Challenge to COFINA debt adjustment reaches Supreme Court
By The Star Staff
Three Puerto Rico Sales Tax Financing Corp. (COFINA by its Spanish acronym) bondholders are challenging in the U.S. Supreme Court a lower court ruling that all debt deals done under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) will be analyzed under the doctrine of equitable mootness.
The doctrine of equitable mootness promotes an end and protects parties that have relied on the bankruptcy court’s confirmation of a debt adjustment plan. In deciding whether to dismiss an appeal of a confirmation order as equitably moot, courts consider some factors such as whether the appellant has sought or obtained a stay and whether the plan of reorganization has been substantially consummated.
The U.S. First Circuit Court of Appeals on Jan. 8 affirmed a lower court ruling that dismissed the consolidated cases, Pinto Lugo vs Commonwealth, Elliot vs Commonwealth and Hein vs FOMB. The Boston court held that the doctrine of equitable mootness will apply to all debt confirmation plans that have become a reality under the federal PROMESA law as it does in other types of bankruptcy.
The appeal to the Supreme Court was filed by plaintiffs Mark Elliott, Lawrence B. Dvores and Peter C. Hein last week and was docketed Tuesday. They are only appealing the decision as it pertains to Elliot because Hein is an individual creditor who had challenged the dismissal of his claim.
The Elliott case objected to the COFINA debt deal arguing that it unlawfully abrogated their rights as junior COFINA bondholders, that the plan confirmation procedures were unlawful.
In the appeal to the Supreme Court, they said the First Circuit unfairly did not evaluate the merits of their claims by invoking the doctrine of equitable mootness to dismiss their cases.
They argued the middle court ruling went against Supreme Court precedent that allows a court to dismiss a case as moot “only if it is impossible for a court to grant any effectual relief whatever.”
They noted that when Supreme Court Justice Samuel Alito was in the Third Circuit Court of Appeals, he had pointed out that the Bankruptcy Code does contain several narrow provisions that prevent the upsetting of certain specific transactions, but bankruptcy plan confirmation is not one of them.
The COFINA debt deal, which restructured some $18 billion in debt, went into effect two years ago.