• The Star Staff

Judge Swain denies request to lift stay motions in claims against 3 island public corporations

By The Star Staff

U.S. District Court Judge Laura Taylor Swain on Wednesday denied revenue bond lift stay motions requested by several bond insurers, the U.S. Bank National Association, and the Bank of New York Mellon to pursue claims against the Puerto Rico Highways and Transportation Authority (HTA), the Puerto Rico Infrastructure Financing Authority (PRIFA), and the Puerto Rico Convention Center District Authority (CCDA).

Swain also cancelled a hearing slated for the end of the month on the disputes. She said she will issue a decision on a dispute about the ownership of certain funds deposited in an account at Scotiabank later as part of a pending ruling in a separate CCDA-related adversary proceeding.

After holding a preliminary hearing, the court in July had issued three separate opinions and orders finding that the bond insurers and the banks had failed to establish colorable claims to ownership of, or other property interests in the bond revenues. The bond insurers are Ambac Assurance Corp., National Public Finance Guarantee Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp. and Financial Guaranty Insurance Co.

After other procedural matters, Swain on Wednesday denied the HTA stay relief motion and the PRIFA stay relief motion. She also denied the CCDA stay relief motion as it sought relief from the automatic stay to pursue remedies with respect to monies other than those in an alleged transfer account in Scotiabank.

The bond insurers and the other parties had asserted that the automatic stay in the bankruptcy case had to be lifted to allow them to assert causes of action under the contracts, due process, and takings clauses of the U.S. Constitution, and under Section 303 of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), based on the invalidity of certain Commonwealth laws and executive orders issued by the governor and the Financial Oversight and Management Board’s fiscal plans and budgets.

Relying heavily on the First Circuit’s ruling, the bond insurers had argued that the stay relief was warranted because their causes of action cannot be addressed in the Title III bankruptcy court and that the commonwealth would not suffer if the issues were litigated elsewhere.

But the judge said the bond insurers and other parties had failed to establish that PROMESA has created any due process impediment that provides cause for relief from the automatic stay. She also said the bond insurers and other parties had failed to meet the so-called Sonnax factors, which are a dozen factors that bankruptcy courts generally consider when deciding whether to lift an automatic stay.

“The first of these factors weighs heavily against stay relief. Here, lifting the automatic stay to allow movants to assert their proposed claims in an alternative forum would interfere with, and would not promote, the interests of judicial economy and the expeditious resolution of these Title III cases, as it would result in fragmented and possibly premature litigation of factual and legal issues, many of which are currently before the court in the revenue bond adversary proceedings, that are indisputably central to the restructurings of the Commonwealth and its instrumentalities,” Swain said.

The bond insurers and the other parties have therefore failed to make an adequate showing for purposes of their motion that their contract clause, due process and PROMESA Section 303 Proposed Claims are not “claims” within the meaning of Section 101(5) of the Bankruptcy Code that are capable of resolution by the bankruptcy court, she said.

Swain also said the bond insurers had failed to demonstrate how the hardship they would allegedly face from a continuation of the stay renders them differently situated than virtually any other creditor of a Title III debtor that is required to pursue its claims exclusively in the U.S. District Court.

“Any such hardship is outweighed by the potential harm to the Debtors and interference with the orderly administration of these Title III cases,” Swain said.

Regarding the CCDA, in a separate memorandum, Swain said she was unable to determine the extent of the monies in which the movants have said they have a lien, or the Commonwealth’s rights with respect to the funds at Scotiabank, which were derived from hotel taxes. She said she would be ruling on the ownership of the funds at a later date.

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