Peaje Investments LLC v. Garcia-Padilla et al
Filing
74
MEMORANDUM AND ORDER re 1 Motion for Miscellaneous Relief. Plaintiffs' motions to vacate the stay are DENIED. The hearing now scheduled for November 3, 2016 is set aside. Signed by Judge Francisco A. Besosa on 11/02/2016. (brc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
PEAJE INVESTMENTS LLC,
Plaintiff,
Civil No. 16-2365 (FAB)
v.
ALEJANDRO
al.,
GARCIA-PADILLA,
et
Defendants.
ASSURED GUARANTY CORP., et als.,
Plaintiffs,
v.
Civil No. 16-2384 (FAB)
COMMONWEALTH OF PUERTO RICO, et
al.,
Defendants.
ALTAIR GLOBAL CREDIT
OPPORTUNITIES FUND (A), LLC,
et al.,
Movants,
v.
ALEJANDRO
al.,
Civil No. 16-2696 (FAB)
GARCIA-PADILLA,
et
Respondents.
MEMORANDUM AND ORDER
BESOSA, District Judge.
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
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
2
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.
BACKGROUND
A.
Plaintiffs’ Claims
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”).
No. 1 at p. 1.)
(Civil No. 16-2384, Docket
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
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
1968 Bonds issued by PRHTA.
3
(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.
No. 16-2696, Docket No. 1 at p. 4.)
(Civil
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.
B.
Id. at p. 5.
PROMESA and its Automatic Stay
On June 30, 2016, the United States enacted PROMESA to address
the dire fiscal emergency in Puerto Rico.
designed
to
establish
“[a]
comprehensive
The legislation was
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
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
a
fair
and
orderly
process.”
PROMESA,
4
§
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.
§ 405(m)(5).
Id.
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.
relief.
The Commonwealth opposes the granting of that
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
5
DISCUSSION
A.
Lifting PROMESA’S Automatic Stay “For Cause”
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.”
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
1.
6
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”).
respects,
nearly
Indeed, the two provisions are, in some
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.
certain
additional
considerations
It will then reflect upon
that
ought
to
inform
its
understanding of what constitutes proper cause to vacate the
PROMESA stay.
a.
Prevailing
Interpretations
Bankruptcy Case Law
of
“Cause”
within
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.”
§ 362(d)(1).
11 U.S.C.
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) (commenting on the “wide
latitude accorded to the Bankruptcy Court to balance the equities
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
7
when granting relief from the automatic stay.”); Brown v. Chestnut
(In re Chestnut), 422 F.3d 298, 303-04 (5th Cir. 2005) (noting that
11 U.S.C. § 362 gives the bankruptcy court broad discretion to
vacate the automatic stay and “flexibility to address specific
exigencies on a case-by-case basis”); Claughton v. Mixson, 33 F.3d
4, 5 (4th Cir. 1994) (noting that Congress “has granted broad
discretion to bankruptcy courts to lift the automatic stay” and
that “the courts must determine when discretionary relief is
appropriate on a case-by-case basis.”); Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 814 F.2d 844, 847 (1st Cir. 1987)
(applying abuse of discretion standard to court’s decision granting
relief from the automatic stay); Matter of Holtkamp, 669 F.2d 505,
507 (7th Cir. 1982) (emphasizing that Section 362(d) “commits the
decision of whether to lift the stay to the discretion of the
bankruptcy judge.”)
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) (enumerating
12 different factors to be utilized in determining whether there is
“cause” to vacate a bankruptcy stay, including the “impact of the
stay on the parties and the balance of harms”); see also C&A, S.E.
v. P.R. Solid Waste Mgmt. Auth., 369 B.R. 87, 94-95 (D.P.R. 2007)
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
8
(Casellas, J.) (considering factors similar to those spelled out in
Sonnax).
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)
(suggesting that cause generally exists “when the harm that would
result from a continuation of the stay would outweigh any harm that
might be suffered by the debtor . . . if the stay is lifted.”); In
re Robinson, 169 B.R. 356, 359 (E.D. Va. 1994) (noting that, “in
deciding whether ‘cause’ has been shown, the bankruptcy court must
balance the potential hardship that will be incurred by the party
seeking relief if the automatic stay is not lifted, against the
potential prejudice to the debtor” if it is.); In re Turner, 161
B.R. 1, 3 (Bankr. D. Me. 1993) (“Cause may exist for lifting the
stay whenever the stay harms the creditor and lifting the stay will
not unduly harm the debtor.”); In re Harris, 85 B.R. 858, 860
(Bankr. D. Colo. 1988) (holding that vacating the automatic stay is
appropriate where “no great prejudice will result to the debtor”
and “the hardship to the creditor resulting by continuing the stay
considerably outweighs the hardship to the debtor by modification
of the stay.”); In re Opelika Mfg. Corp., 66 B.R. 444, 448 (Bankr.
N.D. Ill. 1986) (“Cause to lift the stay exists when the stay harms
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
9
the creditor and lifting the stay will not unjustly harm the debtor
or other creditors.”)
The Court finds that this general framework employed
in the bankruptcy context is also applicable to these proceedings
pursuant to PROMESA.
Thus, in deciding whether the plaintiffs in
these cases have established “cause” for relief from the PROMESA
stay, the Court’s ultimate task is to perform a careful balancing
of
the
equities
involved.
It
must,
in
essence,
assess
the
hardships realistically borne by plaintiffs if their requested
relief is denied and determine whether those outweigh the harm
likely to be visited upon the Commonwealth defendants if that
relief is granted.
i.
“Lack of Adequate Protection” as Sufficient
“Cause”
Section 362 of the Bankruptcy Code includes one
specific type of “cause” sufficient to grant a party in interest
relief from stay:
in property.”
“the lack of adequate protection of an interest
11 U.S.C. § 362(d)(1).
This provision has allowed
courts to vacate the stay in bankruptcy proceedings where a secured
party, faced with a decrease in the value of its collateral while
the stay is in effect, is not supplied by the debtor with an
alternative form of relief that will safeguard his interest in that
collateral.
See In re Monroe Park, 17 B.R. 934, 937 (D. Del. 1982)
(“[T]he concept of adequate protection requires a debtor to propose
some form of relief that will preserve the secured creditor’s
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
10
interest in the collateral, pending the outcome of bankruptcy
proceedings.”)
Section 405(e) of PROMESA, however, does not
explicitly identify “lack of adequate protection” as a ground for
obtaining relief from the stay.
At first blush, that omission
would seem to suggest that Congress simply did not intend for
inadequate protection to justify a secured creditor’s circumvention
of PROMESA’s automatic stay.
Indeed, the defendants make this
exact argument and entreat the Court, in interpreting the statute,
to
view
the
absence
of
“lack
of
adequate
protection”
as
a
purposeful exclusion of significant consequence. See Civil No. 162365, Docket No. 30 at p. 6; Civil No. 16-2696, Docket No. 53 at
pp. 9-10.
The Court, however, declines to oblige the
defendants on this request. Rather, it finds that Congress was not
required to have included “lack of adequate protection” in the
statutory text in order for that particular, long-standing means of
showing “cause” to be available to creditors in PROMESA proceedings
to vacate to stay.
This is because the concept of “adequate
protection” has constitutional roots, not just statutory ones. See
H.R. Rep. No. 95-595, 95th Cong., 1st Sess. at 339 (1977) (the
concept of adequate protection “is derived from the Fifth Amendment
protection of property interests.”); see also In re Timbers of
Inwood Forest Associates, Ltd., 793 F.2d 1380, 1390 (5th Cir.
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
11
1986), aff’d, 484 U.S. 365 (1988) (“Case law had made adequate
protection of the secured creditor a major consideration long
before the draft predecessor of the [1978 Bankruptcy Code] proposed
to codify it as a requirement.”
Secured creditors are, in short,
“entitled to constitutional protection for [their] bargained for
property interest.”
In re Jug End in the Berkshires, Inc., 46 B.R.
892, 899 (Bankr. D. Mass. 1985).
Thus, although Congress did not
overtly include “lack of adequate protection” as an example of
proper
cause
in
PROMESA
Section
405(e),
the
Constitution
nevertheless affords secured creditors the right to invoke that
exception when seeking relief from PROMESA’s automatic stay.
b.
Additional Considerations in Interpreting “Cause”
Before the Court transitions to its evaluation of
whether adequate “cause” to vacate the stay exists in these cases,
it acknowledges the lack of a “one-to-one” relationship between
Section 405 of PROMESA and Section 362 of the Bankruptcy Code.
It
recognizes, in other words, that the concept of “cause” embraced by
the Court for the purposes of the PROMESA stay need not precisely
mirror that adopted in the bankruptcy context.
Although the Court
endorses the general analytical approach to “cause” followed in the
bankruptcy arena, it is nevertheless mindful of the specific
Congressional findings and the enumerated purposes of PROMESA’s
automatic stay contained within Section 405 of the statute.
These
statutory provisions offer valuable insight into Congress’ basic
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
12
motive in including the stay provision and have no counterpart in
Section 362 of the Bankruptcy Code.
Accordingly, any decision by
this Court to vacate the stay in these cases should be consistent
with these provisions and should advance the larger, overarching
purposes for which PROMESA was enacted.
B.
The Assured plaintiffs do not have standing to seek relief
from the PROMESA stay because they show no “injury in fact”
Article
III
standing,
which
enforces
the
Constitution’s
case-or-controversy requirement, is an “indispensable part” of any
case and must be present at every stage of the litigation.
See
Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992) (noting
that standing must be “supported . . . at the successive stages of
litigation”).
Thus, “[i]f a party lacks Article III standing to
bring a matter before the court, the court lacks subject matter
jurisdiction to decide the merits of the underlying case.”
Dubois
v. U.S. Dep’t of Agric., 102 F.3d 1273, 1281 (1st Cir. 1996)
(citation omitted).
In order to satisfy this constitutional
component of standing, “a plaintiff must have suffered an ‘injury
in fact,’ i.e., an invasion of a legally protected interest.
That
injury must be ‘concrete and particularized’. . . and it must be
‘distinct and palpable.’”
Id.
Here, the Assured plaintiffs in Civil No. 16-2384 are not
bondholders and therefore are not directly owed money by the
relevant bond issuer, PRHTA.
Rather, they are monoline insurers
that guarantee scheduled payments of interest and principal to
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
13
PRHTA bondholders if and when that issuer defaults on its payment
obligations.
It follows, then, that the Assured plaintiffs will
suffer financial harm only in the event of nonpayment by PRHTA.
See Civil No. 16-2384, Docket No. 1-5 at p. 1; Docket No. 1-6 at
p. 1; Docket No. 1-7 at p. 1.
The facts indicate, however, that an
event of nonpayment by PRHTA will not transpire during the pendency
of the PROMESA stay.
The Assured plaintiffs admit that there are
sufficient funds on deposit with the fiscal agent to satisfy the
next installment of principal and interest due on the PRHTA bonds
on January 1, 2017, and that the Executive Orders do not prevent
the fiscal agent from paying those funds to the PRHTA bondholders.
See Civil No. 16-2384, Docket No. 1 at pp. 22, 7.
Because the
following installment of principal and interest payments on the
relevant bonds would not be due until July 1, 2017 - well after the
termination of both the Moratorium Act’s “emergency period” and the
PROMESA stay - PRHTA bondholders will not miss a single payment
during the stay period.
The absence of any default on the PRHTA
bonds means that plaintiffs’ obligations to make payments pursuant
to the relevant insurance policies will not be activated. This, in
turn, means that the Assured plaintiffs will not suffer an “injury
in fact” during the pendency of PROMESA’s automatic stay.
Because
they lack Article III standing to request that the stay be vacated,
the Assured plaintiffs’ emergency motion seeking that relief is
therefore DENIED.
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
C.
14
Peaje Investments (16-2384) and the Altair plaintiffs (162696) do not lack adequate protection and therefore cannot
show “cause” to vacate the stay
As discussed above, the Court finds that a secured creditor’s
lack of adequate protection in its collateral can establish the
requisite “cause” to vacate the PROMESA stay pursuant to its
Section 405(e).
The essential question therefore becomes whether
the Peaje and Altair plaintiffs’ interests in their respective
collateral are adequately protected.
The Court holds that they
are.
The term adequate protection is not explicitly defined in the
Bankruptcy Code.
Courts, however, have determined that “[t]he
focus of the [adequate protection] requirement is to protect a
secured creditor from diminution in the value of its interest in
[its] particular
debtor.”
collateral
during
the
period
of
use
by
the
In re Satcon Tech. Corp., 2012 WL 6091160, at *6 (Bankr.
D. Del. 2012); see also In re Swedeland Dev. Group, Inc., 16 F.3d
552, 564 (3d Cir. 1994) (“The whole purpose of adequate protection
for a creditor is to insure that the creditor receives the value
for which he bargained prebankruptcy.”); In re Born, 10 B.R. 43, 48
(Bankr. S.D. Tex. 1981) (“The very heart of the concept of adequate
protection is to assure the secured creditor that as the bankruptcy
procedures unfold he will not be faced with a decrease in the value
of his collateral.”); In re Dynaco Corp., 162 B.R. 389, 393 (Bankr.
D.N.H. 1993) (“The Court must ensure that, to the extent the debtor
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
15
is entitled to use cash collateral, there is adequate protection of
the creditor’s security interest so as to maintain the ‘benefit of
the bargain’ that the secured creditor originally made with the
debtors.”)
Thus, the concept of adequate protection generally
requires a debtor to propose some alternative form of relief that
will preserve the secured creditor’s interest in the collateral,
pending the outcome of bankruptcy proceedings.
Indeed, “[i]t is
well settled that the debtor bears the burden to demonstrate that
a creditor is adequately protected.”
B.R.
391,
408
(Bankr.
E.D.N.Y.
protection, however, is flexible.
In re S. Side House, LLC, 474
2012).
The
exact
form
of
See In re Monroe Park, 17 B.R.
934, 940 (D. Del. 1982) (noting that adequate protection in the
context of relief from the automatic stay “is a flexible concept
which requires a Court to make decisions on a case-by-case basis,
after full consideration of the peculiar characteristics common to
each proceeding.”)
That protection may include an additional or
replacement lien, periodic payments, or any other method that
provides the creditor with the “indubitable equivalent” of its
interest in the property.
Here,
plaintiff
See 11 U.S.C. § 361.
Peaje
Investments
alleges
that
the
Commonwealth is “diverting and dissipating” pledged toll revenues
that serve as hard collateral for the repayment of its PRHTA bonds.
(Civil No. 16-2365, Docket No. 1 at p. 6.)
It further asserts that
it lacks adequate protection of its interest in those funds because
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
16
the bonds are limited recourse obligations and the Commonwealth has
offered “[no] compensation whatsoever” for the diverted funds. Id.
at p. 22.
In arguing this lack of adequate protection, however,
Peaje unjustifiably discounts provisions of both the Moratorium Act
and PROMESA that effectively preserve its contractual security
interest in PRHTA’s pledged revenues.
See Moratorium Act § 204(a)
(protecting “the rights of a holder to any collateral, security
interest or lien that secures” an obligation that “was otherwise
due or became due before or during an emergency period” and
“becomes payable at the end of the covered period as a result of
this Act.”); PROMESA § 405(k) (providing that the automatic stay
“does not discharge an obligation of the Government of Puerto Rico
or release, invalidate, or impair any security interest or lien
securing such obligation.”)
because PRHTA’S
Because of these provisions, and
pledged revenues are constantly replenished by an
ongoing stream of toll payments, Peaje Investments continues to
hold a security interest in a stable, recurring source of income
that will eventually provide funds for the repayment of the PRHTA
bonds.
Though it will not receive the pledged revenues during the
stay period, this enduring security interest means that it faces
only a delay in recouping such funds, not a permanent loss of them.
The Court believes that the existence of this continuing lien
on a perpetual source of revenue satisfies the “flexible” standard
applicable to determinations of adequate protection.
It therefore
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
17
holds that the Commonwealth has carried its burden of showing that
Peaje Investments, as a PRHTA bondholder, will, in due time,
receive the “indubitable equivalent” of its current interest in
PRHTA’s
pledged
toll
revenues.
Accordingly,
plaintiff
Peaje
Investments’ motion to lift the stay is DENIED.
A similar analysis applies to the Altair plaintiffs’ claim of
inadequate protection.
Those plaintiffs, pursuant to the terms of
the applicable bond resolution, hold a security interest and lien
in
certain
pledged
contributions.
This
property,
lien
including
continues
all
future
indefinitely
employer
until
ERS’s
outstanding debt obligations have been satisfied in full.
discussed
above,
nothing
in
the
language
of
PROMESA
or
As
the
Moratorium Act diminishes or destroys this lien against the ERS
employer contributions, which, like the PRHTA toll revenues, are a
perpetual revenue stream whose value is not decreased by the
Commonwealth’s
acts
of
temporary
suspension.
Following
the
expiration of the PROMESA stay and the expiration of the ERS’s
“emergency period,” that enduring stream of ERS pledged property
will once again flow to the fiscal agent to be held for the benefit
of ERS bondholders.
Thus, while the Altair plaintiffs will not
receive the benefit of the pledged property during the pendency of
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
18
the stay,1 they will only be delayed in recovering the funds needed
to repay their ERS bonds.
Their interest in the ERS pledged
property is, therefore, adequately protected.
Because the Peaje Investments and the Altair plaintiffs have
failed to meet their burden to show “cause” pursuant to Section
405(e) of PROMESA, the Court’s analysis with respect to their
individual motions to vacate the automatic stay is complete.
See
In re Sonnax Indus., Inc., 907 F.2d 1280, 1285 (2d Cir. 1990) (“If
the movant fails to make an initial showing of cause . . . the
court should deny relief without requiring any showing from the
debtor that it is entitled to continued protection.”)
CONCLUSION
Plaintiffs in Civil No. 16-2384 lack Article III standing to
seek relief from the PROMESA stay. Plaintiffs in Civil No. 16-2365
and Civil No. 16-2696 do not lack adequate protection and therefore
cannot carry their initial burden of showing cause to vacate the
stay.
DENIED.
Accordingly, plaintiffs’ motions to vacate the stay are
(Civil No. 16-2365, Docket No. 1; Civil No. 16-2384,
Docket No. 1; Civil No. 16-2696, Docket No. 1.)
1
The fact that the Altair plaintiffs will not receive the
benefit of the pledged property during the pendency of the stay is
of no moment.
Because there are sufficient monies in the debt
service and reserve accounts to service the bondholder debt until
April 1, 2017, not a single principal or interest payment will be
missed while the PROMESA stay remains in place.
The Altair
plaintiffs therefore face no financial harm as a result of the
stay.
Civil Nos. 16-2365, 16-2384, 16-2696 (FAB)
19
The Court hastens to add that the Commonwealth defendants must
not abuse
or
squander
the
“breathing
room”
that
the
Court’s
decision fosters. The purpose of the PROMESA stay is to allow the
Commonwealth to engage in meaningful, voluntary negotiations with
its creditors without the distraction and burden of defending
numerous lawsuits.
The Commonwealth should take full advantage of
the relief the Court offers it today to fulfill that essential
objective.
Indeed, it has an obligation to do so.
IT IS SO ORDERED.
San Juan, Puerto Rico, November 2, 2016.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE
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