Brigade Leveraged Capital Structures Fund v. Garcia-Padilla, explained

by Jul 12, 2017Courts0 comments

Brigade Leveraged Capital Structures Fund Ltd. et al. v. Garcia-Padilla, et al., which was originally filed on November 30, 2016, is classified as a suit regarding “The Constitutionality of State Statutes.” The official case number for the suit is 16-2437 and is currently in the US Court of Appeals, First Circuit. The official Intervenor(s) are the Municipality of Ponce, the Municipality of San Juan and the Municipality of Carolina. An intervenor is defined as “[a]n individual who is not already a party to an existing lawsuit but who makes him or herself a party by joining with the plaintiff or uniting with the defendant in resistance of the plaintiff’s claims.” The official movant for the case is the Financial Oversight and Management Board for Puerto Rico. A movant is defined as “The party in a lawsuit or other legal proceeding who makes a motion.” The United States of America is listed as the Interested Party for this particular piece of litigation.

The Defendants

-Government Development Bank of Puerto Rico

-Alejandro J. Garcia-Padilla; in his official capacity as Governor of Puerto Rico

-Juan C. Zaragoza-Gomez; in his official capacity as Secretary of the Puerto Rico Department of Treasury

The Plaintiffs

-Brigade Leveraged Capital Structures Fund, LTD.

-Brigade Distressed Value Master Fund, LTD.

-Tasman Fund, L.P.

-Claren Road Credit Master Fund, LTD.

-Claren Road Credit Opportunities Master Fund, LTD.

-Fore Multi Strategy Master Fund, LTD.

-Sola, LTD.

-Ultra Master, LTD.

-Solus Opportunities Fund 5, L.P.

-Fir Tree Value Master Fund, L.P.

-Fir Tree Special Opportunities Fund V, L.P.

-Fir Tree Capital Opportunity Fund IV, L.P.

-National Public Finance Guarantee Corporation

The Moratorium Act, explained here, explains why the current litigation exists.

The Plaintiffs’ Claims in the Underlying Litigation include:

Civil No. 16-1610- Plaintiffs claim that they own more than $750 million of bonds issued by the Government Development Bank of Puerto Rico (GDB). The plaintiffs state that sections 105, 201(b), 201(c), 2013(b)(i), 203(f), 301, 302, and 401 of the Moratorium Act violate the Contract and Takings clauses of the United States’ and Puerto Rican Constitutions. The also make the allegation that the Moratorium Act strips them of their contractual and property rights embodied in their existing GDB bonds.

Civil No. 16-2101- Plaintiff states that it insures approximately $3.84 billion of bonds issued by the Commonwealth of Puerto Rico and its related entities. It further alleges that it “has a variety of property and contractual rights relating to the debt that it insures” and that the “Moratorium Act has taken these property interests and substantially impaired these contractual rights.” Plaintiff seeks a declaration that sections 201 and 202 of the Moratorium Act violate the Contract Clause and Takings Clause of the United States Constitution.

Civil No. 16-2257- Plaintiffs in Civil No. 16-2257 allege that they collectively own more than $100 million of bonds issued by the GDB and the Puerto Rico Public Finance Corporation (“PRPFC”). Plaintiffs seek a declaration that sections 105, 201, 203, 301, 302, and 401 of the Moratorium Act violate the Contract and Takings clauses of the United States and Puerto Rico constitutions, are preempted by the Bankruptcy Clause of the United States Constitution and by section 903(1) of the Bankruptcy Code, and  violate the United States Constitution by staying federal court proceedings.

On June 30, 2016, the United States enacted PROMESA to address the fiscal emergency in Puerto Rico. Section 405 of PROMESA called for an automatic stay of certain actions against the Government of Puerto Rico. It also established the Financial Oversight and Management Board, which is the Movant for this case. The financial Oversight and Management Board is tasked with providing a method to achieve fiscal responsibility and enabling access to capital markets. Among PROMESA’S provisions is an automatic stay of all liability-related litigation against the Commonwealth of Puerto Rico. Congress deemed that this was “essential to stabilize the region for the purposes of resolving” Puerto Rico’s financial crisis. The court may, however, grant relief from the stay to “a party in interest” either “for cause shown,” or “to prevent irreparable damage” to the party’s interest in property.

In this instance, the PROMESA stay provision applies to the Plaintiffs’ claims. Plaintiffs allege in their complaints that they own or insure bonds issued by the Government of Puerto Rico before June 30, 2016, and that the Moratorium Act both impairs contractual rights related to those bonds and effects a taking without just compensation of property interests related to the bonds. Plaintiffs’ claims that challenge the constitutionality of the Moratorium Act hinges on whether the Moratorium Act is causing them a concrete and particularized injury and whether the relief that they seek will redress the injury. Without plaintiffs’ allegations that the Moratorium Act impairs and effects a taking of rights and entitlements related to the bonds that they own or insure, plaintiffs have no standing to bring these claims. However, the PROMESA stay does not completely bar judicial review.

In conclusion, the Court grants the Commonwealth defendants’ motions to stay these cases, (Civil No. 16-1610, Docket No. 76; Civil No. 16-2101, Docket No. 28; Civil No. 16-2257, Docket No. 5). These cases are STAYED pursuant to section 405(b)(1) of PROMESA. The stay shall continue until February 15, 2017, or as otherwise provided in section 405(d) of PROMESA, unless plaintiffs show cause for relief from the stay pursuant to section 405(e) of PROMESA. The Court will schedule a hearing pursuant to section 405(e) to determine whether there is cause to lift the stay.