District Court Dismisses GO Bondholders’ Lawsuit

On January 30, 2018, the District Court issued its Opinion and Order dismissing the Complaint brought by certain holders of general obligation bonds (the “GO Bondholders”) in the ACP Master, Ltd. Adversary Proceeding (Adv. Pro. No. 17-189). The Court’s Opinion and Order incorporated many of arguments set forth in the Retiree Committee’s legal memorandum in support of the motion to dismiss the Complaint.  

Background
The GO Bondholders’ Complaint sought declaratory relief that the GO Bondholders held a first claim and lien on: (1) the proceeds of certain taxes and fees generally used to repay certain Government instrumentality obligations, which can be “clawed back” by the Government under certain circumstances; and (2) certain proceeds of property taxes levied pursuant to Act 83 of 1991.  The Complaint also sought injunctive relief requiring the Government to segregate the funds at issue for the benefit of the GO Bondholders.

On August 4, 2017, the Retiree Committee filed a motion to intervene in the Adversary Proceeding, to which it attached a proposed motion to dismiss the Complaint on the basis that it was premature and in conflict with PROMESA.  The Government filed a motion to dismiss the Complaint on August 21, 2017.  On November 8, 2017, the District Court entered an order permitting the Retiree Committee to intervene in support of the Government’s motion to dismiss.  Five days later, on November 13, 2017, the Retiree Committee filed its brief in support of the Government’s motion to dismiss, which repeated the arguments made in the Retiree Committee’s August 4, 2017 motion to dismiss.

The Court’s Opinion and Order
The Court’s Opinion and Order dismissed the Complaint in its entirety, but it did not determine certain of the legal issues presented in the Complaint. It adopted the Retiree Committee’s arguments that much of the Complaint was premature and not ripe for adjudication.

Most significantly, the Court dismissed the GO Bondholders’ declaratory judgment and injunction claims that sought to restrict the Government’s ongoing use of the tax proceeds at issue. The Court held that Section 305 of PROMESA, which limits the ability of the Court to interfere with the Government’s exercise of political or governmental powers, prohibited the Court from entering a “decree that the territorial government or its instrumentality must conduct its affairs in a manner different from the one it has chosen.”

With regard to the counts of the Complaint seeking declaratory judgment on the legal status of the GO Bondholders’ claims, including whether the GO Bondholders’ claims are secured and the nature and extent of any such security, the Court held that it lacked subject matter jurisdiction to consider those claims.  The Court’s conclusion was based on its finding that those claims were not ripe for adjudication or did not establish an actual case or controversy.
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