Hearing Date: June 28, 2017 at 9:30 a.m. 

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR PUERTO 

RICO,

 as representative of

THE COMMONWEALTH OF PUERTO RICO, 

et al.,

 Debtors.1

 PROMESA

 Title III

 No. 17 BK 3283-LTS

 (Jointly Administered)

 

WHITEBOX FUNDS’ LIMITED OBJECTION TO

MOTION OF DEBTORS FOR ORDER CONFIRMING APPLICATION OF THE 

AUTOMATIC STAY AND RELATED RELIEF

To the Honorable United States District Judge Laura Taylor Swain:

Whitebox Asymmetric Partners, L.P., Whitebox Institutional Partners, L.P., Whitebox 

Multi-Strategy Partners, L.P., Pandora Select Partners, L.P., and Whitebox Term Credit Fund I 

L.P. (collectively, “Whitebox” or the “Whitebox Funds”), creditors and parties in interest in the 

above captioned Title III cases (the “Title III Cases”), respectfully submit this limited objection

(the “Objection”) to the Motion of the Debtors Pursuant to PROMESA Section 301(a) and 

Bankruptcy Code Sections 105(a), 362(a), 365 and 922 For Entry of Order Confirming (I) 

Application of the Automatic Stay to Government Officers, Agents and Representatives (II) Stay of 

Prepetition Lawsuits and Actions Against Inhabitants of Puerto Rico and (III) Application of 

 

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number (listed as a 

bankruptcy case number due to software limitations) and the last four (4) digits of each Debtor’s federal tax 

identification number, as applicable, are the (i) Commonwealth of Puerto Rico (Bankruptcy Case No. 17 BK 3283-

LTS) (Last Four Digits of Federal Tax ID: 3481); and (ii) Puerto Rico Sales Tax Financing Corporation (“COFINA”) 

(Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal Tax ID: 8474).

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Contract Protections [Docket No. 302] (the “Motion”) filed by the Financial Oversight and 

Management Board for Puerto Rico (the “Oversight Board”).

2

 

Whitebox does not object to the Motion to the extent that it seeks an order 

confirming the application of the automatic stay in these proceedings in accord with the proper 

scope of the stay within Sections 362(a) and 922 of the Bankruptcy Code, made applicable to these 

Title III Cases by 48 U.S.C. § 2161 (also referred to as Section 301 of the Puerto Rico Oversight, 

Management, and Economic Stability Act (“PROMESA”)), or to confirm the application of 

contract protections in accord with the proper scope of Section 365 of the Bankruptcy Code. 

Whitebox respectfully objects to the Motion to the extent that it seeks to extend the 

automatic stay beyond its proper statutory scope. Specifically, Whitebox objects to the Motion to 

the extent that it purports to apply the automatic stay to adversary proceedings that are pending 

before this Court and/or to shield the Debtors or Government Officers, Agents and Representatives 

(as defined in the Motion) from subpoenas and discovery requests in such proceedings. 

Although the Motion does not clearly express such an intent; that seems to be the 

relief it is seeking. (See Motion, ¶ 27 (“parties in interest may attempt to influence or exercise 

control over the Debtors through indirect means (where direct action might otherwise be prohibited 

by the Title III stay), as they have already attempted to do through the Prepetition Lawsuits and 

the subpoena and the request for discovery of the Governor and other government officials in their 

personal capacities.”); Motion, ¶ 34 (“Moreover, the Debtors assert that any Actions Against 

Inhabitants including the service of third-party discovery requests, which constitute the 

employment of process, and actions to collect a debt against any of the Debtors (including, without 

 

2 Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Motion.

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limitation, the collection of interpleader funds) are stayed with respect to all officers or inhabitants 

of Puerto Rico under Bankruptcy Code section 922”); Motion, ¶ 12 (defining “Actions Against 

Inhabitants” to include, inter alia, “suits and proceedings” brought “in the Title III case ... 

pertaining to the Debtors’ restructuring efforts ...”).) 

Whitebox is a defendant in adversary proceeding No. 17-00133-LTS entitled The 

Bank of New York Mellon, as Trustee v. Puerto Rico Sales Tax Financing Corporation 

(“COFINA”) et al. (the “COFINA Interpleader Proceeding”). In accord with the scheduling order 

in the COFINA Interpleader Proceeding, Whitebox and other parties have served subpoenas and 

discovery requests on various parties including government officers, agents and representatives of 

the Commonwealth, and other inhabitants of Puerto Rico. (See Scheduling Order [Adv. Proc. 

Docket No. 154] at ¶ 4(a) (providing that “[a]ny Plaintiff or Defendant may serve discovery on 

any other party to this adversary proceeding, or on any third party”)(emphasis added).) 

Specifically, Whitebox, individually and jointly with other litigants, served 

discovery requests and/or subpoenas on, among others, COFINA and the Commonwealth (the 

“Debtor Discovery Targets”), Puerto Rico Fiscal Agency & Financial Advisory Authority

(“AAFAF”), the Oversight Board, and the Government Development Bank (the “Entity Discovery 

Targets”), Governor Ricardo Antonio Rosselló Nevares, in his official and personal capacities, 

Elías Sánchez Sifonte, in his official and personal capacities, and Gerardo Portela Franco, in his 

official and personal capacities (the “Individual Discovery Targets” and together with the Debtor 

Discovery Targets and the Entity Discovery Targets, the “Discovery Targets”). 

The Motion, while vague, appears to request relief that would stay the ability of 

Whitebox and other parties to seek any discovery from the Discovery Targets in connection with 

the COFINA Interpleader Proceeding. Because the automatic stay (i) does not extend to adversary 

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proceedings in the bankruptcy court where the debtor’s bankruptcy case is pending, and (ii) does 

not encompass subpoenas and discovery requests, the order sought by the Motion should clarify 

that any relief granted does not apply in the COFINA Interpleader Proceeding (or any other 

adversary proceeding pending in this Court) or in any way stays the enforcement of subpoenas or 

discovery requests issued in that proceeding to the Discovery Targets.

First, “the automatic stay does not apply to proceedings initiated against the debtor 

if the proceedings are initiated in the same bankruptcy court where the debtor’s bankruptcy 

proceeding is pending.” Snavely v. Miller (In re Miller), 397 F.3d 726, 730 (9th Cir. 2005); see 

also Cowin v. Countrywide Home Loans (In re Cowin), 538 B.R. 721, 732-33 (S.D. Tex. 2015)

(adopting the prevailing view that “the automatic stay does not apply to proceedings initiated 

against the debtor if the proceedings are initiated in the same bankruptcy court where the debtor’s 

bankruptcy proceedings are pending”) (quotations and modifications omitted); Cellceutix Corp. v. 

Nickless (In re Formatech, Inc.), 496 B.R. 26, 35 (Bankr. D. Mass. 2013) (“I agree with the 

majority view that the automatic stay does not prohibit the commencement of an adversary 

proceeding against a debtor (or its trustee) in the bankruptcy court where the debtor’s bankruptcy 

case is pending.”). Although Section 362(a) does not expressly distinguish between actions filed 

in the court in which the debtor’s bankruptcy case is pending and actions filed in other courts, a 

frequently cited case explains why courts have held the stay not to apply to actions in the 

bankruptcy court:

It is beyond serious dispute that the application of the stay to certain 

proceedings in the bankruptcy court would lead to absurd results. 

For example, if the automatic stay were construed to apply to all 

proceedings in bankruptcy, a creditor would need relief from the 

stay to file a proof of claim or even a motion for relief from the stay. 

As a further example, application of the stay to bar the 

commencement of proceedings to determine the dischargeability of 

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a debt in the absence of relief from the stay would be unworkable in 

light of the short time limits within which such proceedings must be 

commenced.

In re N. Coast Vill., Ltd., 135 B.R. 641, 643 (9th Cir. B.A.P. 1992) (citation omitted); accord

Ramos v. Banco Popular de Puerto Rico (In re Ramos), 493 B.R. 355, 369-70 (Bankr. D. P.R. 

2013) (the filing of a proof of claim does not violate the automatic stay). Indeed, as the Court in

In re Formatech highlighted:

Extending the automatic stay to apply to adversary proceedings filed 

in a debtor’s home court would not advance the primary purposes of 

the stay—affording a debtor breathing room, preserving the status 

quo by preventing a race to grab assets, and providing the orderly 

administration and liquidation of the estate. 

496 B.R. at 35 (citation omitted). Accordingly, Whitebox respectfully submits that any Order 

issued on the Motion should make clear that it does not apply to any proceedings in this Court, 

including to the COFINA Interpleader Proceeding.

Second, even if the automatic stay did apply to adversary proceedings, such as the 

COFINA Interpleader Proceeding (and it does not), the automatic stay does not shield the 

Discovery Targets from subpoenas and discovery requests. As an initial matter, even under that 

scenario, the COFINA Interpleader Proceeding would not be stayed and would continue 

notwithstanding the automatic stay -- the case involves numerous non-debtor parties that are not 

covered by the automatic stay and, in any event, the Debtors have appeared and taken active 

positions in that litigation without ever claiming the stay precludes their involvement. Moreover, 

the automatic stay does not preclude parties from taking discovery of a debtor in a proceeding that 

is not otherwise stayed. In re Residential Capital, LLC, 480 B.R. 529, 537 (Bankr. S.D.N.Y. 

2012); see also In re New England Compounding Pharmacy, Inc. Prod. Liab. Litig., MDL No. 13-

2419-FDS, 2013 WL 6058483, at *8 (D. Mass. Nov. 13, 2013) (noting that while the automatic 

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stay “generally prohibits obtaining discovery from the debtor as a party defendant to litigation” it 

does not preclude requesting documents from the debtor in connection with third party litigation). 

Indeed, the Debtors do not cite any authority to support its contention to the contrary.3 

Section 362(a)(1) of the Bankruptcy Code stays “the commencement or 

continuation, including the issuance or employment of process, of a judicial, administrative, or 

other action or proceeding against the debtor that was or could have been commenced before the 

commencement of the case under this title, or to recover a claim against the debtor that arose before 

the commencement of the case under this title.” 11 U.S.C. § 362(a)(1). Discovery issued to a 

debtor in a proceeding that is not stayed is not covered by the automatic stay. Bankruptcy Judge 

Glenn reached that very conclusion in In re Residential Capital, 480 B.R. 529, and quoted the 

decision in In re Miller, 262 B.R. 499 (9th Cir. B.A.P. 2001), which stated:

In this case, Groner issued the subpoenas to Debtor in an effort to 

continue her prosecution of her claims against Henry, a nondebtor. 

Section 362(a) prohibits the commencement or continuation of an 

action against the debtor; to the extent that Groner was eliciting 

Debtor’s testimony for purposes other than to continue the 

prosecution of her claims against Debtor, the proposed discovery did 

not violate the automatic stay, unless the issuance of subpoenas 

itself constitutes “issuance or employment of process” against 

Debtor or a “judicial proceeding” against Debtor. If this were true, 

a debtor could never be called as a witness (even in actions where 

the debtor is not a party) without relief from the stay. Such an 

interpretation of section 362(a) defies common sense and the spirit 

of the Code. Information is information, and we believe the 

discovery of it as part of the development of a case against nondebtor parties is permissible, even if that information could later be 

used against the party protected by the automatic stay.

 

3

In re City of Stockton, 484 B.R. 372 (Bankr. E.D. Cal. 2012), cited in the Motion at ¶¶ 16, 32, is readily 

distinguishable as it relates to a motion to lift stay to bring direct claims against an officer of the Debtor. Id. at 374. 

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262 B.R. at 505. Accordingly, the automatic stay does not prevent Whitebox and others from 

taking discovery of the Debtor Discovery Targets in the COFINA Interpleader Proceeding. 

Similarly, the automatic stay does not prevent third-party discovery of the Entity 

Discovery Targets or the Individual Discovery Targets. As the Motion correctly points out, 

Section 922(a) of the Bankruptcy Code supplements the automatic stay here by making it 

applicable to “the commencement or continuation, including the issuance or employment of 

process, of a judicial, administrative, or other action or proceeding against an officer or inhabitant 

of the debtor that seeks to enforce any claim against the debtor.” 11 U.S.C. § 922(a) (emphasis 

added). But, Section 922(a) is irrelevant to the discovery that Whitebox and others seek of the 

Discovery Targets in the COFINA Interpleader Proceeding. First, the COFINA Interpleader 

Proceeding is not an “action to enforce [a] claim against the debtor.” Rather, it is a proceeding to 

address inter-creditor disputes so as to determine the proper distribution of funds held by Bank of 

New York Mellon as trustee. Second, even if Section 922(a) did apply, the provision does not

expand the reach of the automatic stay, other than supplementing covered parties to include not 

just debtors but also any “officer or inhabitant.” See, e.g., In re City of Stockton, 484 B.R. at 377 

(“The standards for § 922(a) stay relief are basically the same as those for § 362 stay relief”). 

Therefore, the same reasons discussed above demonstrating that the automatic stay does not 

prevent taking discovery from the Debtor Discovery Targets, also establish that the automatic stay 

does not prevent taking discovery from any “officer or inhabitant” including any Individual 

Discovery Target.

4 Third, Section 922(a) would not cover the Entity Discovery Targets, who are 

neither officers nor inhabitants. 

 

4 The orders cited in paragraph 24 of the Motion are all inapposite, as, among other reasons, none of the 

orders expanded the scope of the stay to subpoenas or discovery served on government officials. 

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In the alternative, the Debtors “request an order extending the stay to prevent 

creditors from pursuing third party discovery against the Governor and other individuals in their 

‘personal capacity’ in connection with creditor efforts to enforce their rights.” (Motion, ¶ 31). 

Debtors’ request should be denied. Only under certain limited circumstances -- not applicable here 

-- does a court have the authority, under Section 105(a) of the Bankruptcy Code, to extend the stay 

beyond its statutory reach, such as by issuing an injunction to stay conduct not automatically 

stayed. In re Residential Capital, 480 B.R. at 537.

Extending the stay, however, requires the commencement of an adversary 

proceeding and an adequate evidentiary record. Id. at 538 (“Where an injunction is sought by a 

debtor under Section 105 to stay actions against non-debtors, the relief must be sought through an 

adversary proceeding under FED. R. BANKR.P. 7001.”). Here, the Debtors have not commenced 

an adversary proceeding nor provided a sufficient basis for injunctive relief. There is no plausible 

need for an injunction barring all discovery because the applicable rules provide sufficient

protections to discovery targets. When discovery is being sought in an adversary proceeding (such 

as the COFINA Interpleader Proceeding ), Rules 26 and 45 of the Federal Rules of Civil Procedure, 

made applicable by Federal Rules of Bankruptcy Procedure 7026 and 9016, as incorporated by 

Section 310 of PROMESA, provide third-parties with adequate remedies for any abuses of the 

discovery procedures. Indeed, the Court’s Scheduling Order in the COFINA Interpleader 

Proceeding expressly contemplated third-party discovery and set forth a comprehensive and 

detailed protocol for addressing any discovery disputes. (See Scheduling Order [Adv. Proc. 

Docket No. 154] at ¶¶ 4(e) – (f).)

Accordingly, Whitebox respectfully submits that any Order with respect to the 

Motion explicitly provide that any relief granted: (a) is not applicable to adversary proceedings 

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pending in this Court, including the COFINA Interpleader Proceeding; and (b) does not prevent

Whitebox or any other party from seeking discovery of the Discovery Targets in connection with 

the COFINA Interpleader Proceeding. 

In San Juan, Puerto Rico, this 16th day of June, 2017. 

WE HEREBY CERTIFY that on this same date, we electronically filed the foregoing with 

the Clerk of the Court using the CM/ECF system which will send notification of such filing to all 

counsel of record, and will provide hard copies to the Court and United States Trustee as soon as 

practical after the filing of the foregoing, consistent with the Court’s June 6, 2017 First Amended

Case Management Order. (See [Docket No. 262] § 2.I.)

Dated: San Juan, Puerto Rico

June 16, 2017

SALDAÑA, CARVAJAL & VÉLEZ-RIVÉ, 

P.S.C.

166 Avenida de la Constitución

San Juan, Puerto Rico 00901

Tel.: 787-289-9250

Fax: 787-289-9253

s/ Charles Bimbela-Quiñones

Charles Bimbela-Quiñones 

USDC-PR No. 203414

E-mail: cbimbela@scvrlaw.com

s/ Melissa Hernández-Carrasquillo

Melissa Hernández-Carrasquillo

USDC-P.R. No. 230511

E-mail: mhernandez@scvrlaw.com

Attorneys for Whitebox Asymmetric Partners, 

L.P., Whitebox Institutional Partners, L.P., 

Whitebox Multi-Strategy Partners, L.P., 

Pandora Select Partners, L.P., and Whitebox 

Term Credit Fund I L.P.

KASOWITZ BENSON TORRES LLP

1633 Broadway

New York, New York 10019

Tel.: 212-506-1700

Fax: 212-506-1800

Kenneth R. David (pro hac vice)

E-mail: kdavid@kasowitz.com

Daniel A. Fliman (pro hac vice)

E-mail: dfliman@kasowitz.com

Ryan P. Montefusco (pro hac forthcoming)

E-mail: rmontefusco@kasowitz.com

Isaac S. Sasson (pro hac vice)

E-mail: isasson@kasowitz.com

Attorneys for Whitebox Asymmetric Partners, 

L.P., Whitebox Institutional Partners, L.P., 

Whitebox Multi-Strategy Partners, L.P., 

Pandora Select Partners, L.P., and Whitebox 

Term Credit Fund I L.P.

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