EXHIBIT D 

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Exhibit D Page 1 of 56
No. 16-2433

IN THE

United States Court of Appeals

FOR THE FIRST CIRCUIT

ALTAIR GLOBAL CREDIT OPPORTUNITIES FUND (A), LLC; PUERTO RICO AAA

PORTFOLIO BOND FUND, INC.; PUERTO RICO AAA PORTFOLIO TARGET

MATURITY FUND, INC.; GLENDON OPPORTUNITIES FUND, LP; NOKOTA CAPITAL

MASTER FUND, L.P.; OAKTREE-FORREST MULTI-STRATEGY, L.L.C. (SERIES B);

OAKTREE OPPORTUNITIES FUND IX, L.P.; OAKTREE OPPORTUNITIES FUND IX

(PARALLEL 2), L.P.; OAKTREE VALUE OPPORTUNITIES FUND, L.P.; PUERTO RICO

AAA PORTFOLIO BOND FUND II, INC.; PUERTO RICO FIXED INCOME FUND,

INC.; PUERTO RICO FIXED INCOME FUND II, INC.; PUERTO RICO FIXED INCOME

FUND III, INC.; PUERTO RICO FIXED INCOME FUND IV, INC.; PUERTO RICO

FIXED INCOME FUND V, INC.; PUERTO RICO GNMA AND U.S. GOVERNMENT

TARGET MATURITY FUND, INC.; PUERTO RICO MORTGAGE-BACKED & U.S.

GOVERNMENT SECURITIES FUND, INC.; SV CREDIT, L.P.; TAX-FREE PUERTO

RICO FUND, INC.; TAX-FREE PUERTO RICO FUND II, INC.; TAX-FREE PUERTO

RICO TARGET MATURITY FUND, INC.; UBS IRA SELECT GROWTH & INCOME

PUERTO RICO FUND,

Movants-Appellants,

(Caption continued on inside cover)

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

BRIEF FOR RESPONDENT-APPELLEE 

THE EMPLOYEES RETIREMENT SYSTEM 

OF THE COMMONWEALTH OF PUERTO RICO

d

RICHARD A. CHESLEY

DLA PIPER LLP (US)

203 North LaSalle Street, Suite 1900

Chicago, Illinois 60601

(312) 368-4000

JOHN M. HILLEBRECHT

NEAL F. KRONLEY, of counsel

DLA PIPER LLP (US)

1251 Avenue of the Americas

New York, New York 10020

(212) 335-4500 

Counsel for Respondent-Appellee 

The Employees Retirement System of the Commonwealth of Puerto Rico

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Exhibit D Page 2 of 56
CLAREN ROAD CREDIT MASTER FUND, LTD.; CLAREN ROAD CREDIT

OPPORTUNITIES MASTER FUND, LTD.; OCHER ROSE, L.L.C.; PUERTO RICO

INVESTORS BOND FUND I, INC.; PUERTO RICO INVESTORS TAX-FREE FUND,

INC.; PUERTO RICO INVESTORS TAX-FREE FUND II, INC.; PUERTO RICO

INVESTORS TAX-FREE FUND III, INC.; PUERTO RICO INVESTORS TAX-FREE

FUND IV, INC.; PUERTO RICO INVESTORS TAX-FREE FUND V, INC.; PUERTO RICO

INVESTORS TAX-FREE FUND VI, INC.,

Movants,

—v.—

ALEJANDRO GARCÍA-PADILLA, in his official capacity as the Governor of Puerto

Rico; JUAN C. ZARAGOZA-GOMEZ, in his official capacity as the Secretary of

Treasury of Puerto Rico; LUIS F. CRUZ-BATISTA, in his official capacity as the

Director of the Commonwealth’s Office of Management and Budget; THE

EMPLOYEES RETIREMENT SYSTEM OF THE COMMONWEALTH OF PUERTO RICO,

Respondents-Appellees.

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CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, Appellee Employees

Retirement System of the Government of the Commonwealth of Puerto Rico

(“ERS”) states as follows:

ERS is a trust created by Act No. 447 of May 15, 1951, as amended, of the

Legislature of the Commonwealth of Puerto Rico (the “Enabling Act”). No

corporation is a parent of ERS and no publicly held corporation owns 10% or more

of its stock.

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TABLE OF CONTENTS

Page

i

INTRODUCTION ....................................................................................................1

COUNTER-STATEMENT OF THE ISSUES ON APPEAL ..................................4

COUNTER-STATEMENT OF THE CASE ............................................................5

A. The ERS Bonds ....................................................................................5

B. The Puerto Rico Financial Crisis And The Adoption Of

PROMESA ...........................................................................................7

C. The Commonwealth Suspends Transfers To ERS’s Fiscal

Agent ....................................................................................................9

D. The District Court Proceedings..........................................................10

E. The District Court’s Opinion..............................................................13

F. The Present Appeal ............................................................................15

SUMMARY OF THE ARGUMENT .....................................................................15

STANDARD OF REVIEW ....................................................................................16

ARGUMENT ..........................................................................................................17

I. THE LACK OF ADEQUATE PROTECTION IS NOT A BASIS TO

LIFT THE PROMESA STAY......................................................................17

A. The Plain Language Of PROMESA Does Not Treat Lack Of

Adequate Protection As A Basis For Lifting The Stay......................17

B. The District Court’s Equitable Approach Aligns With

PROMESA’s Congressional Purpose ................................................22

II. THE APPELLANTS’ ARGUMENT THAT THEY LACK

ADEQUATE PROTECTION IS ILLUSORY.............................................25

A. Appellants Have Adequate Protection ...............................................25

1. The Fiscal Agent Has Sufficient Funds For The Duration

Of The PROMESA Stay ..........................................................26

2. The Appellants Maintain A Security Interest In The ERS

Bonds........................................................................................28

B. The Appellants’ Contrary Position Is Not Tenable............................31

III. THE DISTRICT COURT PROVIDED ADEQUATE DUE PROCESS

TO BONDHOLDERS ..................................................................................34

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TABLE OF CONTENTS

(continued)

Page

ii

A. PROMESA Requires Timely Due Process ........................................34

B. The District Court Provided Appellants Due Process........................37

C. The Appellants’ Speculation As To Their Expert Does Not

Suggest That The District Court’s Decision Offends Due

Process................................................................................................38

CONCLUSION.......................................................................................................41

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iii

TABLE OF AUTHORITIES

Page(s)

CASES

Adams v. Watson,

10 F.3d 915 (1st Cir. 1993).................................................................................27

Anderson v. Beatrice Foods Co.,

900 F.2d 388 (1st Cir. 1990)...............................................................................17

Blum v. Stenson,

465 U.S. 886 (1984)............................................................................................18

Burlington N. & Santa Fe. Ry. Co. v. White,

548 U.S. 53 (2006)..............................................................................................20

Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc.,

467 U.S. 837 (1984)............................................................................................18

Cruz v. Bristol Myers Squibb Co. PR, Inc.,

777 F. Supp. 2d 321 (D.P.R. 2011) ...................................................................39

Estate of Cowart v. Nicklos Drilling Co.,

505 U.S. 469 (1992) ...........................................................................................18

Fed. Mar. Comm’n v. Seatrain Lines, Inc.,

411 U.S. 726 (1973)............................................................................................22

Fogerty v. Fantasy, Inc.,

510 U.S. 517 (1994)............................................................................................22

Gomez v. Rivera Rodriguez,

344 F.3d 103 (1st Cir. 2003)...............................................................................40

Grella v. Salem Five Cent Sav. Bank,

42 F.3d 26 (1st Cir. 1994)...................................................................................20

Griffin v. Oceanic Contractors, Inc.,

458 U.S. 564 (1982) ...........................................................................................22

Helmer v. Goodyear Tire & Rubber Co.,

828 F.3d 1195 (10th Cir. 2016) ..........................................................................19

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iv

Howard v. Lexington Invs., Inc.,

284 F.3d 320 (1st Cir. 2002)...............................................................................17

Indep. Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg. Co.,

864 F.2d 927 (1st Cir. 1988) ..............................................................................17

In re Buttermilk Towne Center, LLC,

442 B.R. 558 (B.A.P. 6th Cir. 2010) ..................................................................32

In Re Capitol Food Corp. of Fields Corner,

490 F.3d 21 (1st Cir. 2007).................................................................................17

In re Dynaco Corp.,

162 B.R. 389 (Bankr. D.N.H. 1993)...................................................................31

In re Forseen, Inc.,

81 B.R. 903 (N.D. Ill. 1987) ...............................................................................36

In re Hotel Coamo Springs,

No. 12 Civ. 01696 (JAF), 2013 WL 2147687 (D.P.R. May 16, 2013)..............35

In re Jug End in the Berkshires, Inc.,

46 B.R. 892 (Bankr. D. Mass. 1985) ..................................................................30

In re Lane,

108 B.R. 6 (Bankr. D. Mass. 1989) ....................................................................31

In re London, Inc.,

70 B.R. 63 (Bankr. E.D. Wis. 1987)...................................................................35

In re Looney,

823 F.2d 788 (4th Cir. 1987) ..............................................................................36

In re Putnal,

483 B.R. 799 (Bankr. M.D. Ga. 2012) ...............................................................31

In re Savage Indus., Inc.,

43 F.3d 714 (1st Cir. 1994).................................................................................36

In re Stearns Building,

165 F.3d 28 (6th Cir. 1998) ................................................................................32

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v

In re Sullivan Ford Sales,

2 B.R. 350 (Bankr. D. Me. 1980) .......................................................................35

In re SW Boston Hotel Venture LLC,

449 B.R. 156 (Bankr. D. Mass. 2011) ..........................................................30, 31

In re Watman,

458 F.3d 26 (1st Cir. 2006).................................................................................16

In re Wedgewood Realty Grp., Ltd.,

878 F.2d 693 (3d Cir. 1989) ...............................................................................36

Kerin v. Titeflex Corp.,

770 F.3d 978 (1st Cir. 2014)...............................................................................27

Lakeland Enters. of Rhinelander, Inc. v. Chao,

402 F.3d 739 (7th Cir. 2005) ..............................................................................40

Lujan v. Defenders of Wildlife,

504 U.S. 555 (1992)............................................................................................27

Merrell Dow Pharm. Inc. v. Thompson,

478 U.S. 804 (1986)............................................................................................22

Newell Puerto Rico, Ltd. v. Rubbermaid Inc.,

20 F.3d 15 (1st Cir. 1994)...................................................................................40

Northland Cranberries, Inc. v. Ocean Spray Cranberries, Inc.,

382 F. Supp. 2d 221 (D. Mass. 2004).................................................................19

Pena-Crespo v. Puerto Rico,

408 F.3d 10 (1st Cir. 2005).................................................................................38

Riva v. Commw. of Mass.,

61 F.3d 1003 (1st Cir. 1995)...............................................................................18

Texas v. United States,

523 U.S. 296 (1998)............................................................................................27

Thibeault v. Square D Co.,

960 F.2d 239 (1st Cir. 1992)...............................................................................39

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vi

United States v. Azeem,

946 F.2d 13 (2d Cir. 1991) .................................................................................20

United States v. Procter & Gamble Co.,

356 U.S. 677, 682 (1958) ...................................................................................39

United States v. Ron Pair Enters., Inc.,

489 U.S. 235 (1989)............................................................................................22

Whitmore v. Arkansas,

495 U.S. 149 (1990)............................................................................................27

STATUTES

11 U.S.C. § 102........................................................................................................35

11 U.S.C. § 362........................................................................................... 19, 21, 33

48 U.S.C. § 2194(e)(2).............................................................................................19

Fed. R. Civ. P. 26(a)(2)(B) ................................................................................38, 39

P.R. Act 21-2016 (“Moratorium Act”) ......................................................................7

Puerto Rico Oversight, Management, and Economic Stability Act, 48 U.S.C.

§ 2101, et. seq. (“PROMESA”) ...................................................................passim

OTHER AUTHORITIES

2 Collier on Bankruptcy § 362.08 (15th ed. 1989)..................................................35

H.R. Rep. No. 114-602 (2016).................................................................................20

Mary Williams, Liz Moyer, How Puerto Rico Is Grappling With A Debt

Crisis, N.Y. Times (July 1, 2016) (last accessed Dec. 22, 2016).........................1

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INTRODUCTION

On June 30, 2016, Congress enacted, and President Obama signed into law,

the Puerto Rico Oversight, Management, and Economic Stability Act, 48 U.S.C. §

2101, et. seq. (“PROMESA”) for the specific purpose of addressing the wellknown fiscal crisis in Puerto Rico. The crisis may impact, inter alia, Puerto Rico

residents’ services such as schools, hospitals, and Zika virus containment efforts.1

To accomplish its goals, Congress provided for a limited stay of litigation

against the Commonwealth until February 15, 2017, so that Puerto Rico can “focus

its resources on negotiating a voluntary resolution with its creditors instead of

defending numerous, costly lawsuits.” PROMESA § 405(n)(2). The Financial

Oversight and Management Board for Puerto Rico (“Oversight Board”), provided

for by PROMESA and established on August 31, 2016, is right now working to

stabilize Puerto Rico, given the statutory “breathing room” provided by

PROMESA.

Appellants – consisting of holders of bonds issued by the Commonwealth’s

Employees Retirement System – seek to choke off PROMESA’s “breathing room”

by lifting PROMESA’s automatic stay. Appellants argue that PROMESA’s lessthan-eight-month-stay (of which less than two months remain) deprives them of

“adequate protection” and is, therefore, appropriate “cause” for lifting the stay.

1

See Mary Williams, Liz Moyer, How Puerto Rico Is Grappling With A Debt

Crisis, N.Y. Times (July 1, 2016) (last accessed Dec. 22, 2016).

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2

While Appellants delayed filing their request until well after other similarly

situated financial creditors had moved for comparable relief, they nonetheless

sought expedited consideration of their relief before the District Court (The

Honorable Francisco A. Besosa). The District Court obliged the Appellants, going

so far as consolidating their case with ones filed months earlier. Thereafter, the

parties fully briefed all relevant legal issues, and stipulated to all material facts, in

advance of the scheduled hearing date.

The District Court ultimately disagreed with Appellants’ argument that they

lacked adequate protection precisely because the balance of equities weighed

towards the “larger, overarching purposes for which PROMESA was enacted,”

and, therefore, the PROMESA stay was sustained. The District Court reached this

conclusion because the Appellants could not meet their burden to show “cause”

sufficient to lift the stay. Specifically, the District Court found that Appellants

were adequately protected because “while the Altair plaintiffs will not receive the

benefit of the pledged property during the pendency of the stay, they will only be

delayed in recovering the funds needed to repay their ERS bonds.” (see Add. 17-

18).2 Also integral to the District Court’s decision was the finding that “there are

sufficient monies in the debt service and reserve accounts to service the bondholder

debt until April 1, 2017, [and] not a single principal or interest payment will be

2 All references to “Add. __” refer to the Addendum filed by Appellants in

conjunction with their brief. All references to “JA __” refer to the Joint Appendix.

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3

missed while the PROMESA stay remains in place.” (Add. 18 n.1). These

conclusions were, of course, made on the basis of the facts agreed upon by the

parties and jointly submitted to the District Court.

On appeal, the Appellants continue to press to lift the stay. Other than the

reduced duration of the stay due to the lapse of time – with the stay now set to

expire on February 15, 2017, 42 days after oral argument– nothing has changed in

the parties’ positions since the District Court.

 PROMESA remains in place, and the Oversight Board is working to

stabilize Puerto Rico as intended.

 ERS continues to collect contributions from both Commonwealth and

non-Commonwealth employees for pension funds.

 ERS’s Fiscal Agent still maintains sufficient funds to pay debt service

on the Appellants’ bonds throughout the stay, and for even longer if

the stay is extended.

In other words, Appellants cannot identify any cognizable fact that calls into

question the adequate protection the District Court determined to already exist.

Without any basis to challenge that finding, Appellants instead focus their

argument on what might happen if certain contingencies arise and the PROMESA

stay is extended. As was made clear in the District Court, there are adequate funds

to pay debt service and to serve as collateral for the Appellants’ bonds at least

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through April 2017, and therefore not a single payment will be missed during the

pendency of the stay. As the Court specifically held, Appellants “face no financial

harm as a result of the stay.” (Add. 18 n.1). In any event, Appellants’ conjecture is

not a sufficient basis to lift the PROMESA stay.

Appellants’ new-found concern with the alacrity with which the District

Court addressed their motion and cancelled the hearing scheduled for November 3,

2016, moreover, is entirely disingenuous and irrelevant. Appellants had a full

opportunity to be heard in the District Court, consistent with the meaning and

purpose of the PROMESA statute. Appellants also stipulated to the facts used to

determine the issues in dispute, rendering the hearing unnecessary. Here again, the

purported injury to Appellants, i.e., preclusion of their hired expert from testifying

at the hearing, is, first, misleading because an expert would not offer new facts, and

second, speculative that the expert would testify at all.

In sum, Appellees respectfully request that this Court affirm the judgment of

the District Court.

COUNTER-STATEMENT OF THE ISSUES ON APPEAL

1. Whether the stay imposed by PROMESA, 48 U.S.C. § 2101, et. seq.,

may be lifted for lack of adequate protection despite the absence of any language

in the statute or Congressional purpose stating this as a basis for relief from the

stay.

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2. Whether the Fifth Amendment protects a party’s speculation that it

may suffer from lack of adequate protection at some unknown point in the future.

3. Whether due process considerations require a judicial hearing on a

legal issue where the parties have stipulated to the facts and there are, therefore, no

factual disputes.

COUNTER-STATEMENT OF THE CASE

A. The ERS Bonds

The Appellants’ motion to lift the PROMESA stay is premised exclusively

on three series of bonds issued by ERS (the “ERS Bonds”) pursuant to the Pension

Funding Bond Resolution (the “Bond Resolution”) adopted by the Commonwealth

on January 24, 2008. The Bonds were issued for the purposes of increasing the

funds available to pay pension benefits to certain of its beneficiaries and to reduce

its unfunded accrued actuarial pension liability. (See JA 239 ¶ 6; JA 127 § 2.2).

Under the terms of the Bond Resolution, the Commonwealth granted in

favor of a fiscal agent (the “Fiscal Agent,” currently the Bank of New York

Mellon) (JA 240 ¶ 8) a security interest and related lien in and over “Pledged

Property” – consisting of, among other assets, all revenues of the ERS – pending

the discharge and satisfaction of all outstanding principal and interest. (See JA 241

¶ 12; JA 92 § 501; JA 120). The ERS Bonds are “special obligations of the [ERS]

payable solely from the Pledged Property without recourse against other assets” of

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the ERS, and do not “constitute a debt of the Commonwealth.” (JA 241 ¶ 13; JA

85 § 201). Aside from the liens securing ERS Bonds, the Pledged Property is “free

and clear of any pledge, lien, charge, or encumbrance” (JA 241 ¶ 14; JA 99 § 705),

and is “valid and binding as against all parties having claims of any kind in tort,

contract or otherwise against the [ERS], irrespective of whether such parties have

notice thereof.” (JA 241 ¶ 14; JA 92 § 501). In other words, the security interest

and lien in favor of ERS Bondholders is only limited by the satisfaction of ERS’s

outstanding debt obligations.

Pursuant to the Enabling Act, governmental employers in Puerto Rico are

required to transfer employer contributions to the ERS on a monthly basis. On the

last business day of each month, the ERS must transfer those employer

contributions to the Fiscal Agent. (JA 93 § 504). The Fiscal Agent must

immediately, and not later than the next business day, deposit employer

contributions into the “Revenue Account,” except in limited circumstances. (Id.).

Moneys on deposit in the Revenue Account are to be deposited, in order of

priority, (a) to an account to make debt service on senior bonds (the “Senior Bonds

Debt Service Account”), (b) to a reserve account for senior bonds (the “Senior

Bonds Debt Service Reserve Account”), (c) to an account to make debt service on

subordinated bonds (the “Subordinated Bonds Debt Service Account”), (d) to a

reserve account for subordinated bonds (the “Subordinated Bonds Debt Service

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Reserve Account”), (e) to pay operating expenses, and (f) to a general reserve

account (the “General Reserve Account”). (Id.). The Fiscal Agent is responsible

for making interest and principal payments to holders of ERS Bonds when due.

(JA 94 § 505(4), (5)). In addition to contributions from the Commonwealth, the

ERS also receives contributions from non-Commonwealth employers. (See JA 246

¶ 28).

B. The Puerto Rico Financial Crisis And The Adoption Of

PROMESA

In response to the historic fiscal crisis impacting Puerto Rico, the

Commonwealth enacted the Puerto Rico Emergency Moratorium and Financial

Rehabilitation Act (P.R. Act 21-2016, hereinafter “Moratorium Act”) on April 6,

2016. (JA 245 ¶ 22). The Moratorium Act afforded the Governor of Puerto Rico

broad-ranging powers, including directing the prioritization of essential service

payments. (See Moratorium Act §§ 201, 202). With massive debt service

obligations due on July 1, 2016, the Governor issued Executive Order 2016-31 the

day before declaring a state of emergency for, inter alia, ERS. (See JA 245 ¶ 24;

JA 161). The state of emergency continues until January 31, 2017, with a potential

two month extension by order of the Governor. (See Moratorium Act § 103(m)).

Within days, President Obama signed into law PROMESA. As with all

financial restructuring regimes, a foundation of PROMESA is a broad-ranging stay

of actions against the putative debtors. Congress built the automatic stay provision

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into PROMESA to provide the Commonwealth with “a limited period of time

[until February 15, 2017] during which it can focus its resources on negotiating a

voluntary resolution with its creditors instead of defending numerous, costly

creditor lawsuits.” (PROMESA § 405(n)(2)). The PROMESA stay began on June

30, 2016, and, as noted, will last until February 15, 2017.

PROMESA contains a number of other key provisions, including the

appointment of a Financial Oversight and Management Board for Puerto Rico

(“Oversight Board”) charged with overseeing “[a] comprehensive approach to

[restructuring] fiscal, management, and structural problems and adjustments that

exempts no part of the Government of Puerto Rico.” PROMESA §§ 405(m)(4),

(n)(3)-(4). Thereafter, the Oversight Board was established on August 31, 2016.

(Add. 4).

As noted, the PROMESA stay will expire on February 15, 2017. The statute

provides for an extension of the stay under two contingencies. First, the Oversight

Board may extend the stay during a period of negotiations with creditors by an

additional 75 days if it determines that additional time is needed. Second, the

district court may extend the stay an additional 60 days if it makes a similar

determination. (JA 247 ¶ 30). Neither of these contingencies has arisen.

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C. The Commonwealth Suspends Transfers To ERS’s Fiscal Agent

On June 30, 2016, and pursuant to the Moratorium Act, the Governor

suspended transfers of ERS revenues to the Fiscal Agent. (JA 245-46 ¶ 24). These

steps, however, have not hampered ERS from fulfilling its payment obligations

under the ERS Bonds – and its ability to do so until well after the expiration of the

stay.

As noted above, ERS continues to collect employer contributions from nonCommonwealth employers, and the amount of these contributions since July 2016,

when the Moratorium Act was implemented, is $75,545,510.98. (JA 246 ¶ 26).

Although ERS is unable to transfer these funds to the Fiscal Agent without

violating the Moratorium Act, these amounts are currently held in an ERS

operating account at Banco Popular de Puerto Rico. (Id.). Specifically, ERS

collectively received employer contributions from non-Commonwealth employers

in the amount of $75,545,510.98 for the months of July, August, September and

October 2016, respectively. (JA 246 ¶ 28). These amounts have continued to

accumulate in the operating account.

Furthermore, as of October 1, 2016, the Fiscal Agent held amounts on

deposit in the aggregate amount of $99,999,844.46, consisting of (a) $18,480.18 in

the Senior Bonds Debt Service Account, (b) $83,259,495.30 in the Senior Bonds

Debt Service Reserve Account, and (c) $16,722,868.92 in the General Reserve

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Account. (JA 242 ¶ 17). On October 1, 2016, the Fiscal Agent provided notice

that $13,858,102.30 was withdrawn from the General Reserve Account and applied

to pay a portion of the debt service due that same day. (Id.). These funds are

subject to the lien held by ERS Bondholders. (Id.). There is no dispute that there

is sufficient cash to cover all debt service payments through and including April 1,

2017 – after the expiration of both PROMESA’s automatic stay and the

moratorium and stay imposed by the Moratorium Act. (JA 243 ¶ 18). Further, the

ERS received approximately $418 million in employer contributions in the year

ending June 30, 2015, an amount scheduled to increase by 1.25% per year

beginning on July 1, 2016. (JA 244 ¶ 20).

D. The District Court Proceedings

Jumping on the bandwagon of earlier-filed PROMESA stay relief requests,

Appellants initiated this action on September 21, 2016, in the U.S. District Court

for the District Court of Puerto Rico, seeking to lift the stay imposed by

PROMESA. (JA 26 at ECF No. 1). Appellees were served with the motion on

September 23, 2016, and the Commonwealth then sought an extension of time to

respond to Appellants’ motion to lift the stay until October 28, 2016, which the

Appellants opposed. (JA 29 at ECF No. 23). The District Court granted the

extension only until October 26, 2016.

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11

The proceeding progressed quickly towards a hearing in the District Court,

with Appellants seeking, on October 13, 2016, to consolidate the Appellants’

motion with two other actions pending that had been in the District Court for

several months– Peaje Investments LLC v. Alejandro Garcia-Padilla, et al., No. 16

Civ. 02365, and Assured Guaranty Corp., et al. v. Commonwealth of Puerto Rico,

No. 16 Civ. 02384. The District Court granted the consolidation motion the

following day. (JA 31 at ECF No. 27). As a result of the consolidation, the

Appellants’ motion was to be considered as part of a pre-existing hearing

scheduled for November 3, 2016.

Appellees filed oppositions to Appellants’ motion to lift the PROMESA stay

on October 26, 2016, and Appellants sought leave to file a further reply, which was

granted on November 1, 2016. (JA 34-36 at ECF Nos. 53, 59, 60). Appellants

filed their reply that same day. (JA 36 at ECF No. 61).

On October 28, 2016, the Oversight Board sought to intervene in the District

Court proceeding. In seeking to intervene, the Oversight Board made it clear that

it objected to the efforts of parties such as the Appellants to ignore the policy

underlying PROMESA’s imposition of the automatic stay. (JA 36 at ECF No. 56).

The District Court denied the motion to intervene on November 1, 2016, and

denied as moot the Oversight Board’s motion for reconsideration. (JA 37 at ECF

No. 62; JA 39 at ECF No. 63).

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Prior to the hearing scheduled for November 3, 2016, Appellants disclosed

on October 25, 2016, that they intended to rely on the expert testimony of Dr.

Bradford Cornell. On October 28, 2016, Appellants provided a copy of Dr.

Cornell’s curriculum vitae, a list of his prior testimony over the last four years, and

identified his “principal conclusions.” At no time did Appellants even attempt to

follow the remaining mandates of Rule 26 of the Federal Rules of Civil Procedure

governing required expert disclosure. Instead, Appellants simply produced

proposed demonstrative exhibits for Dr. Cornell on October 31, 2016, with further

revised demonstrative exhibits arriving hours before the hearing was scheduled to

commence.

The parties stipulated to the “truth and admissibility” of facts “for the

purpose of adjudicating Movants’ motion” at the November 3 hearing. (JA 239)

(the “Stipulated Facts”). The Stipulated Facts consist of fifteen pages of facts

across forty-nine paragraphs, and address all facts that the parties collectively

believed relevant to the motion to lift the PROMESA stay. Specifically, the

Stipulated Facts discuss ERS, the ERS Bonds, amounts in reserve for the ERS

accounts, the method by which the ERS bonds are paid, the Moratorium Act,

PROMESA, and ERS’s financial condition. The purpose in entering into the

Stipulated Facts was to obviate the need for fact witnesses at trial and confine the

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13

issues solely to legal arguments and, possibly, properly-disclosed expert testimony

(if any).

After issuing its opinion denying Appellants’ motion to lift the PROMESA

stay on November 2, 2016, the District Court cancelled the hearing.

E. The District Court’s Opinion

On November 2, 2016, the District Court issued a nineteen-page ruling

denying all of the Appellants’ requests to lift the PROMESA stay. (Add. 1-19). In

its opinion, the District Court first noted that the PROMESA stay is “not absolute

in nature” and was intended to ‘“provide the Government of Puerto Rico with the

resources and the tools it needs to address an immediate existing and imminent

crisis.”’ (Add. 5 (quoting PROMESA § 405(n)(1)). The District Court then

recognized that relief from the stay provides a “safety valve” for litigants

“provided that they could effectively demonstrate ‘cause’ or ‘irreparable harm.’”

(Add. 5). Because PROMESA was “patterned” on section 362 of the Bankruptcy

Code, 11 U.S.C. § 362, the District Court analyzed this provision, and determined

that its task in determining whether “cause” exists to lift the PROMESA stay

requires “a careful balancing of the equities involved.” (Add. 6, 9).

The District Court then recognized that “lack of adequate protection” may be

a basis to lift the PROMESA stay based on its “constitutional roots” (Add. 10), but

cautioned that there is not a ‘“one-to-one’ relationship” between PROMESA and

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14

section 362 of the Bankruptcy Code. (Add. 11). As a consequence, “the concept

of ‘cause’ embraced by the [District] Court for the purposes of the PROMESA stay

need not precisely mirror that adopted in the bankruptcy context” due to the

“specific Congressional findings and the enumerated purposes of PROMESA’s

automatic stay . . . ” (Add. 11). The District Court also specifically noted that any

decision to vacate the stay “should advance the larger, overarching purposes for

which PROMESA was enacted.” (Add. 12).

In applying its analytical framework to the Appellants, the District Court

found that Appellants are adequately protected. In so holding, the District Court

specifically cited “provisions of both the Moratorium Act and PROMESA that

effectively preserve [a party’s] contractual security interest . . .” (Add. 16). In

particular, the Appellants hold a “security interest and lien in certain pledged

property, including all future employer contributions” that “continues indefinitely

until ERS’s outstanding debt obligations have been satisfied in full. (Add. 17

(emphasis added)). The District Court concluded that Appellants’ lien against ERS

will not be diminished or destroyed by PROMESA or the Moratorium Act, and

following the lifting of the stay the “enduring stream of ERS pledged property will

once again flow to the fiscal agent to be held for the benefit of ERS bondholders.”

(Add. 17). Accordingly, the Appellants’ interest remains adequately protected.

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The District Court also noted that “there are sufficient monies in the debt

service and reserve accounts to service the bondholder debt until April 1, 2017,”

that “not a single principal or interest payment will be missed while the

PROMESA stay remains in place” and, therefore, the Appellants “face no financial

harm as a result of the stay.” (Add. 18, n 1).

F. The Present Appeal

Appellants filed their notice of appeal on November 28, 2016 (JA 39), and

on December 2, 2016, the First Circuit Court of Appeals consolidated the appeal

with pending appeals in the Peaje and Assured Guaranty Corp. litigations.

SUMMARY OF THE ARGUMENT

Congress enacted PROMESA for a specific purpose – to provide the

Commonwealth of Puerto Rico “breathing room” to reorganize its assets for

stability and position itself for prosperity. The automatic stay is an integral and

critical component of PROMESA, as it allows PROMESA the short time mandated

by Congress to fulfill its purpose without creditor litigation and interference.

As the District Court recognized, while the stay under PROMESA is

“patterned” after the Bankruptcy Code, there is not a “one-to-one” relationship

between the automatic stays under PROMESA and the Bankruptcy Code as the

language and intent differ in significant ways. (Add. 6, 11).

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Owing to these substantial differences between the PROMESA automatic

stay and that contained in the Bankruptcy Code, Appellants’ appeal should be

denied for at least four separate reason. First, the statute does not provide any

special lack of adequate protection exception as grounds to lift the stay.

Second, even assuming that lack of adequate protection was a basis to lift the

PROMESA stay, the Appellants are adequately protected – as the District Court

determined based upon the undisputed factual record.

Third, the Appellants’ Constitutional arguments must fail because they are

based on speculation over what may happen if the stay is extended, and not the

facts that were presented and adjudicated by the District Court.

Fourth, Appellants – who were the ones that rushed this proceeding to

judgment – were certainly afforded adequate and timely due process in the District

Court, therefore, their alternative argument that the District Court erred by

cancelling a hearing after fully considering the uncontested factual record jointly

submitted by the parties and applicable laws is baseless.

STANDARD OF REVIEW

On appeal, this Court reviews a district court’s “conclusions of law de novo

and its factual findings for clear error.” In re Watman, 458 F.3d 26, 31 (1st Cir.

2006). When a case involves, as here, a request to “grant relief from [an]

automatic stay,” this Court reviews a district court’s decision under an abuse of

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discretion standard. In Re Capitol Food Corp. of Fields Corner, 490 F.3d 21, 23

(1st Cir. 2007).

An abuse of discretion is found only when a district court or bankruptcy

court “ignores ‘a material factor deserving of significant weight,’ relies upon ‘an

improper factor’ or makes ‘a serious mistake in weighing proper factors.’”

Howard v. Lexington Invs., Inc., 284 F.3d 320, 323 (1st Cir. 2002) (citing Indep.

Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg. Co., 864 F.2d

927, 929 (1st Cir. 1988)). When a district court “weigh[s] all proper and no

improper factors in dealing with [an issue before it],” no abuse of discretion can be

found, even in situations where the court “impos[es] somewhat unconventional

remedial measures.” Anderson v. Beatrice Foods Co., 900 F.2d 388, 394 (1st Cir.

1990).

ARGUMENT

I. THE LACK OF ADEQUATE PROTECTION IS NOT A BASIS TO

LIFT THE PROMESA STAY

A. The Plain Language Of PROMESA Does Not Treat Lack Of

Adequate Protection As A Basis For Lifting The Stay

There is no question that the PROMESA stay applies to the Appellants in

this action. The relevant question, therefore, is whether the PROMESA stay may

be lifted on the basis of a purported lack of adequate protection. “In a statutory

construction case, the beginning point must be the language of the statute, and

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18

when a statute speaks with clarity to an issue judicial inquiry into the statute’s

meaning, in all but the most extraordinary circumstance, is finished.” Riva v.

Commw. of Mass., 61 F.3d 1003, 1007 (1st Cir. 1995) (quoting Estate of Cowart v.

Nicklos Drilling Co., 505 U.S. 469, 474-76 (1992)); Blum v. Stenson, 465 U.S.

886, 896 (1984) (when the “resolution of a question of federal law turns on a

statute and the intention of Congress, we look first to the statutory language and

then to the legislative history if the statutory language is unclear”); Chevron,

U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984) (“[i]f the

intent of Congress is clear, that is the end of the matter; for the court . . . must give

effect to the unambiguously expressed intent of Congress”).

Here, section 405(e)(2) of PROMESA is conspicuously silent on the concept

of “adequate protection;” a governing principle of the Bankruptcy Code’s

automatic stay provision. A comparison of the two statutes is instructive.

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PROMESA, Section 405(e)(2) Section 362(d)(1) of the Bankr. Code

“On motion of or action filed by a party

in interest and after notice and a hearing,

the United States District Court for the

District of Puerto Rico, for cause

shown, shall grant relief from the stay.”

48 U.S.C. § 2194(e)(2).

“On request of a party in interest and

after notice and a hearing, the court shall

grant relief from the stay ... for cause,

including lack of adequate protection of

an interest in property.”

11 U.S.C. § 362(d)(1) (emphasis added).

While PROMESA’s automatic stay provision is, as noted by the District

Court, “patterned” after the Bankruptcy Code (see Add. 6), Congress chose

obviously different words in drafting PROMESA to express a different intent. Had

Congress sought to make “lack of adequate protection” a basis for lifting the

PROMESA stay, it would have said so, just as it did in Section 362 of the

Bankruptcy Code. See, e.g., Helmer v. Goodyear Tire & Rubber Co., 828 F.3d

1195, 1202 (10th Cir. 2016) (If “a legislature models an act on another statute but

does not include a specific provision in the original, a strong presumption exists

that the legislature intended to omit that provision.”) (emphasis added); Northland

Cranberries, Inc. v. Ocean Spray Cranberries, Inc., 382 F. Supp. 2d 221, 227 (D.

Mass. 2004) (“When one statute contains limiting language and a related statute

does not, the court should presume that the difference was intentional.”). Indeed, it

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20

is well settled that “where words differ as they differ here, Congress acts

intentionally and purposely in the disparate inclusion or exclusion.” Burlington N.

& Santa Fe. Ry. Co. v. White, 548 U.S. 53, 63 (2006) (internal citation omitted);

see also United States v. Azeem, 946 F.2d 13, 17 (2d Cir. 1991) (“[C]ongressional

consideration of an issue in one context, but not another, in the same or similar

statutes implies that Congress intends to include that issue only where it has so

indicated.”).

The clear import of the language Congress chose to adopt is underscored by

the legislative history. In fact, the legislative history of PROMESA shows

Congress intended to adopt the very different “irreparable harm” standard for

lifting the automatic stay; that legislative history makes no reference to “adequate

protection.” See H.R. Rep. No. 114-602, at *51 (2016) (“If a party is determined

to be subject to irreparable damage because of the imposition of the stay, the

District Court is authorized to grant relief from the stay to such a party.”). By

contrast, the automatic stay in the Bankruptcy Code is available for any of the

enumerated reasons expressed in the Bankruptcy Code, not just irreparable harm.

See, e.g., Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 31 (1st Cir. 1994)

(noting Congress limited “the issues decided by a bankruptcy court on a creditor’s

motion to lift the stay” to listed matters in Bankruptcy Code). In other words,

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Congress intended the PROMESA stay to operate differently from the automatic

stay in the Bankruptcy Code.

Furthermore, when Congress sought to mimic the language of the

Bankruptcy Code it was not shy about copying statutory provisions from the

Bankruptcy Code. Compare PROMESA § 405(g) (relief from PROMESA §

405(b) stay is appropriate without hearing if necessary to “prevent irreparable

damage to the interest of an entity in property, if such interest will suffer such

damage before there is an opportunity for notice and a hearing under subsection (e)

or (f)”) with 11 U.S.C. § 362(f) (same language under Bankruptcy Code’s

automatic stay). The automatic stay provision in PROMESA, however, was not

one of those occasions where Congress sought to copy language and import

meaning from the Bankruptcy Code. The cases cited above teach that in these

circumstances there is a “strong presumption” that the differences are intentional.

Indeed, the District Court recognized as much in finding that “the concept of

‘cause’ embraced by the Court for the purposes of the PROMESA stay need not

precisely mirror that adopted in the bankruptcy context.” (Add. 11).

Accordingly, while the District Court noted that adequate protection may be

one factor to be considered in assessing the “cause” standard under PROMESA,

the plain language of PROMESA does not dictate that a lack of adequate

protection – even if one was demonstrated – is a basis to lift a stay.

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B. The District Court’s Equitable Approach Aligns With

PROMESA’s Congressional Purpose

The District Court found that in order to determine whether to lift the

PROMESA stay it needed to perform a “careful balancing of the equities

involved.” (Add. 9). The District Court’s analytical approach considered the

Congressional intent behind PROMESA in weighing the equities. Where statutory

interpretation “produce[s] a result demonstrably at odds with the intentions of its

drafters . . . the intention of the drafters, rather than the strict language, controls.”

United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989) (citing Griffin v.

Oceanic Contractors, Inc., 458 U.S. 564, 571 (1982)); see Fogerty v. Fantasy, Inc.,

510 U.S. 517, 524 (1994) (despite similar language between two statutes, the

interpretation was different given “the goals and objectives of the two Acts are

likewise not completely similar”). Furthermore, because “all laws are imprecise to

some degree, disputes inevitably arise over what specifically Congress intended to

require or permit. It is the duty of courts to interpret these laws and apply them in

such a way that the congressional purpose is realized.” Merrell Dow Pharm. Inc. v.

Thompson, 478 U.S. 804, 828 (1986) (Brennan, J. dissenting). The “courts are the

final authorities on issues of statutory construction and ‘are not obliged to stand

aside and rubber-stamp their affirmance of administrative decisions that they deem

inconsistent with a statutory mandate or that frustrate the congressional policy

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23

underlying a statute.’” Fed. Mar. Comm’n v. Seatrain Lines, Inc., 411 U.S. 726,

745-46 (1973) (internal citation omitted).

Here, PROMESA includes specific Congressional findings that emphasize

the importance of the PROMESA stay in the context of the dire financial crisis

facing Puerto Rico and its nearly four million citizens. Specifically, Congress

enacted PROMESA in response to “a fiscal emergency in Puerto Rico.”

PROMESA § 405(m)(1). In that legislation, Congress sought to provide

“independent oversight and a Federal statutory authority for the Government of

Puerto Rico to restructure debts in a fair and orderly process.” Id. § 405(m)(4). To

that end, Congress found that “an immediate—but temporary—stay is essential to

stabilize the region for the purposes of resolving this territorial crisis.” Id. §

405(m)(5) (emphasis added). It therefore automatically stayed, “with respect to a

Liability, . . . the commencement . . . of a judicial . . . proceeding against the

Government of Puerto Rico that . . . could have been commenced before the

enactment of this Act.” Id. § 405(b)(1).

As Congress explained, “[t]he stay advances the best interests common to all

stakeholders, including but not limited to a functioning independent Oversight

Board created pursuant to this Act to determine whether to appear or intervene on

behalf of the Government of Puerto Rico in any litigation that may have been

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24

commenced prior to the effectiveness or upon expiration of the stay.” Id. §

405(m)(5)(A).

Furthermore, “[t]he stay is limited in nature and narrowly tailored to achieve

the purposes of this Act, including to ensure all creditors have a fair opportunity to

consensually renegotiate terms of repayment based on accurate financial

information that is reviewed by an independent authority or, at a minimum, receive

a recovery from the Government of Puerto Rico equal to their best possible

outcome absent the provisions of this Act.” Id. § 405(m)(5)(B). The stay provides

the Commonwealth with breathing room to “focus its resources on negotiating a

voluntary resolution with its creditors instead of defending numerous, costly

creditor lawsuits.” Id. § 405(n)(2).

In interpreting PROMESA, therefore, a court must not ignore the purposes

supported by the statute. This is precisely the equitable analysis undertaken by the

District Court. Specifically, the District Court viewed Appellants’ claims within

the Congressional goals sought to be achieved by PROMESA, addressed the

automatic stay, and focused on its limited duration. (Add. 3-4). Next, the District

Court discussed PROMESA’s statutory requirement that the automatic stay may be

lifted “for cause” (id. at 5) and then defined cause through (a) interpretations

provided for under the Bankruptcy Code upon which PROMESA was “patterned”

and, critically, (b) the “specific Congressional findings and the enumerated

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25

purposes of PROMESA’s automatic stay.” (Id. at 6, 11). It was within this

framework that the District Court correctly found that the Appellants had not

demonstrated “cause” to lift the PROMESA stay.

Appellants, however, cast off the equitable analysis that gives weight to the

special circumstances of PROMESA by, first, ignoring entirely that PROMESA

lacks reference to “adequate protection” as a basis for lifting the stay, and then

overlooking the unique context of PROMESA, including the specific

Congressional findings discussed above. Instead, Appellants disingenuously

contend that the result in the District Court is “not what Congress intended,”

conspicuously ignoring the clear and unequivocal intent of Congress. (See Brief

for Movants-Appellants (“App. Br.”) at 3).

II. THE APPELLANTS’ ARGUMENT THAT THEY LACK ADEQUATE

PROTECTION IS ILLUSORY

A. The Appellants Have Adequate Protection

Assuming arguendo that the concept of adequate protection has applicability

to a PROMESA stay analysis, the Appellants’ principal arguments either lack

factual support from the undisputed record or are grounded in pure speculation –

neither of which warrants disturbing the District Court’s ruling. First, as the

Appellants acknowledged before the District Court, the Reserve Accounts, by the

Appellants’ own admission, have more than adequate funds to make payments on

the ERS Bonds until well after the expiration of the two stays that are in place.

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26

(See JA 49 (“Employer contributions from non-Commonwealth entities are

sufficient to cover debt service on ERS Bonds.”)). Second, under the clear terms

of the Bond Resolution, the Appellants have valid and enforceable liens over

hundreds of millions of dollars of ERS revenue, which will continue to grow. (See

JA 92 § 501). Thus, the entire factual underpinning of the Appellants’ claims is

faulty.

1. The Fiscal Agent Has Sufficient Funds For The Duration Of

The PROMESA Stay

On appeal the Appellants concede, as they must (and as they did below), that

there are sufficient funds on reserve with the Fiscal Agent to allow for payment on

the ERS Bonds through the PROMESA stay. (See App. Br. at 10). In other words,

the Appellants are adequately protected by the Reserve Accounts held for their

benefit by the Fiscal Agent during the entirety of the PROMESA stay. Nowhere

do the Appellants claim, nor could they, that there has been a default under the

ERS Bonds or that ERS has failed to fulfill its financial and other obligations to the

ERS Bondholders.

As set forth in the parties’ Stipulated Facts, moreover, the Reserve Accounts

contained more than $99 million when the District Court denied lifting the stay,

and the total monthly debt service payment due to the ERS Bondholders is $13.9

million. (JA 242 ¶ 17). Therefore, there is sufficient cash in the Reserve Accounts

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27

for the Fiscal Agent to cover all debt service payments through and including April

1, 2017 – and Appellants do not contest this fact.

Instead, the Appellants contend that if certain contingencies materialize then

there is a chance that there will not be sufficient funds. (See App. Br. at 41). As a

threshold matter, this Court may only address present injuries and not Appellants’

belief as to future events. See, e.g. Whitmore v. Arkansas, 495 U.S. 149, 158

(1990) (“allegations of possible future injury do not satisfy the requirements of Art.

III. A threatened injury must be ‘certainly impending’ to constitute injury in

fact.”); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-62 (1992) (finding an

indefinite future injury unlikely to constitute an “injury in fact”); Texas v. United

States, 523 U.S. 296, 300 (1998) (“A claim is not ripe for adjudication if it rests

upon contingent future events that may not occur as anticipated, or indeed may not

occur at all” (internal citation omitted)); Adams v. Watson, 10 F.3d 915, 920-21

(1st Cir. 1993) (“although at the pleading stage ‘injury-in-fact’ need not entail

currently realized economic loss, Article III standing in the commercial context

must be premised, at a minimum, on particularized future economic injury which,

though latent, nonetheless qualifies as ‘imminent’” (emphasis in original)); Kerin

v. Titeflex Corp., 770 F.3d 978, 981 (1st Cir. 2014) (Injury in fact requirements are

to “ensure that the alleged injury is not too speculative”).

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28

Nonetheless, Appellants’ contention that if the stay is extended 75 days

(which can only occur through Oversight Board action (App. Br. at 41)), than debt

service will not be available for May 2017. (Id.). To accept this argument one

must assume that (i) the Oversight Board seeks an extension of time; (ii) for the

maximum 75 days available under PROMESA; while (iii) the Oversight Board

fully understands that such an extension may impinge on ERS’s ability to make

debt payments and, therefore, (iv) would create instability in direct contravention

of the expressed purpose of PROMESA. Not one of these contingencies has

arisen.

Moreover, Appellants ignore that the Oversight Board is well aware of

Appellants’ position, has sought to intervene in this litigation, and has found that

Appellants’ contentions are “overstated.” As discussed below, the Oversight

Board has asserted that “the perpetual revenue streams that secure [Appellants’]

claims would still be available for future payments under yet-to-be negotiated

fiscal plans or in future proceedings under PROMESA.” (See JA 36 at ECF No.

56).

Finally, the District Court’s order does not preclude Appellants from

commencing a subsequent action if any of the speculative harm they envision

occurring comes to fruition. The District Court’s order merely concludes that they

failed to show cause at this stage of the proceedings sufficient to flout the intent of

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29

Congress. (See Add. 18). Moreover, the District Court makes it clear that its order

essentially grants only “breathing room” to fulfill PROMESA’s objective of

engaging in “meaningful, voluntary negotiations,” and nothing more. (See Add.

19).

2. The Appellants Maintain A Security Interest In The ERS

Bonds

Equally ignored by the Appellants, is that in addition to there being more

than adequate funding to satisfy payments to ERS Bondholders throughout the

stay, the security interests held by the ERS Bondholders provide them with future

protection more than sufficient to address any concern, real or imagined. The

Commonwealth granted the ERS Bondholders a first lien in and over “Pledged

Property” – consisting of, among other assets, all revenues of the ERS – pending

the discharge and satisfaction of all outstanding principal and interest. (See JA 92

§ 501; JA 120). As noted, the ERS received approximately $418 million in

employer contributions in the year ending June 30, 2015, with these amounts

scheduled to increase by 1.25% per year beginning on July 1, 2016. (JA 244 ¶ 20).

In addition, ERS is currently receiving employer contributions from nonCommonwealth employers of, on average, $18.8 million per month during the

PROMESA stay and the Commonwealth’s moratorium – a fact that Appellants

concede on appeal. (See App. Br. at 14 (“ERS continues to receive employer

contributions from non-Commonwealth Employers.”); see also JA 246 ¶ 20). The

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30

ERS Bondholders have a security interest in those revenues also, subject only to

the satisfaction of the ERS’s outstanding debt obligations.3

The PROMESA stay will expire on February 15, 2017, with the ERS

emergency period under the Moratorium Act expiring at the latest, six weeks after,

on March 31, 2017. At that time, the ERS Bondholders will have access to the full

revenue stream of the ERS.

In other words, given its size and indefinite duration, the security interest

provides Appellants with the adequate protection they purport is required to ensure

payment on their ERS Bonds. See, e.g., In re SW Boston Hotel Venture LLC, 449

B.R. 156, 176 (Bankr. D. Mass. 2011) (“If collateral securing a claim has value

greater than the interest of the secured claim holder, the excess value, referred to as

an equity cushion, constitutes adequate protection for the secured party’s

interest.”); see also In re Jug End in the Berkshires, Inc., 46 B.R. 892, 899 (Bankr.

D. Mass. 1985) (“It has been held that an equity cushion, standing alone, can

3 Appellants contend that ERS’s statements warning of its financial condition

somehow contradicts the Stipulated Facts concerning the financial wherewithal of

ERS and future employer contributions. (App. Br. at 19 (citing JA 232-33)).

Appellants’ argument, however, is based on a 2014 disclosure describing the

financial condition of ERS in light of the overall fiscal conditions in Puerto Rico.

In other words, the conditions described in the 2014 disclosure were some of the

very reasons that led to the PROMESA stay to allow for a reorganization process

in Puerto Rico. It is entirely disingenuous for Appellants to cite this disclosure

about conditions in 2014 as a basis for arguing that obligations will not be met

when Congress has taken steps to address the very problems identified in the 2014

disclosure through PROMESA.

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31

provide adequate protection”). Indeed, courts have made clear that “[a]n

oversecured creditor is not entitled to be compensated for an erosion in an equity

cushion.” In re SW Boston Hotel Venture LLC, 449 B.R. at 176; see also, e.g. In re

Dynaco Corp., 162 B.R. 389, 398 (Bankr. D.N.H. 1993) (“if on an overall basis the

secured creditor is oversecured and protected by a clear equity cushion,” no

additional protection is required); In re Lane, 108 B.R. 6, 8 (Bankr. D. Mass. 1989)

(concluding there is no lack of adequate protection when the equity cushion above

the amount of the secured creditor’s interest “is eroding through either a decline in

collateral value or an increase in the claim due to the accrual of interest or

expenses”).

B. The Appellants’ Contrary Position Is Not Tenable

Appellants argue that their property interests are not adequately protected by

future employer contributions because “those revenues do not provide adequate

protection for the use of property today.” (App. Br. at 37). They then cite to a

myriad of bankruptcy cases to support the proposition that a debtor may not use a

lender’s cash collateral when the proposed adequate protection takes the form of

future, uncertain revenue. ERS takes no issue with these well-established

propositions. They are, however, wholly inapposite with the issues before the

District Court and here on appeal.

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Indeed, Appellants highlight the stark contrast between the cases relied upon

and the present facts at issue. First, Appellants cite In re Putnal, 483 B.R. 799,

801 (Bankr. M.D. Ga. 2012), highlighting that there “[t]he debtor sought to use the

rents from the property to pay expenses.” (App. Br. at 34-35). Next, they cite to

In re Stearns Building, 165 F.3d 28 (6th Cir. 1998), involving “a debtor’s request

to use rents to pay administrative expenses,” noting that the case is “illustrative” of

Appellants’ key arguments. (App. Br. at 35). Further, Appellants rely on In re

Buttermilk Towne Center, LLC, 442 B.R. 558 (B.A.P. 6th Cir. 2010), a case in

which “the debtor sought to use a secured creditor’s cash collateral to pay

professional fees.” (App. Br. at 36). Finally, in a string of citations, Appellants

seek to draw parallels between the present case and cases involving various

debtors’ requests to use lenders’ cash collateral. (Id. at 36-37).

Here, however, Appellees have not sought to use any of Appellants’ cash

collateral, and contrary to Appellants’ repeated assertions, there is simply no

evidence of “dissipation of the employer contributions” or “diverting” employer

contributions from the Appellants. (Id. at 2, 4, 14, 22, 38 and 41).

Unlike the cases relied upon by Appellants, in which debtors sought Court

permission to utilize prepetition lenders’ cash collateral for other purposes, here,

the employer contributions are not being used for the payment of any outstanding

debts. On the contrary, and as acknowledged by Appellants themselves, Appellees

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33

have expressly represented that these funds are being held, not expended, until the

expiration of PROMESA’s automatic stay. (Id. at 20). Because Appellants’

collateral has not diminished and Appellees have never sought relief to use such

collateral, adequate protection is unnecessary under these circumstances, and, if

necessary, sufficiently provided.

What is more, the automatic stay under PROMESA is not comparable to that

imposed under typical Chapter 11 circumstances. A stay under section 362 of the

Bankruptcy Code typically “continues until such property [subject to the stay] is no

longer property of the estate,” or until a case is closed or dismissed. 11 U.S.C. §

362(c). On the other hand, under PROMSESA, the stay imposes a limited,

temporary restraint with a finite deadline, statutorily set to expire on February 15,

2017.

As the District Court noted, Appellants have not sustained and will not

sustain any harm prior to the stay’s expiration, given that certain debt service and

reserve accounts are sufficiently capitalized to service the debt until April 1, 2017.

(Add. 18 n.1). Thus, the facts and circumstances of this case are such that any

parallels to cases involving ordinary cash collateral disputes are improperly drawn;

those cases and this are apples and bananas. This is not a case of a debtor seeking

to use, and thereby diminish, the value of a lender’s collateral during the

potentially lengthy chapter 11 process. Here, Appellants’ allegations

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34

notwithstanding, there is simply no “diversion” of funds, but instead a suspension

of transfers until PROMESA’s automatic stay statutorily expires in less than two

months’ time. Appellants are not entitled to, nor do they require, adequate

protection, as no attack is being made against their collateral. To the extent

adequate protection is required, Appellants are more than protected by Appellees’

holding of employer contributions, coupled with Appellants’ indefinite, enduring

stream of Appellees’ pledged property once the stay is soon lifted.

III. THE DISTRICT COURT PROVIDED ADEQUATE DUE PROCESS

TO BONDHOLDERS

A. PROMESA Requires Timely Due Process

PROMESA Section 405(e)(2) states that “[o]n motion of or action filed by a

party in interest and after notice and a hearing, the United States District Court for

the District of Puerto Rico, for cause shown, shall grant relief from the stay

provided under subsection (b) of this section.” The phrase “after notice and

hearing” is not defined in PROMESA, and there is no binding authority for the

interpretation of this provision under PROMESA owing to the statute’s recent

enactment. Under the Bankruptcy Code, however, after which PROMESA was

“patterned” (Add. 6), the same “after notice and a hearing” language appears and is

defined. Under this definition, an evidentiary hearing is not required at all times.

Specifically, “after notice and a hearing” is defined in section 102(1) of the

Bankruptcy Code as “after such notice as is appropriate in the particular

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35

circumstances, and such opportunity for a hearing as is appropriate in the

particular circumstances.” 11 U.S.C. § 102(1)(a)(A). The definition also

identifies instances where a “hearing” is not appropriate when notice is proper. Id.

at (1)(B).4

Accordingly, courts in the First Circuit and elsewhere recognize that

hearings are not always required in comparable proceedings under the Bankruptcy

Code that call for action “after notice and a hearing.” See In re Sullivan Ford

Sales, 2 B.R. 350, 354 (Bankr. D. Me. 1980) (“There was complete awareness on

the part of the principal congressional architect of the [Bankruptcy] Code that

‘after notice and a hearing’ did not contemplate a hearing in every instance.

Indeed, that result was fully intended.”); In re Hotel Coamo Springs, No. 12 Civ.

01696 (JAF), 2013 WL 2147687, at *4 (D.P.R. May 16, 2013) (“flexible rule of

construction” in 11 U.S.C. § 102 permits decision without hearing in certain

instances); see also In re London, Inc., 70 B.R. 63, 65 (Bankr. E.D. Wis. 1987)

(“Although this section of the Bankruptcy Code recognizes that there are some

instances when it may be necessary to dispense with an evidentiary hearing, the

necessity of doing so is dependent upon the facts and circumstances in a particular

case.”).

4

The Bankruptcy Code provides that a hearing is not necessary where notice is

provided and either “(i) such a hearing is not requested timely by a party in

interest; or (ii) there is insufficient time for a hearing to be commenced before such

act must be done, and the court authorizes such act.” 11 U.S.C. § 102(1)(B).

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36

The inclusion of the “after notice and a hearing” language in section 362(e)

of the Bankruptcy Code, therefore, appears to protect creditors by setting a time

limit “within which the bankruptcy court must rule on the adequacy of protection

provided for the secured creditor’s interest.” In re Looney, 823 F.2d 788, 792 (4th

Cir. 1987). Such protections were put in place because Bankruptcy Code § 102 “is

founded in fundamental notions of procedural due process” and it is essential that

each party be given notice and an opportunity to be heard on the issues. In re

Savage Indus., Inc., 43 F.3d 714, 721 (1st Cir. 1994). In other words, the purpose

of the hearing requirement under the Bankruptcy Code is to “preclude bankruptcy

courts from neglecting or unreasonably delaying review of requests for relief from

the automatic stay to the detriment of the secured creditor.” In re Wedgewood

Realty Grp., Ltd., 878 F.2d 693, 700 (3d Cir. 1989); see also 2 Collier on

Bankruptcy § 362.08 (15th ed. 1989) (the purpose of § 362(e) is to avert delaying

the final ruling on a party’s motion to lift the automatic stay).

Therefore, a court may continue a stay without holding a hearing so long as

the evidence has been reviewed by the court in a timely fashion. See In re

Forseen, Inc., 81 B.R. 903, 905 (N.D. Ill. 1987) (noting “a bankruptcy court should

at least review the evidence (either at a live hearing or by reviewing the documents

on file) before it continues the stay.” (emphasis added)). Needless to say, the

District Court carefully reviewed all of the legal precepts and the well-developed

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37

factual record that had been fully agreed to by the parties before rendering its

decision. The applicable law requires no more.

B. The District Court Provided Appellants Due Process

There can be no question that the Appellants were afforded sufficient due

process and that their motion was timely heard. For one, the District Court agreed

to the Appellants’ demand to consolidate its motion with two other pending

litigations on October 14, 2016, shortly after Appellees were served, and a day

after the Appellants applied to consolidate their action a mere three weeks before

the hearing, which, placed ERS at a significant disadvantage.

Most critically, in issuing its opinion the District Court had before it the

parties’ stipulations as to the facts in the case. (See JA 237). The Stipulated Facts

include agreed-upon facts as to ERS, the ERS bonds, the Moratorium Act,

PROMESA, the manner in which the ERS bonds are paid, and other topics. Given

that the facts were stipulated to it is not clear what purpose the hearing would have

served, as the purpose of the hearing was to ascertain facts. The District Court also

provided the Appellants additional opportunities to present their case in permitting

the Appellants to file an additional reply brief in further support of their argument,

even though that is not required by PROMESA.

Appellants’ suggestion that there was some error because “adequate

protection is a question of fact” is entirely irrelevant. (See App. Br. at 43-44). The

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38

District Court had facts before it when it made its ruling; the very facts that the

Appellants so stipulated. Nowhere in their brief, moreover, do the Appellants

contend that they were precluded from submitting any facts for the District Court’s

consideration, or that the facts they themselves stipulated to were inadequate.

(Id.). Rather, Appellants focus on what arguments they would have and could

have made at the hearing in response to other arguments made in the parties’

submissions. (Id. at 44).

In other words, the Appellants had a full opportunity to be heard, and their

motion was timely adjudicated. Therefore, the purposes of the “after notice and a

hearing” direction that appears in PROMESA were fully realized.

C. The Appellants’ Speculation As To Their Expert Does Not

Suggest That The District Court’s Decision Offends Due Process

Stripped of all bluster, the Appellants’ contention is that they were not

afforded an opportunity to present the testimony of their expert, Dr. Bradford

Cornell. (App. Br. at 21-22, 44). In other words, Appellants argue that had Dr.

Cornell testified the District Court would have ruled in their favor. This wild

speculation is inappropriate in several respects. For one, Dr. Cornell’s testimony

was far from certain. Rule 26 of the Federal Rules of Civil Procedure provides that

the disclosure of an expert witness “must be accompanied by a written report.”

Fed. R. Civ. P. 26(a)(2)(B); see Pena-Crespo v. Puerto Rico, 408 F.3d 10, 13 (1st

Cir. 2005) (“Rule 26 requires the disclosure of a witness ‘who is retained or

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39

specially employed to provide expert testimony in the case . . . be accompanied by

a written report and signed by the witness’” (quoting Fed. R. Civ. P. 26(a)(2)(B)));

Cruz v. Bristol Myers Squibb Co. PR, Inc., 777 F. Supp. 2d 321, 327 (D.P.R. 2011)

(Besosa, J.) Rule 26 disclosures are “consonant with the federal courts’ desire to

‘make a trial less a game of blindman’s buff [sic] and more a fair contest with the

basic issues and facts disclosed to the fullest practical extent.’” Thibeault v.

Square D Co., 960 F.2d 239, 244 (1st Cir. 1992) (quoting United States v. Procter

& Gamble Co., 356 U.S. 677, 682 (1958)).

Here, Appellants did not provide a written report but a one-page list of Dr.

Cornell’s “principal opinions,” which was then copied and pasted into their brief to

this Court without any citation to the record (see App. Br. at 21-22). Appellants

never provided an expert report from Dr. Cornell that might include, for example,

disclosure of the facts that he allegedly relied upon in forming his opinions, the

methodology employed in his analysis (if any), or any of the necessary materials

for a court to determine an expert competent to testify under Rule 702 of the

Federal Rules of Evidence. Nor did Appellants provide a complete set of his

demonstrative exhibits until just hours before the hearing. Appellees also were

never afforded an opportunity to depose Dr. Cornell to challenge his assertions,

learn how he arrived at his “principal opinions,” or whether he would be offering

additional opinions at the hearing. Given the inadequate disclosures made to the

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40

parties in the District Court, it is entirely baseless for the Appellants to now

speculate that Dr. Cornell would have provided testimony that would have turned

the hearing in their favor when it is just as likely, if not more so, that Dr. Cornell’s

testimony would have been excluded entirely.

Furthermore, the preclusion of Dr. Cornell’s testimony at the hearing is a

strawman argument for the additional and straightforward reason that he is not a

fact witness and would, therefore, not provide any additional facts concerning the

dispute. See, e.g., Newell Puerto Rico, Ltd. v. Rubbermaid Inc., 20 F.3d 15, 20-21

(1st Cir. 1994) (citation omitted) (expert witness testimony is an opinion based “on

facts or data perceived or made known to the expert before or at trial” including

facts that are tentative or speculative); Lakeland Enters. of Rhinelander, Inc. v.

Chao, 402 F.3d 739, 746 (7th Cir. 2005) (no error was found when expert

witness’s testimony was excluded because his answers would have been

cumulative to the facts presented by other witnesses); cf. Gomez v. Rivera

Rodriguez, 344 F.3d 103, 113 (1st Cir. 2003) (concluding that a witness was a fact

witness and not an expert witness because, unlike an expert, he had additional

discoverable facts to present based on “personal knowledge acquired before any

litigation had begun”). For these reasons, there was no error in cancelling the

hearing.

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41

CONCLUSION

For the foregoing reasons, this Court should affirm the judgment of the

District Court and grant such further relief as may be just.

Dated: December 23, 2016.

Respectfully Submitted,

/s/ Richard Chesley

Richard Chesley

DLA Piper LLP (US)

203 N. LaSalle St., Suite 1900

Chicago, IL 60601

P: 312.368.4000

F: 312.236.7516

John M. Hillebrecht

Neal F. Kronley, of counsel

DLA Piper LLP (US)

1251 Avenue of the Americas

New York, NY 10020

P: 212.335.4500;

F: 212.335.4501

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Exhibit D Page 51 of 56
42

CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation of Rule 32(a)(7)(B) of

the Federal Rules of Appellate Procedure because it contains 9,369 words,

excluding the parts of the brief exempted by Rule 32(a)(7)(B)(iii).

This brief complies with the typeface requirements of Rule 32(a)(5) and the

type style requirements of Rule 32(a)(6) because it has been prepared in a

proportionally spaced typeface using Microsoft Word in Times Roman 14-point

font.

Dated: December 23, 2016.

/s/ Richard Chesley

Richard Chesley

DLA Piper LLP (US)

203 N. LaSalle St., Suite 1900

Chicago, IL 60601

P: 312.368.4000

F: 312.236.7516

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Exhibit D Page 52 of 56
Attorneys for the Respondents-Appellees (16-2377, 16-2430, 16-2433), 

Defendant-Appellee (16-2431): 

Alejandro J. Garcia-Padilla; 

Commonwealth of Puerto Rico; 

Juan C. Zaragoza-Gomez; 

Luis G. Cruz-Batista 

Peter A. Farrell 

Susan Marie Davies 

Michael Francis Williams 

Kirkland & Ellis LLP 

655 15th Street NW, Suite 1200 

Washington, DC 20005 

Tel: (202) 879-5000 

Salvador Antonetti-Zequeira 

Jose Luis Ramirez-Coll 

Antonetti Montalvo & Ramirez-Coll 

P.O. Box 13128 

San Juan, Puerto Rico 00908 

Tel: (787) 977-0320 

Margarita L. Mercado-Echegaray, Esq. 

Puerto Rico Department of Justice 

Federal Litigation Division 

P.O. Box 9020192 

San Juan, Puerto Rico 00902 

Tel: (787)-724-2165 

Attorneys for Respondents-Appellees (16-2377, 16-2430, 16-2435), 

Defendant-Appellee (16-2431):

Carmen Villar-Prados; 

Puerto Rico Highway and Transportation 

Authority 

Julio Cesar Alejandro-Serrano 

90 Ave. Rio Hondo PMB 130 

Bayamon, Puerto Rico 00961 

Tel: (787) 647-6632 

Yassmin Gonzalez Velez 

PPMB 131, La Cumbre 

273 Sierra Morena 

San Juan, Puerto Rico 00926 

CERTIFICATE OF SERVICE & CM/ECF FILING

16-2433 

I hereby certify that I caused the foregoing Brief for RespondentAppellees The Employees Retirement System of the Commonwealth of Puerto 

Rico via Electronic Mail generated by the Court’s electronic filing system 

(CM/ECF) with a Notice of Docket Activity pursuant to Local Appellate Rule 

25.1. 

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Exhibit D Page 53 of 56
Attorneys for Movant-Appellant (16-2377, 16-2430):

Peaje Investments LLC G. Eric Brunstad, Jr. 

John D. Biancamano 

Allan S. Brillian 

Andrew C. Harmeyer 

Robert J. Jossen 

Dechert LLP 

1095 Avenue of the Americas 

New York, New York 10036 

Tel: (212) 398-3500 

Dora L. Monserrate 

Monserrate Simonet & Gierbolini LLC 

101 San Patricio Avenue, Suite 1120 

Guaynabo, Puerto Rico 00968 

Tel: (787) 764-8960 

Attorneys for Plaintiffs-Appellees (16-2431): 

Assured Guaranty Corporation; 

Assured Guaranty Municipal Corporation 

Ellen M. Halstead 

Mark C. Ellenberg 

Howard Robert Hawkins, Jr. 

Cadwalader Wickersham & Taft LLP 

200 Liberty Street 

New York, New York 10281 

Tel: (212) 504-6000 

Heriberto J. Burgos-Perez 

Ricardo F. Casellas-Sanchez 

Diana Perez-Seda 

Casellas Alcover & Burgos PSC 

PO Box 364924 

San Juan, Puerto Rico 00936 

Tel: (787) 756-1400 

Attorney for Defendant-Appellee (16-2431): 

Government Development Bank of Puerto 

Rico; 

Melba Acosta-Febo

Giselle Lopez Soler 

Law Office of Giselle Lopez Soler 

PMB 257 

Road 19 1353 

Guaynabo, Puerto Rico 00966 

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Exhibit D Page 54 of 56
Puerto Rico Fixed Income Fund V, Inc.; 

Puerto Rico AAA Portfolio Bond Fund, Inc.; 

Puerto Rico AAA Portfolio Target Maturity 

Fund, Inc.; 

Puerto Rico AAA Portfolio Bond Fund II, Inc.; 

Puerto Rico Fixed Income Fund, Inc.; 

Puerto Rico Fixed Income Fund II, Inc.; 

Puerto Rico Fixed Income Fund III, Inc.; 

Puerto Rico Fixed Income Fund IV, Inc.; 

Puerto Rico GNMA and U.S. Government 

Target Maturity Fund, Inc.; 

Puerto Rico Investors Bond Fund I, Inc.; 

Puerto Rico Investors Tax-Free Fund, Inc.; 

Puerto Rico Investors Tax-Free Fund II, Inc.; 

Puerto Rico Investors Tax-Free Fund III, Inc.; 

Puerto Rico Investors Tax-Free Fund IV, Inc.; 

Puerto Rico Investors Tax-Free Fund V, Inc.; 

Puerto Rico Investors Tax-Free Fund VI, Inc.; 

Puerto Rico Mortgage-Backed & U.S. 

Government Securities Fund, Inc.; 

Tax-Free Puerto Rico Fund, Inc.; 

Tax-Free Puerto Rico Fund II, Inc.; 

Tax-Free Puerto Rico Target Maturity Fund, 

Inc.; 

UBS IRA Select Growth & Income Puerto Rico 

Fund 

John K. Cunningham 

Glenn Kurtz 

Jason Zakia 

White & Case LLP 

1155 Avenue of the Americas 

New York, New York 10036 

Tel: (212) 819-8200 

Arturo Diaz-Angueira 

Jose Carlos Sanchez-Castro 

Alicia Irene Lavergne-Ramirez 

Maraliz Vazquez-Marrero 

Lopez Sanchez & Pirillo LLP 

270 Munoz Rivera Avenue, Suite 504 

San Juan, Puerto Rico 00918 

Tel: (787) 522-6776 

Attorneys for Movants-Appellants (16-2433), Movants-Appellees (16-3435):

MICHAEL LUSKIN

STEPHAN E. HORNUNG

LUSKIN, STERN & EISLER LLP 

11 Times Square 

New York, New York 10036 

(212) 597-8200 

Attorneys for Movant-Appellant 

Financial Oversight and 

Management Board 

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Exhibit D Page 55 of 56
Attorneys for Movants-Appellants (16-2433), Movants-Appellees (16-3435): 

Altair Global Credit Opportunities Fund (A), 

LLC; 

Claren Road Credit Master Fund, Ltd.; 

Claren Road Credit Opportunities Master Fund, 

Ltd.; 

Glendon Opportunities Fund, LP; 

Nokota Capital Master Fund, L.P.; 

Oaktree-Forrest Multi-Strategy, L.L.C. (Series 

B); 

Oaktree Opportunities Fund IX, L.P.; 

Oaktree Opportunities Fund IX (Parallel 2), 

L.P.; 

Oaktree Value Opportunities Fund, L.P.; 

Ocher Rose, L.L.C.; SV Credit, L.P. 

Bruce Bennett 

Benjamin Rosenblum 

Beth Heifetz 

Geoffrey S. Stewart 

Sparkle Sooknanan 

Jones Day 

555 S. Flower Street, 50th Floor 

Los Angeles, California 90071 

Tel: (213) 243-2382 

Alfredo Fernandez-Martinez 

Delgado & Fernandez LLP 

Fernandez Juncos Station 

PO Box 11750 

San Juan, Puerto Rico 00910 

Tel: (787) 274-1414 

I certify that an electronic copy was uploaded to the Court’s electronic 

filing system. Upon court approval, nine copies of the foregoing Brief for 

Respondent-Appellees The Employees Retirement System of the Commonwealth 

of Puerto Rico were sent to the Clerk’s Office by Federal Express Next Business 

Day Delivery to: 

Clerk of Court 

United States Court of Appeals, First Circuit 

1 Courthouse Way, Suite 2500 

Boston, Massachusetts 02210 

(617) 748-9057 

on this 23rd day of December 2016. 

 /s/ Richard Chesley 

 Richard Chesley 

 DLA Piper LLP (US) 

 203 N. LaSalle St., Suite 1900 

 Chicago, IL 60601 

 P: 312.368.4000 

Case: 16-2433 Document: 55 Page: 55 Date Filed: 12/23/2016 Entry ID: 6057624 Case:17-03283-LTS Doc#:3734-4 Filed:08/03/18 Entered:08/03/18 13:49:22 Desc:

Exhibit D Page 56 of 56