Peaje Invs. LLC v. Garcia-Padilla
| Decision Date | 02 November 2016 |
| Docket Number | Civil No. 16-2696 (FAB),Civil No. 16-2365 (FAB),Civil No. 16-2384 (FAB) |
| Parties | PEAJE INVESTMENTS LLC, Plaintiff, v. ALEJANDRO GARCIA-PADILLA, et al., Defendants. ASSURED GUARANTY CORP., et als., Plaintiffs, v. COMMONWEALTH OF PUERTO RICO, et al., Defendants. ALTAIR GLOBAL CREDIT OPPORTUNITIES FUND (A), LLC, et al., Movants, v. ALEJANDRO GARCIA-PADILLA, et al., Respondents. |
| Court | U.S. District Court — District of Puerto Rico |
Before the Court are the plaintiffs' motions to vacate the automatic stay imposed by the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). (Civil No. 16-2365, Docket No. 1; Civil No. 16-2384, Docket No. 1; Civil No. 16-2696, Docket No. 1.) Having considered those motions and the Commonwealth defendants' opposition to each, Civil No. 16-2365, Docket No. 30; Civil No. 16-2384, Docket No. 22; Civil No. 16-2696, Docket No. 53, the Court DENIES plaintiffs' motions. Because of the denial, the hearing now scheduled for November 3, 2016 is set aside.
Plaintiffs Assured Guaranty Corp. and Assured Guaranty Municipal Corp. (the "Assured plaintiffs") in Civil No. 16-2384 are insurers of certain bondholders of the Puerto Rico Highway and Transportation Authority ("PRHTA"). (Civil No. 16-2384, Docket No. 1 at p. 1.) They claim that, through the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act (the "Moratorium Act") and certain executive orders approved pursuant to it (the "Executive Orders"), the Commonwealth has diverted certain PRHTA toll revenues pledged to secure PRHTA's bonds for the purpose of paying for PRHTA's own operations and funding "essential services" of the Commonwealth. Id. at pp. 1-2. This diversion of funds pledged for the repayment of PRHTA bonds, the Assured plaintiffs allege, violates the Federal and Commonwealth constitutions and laws of the United States. Id. at p. 2.
Plaintiff Peaje Investments LLC ("Peaje Investments") in Civil No. 16-2365 is the beneficial owner of more than $63 million in 1968 Bonds issued by PRHTA. (Civil No. 16-2365, Docket No. 1 at p. 1.) Like the Assured plaintiffs, Peaje Investments alleges that the Commonwealth defendants have engaged in the "unlawful" diversion of pledged toll revenues that secure the repayment of PRHTA bondholders and seeks to challenge the constitutionality of the Moratorium Act and Executive Orders. Id. at p. 2.
Plaintiffs in Civil No. 16-2696 (the "Altair plaintiffs") are holders of bonds issued by the Commonwealth's Employees Retirement System ("ERS"). Those bonds are secured, through a fiscal agent, by a security interest and lien in and over certain "pledged property" consisting of, among other assets, all future employer contributions and the ERS's right to those contributions. (Civil No. 16-2696, Docket No. 1 at p. 4.) The Altair plaintiffs allege that, pursuant to the Moratorium Act and the Executive Orders, the Commonwealth has suspended transfers of ERS revenues to the fiscal agent, and suspended its obligations to make employer contributions to the ERS without providing adequate protection. Id. at p. 5.
On June 30, 2016, the United States enacted PROMESA to address the dire fiscal emergency in Puerto Rico. The legislation was designed to establish "[a] comprehensive approach to [Puerto Rico's] fiscal, management and structural problems and adjustments . . . involving independent oversight and a Federal statutory authority for the Government of Puerto Rico to restructure debts in a fair and orderly process." PROMESA, § 405(m)(4). Among PROMESA'S provisions is an automatic stay of, among other things, all liability-related litigation against the Commonwealth of Puerto Rico, which was or could have been commenced before the law's enactment. PROMESA § 405(b). Congress deemed that particular component of the legislation "essential to stabilize the region for the purposes of resolving" Puerto Rico's financial crisis. Id. § 405(m)(5). The automatic stay remains in effect until the later of (1) February 15, 2017, with a possible extension of sixty or seventy-five days, or (2) six months after the establishment of an Oversight Board for Puerto Rico (which occurred on August 31, 2016), or (3) the date on which the Oversight Board files a petition on behalf of the Government of Puerto Rico or any of its instrumentalities to commence debt-adjustment proceedings pursuant to title III of PROMESA. PROMESA § 405(d). The Court may, however, grant relief from the stay to "a party in interest" either "for cause shown" after notice and a hearing, or "to prevent irreparable damage to the interest of an entity in property" with or without a hearing. Id. § 405(e)(2), (g).
Plaintiffs in these consolidated actions do not dispute that PROMESA's automatic stay applies to their claims. Rather, they seek relief from the stay "for cause shown" pursuant to Section 405(e) of PROMESA. The Commonwealth opposes the granting of that relief.
The automatic stay imposed by Section 405(b) of PROMESA is not absolute in nature. Although Congress unambiguously expressed its view that the stay is needed to "provide the Government of Puerto Rico with the resources and the tools it needs to address an immediate existing and imminent crisis," PROMESA § 405(n)(1), it also seemed to anticipate that certain circumstances might justify relief from the stay's significant, rigid effects. It therefore included a form of safety valve in Section 405(e) of PROMESA to allow certain holders of "liability claims" against the Government of Puerto Rico to proceed with their actions, provided that they could effectively demonstrate "cause" or "irreparable harm" for doing so.
The text of PROMESA, however, does not indicate what, exactly, a party in interest must do to successfully establish "cause" for relief from the automatic stay. Rather, it leaves the task of defining the boundaries of that specific term to the discretion of the Court. Thus, before it can proceed to review the arguments and evidence presented by the various parties, the Court must first attempt to hash out and clarify the meaning and parameters of the governing principle of "for cause shown."
1. Defining "Cause" for Relief from Stay
Section 405 of PROMESA was patterned on the automatic stay provision of the United States Bankruptcy Code, 11 U.S.C. § 362, ("Section 362"). Indeed, the two provisions are, in some respects, nearly identical. In light of these appreciable similarities, the Court will attempt to give meaning to the concept of "cause" by looking first to judicial interpretations of that term within the bankruptcy context. It will then reflect upon certain additional considerations that ought to inform its understanding of what constitutes proper cause to vacate the PROMESA stay.
Similar to Section 405 of PROMESA, Section 362 of the Bankruptcy Code provides that the court may grant relief from the automatic stay to a party in interest "for cause." 11 U.S.C. § 362(d)(1). Also like PROMESA, however, Section 362 does not provide concrete guidance on how that term ought to be construed and applied in practice.
United States Courts of Appeals reviewing motions to vacate the Bankruptcy Code's automatic stay pursuant to Section 362(d) have consistently found that the decision to grant that relief is largely discretionary with the court. See, e.g., In re Myers, 491 F.3d 120, 130 (3d Cir. 2007) (); Brown v. Chestnut (In re Chestnut), 422 F.3d 298, 303-04 (5th Cir. 2005) (); Claughton v. Mixson, 33 F.3d 4, 5 (4th Cir. 1994) (); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 814 F.2d 844, 847 (1st Cir. 1987) (); Matter of Holtkamp, 669 F.2d 505, 507 (7th Cir. 1982) ()
To help guide their analysis of whether to enforce or vacate the stay, some courts, including those in this district, have relied upon a laundry list of assorted factors. See, e.g., Sonnax Industries, Inc. v. Tri Component Prods. Corp. (In re Sonnax Industries, Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990) (); see also C&A, S.E. v. P.R. Solid Waste Mgmt. Auth., 369 B.R. 87, 94-95 (D.P.R. 2007) (Casellas, J.) ().
In the end, however, the process of evaluating whether there is sufficient "cause" to vacate the automatic stay in bankruptcy cases requires the court to engage in an equitable, case-by-case balancing of the various harms at stake. See, e.g., Peerless Ins. Co. v. Rivera, 208 B.R. 313, 315 (D.R.I. 1997) (); In re Robinson, 169 B.R. 356, 359 (E.D. Va. 1994) (...
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