- Case Type:
- Case Status:
- 19-1391 (1st Circuit, Mar 02,2021) Published
- The Court of Appeals dismissed the Credit Unions' challenge to the Title III court's confirmation of the COFINA Plan as equitably moot.
- Procedural context:
- Various Puerto Rican credit unions ("the Credit Unions") filed an adversary proceeding against several defendants, including the Commonwealth of Puerto Rico, the Government Development Bank for Puerto Rico, and COFINA. While that adversary proceeding was pending, the Board proposed a plan of adjustment ("the Plan") restructuring COFINA's debt by, among other things, resolving disputes between COFINA and the Commonwealth of Puerto Rico and between the junior and senior holders of COFINA's outstanding debt. Over the Credit Unions' objection, the Plan as finally approved also called for the dismissal with prejudice of all litigation against COFINA that arose prior to the Plan's effective date. The Credit Unions failed to seek a stay of the order approving the Plan and dismissing their claims against COFINA. The Plan has now been fully implemented for over two years and given rise to transactions involving billions of dollars and tens of thousands of individuals.
- On March 22, 2018, while Title III proceedings were ongoing, the Credit Unions filed an adversary complaint. They alleged that prior to the Title III proceedings, the Commonwealth, COFINA, and other Puerto Rico government entities fraudulently induced the Credit Unions to purchase COFINA bonds. The Credit Unions later amended their complaint to add a claim alleging a violation of the Takings Clause of the United States Constitution. They also asserted that the claims raised in the adversary proceeding are non-dischargeable because they alleged violations of constitutional rights and conduct of a fraudulent nature. Meanwhile, mediation in the Title III proceedings led to a settlement between COFINA and the Commonwealth, which allocated 53.65% of the SUT revenues to COFINA and the remainder to the Commonwealth, and between junior and senior COFINA bondholders, resolving competing claims to the payments that a reorganized COFINA would make in the future. Those settlements formed the basis of the Plan, which provided for a complete restructuring of COFINA's debt. The Plan also discharged all claims against COFINA and provided for the dismissal with prejudice of all litigation arising from the COFINA restructuring. The Credit Unions objected to the Plan's discharge of all claims against COFINA, arguing that the discharge should be narrowed to exclude the claims they asserted against COFINA and other governmental entities in their adversary proceeding. In response, the Plan was amended to clarify that the Credit Unions were "entitled to continue pursuit" of their adversary proceeding "against all parties other than COFINA and Reorganized COFINA." The Title III court overruled all objections to the Plan and, on February 5, 2019, entered its final approval. Because no party objected to the Plan's waiver of the typical fourteen-day stay or otherwise asked the Title III court to stay approval pending any appeal, the Plan was implemented beginning on February 12, 2019. One week later, the Credit Unions moved for reconsideration of the confirmation order, seeking to strike the provision releasing the claims they asserted against COFINA in their adversary proceeding. The Title III court denied the motion. The Credit Unions filed the appeal a month later. The Credit Unions failed to object to the waiver of the automatic stay of confirmation, to seek any stay pending appeal, to request to expedite the appeal or to object to requests for extension. On multiple occasions, the Credit Unions sought to extend the briefing schedule themselves. At the time the appeal was fully brief, the plan has now been fully implemented for over two years and has led to tens of thousands of transactions worth billions of dollars by third parties relying on it in good faith. Trying to undo the Plan at this point would hardly further the Plan's policy objectives. On the contrary, it would reverse or at least call into question the "important forward motion" the Plan provides to "the Commonwealth's economic recovery."
- Howard and Kayata
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