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UNITED STATES DISTRICT COURT 

DISTRICT OF PUERTO RICO 

------------------------------x 

IN RE: THE FINANCIAL OVERSIGHT 

AND MANAGEMENT BOARD FOR 

PUERTO RICO, 

 as representative of 

 No. 17 BK 3283-LTS 

No. 17 BK 3284-LTS 

THE COMMONWEALTH OF PUERTO RICO, No. 17 BK 3567-LTS

et al.,

 Debtors. (Jointly Administered) 

------------------------------x 

THE BANK OF NEW YORK MELLON, 

 Plaintiff, 

 v. Adv. Proc. No. 17 AP 133-LTS 

in Case No. 17 BK 3284-LTS 

PUERTO RICO SALES TAX FINANCING 

CORPORATION (COFINA), et al., 

 Defendants. 

------------------------------x 

ASOCIACIÓN DE SALUD PRIMARIA DE 

PUERTO RICO, INC., et al. 

 Plaintiffs, 

 v. Adv. Proc. No. 17 AP 227-LTS 

 in Case No. 17 BK 3283 

COMMONWEALTH OF PUERTO RICO, 

et al., 

 Defendants. 

------------------------------x 

 Motion Hearing 

 November 15, 2017 

 8:48 a.m. 

Before: 

HON. LAURA TAYLOR SWAIN, 

 District Judge 

 HON. JUDITH G. DEIN 

 Magistrate Judge 

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APPEARANCES 

PROSKAUER ROSE LLP 

 Attorneys for FOMB Oversight Board 

BY: MARTIN J. BIENENSTOCK 

 BRIAN ROSEN 

 PAUL V. POSSINGER 

 TIMOTHY W. MUNGOVAN 

O'NEILL & BORGES LLC 

 Attorneys for FOMB Oversight Board 

BY: HERMANN D. BAUER-ALVAREZ 

PAUL HASTINGS LLP 

 Attorneys for Official Committee of Unsecured Creditors 

BY: LUC A. DESPINS 

O'MELVENY & MYERS LLP 

 Attorneys for AAFAF 

BY: WILLIAM SUSHON 

 SUZZANNE UHLAND 

 DIANA PEREZ 

QUINN EMANUEL URQUHART & SULLIVAN LLP 

 Attorneys for COFINA Senior Bondholders 

BY: SUSHEEL KIRPALANI 

KRAMER LEVIN NAFTALIS & FRANKEL LLP 

 Attorneys for Mutual Fund Group 

BY: GREGORY A. HOROWITZ 

CADWALADER WICKERSHAM & TAFT LLP 

 Attorneys for Assured Guaranty 

BY: ELLEN M. HALSTEAD 

 THOMAS J. CURTIN 

 HOWARD R. HAWKINS JR. 

FELDESMAN TUCKER LEIFER FIDELL 

 Attorneys for Plaintiff Centro de Medicina Familiar Julio 

Palmieri Ferri, Inc. 

BY: JAMES L. FELDESMAN 

LAW OFFICES OF JOHN E. MUDD 

 Attorney for Plaintiff Corporación de Servicios Integrales 

de Salud del Area de Barranquitas 

BY: JOHN E. MUDD

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APPEARANCES (Cont'd) 

REXACH & PICO, CSP

 Attorney for Plaintiff Financial Guaranty Insurance Co.

BY: MARIA E. PICO

YOUNG CONAWAY STARGATT & TAYLOR, LLP 

 Attorneys for Banco Popular 

BY: JOHN T. DORSEY 

WEIL GOTSHAL & MANGES LLP 

 Attorneys for National Public Finance Guarantee Corp. 

BY: KELLY DIBLASI 

 SALVATORE ROMANELLO 

 GABRIEL MORGAN 

ROBBINS RUSSELL ENGLERT ORSECK UNTEREINER & SAUBER LLP

 Attorneys for Ad Hoc Group of General Obligation 

Bondholders 

BY: GARY A. ORSECK 

 MARK T. STANCIL 

REED SMITH LLP 

 Attorneys for Siemens Transportation 

BY: CLAUDIA Z. SPRINGER 

MILBANK, TWEED, HADLEY & McCLOY LLP 

 Attorneys for Ambac Assurance Corp. 

BY: ATARA MILLER 

 - and - 

CURTIS MALLET-PREVOST COLT & MOSLE LLP

BY: THERESA FOUDY 

JENNER & BLOCK LLP 

 Attorneys for Official Committee of Retired Employees 

BY: CATHERINE STEEGE 

 MELISSA ROOT 

KASOWITZ BENSON TORRES LLP 

 Attorneys for Whitebox Funds 

BY: KENNETH R. DAVID 

 DANIEL A. FLIMAN

MORRISON & FOERSTER LLP

 Attorneys for PBA Funds 

BY: JAMES M. PECK 

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APPEARANCES (Cont'd) 

GREENBERG TRAURIG, LLP

 Attorneys for AAFAF PREPA Matters

BY: NATHAN A. HAYNES

 DAVID CLEARY 

 JOSEPH P. DAVIS III 

JONES DAY 

 Attorneys for ERS Secured Creditors 

BY: BENJAMIN ROSENBLUM 

 BRUCE BENNETT 

 

PIETRANTONI MENDEZ & ALVAREZ LLC 

 Attorneys for GDB 

BY: ORESTE R. RAMOS 

 MARIA D. TRELLES HERNANDEZ

SIDLEY AUSTIN LLP

 Attorneys for Santander 

BY: NICHOLAS P. CROMWELL 

ALSO PRESENT: Chief Judge Barbara J. Houser, Mediation Team 

 United States Bankruptcy Court 

 Northern District of Texas 

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(Case called)

THE DEPUTY CLERK: This case is In Re the Financial

Oversight Management Board for Puerto Rico as representatives

of the Commonwealth of Puerto Rico, et al. PROMESA Title III,

case No. 17BK3283 LTS.

JUDGE SWAIN: Again, welcome to counsel, parties in

interest, members of the public, the press here in New York,

and to all of the participants in San Juan and the observers by

telephone.

We extend a special welcome today to those in

attendance here who have traveled from Puerto Rico to be here.

Our thoughts continue to be with those on the island as they

continue to face challenges in the aftermath of Hurricane

Maria. Our colleagues at the federal court in San Juan are

again represented here today by Gretchen Rodriguez, the

assistant operations manager for the District Court.

As I mentioned at Monday's hearing, I have received

and authorized many requests to bring many electronic devices

into the courtroom today. I want to remind you again that our

court and judicial conference policies impose tight limitations

on the use of such devices in the courtroom and in connection

with court proceedings in general. Thus, there is to be no use

of any electronic devices in the courtroom to communicate with

any person, source, or outside repository of information, nor

to record any part of the proceedings. All electronic devices

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must be turned off unless you are using a particular device to

take notes or to refer to notes or documents that are already

loaded on the device. All audible signals, including vibration

features, must be turned off. As provided in this Court's

standing order, no recording or retransmission of the hearing

is permitted by any person, including but not limited to the

parties or the press. Failing to adhere to these policies will

result in sanctions as outlined in the Court's orders.

Our first order of business is the report of the

mediation team which Judge Houser will be delivering through

the Court Solutions phone line as she is out of town today.

So, Ms. Ng, would you please make Judge Houser's line

live.

Good morning, Judge Houser.

JUDGE HOUSER: Good morning, Judge Swain, and good

morning to all parties who are both in the courtroom and --

JUDGE SWAIN: Judge Houser, it's very staticky. So if

you could, we're trying to do something about it, but try to

speak even louder and directly into whatever you're speaking

into.

JUDGE HOUSER: All right. I do have the phone in my

hand not on the -- so I will attempt to speak louder. Is that

better?

JUDGE SWAIN: Ever so slightly. Just do your best,

and we will all listen really hard.

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JUDGE HOUSER: OK. I'll speak up even louder.

JUDGE SWAIN: That's better.

JUDGE HOUSER: Very well. Good morning again, Judge

Swain, and to all parties who are both present in the courtroom

in Puerto Rico and New York and to the parties who are

listening via the Court Solutions procedures. I would be

remiss if I didn't start this morning by recognizing the

difficult circumstances that the people of Puerto Rico face

daily as a result of the devastating effects of Hurricane

Maria. We know that lives on the island have changed

dramatically in the aftermath of the hurricane, and we admire

the courage shown by the people of Puerto Rico in addressing

the challenges of everyday life.

While the members of the mediation team were committed

to helping the parties resolve the issues in dispute among them

in these cases before the hurricane, we believe even more

strongly in the importance of the mediation process to a fair

and just resolution of these cases as expeditiously as possible

following the devastation inflicted on the island by Hurricane

Maria.

As I explained when I last addressed you, a key

component of our mediation process is that the process is

confidential, which will allow parties to have open and frank

conversations with the mediators and each other. By having

these open and frank conversations, I believe we can find

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common ground that will facilitate a consensual, or

substantially consensual, resolution of these cases. Because

our process is confidential, I will exercise care in what I say

to you today.

Since I last addressed you, the mediation team

identified the issues in dispute among the parties that we

believe we should attempt to resolve through mediation, and

importantly, we began formal mediation sessions with the

parties involved in those disputes. While I cannot point to

any major breakthrough that we have made through the mediation

process at the time Hurricane Maria made landfall on the

island, the mediators each believes that incremental process

was being made in these cases. Unfortunately, like many other

things, Hurricane Maria has caused some disruption to our

mediation process, but after some relatively short delays, we

have renewed formal mediation sessions with the parties who

have chosen to participate in our mediation process.

On October 31 the Oversight Board formally approved a

timeline for the development of new fiscal plans for the

Commonwealth and certain other instrumentalities. The board's

approved timeline is fairly aggressive. Because the

development of new fiscal plans is important to all

stakeholders in these cases, we are working with the parties to

facilitate the development of these new fiscal plans in as

collaborative a fashion as possible prior to their anticipated

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certification by the Oversight Board in early 2018. Moreover,

we expect to resume formal mediation sessions on critical

disputed legal issues in early 2018. To the extent necessary,

parties will be asked to submit confidential merits mediation

statements to the mediators. These confidential merit

mediation statements will allow the members of the mediation

team to better understand the parties' positions on the legal

and factual issues in dispute among them so that we may assist

them in attempting to negotiate a consensual resolution of

those issues. I will assign various members of the mediation

team to be responsible for particular issues based upon various

factors, including availability and expertise of a member or

members of the mediation team, and I will push the mediation

process as expeditiously as I feel appropriate in order to

facilitate a consensual or substantially consensual resolution

of these cases.

In summary, I believe adequate progress has been made

today. While much work remains to be done, I am satisfied

where we are and how we will tackle the issues that must be

addressed going forward. To be sure, pre-hurricane these cases

presented enormously challenging debt restructures that I

believe would require the cooperation, ingenuity, and diligence

of all involved to accomplish. Hurricane Maria has added new

layers of complexity to the development of confirmable plans of

adjustment in these cases. However, I remain highly confident

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that if the parties and mediators work together, we will be

able to restructure the debt on a consensual or substantially

consensual basis. The mediators remain committed to this goal.

Judge Swain, thank you for the opportunity to give

this brief update to the parties in interest in these cases.

JUDGE SWAIN: Thank you, Judge Houser, for that update

and for your continuing dedicated work in facilitating the

mediation process.

JUDGE HOUSER: My pleasure, Judge Swain. And might I

be excused?

JUDGE SWAIN: Yes. Thank you.

JUDGE HOUSER: Thank you.

JUDGE SWAIN: We will now turn to Item 2 on the

agenda, the contested matters. And as you can hear, there are

some audio problems. I understand that that static problem is

one that affects people listening on the Puerto Rico end as

well, and so let's each of us speak into the microphones a bit

slowly and as clearly as we can so that everyone can hear us as

well as possible. All remarks of counsel should be made from

the podium in a strong, slow voice.

The first item on the agenda is the resolution of the

debtors' Section 365(D)(4) motion. I understand that

Mr. Possinger is going to present.

MR. POSSINGER: Good morning, your Honor. Paul

Possinger, Proskauer Rose, on behalf of the Oversight Board.

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the first item on the agenda is the debtors' motion to for an

extension of time to assume or reject leases. We do have a

resolution of this motion -- of the objections to the motion.

Briefly, as I think your Honor understands --

JUDGE SWAIN: A little slower, just in case of the

static. Thank you.

MR. POSSINGER: Got it. As I think your Honor

understands, the Bankruptcy Code provides for an initial

120-day period for a debtor to decide whether to assume or

reject nonresidential leases subject to nonconsensual

extensions of up to an additional 90 days. We've obtained

those nonconsensual extensions regardless of landlords' consent

from your Honor with respect to all five debtors, and we're now

up against a deadline for the Commonwealth of November 29.

At the time we filed the motion seeking further

extensions with landlord consent, which is now required for

further extensions beyond that initial 210 days, we had one

consent in hand, and that was from the Puerto Rico Public

Building Authority, which is a governmental instrumentality.

It is not a Title III debtor. The PBA had consented to an

extension of the deadline to decide to assume or reject its

leases with the debtors until the confirmation of a plan of

adjustment for each of the debtors. That drew objections from

creditors, certain creditors of the PBA, that indicated that --

or that argued that consent was open-ended. They didn't object

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to an extension in concept. They just didn't want an

open-ended extension. In conversations with AAFAF, PBA has

agreed that its consent for now would be limited to 120 days

beyond each of the deadlines with respect to each of the

debtors. So that resolves the objections of the PBA creditors.

With respect to other landlords -- and I'm told by

AAFAF that there are hundreds of them -- AAFAF has commenced a

process of reaching out to all other landlords other than the

PBA. Given the state of the records with respect to some of

these leases, it's difficult to identify both the landlord and

contact information, and also the state of communications on

the island has made it difficult to communicate with the

landlords. To date we've received an additional 20 consents to

extensions from landlords, and the process that we envision is

that as we obtain additional consents, we will submit

additional proposed orders under notice of presentment pursuant

to case management procedures that will indicate by exhibit

which landlords have provided their consent and for how long.

It's the best we can do at this point in time.

JUDGE SWAIN: I saw that you filed a revised proposed

order that incorporates the 120-day limitation, gives the

specific extended deadlines for each debtor, and does make that

provision for additional proposed orders on presentment for

additional landlords, and that ability to get further

extensions by orders on presentment goes up to seven days

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before the expiry of the relevant deadline. And I'm assuming

that's because the presentment process needs a few days to take

place; is that correct?

MR. POSSINGER: That's correct. There's a seven-day

notice period on presentment of orders. We expect the first of

these additional orders will be submitted by November 22 with

respect to the Commonwealth because of the looming deadline of

November 29 for the Commonwealth. As consents come in with

respect to Commonwealth leases after that, we're just going to

have to work out by agreement with the landlords because the

deadline, the date by which leases are deemed rejectible, have

come and gone, and so we're just going to have to work through

the process.

I will also note, though, that based on communications

with AAFAF, the letters that have gone out to the landlords

have suggested that they are seeking consent on negative notice

in the event that landlords don't receive the communication or

are unable to respond. Again, that's the best that we can do.

So we're sort of firing on all cylinders, trying to get as many

consents as we can.

JUDGE SWAIN: Do you have a position now as to whether

you would deem that negative notice actual consent and propose

an order on presentment extending based on that absence of

objection to consent, or are you going to see how things go and

make that decision later?

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MR. POSSINGER: We are going to see how things go, but

when we submit the orders, we will indicate which landlords are

subject to the negative notice. And we understand that that's

got to remain subject to whatever arguments they have,

including that they didn't get the communication, that we

identified the wrong landlord, that they no longer have a

lease, whatever the facts may be.

JUDGE SWAIN: All right. It is certainly appropriate

to make that clear in the documentation for the Court and for

the record, and then we will see what, if any, issues are

raised later.

MR. POSSINGER: With respect to the order that I

emailed -- we emailed the chambers last night, we copied all

the objecting parties, and I believe we have an agreed order at

least with respect to the objecting parties.

JUDGE SWAIN: I see no indication that there's no

objection to that form of agreed order which I have reviewed,

and so the request to enter the agreed order is granted, and I

will enter that later today.

MR. POSSINGER: Thank you, your Honor.

JUDGE SWAIN: Thank you.

MR. POSSINGER: One other housekeeping item with

respect to No. 3 on the agenda. That motion has been

withdrawn. So in the event that your Honor was not aware of

that, we don't need to take up No. 3 today.

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JUDGE SWAIN: That's the Rexach motion to lift the

automatic stay?

MR. POSSINGER: That's correct.

JUDGE SWAIN: Thank you. I was aware of the

withdrawal of that motion.

MR. POSSINGER: Thank you, your Honor.

JUDGE SWAIN: Thank you.

The next agenda item is the motion of FGIC to stay all

litigation for 90 days, and I understand that Ms. Pico will be

speaking first for the movant for seven minutes.

MS. PICO: Good morning, your Honor.

JUDGE SWAIN: Good morning.

MS. PICO: And good morning to all members of the

court. I first want to -- as you mentioned, I do represent

FGIC, Financial Guarantee Insurance Company, which I will refer

to as FGIC. I have been asked by FGIC to argue this motion, to

come from Puerto Rico to argue before this Court.

First thing I want to do is thank your Honor for all

its expressed sympathies at the beginning of each hearing. It

makes us feel good. It makes us feel very good that you are

aware of the challenges that all Puerto Ricans are facing. We

faced them after the hurricane, and we are still facing them.

As I mentioned in our initial motion, which was filed some time

ago, at that time it was 40-some days without electricity.

Today it's 70 days without electricity. For myself and for

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many, many others, there's statistics out there. I will leave

them at that, statistics. I don't live out in the boondocks.

I do live one mile away from the Condado Vanderbilt, which

everybody here knows.

So that is the state of the affairs in San Juan. For

those of us that are more fortunate, and as I say more

fortunate because we do have power generators, both in our home

and in our offices, when they work, they're great. When they

break down, as they do because they're emergency generators,

they break down, and we don't have any power whatsoever. So

these are, in fact, big challenges.

As I sat here and heard Judge Houser express how she

has a new schedule of mediation, a new schedule that takes into

account the challenges that are faced by Puerto Rico, and it

takes her, I believe -- I couldn't hear the right date, exact

date, but apparently to the end of January when actual formal

mediation will start again.

I'm here after the board on October 31, after we filed

our motion, finally recognized that new fiscal plans need to be

put in place. And for those fiscal plans to be put in place,

they have expressed that optimistically they may be certified

or put in place by the end of February, maybe March, and I do

have to say optimistically because I don't know how they're

going to get the information that they need. Honestly, we hear

that they need to know how many Puerto Ricans that are leaving

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the island. There were many Puerto Ricans leaving the island.

I was at the airport two days ago, and there are many Puerto

Ricans leaving the island, and there are many more going out.

So the demographics of Puerto Rico will not be known. That is

something that the board will have to take into account and

probably have to guess. 

There are many other factors that need to be guessed.

What is the collection of sales and use taxes? Well, you know,

now the governor has issued an executive order, and now they're

called payments. Small, medium size merchants are not paying

sales taxes. So where is the board going to get information

about revenues that may come in from sales taxes? And those

are just two examples. It's going to be very difficult. Until

we have power, until we have electricity, until people can sit

at their desk, not only lawyers but government employees,

people that need to give the data, to provide the data to make

a fiscal plan, it's going to be very hard to go forward.

I'm here to argue on why a stay to litigation, and

it's a short stay. And it's for no reason different than what

the board has done with the fiscal plan, what the mediators are

doing with the mediation, and I think we need it for -- excuse

me, what the mediators have done with mediation, and I think we

need it for litigation. It's -- go ahead.

JUDGE SWAIN: There are certain litigations that have

voluntarily been discontinued. I have not received from

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parties to the other cases, including cases in which FGIC

itself is a party, requests to stay those particular

litigations. So on what basis do you believe that FGIC has

standing to ask me to stay other cases that have not requested

to be stayed?

MS. PICO: FGIC has one -- is involved in one

adversary proceeding. FGIC is involved in the Commonwealth

bankruptcy. And FGIC, while it may not be involved in parallel

litigation, has to be aware of what's going on in parallel

litigation, has to be in that sense involved in that litigation

because it will affect the ultimate result of all the cases.

And I truly believe that it's in your Honor's discretion just

to direct its docket and to do so in a way that counsel from

Puerto Rico can participate.

This case, your Honor, was filed in the U.S. District

Court of Puerto Rico. That is the venue of that case. The

local rules of the court, the local rules of the District Court

of Puerto Rico, require all counsel in Puerto Rico to sign all

motions, and under penalty, as you know, of sanctions if what

they sign results to be false or to have any misrepresentation.

And we're also required by our local rules to be present in all

proceedings. That is what our local rules say.

Now, since Maria, which bears my same name, San Maria

buena, since Maria, you don't -- while I know you sympathize,

I'm not sure you understand what we have to go through to read

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all the motions that are being filed, because it's part of our

duty, it's part of our duty to our client, and it's our duty to

the Court, and it's our duty under the local rules. And

counsel in Puerto Rico, nobody else is here, but I can attest

to that, the tribulations we go through to see if we got, we

received, the motions that are being filed. Sometimes we

don't. Sometimes we don't have Internet. Some days we don't;

some days we do. Some days we have communications, you know,

telephone. Some days we do; some days we don't. And that

still remains the same way. I still have to go out on the

beach to speak on the phone and to get Internet. The Internet

in my office, while it's much better than in my home, stops at

4:00 o'clock because the generator stops at 4:00 and all

communications stop at 4:00. I understand there are other

offices in the banking area who are in better position. Still,

the blackouts, as your Honor must have heard, last week alone

there was some places 36 hours without any power, without any

Internet. 

And here we are, when you turn on your phone again,

you find out that 25 motions were filed, and you've got to read

them because it is your duty. And you wonder, where are these

headed? I mean, if the foundation, if the factual foundation

for all this litigation has gone upside down, what is the sense

of going into abstract litigation -- and I say -- I may go even

further, I think --

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JUDGE SWAIN: I'm going to ask you to wrap up your

remarks now.

MS. PICO: I'm sorry. I wasn't taking a look at the

time. I'll come back, and I guess I'll save three more

minutes.

JUDGE SWAIN: Yes.

MS. PICO: I'll come back to give you the rest.

JUDGE SWAIN: Thank you, Ms. Pico.

MS. PICO: Thank you.

JUDGE SWAIN: I'm very glad that you're able to be

here today and to help to bring home even more the reality of

this situation in Puerto Rico.

Next, Mr. Bienenstock for five minutes.

MR. BIENENSTOCK: Thank you, Judge Swain. Martin

Bienenstock of Proskauer Rose for the Oversight Board, both for

itself and as representative of the Title III debtors.

We immediately engaged in a practice where anyone's

request for adjournments or stays or whatever due to hardship

on the island is absolutely granted unless there's some

countervailing prejudice that we need to work out. And I

believe that the Oversight Board is not unique in doing that.

I believe AAFAF has done that and creditors have done that as

well, and we all plan to continue to do that.

The motion, though, is striking in that it's an

attempted silver bullet to create a solution, and I think we

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all have inside ourselves a desire at most times to come up

with that type of silver bullet. So we appreciate the -- where

it's coming from, but silver bullets with such broad reach

don't always work, and we don't believe it works here. So I'd

like to address the specific reasons why we think the broad

suspension of everything for 90 days except certain stay

motions that they've carved out is both outside the Court's

power and not in anyone's interest, including people in

Puerto Rico.

This has to be done on a case-by-case basis. There

are creditors who have raised pivotal issues, as your Honor

knows: Is there a cause of action under Sections 922 and 928

of the Bankruptcy Code as made applicable to PROMESA? Do

certain creditors have rights to turnover automatically of

certain revenues? Do certain creditors have priorities

recognized under PROMESA to certain revenues before they can

even be used for police and firemen, the GO bondholders have

said they do come first. These are pivotal issues. Without

the answers to those issues, it's hard to go forward, and it's

not going to help by delaying the answers. Everyone needs to

know those answers so that, ultimately, the plans of adjustment

put on the table will be confirmable. If we go forward without

knowing the answers, there's a higher risk that all the effort

that the mediators and the attorneys and creditors are putting

into the resolutions won't work.

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Now, we're sympathetic to the abstract concept of FGIC

that why should people litigate when they can't settle? So

they're asking for more facts. And, your Honor, the answer to

that is their premise is wrong. While it is true that we don't

have new fiscal plans and won't have them till January or

February, that doesn't mean people don't know the facts.

People do know the hard facts. The government said at public

meetings that its income for this fiscal year will be down

approximately 15 percent. People do know the facts that

Puerto Rico, for the foreseeable future, cannot pay for its own

government without federal funding. Bottom line, we know now

that the money available for debt service for the next five

years is almost nonexistent. And the resolutions that we all

have to discuss and are discussing are contingent-type

resolutions where, based on the actual availability of income,

people will be paid. So it's not that people can't settle now.

People are working on settlements.

In recognition of that fact, the fiscal plans are only

going to be five-year plans. So they're not going to show

availability for debt service in the near term. We're still,

even after the fiscal plans, going to have to do resolutions

based on people's best guesses and methods of dealing with the

20, 30, 40 years after the five-year fiscal plans.

Now, specifically, FGIC raised abstention. Your

Honor, abstention, which they say is your power to do and

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they're right, of course, but abstention is in favor of another

court. So that really doesn't support their argument because

if your Honor abstains, that would only be for another Court to

pick up. And as we said, and they haven't answered, Congress

did not put Section 305 of the Bankruptcy Code into PROMESA.

That's the power of the Court to suspend everything for a

while. So we submit there's a reason for that. In this

emergency, we should do what the government says and the board

agrees with. We should get these key issues resolved. Thank

you.

JUDGE SWAIN: Thank you, Mr. Bienenstock.

Now, Ms. Steege, for the retirees committee. We've

allocated one minute.

MS. STEEGE: Good morning, your Honor. Catherine

Steege on behalf of the retirement committee. The committee

that we represent represents 160,000 retirees that live on the

island. Most of my clients do live on the island, throughout

the island, and they're suffering on a daily basis the same

hardships that counsel for FGIC are suffering. But the

committee met, and we believe, notwithstanding what's happening

with regard to Hurricane Maria, that it's very important to the

retirees who depend on the fiscal soundness of the island that

the case proceed and make progress where it can make progress

over the next several months. And so they voted unanimously to

oppose this stay because we do not believe it is in the best

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interests of folks on the island. The board and AAFAF have

been generous with extensions when that's required because of

circumstances on the island, and we think that that's

sufficient and the Court should continue to make what progress

it can on the issues that can be resolved over the next several

months. So we do oppose the stay.

JUDGE SWAIN: Thank you, Ms. Steege.

Ms. McKeen for AAFAF for two minutes.

MS. McKEEN: Morning, your Honor. Elizabeth McKeen

with O'Melveny & Myers on behalf of AAFAF. And I want to note

that I'm joined here in the courtroom by Oreste Ramos from PMA

who's our local counsel who traveled here from San Juan.

JUDGE SWAIN: Good morning, Mr. Ramos.

MS. McKEEN: The government and the Oversight Board

have worked very closely together in the aftermath of the

hurricane to continue to prosecute these Title III cases and

related litigation because, as your Honor noted, moving forward

is an essential component of Puerto Rico's recovery. There are

certain key legal issues like the one that was decided on

Monday that are too important to delay. As Mr. Bienenstock

referenced, there are a variety of issues that can and should

move forward, and the parties have also worked together to

grant the adjournments and extensions on a case-by-case basis

where they're appropriate. But the idea of a blanket extension

is something that both the government and the board have

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concluded would actually be contrary to the interests of

Puerto Rico and its people in terms of doing whatever we can to

resolve matters as expeditiously as possible.

As your Honor noted, there are also some standing

issues with FGIC's request. We respectfully believe that they

have no standing to seek a stay of cases which they aren't a

party, including COFINA, ERS, PREPA. And so we respectfully

request that the best course of action here is to deny the

motion for a stay and to continue to allow the parties to

negotiate adjournments and extensions on a case-by-case basis

so that other key aspects of this can move forward.

In particular, I just want to note for the record that

AAFAF is fully committed to meeting the December 22 deadline

set by the board for the fiscal plans and that we continue to

work with the board every day to push these matters towards a

resolution. Thank you.

JUDGE SWAIN: Thank you, Ms. McKeen.

Mr. Despins for the Unsecured Creditors Committee for

two minutes.

MR. DESPINS: Good morning, your Honor. For the

record, Luc Despins from Paul Hastings on behalf of the

committee.

I'll be very brief on this. The committee, to be

candid, initially had the exact same reaction as FGIC even

before they filed their motion, which was that it was really

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troubling to proceed with these cases given that people in

Puerto Rico were looking for basic things like water, etc.

However, after that initial reaction, we heard from the board,

and in this case I would say, more importantly -- I measure my

words here only on this issue -- more importantly from AAFAF,

AAFAF represents the government. If the government of

Puerto Rico is saying that it is more important to its

residents, to the people of Puerto Rico, to proceed with these

cases, we believe that the committee is not in a position to

second-guess their judgment on that issue. And, therefore, the

committee opposes the broad objection -- sorry, extension or

stay and, rather, would support the type of piecemeal

extension.

I'll give you an example. The motion to approve a bar

date, which the Oversight Board withdrew at our request and the

request of the parties, we feel -- and we're very happy that

they did that because practically we just don't know how people

would have received notices of the bar date given that some of

them have lost their homes. Going to the post office is maybe

not feasible, etc., etc. So piecemeal is the way to go, but we

do share the feelings expressed by counsel for FGIC. But,

unfortunately, we take our lead on this issue -- when I say "on

this issue" only from AAFAF which represents the residents of

Puerto Rico. Thank you, your Honor. (Continued on next page)

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JUDGE SWAIN: Ms. Pico, before you get up, we are

continuing to have these sound difficulties, and apparently

there is a big difficulty on the court solutions line, which is

crackly. 

I am going to take a brief few minutes so that we can 

terminate that line and let people call back in, in the hope 

that they will be able to hear better. 

We'll just all sit while Ms. Ng organizes that. 

(Pause) 

We have reestablished the court solutions line. It

doesn't seem to be materially better, but we'll have to work 

with it as it is. Once again, everyone, please speak slowly, 

clearly, and into the microphone. I apologize to the people 

who are having difficulty hearing us. 

We will now continue with Ms. Pico's rebuttal argument 

on the FGIC motion to stay the litigation.

MS. PICO: Good morning, again.

Your Honor, I heard the debtor saying that we're 

asking for an abstention. That is a word and a term of art 

that we are not using and that I would not characterize our 

request for a stay for a limited time as an abstention. I also 

don't know if I heard correctly or I understood correctly that 

the five-year plan that is being contemplated does not 

encompass any debt service during that five-year term. 

Did I hear that correctly? 

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JUDGE SWAIN: Mr. Bienenstock, did you say that you

don't anticipate that the five-year plan will provide for any

debt service?

MR. BIENENSTOCK: Yes. Of course, that is subject to

your Honor's rulings as to whether any creditors are entitled

to the money before payment of essential services.

JUDGE SWAIN: Yes.

MS. PICO: So if that is correct, if they are not

contemplating any debt service for the next five years, that

means we have five years to litigate all these issues about

priorities or who comes first or who comes next or whether

PROMESA has a right to the sales taxes, if the sales taxes

remain because, as you also know, not only has it been ordered

not to -- there is an order for no taxes to be paid for the

next couple months, there has also been a discussion that there

may be no sales tax, that we're going to go back to the tax

program that we have before the COFINA, which is raising taxes

at the border.

What is the rush or what is the hurry, if there is

no money to be distributed in the next five years, to be

litigating who is going to go where first? I mean, it doesn't

make any sense to us. I believe of that if you litigate in the

abstract, when the facts come in, what you do is you run the

risk of all that abstract litigation turning upside down,

because all of a sudden the facts don't fit the abstract

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litigation.

Last but not least, all the money that is spent on

litigation is coming out of the coffers of the Commonwealth of

Puerto Rico, meaning all the litigation on the debtors side, on

the AAFAF side, that is coming from our coffers. Is that where

the money should go or should the money go to turn the power

back on, to see ways of turning the power back on, to consult

on issues to get back our infrastructure together, not run on

litigation that is just going to leave money to attorneys, I'm

sorry to say.

Thank you very much.

JUDGE SWAIN: Thank you. 

To be clear, you do want litigation to go forward as 

to whether the PROMESA structure is constitutional. You have a 

proposed exception from your stay, am I correct? 

MS. PICO: It is not that we want that to go forward,

it's about the only issue FGIC could carve out to say that is

not based on facts on the economics of the island, but it is

not that we are promoting that to go forward right now. That

is just the one issue we carved out as really being purely

abstract. But in FGIC's mind, that can wait the same way as

all other litigation.

JUDGE SWAIN: Thank you.

MS. PICO: You're welcome.

JUDGE SWAIN: I have considered carefully all of the

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written submissions and all of the arguments made here in court

today.

For the following reasons, the request of FGIC to stay

the Title III proceedings and the pending litigation except for

the appointments clause litigation, which is how the request

was originally cued up, is denied. FGIC has not cited any

specific authority granting the court broad power to implement

the extraordinary relief that has been requested and has not

demonstrated that it has standing to request stays of

litigation proceedings to which it is not a party. The court

notes in this connection that there has been no request in the

adversary proceedings to which FGIC is actually a party for

stays of those particular proceedings.

The arguments, particularly those of the Oversight

Board and AAFAF, demonstrate the critical need for the

restructuring process, including any necessary legal

determinations as to the parties' relative rights and

obligations to continue in tandem with the formulation of

fiscal plans and with recovery efforts following Hurricane

Maria. Working toward a timely and confirmable plan of

adjustment in these cases is the only clear path to ensuring it

progress toward the financial recovery of the Commonwealth of

Puerto Rico and the welfare of its people. Absent consensual

resolutions of disputed issues of rights and priorities,

litigation is necessary to resolve fundamental disputes that

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can affect the structure and viability of any plan of

adjustment. 

While, as the court noted at the first public hearing 

of these matters back in May, Puerto Rico cannot afford the 

time or the expense that it would take to litigate every one of 

the disputed issues, and the court continues to urge focused 

work in good faith with the mediation team in an atmosphere of 

candor as to key factual issues, the parties will not be 

precluded from calling upon the court to resolve legal issues 

as the Title III process continues.

Therefore, the motion is denied and the court will

enter an order accordingly.

That concludes the portion of this hearing over which

I am presiding, and I will now turn the bench over to Judge

Dein, who will hear the remaining matters.

JUDGE DEIN: Please be seated.

First, I would like to join Judge Swain's and Judge

Houser's introductory comments and expressions of support and

admiration for all those struggling and coping with really

unimaginable conditions in Puerto Rico, and these conditions

were so eloquently described to us. Thank you.

On a personal note, I would also like to send my

greetings to everyone who is listening, and to the extent you

can hear me, those in Puerto Rico and those here in the

courtroom. It is kind of nice to be in a courtroom where I

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don't need to explain my accent. It's nice to be in New York

every once in a while.

Housekeeping matters. We will break at 11 o'clock for

lunch in Puerto Rico. What I am going to try to stick to the

time collectively, so the time assigned to each motion will be

honored, but I have not divided it among the counsel. We will

see how that works. If it doesn't work, we will take a break,

and I'll give everybody a minute and a half to talk literally.

The first motion we have is Siemens' 2004 motion. 

MS. SPRINGER: Good morning. Claudia Springer for

Siemens from the firm of Reed Smith.

Your Honor, this is a fairly straightforward motion.

By the way, before I start, I would like to also express my

tremendous sympathy on behalf of myself and my client for the

people of Puerto Rico and our understanding of what it must be

like. Obviously, we are not experiencing that, but we have

tremendous empathy for the people who are going through this

terrible time there.

Your Honor, this matter actually goes back many years.

By way of background, Siemens, Siemens entity entered into a

contract a long time ago with the Highway and Transportation

Authority of Puerto Rico, which is a Title III debtor in this

case, that contract ultimately was in dispute. There was

litigation among the parties for the contract and ultimately

resulted in a settlement that dates back to 2010.

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That settlement, in order for Siemens to be a party to

that settlement agreement, the Government Development Bank of

Puerto Rico took on an obligation to guarantee the remaining

payments that were due under that contract. In reliance upon

that settlement agreement, as well as the guarantee that was

signed by the Government Development Bank of Puerto Rico,

Siemens agreed to continue to provide services and resources --

JUDGE SWAIN: Judge Dein, apparently we lost Puerto

Rico. We have to stop and reestablish. The electricity --

someone should say this into a microphone.

JUDGE DEIN: Tell me what I am supposed to say. 

JUDGE SWAIN: The electricity is down in the Puerto

Rico courthouse.

JUDGE DEIN: The electricity is down in the Puerto

Rico courthouse. So this is not going through there at all, is

that correct?

JUDGE SWAIN: No. It will still be on the phone line,

but I guess we need to continue with apologies.

JUDGE DEIN: We have no choice. We will continue.

Hopefully Puerto Rico will be back online shortly.

MS. SPRINGER: Thank you, Judge. Over the years --

JUDGE DEIN: I see somebody. Is it Puerto Rico?

JUDGE SWAIN: Sounds like they're back.

JUDGE DEIN: Can Puerto Rico hear me? 

There are smiles. They can hear us. Welcome back.

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Continue. 

MS. SPRINGER: Thank you, your Honor. 

Over the years, there were numerous representations

made to Siemens by both the Highway Authority and the 

Government Development Bank that the funds that were escrowed 

to pay the balance of the settlement amount owed to Siemens 

were, in fact, in the possession of the Government Development 

Bank and in an escrow account. The word escrow was used in 

numerous documents and writings and verbally to describe the 

status of that account.

THE COURT: These were HTA funds that were in this

account?

MS. SPRINGER: These were funds that ostensively, we

are trying to find that out, your Honor.

JUDGE DEIN: That was your understanding?

MS. SPRINGER: That was our understanding, that the

funds were provided to the Government Development Bank by HTA

to be put in escrow to pay Siemens upon the compliance or

performance by Siemens of certain conditions. And they were

spaced out, and the last of these payments was supposed to have

been made in June of 2017. And that amount, which is in

dispute at this point, but it is either $12 million or

$13 million. Either way, there was supposed to be $13 million

in that escrow account.

When we became involved in this situation, it was

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because all of a sudden in, I guess it was, June or July of

this year, all correspondence and assurances, all of a sudden

by the Government Development Bank, ceased in terms of those

funds. We then attempted to reach out to counsel for AAFAF and

Government Development Bank to find out where the funds were

and why they were not being turned over, since they were

supposed to be held in escrow and not supposed to be property

of the estate of the HTA estate.

We were advised at that time, roughly, I believe it

was in July, that the term escrow account was not quite

accurate and that, in fact, there was no escrow account, even

though representations had been made for years that, in fact,

there was an escrow account. And these representations, by the

way, had been made not by someone who would not know the

difference presumably between an escrow account and some other

type of account, but by fairly senior people at the Government

Development Bank. Certainly those people in that position

should have known the difference between or legal significance

of escrow account versus a demand deposit account.

At that point, we found it necessary to file a motion

seeking a 2004 examination of the very people who had

represented to us over the years or represented to Siemens over

the years that, in fact, it was an escrow account, that, in

fact, there was $13 million in that escrow account specifically

for Siemens' benefit upon the performance of certain

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requirements that had been met by Siemens. And we advised

counsel to GDB that we would be -- and to AAFAF, that we would

be happy to meet and confer regarding how to deal with our

motion.

The only response that we got in terms of a

meet-and-confer was a request for us to withdraw our motion,

not simply to delay it, but to withdraw our motion upon the

submission of certain documents, and there was no telling us

what the documents would consist of. We said we would be

willing to defer the 2004 exam to review the documents to see

what the documents provided, but we would not be willing to do

that permanently. We felt it was absolutely critical to take a

2004 exam.

In terms of the 2004 exam, the 2004 exam will not only

impact Siemens' rights vis-a-vis whatever type of account there

may exist, but will also impact the estate of HTA. Because to

the extent that Siemens has an account that does qualify under

the law as an escrow account, and to the extent that that

account contains funds that are sufficient to pay Siemens'

claim, Siemens will no longer be a creditor of a debtor and

that will enable the debtor to have fewer claims filed against

it.

In addition, there may be other similarly situated

creditors, such as Siemens, that were also misled, if that is

the case, into believing that there were separate trusts or

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escrows set aside for their benefit, and parties should know

that, what really happened here.

In addition, it sort of surprised me that AAFAF took

the position they did given the fact that the Oversight Board,

which is represented by AAFAF here, has stated that they are

independent, that they want there to be -- they want to restore

confidence in the capital market for Puerto Rico going forward,

they want to essentially make sure that the problems that

occurred in the past vis-a-vis Puerto Rico and its access to

palpable market funds doesn't recur. And one would think that

if the very people who assured Siemens that funds were

protected and held in escrow are still working for either AAFAF

or the Government Development Bank and still have access to

funds, those people ought not to be there and that ought to be

an interest on the part of the Oversight Board, AAFAF, and the

Government Development Bank.

For all of those reasons, we believe that we are

entitled to take our examination under 2004, we believe that we

have met our burden, and that there is not going to be any

undue hardship caused by it. We have also stated to AAFAF that

we expect to come to Puerto Rico to do so, and we would be glad

to participate, as part of other 2004s that I know your Honor

is hearing today, so that we cause as little disruption as

possible in taking our 2004 examination.

Thank you.

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THE COURT: Thank you.

MR. RAMOS: Good morning, Magistrate Judge Dein and

colleagues and members of the court. 

First of all, I would like to join in the words of 

District Counsel Pico in thanking the court and their 

expressions of well wishes with respect to the people of Puerto 

Rico. 

My name is Oreste Ramos, the law firm of Pietrantoni 

Mendez & Alvarez in San Juan, Puerto Rico, and I represent the 

Government Development Bank for Puerto Rico in this matter. 

Your Honor, there are essentially three components why

the rule 2004 motion filed by Siemens is inadequate and

inappropriate in these proceedings. As we know, rule 2004

casts a very broad swath. However, it is only meant to protect

the estate, not to protect private causes of action by

particular creditor vis-a-vis a third party, in this case, GDB. 

Now, this case is straightforward, as the movant 

suggests, but in the other direction. Essentially, what 

Siemens wants is to "determine the appropriate characterization 

of the escrow account held at GDB." Nomenclature aside, the 

fact of the matter is that, as a matter of Puerto Rico law -- 

and I would like to cite to the case of Ocasio v. Municipio de 

Maunabo, 121 D.P.R. 37, that is a 1988 Supreme Court case -- 

from a legal standpoint, a government instrumentality of the 

central government of Puerto Rico or its municipalities or 

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municipal corporations cannot assume a contractual obligation 

absent a binding written legal contract that establishes and 

defines what those obligations are.

JUDGE DEIN: You're not telling me that they couldn't

have set up an escrow account?

MR. RAMOS: Your Honor, that is precisely what we are

saying. The reason why we are saying that is because an escrow

account, an escrow structure, creates responsibilities on the

part of the escrow account that are fiduciary in nature. And

for there to have been a responsibility assumed by the

Government Development Bank to segregate funds from its asset

pool, from its deposits, which is where those funds are right

now, and segregate them to an escrow account, that without

exception, and those have been the words of the Puerto Rico

Supreme Court in the Maldonado case, those obligations have to

be written in by way of a contract.

So essentially the funds where they are right now, and

that was certified in the certification by Jose Santiago, the

chief financing officer of the GDB, the account, the monies

right now are held in deposits at GDB. So essentially we all

know that the GDB is going through a restructuring process.

That process is part of an RSA, which is bound to come up

before this honorable court by way of a Title VI. It is in

that proceeding, along with the contest of all other creditors

that may have an interest over the deposits held at GDB, that

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this issue should be raised, not in this proceeding. 

It is very telling that Siemens has opted not to show 

good cause to establish the need for the rule 2004 examination 

by the very fact that they have not presented one piece of 

paper establishing what the agreements were between the 

parties. 

JUDGE DEIN: Well, they certainly presented

correspondence which has referred to this escrow account.

MR. RAMOS: Yes, your Honor. They presented

correspondence, but case in point, Exhibit A of their docket

272A, what it cites to as the binding authority by which GDB

would be required to pay those sums of money would be the

guarantee agreement, and that guarantee agreement was not

included as part of the materials. In fact, the guarantee

agreement has an entire clause that says that that guarantee

agreement contains the entirety of the agreements between the

parties as it relates to this matter.

So with respect to the correspondence that counsel

enclosed with its motion for a 2004, they cite to the

guarantee. Not only that, but in the opposition to the 2004

motion filed by GDB on Exhibit 2, docket 3212, the letters sent

on the 23rd of June of 2017 by Siemens to President Christian

Sobrino-Vega of the GDB precisely invokes the guarantee

agreement as the nucleus or the source of the obligation that

the bank has with respect to the payment of those monies.

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Now, we understand, your Honor, that this is something

that should be entertained not as part of this proceeding, but

that it should be entertained as part of the proceedings at a

Title VI moment, if that is the case.

JUDGE DEIN: But do you agree that if the money is in

escrow, it is not part of HTA's estate?

MR. RAMOS: If the money is in escrow, it would not be

a part of HTA's estate and therefore it would be payable to

Siemens, and therefore it would not benefit the estate, it

would benefit them directly.

JUDGE DEIN: All right. But the inquiry is directly

related to what assets are included in the estate?

MR. RAMOS: Yes. And that answer, your Honor, was

given already by GDB by stating, even as a matter of law, that

the escrow account cannot be established absent a contractual

document highlighting and spelling out what that escrow

agreement would say. Counsel for Siemens, counsel for Siemens

cites to case law from the First Circuit, but none of that case

law is really applicable to this matter because it pertains to

non-governmental entities, and therefore it need not abide by

the municipality of Maunabo and its progeny under Puerto Rico

Supreme Court jurisprudence.

Now, we believe, your Honor, that what is left, the

claim that Siemens would have should be either entertained by

way of some adversary proceeding, but not as part of this

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particular proceeding, because where the monies lie is in a

deposit account, and those monies are not part of an

estate-benefiting endeavor.

JUDGE DEIN: The problem, as I see it, though, is that

those are based on your representations, and so the question

becomes whether or not Siemens is entitled to explore that. It

seems to me that this is not a situation where the 2004 should

be used to challenge all escrow accounts or potential escrow

accounts or the standing of anybody else or whether or not the

appropriate people are running GDB. It also seems to me that

the 2004 should not be used as the basis of an adversary

proceeding either, to the extent that Siemens contends that it

has a claim against the GDB based on a guarantee. That is not

the subject of a 2004.

But it does seem to me that 2004 is appropriate for

the very limited inquiry as to whether or not these accounts,

these funds are held in an escrow account, because that deals

with whether or not these assets are part of HTA's estate.

That's where I am going.

MR. RAMOS: I understand that, your Honor. The truth

of the matter is that the information that was already given to

Siemens, it is either an escrow account or it is not an escrow

account. So going beyond that, we feel, would essentially push

the boundaries of what is reasonable as far as a 2004 --

JUDGE DEIN: I agree that the inquiry is whether this

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is an escrow account or not an escrow account, but I don't

think that Siemens needs to take your word for it. I think

Siemens is allowed to ask for the backup documents of it and I

think it is allowed to take a deposition. 

Let's start with one deposition. Can we do that? I 

am going to ask you to see if you can meet and confer on the 

scope of it, but the 2004 will be limited to one deposition 

document request and the inquiry being simply whether or not 

these funds are held in an escrow account. 

OK? See if you can work out a proposed order on that, 

and if not, let me know and I'll draft something. 

MR. RAMOS: Yes, your Honor.

JUDGE DEIN: Thank you.

MS. SPRINGER: Thank you, your Honor.

JUDGE DEIN: I did it in 20 minutes. All right.

The UCC 2004, I think there is a total of 30 minutes

for this.

MR. DESPIS: Yes, your Honor. 

Good morning, Judge Dein. For the record, Luc Despins 

with Paul Hastings, counsel for the official committee. 

Your Honor, this is a motion that we filed

approximately three and a half months ago. I'm not going to

repeat all of it. I know you're very familiar with it.

Unfortunately, I think that this is one of the motions that may

have been a victim of the hurricane in the sense that there

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were so many delays that we couldn't get to it. Now we are

getting to, I guess, to the main event.

This is the motion that dealt with three entities or

members, Santander and Banco Popular, those two entities had

received more than a billion dollars in fees arising from the

sale of bonds of Puerto Rico bonds, and also GDB, which is the

equivalent of the secretary of finance, Department of Finance

in Puerto Rico.

In the first thing, your Honor, as I mentioned the

hurricane. I was wondering, does the hurricane or the impact

of a hurricane change anything in terms of the relevance of

this motion? I think that it does not, because there will be a

plan of adjustment, there will be claims that need to be dealt

with. I think, if anything, this motion is even more relevant

now that we heard Mr. Bienenstock say that they will not be, at

least the Oversight Board does not foresee debt service on debt

under the plan that they are looking at for the first five

years or something along those lines.

So that looks fairly dire and therefore the exercise

of seeing if we can increase for creditors is even more

relevant. I propose, your Honor, to address just a few points

this morning. I will take 15 minutes, but only 12 minutes

initially, and reserve three minutes for reply.

During the 13 minutes I have I want to address four or

five points. The first one is the scope of the statute of the

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investigation under the statute and also the scope of the

investigation proposed by the board and proposed by the

committee in fact. At the last hearing we had in August, your

Honor, there was an assumption that the board's investigation

was completely duplicative or that our investigation was

completely duplicative of the board's investigation first from

a statutory point of view that they had a right to do all of

what we want to do and also in fact.

I want to talk about, first, the statute. I think it

is very important --

JUDGE DEIN: I want you to cover that, but I also want

you to address the COFINA discovery, because the last time it

hadn't started yet.

MR. DESPIS: Yes.

JUDGE DEIN: Clearly now, it has.

MR. DESPIS: Yes.

JUDGE DEIN: I need to understand where that fits in.

MR. DESPIS: Yes. I will come to that, your Honor.

So the first issue is, from a statutory point of view,

what is the board's authority to conduct the investigation they

want to conduct. It is in Section 104(o), which talks very

precisely about an investigation of disclosure and selling

practices with respect to retail investors. It doesn't talk

about other things. That does not include fraudulent transfer

claims or charging billions of dollars in fees to the

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Commonwealth for issuing bonds that maybe should not have been

issued. It does not include issues of whether the bonds were

issued in violation of Puerto Rico Constitution and whether

people -- and by that I mean the targets here -- were aware of

that or were involved, trying to circumvent that.

But Mr. Bienenstock at the last hearing said, we have,

the board has, this general power because the board is the

trustee in the case. Your Honor, that would be a very

compelling point, but for the fact that a trustee in Chapter 11

would have incredibly broad power. We do not dispute that.

And I want to take you to Section 1106, paragraph (a)(3), which

says that the trustee may investigate the acts, conducts,

assets, liabilities, and financial conditions of the debtor,

etc., etc. So that is the power of a Chapter 11 trustee, but

that section does not apply at all in PROMESA.

However, PROMESA has the identical language by

importing Section 1103 of the code, 1103(c)(2), which says the

committee may do that. So, first, from a essentially

construction point of view, your Honor, we disagree that the

assumption should be that the Oversight Board can't occupy the

entire field that the committee wants to occupy. 

But let's assume for a second you don't buy that and 

you believe that they have that broad power. The question is, 

are they, in fact, doing exactly what we want to do, which is 

to look at claims and cause of actions against folks, folks 

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here being these three targets here. 

Here, this is not just argument, your Honor, this is

coming right from them, and it is in their status report in

September. If you look at our status report in September,

docket number 1284, page 8 out of 16, you go to paragraph 20,

and you will see that document is marked to show changes. You

might say, why is it marked to show change? This is a draft

they sent to us of what their mission statement would be, what

their plan would be, and then they corrected it to reflect what

is in the final work plan. If you look at paragraph 20,

somebody in the investigator's office decided that they wanted

to do exactly what the committee wanted to do. It says in

(2)(ii), whether identifying potential claims under Puerto Rico

law, under the bankruptcy law or other federal law, as well as

the targets of those claims, the validity of debt, etc., etc. 

What happened is that that was their initial thought, 

but somebody with higher authority crossed that out. So what 

they found with the court, that is why it is so important to 

look at that draft at docket 1284-2, paragraph 20, somebody 

crossed that offer to replace it with what I would call a 

Reader's Digest, you know, Smithsonian report, which is a 

report regarding the relationship between the debt and Puerto 

Rico structural budget deficit, a comparison of how Puerto 

Rico's debt practices compare to the debt practices in large 

municipal jurisdictions, which is fascinating, but the 

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creditors have no interest in that. The creditors want money. 

So that is the --

JUDGE DEIN: But isn't it the next provision that is

the one that they are relying on where it says pursuing

investigations and disclosures and selling practices in

connection with bond issuances by the common law? Isn't that

within the authority of the investigator?

MR. DESPIS: These are retail selling practices. It

does not deal with the issue of whether there are claims

against the underwriters based on the theory that we have

explained, the theory being as follows: There are two banks

that were on almost all debt offerings by the government, which

is Santander and Banco Popular. And folks from these banks,

including two of the members of the Oversight Board, basically

played musical chairs where they were at Santander for three

years, they were at GDB for three years, then they were at

Banco Popular for three years. And if you have the same set of

facts here in the U.S., where you have Goldman Sachs and Morgan

Stanley do over 99 percent of all federal debt offerings, and

that the same folks from these two banks went to work for the

entity at the fed that decides who is going to be hired as an

underwriter of federal debt, there would be a scandal over

that. 

That is the issue we are looking at, and that is not 

the issue they are looking at. That is not part of their 

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described mandate. So, in fact, I don't believe they are 

looking at the issues we want to look at. But let's assume 

that, again, you're not convinced by these documents. Let's 

look at the statements of the investigator at the October 31st 

board meeting in San Juan. He stated, "We are not getting paid 

to sue anyone. We are not getting paid to find causes of 

action. We are not getting paid to find cause of action. Our 

focus always being on restoring Puerto Rico's access to capital 

markets." Which is fascinating, again, but from the creditors' 

point of view, these words are ominous. And they tell us there 

is not going to be claims brought or reviewed against these 

principal institutions. 

So we believe that not only is there no statutory

overlap, but there is no overlap in fact. Now, if you disagree

with all of that and you think that, in fact, we will look hard

at these issues and they have the statutory authority to do it,

I would still argue, your Honor, that we should be authorized

to conduct our own investigation, because that is the only way

to ensure that there is a thorough vetting of issues involving

these three entities, which is GDB, Santander and Banco

Popular. 

Why do we say that? Because, one, the board is tone 

deaf to issues that they face themselves regarding these three 

entities. The first is, your Honor, noted that at the first 

hearing, they did nothing regarding this investigation for 11 

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months, but then when we filed a motion, they said, OK, we're 

doing it, and with great fanfare press release, we're doing it. 

And we created a special conflict-free committee, of course, 

chaired by Mr. Carrion. That is until we told them, wait a 

minute, Mr. Carrion's family was involved in forming Banco 

Popular. How does that work? Then they removed Mr. Carrion 

from the special board. And then they told the court, we are 

going to get a world class investigator who is going to look at 

these issues, and they did hire someone. 

The first time we interfaced with that person, we 

said, OK, the committee needs to know what is your relationship 

or what any relationship you've had in the past with these 

three targets or members of the board, and you can see that is 

attached as Exhibit C to our status report in September, 

September 12, where basically there was a game of cat and mouse 

where I would say, describe your relationship. He would say, 

my firm has no conflicts. I said no, I didn't ask about 

conflicts. I want to know what relationships you have had. 

Eventually, he said, well, I met Mr. So-and-so 12 years ago. 

And I said, OK, what about the other person? No response. 

What about Santander? No response. 

And now that they know there is a hearing. In their 

status report, they draw up a footnote which, again, is full of 

non-disclosure. They say, well, we inquired about his 

involvement when he was at Davis Polk, and we never mentioned 

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Davis Polk. We just wanted to know the relationships he has 

had, any relationship he has had with these institutions. And, 

again, he is not coming forthwith the full story.

The point here is we are not trying to stop the board.

The board can do their investigation. They can do that, but it

is to explain to the court why the creditors are not satisfied

with the board doing the investigation as to those three

entities. We want to be clear, we are not trying to stop the

board, we are just trying to be allowed ourselves to do an

investigation only as to those three things, only as to

document production at this time. Your Honor, we are not

trying to to anything regarding depositions at this point, at

this time.

The next point I want to hit, your Honor, is that

courts have repeatedly allowed competing or dual investigation

involving examiners and creditors' committees, and the parties

have not cited any cases to the contrary. Enron, Lehman,

Caesars, Refco, all involve -- and the court is basically

saying that the examiners have different roles than committees.

Committees are there to increase the pie. Examiners are not

about that, they want to write a book. I am not saying this in

a negative way, I am just saying that their angle is not to

increase the pie. That is why courts tolerate the duplication

that is necessary in that contest.

The next point, your Honor, is the investigation that

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we want to take that is crucial to this case and to the plan

process, because the plan process will unfold very soon. So

this goes beyond the pie-increasing exercise, your Honor. It

goes to the issue of which creditors are going to get a

distribution. Are we going to give a distribution to creditors

that have bonds that may be challenged without having the full

investigation? You can't do that. Are we allowed to vote on

the plan? I can assure you, your Honor, that there will be --

I hope that is not the case -- but if history is an indication

in this case, there will be a divided creditor body on this

plan. 

The point here is that the question is who is going to 

vote? Are we going to allow people that have bad claims to 

vote? In order to do that, we need to do the investigation. 

The investigator will not be done by the time we get to the 

plan.

I hope your Honor will reject the cynical argument

that was made last time, which is why give the committee the

right to investigate because they can't sue, because under 305,

the court cannot interfere with the debtor without the consent

of the board. And since the board will not give consent,

what's the point of the committee investigation? The point is,

that is a very cynical argument. You have to assume, to buy

into the argument, that if the committee found good claims,

that the board would not bring them or that the court would not

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order that some of these claims be brought under 928 of the

bankruptcy code, which that is besides 305. 925 clearly allows

the court to appoint a trustee to pursue claims if the debtor

does not want to pursue them.

More importantly, Section 502(d) of the bankruptcy

code provides that any claim of a recipient of a fraudulent

transfer shall be disallowed. That can be brought on by an

objection which the committee could file. In order to do that,

to bring that objection, you need to do an investigation.

Let me address the point you raised, your Honor, which

is the COFINA litigation. So there is discovery going on, and

I want to make sure than your Honor is familiar with the scope

of that investigation. There is litigation going on regarding

the ownership of the SUT, both the one that is in escrow and

the one that is to be collected in the future. In that

litigation, we are taking discovery or in the process of taking

discovery of Santander and Banco Popular and GDB. 

However, your Honor, I want to be very clear, this 

does not get into the 2004 adversary proceeding issue. These 

parties -- GDB, Banco Popular, and Santander -- are not parties 

to that adversary proceeding. They are not parties. They are 

not targets. So therefore the discovery we are getting from 

them there is not the same as the discovery we are seeking 

here. 

In those instances, we want to know what e-mail

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exchange or whatever they have regarding the issue of ownership

of the SUT, whether that was discussed or not. The discovery

we are proposing to take here, your Honor, is discovery

regarding whether they knew, for example, that the debt that

was raised violated the Puerto Rico Constitution, whether there

were conflicts of interest involving this rotating door point

that I made before. It is different than the COFINA litigation

discovery.

JUDGE DEIN: Part of my problem is I feel like you're

a moving target. Your initial papers said you wanted to find

out the causes of the Puerto Rico economic conditions, and now

you say that's outrageous, we would certainly never do anything

that broad. 

You have filed papers that say that you are 

undertaking extensive discovery in the COFINA common law 

litigation, and that allowing this 2004 would be a rather 

modest extension of the work that you are already undertaking.

My question is, if you would able to define the modest

extension and ensure that the investigator got that modest

extension, wouldn't that get you all the information that you

need? I'm just trying to figure out what you're doing here.

MR. DESPIS: Well, from our first motion, remember, it

was directed at three entities only from the beginning.

JUDGE DEIN: Right, but it started very broad, and

then you said it could be narrowed and it could be more

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focused. Certainly after what we've heard today and what we've

been hearing and what we know from the beginning of this case,

that regardless of whether other cases with unlimited funds,

with unlimited parties, can take extensive discovery again and

again by different entities, that is not the situation that we

have here. So we have to make sure that what we're doing here

is the most efficient and actually going to happen, as opposed

to spending months and months of lawyers exchanging letters. I

am trying to figure out how to contain this.

MR. DESPIS: Let me be precise. The point that was

made in the motion regarding our involvement of the COFINA

discovery was that we are already interfacing with lawyers for

Banco Popular and Santander. Therefore, there has been some

brush-clearing that is normal in any discovery process, but

that discovery is not the same as the discovery we are talking

about now. That discovery is limited to the COFINA matter. 

And I mentioned, there are other issues that have got 

nothing to do with COFINA. For example, did the issuance of 

some GO bond debt violate the constitutional limitations. That 

has nothing to do with COFINA and that is the type of extension 

that we're talking about in terms of Santander and Banco 

Popular and GDB, which is not part of COFINA. The point about 

being modest is we are already interfacing with these people. 

There is minimum disruption that is going to happen if we 

enlarge that discovery to cover these points. 

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Your Honor, at the last hearing, you said I want the 

parties to talk about potential allocation or joint efforts and 

all that, and there was one call that I recall with the 

investigator, and since then there have been no offers of 

sharing, the reports they filed are very clear, which is they 

are doing it all and the committee should stand down. 

Your Honor, we don't believe that that is an

acceptable resolution for the reasons we mentioned not only

because this will be relevant in the plan process, but because

given that there is likely to be very low recoveries here, the

creditors are entitled to have somebody who is aggressively

pursuing those claims, if there are meritorious claims. If

they're not, they're not. 

But remember, there are billions of dollars in fees

that were paid. Billions of dollars. I am not saying 

automatically because I say that, that the billions of dollars 

would come back, but it is certainly important to look at these 

issues. 

Thank you.

JUDGE DEIN: Thank you.

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MR. MUNGOVAN: Good morning, your Honor. Timothy

Mungovan from Proskauer Rose for the Oversight Board. I want

to recognize our Puerto Rico counsel who's in the courtroom

today, Hermann Bauer from O'Neill & Borges.

JUDGE DEIN: Welcome.

MR. MUNGOVAN: Your Honor, if I may, I'd like to

reserve, hold nine minutes, to take nine minutes of the 15

minutes and to allocate three minutes to Cathy Steege of the

retiree committee and three minutes to Liz McKeen or her

partner, Bill Sushon, on behalf of the AAFAF.

JUDGE DEIN: So much for my plan. OK.

MR. MUNGOVAN: Thank you, your Honor. To start, the

UCC cannot establish good cause for the examination that it

seeks at this point in time, and the motion should be denied

for that reason, your Honor. When we were before you in Boston

in late August, at the end of a long hearing, you had

essentially indicated that you were interested in hearing going

forward about two things: scope, the scope of the investigation

that the independent investigator that would be appointed by

the Oversight Board, what the scope of that investigation would

be, and to have the constituent parties discuss and coordinate

where possible. And I want to address both of those things.

First, with respect to scope, the Oversight Board did

appoint an independent investigator. That is the law firm of

Kobre & Kim. That independent investigator has commenced their

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investigation as of September 1. On October 30 they issued a

public report. That public report has indicated or stated the

progress of their independent investigation to that point in

time. It is broad-reaching. Among other things that they are

looking at are as described in the report, witnesses, subjects,

targets, and causes of action, and they're working to preserve

the relevant evidence. They've been in contact with 84

different parties as of October 30, and they had reached an

agreement with 79 of those parties to preserve their evidence

and documents. Among those parties, among those 79, your

Honor, are the three that the Unsecured Creditors Committee

would like to conduct an examination with respect to. That is,

the Banco Popular entities, the Santander entities, and GDB.

All three of those entities are among the parties that the

independent investigator has contacted and reached an agreement

to preserve documents and information.

With respect to the coordination, I want to address

that directly. I want to contrast the coordination that the

retirees committee has engaged in with the independent

investigator with the lack of cooperation by the Unsecured

Creditors Committee.

The retirees, as I'm sure you will hear from my

colleague Ms. Steege, reached out directly to the independent

investigator. They had a discussion. They proposed an

approach whereby the retiree committee would execute a

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nondisclosure agreement. The nondisclosure agreement was

drafted by Kobre & Kim. It was commented on by the retirees.

They reached an agreement and executed it. That same document

was shared with counsel for the Unsecured Creditors Committee,

Paul Hastings. After some discussion, notwithstanding

Mr. Despins' suggestion that there had been no contact, there

has in fact been contact, email contact. I have the emails

here if you're interested in them between Kobre & Kim and Paul

Hastings. My understanding is that a nondisclosure agreement

has not been reached yet. If, however, a nondisclosure

agreement is entered into, then the Unsecured Creditors

Committee will obtain the same rights that the retirees have.

And that is, in essence, they'll have the ability to review

documents subject to certain conditions. They'll have the

ability to attend depositions. They'll have the ability to

suggest questions in advance of those depositions.

So I would say to your Honor, let's be practical in

the way that we're approaching this. An investigation has

started. An investigation is underway. The independent

investigator has stated that they expect that their

investigation will take approximately 200 days to complete and

issue a report. From September 1, 200 days takes us into late

March. Let's assume that it goes a little longer than that

into April. By April the investigation, at least based on

current projections, will be completed and a report will be

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produced. At this point in time, the retirees have the ability

to ride along, if you will, with that investigation.

What I would suggest to your Honor is that the UCC

should evaluate the NDA. They should sign the NDA. If there

are documents that they believe that should be requested, they

should make that known to the independent investigator and say:

Hey, you should suggest seeking these additional documents, if

you haven't already, from those three entities. And the

independent investigator can evaluate whether to do it or not.

At the end, in March, if the UCC is not satisfied --

as we all said in August before your Honor in Boston, if the

UCC is not satisfied with the scope, depth, intensity, or what

have you, with respect to that investigation, they can come

back here and renew their 2004 motion.

JUDGE DEIN: But that's late down the line. What I

didn't get and what I was hoping for was more of a commitment

to having the UCC perhaps give the subjects to the

investigator, but having the investigator say, yes, we're doing

it; and if they're not, having a forum to have that fight. I

don't see that that happened.

MR. MUNGOVAN: Thank you, your Honor. I think that

there's a possibility for it to happen, but the condition to it

happening is to have a nondisclosure agreement in place.

What's the harm in entering into a nondisclosure agreement and

then having that? And if the UCC suggests the topics, the

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documents that should be requested, and if the investigator

doesn't engage, then there may be a basis to come back here.

But there's no basis today for the UCC to stand here and say,

we have to do our own investigation without having made any

genuine effort to engage and to have a discussion. And what we

can find out from Ms. Steege is -- you should pose that same

question to Ms. Steege to see how she will handle it on behalf

of the retirees in connection with her discussions, because she

stands in the same position, as a practical matter, on behalf

of the retirees as Mr. Despins stands for the unsecured

creditors.

JUDGE DEIN: The other thing that we talked about was

a potential protocol for getting there, so a timetable that

says these are the documents that we're requesting, this is

when you'll let us know. There is legitimacy to the argument

that the status reports seem to come out very close to court

hearings, and they're general. I don't know whether there's

more detail being provided to the UCC or not. Certainly, when

you read the status report, it's impossible to determine where

the investigation is actually going.

MR. MUNGOVAN: Your Honor, that's a fair comment on

the document as it is presented. And in asking the independent

investigator that type of question, there is a tension between

sharing what is and should be made public for everyone to

understand what is being undertaken while preserving the need

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for some investigatory confidentiality or privacy with respect

to the actions that it's undertaking, but some of those

concerns about confidentiality are obviated by a nondisclosure

agreement. And the ability to ride shotgun, if you will,

should obviate many of Mr. Despins' concerns. And to the

extent that those concerns remain after an NDA and after some

effort at a dialogue with the independent investigator, then I

expect that the UCC, if they're not satisfied, will come back

here.

But at this point in time, I think that there's a

marked distinction between what the retirees have done,

frankly, and what the UCC has done in terms of attempting to

not only be engaged in and understand what is understandable

but also to influence, where they're able to, the scope and

direction of the investigation.

JUDGE DEIN: Would you anticipate that under the NDA,

if that was signed, that all the documents would be available

to the UCC?

MR. MUNGOVAN: I can't say all of the documents, your

Honor, but the NDA is a document that both the UCC, the

retirees, and we -- I have a copy of it. What I would suggest

is, based on the terms that are set forth, there are conditions

under which counsel can see the documents, but my understanding

is they will have a significant ability to review documents.

JUDGE DEIN: Thank you.

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MR. MUNGOVAN: Thank you, your Honor.

MS. STEEGE: Good morning. Katherine Steege on behalf

of the retiree committee.

JUDGE DEIN: Good morning.

MS. STEEGE: I'd like to pick up on your Honor's point

about the situation that we find ourselves in and the need to

engage in the most efficient and cost-effective investigation

possible under the circumstances, because what we're talking

about here is getting to the facts. Mr. Despins' concerns

about whether or not the investigators are going to develop

causes of action, and the like, what we really want are the

facts. Both committees have a statutory duty to uncover what

the facts are and to use that information in the way that they

feel it's appropriate on behalf of their constituents, either

arguing in the plan of adjustment that certain creditors'

claims should be reduced, using it for settlement discussions

to try to reach consensual resolutions with regard to that.

But the basic starting point isn't legal briefs on the law in

these things, it's getting to what the facts are so that each

of us can do that analysis. And that's what we're talking

about in this investigation.

The board, frankly, and its investigators have the

greatest powers available to do that. They don't need to come

back to this Court to examine witnesses, take formal testimony,

do the types of things that will need to be done to get all the

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facts forward. So they have cost efficiencies built into how

they can proceed. They own these causes of action if there are

causes of action, and they've started and they're moving

forward.

I'd like to address why we're not concerned that this

investigation will be a whitewash that Mr. Despins has

suggested or that we won't get all the information or that

things won't be requested to really know what needs to be done

here in terms of any other claims of these parties that might

be the target of the investigation. And that's because our

agreement is more than a nondisclosure agreement. It's a joint

interest and cooperation agreement. It protects the ability to

communicate with the investigators about the issues that we

think need to be investigated. It requires both parties to

cooperate with each other. They have indicated that they will

seek documents that we request. They will ask the questions

that we want asked. If it's appropriate, they will allow us to

be present when the questioning occurs.

Now, sometimes that might not be in the best interests

for lots of reasons when you're doing an investigation, and

I've worked on the Lehman report, wrote sections of it. I know

how this process works. Sometimes you don't want a gang of 30

interviewing someone. Sometimes it makes sense for one person

to do that, taking questions from the group and walking into a

room and having a conversation to get the facts. They've

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agreed to cooperate with us with regard to all of that so that

we will get the facts that we need to find out what really

happened and to use that appropriately in connection with this

case.

In terms of reviewing documents, the qualifications

aren't allowing counsel to see it, but in some instances

parties will designate documents as confidential and, as your

Honor is aware, they'll say it's attorneys' eyes only. And,

obviously, we have to respect that, and we have to have our

parties, counsel, and any experts that we might have sign the

appropriate paperwork with any type of protective order

arrangements that are reached with third parties that are

producing their documents. Those are the types of restrictions

that are there. They're going to make available to us their

database and again work with us so that this investigation gets

us the facts, and we will have those facts on real-time basis.

It's not as if we anticipate that we are going to have to wait

till April to get a report and read it. We anticipate that we

will be aware of what is going on, and we can give input as it

is occurring.

They've been very open and very cooperative with us.

And we think, you know, any firm can say, I should issue the

discovery request. Let me send the document requests out, but

the fact of the matter is the board has chosen an investigator.

They have the powers under PROMESA to seek this information.

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They can do it in the most cost-effective way. They are

working cooperatively with our committee, and I believe they

would do the same with the UCC. So we would very much urge,

although it's an unusual position for one committee to take

with respect to another, that they stand down for the next

several months, do what they're doing in COFINA and the

proceeding. We fully support what's happening there, but allow

this to go forward on a more efficient and cost-effective way

so that the resources of the island are not wasted with dual

and duplicate investigations.

JUDGE DEIN: Thank you.

MR. SUSHON: Good morning, your Honor. Bill Sushon of

O'Melveny & Myers LLP for AAFAF.

AAFAF joins in the arguments of the Oversight Board

and the retirees committee. AAFAF welcomes the investigation

that the Oversight Board has undertaken. They welcome that

investigation because that investigation is being carried out

by the body that PROMESA empowers to do the investigation and

because that -- not because that investigation is going to be

one that goes easy on the government, but because that

investigation will provide transparency and accountability.

And that's why we support the investigation, and to that end,

we've been cooperating with the Oversight Board.

From the time since the August hearing and since the

appointment of the investigator, we've been having, in recent

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weeks, weekly contact with the investigator. We've already

produced over 50,000 pages of documents. We're negotiating a

nondisclosure agreement, confidentiality agreement that will

allow us to provide further information to them. We expect

that to be signed up within the next week. We expect tens of

thousands more pages of documents to be coming out in the next

couple of weeks, and we anticipate within the next day or two

getting a custodian and search term list which will allow us to

begin email production to the investigator. The investigation

is moving along, and we welcome it and we're cooperating in it.

What we are concerned about, your Honor, is

unnecessary duplication. Every dollar that gets spent on the

investigations is a dollar that can't be used to help rebuild

Puerto Rico. It's a dollar that can't be used to provide

essential services to the citizens. It's a dollar that can't

be used to pay creditor claims. And while the UCC has argued

that its investigation is going to be different from the

Oversight Board's, as the retirees committee counsel pointed

out, the investigation of the Oversight Board goes to the

underlying facts. And whether those facts support claims that

the UCC thinks are out there or those facts don't, the facts

are the facts, and they're going to be looking at the same

facts.

The only limitation that I heard on the scope of the

UCC's proposed investigation are the parties that would be the

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subject of the UCC's investigation. But when we're producing

documents for the GDB, I didn't hear any limitation on what

they would be looking at with respect to the GDB. They're just

going to be hunting around for claims and they're going to be

requiring us to produce overlapping discovery that's going to

be an additional effort. The government is already paying to

produce materials to the Oversight Board. It's already paying

for the Oversight Board's investigators to review those

materials and to do its investigation. So putting the UCC on

top of that becomes a triple whammy. We'd have to pay for yet

one more investigator, and it's just unnecessary at this point

in time, your Honor. So we again support the Oversight Board.

JUDGE DEIN: Thank you.

MR. SUSHON: Thank you, your Honor.

MR. DORSEY: Good morning. I wasn't given time, but

I'm John Dorsey with Young Conaway Stargatt & Taylor.

JUDGE DEIN: OK.

MR. DORSEY: Just wanted to take one minute, your

Honor, to explain to the Court that Banco Popular is

cooperating in all the discovery that has been occurring in

this case so far. We've been cooperating with the

investigator. We received a letter. We preserved our

documents. We requested that they issue a subpoena as opposed

to doing it an informal manner to make sure we were complying

with federal and Commonwealth banking laws, and that process is

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moving forward.

We're also cooperating with the UCC in connection with

the COFINA Commonwealth dispute. We're in the process of

producing documents in that case. And we've produced documents

in connection with the Bank of America interpleader action.

Banco Popular is more than happy to continue with the process.

We want to make sure it's done in as efficient and

cost-effective way as possible for everybody involved.

JUDGE DEIN: OK.

MR. DORSEY: Thank you, your Honor.

JUDGE DEIN: Somebody else there?

MR. CROMWELL: One minute.

JUDGE DEIN: We have a lot of one minutes.

MR. CROMWELL: Sorry, your Honor. Nick Cromwell from

Sidley Austin for Santander.

I want to echo what Mr. Dorsey said that Santander is

cooperating with the investigator. We've had several

conversations with them, fully intend to cooperate. We are

also cooperating with the UCC, as well as COFINA. That being

said, all these various subpoenas and investigations obviously

have strained our resources. So I echo Mr. Dorsey's

sentiments. We want this to go forward as efficiently as

possible, and we think one investigator is the efficient way to

do that with those parties, the retiree committee and the UCC,

cooperating with that investigator.

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JUDGE DEIN: Thank you. I think you have three

minutes.

MR. DESPINS: Briefly, your Honor. I think the facts

speak for themselves. I think your Honor has picked up on the

fact that not one document has been produced so far. What

they've done, what their claim to fame is to have sent document

preservation letters to people, and that's just -- the fact

that we're in November and that's what has been done is really

problematic. Until this Court and unless this Court directs

the investigator to work with the committee to come up with a

joint document production request, nothing will happen.

They say, well, we don't know what the committee

wants. Well, you know in July we filed document production

requests. If you think they're too broad, fine. You can

comment on that, but they've had that for three and a half

months now. This argument about the NDA, your Honor, is so

ridiculous. We have no NDA with Proskauer or the Oversight

Board. The committee has none because there's a well-known

practice in bankruptcy that committees have the confidentiality

provision in their bylaws and that Proskauer relies on that. I

have conversations with Mr. Bienenstock that are much more

sensitive than issues with Santander and Banco Popular and

they're not governed by any NDA because he knows that we are

duty bound to keep everything confidential. So the fact that

there's no NDA is such a red herring.

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JUDGE DEIN: But are you precluded from signing one?

MR. DESPINS: No, we're not precluded, and we're not

refusing it. There's been discussion between my partner and

the person at Kobre & Kim about the terms of it. But the

argument that that's what's precluded them from talking to us

is ridiculous. They have no intention of working with us on

this issue. So it's clear what's going on here. Unless the

Court directs that they sit down with us and they work on

something that is joint, because I want to avoid the burden on

Banco Popular and Santander. That's OK. Courts have done that

all the time to force people to coordinate. So authorize us as

to those three entities only, subject to an obligation to

coordinate with the investigator, and if we have a dispute,

we'll come back to the Court.

But right now the pace of this investigation and the

progress speaks for itself. Nothing's happened. We're talking

about April before we're going to get a report. And, again, as

far as we know, other than Banco Popular, I don't think that

any document production request has been sent out to anyone.

That's shocking that that has not happened at this point. And,

your Honor, it's for that reason that this should be -- that

our limited relief should be granted. Remember, there were

dozens of institutions involved in this. We're only focusing

on three. The investigator can do all other entities, and

there's a good reason for that. I mentioned it before.

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Mr. Coriel represented Santander in Puerto Rico with respect to

these two Oversight Board members. It may have been ten years

ago, but he did represent Santander, and he was heavily

involved in that investigation. And based also on the fact

that it was not fully disclosed, that's why the committee is

concerned about basically giving him complete discretion to run

the investigation.

What's going to happen, unless the Court directs that

something happens, we will be here in March, and at that point

document production requests will have been issued but no

documents produced. We just don't know. This should be on a

fast track. It's a very important issue. And, your Honor, for

that reason, we think that the Court should authorize a 2004

limited to those three entities, limited to document

production, subject to meet and confer with the investigator so

that anybody's concerns about us completely duplicating what

he's doing are covered by your order. That's what we're asking

the Court to do. Thank you.

JUDGE DEIN: I'm going to take a few minutes during

lunch to sort of outline what I think is going to be the order,

but I think the 2004 is premature at this point. Though I do

think that the concerns that the UCC has raised about

investigating potential other claims are significant concerns

and that they have the authority to do so and that we all

should know exactly what was going on. On the other hand, I

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think that the independent investigator should be given the

opportunity to conduct this investigation, and it's not a joint

investigation. It's their investigation at this point, though

with input from the UCC. I'm not sure how that input gets

ordered at this point.

I want to take a few minutes, but what I'm

anticipating is a time schedule, something like in the next

week the NDA needs to be signed, within the next month the UCC

needs to have presented its document requests to the

independent investigator, and the independent investigator

needs to determine whether or not -- state affirmatively

whether there's an objection to any specific types of

categories, and that if there is really a conflict on something

that's more narrow that we can deal with as to if the

investigator is refusing to gather some types of documents for

whatever reason, that that's an issue that you can file a

motion on at that point for an examination, and we can see what

happens with that. I don't have the details yet, but that's

where I'm thinking. If you want to think as well, that would

be good. We could all think together.

I see we only have a few minutes before we're breaking

for lunch. Let me suggest -- I'm sorry? 

MR. ROMANELLO: Your Honor, the next matter on the

agenda -- I don't mean to interrupt -- we have a procedural

agreement if we could put on the record beforehand so we can

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proceed efficiently after lunch.

JUDGE SWAIN: Would you repeat that for the

microphone, because that didn't go into the microphone.

JUDGE DEIN: Why don't we do that.

MR. ROMANELLO: Good morning, your Honor. Salvatore

Romanello from Weil Gotshal on behalf of National Public

Finance Guarantee. Last yesterday afternoon we had a

discussion with the Oversight Board to more efficiently move

through the next three matters because they're very similar in

substance and argument. In fact, the Oversight Board submitted

omnibus responses to three matters. So what we would suggest,

subject to your Honor's approval, is that the movants proceed

together. Mr. Gary Orseck from Robbins Russell will be the

primary speaker on behalf of all three of the movants. On

behalf of National, we'd like to reserve a few minutes, if

necessary, after Mr. Orseck speaks, and then Ambac also may

have a few minutes. We think the first part of this will be 30

minutes, and hopefully rebuttal will be a lot less than that.

JUDGE DEIN: Good, because that's exactly what I've

decided. So that's perfect.

MR. ROMANELLO: Thank you, your Honor.

JUDGE DEIN: Let me ask now. We have a pretrial

conference. Are the parties here for that? That seemed to me

to be short, and then can we do that now and get that in before

lunch?

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SPEAKER-05: Yes, your Honor.

JUDGE DEIN: So this is in 17-3283, docket No. -- no,

that's as much as I can get.

JUDGE SWAIN: Would you announce the adversary

proceeding, Adversary 17-227, Asociación de Salud against

Commonwealth.

JUDGE DEIN: Thank you so much. Am I supposed to say

that?

JUDGE SWAIN: Somebody needs to say it.

THE LAW CLERK: Adversary proceeding 17-227 Asociación

de Salud Primaria de Puerto Rico v. Commonwealth.

JUDGE DEIN: All right. Thank you.

MS. McKEEN: Good morning. Elizabeth McKeen of

O'Melveny & Myers on behalf of AAFAF, representing the

Commonwealth with the consent of the board and the DOJ. For

the record, I believe, Wandymar Burgos from the DOJ may be

joining us on the phone from Puerto Rico on this matter as

well.

JUDGE DEIN: Does this mean it's longer than a few

minutes?

MS. McKEEN: It should not be, your Honor.

JUDGE DEIN: OK.

THE CLERK: What is the name again?

MS. McKEEN: Wandymar Burgos.

MR. FELDESMAN: James Feldesman, but we are for the

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plaintiffs. Here, so --

JUDGE DEIN: Do you want to proceed or do you want to

wait?

MS. McKEEN: We'd be happy to go forward, your Honor.

From the Commonwealth's perspective, this should be very

straightforward. We think going through various aspects of a

pretrial conference would be premature at this time. The stay

has not been lifted in this matter, and yesterday the

Commonwealth filed an abstention motion. We think the proper

course of action would be for the Court to set a briefing

schedule on that abstention motion, and depending on the

resolution, then proceed with the pretrial if it's necessary.

Our request would be that an opposition come in on December 5,

that a reply brief be filed by December 13 so that the

abstention motion could be heard at the December 20 omnibus, if

that's acceptable to the Court and to plaintiffs.

JUDGE DEIN: Just identify yourself again, please.

MR. FELDESMAN: Yes. James Feldesman for the

plaintiff, your Honor. I've recently filed a joint -- we filed

a joint statement, and we're in support of the joint statement.

The Court gave us 15 minutes combined. I don't know whether

there are some questions or issues that the Court has beyond

the statement itself.

We do think that this is an instance where everybody

should take a breath before they proceed. We are going to be

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filing, and may already have filed, various and sundry things,

including most notably a new adversary proceeding stating our

position that, effectively, we're entitled to be treated

separately from these proceedings and to proceed -- or to be

able to get immediately, if we have claims to present -- we

have a few -- but to be able to effectively get paid and to get

started because we're a grantee and really protected by

Section 7 of the statute and corresponding statutes. That's

going to be presented in an adversary proceeding.

This is a case which really should start settling.

There are nearly 20 of these community health centers located

throughout the Commonwealth. They're functioning in some

instances after the hurricane, and even now they're the only

effective medical group in the community. They have

pharmacies, and in many instances they're the only pharmacy

operating. And getting some of the money to which they clearly

are entitled by federal law into them now and getting them

moving could be of great benefit.

There are statutory and grant authority under federal

law that gives them a great deal of flexibility to cooperate

with other healthcare providers in their communities to give

money out, to give assistance out, and the like. And what we

don't have is we're here, we're ready, we keep signaling, but

what we would really like to do is engage right now in

settlement before we start filing motions and getting the

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various courts caught up in what's the extent of our rights to

go forward. We'd like to take a go at settlement. But so far,

takes two or maybe three to Tango, and there's only one ready

to dance.

JUDGE DEIN: OK, sir.

MR. MUDD: Good morning. John Mudd representing

Integrales, Barranquitas, and several other municipalities.

We're party to this litigation in state court. We were dragged

into the removal. Our point is similar in the sense that we

believe that Section 7 of PROMESA makes the automatic stay

inapplicable to our case. Irrespective of that, we have no

problem with the briefing schedule that sister counsel has

presented as to the motion for abstention, and we also plan on

filing adversary proceedings to challenge the constitutionality

of Law 66 which limits the way the Commonwealth will pay

claims, etc.

JUDGE DEIN: Does it make sense for me to adopt that

schedule on the briefing and have you reach out to the

mediation group and see if it's an appropriate time for you to

try to settle this?

MR. MUDD: Well, I'm a firm believer that you only get

to settlements when people want to settle. And we had

discussions with AAFAF, etc., and we were led to believe that

they weren't interested in dealing with settlement. So I would

put the ball in their court in terms of that point.

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JUDGE DEIN: I never send people to mediation who

don't want to be there because time is short.

MR. MUDD: Yes.

JUDGE DEIN: On the other hand, as I read the

pretrial, everybody was sort of inclined to understand that at

some point trying to settle this makes sense.

MR. MUDD: We have no problem with settlement.

Settling is good, but --

JUDGE DEIN: Let me just say that I think it is within

the purview of the mediation team to tackle this if you are

interested. I leave that out there and encourage you all to

take advantage of it before additional adversary proceedings

are filed. But I will adopt the schedule as proposed for the

abstention briefing, and I think nothing else needs to be done

on the pretrial right now.

MR. MUDD: We agree. Thank you.

MR. FELDESMAN: Your Honor, if I may say one more

thing if it's possible? There is a case right now that has in

that case both between the District Court Judge Gelpí presiding

and the First Circuit where virtually every conceivable issue

concerning the duty of Puerto Rico under these federal programs

has been decided. Judge Gelpí still has an active case going

forward because there is a preliminary injunction that has yet

to be reduced to judgment and is still not really quite ready

to be reduced to judgment. We've just also filed a motion with

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him, I think, and if it hasn't been filed already, it will be

by the end of today, so I'm told. And that motion adds a few

years to his considerations, backing those considerations up

all the way to the state case which, as we refer to it, which

we've removed and are proceeding here.

If any judge is needed, he's the judge. The state

court has already decided to defer completely to the judgments

of the federal court. Second Circuit has already decided that

the law in question is entirely a federal matter. We would ask

the Court, yourself, to consider this in whatever

recommendations you may be making and maybe apply some gas to

that pedal of urging the various parties to settle. Judge

Gelpí is the appropriate -- at least an appropriate, if nothing

else, mentor to everybody to get things consolidated and in a

position where perhaps settlement can take place. Thank you.

JUDGE DEIN: Ms. McKeen.

MS. McKEEN: Your Honor, I think those comments by

counsel underscore the government's position that a predicate

step here before anything further takes place is that we figure

out what court we're going to be in and who's going to be

dealing with this dispute that has already been going on for 15

years, which is part of why we filed an abstention motion. So

I think that just underscores the need to get that issue

briefed quickly, decided promptly, so that the next steps can

take place after that occurs. Thank you, your Honor.

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JUDGE DEIN: Thank you.

MR. MUDD: Your Honor, on a personal matter, I want to

thank the Court for my first hot shower in 50 days.

JUDGE DEIN: Well, I'm happy we could comply with that

request, but I'm sorry that we had to.

All right. Why don't we break for lunch for an hour,

and I'm going to suggest that everybody go back to the same

assigned seats afterwards. Thank you.

(Lunch recess)

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JUDGE DEIN: In the adversary proceeding 227, I just

wanted to add something. I would like a joint status report by

November 28 where the parties believe that the cases should

proceed and the authority and why it should proceed there. I

think it makes sense to do that before the due date on the

abstention argument.

MS. PICO: Yes, your Honor.

JUDGE DEIN: As to the creditors committee, the 2004

motion, it is denied without prejudice. I think, at this

point, the UCC has not established the need for the independent

examination in light of the independent investigation that is

going on. It would not be efficient or cost effective to have

parallel investigations going on at this time, and while the

parties may ultimately view and analyze the information

differently, I think at this point there is a common goal of

obtaining the information and understanding the underlying

facts.

I also think that many of the requests are

repetitive of the adversary proceeding in the common law COFINA

litigation. The denial is without prejudice, though, and I

would expect that the parties would be able to work together to

develop a protocol whereby the UCC is to have meaningful input

into the investigation. I think the UCC needs to be much more

targeted in its requests.

The UCC needs to sign the NDA and the UCC can renew a

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targeted request for discovery, but only if it submits its

proposed document request to the investigator and gives them at

least two weeks to indicate whether or not they would be

including those requests in the investigation's request, but

the requests needs to be much more targeted. It is not the

document requests that you have attached to the motions, it

needs to be targeted so the investigator doesn't need to spend

weeks on a meet and confer on what are the topics included.

If then there is still a dispute as to the scope of

the documents being requested, the UCC can file another motion

for discovery. I am only dealing with, right now, with the

document requests. I am assuming you're going to work through

on the depositions or interviews, however it works. But,

again, if you can't reach a resolution, the concept has to be

that the UCC has meaningful input, but the investigator also

needs to be able to respond to the UCC and explain to them why,

if they are following the same path, getting the same

information, and if not, why not. Only then will I be able to

sort of deal with this on a more specific basis.

More 2004 motions. I missed the timing. If you would

just tell me again.

MR. ORSECK: Gary Orseck from Robbins Russell on

behalf of the Ad Hoc Group of general obligation bond holders.

As you know, we filed a joint motion together with Assured and

the mutual fund group. They are separate, although

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substantially identical motions filed by National and Ambac. I

think among the three different motions that were set down, we

would have had 45 minutes among us and the respondents would

have had 45 minutes. 

What we propose to do, with the caveat that I don't

anticipate us taking all of this time -- 

JUDGE DEIN: I was going to say, you don't need

90 minutes to do this.

MR. ORSECK: -- just to divide it up for purposes of

the outset, I think the agreement among the movants is that I

would take 20, they would take up to 15 after me to further any

points that need being made, and then we would reserve ten

minutes for rebuttal. But, once again, I don't anticipate any

of us taking all that time.

JUDGE DEIN: Thank you.

MR. ORSECK: As you know, Judge, the motion is for an

order authorizing a rule 2004 examination in the main Title III

case. In addition to the parties that I just mentioned, there

are a number of parties who have filed joinders. I think, by

my count, there are eight or nine in the group, all of

disparate interests. Most recently, the committee of unsecured

creditors who had initially sort of stayed on the sideline on

this, instead they had hoped to work cooperatively with the

board and AAFAF to get what they need, came in and said they

tried and they failed, so we are joining as well.

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HBFsCOM4 

All of us, at the outset I would like to say first,

share and echo the sentiments expressed by counsel and the

court of the suffering that continues to go on on the island,

and we are mindful of that all the time as we proceed. We all,

however, want the same thing here, and that is the same basic

information about the financial condition of the debtor that is

routinely provided in bankruptcy cases like this one. We have

all been after it for about six months now, and with the board

now stating previously and this morning that it believes the

best way to go forward is to proceed, not to have a stay and on

an aggressive timeline, I think it is more important than ever

that we have access to discovery, that we have transparency,

and that all parties have the same information available. That

is more important now than it was before. 

Let me begin by just summarizing the basic argument as 

to why we ought to be entitled to a 2004 examination. It is 

pretty straightforward. To be confirmed, any plan of 

adjustment has to be fair and equitable. For it to qualify as 

fair and equitable, it must provide for the creditors the 

maximum amount that the debtor could reasonably pay. The 

board, however, has sought to impose an unprecedented cut, and 

we heard this morning and we heard before that in a forthcoming 

fiscal plan, they anticipate no money for debt service at least 

for the next five years, but they will have to establish that 

that is the best that can reasonably be expected in order for 

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any plan of adjustment to be approved. 

The precise purpose of rule 2004 is to show the 

condition of the estate and to enable the court to discover its 

extent and whereabouts. That's exactly what our requests go 

to. They go to discovering the financial condition of the 

debtor in anticipation of that litigation. They also go to the 

position of the board's expert that cutting an additional 

dollar of government expenditures beyond what they have set 

forth in the fiscal plan will lead inescapably to an economic 

death spiral. We seek discovery as to that as well. 

I submit that there is no colorable argument -- and I 

don't think they even really advance one -- that the creditors 

are not entitled to this information. Instead, they have put 

forward an array, an ever-changing array of arguments, as to 

why discovery is inappropriate, off the table, not allowed, and 

it has been changing. They have declined to meet and confer 

with us, they have declined to go forward, go through the 

document requests and tell us where they think it is overbroad, 

tell us where they think there are items that are privileged. 

They assert those arguments in their brief. They say that we 

sought materials that they think tread on deliberate process, 

but they assert that in the service of an argument, that they 

ought or be immune entirely from discovery and that the court 

should therefore deny the motion. 

I am going to get to their objections in a minute and

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explain why none of them gets them where they want to go, but

what I would like to do before that is, with reference to our

attachment A which are the requests we propose to serve, I

would like to just point out merely as an illustrative matter

what some of the requests seek, which I think will debunk the

argument that they have been asserting that the materials we

are after are either inaccessible because of the effects of

Hurricane Maria, that it is inappropriate for us to impose the

expense upon them of finding these materials, conjuring the

image of a flooded basement somewhere that they would have to

wade through to get the materials, or else that they are

obsolete or irrelevant in light of the intervening efforts

since the time we filed our motion.

Let me just hit a few of them, and I want to be

careful to say that I'm not giving these as a list of a subset

of what we're after. We think we're entitled to what we have

requested. It is just to illustrate the point. Let me go to

that. 

The first thing is we have requested all historical

and ongoing periodic financial reports, in particular, ones 

that have been provided to the board in whatever form they have 

been provided to the board. This would include 2017 financials 

in whatever format, it would include reports of various 

revenues and expense items by department, by agency, by time 

period, and we know they exist. This is called for in our 

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request 56. How do we know? Ms. Duresco said in her 

November 7 written testimony, which is attached as an exhibit 

to our motion, I'll quote her, "We also will receive a budget 

compliance report next week that will show how actual expenses 

and revenues compare to budget expenses and revenues for the 

first fiscal quarter ending September 30, 2017." We want that. 

She said in September, this is attached as Exhibit 1

to our reply brief, "On a monthly basis, the @Ross and Go

government is providing the board a report comparing budgeted

to actual spending department by department. The board is also

receiving a weekly report of cash and liquidity." Judge, none

of these has been provided to us. They should be produced

forthwith. They fall right into the center of what 2004 is

designed to provide and we have requested it.

Second category, as an illustration, the board and

AAFAF has produced materials to other parties, to some parties

in adversary proceedings. Our understanding is that there have

been one or more depositions. These are called for in our

requests number one and two. I'll point one out to you. We

should be provided with the workbook that their economist,

Mr. Wolf, used and all the documents that he referred to, used,

or relied upon in preparing his economic model. Those may have

been in the context of an adversary proceeding, but the basis

for Mr. Wolf's argument is that unless the Commonwealth

achieves a certain level of economic growth and continues it

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forward, there will be a collapse. That plainly goes to the

question of whether what will be offered to the debtors as the

most that can reasonably be expected.

Third category, there was a model produced in the data

room by the DevTech firm that was provided after significant

push and pull, but our FAAs and the other creditors, advisors,

and consultants have told us and shown us that there are

materials that we can't understand. There are variables that

are undefined, that are datasets that we don't know the origin

of. We need further information to understand that economic

model. We could work that out with the respondents if they

would engage with us.

Fourth example, and I am almost through, as I think

your Honor knows, Ernst & Young prepared what they call a

bridge analysis, which resulted in this reconciliation

adjustment that is a line item in the fiscal plan that says,

in the first year and going forward, hundreds and hundreds of

millions of dollars need to be set aside in recognition of what

we are told is their expectation that their actual expenses

will exceed what the budgeted expenses are. That is a very

substantial item that goes to the financial condition of the

debtor. We are entitled to see, as I think as your Honor said

earlier, we shouldn't have to take their word for it, we should

get to see how those figures were developed.

The last one I am going to identify, and I could

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provide you the request numbers in our document requests that

correspond to these examples, but the last one I am going to

point out for illustrative purposes is the board and AAFAF have

taken the position that where essential services are at issue,

I think there was a reference to policemen and firemen, that

expense ought to come before the GOs in line. I am not here to

debate that point right now, but for present purposes, we ought

to be able to see how they define essential services, what are

the documents that will tell us what is or is not, in their

view, essential services. 

The reason I've selected just these examples for 

present purposes is to show, number one, the notion that it 

would cost millions of dollars to identify and locate and 

produce these things is baseless. All of these things exist. 

They have been produced to somebody. They reside on hard 

drives or computers of the board or the government or its 

consultants somewhere. They exist.

The second reason I have identified these is to

respond to the suggestion that all of our requests are now

stale. We are in a new world. Well, certainly the world has

changed, but the underlying financial information relating to

the debtor remains relevant, remains relevant to the fair and

equitable test going forward.

JUDGE DEIN: How do you know that if they haven't yet

identified the methodology that they are going to use in the

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new fiscal plan?

MR. ORSECK: I have two responses to that. First is,

methodology aside, they could use methodology B, C, or D

compared to the one they have used in the existing fiscal plan,

but the financial condition of the Commonwealth is an input to

any model. That is to say they cannot project what will be

available for debt service or how much the economy will grow

except by using a baseline, except by looking at what the

condition of the debtor is today.

We will have to be entitled to this, and the longer we

wait to get discovery, the one thing I can assure you is that

the litigation will last on and on. And the additional point I

want to make here, you haven't heard in their briefing the

board say, just wait until we come out with a new fiscal plan,

then we'll give you discovery as to that fiscal plan. They

have said from the start, PROMESA prohibits you from getting

any discovery because you can't second guess the fiscal plan,

the court can't and you can't. They have said this pending

proceeding doctrine forecloses us from any discovery. And then

the hurricane came and they said, well, now your requests are

stale. You can't get any discovery.

Their position all along has been not now, not later,

not ever, but the materials that we seek go to the underlying

condition of the debtor, number one. And number two, even with

respect to the methodology. And we have put forward requests

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asking for the methodology by which the fiscal plan was

developed -- I can't go into details on this because of the

mediation constraints -- but it is our understanding from

Mr. Wolf that the basic structure of the methodology will be

the same in any future fiscal plan, it is just that there will

now be a line item or a methodology to account for the effect

of the hurricane, the out migration, the destruction of

infrastructure. 

So it is not as though their expert is suddenly going 

to change the methodology according to what we have been told. 

By the way, even if he were to do that, I think they would 

still be entitled to see what was done to the first instance so 

we would have a basis for assessing what is being done in the 

second instance. 

JUDGE DEIN: Of course I wrote down very carefully

what Judge Houser said and I put it on a piece of paper that I

don't know where I put the piece of paper. But she did say

that she was working with the parties to ensure that there was

transparency in how the plan was being developed is my

understanding.

MR. ORSECK: We commend the efforts of Judge Houser

and the mediation team. I am here to report to you that the

items that I just went through have never been produced. The

mediation team and the mediation effort is doing what it can

do, but it is no substitute for the vehicle of a 2004

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examination, where we are allowed to request specific

documents.

Again, if they have objections to them, if they say

that something is privileged or something is unduly burdensome,

well, that is what counsel typically works out in the

meet-and-confer process. That is not a reason to say that

we're not entitled to any discovery. Whatever has been going

on in the mediation, which has not been as successful

regrettably, as we had hoped it would have been in terms of

providing information is certainly no substitute, for we asked

for this stuff six months ago. 

Let me just now address, and I'll try to be brief,

what the board and AAFAF's main objections are. The reasons

they say you shouldn't get any discovery at all. The first I

am just going to be particularly brief with, and that is they

have said that some of the materials we seek implicate the

deliberate process privilege. That is the quintessential

meet-and-confer issue. To assert it in a brief as a reason to

deny our motion, I think, is unprecedented.

In any event, there has been no procedural predicate.

Judge Dein, you have expressed that in order to assert

deliberate process, as the case law says, there needs to be an

affidavit, there needs to be a log, there needs to be a list,

there needs to be a balancing test. We don't have any of that.

Even if we did, I think you can see, based on the illustrative

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items I mentioned, what we are seeking are essentially factual

materials. We are not asking for what went into a certain

policy judgment. So the deliberate process objection is no

reason to deny our motion.

The meteor one, the one that they have hitched their

wagon to in their papers, is the pending proceeding doctrine.

They want to read a version of that doctrine, to the extent it

exists, to say that once any party has filed any adversary

proceeding on any topic, a giant iron door comes down, and

discovery under rule 2004 in the main case is forever

foreclosed.

That utterly fails for a number of reasons, but let me

just say, first and foremost, the movant mutual fund group, our

co-movant, doesn't have any adversary proceeding to begin with.

The one they put as the centerpiece of that argument was the

one filed by National and Assured, which has been voluntarily

dismissed.

JUDGE DEIN: I'll hear argument on it if I need to,

but let me just state that I read it as being if there is a

direct conflict with information being requested or otherwise

proceeding in an adversary proceeding, then it needs to go

under the Federal Rules of Civil Procedure with those

safeguards. Otherwise, it is not a total ban on it.

MR. ORSECK: Let me go to that point, because I think

we said in our brief, I read the doctrine and we do the same as

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you do, to the extent it exists. The doctrine exists so you

can't circumvent the procedural and evidentiary safeguards of

Rule 26 by the artifice of saying we are going to proceed under

rule 2004.

JUDGE DEIN: But they do have another argument. I

think they go a little beyond that. They say that, to the

extent that discovery is stayed in certain proceedings, that

you shouldn't be able to use the 2004 to circumvent that.

MR. ORSECK: They do say that, but that is to

completely apply the issue. As I said, our two co-movants are

not parties to an adversary proceeding. Our adversary

proceeding, known as the clawback case, asserts that as a legal

matter, the GO bondholders have a statutory lien and other

property interests as a matter of law in these two specific

identified revenue streams. They are trying to take advantage

of the fact that we filed that adversary proceeding to say, no,

you can't get the weekly revenue and expense reports that

Ms. Duresco highlighted. You can't find out what our

definition of essential services is. You can't find any of the

underlying information as to the model that is going to be used

for the old fiscal plan and the new fiscal plan. 

All we are saying is if the court and the respondents 

want us to proceed under the constraints of Rule 26, we are 

happy to do that, and of course your Honor has -- it wasn't a 

stay, there has been no pretrial, you know, discovery 

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conference. The notion that these motions, these 2004 motions 

are a pretext to circumvent that order is just preposterous 

conspiracy theory. We have nine different parties seeking the 

basic information that we should have, and we filed the motions 

before your Honor entered the stay, as you called it, in the 

adversary proceeding. We are not trying to circumvent 

anything. 

JUDGE DEIN: I want to make it clear on what I

entered. I entered an order saying I'm not entering any orders

pending the motion to dismiss unless somebody wants one. So if

somebody wants discovery or wants an official stay or whatever

they want, they have to ask for it. I just want to make it

clear. I know a number of people referenced this order that I

entered. It was just to put you on notice that unless somebody

is asking for the case to move forward, I am not mandating that

discovery move forward.

MR. ORSECK: Forgive me. I bought into that language.

JUDGE DEIN: I just want to make that clear.

MR. ORSECK: The essential point that I wanted to make

is that there is no authority for a holding that creditors

seeking information that is plainly relevant to whether a plan

adjustment is confirmable should be precluded from taking

discovery as to those matters because a separate adversary

proceeding has not yet proceeded forward in discovery. 

Indeed, since the board raised it, we put in our reply 

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brief, there is case law that says it would be especially 

inappropriate and a perverse application of the pending 

proceeding doctrine to foreclose a party from getting 2004 

examination when discovery is not going forward at all in 

another proceeding. I think that was the Fibercon case. 

The last of their objections, I think I've touched on

already, is that the requests are stale because there will be a

new fiscal plan in the future. The responses, as I say, to

those are, number one, the underlying methodologies remain

relevant. The information that we seek regarding the financial

condition of the debtor remains more relevant than ever before,

and even if there is some change in methodology, that doesn't

mean we are not entitled to the broad and unfettered look that

2004 allows.

So I have taken up most of my time. Let me just

conclude by suggesting that the items that I've identified as,

to which I don't think there is any colorable claim of

deliberate process or of some overlap with a pending adversary

proceeding, those materials should be produced forthwith. As I

say, we requested them nearly six months ago, and mediation or

otherwise, we have gotten nowhere. Once that is done, I would

propose that the board and AAFAF be directed, within a

reasonable period of time, 30 days comes to mind, to serve us

with any principle objections they have upon which we will

respond with a meet and confer very promptly. It is in our

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interest to move promptly. And then if we can't work it out

the way all of us in this room have done probably hundreds of

times, we will come back before your Honor. But this ought to

be something that counsel can work out among themselves.

Thank you.

JUDGE DEIN: Thank you.

MR. ROMANELLO: Good afternoon, your Honor. Salvatore

Romanello from Weil Gotshal & Manges on behalf of National

Public Finance Guarantee.

We join in all of Mr. Orseck's arguments. From the

very first day in these proceedings and in virtually every

proceeding, we have told the court that disclosure and

transparency is paramount. We have tried over and over again,

you can see in all of the submissions, there are many letters,

calls, back and forth to try to get this information, basic

financial information that is produced in every debtor case.

There has been a refusal to provide that information, so we had

to bring this 2004 motion.

Your Honor, when we were before you in August, counsel

for the Oversight Board, and I am paraphrasing, said something

like the creditors are being asked to take substantial losses

here and they need to know why. They made that in reference to

the investigation that the Oversight Board wanted to hire a law

firm to undertake. That "why" question cannot be answered

unless we get the financial information. It is imperative that

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we get the basic information. When our financial people tell

us, we looked at this purported live model and we can't figure

out the calculations in it because there is hard coding and

there is references to other Excel models that we don't have,

that is a big problem for us.

This morning we started off the proceedings with

Judge Houser saying that she hoped to reach a substantially

consensual restructuring. We hope for that too, but that is

impossible unless and until we have significant disclosure on

the financial condition of the debt. We need this information

to analyze the restructuring.

We are concerned with efficiency, your Honor, that is

why, if you look at National's document requests, they align

reasonable virtually identical to the requests of the other

parties. Obviously we worked together on that. We are happy

to work together as a creditor group to get this information

and to take as much burden off of the Oversight Board and the

Commonwealth that we can, but we need to have the basic

information or else we are just going to continue down this

path of litigation.

As I said, efficiency is important, and as Mr. Orseck

noted, that in some of the litigations, materials have been

produced for parties, some creditors, only because they are a

party. That information has already been produced. It should

be produced to the whole creditor group. There is no reason or

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no burden not to make that information available.

Thank you, your Honor.

THE COURT: Thank you.

MS. MILLER: Good afternoon, your Honor. Atara Miller

from Milbank Tweed Hadlet & McCloy on behalf of Ambac Assurance

Corporation.

Your Honor, just a couple brief points. I echo the

arguments and the sentiments made by Mr. Orseck and

Mr. Romanello with respect to just the fundamental need for

creditors in these cases to have information. You know, these

requests are coming now in the form of a 2004 motion, but

frankly, Ambac has been sending letters for years asking for

the same information for an understanding of how we can come

together and work together based on basic financial information

that, frankly, there may be additional inputs that have impacts

on it, but the core information of how much it takes to run the

Commonwealth is not changing, and that is information that has

never been made available for creditors and, frankly, is going

to make reaching consensual resolution of these cases

impossible. 

One specific comment I heard Mr. Orseck make which

made me chuckle slightly to myself that I suggested that

asserting the deliberate process privilege in a brief is

unprecedented. Frankly, when I read that assertion in the

brief, I said, wow, it is like groundhog day. We have been

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here and done this before. Your Honor will remember that the

Oversight Board, in connection with discovery to the

interpleader action, asserted deliberate process privilege as a

basis not to produce documents. We had extensive discussions

in connection with those proceedings about the contours of the

deliberate process privilege, and where we came out was that it

is not a wholesale basis to refuse to produce documents, and

your Honor directed the parties to meet and confer and figure

out a way to deal with how we were going to get the information

that was not protected and still respect the deliberate process

privilege.

As Mr. Orseck suggested, we are all professionals, we

have been doing this for a long time, and we are quite capable,

as we were successful in doing in connection with the

interpleader with meeting and conferring and getting past the

privilege whether a deliberate process or otherwise in

connection with these matters and, frankly, just getting the

flow of information going.

THE COURT: Thank you.

MS. HALSTEAD: Good afternoon, your Honor. Ellen

Halstead of Cadwalader Wickersham & Taft for Assured Guaranty

Corporation.

Again, I also want to echo the thoughts of Mr. Orseck,

Mr. Romanello, and Ms. Miller. Assured is one of the largest

creditors of the Commonwealth, being about $5.4 billion of

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exposure. Quite frankly, if we were satisfied by the level of

information that was set forth in the mediations or the data

room, we wouldn't be filing the 2004 motion. Needless to say,

we have not been given sufficient transparency and information

in the data room or in the mediations and that is why we are

here before your Honor.

I echo the thoughts that other people have made today,

including your Honor, regarding the situation in Puerto Rico.

It is obviously a devastating situation. I am not disputing

that. No one is disputing that. But from our perspective, it

seems like the Oversight Board wants to pick and choose what

goes forward and what doesn't, and they very clearly do not

want to give us this information.

Today, Mr. Bienenstock said there is going to be a new

fiscal plan and it is supposed to be certified in four months,

in February 2018. But right now, we haven't been given the

sufficient level of disclosure and transparency in order for us

to review the fiscal plan and dispute the findings in it. We

just don't have that information. The cases cannot be

consensually resolved if we don't have this information. As

Mr. Orseck said, this data is not stale and the documents that

we are seeking should have been given months ago or if not a

year or more.

Thank you.

MR. HOROWITZ: Good afternoon, your Honor. Gregory

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Horowitz from Kramer Levin on behalf of the Mutual Fund Group.

Mutual Fund Group, your Honor, consists of Oppenheimer funds,

Frankfort advisors, and First Puerto Rico Family of Funds who,

in turn, represent hundreds of thousands of ordinary investors,

U.S. citizens, both in the United States and many, many

investors beyond Puerto Rico who have invested in over

$2.8 billion dollars in COFINA bonds for in excess of 30 years.

Your Honor, on behalf of Mutual Fund Group, we fully

join in the comments of --

THE COURT: Everyone. 

MR. HOROWITZ: -- Mr. Orseck and all my friends,

co-counsel.

There shouldn't be very much for me to add after all

of those counsel have talked. I will just say, your Honor,

that all of the movants here are key stakeholders in these

Title III proceedings. None of us has any desire to interpose

discovery in order to impose a burden, nobody here has any

belief that by engaging in oppressive discovery, there is going

to be any use in settlement. These discovery efforts are

reasonable and necessary to prepare for an inevitable

litigation over plans of adjustment in these Title III cases

that are going to be based on fiscal plan, financial

projections. 

It is fundamentally, your Honor, that when debtors 

seek to meet their burden through such testimony, through such 

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projections, in some cases actual expert testimony, you have to 

show your work, and that is what we are seeking here. We are 

seeking their work.

In that regard, your Honor, I will point out that one

thing that is just not a good objection in that regard is the

notion that this work includes proprietary models. Your Honor,

if my teenage children got marked off in a math exam for

failing to show their work, maybe they should say to the

teacher, I can't show my work, I am using a proprietary model.

Your Honor, there are ways of getting around the proprietary

interests, but this is not an objection when this information

needs to be disclosed and we need a chance to review it and

verse it for ourselves. That's all, your Honor.

THE COURT: Thank you.

MR. ROSENBLUM: Good afternoon, your Honor. Benjamin

Rosenblum from Jones Day on behalf of the ERS Secured Creditors

Group. ERS Secured Creditors Group represents approximately

$1.4 billion dollars of the ERS Group debt, and I am not going

to rehash all the arguments of my colleagues that were done

more eloquently than I could. We do think that transparency

and getting this information out as soon as possible, this is

basic information, is going to facilitate resolution of these

cases, consensual or otherwise. It just will move things

along. 

That's all. Thank you. 

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JUDGE DEIN: Thank you.

MR. POSSINGER: Good afternoon, Judge Dein. Paul

Possinger of Proskauer Rose on behalf of the Oversight Board as

representative of the debtors.

The one overarching theme that I want to emphasize up

front is that the Oversight Board, the government, and AAFAF

have worked tirelessly over the last many months to produce

information, post information on the data site before

mediation, during mediation, and ongoing in response to

hundreds and hundreds of creditor inquiries.

I don't have the details on what is in the data room,

so my colleague, Ms. McKeen, is going to share this argument,

so I would suggest, for a time allocation, I'll take about

12 to 15 minutes tops, and I think Ms. McKeen will need about

10 or so.

THE COURT: OK.

MR. POSSINGER: Your Honor, as you heard, there are

three motions here. The movants have conceded that the three

motions are essentially identical, and all of the discovery

requests are directed towards the fiscal plan that the board

certified in March of 2017.

It is obvious from the remarks, it is obvious from the

last 50 days since the hurricanes hit, Puerto Rico is living in

a completed new fiscal reality. Puerto Rico is faced with

major business interruptions, major impairment of revenue and

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tax collections, they are facing significant migration of

residents and industry, to the extent to which they don't yet

know and they are also in the process of trying to obtain

federal assistance, the extent to which is not yet known.

These are not line items. This is a complete game

change from the fiscal plan that we certified in March. We are

starting essentially from a blank slate. As the board

announced at the public meeting on October 31, as Judge Houser

indicated, a revised fiscal plan is now obviously necessary. A

revised fiscal plan is now underway to take Puerto Rico's new

reality into account. So the data, the assumptions, the

projections, the methodologies that led to the current

certified fiscal plan are, in fact, stale and obsolete.

The process is underway towards working towards a new

fiscal plan. The board is engaged in discussions with creditor

groups. The board is cooperating with the mediator and

mediation process, and the board and AAFAF, I should say, have

responded and will continue to respond to correct inquiries in

an attempt to get information to them through the informal

process of mediation.

THE COURT: Tell me what that means with respect to

the requests that are attached to these motions.

MR. POSSINGER: On that, I would need to defer to my

colleague, Ms. McKeen, in terms of the specific categories of

information.

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THE COURT: I don't want it item by item, but when you

say you're responding to specific requests, what does that mean

conceptually?

MR. POSSINGER: The requests we received, there have

been hundreds and hundreds of requests. They are communicated

to us through mediators and mediators' financial advisors, and

we have been responding. Additional documentation has been

posted to the data site and written responses to specific

questions have been provided, hundreds and hundreds of

questions.

In the meantime, formal discovery, formal 2004

discovery into what is involved in the current fiscal plan is

really an exercise in futility. We are not going to be using

the current fiscal plan. As I said, the data, the assumptions,

the projections are no longer relevant to Puerto Rico's

restructuring. So there is no information, little or no

information of value responsive to these requests that is going

to be relevant going forward and of value to the creditors, but

the burden on the government and the board and AAFAF would be

significant. As I said, AAFAF is going to elaborate on this.

We have spent months gathering data regarding the

existing fiscal plan and posting it to the data sites so that

it can be accessed by creditors and their advisors. Through

the mediation process, we will continue to do so.

The government and AAFAF, particularly the government

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itself, the government agencies, should not be put through the

added burden of complying with formal document requests,

sitting for depositions regarding a fiscal plan that is

currently obsolete, particularly in light of everything that

has been produced to date.

One final point I made with respect to the new

circumstances as a result of the hurricane. We are not seeing

that the change, economic and fiscal facts with respect to

Puerto Rico, merit delaying or altering the schedule regarding

pending legal disputes. The board continues to assert that the

answers to these core legal questions that are currently at the

center of pending adversary proceedings will be valuable to

establishing the path forward and getting us to a plan of

adjustment. The answers to these legal questions are not

dependent on the changes to Puerto Rico's fiscal circumstances.

(Continued on next page) 

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MR. POSSINGER: The second point I make, your Honor,

as I stated in the opposition we filed pre-hurricane, is that

the purpose of this discovery is to challenge the fiscal plan

certified in March. That's the core purpose of this, of the

discovery that they seek. And to challenge the fiscal plan is,

in essence, to challenge the certification of the fiscal plan.

The two are not severable. Certification of a fiscal plan by

the board is not subject to challenge before this Court

pursuant to Section 106(e) of PROMESA, and this is not a

technicality that we are hanging our hat on. Congress did not

want fiscal plans to be the subject of dispute or litigation or

negotiation or creditor --

JUDGE DEIN: Do you agree, though, that there's going

to be a confirmation process?

MR. POSSINGER: Yes.

JUDGE DEIN: And do you agree that the creditors are

going to have to understand the plan?

MR. POSSINGER: They're going to have to understand

the plan of adjustment.

JUDGE DEIN: Right.

MR. POSSINGER: And the plan of adjustment is going to

have to comply with the then-certified fiscal plan.

JUDGE DEIN: Right.

MR. POSSINGER: But that's not to say that a valid

confirmation objection will be that the fiscal plan did not

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comply with PROMESA. The board is the final word as to whether

the fiscal plan complies with PROMESA.

JUDGE DEIN: I understand that that's your position,

and I'm not even sure that anybody has taken that head on, so

I'm not going to speak for anybody. But do I understand that

they're asking for the discovery in anticipation of needing to

confirm the final plan.

MR. POSSINGER: That's correct.

JUDGE DEIN: It seems to me that this is an

opportunity. You've got two baskets here. You've got the

historical information that may or may not be relevant. I

understand you're auguring it's no longer relevant and they're

arguing it is, but it seems to me that we're now in a period

where you're actually working to create a new fiscal plan,

which means that you're gathering information at this moment

and doing it at a time when you know that the creditors are

going to ask for this information. So how do we make that

happen so that the disclosures which will -- it will be nothing

less than a major sin if this gets to the end and then we start

doing discovery. I mean, that is just not going to happen.

MR. POSSINGER: No, that is not --

JUDGE DEIN: Nobody wants that to happen. So the

question is then how do you make it happen now that you're in

the process of pulling together the information that actually

will eventually be disclosed? It's an opportunity.

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MR. POSSINGER: Sure. And, your Honor, that is the

purpose of the ongoing mediation exercise, the informal sharing

of information that's been ongoing for months and continues.

And as I said, the added burden of formal discovery when this

informal cooperation is underway is going to be overly

burdensome for the government and for the FOMB board when

they're now dealing with an emergency and a crisis on the

island.

JUDGE DEIN: Does it make sense, though, to work

toward a protocol for the disclosure of information going

forward? I don't know. I'm not on the mediation at all. So I

have no idea what's going on or what makes sense. From up

here, I'm sitting here with a room full of people who say we

don't have any information, and I'm sitting here with the front

row that's telling me: But we've given them all the

information. I don't know the reality. My guess is that

there's truth on both sides here.

But what happens going forward? How do you make that

happen so that when we get to the end, it's not a new request

for discovery?

MR. POSSINGER: Again, I come back to the mediation

process which has generated ample --

JUDGE DEIN: But they don't agree with that. For

whatever reason, they don't agree with it.

MR. POSSINGER: And that's where I think Judge Houser

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will come in and engage the parties in discussion as to what

they believe they don't have, what we believe they do have, and

then start a dialogue in that manner rather than proceed with a

formal discovery process and depositions. It's not our desire

to get -- to file a plan of adjustment and then start contested

matters of discovery. That's not our desire at all. We don't

believe that they're starting at ground zero. We don't believe

they're starting anywhere near ground zero. As far as a plan

of adjustment goes, when it comes time to present and confirm a

plan of adjustment, the plan will need to comply with the

fiscal plan, and we will demonstrate that.

The Court should also consider, and this is in

PROMESA, whether the creditors would do better than the

distribution under the plan if they could pursue their

Puerto Rico law remedies against the debtors. That's the

standard for best interest, not it's the best that they could

possibly do, but are they doing better than if they could go

foreclose or exercise remedies outside the bankruptcy process?

That's, you know, part of the discovery -- part of the

information that they're going to need to evaluate the plan,

and that's the information that I think has been shared or the

sharing of which is ongoing. And as I said, if there are gaps

with respect to information that's relevant, that's not

privileged, and we don't need to get into the deliberative

process of privilege with respect to any particular requests

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here today, then the information in discussions with the

mediator will be shared.

JUDGE DEIN: What about the argument that you're

producing to certain parties and not to others or you're

producing in different formats?

MR. POSSINGER: I'm not aware -- if there's documents

that have been produced in particular adversaries, my

understanding is that all the adversaries now have pending

motions to dismiss. There has been some limited discovery in

the ERS v. Altair matter because that is under a motion for

summary judgment schedule. So on that question, I think I'm

going to have to defer again to Ms. McKeen who might have

better information regarding what's actually been produced in

ongoing litigation.

JUDGE DEIN: OK.

MR. POSSINGER: Third point, your Honor, I don't want

to dwell on it, relates to the pending proceeding rule. Most

of the movants have pending motions against one or more of the

debtors. It implicates the current fiscal plan and it

implicates many, if not most, of the requests set forth in the

motions. All of those adversary proceedings are now subject to

dispositive motions. I can't go through and click off which

have discovery stays and which don't. Suffice to say, that the

movants are trying to use Rule 2004 discovery to circumvent any

limitations on discovery in the adversaries that they've chosen

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to bring. I would think that also applies to the fiscal plan

challenge adversary that was brought at the outset of this

case -- that's adversary 17-125 -- that the plaintiffs have

voluntarily withdrawn. The plaintiffs in that action made

clear that opposing the fiscal plan is going to be a strategy

in this case. 

As Mr. Bienenstock indicated, a new fiscal plan is

likely going to have far less on offer for creditors, at least

in the first five years, than the prior fiscal plan. It's

reasonable to assume that there will be renewed challenges to

that fiscal plan once it's certified. Just because plaintiffs

agreed to stand down for now doesn't mean they've abandoned

that challenge. So I would say the pending proceeding rule

applies with equal force to that adversary regardless of the

fact that it was withdrawn.

With respect to the offer or agreement in the reply

brief that any 2004 discovery would proceed pursuant to

Rule 26, I would reiterate that most of the movants have chosen

their path in this case for now. They have sued the debtors.

They're pursuing alleged rights and remedies in adversary

proceedings. If they want discovery into matters that are

germane to that litigation -- and I would submit that most, if

not all, of the requests that are attached to these motions are

germane to their litigation --

JUDGE DEIN: Do you think that they're germane to the

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ultimate confirmation issues, though, in addition to the

litigation?

MR. POSSINGER: As presently crafted, no, because they

relate to the fiscal plan that was certified in March. They

relate to the historical financial reality of Puerto Rico

that's no longer --

JUDGE DEIN: But you didn't want to produce this

information before there was going to be a new fiscal plan. So

if you had the same requests for the new fiscal plan -- do you

know what I'm asking? The types of requests that are made, do

you agree that some of that information will actually be

produced somewhere along the line for the confirmation process?

MR. POSSINGER: I don't think we're saying -- and you

know, we keep hearing that, you know, not now, not later, not

ever. That's not true. It is not true that we oppose

producing information. What we're doing now is opposing formal

2004 discovery in lieu of allowing the mediation process to

play out.

The final point I want to make and I want to

emphasize, and probably be repetitive, the board and the

Commonwealth are not trying to avoid any and all discovery in

this case. This concept is repeated. We've heard it at the

first omnibus hearing in this case. We've heard it in these

motions. We've heard it today. It's just not true. The

process of sharing information through the mediation is already

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placing significant burden on the government and its agencies.

Given the state of emergency on the island and the fact that

government and these agencies and their resources are already

stretched very thin, we, the board, ask the Court not to add a

substantial burden of formal 2004 discovery to produce

information that's going to be of little or no value to the

creditors and allow the mediation process to continue.

MS. McKEEN: Good afternoon. Elizabeth McKeen on

behalf of AAFAF.

As counsel for the board just reiterated, the

Commonwealth and the board are absolutely committed to

transparency and providing information. That is exactly what

has been happening. This is not a black box. No one is

resisting sharing information. 

And with respect to counsel who spoke previously, the

Commonwealth of Puerto Rico is not a teenage child trying to

get out of homework. It is a government leading its people

through a crisis. And as your Honor noted in connection with

the UCC argument, we can't do here what we might do in other

cases because we have to take what is the most efficient path

possible. Even before the hurricane, the government of

Puerto Rico's resources, both in terms of finances and

personnel, were stretched thin. After the hurricane there is

no question that every dollar counts, every minute of personnel

time counts. These motions aren't about transparency. They're

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about balancing competing demands for these resources. By

definition, granting these motions would result in taking away

funds and personnel from something else that they should be

accomplishing in the meantime, like working on developing the

fiscal plan with the board or running an agency, literally

getting the lights back on.

Against that backdrop of strained resources, there are

two critical reasons that these motions need not be granted,

and they've both been alluded to already. One is the fact that

there is already a robust mediation process in place through

which information is being shared with creditors. Judge Houser

is presiding over this process, and while it's not a formal

Rule 2004 discovery process, I don't think it does it credit to

call the process informal, per se, because the intensity with

which the parties have approached this mediation and put effort

into the mediation can't be understated. The amount of

information and data that's been provided is overwhelming. I

printed out just the table of contents of the data room that's

in place to bring to court, your Honor, and just the table of

contents is 17 pages long.

So the idea that we're in an information vacuum just

isn't fair. And, frankly, I don't think Judge Houser would

tolerate it. We heard her say this morning that she's

satisfied with the progress that the parties have been making,

and the cornerstone of that process so far has been the sharing

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of information that has been accomplished through the parties

and their financial advisers. The mediators have retained

their own financial adviser at the debtors' expense to

facilitate this very sharing of information.

So given that there is that robust process in place

and, as Mr. Possinger referenced, the fiscal plan undergoing a

reboot, there's no good cause in light of that to subject the

Commonwealth and the board to very voluminous kind of

rifle-shot discovery requests that are overlapping with one

another. They're extremely burdensome, and importantly, they

have not been revised or amended in any way to reflect what has

already been shared with the creditors through the mediation

process. These were requests that were first formulated and

propounded as attached to these motions back in August.

There's been a huge amount of information that was not only

shared before that time but has been shared since that time.

While we've heard counsel make reference to a

meet-and-confer process, I think, acknowledging that it

wouldn't make sense on its face for the Court to actually grant

the order that they propose requiring compliance within ten

days, if the Court were inclined to order such a meet and

confer, I think the first step would be to ask the creditors to

go back and narrowly tailor their requests so they make sense

in light of the new world we're in. And that would include not

only it's going to be a new fiscal plan but what's already been

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provided to them.

So I think, with that framework in mind, I want to

respond to some of the specific points that were made earlier

about what we have and haven't provided. AAFAF is now posting

the Commonwealth's liquidity weekly. Regarding some of the

arguments about the basis for macroeconomic findings, all the

source data relating to that point is in the data room already.

It's in folder 2.1.3. It's right there for anyone who wants to

look at it. And I think, to the extent there are these

isolated issues and specific requests that need to be addressed

that were mentioned in some of the creditors' reply papers, the

best way for the Court to facilitate that is to continue to

have the financial advisers address these issues with each

other through the mediation process that's under Judge Houser's

auspices so that things can be done efficiently and in a

targeted manner, not to cut the legs out from underneath that

process by essentially having it proceed and then with a side

Rule 2004 process running in parallel. I think that's the

opposite of what the efficiencies of the situation suggest

would be appropriate.

I think, from the Commonwealth's perspective, at the

end of the day, given the amount of information that's been

provided through the mediation, the Rule 2004 requests as

they're formulated would not only be burdensome and

inefficient, they would be premature. That is not to say that

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the Commonwealth isn't committed to providing information. I

think it plainly is, and I think the work that the Commonwealth

and the board have done with Judge Houser and under her

auspices has not only shown that commitment, but it's not

finished yet. And so I think it would be a mistake to take

isolated examples of points of data or documents that we're

still in the process of providing and gathering and saying that

that's a basis for authorizing Rule 2004 discovery.

I think that the best course of action would be for

the Court to let that mediation process work, to let the new

fiscal plan be submitted to the board, hopefully certified.

And then if the mediation process isn't successful or if these

things can't be resolved in that way once the new fiscal plan

has been certified, that would be a much more appropriate time

for creditors to come forward with narrowly tailored requests.

But the sort of 70-plus requests that are attached to these

motions that were formulated based on the old fiscal plan and

months before hundreds of more questions have been answered

through the mediation process, I think that would frustrate not

only the mediation but impose undue burden on the Commonwealth.

Counsel's suggestion that maybe what should just

happen is that the Commonwealth have 30 days to provide written

objections and responses to these burdensome requests, that's

30 days that AAFAF and the Commonwealth and the board should be

using to get that fiscal plan ready. And the idea that we

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should take those 70 requests that haven't been narrowed at all

in light of what's in the data room, haven't been tailored

around the fact that we are having a fiscal plan reboot, that

it should be our burden to start with those rather than their

burden to first take a look and figure out what do we still

really need, the burden should be on them and not on us.

JUDGE DEIN: Does it make sense, be it through

mediation or otherwise, to have that process of identifying the

types of documents that will be produced, an agreement on that,

which would be perhaps a new set of requests, attorneys

responding, so not the actual production necessarily, but

working together towards at least agreeing on the scope of

information that will be produced? And the other thing, I

can't help but oversimplify the situation, but you are starting

from scratch. And it seems to me that now's the opportunity to

really figure out how the information gets conveyed in an

ongoing process so that it's not a surprise at the end.

MS. McKEEN: I agree with that, your Honor, and I

think my answer to both those questions is the same, which is

that's exactly why Judge Houser and the financial adviser that

the mediators have hired -- that's why they are working so hard

to facilitate exactly what you've just described. The

information that the Commonwealth and the board are providing

as part of that process is not only being closely managed by

Judge Houser, it necessarily involves input from the creditors.

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They and their financial advisers are conferring, as are we

with the mediators, to figure out who would like what

information, how can we get it to them. And the process that

you just described and envisioned in terms of let's think about

what information needs to be shared and what makes sense,

that's exactly the process that's already going on. So the

idea of doing Rule 2004 discovery against that backdrop, I

think, would only frustrate and duplicate that process rather

than work in harmony with it. I think we should allow that

process to continue to work instead of cutting its legs out

from underneath it.

JUDGE DEIN: Do you anticipate as part of that process

that discovery will be produced prior to the fiscal plan being

certified.

MS. McKEEN: Information is being provided pursuant to

that process all the time. Every week there is new information

that's going in the data room. In advance of listening

sessions, there are questions being answered. So this is not a

situation where the requests are all sort of going into a box

that's going to be opened later. This is a very iterative,

happening-in-real-time process that Judge Houser's actively

managing, and I think that that illustrates that, particularly

given the resource-constrained situation we're in, having a

sort of parallel but different Rule 2004 way of getting at the

same information would be particularly inappropriate in this

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case. Thank you, your Honor.

JUDGE DEIN: Thank you.

MR. ORSECK: Thank you, Judge. I scarcely know where

to start. Let me begin, I think, here. The overriding theme

that I take from both of counsel's remarks is that the

ultimate, the ultimate goal that they put forward is to avoid

any judicial oversight of what they produce and when and to

arrogate to themselves authority to produce or not to produce

as they see fit. That is why we keep hearing about the

mediation and all of this is happening through the mediation,

and every day we're told new documents are posted to the data

room through the mediation. The mediation has gone on for six

months, and we don't have the materials that I listed for you.

I listened to Mr. Possinger say that he was going to

defer to his colleague, Ms. McKeen, who was going to recite to

you chapter and verse the documents we did get. I listened

very carefully. She said something about a folder 2.1.3. I

can tell you that none of the categories, which again I listed

for illustrative purposes only, has been produced to us through

the mediation.

JUDGE DEIN: But do you feel that you have the

opportunity in the mediation to bring up those kind of

objections?

MR. ORSECK: We have an opportunity to bring up. We

have no opportunity to force. And I think it is a little

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cynical to repeatedly invoke Judge Houser as the basis upon

which we will get what we want when I am prohibited from

telling you what's gone on in mediation. What I will say, what

I will say, and I am out on a limb for not conferring with my

clients on this, but if Judge Houser -- if the Oversight Board

and AAFAF will authorize it, we'll be happy for Judge Houser to

tell you what has and hasn't been produced in that process.

We've got nine parties telling you --

JUDGE DEIN: That answer is not what I need because

the problem with the 2004 and the problem with me authorizing

that is that it's not in the context of an actual reality of a

fiscal plan, and it's not -- right now the requests are broad,

and right now they do relate to an old fiscal plan. So that's

easy. I mean, that's clearly inappropriate. The question then

becomes does the Court sit there and do the meet and confer, or

do you do that in the context of a mediation where the

mediators do have their own financial fiscal adviser and they

are working together to develop what type of information you

need to evaluate this and that is actually more technically

savvy than I am in evaluating your requests? That's a problem

for me. It's a problem for me to sit here and look at this

list and say, maybe this should be produced or that should be

produced.

A 2004, as you've requested, is very broad. So I want

the message to be that it's not without judicial oversight at

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some point. At some point, if there's no cooperation in the

mediation, if people are really not getting anything that they

need, if you want to say have it certified that says, look,

we're not continuing the discussions about the materials that

should be produced, there's certainly judicial oversight and

there's certainly a point in the process where 2004 may be

appropriate or targeted 2004 discovery may be appropriate. I

just don't know whether or not the opportunity is now to work

with the mediators right now, because the new fiscal plan is in

the process of being developed, to say that as you're

developing it, this is the type of data that we need, this

is -- you know, your basic assumptions, your basic numbers. I

mean, somebody's going to come up with a plan that's going to

be based on something, based on information that's being

gathered right now.

MR. ORSECK: Judge, with respect, the "at some point"

is today. We have been at this in mediation for six months.

And as I started to say, I waited to hear somebody say to you:

We have produced the materials Mr. Orseck listed. We are going

to produce the materials Mr. Orseck listed. Instead, all we

got were generalities: We are committed to transparency, we

believe in working cooperatively, and there has been

cooperation. To take the Tango metaphor again, it takes two to

Tango. You can't have one side to a litigation pronounce to

the Court that there has been cooperation. All nine of us are

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here to tell you that there has not been. So it is not that

we're here for sport or to impose cost or burden or because we

don't believe in the mediation process. Judge Houser doesn't

have authority and hasn't exercised authority to make the board

produce the materials that we are entitled to, and that's a

fact, and that has been our experience over a long period of

time.

So we are coming to the Court only as a last resort,

not because we don't believe in working things out among

counsel. I have recited to you what we need, and not only

that, as I have said, these are materials that are relevant to

the fair and equitable test. They're not tethered to any

particular fiscal plan. They are just requests to discover the

financial condition of the debtor. Mr. Possinger's response,

the most circular thing I ever heard, he said the plan of

adjustment needs to be consistent with the fiscal plan, and the

fiscal plan isn't out yet, so you're not entitled to any

documents that tell you what the financial condition of the

debtor is. They suggest but they stop well short of committing

that they will produce these materials after there's a new

fiscal plan.

Remember, we didn't get these documents for many, many

months when nobody thought there was going to be a second

fiscal plan. We had a single fiscal plan, we had no hurricane,

and we got the argument that Mr. Possinger referred to again

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today, which I thought was dead and buried. It's not in their

brief. That argument is you creditors don't have any right to

challenge the fiscal plan. That authority is reposed solely in

the board, and all of your requests someway, somehow connect to

the fiscal plan or bear on the fiscal plan. And so the

conclusion is you don't have any right to get discovery of

those. We'll give you maybe what we want out of our good

graces. That was the argument they put to us in June when we

proceeded informally. In their brief, they abandoned that

argument. All they said was the pending proceeding doctrine

and deliberative process, but now we hear it again.

So this continued hiding behind you might get it

someday when it's appropriate, when it becomes appropriate, you

might get it in mediation if you'll just work cooperatively

with us -- you're at a disadvantage, I acknowledge, Judge,

because you have one set of litigants saying: I don't know

what they're talking about, we are working cooperatively, they

can get what they need, or they will actually stand before you

and tell you that we have gotten what we need, and I'm here

telling you, as are all my colleagues, just the opposite.

There is no solution to that other than the process of

discovery. If they want to object and say we're not entitled

to something, if they want to say that a document doesn't exist

and we need to bring a motion to compel, that is the only way

to resolve this circumstance. There is no more kicking the can

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down the road when we are told that there will be a new fiscal

plan in February.

What are we to do? We are utterly unequipped to

assess whether any plan of adjustment is fair and equitable

unless we have complete transparency. And they continue to

stand before you and tell you a combination of we don't have a

right to it and we've already given it to them. That's why

we're here. And I am sorry, but to suggest that we need to go

through more paces and go back to Judge Houser again and ask

her to try to persuade them to give us what we're statutorily

entitled to, we're just going to end up back before you much

later, and it's going to delay things. So that is my basic

response.

I want to just mention one other thing here. I think

I heard Mr. Possinger say that there aren't any other adversary

proceedings in which materials have been produced that haven't

been produced to us. The Peaje proceeding, I have Mr. Wolf's

declaration in that and in another proceeding. We know there's

been discovery in that proceeding, and I believe in the

interpleader proceeding too. So those materials are out there.

JUDGE DEIN: Let me ask Ms. McKeen to respond to that

issue of whether or not there are materials that have been

produced to other parties that are not being produced here.

MS. McKEEN: Your Honor, there are materials that have

been produced in connection with individual adversary

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proceedings. Peaje is an example of an adversary in which

material has been produced not only to those parties and that

adversary but to, I believe, other parties in the HTA Title

III, including Ambac and Assured.

JUDGE DEIN: So is there a reason that it would not be

produced now?

MS. McKEEN: I don't think it was previously

contemplated, but I think the parties could certainly meet and

confer about the propriety of producing that pursuant to an

appropriate protective order if it's already been shared with

other parties.

MR. ORSECK: Let me speak to that for a moment. I'll

tell you where that stands. It was offered to us if we would

drop our 2004 examination. Does that sound like a policy of

sunshine, as counsel called it, or transparency? We don't have

it because they wouldn't give it to us unless we would drop our

discovery request.

Two small final points. One is I heard again, and I

just -- I'm almost without words, that the problem here is that

our document requests is a rifle shot and that we have never

revised it to limit it in light of Maria or narrowly tailor it.

We were told to pound sand on multiple grounds. You have no

entitlement to discovery because it seeks to undermine our

authority for certification. And now they wait until we're at

the hearing, which we've waited forever to get before you, and

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they say: You know what should happen next? They should go

back to the drawing board and try to be more careful about what

they request. And then they'll tell us the same things they've

told us before: Buzz off. We're not going to produce anything.

Then we'll come back before you, and then it will be February

or March. That's the first point.

The second point is this data room you keep hearing

about. The materials in the data room, limited as they are,

some of them are subject to the mediation agreement. So they

are limited in that respect. Some of them are subject to

nondisclosure agreements that we're not even allowed to share

with our clients who are much more sophisticated about these

materials than we are. The mediation process has not been an

effective vehicle for us to get what we need. And I will just

say the thing I've said before. All you have to look at is the

list of materials I set out. There is no debate that they fall

squarely within what is discoverable under Rule 2004. There is

no debate that they go to the fair and equitable test for

confirmation. Has nothing to do with what fiscal plan we're

looking at or not. And counsel, despite plenty of

opportunities, has never suggested that those materials have

been produced. Thank you.

JUDGE DEIN: I knew you'd stand up eventually.

MR. BIENENSTOCK: Thank you, your Honor. Martin

Bienenstock, Proskauer Rose, for the Oversight Board. I

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appreciate the opportunity to respond to those last remarks

which we submit, your Honor, are categorically incorrect.

Number one, there's a premise that the ad hoc group or

the mutual fund group has asserted here that at confirmation

you are going to be able to attack the fiscal plan because the

plan of adjustment is supposed to be consistent with the fiscal

plan. Their premise is totally false. Why is it false?

Because there's only one part of the fiscal plan that bears on

the plan of adjustment. That's the debt sustainability

analysis, how much is available for debt service. It's a

requirement in PROMESA that the plan of adjustment be compliant

with the fiscal plan; meaning, we can't spend more on debt

service in the plan of adjustment than the fiscal plan says is

available for debt service.

The test for the creditors at confirmation is not this

fair and equitable test that you've been hearing about all

morning, as if everything is all open. The test is, as my

partner Mr. Possinger said earlier, could the creditors,

outside of bankruptcy, using Puerto Rico law and the priorities

under it, if they all ran to the courthouse and stampeded,

would they come up with more collectively than is being offered

to them under the plan? And PROMESA says in Section 314, the

Court can consider that. So that's the test.

Now I'd like to get to something constructive, your

Honor, because your Honor's asked, well, what will you give?

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And that's the question. And the board and AAFAF have been

determined to be completely transparent. We have been and will

give all of the raw data that we get, that we will use to try

to formulate a sensible, successful fiscal plan. What you

heard earlier, although it might not have been all connected

for your Honor, is that's not what they're asking for in the

main. They know they have that, and they'll be getting the new

information that we get. They're asking for how Ernst & Young

came up to its conclusions that the actual expenses that would

be incurred by the Commonwealth in the prior fiscal plan would

be more than the expenses that were on the Commonwealth's

books. That's what was called the reconciliation analysis, and

that's what added up to a $600-million-a-year cost.

Fortunately, we have no reason to believe that in the new

fiscal plan there's going to be anything like that, but he's

asking for Ernst & Young's thought processes. 

To be sure, they can go out and hire experts who will

have different thought processes. And that's where

Mr. Possinger tried to explain before, Congress knew that could

happen, and that's why it said we're not letting people

challenge the Oversight Board's judgments on what they do with

the data in the fiscal plan. It was extraordinary. I mean,

not many statutes do something like that, but they said no

district court has subject matter jurisdiction to challenge it.

So what they want is they basically want the mental work

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product of how you took the data and decided what it meant for

the future.

Now, as I said, we have been sharing, we will continue

to share all the raw data we get. Someone said earlier that

they want to know how much the running the government costs,

and we haven't provided that. Your Honor, there's a public

budget. How can you get more specific about how much the

government costs than the public budget?

Another fact that the moving parties are ignoring or

not mentioning is that this is a public governmental entity. A

lot of the information that they say they always get is already

public, not just to them, it's to anyone who has a computer who

can get on the Internet can get onto AAFAF's sites and see all

this public data. It's been public all along.

I think if we were to respond to all of the requests

in the motion, what we would be back to you with is this: Raw

data, yes, you should have the same data to work with that we

have to work with. But the judgment calls that Ernst & Young

or another expert came up with to determine how certain raw

data may understate actual costs, what's the purpose of giving

them that, especially for a fiscal plan that is now stale and,

you know, we're having to do all over again?

So, constructively, I would hope and ask that what we

do going forward is let's make sure they get all the raw data.

We think they're getting it already. If there's some raw data

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they're not getting, we can fix that, and then your Honor can

weigh any requests they have that go beyond that. Thank you.

MR. ORSECK: May I have 60 seconds?

JUDGE DEIN: Yes, as opposed to a minute.

MR. ORSECK: I was going to say 30, and then I

switched it to 60. The first thing is I think we need to be

clear about the legal test. Mr. Bienenstock has now said that

what matters at confirmation is that the plan of adjustment be

consistent with the fiscal plan; and, therefore, there's no

need to discover what's underlying the fiscal plan. All you

have to do is compare the two. That is one of the tests. That

is one of the tests, but there are two other tests. One is the

fair and equitable test which we cited at length in our brief

and all sorts of authority. And what that means is that the

creditors have to be provided all that could reasonably be

provided by the debtors. That is a separate requirement, and

that's the target of our request.

There's a third requirement too, which is that any

plan of adjustment needs to be in the best interests of

creditors. So that's a misdirection that we're seeking

something that we're not entitled to as a legal matter.

Second point, what we're hearing yet again, now from

three separate lawyers, is they are offering you, Judge,

something, anything, to avoid your imposing an order that

compels them to provide documents. We've now heard: You

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already have the raw data. I am standing here before you to

tell you that that is untrue. If they're saying, I promise to

give it to them if only you won't impose an order allowing a

2004 examination, all the more reason to do so when we have a

six-month history of their failure to do that.

The last point, Mr. Bienenstock reiterated that some

of the materials we're seeking go to deliberative process. We

disagree, but that's what we have meet and confer for. If they

think some of the materials we've requested are an overreach or

are protected, sit down with us and talk about it under the

auspices of a Rule 2004 order.

Thank you, Judge.

JUDGE DEIN: Since part of my other life is being a

mediator, unfortunately not in this case, I do recognize that

the process itself can be very frustrating and difficult, but I

think it's something that has made a lot of progress as I

understand it in this case, without understanding the details,

and really does need further opportunity to proceed.

I think the 2004 is premature in this case, but again,

a denial would be without prejudice. You need to make this

work, and you need to be able to agree on the disclosure of

this information. I've just heard: "We will disclose all raw

data," or, "We have been disclosing all raw data," and, "We

don't have all the raw data." I don't know the answer to that

because I don't even know what the scope of the raw data is.

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But that seems to me to be something that needs to be

reconciled. I think that the government entity needs to

understand that the Court will step in, all right. That is a

very real problem, concern. Understand that there's a limit.

This information and their ability to understand the ultimate

fiscal plan is real. And maybe I'll have to finesse what the

standard is, but fundamentally they're going to have to

understand what it is and what it's based on. I'm going to say

that without analyzing all the different levels of PROMESA and

what the analysis requires. But, fundamentally, there has to

be an understanding of what you're proposing and why.

I will entertain another 2004 like I did with the UCC

committee, but it has to be targeted. So the denial is without

prejudice. It has to be based on specific, more limited

requests, and more like a motion to compel and a representation

to me that says: We've asked for it. We didn't get it. We've

tried. We need it. But it's got to be much more targeted than

the general request that exists now. They're too broad. The

meet and confer at this point, unfortunately, would require the

rewriting of the request because time has gone by. And I will

admit, in most cases you don't have such a total rewrite

necessary due to the time delay.

I will certainly entertain having more frequent

meetings on this if that's appropriate. If the creditors feel

that we need to put this on a track -- a discovery type of

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track, I will be certainly happy to entertain that. I do think

that you have heard and have probably stated that the mediation

is very available and certainly on the front burner right now

that the fiscal plan is being rewritten. Now is really the

time to set the parameters for what is being produced. I can't

emphasize that enough. I think the goals are the same, and I

think that the mediators need the opportunity to see if that

can happen.

That having been said, I recognize mediation's a very

frustrating process, and it does mean that you -- no side wins;

right? I used to say I mediate in a robe so nobody can throw

anything at me, all right, because that's the reality. The

government's going to have to give more than they want, and the

creditors are going to have to get a little less than they

want, but there is a process there to work that through.

All right. So I am going to deny the motions without

prejudice but with the understanding that I will entertain

subsequent motions. And progress just really, really needs to

be made on this.

Did we do it in less than 90 minutes? I don't know.

I've lost track. All right. I think I have one more thing on.

I have the motion to strike.

MR. DAVID: Thank you, your Honor. Kenneth David,

Kasowitz Benson Torres on behalf of Whitebox. I think we've

been allotted 20 minutes in total. So I'll take ten minutes of

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that, and if it's OK with you, I'll allot seven minutes for

opening and three minutes for rebuttal. Hopefully won't need

all of that.

Your Honor, we think this is pretty straightforward

based on the record and the transcripts here. First, Judge

Swain, when she set the schedule in the interpleader action,

denied two separate applications to have substantive motions

heard before the discovery began and was completed. So based

on that, the parties served discovery. Later, in early July we

were before your Honor in Boston to hear discovery disputes

concerning that discovery, and in fact this very issue came up.

And in order, I think -- I don't want to put words in your

Honor's mouth, but in order to comply with the schedule that

was set by Judge Swain, which was to have discovery completed

by September 1, you thought the only way to do that would be to

narrow the time frame for discovery. We objected to that with

respect, of course, because our allegations were and our

position was that there were defaults that went prior to 2017,

meaning all the way back to 2015. But at that hearing you and

I had you an extensive discussion back and forth about whether

or not that discovery was appropriate now. And it's clear from

the transcript that your Honor ruled that discovery would be

deferred to another phase after summary judgment on the 2017

defaults. In fact, it's quite clear from both the transcript

and from the order that both discovery and any summary judgment

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motions thereafter for the pre-2017 defaults would await a

second or a phase 2A or an interim phase, as I think is the way

you described it.

The next day you issued an order that was equally

clear, in our view, and everyone relied on those orders and

those rulings. And in fact, Ambac and Whitebox, the two

movants here, clearly relied on that and did not pursue that

discovery at that time. In fact, all the parties to the

interpleader relied on that except for the mutual fund group

and the Puerto Rico fund group. When it came time for summary

judgment, they filed summary judgment seeking a summary

judgment ruling on the pre-2017 defaults.

Your Honor, we think that's inconsistent with both

your ruling and your order from July, and we think it

prejudices the Whitebox -- Whitebox and Ambac group as well as

anyone else. In fact, your Honor, in the summary judgments

that were filed, all the parties, including Bank of New York

and Assured complied with your rulings to not address the

pre-2017 defaults.

JUDGE DEIN: And my memory was that we focused on 2017

because those are actually the clearest. And while there may

be some remnants, if you don't prevail on 2017, that the

decision on the 2017 would be instructive as to the likelihood

of success on the other claimed defense.

MR. DAVID: Correct, your Honor. You in fact

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encouraged us to wait until the summary judgment was decided

and then reevaluate whether or not we wanted to pursue the

pre-2017 defaults. And in fact we took that guidance and we

will do that, and we're awaiting the completion of the summary

judgment before we make those decisions.

But, of course, one of the key points that I raised

with you on July 5 in Boston was without the discovery, we

didn't want to be prejudiced. And the outcome of that, of

course, was we weren't going to be prejudiced because this

would be deferred to a different phase. But now, with the

mutual fund group and the Puerto Rico fund group making their

summary judgment, that prejudice that I was concerned about and

that you and I discussed and assured ourselves we wouldn't be

prejudiced is coming to fruition.

JUDGE DEIN: Let me just ask, because they do raise

the point that they do raise a strictly legal argument that's

not fact based. What do you say to that?

MR. DAVID: Your Honor, we don't think it's a strictly

legal argument. We think there are fact issues. For example,

they've put at issue whether or not the defaults were actually

real defaults under the resolution, and, of course, we need to

know. The same discovery that we took and that is applicable

for the 2017 default is appropriate for the pre-2017 defaults,

specifically what was the effect of the events that we allege

were actual defaults?

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And then there are other points too, your Honor,

regarding notice. Notice and whether it was procedurally

appropriate is a key issue in their motion, and we think there

are fact issues even to those arguments. And specifically,

their entire argument is based on who is or isn't a registered

owner under the resolution, but that term is not defined.

There are other defined terms that ultimately wind up with a

definition -- with the definition of registered owner, but the

term "registered owner" itself is not defined. So we think

discovery is appropriate about who the parties thought a

registered owner would be and who should be, because under

their view, it leads to the absurd result that the only entity

that could provide -- excuse me, the only holder that can issue

a notice of default would be DTC and not any of the actual

holders that have the economic interest.

JUDGE DEIN: Before you go on, just so that the record

is clear, this is a motion to strike in 17 adversary proceeding

133 the Bank of New York Mellon interpleader action.

MR. DAVID: Your Honor, the other point they make is

that somehow they weren't on notice and that they weren't at

this hearing that I'm referring to in Boston. Clearly, they

were on notice of the hearing. They were on notice that it was

happening, and they could have come. And even if there's an

excuse for them not coming, it's clear that they were on notice

of what happened at the hearing and what your order said. In

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fact, the docket in this case in the interpleader action

reflects that counsel for the mutual fund group ordered the

transcript that very day of the hearing. So they knew what

happened, because if you read that transcript, it is clear as a

bell, it's over ten pages of back and forth between you and I,

what the result was. So they waited from July 5 until November

to raise these issues while all the other parties in the case

were relying on your Honor's rulings and order to not address

the pre-2017 default.

So we think, your Honor, if they're allowed to make

this motion, it's highly prejudicial to us. We have to both

make the procedural arguments about what discovery is necessary

but also just to be safe, we'd have to make the substantive

argument as well. So the whole point of our discussion back in

July was if we're going to have to do that, we should be

entitled to the discovery first.

So with that, I'll save the rest for rebuttal. Thank

you.

JUDGE DEIN: Thank you.

MR. BENTLEY: Good afternoon. Philip Bentley of

Kramer Levin for the mutual fund group. By agreement with my

cocounsel, Mr. Zakia of White and Case who represents the

Puerto Rico Funds, I'll be taking the lead in responding to the

motion. Mr. Zakia may have brief comments to add after I'm

done.

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JUDGE DEIN: OK.

MR. BENTLEY: Your Honor, let me very briefly talk

about your order and the motions that you are resolving, but

then I'd like to turn and focus principally on practical

consequences and what would be a resolution here that would not

cause any prejudice to the movants and that would avoid the

very substantial harms that would result if the relief they're

seeking is was granted.

Just starting very briefly with your order, and I

won't belabor it because we briefed it.

JUDGE DEIN: I was there.

MR. BENTLEY: Your Honor probably knows better than we

do what you intended. I'll limit myself to two quick points.

One is, as your Honor knows very well, your order which was

captioned an order resolving discovery disputes doesn't even

mention the scheduling order. We think it's clear there was no

intent to look at what the scheduling order provides, what

arguments were made by both sides when the scheduling order was

briefed and then entered by Judge Swain, let alone to modify

the scheduling order. Moreover, because the matters that were

before you in Boston on July 5 were merely discovery disputes

and not one of the motions said anything about possibly

modifying the scheduling order, not all of the parties to the

interpleader appeared before you, and as a result, if your

Honor was -- to the extent your Honor intended possibly to

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modify the scheduling order, you were doing so without having

been informed of what the consequences of that might be.

And with that I'd like to turn to the practical

consequences of doing it their way versus doing it the way

Judge Swain has already ordered. My friend, Mr. David, has

made a lot of supposed prejudice. With respect, we don't think

there's any prejudice at all from leaving Judge Swain's

scheduling order in place with no modification, no striking of

our summary judgment motion. He's mentioned two supposed kinds

of prejudice. One has to do with the limits of the motion he

made, the fact that he didn't move for summary judgment, and he

says other parties also chose, made a decision, not to move for

summary judgment as to pre-2017 defaults.

Your Honor, I have a simple response to that. Putting

aside the fact that we think the reason they didn't move for

that relief is that would have been preposterous relief, as

your Honor has recognized, the strongest defaults, alleged

defaulted, the ones that have the best shot of possibly winning

are the 2017 ones. If Judge Swain rejects those alleged

defaults, says they're not defaults, the notion that earlier

defaults might be defaults and might even be adjudged defaults

on summary judgment seems to me slim to none. But put that

aside. If they want to move for summary judgment as to

pre-2017 defaults, we don't object. That is, we're prepared to

waive the fact that they're now late in doing that. If they

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want, when they respond to our summary judgment motion, to make

it a response and cross-motion and throw in a --

(Continued on next page)

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THE COURT: They want discovery.

MR. BENTLEY: Let me turn to that. Let me turn to

that. The relief they are seeking would have one basic fact,

and it would preclude us from arguing to Judge Swain, as we

have done in our summary judgment motion, that there are purely

legal grounds, not factual grounds, that don't need discovery

on which the pre-2017 defaults can be disposed of. 

If they think they need discovery to respond, the 

federal rules give them a clear remedy. Rule 56(d) says they 

can argue that this is just as if we had made a summary 

judgment motion before there was discovery in the case. If 

they thought they needed discovery, they would cite Rule 56(d). 

They argued that they need discovery, that it is not fair to 

rule on summary judgment prior to discovery. They can make 

that argument now. Judge Swain will not grant summary judgment 

on your favor in the pre-2017 issues.

We don't think there is any prejudice to them there.

It is simply a matter of them asking to deprive Judge Swain of

the ability to determine whether the pre-2017 alleged defaults

are defaults where discovery is needed before she can probably

address summary judgment. We think they are clearly not. 

While I don't want to get into the merits, let me just 

very briefly respond to Mr. David and briefly address the 

merits. He mentioned this issue of we argue that most of the 

notices of default were deficient, including a bunch of 2017 

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notices, as well as all of the pre-2017 notices. We said they 

were deficient because they didn't comply with the requirements 

contained in the COFINA resolution, and we think that is an 

issue that can be decided on the face of the resolution and on 

the face of the notices. You would look at the notices, you 

ask whether they satisfy the requirements. 

They say we need discovery into what the resolution

meant, what did it mean when it says registered owner. Your

Honor, this is a simple answer to that. That issue has been

before the court from the very outset in this case because it

relates to 2017 defaults as well as 2016 and 2015 defaults. 

When they were up before your Honor on July 5th, 

nobody had moved to strike discovery with respect to the 

meaning of the resolution, the resolutions' requirements, 

notice requirements for notices of default, because they had 

not served any discovery requests seeking to interpret the 

resolution. So they made their choice. They concluded that 

they don't need discovery on that issue. Nothing has changed. 

The fact that your Honor said they can't have discovery as to 

the existence or nonexistence of defaults prior to 2017, that's 

a separate issue. 

THE COURT: Let me be honest. My least favorite

activity is reading my own transcripts, but I think I made it

clear at the hearing that I was limiting summary judgments,

appropriately or not, to the 2017 default. The colloquy was

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once that is decided, we will see what's left, if there is

anything, whether it is pursuing. I am not going to change

that. That was the ruling and the transcript was available and

was obtained and you don't have the luxury of not reading my

transcript.

MR. BENTLEY: Your Honor, we read your transcript. We

also read your order, and we do rely on the principle that what

your Honor says in an order is more authoritative than what

might be said in colloquy at a hearing.

JUDGE DEIN: I think as I wrote the order and as I

read it, it was that the summary judgments will be on the 2017

and then thereafter the parties can see if it is without

prejudice to seeking others. I don't want to get caught up in

delaying the resolution of the 2017 summary judgments on a

whole fight about whether or not discovery is needed on

something else. That is what is going to happen.

Actually, I am going to strike the pre-2017 arguments.

You are free to, if you think to move separately and have a

separate fight about it, you can do that, or you can wait until

the resolution of the 2017 decisions and see if it is renewed,

if the arguments are renewed by the other side. But I think it

is actually more complicated to keep the pre-2017 arguments in

there.

MR. BENTLEY: Your Honor, then may I address,

recognizing your Honor's ruling, can I address the precise form

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of the relief you're going to enter?

The order that was proposed, along with the motion,

proposed something that we think is really improper. They

annexed portions of our brief, they were striking parts of our

brief that applied to 2017 as well as to 2016. We think that

is wrong. There is a simple alternative way to go, and that is

your Honor should order a one-line order that says, defaults of

the following sort may not be determined by summary judgment on

the pending summary judgment motions. And if I may address

what X should be, defaults of the following sort?

JUDGE DEIN: Do you want to talk about that and see if

you can submit something to me?

MR. BENTLEY: I'm happy to discuss it with them. I

think it is very clear what the dispute is going to be, and I

think it might be more efficient for me to raise it now. If we

can't resolve it now, I am happy to follow up and discuss it

with them.

We would propose that the order say what's off

limits on the current summary judgment is the existence or

nonexistence of defaults prior to 2017. Now, I want to be

clear about what we're not including in that category. What

we're not including is we have argued, as you have heard, that

even if those were defaults, they couldn't have ripened into

event of default because the notices that were given didn't

comply with the resolution. That is a different issue.

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Your Honor did not preclude discovery on that issue

because nobody had requested discovery on that issue. Even

though that issue has been on the table from the beginning,

that is an issue that affects the 2017 notice of default as

well as the 2016. So we say there is no basis to put that off

limits.

JUDGE DEIN: I think you're fine-tuning something that

I didn't intend. I think that the summary judgment shall be

limited to defaults or events of default occurring in 2017.

Does that make sense?

MR. BENTLEY: Your Honor, with respect to what that

doesn't grapple with is the fact that your Honor didn't

preclude them from taking any discovery as to the adequacy of

notice at any time, either 2017 or pre 2017. That was not

before your Honor.

JUDGE DEIN: If you have raised an argument that says

that the notice was deficient in 2017 and that is going to be

resolved in connection with the 2017, then there will be a

ruling on that. And you will either look at it and say this

applies to pre 2017 or our notices were so different that it

doesn't apply.

MR. BENTLEY: If there is an efficient way to come

back to Judge Swain to deal with that, I am sure we can work

something out that would be a solution as well, your Honor.

JUDGE DEIN: I don't think I should be striking lines

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off every -- I think you may want to. If you want leave to

refile, you can. But if not, I would just enter an order that

says that the summary judgment is limited to default or events

of default occurring in 2017, the issues for summary judgment.

Does that work?

MR. DAVID: Just to ensure I am on the microphone,

your Honor, that's fine with us. I take issue with some of

Mr. Bentley's comments about what we have sought. Your Honor's

phrasing of the order and decision is fine with us and we are

comfortable with that. Thank you.

MS. MILLER: Your Honor, Atara Miller from Milbank on

behalf of Ambac. 

We are also fine with that. I just do want to make

clear on the record that with respect to Mr. Bentley's argument 

about the sufficiency of notice, we have also advanced in our 

motion for summary judgment that notice and cure was not needed 

because the acts of the common law COFINA were fundamental 

repudiations of the agreement. So that argument, to the extent 

that we are going to talk about sufficiency of notice, is 

certainly something that we would want discovery on that goes 

directly to that. I think it is appropriate to keep it all off 

the table as you proposed. 

JUDGE DEIN: If there is a fight about the notice in

2017, that is on the table. That is part of the summary

judgments. 

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MS. MILLER: Agreed. Thank you.

THE COURT: We are not done.

MR. SACK: Jason Sack on behalf the Puerto Rico Funds.

I am not here to reargue anything. I want to ask, given your

Honor's ruling, one point of clarification just so I make sure

we respond appropriately. This scheduling order that provided

for summary judgment deadlines didn't provide for what I think

counsel called (2)(a). 

I just want to be clear, is it the court's expectation 

that we move now to address what happens, or is it OK if we 

wait to see how Judge Swain rules on summary judgment? I just 

don't want to waive anything, if we have this one deadline that 

was there. Let's say given however summary judgment comes out, 

we want to renew as your Honor has invited. I just don't want 

to sit on the existing order for too long. 

Did that question make sense?

JUDGE DEIN: Yes.

MR. SACK: OK.

JUDGE DEIN: Now I need to make sure my answer makes

sense, which is the original order was that after the summary

judgment is decided on the 2017 issues, the parties may seek

leave to bring another summary judgment motion. Am I

paraphrasing myself wrong? 

I would not expect you to move now. I would expect

that after the decision is made on the pending summary judgment 

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motions, there will be a period for everyone to re-evaluate 

whether or not there are open claims as to efforts that 

occurred before 2017 and whether those are being pursued as 

events of default or not. 

If Judge Swain, who I can't see on the other side of 

this -- there you are -- she is going to tell me that I have 

messed up her schedule, she will issue a different order. But 

my expectation is that these summary judgment motions will go 

forward based on the 2017 issues, and once that is decided, 

there will be a status conference or some other form for the 

parties to represent whether or not they are continuing to 

pursue efforts that occurred before that time. 

MR. SACK: Understood, your Honor. Thank you.

MR. DAVID: Your Honor, I stood up just to make one

clarification. I agree with everything you just said, other

than whenever it is we make that decision, assuming we want to

go forward, we are not just going to look for summary judgment

necessarily, but we will raise potentially the need for

discovery at that time.

JUDGE DEIN: That's correct.

Anybody have anything to say that we haven't talked

about already? 

MR. ORSECK: Judge Dein, at the risk of pushing my

luck on the 2004 motion, I am not asking you to revisit

anything you have said. My understanding is we are to pursue

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getting materials that we request in the context of the

mediation to try to minimize the chances that we will return

before you. What I am concerned about is that there is a

dispute about what actually has been produced in mediation as

we have today.

I wonder if the court would find it useful to issue an

order or permit that what is and is not produced in the context

of the mediation may be the subject of public discussion to

you. So, in other words, we could come before you if we need

to and say they have produced X, Y, and Z in the mediation, but

they have declined to produce A, B, and C in the mediation and

we can prove that.

My understanding is the mediation privilege is so that

it won't prejudice the parties' positions on the merits before

the court, but having the mediator supervise discovery, which

is in effect what is going on, I think would fall outside of

that general policy. I think it would avoid us coming back

with this kind of dispute, if it is subject to the court's

understanding of what happened in that process.

JUDGE DEIN: I am just reluctant to do that because I

know that you all signed a very lengthy mediation agreement

that I don't know what it says. I don't want to enter anything

that may conflict with an existing agreement. It is certainly

something you can talk about. My expectation would be that any

subsequent request for 2004 discovery would somehow reflect the

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fact that there was targeted requests that were denied and that

somehow that issue needs to be brought to my attention.

I am hoping that, within that context, you can talk,

but it also seems to me -- it is always easy from the

outside -- but it seems to me that what has been produced and

has not been produced ought to be the basis of a

meet-and-confer and that that ought to be able to be resolved.

If it can't be resolved, it seems to me that it certainly can

be brought up in a targeted way with Judge Houser or any of the

mediators to say this is really our problem right now, we think

we don't have X and they say we do. It seems to me that that

ought to be able to be resolved.

I hear you. I am hoping, because hope springs

eternal, that you will be able to, if you present anything

further to me, that you will be able to at least agree to the

disclosures, however appropriate, in that motion. If not, if

we have to do it in mini steps, we will. If we have to have

first a hearing on what is allowed to be discussed, we'll do

that. I am just reluctant because I do know that you have

parameters that I actually don't know anything about. 

MR. ORSECK: We'll go forward on that basis.

JUDGE DEIN: Thank you.

Before anybody else has any thoughts, the court is

adjourned.

(Adjourned) 

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UNITED STATES DISTRICT COURT) 

 ) ss.

OF PUERTO RICO )

REPORTER'S CERTIFICATE 

I, Raquel Robles and Lisa Picciano Fellis, do hereby

certify that the above and foregoing pages, consisting of the

preceding 155 pages constitutes a true and accurate transcript

of our stenographic notes and is a full, true, and complete

transcript of the proceedings to the best of our ability.

Dated this 15th day of November, 2017.

S/Raquel Robles________________

Raquel Robles, RMR, CRR 

 S/Lisa Picciano Fellis__________ 

Lisa Picciano Fellis, RMR,CRR 

 Official Court Reporters

 500 Pearl Street

New York, NY 10007 

212-805-0320 

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