The Trigo-Gonzalez v Garcia-Padilla lawsuit, explained

by | Oct 25, 2017 | Courts | Comments

On December 1, 2016, Trigo-Gonzalez, et al v. Garcia-Padilla, et al, was filed in the First Circuit of the US Court of Appeals. This case, like the majority of cases covered by Pasquines, deals with the constitutionality of state statutes. The plaintiffs for the case are Carmen Feliciano Vargas, First Medical Health Plans of Puerto Rico, Inc. and Eduardo Artau Gomez. The movant appellant is the Financial Oversight and Management Board for Puerto Rico. The interested party for this case is the United States of America.

The complaint was initially filed in the United States District Court for Puerto Rico on June 30, 2016. The basis of jurisdiction, as mentioned above, was a federal question, specifically the constitutionality of state statutes. When filed, the plaintiff did not demand a jury, allowing the fate of the case to rest on the judge’s shoulders. The district court in San Juan, Puerto Rico, had original jurisdiction. The nature of the initial action was to seek “declaratory judgement and injunctive relief with regard to provisions of the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act.” The Moratorium Act, which was created to transfer assets of the Government Development Bank (GDB) of Puerto Rico that were available to fund payments to bondholders, including several of the plaintiffs in this case. former Puerto Rican Governor, Garcia Padilla, had issued Executive Order 2016-010, declaring a “state of emergency” with respect to the GDB and a series of other Executive Orders.

Parties of this case include

  1. Plaintiffs, mainly residents of Puerto Rico, who own bonds that were issued by GDB and/or bonds issued the Puerto Rico Public Finance Corporation (PRPFC) that are outstanding and were acquired by the year 2013. The initial collective value of these bonds exceed $100,000,000.
  2. Defendant Alejandro Garcia Padilla, Governor of Puerto Rico at the time, sued in his official capacity.
  3. Defendant Juan C. Zaragoza Gonzalez, Secretary of the Department of the Treasury of Puerto Rico at the time, also sued in his official capacity.
  4. Defendant Puerto Rico Fiscal Agency and Financial Advisory Authority (PRFAFAA) which is an independent public corporation and government instrumentality with corporate legal existence established and created pursuant to Section 101 of  Puerto Rico Act No. 40, which was approved on May 5, 2016.
  5. Defendant Victor Suarez Melendez, then Executive Director of PRFAFAA and the only member of its Board of Directors, being sued in his official capacities as such.
  6. Defendant Puerto Rico Public Finance Corporation (PRPFC) is a corporation wholly owned by GDB.
  7. Defendant Government Development Bank of Puerto Rico which is being sued because they are an instrumentality of the Government of Puerto Rico.
  8. Defendant Melba Acosta Febo was the President of GDB, as well as the President of PRPFC, and was being sued in her official capacities as such.

Facts of the Case

  • The plaintiffs own bonds issued by GDB that are outstanding and were acquired before 2013.
  • Plaintiffs acquired such bonds relying on the Government’s promises and representations, and on the Organic Act of the GDB and other formal documents related to the issuance of the bonds.
  • All of the bonds that were issued by the GDB carried schedules of repayment.
  • Defaults has occurred in regard to the scheduled payments for the bonds issued by the GDB and owned by plaintiffs, starting May 1, 2016.
  • The Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, Puerto Rican Law 21-2016, enacted on April 6, 2016, as amended shortly thereafter, on May 5, by Puerto Rico Law 40-2016, the “Moratorium Act,” created a framework and scaffolding for the systematic stripping of assets of GDB that will render each unable to meet its obligations to bondholders and leave the owners of said bonds essentially without recourse to assets that can serve to fund scheduled payments of interest and repayments of principal.
  • As of June 13, 2016, the United States Supreme Court ruled that Puerto Rico could not legislate its own bankruptcy law, as bankruptcy matter are preempted by the US bankruptcy code.

The case was appealed in the Puerto Rican district court on November 28, 2016. The basic information stayed the same, no large changes. From there, the case was taken to the United States Court of Appeals First Circuit. The case was decided on January 11, 2017. The opinion was issued by Jeffrey R. Howard, Chief Appellate Judge; Rogeriee Thompson, Appellate Judge and William J. Kayatta, Jr., Appellate Judge. They stated, “…PROMESA provides for a temporary stay of debt-related litigation against the Puerto Rico government. But the statute does not leave creditors entirely without recourse during the presumptive pause…we conclude that Movant-Appellant Peaje Investments LLC failed to set forth a legally sufficient claim of “cause” to lift the PROMESA stay, we affirm the district court’s denial of its lift-stay motion.” As a result of the failure on the behalf of the plaintiffs to provide adequate evidence to terminate the PROMESA stay,  the court denied their lift-stay motion.