In re Fin. Oversight & Mgmt. Bd. for Puerto Rico

• Decision Date: 06 June 2019
• Docket Number: Case No. 17-BK-3566 (LTS) (Jointly Administered),Case No. 17-BK-3283 (LTS) (Jointly Administered)
• Parties: IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative of the Commonwealth of Puerto Rico et al., Debtors. In re: The Financial Oversight and Management Board for Puerto Rico, as Representative of the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, Debtors.
• Court: U.S. District Court — District of Puerto Rico

386 F.Supp.3d 175

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative of the Commonwealth of Puerto Rico et al., Debtors.¹ In re: The Financial Oversight and Management Board for Puerto Rico, as Representative of the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, Debtors.

Case No. 17-BK-3283 (LTS) (Jointly Administered)

Case No. 17-BK-3566 (LTS) (Jointly Administered)

United States District Court, D. Puerto Rico.

Signed June 6, 2019

Hermann D. Bauer-Alvarez, O'Neill & Borges, Jose Alberto Sosa-Llorens, DLA Piper (Puerto Rico) LLC, San Juan, PR, for Debtors.

PROMESA

Title III

ORDER ON MOTION TO COMPEL

Judith Gail Dein, United States Magistrate Judge

This matter is before the Court on the Motion of Certain Secured Creditors of the Employees Retirement System of the Government of the Commonwealth of Puerto Rico to Compel Production of Documents from Financial Oversight and Management Board (Dkt. No. 512 in 17–BK–3566; Dkt. No. 6998 in 17–BK–3283) ("Motion to Compel"). For the reasons addressed herein, the Motion to Compel is ALLOWED IN PART AND DENIED IN PART. The Financial Oversight and Management Board for Puerto Rico ("Oversight Board") shall review their currently withheld documents in accordance with the rulings herein. The Oversight Board shall make supplemental productions and submit updated privilege logs and affidavits to the Bondholders² as necessary by June 12, 2019 unless otherwise agreed by the parties. The parties shall submit a status report to the Court on or before June 14, 2019 .

I. Introduction

Through the Motion to Compel, the Bondholders seek to compel documents from the Oversight Board in connection with the Motion of Certain Secured Creditors of the Employees Retirement System of the Government of the Commonwealth of Puerto Rico for Relief from the Automatic Stay (Dkt. No. 289)³ ("Lift Stay Motion"). At issue in the Lift Stay Motion is whether, as the Bondholders contend, the new Pay–Go fees are simply the old ERS employer contributions in slightly different form, so that their liens on the old ERS employer contributions continue to attach to these funds or, as the Respondents contend, Joint Resolution 188 and Act 106 eliminated the Bondholders' collateral. Limited discovery has been authorized in connection with the Lift Stay Motion relating to the "attribution of any diminution in value resulting from the automatic stay." (Dkt. No. 313). Related thereto, in connection with the Bondholders' argument that they intend to prove that the payments made under the Pay–Go system are substantially the same as those employer payments on which the Bondholders have a secured lien, this Court has allowed discovery into "how the Pay–Go system worked, and how it compared to how the ERS system worked, and the similarities and differences." (May 2, 2019 Hearing Tr., Dkt. No. 498 at 102:14–16).

By its Motion to Compel, the Bondholders challenge the Oversight Board's decision to withhold documents on the grounds of the deliberative process privilege, the attorney–client privilege and the work product doctrine. The instant motion follows similar motions to compel brought by the Bondholders against the Commonwealth of Puerto Rico ("Commonwealth"), the Employees Retirement System ("ERS"), and the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF") (collectively the "Commonwealth Motions") (Dkt. Nos. 446, 443). In connection with the Commonwealth Motions, this Court held a lengthy hearing on May 2, 2019, which the Oversight Board attended, and issued Orders on May 6, 2019 (Dkt. No. 493), May 15, 2019 (Dkt. No. 509) and May 30, 2019 (Dkt. No. 537) addressing the application of the deliberative process privilege, the attorney–client privilege and the work product doctrine to the documents being sought by the Bondholders. The legal bases for those Orders apply to the instant dispute as well, and familiarity with those Orders are assumed herein.

With respect to the request for documents from the Oversight Board, on March 4, 2019, the Bondholders served a subpoena on the Oversight Board seeking six categories of documents. (Declaration of Geoffrey S. Stewart, Dkt. No. 512–1 ("Stewart Decl.") ¶ 2). On March 7, 2019, the Bondholders served a deposition subpoena on the Oversight Board. (Id. ¶ 3). The Oversight Board initially objected to producing any documents, or any witness for deposition, and the Bondholders filed a motion to compel on March 21, 2019. (Dkt. No. 402). This Court held a hearing on the motion to compel on April 1, 2019, and ruled that the Oversight Board must respond to the Bondholders' subpoena and produce a witness for deposition. (See Dkt. Nos. 429, 431). Following various telephonic hearings, court–ordered meet–and–confers and status reports, the Oversight Board produced documents on April 14, 2019, April 16, 2019, April 24, 2019 and May 1, 2019.⁴ It served privilege logs on the Bondholders, and provided copies to the Court, on April 29, 2019 and May 1, 2019 ("April 29 Log" and "May 1 Log" respectively). Those logs contain personal information and are thus not being made publicly available.

At the May 2, 2019 hearing on the Commonwealth Motions, the Oversight Board had been instructed to review its privilege logs in accordance with the Court's rulings at the hearing. The parties' subsequent efforts to resolve their outstanding disputes were unsuccessful, and the Bondholders filed the instant Motion to Compel on May 17, 2019. The Oversight Board filed its response on May 23, 2019 (Dkt. No. 528) ("Response"), and the Bondholders filed their reply on May 29, 2019. (Dkt. No. 535) ("Reply").

According to the Bondholders, "On April 14, 2019, the Oversight Board made its first production of 12 documents, which consisted of 284 pages, 264 of which were completely redacted." (Stewart Decl. ¶ 8).

"On April 16, 2019, the Oversight Board made its supplemental production of 15 documents consisting of 476 pages, 270 of which were completely redacted." (Id. ). "On April 24, 2019, the Oversight Board made its third production of 21 documents, which consisted of 325 pages, 282 of which were fully redacted." (Id. ¶ 10). "On May 1, 2019, the Oversight Board made its final document production[.]" (Id. ¶ 11). "Altogether, the Oversight Board has produced about 669 documents, amounting to a little more than 9,700 pages", (id. ), of which fewer than 10 were non–repetitive and, in the Bondholder's view, relevant to the Lift Stay Motion. (Motion to Compel ¶ 12). According to the Bondholders, the non–blank pages produced included "over 3,900 pages of accounting detail" that "was of no clear relevance to anything, [and] was outside the scope of anything the Bondholders had asked for," hundreds of pages of "isolated strings of text, or graphics with no context[,]" and multiple copies of Resolution 187, Resolution 189, the March 13, 2017 Fiscal Plan, and the same four weekly account reports from mid–2017. (Id. ¶ 11). The Bondholders have made it clear that while they have not described individually their objections to each of the 335 documents listed on the privilege logs, they are objecting to the claims of privilege for each one of the documents. (See Reply ¶ 4).

II. Discussion

A. Deliberative Process

Pre–decisional Documents

The Oversight Board has claimed the deliberative process privilege with respect to the March 13, 2017 Fiscal Plan, the Fiscal Year 2018 and 2019 Territory Budgets, the April 18, 2018 Fiscal Plan, and potential revisions and corrections to the March 13, 2017 Fiscal Plan. In order to preserve the issue for appeal, the Bondholders continue to assert that the only relevant deliberations were those leading up to the certification of the March 13, 2017 Fiscal Plan, and that all subsequent documents were post–decisional and therefore not protected by the deliberative process privilege.⁵ See Texaco P.R., Inc. v. Dep't of Consumer Affairs, 60 F.3d 867, 884 (1st Cir. 1995) ("to qualify for the privilege, a document must be (1) predecisional, that is, antecedent to the adoption of agency policy ..." (internal quotation and citation omitted)). For the reasons detailed in this Court's Orders with respect to the Commonwealth Motions, this Court rules that each of these events constitute separate decisions, and the deliberations leading up to each decision are entitled to protection.⁶

Substantial Need

The Bondholders contend that, even assuming that the deliberative process could be asserted, they have established a substantial need for the materials in connection with the Lift Stay Motion. As the Puerto Rico Supreme Court held In Bhatia Gautier v. Gobernador, 199 D.P.R. 59, 88–89 (2017) (translation provided at Dkt. No. 446–3) (" Bhatia Gautier I"):

To determine if [the deliberative process] privilege prevails, as the privilege of official information, the court must make an analysis of balance of interests. Among the factors that the court must consider when pondering the balance of interests, are: the interests of the private litigant, the need for accurate judicial fact finding, the public's interest in learning how effectively the government is operating, the relevance of the evidence sought, the availability of other evidence, the role of the government in the litigation and issues involved, and the impact on the effectiveness of government employees. Also, the impact that the divulgation in the process of frankly discussing the policies and decisions in question must be evaluated. In sum, this privilege can budge when it is fully demonstrated that there is a particularized need to obtain the information which is of greater weight than the reasons for confidentiality.

(emphasis, punctuation, and internal citations omitted). While this Court agrees that the Bondholders' "substantial need" may overcome the deliberative process privilege in certain circumstances, this Court confirms its ruling made in connection with the...