10036, Attorneys for the Ad Hoc Group of PREPA Bondholders
ADSUAR MUÑIZ GOYCO SEDA & PÉREZ–OCHOA, P.S.C., By: Eric Pérez–Ochoa, Luis Oliver–Fraticelli, Alexandra Casellas–Cabrera, Lourdes Arroyo–Portela, 208 Ponce De León Avenue, Suite 1600, San Juan, Puerto Rico 00936, WEIL, GOTSHAL & MANGES LLP, By: Marcia Goldstein, Jonathan Polkes, Salvatore A. Romanello, Gregory Silbert, 767 Fifth Avenue, New York, New York 10153 and Stephen A. Youngman, 200 Crescent Court, Suite 300, Dallas, Texas 75201, Attorneys for National Public Finance Guarantee Corp.
MCCONNELL VALDÉS LLC, By: Nayuan Zouairabani, 270 Muñoz Rivera Avenue, Suite 7, Hato Rey, Puerto Rico 00918, WACHTELL, LIPTON, ROSEN & KATZ, By: Richard G. Mason, Amy R. Wolf, Emil A. Kleinhaus, Brian Bolin, Kim B. Goldberg, 51 West 52nd Street, New York, New York 10019, Attorneys for Scotiabank de Puerto Rico, as Administrative Agent
RIVERA, TULLA AND FERRER, LLC, By: Eric A. Tulla, Iris J. Cabrera–Gómez, 50 Quisqueya Street, San Juan, Puerto Rico 00917, MASLON LLP, By: Clark T. Whitmore, Jason M. Reed, 90 South Seventh Street, Suite 3300, Minneapolis, Minnesota 55402, Attorneys for U.S. Bank National Association, in its capacity as trustee
CANCIO, NADAL, RIVERA & DÍAZ, P.S.C., By: Arturo Díaz Angueria, Katiuska Bolaños Lugo, P.O. Box 364966, San Juan, Puerto Rico 00936, GREENBERG TRAURIG LLP, By: Nancy A. Mitchell, Kevin D. Finger, David D. Cleary, 77 West Wacker Drive Suite 3100, Chicago, Illinois 60601, Attorneys for the Governing Board of the Puerto Rico Electric Power Authority
CASELLA 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, 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.
GOLDMAN ANTONETTI & CORDOVA, LLC, By: Carlos A. Rodríguez–Vidal, Solymar Castillo–Morales, P.O. Box 70364, San Juan, Puerto Rico 00936, DEBEVOISE
& PLIMPTON LLP, By: My Chi To, Craig A. Bruens, Elie J. Worenklein, 919 Third Avenue, New York, New York 10022, Attorneys for Syncora Guarantee Inc.
PUERTO RICO ENERGY COMMISSION, By: Alejandro J. Figueroa–Ramírez, Tania M. Negrón–Vélez, 268 Muñoz Rivera Ave., Suite 702, San Juan, Puerto Rico 00918, SCOTT HEMPLING ATTORNEY AT LAW, LLC, By: Scott Hempling, 417 St. Lawrence Drive, Silver Spring, Maryland 20901, Attorneys for the Puerto Rico Energy Commission
This document relates only to 17 BK 4780 and shall also be filed in 17 BK 3283
Before the Court is an urgent motion, filed on October 26, 2017, by the Financial Oversight and Management Board for Puerto Rico (the "FOMB," or the "Oversight Board"), seeking entry of an order confirming the appointment and authority of a Chief Transformation Officer ("CTO") for the debtor Puerto Rico Electric Power Authority ("PREPA") (docket entry2 no. 361 (the "Motion") ). This Court has jurisdiction of this matter pursuant to 48 U.S.C. § 2166(a).
The FOMB seeks court confirmation of its appointment of Noel Zamot as CTO of PREPA with all the powers of a chief executive officer, reporting to the FOMB. (Motion ¶ 4.) The FOMB asserts that a PREPA CTO is necessary in the wake of Hurricane Maria, particularly given the historical challenges that have "degraded [PREPA's] financial and operating condition" over the last several years. (Motion ¶¶ 18–25.) The Ad Hoc Group of PREPA Bondholders (the "Ad Hoc Group"), the National Public Finance Guarantee Corporation ("National"), Scotiabank de Puerto Rico ("Scotiabank"), the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF"), U.S. Bank National Association ("U.S. Bank"), the PREPA Governing Board ("Governing Board"), Assured Guaranty Corp. ("Assured"), and Syncora Guarantee Inc. ("Syncora") (collectively, the "Opposing Parties") oppose the FOMB's Motion. The Instituto de Competitividad y Sostenibilidad Economica de Puerto Rico ("ISCE") has filed papers in support of the appointment of a CTO, and the Puerto Rico Energy Commission ("PREC") has filed comments to the Motion raising broader policy coordination issues.
The Court heard oral argument on the Motion on November 13, 2017 (the "November 13th Hearing"). The Court has carefully reviewed and considered all of the submissions made in connection with this Motion, including the arguments presented at the November 13th Hearing and, for the following reasons, the Motion is denied. This Opinion and Order memorializes and expands upon the brief oral ruling delivered by the Court at the close of the November 13th Hearing.
PREPA is an instrumentality of the Commonwealth of Puerto Rico (the "Commonwealth," or "Puerto Rico") created pursuant to the laws of Puerto Rico. See Puerto Rico Electric Power Authority Act, 22 L.P.R.A. §§ 191 – 218. Under Commonwealth law, PREPA's operations are overseen by the PREPA Governing Board, a group of nine individuals, six of whom are appointed by the Governor of Puerto Rico. 22 L.P.R.A. § 194. The PREPA Governing Board is empowered to appoint an Executive Director who is responsible for the "general supervision" of PREPA's operations and employees. See id.
The proposed CTO would essentially displace the PREPA Executive Director and Governing Board by assuming "management and control of the business and affairs of PREPA." (Docket entry no. 414–1, ¶ 3.) Among other powers and duties, the CTO would have the power to sign all PREPA contracts; supervise and direct all PREPA employees; develop and implement a power restoration plan; finalize and implement an industry modernization strategy for the power sector; oversee the administration of federal funds; and revise and implement the PREPA fiscal plan. (Id. ¶¶ 3–4.) The CTO would be compensated by, and report directly to, the FOMB. (Id. ¶¶ 6–7.) Under the FOMB's proposal, PREPA's Executive Director would be required to report to the CTO, bypassing the PREPA Governing Board and the Governor. (Id. ¶ 8.) The FOMB-appointed CTO's tenure would last until the effective date of a confirmed plan of adjustment for PREPA. (Id. ¶ 9.)
The FOMB contends that the broad powers granted to it by the Puerto Rico Oversight, Management, and Economic Stability Act, 48 U.S.C. §§ 2101 – 2241 ("PROMESA"), necessarily subsume the power to act as a "chief executive officer" overseeing both long term strategic planning and day-to-day management of PREPA. (Docket entry no. 413 (the "Reply"), ¶ 2.) The FOMB argues that, collectively, PROMESA Titles I and II, along with sections 301(c)(7), 305, and 315 of the statute, bestow upon the FOMB "quintessential managerial, business, and executive" powers that allow it to direct any activities incidental to the execution of certified fiscal plans, approved budgets and, ultimately, a plan of adjustment. (Reply ¶¶ 18–33.) The Opposing Parties assert that nothing in PROMESA gives the FOMB the power to insert a CTO into PREPA's organizational structure. Several Opposing Parties have also proposed alternative and ancillary relief. (See, e.g., docket entry no. 376, at 10–13; docket entry no. 377, at 15–20; docket entry no. 379, ¶¶ 4–7, 16; docket entry no. 390, ¶ 2.) The FOMB argues that these additional requests are procedurally improper and should accordingly be denied.
The issue at the heart of the FOMB's Motion is whether PROMESA grants the FOMB authority to unilaterally displace a statutorily-created management structure and direct the executive functions of a Title III debtor—in this case, PREPA. The Court notes that this is an issue of first impression, and that there is no provision of Commonwealth law authorizing the creation of a PREPA CTO, and no explicit provision in PROMESA for such a position. Any power to...
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