Puerto Rico Bankruptcy: Week One

[May 10 update: a hearing has now been scheduled for May 17] 

It is nearing the one-week anniversary of the biggest government bankruptcy in U.S. history: the Commonwealth of Puerto Rico.

1. The debtor(s) and cases: So far, Puerto Rico's Oversight Board has filed the equivalent of a bankruptcy petition for the Commonwealth (17-1578) and COFINA (17-1599). Bond insurers have filed the equivalent of an adversary proceeding (17-1584). The Oversight Board has retained Prime Clerk, so dockets will be available to those who don't have access to PACER, Bloomberg Law, etc. In Detroit's bankruptcy, digital recordings of nearly all hearings were posted for the public, usually within 24 hours; I hope the same will be true for Puerto Rico, but so far I have not seen an indication either way on the District of Puerto Rico's PROMESA web page.
2. Presiding judge: PROMESA greatly restricted Chief Justice Roberts' choice of presiding judge by excluding bankruptcy judges. Thus, it is especially a relief that a wonderful district judge with bankruptcy court experience has accepted Chief Justice Roberts' request to preside. Judge Swain will sit by designation in the District of Puerto Rico. 
3. Venue: The Oversight Board filed in the District of Puerto Rico, rather than New York, which was also a venue option. Filing in San Juan makes hearings accessible for more residents (creditors or not) who are deeply affected by the Commonwealth's financial situation. Curiously, a New York Times story attributes to the Oversight Board's outside counsel the proposition that the presiding judge "has the option of holding proceedings" in Manhattan as well as in San Juan. I don't read the Judicial Code and Federal Rules of Bankruptcy Procedure, particularly 5001, to be so flexible (PROMESA makes the Federal Rules of Bankruptcy Procedure applicable to these actions). Absent venue transfer or an emergency, it is reasonable to expect hearings to take place in Puerto Rico.
4. Eligibility: PROMESA did not adopt the municipal bankruptcy eligibility test wholesale, although it incorporated parts. It sounds like some creditors may challenge eligibility and/or whether the Oversight Board satisfied the restructuring duties set forth in PROMESA. It is hard to imagine these cases getting dismissed on such grounds, but we will get a better sense from the parties' pleadings when and if they are filed.
5. What else is formally pending: The docket does not yet reflect the magnitude of the case to come. As in municipal bankruptcy, Puerto Rico's filings created no bankruptcy estate and the debtors do not need federal court approval for decisions and expenditures to the same extent as, say, chapter 11 debtors. Thus far, the court docket is populated primarily by requests for notice and pro hac vice admission by lawyers. Also pending is a motion for the appointment of a retiree committee. Retiree committees have been common in municipal bankruptcies, but there remains the question of who will pay the committee's expenses in this case. Another twist is that the motion asks the court to restrict the member appointment discretion of the United States Trustee, requiring that the committee be constituted from a preexisting ad hoc committee. Yet another indication, perhaps, that this case will be a challenge from top to bottom.

Comments

[Karamvir Dahiya]

Rather than appointing district court judge Ms. Swain to handle this mammoth bankruptcy, the Chief Justice should have appointed a regular district court judge from that area to preside over this matter, assisted by a bankruptcy judge, as a magistrate. After all, despite operating from independent court locations, bankruptcy judges are but a pool of auxiliary judicial officers assisting the district court upon referral of bankruptcy business, 28 U.S.C. 157. So a bankruptcy judge operating as a magistrate judge to district court would have been ideal situation.

[Karamvir Dahiya]

Also Judge Swain has been out of bankruptcy loop for a long time now. A lot has changed and continues to change in the bankruptcy jurisprudence.