“Failure, frankly, is not an option,” said Judge Swain, who normally sits in the Southern District of New York. “We cannot simply turn off the lights and close the door on Puerto Rico.”
Yet multiple conflicts appeared to be simmering under the surface of the case, the first in which a distressed United States territory has sought court protection from its creditors. Tempers flared when topics like truthful financial disclosures, potential conflicts of interest and the role of Puerto Rico’s federal oversight board arose.
The proceedings on Wednesday were supposed to focus primarily on case-management issues, but nearly every time a lawyer spoke, there seemed to be fresh signals indicating intractable battles ahead. The lawyers filling the packed courtroom told Judge Swain about looming deadlines and said that certain fundamental disputes had to be resolved almost immediately or else nothing could happen.
“The scope and scale of the issues are, frankly, humbling,” Judge Swain said at the outset. “I thank you for your trust, and I shall try my best to earn it.”
She spent much of the day reminding the lawyers that time was limited and that they would not be allowed to shift into oral arguments prematurely.
This backruptcylike case is not a simple narrative about greedy vultures picking over the carcass of a debtor, although it is often told that way. Puerto Rico’s $74 billion of bond debt involves different types of bonds, and although no one seems to have appreciated it when the bonds were first issued, there is now a glaring lack of consensus about which ones take legal precedence.