Analisis Legal

GRIJALVA’S AMENDMENTS TO PROMESA

 

 

The Chair of the House Natural Resources Committee, in cahoots with Nydia Velázquez, have introduced a bill on May 21, 2020 for the purported purpose of amending PROMESA. With the 2020 November election looming large, it is highly unlikely that the House, much less the Senate, will have the time or the inclination to evaluate such an important legislation, much less approve it, this year. In reality, the Bill is nothing less than an attempt to please the Puertorrican “diaspora” in NYC, without in reality making any meaningful changes. I will attempt to explore this Bill, examining its salient points.

 

Section 3 of the Bill, quite correctly, prohibits those who issued debt in the past for the territorial government, its corporations or who was a part of the financial entities who purchased or insured the bonds, from serving as Board members, Executive Directors or Staff. It also forces the Board to create an Ethics Board within to consider its compliance with “applicable Federal laws regulating the conduct of the Oversight Board, including conflict of interest, financial disclosure and open government laws.” Problem is, this section does not explain what this Committee may do about said violations. Total waste of time.

 

Section 3(c)(there are two c’s in section 3), limits the total cost of the contracts entered by the Board for any fiscal year to 5%  of the operating budget. In other words, if the Board has a $60 million budget, it cannot enter into contracts above $3 million, which would immediately eliminate its lawyers, to say nothing of all other experts. You may argue that the Board has spent too much on lawyers and experts but on the other hand, restructuring $72 billion in bond debt, another $45 billion in pension debt and a few other billions in unsecured debt cannot be done on that budget.

 

Section 3(d)(and another c) requires that each individual Board member or potential Board member do the following before serving:

 

‘‘(1) has issued a formal statement regarding  that individual’s past and present compliance, and intent of future compliance with all applicable Federal laws regulating the individual’s conduct, including conflict of interest, financial disclosure, and open government laws; and

 

‘‘(2) has committed in writing to strictly abide by section 208 of title 18, United States Code, and other applicable Federal laws regulating their conduct, including conflict of interest, financial disclosure, and open government laws.

 

How can an individual certify compliance with past federal laws that did not apply to him? Why does he have to certify compliance with federal laws that apply to him since he has a legal obligation to do so  anyway. This is something that has no value except to make sectors of the “diaspora” feel empowered. There are other ethical requirements which are good ideas that won’t make a real difference if members want to lie, but there is a requirement of an annual ethics report to the President and Congress. Don’t see the use of it either.

 

Section 4 requires federal appropriations for the Board, which Congress will never approve. Section 5 requires that essential services be fully funded, which is no real change since the Board is the one who determines what this means in the Fiscal Plan and it cannot be reviewed by the District Court until the plan of adjustment, if at all. This section also includes public education, public safety, public health and pensions purportedly as essential services. Are pensions an essential service? Who does paying pensions serve? Not general public for sure.

 

Section 6 adds a list of other things in which the Fiscal Plan must provide as investment, which is fine, but again, it is determined by the Board and is unreviewable.

 

Section 213 is new purports to give back the UPR its previous funding but in a dwindling student population, does this make sense?

 

Section 318 is amended to include important disclosures by professionals employed by Court order, which is a good idea. Problem is that this is required retroactively by section d and this may be problematic.

 

Section 319 is added requiring disclosures by professionals hired by debtor, which is also a good idea, but 319(a) at the end  requires that the  professional disclose individual connections with debtors, creditors, etc. Problem is, what does connections mean? If I went to high school or played little league as a child with the person, does this count? Further refining is needed. Also, section 319(b) prohibits the claim of privilege in this endeavor, defeating federal and state public policies. Makes more sense to limit it to certain privileges such as deliberative process or maybe business secrets. Or it should be left to the discretion of the Court to decide in a balancing of interests. Another example of this Bill not been thought through but rather one that is to please certain constituents. Also, the disclosures are retroactive to June 30, 2016, when PROMESA was originally enacted.

 

Section 320 is new and requires that public information be readily available. Being one of the persons that objected to the secrets in the PR bankruptcy, this is a good idea. Section 110 is added requiring the Comptroller General of the United States to report to the President and the House Natural Resources Committee on an audit on the use of federal funds etc. Not a bad idea. Also, a good idea was the repeal of Title V of PROMESA, the Puerto Rico Infrastructure Revitalization which has been totally unproductive to date.

 

Title VIII is added for allegedly Territorial Relief, in other words, a non-Court centered way in which the territory can get rid of debt. When you read it, however, you see it is not as terrible as it seems. It only applies to non-secured financial obligations (security or loan, swap, repurchase agreement, guaranty). It does not apply to claims by vendors, service providers, employees, pending tax refunds or credits. In essence, the procedure would relieve the Territory of this debt (small as it would be) once every 7 years, a territorial Shemittah. If you give this power to politicians, do you have any doubt they will use it? Of course, it can only be used for small amounts of money in practical terms, but it is still something ripe for abuse. Also, only a territory whose population has decreased by 10% in a 10-year period or has received major disaster assistance via the Robert T. Stafford Disaster Relief and Emergency Assistance Act during the 5-year period ending on the date of the discharge and that has a per capita debt greater  than $15,000 (as defined by the section). What a coincidence that PR qualifies in all of them. This discharge requires the vote of both over 50% of both houses of the legislature and the signature of the Governor and works similarly to a bankruptcy discharge. According to section 802(c):

 

Notwithstanding any other provision of Federal, State, or territorial law, the ability of a qualifying territory to obtain a discharge under this title shall not be stayed, avoided, or otherwise limited by operation of any provision of law or by order of a court, an Oversight Board, or an administrative agency in any proceeding.

 

In other words, only future Congressional law will prohibit this practice, which again, will affect an infinitesimal amount of the Territories debt and will only affect bondholders. Talk about discrimination.

 

Section 804(a) reverses the general presumption that all transactions have been conducted in a lawful way by stating that:

 

Any financial obligation is conclusively deemed to be an unsecured financial obligation except to the extent that the holder of that obligation proves that the financial obligation is a secured financial obligation in an action for a declaratory judgment that is filed—

“(1) in—

 

‘‘(A) an appropriate territorial court of the qualifying territory; or

   (B) a district court of the United States  in the qualifying territory; and

 

2) not later than 180 days after the date of  a discharge under section 802.

 

Hence, after the Territory conducts its unilateral discharge of said debt, the affected party has only 180-days to rush to Court and object and can go to federal or territorial court. In addition, section 804(b) changes the burden of proof of the person challenging the unilateral action of the Territorial Government, used in both federal and territorial courts in civil cases, from a preponderance of the evidence (50+1) to clear and convincing evidence (probably between 65-70% probability). Talk about empowering the Government. Moreover, section 804(c) provides:

 

Notwithstanding title 28 [Federal Court Jurisdiction and Venue statutes], United States Code, a court described in subsection (a)(1) shall have exclusive jurisdiction over an action involving, arising from, or related to the status of a financial obligation as a secured or an unsecured financial obligation under subsection (a), including—

 

‘‘(1) any action asserting a taking under the fifth article of amendment to the Constitution of the  United States; and

   (2) any action for declaratory judgment.

 

Therefore, if a party sues to question the discharge and has to include as defendants others who are indispensable parties (legalese, trust me on this), those parties, if sued in territorial court, could not remove the case to federal court. Also, if one party goes to territorial court, can another go to federal court or is it prohibited by this section. Very unclear.

 

Also, section 804(h) provides the territory with a procedure for avoidance of security interests as if it were a Trustee in a Chapter 7 case. So now we have Title III, a bankruptcy like procedure based on Chapter 9 and this avoidance based on Chapter 7. The  territory has two years after the date of the discharge in 804 to do this and can file in territorial or federal court. Most territorial courts, however, have no idea how bankruptcy law works so filing there may be an enormous headache.

A very  important limitation is contained in Section 806. This Title does not apply to American Samoa, the Commonwealth of the Northern Mariana, Guam or the Virgin Islands. Considering that the United States has only 5 permanently populated territories, this means that Title VIII applies only to Puerto Rico, violating the doctrine of Railway Labor Executives’ Assn. v. Gibbons, 455 U.S. 457 (1982). In that case, Congress passed a bankruptcy law that would benefit only one railroad and the Court decided this violated the provision of the Constitution where Congress could enact “uniform” bankruptcy laws, and this was not uniform. To the argument of Congressional power over interstate commerce, the Court scoffed at the idea that Congress could use one power to defeat limitations of said power. As it is, this section is probably unconstitutional but even if applied to all territories, this bankruptcy like procedures seem to violate the uniformity clause. As some bondholders have told me, PROMESA is likely unconstitutional for the same reason, although until this date, no party has actually filed such challenge. But as Curly in City Slickers said “Day ain’t over yet.”

Finally, we come to one of the “diasporas” most cherished ideas, “The Puerto Rico Credit Comprehensive Audit Commission.” In spite of the Kobre & Kim Report on the debt and many (including myself) mentioning that all politicians since 1974 are responsible for the debt, the “diaspora” (and the Puertorrican left) have wanted a Commission would audit the debt to discover who is responsible for it and what debt is illegal. Congresspersons Grijalva and Velázquez heeded their cries with this section. The Commission would be part of the Puerto Rico Government and proceed to:

‘‘(1) order a comprehensive audit of all public debt of Puerto Rico and its instrumentalities, in conformity with the Government Accountability Office’s Generally Accepted Government Auditing Standards (also known as the ‘Yellow Book’); and

‘(2) audit all public debt issued during the period beginning on the first day of fiscal year 1972 and ending on the date of enactment of this section, including—

 

‘‘(A) a current and complete accounting as to the amount of outstanding indebtedness as of the date of the enactment of this section;

‘‘(B) an analysis of the sustainability of outstanding debts;

‘‘(C) an assessment of how rules, policies, and controls over the use of debt can be improved upon to ensure that in the future Puerto Rico’s debt load is sustainable and issued in a manner that effectively protects the legal and financial interests of the Government of Puerto Rico; and

‘‘(D) an investigation into any irregularities, apparent or alleged, wherein probable cause of malfeasance or misfeasance is found.

 

The Commission would be comprised of individuals from the unions, cooperativists, economics, finance, accounting, statistics, law, sociology (I am sure a certain professor of sociology in NYC was instrumental in this) professors from a university in PR, a business community representative, preferably small business and a certified translator. They will be appointed by the Governor no later than 360-days after the amendments are approved and if the does not act, the President of the Senate and the Speaker of the House shall jointly appoint them. The Bill requires that there be sufficient funding but does not say who had to fund it or if its members will be compensated. Give the duties and responsibilities they are entrusted with, not many will accept this appointment.

 

There are several problems with this section. What does probable cause mean? Rule 6 of the Puerto Rico Rules of Criminal Procedure  or Rules 5.1 or 41  of the Federal Rules of Criminal Procedure? Moreover, much of what the Bill requires was done by Kobre & Kim, so why do it again? Also, much as I would love to  put the culprits behind bars, the 5-year statute of limitations of both Puerto Rico and Federal Criminal Codes have long expired. What would a declaration of a Commission of this nature do? What weight would it have? Who will pay for it? How much will it cost? Finally, by the time the persons are appointed, and they have done their duty, the Puerto Rico Title III cases will have been completed or the cases dismissed.

 

Also, nothing is done in this Bill about the Puerto Rico’s Government’s objections to PROMESA, to wit, the Board’s control over it. It does nothing to weaken it or strengthen it. It provides no funding for PR except to say that the Federal Government will pay the Board’s expenses. It is not, like a local politician dubbed it, “a step in the right direction.”  Why do all this, then? To please the NYC Puertorrican “diaspora,” nothing else. The Bill is not even to get serious consideration given the time constraints. This is not the purpose of  Congress.

 

 

 

 

 

DECLARACION DE EMERGENCIA DE TRUMP

 

Donald Trump dijo el 14 de febrero que iba a hacer una declaración de emergencia. Hay muchos comentarios en las redes sociales de lo que puede o no puede hacer el Presidente. Aquí trataré de darles un sentido sobre los poderes del Presidente.

Todos imaginamos que la declaración de emergencia tiene que ver con la construcción del muro en la frontera con México y ya en el pasado ha dicho que va a utilizar fondos de recuperación de California y Puerto Rico y para la construcción de vivienda militar. ¿Puede el Presidente hacer esto? ¿Qué tiene que hacer?

El Presidente tiene poderes inherentes para declarar emergencias pero modernamente se hace a base de estatus. El National Emergencies Act, 50 U.S.C. § 1601, et seq., regula las declaraciones de emergencia. La sección 1621(a) establece que “[w]ith respect to Acts of Congress authorizing the exercise, during the period of a national emergency, of any special or extraordinary power, the President is authorized to declare such national emergency. Such proclamation shall immediately be transmitted to the Congress and published in the Federal Register.“ La emergencia termina al año de ser declarada a menos que se renueve la declaración por un año más. La sección 1622 establece también que una resolución conjunta del Congreso, con la aprobación del Presidente, terminaría la emergencia. En otras palabras, el Senador republicano tendría que estar de acuerdo con la Cámara Demócrata para ello y el Presidente también tendría que aprobarlo. Si no, el Congreso tendría que ir por encima del veto del Presidente. No sería fácil.

El National Emergencies Act no define lo que es una emergencia. El Congressional Research Service en el 2007 publicó un informe al Congreso titulado National Emergency Powers. A la página CRS-4, dijo:

An eminent constitutional scholar, the late Edward S. Corwin, explained emergency conditions as being those “which have not attained enough of stability or recurrency to admit of their being dealt with according to rule.” During congressional committee hearings on emergency powers in 1973, a political scientist described an emergency in the following terms: “It denotes the existence of conditions of varying nature, intensity and duration, which are perceived to threaten life or well-being beyond tolerable limits.” Corwin also indicated it “connotes the existence of conditions suddenly intensifying the degree of existing danger to life or well-being beyond that which is accepted as normal.” (notas al calce omitidas)

Según el Brennan Center for Justice, nada conservador, identificó 136 bases para el poder del Presidente para declarar emergencias, incluyendo dos directamente relacionados al muro.  Estos son el 33 U.S.C. § 2293 y 10 U.S.C. § 2808. El primero dice;

(a)Termination or deferment of civil works projects; application of resources to national defense projects

In the event of a declaration of war or a declaration by the President of a national emergency in accordance with the National Emergencies Act [50 U.S.C. 1601 et seq.] that requires or may require use of the Armed Forces, the Secretary, without regard to any other provision of law, may (1) terminate or defer the construction, operation, maintenance, or repair of any Department of the Army civil works project that he deems not essential to the national defense, and (2) apply the resources of the Department of the Army’s civil works program, including funds, personnel, and equipment, to construct or assist in the construction, operation, maintenance, and repair of authorized civil works, militar construction, and civil defense projects that are essential to the national defense.

El segundo dice:

(a)

In the event of a declaration of war or the declaration by the President of a national emergency in accordance with the National Emergencies Act (50 U.S.C. 1601 et seq.) that requires use of the armed forces, the Secretary of Defense, without regard to any other provision of law, may undertake militar construction projects, and may authorize the Secretaries of the militar departments to undertake militar construction projects, not otherwise authorized by law that are necessary to support such use of the armed forces. Such projects may be undertaken only within the total amount of funds that have been appropriated for militar construction, including funds appropriated for family housing, that have not been obligated.

Obviamente, esto tendría que ver con fondos que van al Corps of Engineers para hacer mejoras en Puerto Rico. Pero además el Presidente y su gente puede identificar otras bases estatutarias. Veremos.

No existe casos sobre esta ley que impacten lo que podría pasar.  En Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), el SCOTUS detuvo acciones del Presidente Truman para detener una huelga en la industria del acero. Sin embargo, el SCOTUS se basó en la inexistencia de ley para justificar lo que hizo.  Aquí tenemos más de cien leyes sobre el asunto.

Irrespectivo de lo antes dicho, si el Presidente redirige fondos para California y Puerto Rico, estos irán al Tribunal para detenerlo. California es parte del 9no Circuito y Puerto Rico el 1er Circuito. Si los estados ganan, es usual el que se detenga la ejecución del injunction hasta la apelación pero si no ocurre, el Presidente usualmente va al SCOTUS, que puede detenerlo. Además, si los Circuitos estuviesen en conflicto, uno a favor del Presidente y otro en contra, el SCOTUS intervendría y usualmente el Presidente gana. Usualmente. Pero California y Puerto Rico tienen que ir al Tribunal y ya el Gobernador Rosselló señaló que llevará al Presidente al Tribunal. Good for him.

Si Trump toma esta acción, definitivamente estaría poniendo en tela de juicio nuestra democracia y espero que pierda. Aún si pierde, esto puede obligar a la Cámara a comenzar el proceso de residenciamiento. Esta situación es bien seria y no va a acabar bien. Manténganse al tanto.

 

 

LA JUNTA RETA AL SENADO

Anoche la Junta de Supervisión Fiscal le mando un reto al Senado de PR al enviarle un racimo de artículos de economía que suman 2,196 páginas sobre porque se tiene que eliminar la Ley 80. Las primeras 35 páginas son como un resumen de la literatura. Esencialmente, la Junta dice, “Aquí tienes politiquero, mira ver que haces con esto.”

El Senado tiene dos opciones, o aprueba la eliminación de la ley 80 o no la aprueba. A mi entender, Thomas Rivera Schatz luego de protestar y quejarse, eventualmente permitirá que se apruebe la eliminación, que es lo que el Gobernador y la Junta quieren. De esa forma, el Gobernador gana una victoria sobre Rivera Schatz y continua su teatro de conflictos victoriosos contra la Junta. Win Win para Rosselló González.

Por el otro lado, Thomas Rivera Schatz podría trancarse y detener la eliminación de la ley 80. ¿Que haría la Junta? La Junta podría decir se acabó el acuerdo, reduzco el presupuesto de la Legislatura, reduzco el presupuesto de PR para eliminar el bono de navidad y los días de vacaciones y enfermedad en el Gobierno. Con la ley 80, podría ir a donde la Juez Swain bajo la sec. 108(a)(2) de PROMESA, que dice:

(a) IN GENERAL.—Neither the Governor nor the Legislature

may—

(1) exercise any control, supervision, oversight, or review over the Oversight Board or its activities; or

(2) enact, implement, or enforce any statute, resolution, policy, or rule that would impair or defeat the purposes of this Act, as determined by the Oversight Board. (negrillas añadido)

Como la Junta ya tiene la literatura para justificar su petición, el peso de la prueba pasaría al opositor de la medida y ahí es donde la cosa se pone interesante; ¿quien tiene standing (legitimación active) para oponer las pretensiones de la Junta? Sabemos que el Gobierno no lo hará ya que llegó a un acuerdo con la Junta. ¿La tendría el Senado como parece indicar Rivera Schatz? Antes de que me mencionen las doctrinas del TSPR, recuerden que esto sería en Corte Federal. En Arizona State Legislature v. Arizona Independent Redistricting Commission, 576 U.S. __ (2015), el SCOTUS delimitó bajo que circunstancias la legislatura estatal tendría standing en Corte Federal. Pero no es la legislatura, es el Senado, así que maybe, maybe not. Además del Senado, no dudo que uniones y otras asociaciones retarán las acciones de la Junta, pero dudo tengan éxito.

 

De ganar la Junta, el Gobernador gana doble, derrota a un potencial opositor, Rivera Schatz, se presenta como la alternativa que menos daño hace a PR y sigue ayudando a la Junta a pasar por la piedra a los bonistas, que obviamente es su empeño. Claro, si pierde la Junta, el también pierde. Por ende, todos los que cacarean que Rosselló y la Junta son lo mismo tienen un argumento válido.

 

Antes de irme, sin embargo, debo señalar que las primeras 35 páginas del racimo de 2,196 claramente dan a entender que la eliminación del bono de navidad y la reducción de días de vacaciones y enfermedad vienen por ahí, probablemente en el próximo año fiscal. Así que vayan preparándose para la próxima pugna. 

 

****Me puedes escuchar hoy y todos los martes a las 5pm en el programa de Kike Cruz, Análisis 630 por NotiUno 630am.