You cannot please all the people all the time and if you try, you end displeasing everyone.
John E. Mudd
Today I saw a video interview of Congressman Rob Bishop on Puerto Rico. Bondholders will be wise to watch and evaluate it carefully. Congressman Bishop says that everyone will get paid and that property rights will not be altered, but the Bill includes restructuring that usually means an altering of the payment terms. And not everything can be voluntary since you will always have holdouts.
As to the territorial restructuring of all their debt, if GO’s are not excluded, you do create a precedent. When Congress enacted the original Chap. 9, it was declared unconstitutional. Congress solved the issue by providing that the state had to authorize its municipalities by law to file for Chap. 9. Congress can make a state bankruptcy law by requiring the state to have its legislature and governor write a statute authorizing it to take advantage of the Federal Bankruptcy procedure. As long as it is voluntary, there would be no 10th Amendment conflict. Simple and elegant.
If the Constitution of PR is to be respected, that means paying, at the very least, the GO’s. At the same time, Congressman Bishop hints that not all bond were constitutionally issued. If this is so, will the Board say, “this bond does not have to be paid”? That is a judicial, not executive, determination. And it is a determination to be made by the PR Supreme Court, not the US Federal District Court. If a case is in Federal Court, the Judge may abstain pursuant to Railroad Commission v. Pullman Co., 312 U.S. 496 (1941)(both state and federal constitutional issues but the resolution of the state issues could moot the federal issues) or Burford v. Sun Oil Co., 319 U.S. 315 (1943)(the case “presents difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar,” or a federal court decision “would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.”) and the case would be sent to be filed in Commonwealth Court. The federal judge could also certify particular questions to the PR Supreme Court and the Court could answer the questions. Of course, if the case is originally filed in state court, then the case would take its normal course.
Moreover, if any bond, which is essentially a contract, was issued contrary to the law or the PR Constitution, the obligation, is null and void, see, L.P.C. & D., Inc. v. Autoridad de Carreteras, 185 D.P.R. 463, 465-66 (2012) and Aut. Carreteras v. CD Builders, Inc., 177 D.P.R. 398, 414 (2009). Article 1247 of the Puerto Rico Civil Code, 1930 ed, 31 L.P.R.A. § 3496, states that “[r]escission obliges the return of the things which were the objects of the contract, with their fruits and the price with interest; therefore it can only be carried into effect when the person who may have claimed it can return that which, on his part, he is bound to do. See, U.S. v. Garcia, 532 F. Supp. 325 (D.P.R. 1981) and Clausells v. Salas, 51 P.R.R. 87 (D.P.R. 1937).
The introduction of the PR Civil Code to bond litigation reminds me of the first time Judge Raymond Acosta (RIP) decided a motion in Dupont Fire Litigation. The opinion was In re San Juan Dupont Plaza Hotel Fire Litigation, 687 F.Supp. 716 (D.P.R. 1988) where Judge Acosta dismissed the claims against the architects that designed the hotel that burned. Judge Acosta cited the Civil Law nature of PR’s damages law and Article 1483, 31 L.P.R.A. § 4124 (statute of repose against such claims) explaining the role of tratadistas in its interpretation. See footnote 24 of the case. These tratadistas are usually Spanish in origin and are difficult to understand. Bondholders beware, you may have to brush up on your Spanish.
At this time we need to wait for the Bishop legislation and then see if it is approved. But undoubtedly, old Spanish law can be front and center again.