We have all seen the protests in Peñuelas and Fortaleza by a group of activists intent on stopping the deposit of coal ash in a landfill and the Courts’ rejection of challenges to the legality of said deposit, including the latest denial by the Appellate Court of a reconsideration on its ruling reversing an injunction prohibiting this activity. We have also seen populist politicians respond to those protestors by reviving Senate Bill 340 to prohibit said deposit. Given all this turmoil I would like to discuss the legal and economic ramifications of these acts.
Puerto Rico’s environmental policy is entrusted to the Puerto Rico Environmental Quality Board by the Legislature to put into effect said policy. This commonsense approach, however, has been put in jeopardy by some municipalities intent on putting in effect policies the EQB has rejected.
AES buys coal in Columbia and burns it to generate approximately 16% of the electricity sold in PR. The burning of this coal produces two types of ashes: bottom ash and fly ash. These types of ash are collectively referred to as coal combustion residuals. AES produces approximately between 200,000 to 250,000 tons a year of this ash, also called coal ash.
The Environmental Protection Agency (EPA), the federal agency entrusted by Congress to regulate these substances, considers this ash a “non-hazardous solid waste.” The Federal EPA has delegated the issuance of permits for the disposal of said non-hazardous solid waste to the Puerto Rico Environmental Quality Board (EQB), which is in accordance to the island’s environmental public policy. Several companies in PR have permits issued by the EQB based on the regulations approved by the EPA. In other words, the local EQB, as the agent of the EPA, puts in effect federal environmental policy and Puerto Rico’s public policy as to environment.
Peñuelas and Humacao, however, have opted to illegally bypass federal and Puerto Rico law and enacted ordinances that directly conflict with them. The municipalities have also sued several companies that use this ash in landfills as part of their permits. In one case, the Court of First Instance issued the injunction against the deposit of ash in landfills but the PR Appellate Court determined that the ordinance of the Municipality of Peñuelas had been issued in violation of due process and was invalid. Another Court of First Instance this time in Ponce determined that the ordinance was invalid since it was contrary to PR law and public policy. At the same time, another Court of First Instance issued an injunction from the deposit of the ash reasoning that the issue was before the PR Supreme Court, although plaintiff had not asked for it but rather an injunction to obstruction to the deposit of ash. Fortunately, the Appellate Court reversed this decision this November. Also, the ordinance issued by the Municipality of Humacao is being challenged in the Court of First Instance.
As stated before, the controversy in one of these cases is before the PR Supreme Court but it has yet to issue a certiorari. Strangely enough, although these companies have all their EQB permits; neither the agency nor the PR Government has filed amicus curiae with the Supreme Court. The reason? Both Peñuelas and Humacao are headed by powerful PPD mayors and consistent with the García Padilla’s administration’s practice of preferring politics to sound governmental policy. If you are a PPD mayor, Governor García Padilla will look the other way if you do anything wrong, irrespective of the damage to PR. Moreover, there are at least 20 PPD municipalities with landfills that are documented as polluting groundwater, soil and air but have faced no action by AGP’s EQB and the press has all but ignored their protest but thoroughly covered the Peñuelas protests. Nor is there a mention by the Governor or the press that ECL and PVL are documented as compliant with regulations and non-polluting on the community in Peñuelas.
This situation has profound implications for PR’s economic development. PR’s environmental public policy is put into effect by the EQB, who has issued permits pursuant to federal regulations to these companies. These municipal laws are not only preempted by federal law, but are illegal since they are in conflict with the clear PR public policy evidenced by the permits issued by the EQB. If the Supreme Court were to allow municipalities to stop the application of federal and Commonwealth policy in their demarcations will not only further delay any economic growth we may experience but will also mean the balkanization of environmental policy of the island. The mayors of Peñuelas and Humacao are shamelessly spending public money to favor some of their PPD cronies in these cases. If the Supreme Court permits this, what will prevent from other municipalities from favoring their “friends” by blocking companies with proper permits from operating in their demarcations? It is now up to the Supreme Court to stop this nefarious practice.
Finally, populist senators are pressuring the Governor to include Senate Bill 340 in the Extraordinary session. Even if unsuccessful, it has come to my attention, that PNP senators such as Larry Seilhamer are contemplating support for the bill. The EPA and EQB regulations on coal ash come after hundreds of hours of scientific study and commentary. Politicians cannot be swayed by protestors alone. PNP leaders will have to decide whether to support the rule of law and US environmental protection regulations and EQB statements that the ash is non-hazardous or join the independentistas to garner a few votes at the cost of the rule of law and economic growth of the island.
As we know, there are several bond insurers and other bondholders who have sued PR in Federal Court challenging the constitutionality of the island’s Moratorium law and several of Governor García Padilla’s executive orders, which are being presided by Judge Francisco Besosa. These cases are:
Brigade Leveraged Capital Structures Fund, Ltd. v. García Padilla, 16-1610. Plaintiff, a group of GDB bondholders, claim that the PR Moratorium Act, the new GDB liquidation procedure and the Governor’s Executive Orders are unconstitutional and also preempted by the Bankruptcy Code. Also, Brigade filed a motion seeking a recognition that its case was not stayed under PROMESA and in the alternative, that the stay be lifted. There is no prayer for money payment;
National Public Finance Guarantee Corporation v. García Padilla, 16-2101. The complaint seeks to declare the Moratorium law unconstitutional. National filed for summary judgment the after the Supreme Court affirmed the invalidation of the PR Recovery Act in Franklin California v. Commonwealth. There is no prayer for money payment;
Trigo v. García Padilla, 16-2257. Plaintiffs, a group of PR bondholders, filed a complaint claiming that the Moratorium law and the new GDB liquidation process violate the PR and US Constitutions. There is no prayer for money payment;
Lex Claims LLC v. García Padilla, 16-2374. Plaintiffs are a group of GO bondholders that claim, among other things, that PR violated section 204(c)(3) of PROMESA and although claim that the PROMESA stay does not apply to them, they also see the lifting of the stay. There is no prayer for money payment;
Assured Guarantee Corp. v. García Padilla, 16-2384. Plaintiffs filed a request under section 405 of PROMESA for the lifting of the stay. Its tendered complaint has a cause of action for damages pursuant to section 407(a) of PROMESA, which is probably why they sought the lifting of the stay before filing.
All these cases are presided by Judge Besosa and it is a good idea that all the cases be decided by one judge, since that way the issue of to what cases the stay applies will have one uniform treatment. Already Judge Besosa has consolidated the first three cases as to the application of the PROMESA stay. Likely there will be a decision by August. What many in the press do not realize is that the PROMESA stay does not work like the stay in Bankruptcy (11 U.S.C. § 362). If within 45-days of the filing of the request for the lifting of the stay the parties have to be notified and the Judge has to hold an evidentiary hearing and determine whether to maintain the stay. If this is not done within the 45-day period, the stay is lifted. Hence, the stay is the exception, not the rule in PROMESA. See, section 405(f) of PROMESA.
Moreover, having one judge decide these issues will help the First Circuit to handle any appeals, since pursuant to section 106(d) of PROMESA, they must be handled in an expedited form. This way, all parties will have a fast, clear and efficient way to handle these issues.
There is one case dealing with the stay (except for the complaint filed by Ambac where it has acquiesced to the stay against the PR Highway Transportation Authority), which is not before Judge Besosa, to wit, Peajes Investment LLC v. García Padilla, 16-2365. Plaintiffs are beneficial holders of Capital Appreciation Bonds of the PR Highway Transportation Authority seeking to invalidate the Moratorium law and several Executive Orders of the Governor. There is prayer damages pursuant to section 407 and also for funds to be transferred to the Trustee for payment of bonds. This is probably the reason why this case is not before Judge Besosa. Judge Aida Delgado has the case and ordered defendants to answer the petition within 14 days of being served and it expires on August 5, 2016.