ORDER GRANTING LIMITED INTERVENTION

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1 Document Page 1 of 13 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO In re: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of THE COMMONWEALTH OF PUERTO RICO, et al., Debtors. 1 PROMESA Title III No. 17 BK 3283 LTS (Jointly Administered) AMBAC ASSURANCE CORPORATION, Plaintiff, v. COMMONWEALTH OF PUERTO RICO, et al., Defendants. Adv. Proc. No LTS in 17 BK 3567 LTS ORDER GRANTING LIMITED INTERVENTION I. Preliminary Statement This matter is before this Court on the Motion of Official Committee of Unsecured Creditors for Leave to be Heard and/or to Intervene Under Bankruptcy Code Section 1109(b) 1 The Debtors in these Title III Cases, along with each Debtor s respective Title III case number and the last four (4) digits of each Debtor s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto Rico (Bankruptcy Case No. 17 BK 3283 LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales Tax Financing Corporation ( COFINA ) (Bankruptcy Case No. 17 BK 3284 LTS) (Last Four Digits of Federal Tax ID: 8474); (iii) Puerto Rico Highways and Transportation Authority ( HTA ) (Bankruptcy Case No. 17 BK 3567 LTS) (Last Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the Government of the Commonwealth of Puerto Rico ( ERS ) (Bankruptcy Case No. 17 BK 3566 LTS) (Last Four Digits of Federal Tax ID: 9686); and (v) Puerto Rico Electric Power Authority ( PREPA ) (Bankruptcy Case No. 17 BK 4780 LTS) (Last Four Digits of Federal Tax ID: 3747) (Title III case numbers are listed as Bankruptcy Case numbers due to software limitations).

2 Document Page 2 of 13 and/or Bankruptcy Rule 7024 (Dkt. No. 69) (the Motion ). Plaintiff Ambac Assurance Corporation ( Ambac ) filed an opposition thereto (Dkt. No. 76). The Financial Oversight and Management Board, the Commonwealth of Puerto Rico, the Puerto Rico Highways and Transportation Authority, and, in their official capacity, José B. Carrión III, Andrew G. Biggs, Carlos M. Garciá, Arthur J. Gonzalez, Jóse R. González, Ana J. Matasantos, David A. Skeel Jr. and Elías Sánchez (collectively, the Defendants ) filed a response (Dkt. No. 77). On September 22, 2017, the First Circuit issued its decision in Assured Guaranty Corp. v. The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico, 872 F.3d 57 (1st Cir. 2017) ( Assured ), reversing the denial of a motion to intervene in another adversary proceeding initiated pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act ( PROMESA ). In light of the Assured decision, this Court ordered supplemental briefing on the Motion (Dkt. No. 79). Accordingly, the Official Committee of Unsecured Creditors of all Title III Debtors besides COFINA (the Committee or UCC ) filed a supplemental brief (Dkt. No. 80) (the Supplemental Brief ), further defining its proposed intervention, Defendants 2 filed a response (Dkt. No. 82) ( Defendants Response ), and Ambac filed an objection (Dkt. No. 83) ( Ambac s Objection ). On October 24, 2017, the Committee filed an urgent motion requesting that oral argument on the Motion be set for November 15, 2017 (Dkt. No. 87) (the Hearing Motion ). This Court recognizes Ambac s and the Committee s requests for a hearing on the Motion. Nevertheless, having reviewed the extensive briefing submitted by the parties, this 2 Substituting Defendant Christian Sobrino for Defendant Elías Sánchez. [2]

3 Document Page 3 of 13 Court has determined that oral argument is not necessary. This Court hereby DENIES the Hearing Motion and GRANTS the Motion to the limited extent set forth below. II. The Committee s Right To Intervene Federal Rule of Civil Procedure 24(a)(1) governs intervention as a matter of right, and dictates that the court must permit anyone to intervene who... is given an unconditional right to intervene by a federal statute[.] 3 Pursuant to 11 U.S.C. 1109(b), a provision of the Bankruptcy Code that was expressly incorporated by PROMESA, [a] party in interest, including... a creditors committee... may raise and may appear and be heard on any issue in a case under this chapter. In Assured, the Court held that Section 1109(b) grants the UCC an unconditional right to intervene within the meaning of Federal Rule of Civil Procedure 24(a)(1), to the extent that, inter alia, the UCC has standing to appear and be heard on any particular issue in the adversary proceeding. Assured, 872 F.3d at 59, 64 n.7. In light of this holding, all parties recognize that the UCC has some right to intervene in this adversary proceeding, 4 although they raise some issues concerning the scope of such intervention. See Ambac s Objection 2 ( the Court should limit and/or qualify the scope of the UCC s intervention ); Defendants Response at 4 ( the Committee should be restricted to specified parameters). These concerns will be addressed herein. 3 PROMESA 310 provides that [t]he Federal Rules of Bankruptcy Procedure shall apply to a case under this title and to all civil proceedings arising in or related to cases under this title. In turn, Federal Rule of Bankruptcy Procedure 7024 dictates that Rule 24 F.R.Civ.P. applies in adversary proceedings. 4 As Section 1109(b) affords the Committee the right to intervene under Federal Rule of Civil Procedure 24(a)(1), this Court need not address the Committee s original additional Rule 24 arguments for intervention. [3]

4 Document Page 4 of 13 III. Rule 24(c) Pleading Requirement Federal Rule of Civil Procedure 24(c) requires that a motion to intervene be accompanied by a pleading that sets out the claim or defense for which intervention is sought. The purpose of requiring an intervenor to file a pleading is to place the other parties on notice of the position, claim, and relief sought by the intervenor. WJA Realty Ltd. P ship v. Nelson, 708 F. Supp. 1268, 1272 (S.D. Fla. 1989). Ambac contends that the Committee should be required to comply with Rule 24(c) because without it Ambac [is left] guessing as to what the UCC s interests actually are. Ambac s Objection 3. This argument is not persuasive. As an initial matter, the First Circuit eschew[s] overly technical readings of Rule 24(c).... Peaje Invs. LLC v. García Padilla, 845 F.3d 505, 515 (1st Cir. 2017). This Court has discretion to allow a motion to intervene filed without an accompanying pleading where its absence is not prejudicial to a party. Assured, 872 F.3d at 65. Furthermore, a Rule 24(c) pleading is even less critical where, as here, the Committee is seeking to intervene to assert its rights under Section 1109(b), and does not assert ownership of a claim or defense. See In re Adelphia Commc ns Corp., 285 B.R. 848, 856 n.18 (S.D.N.Y. 2002) ( where the Committees were not claiming ownership of one or more causes of action in their own name... and were intervening merely to vindicate their rights under section 1109(b), this Court did not regard their failure to submit a proposed pleading as a bar to their intervention. ). In the instant case, the UCC has provided this Court and the parties sufficient notice of its interests so as to render an additional Rule 24(c) pleading unnecessary. See United States v. Metro. St. Louis Sewer Dist., 569 F.3d 829, 834 (8th Cir. 2009) ( we conclude that the statement of interest satisfies Rule 24(c) because it provides sufficient notice to the court and the parties [4]

5 Document Page 5 of 13 of MIEC s interests. ). For example, but without limitation, the UCC has made it clear that it is seeking to have more funds available for unsecured, as opposed to secured, creditors, and that funds should not be diverted away from the Debtors. Supplemental Brief 4, 9. Moreover, the UCC has asserted that it is seeking to intervene because it cannot satisfy [its] statutory supervisory and oversight obligations from a distance, and section 1109(b) of the Bankruptcy Code is one of the tools created by Congress through which the Committee may exercise its watchdog functions. Motion 3. The UCC s position on specific issues that may arise during the course of this proceeding can be developed in the specific pleadings it files. For present purposes, no additional description of the UCC s interest in this adversary proceeding is necessary. IV. Standing Ambac objects to the UCC s intervention in this adversary proceeding to the extent that the UCC intends to advance the interests of the unsecured creditors of all Title III debtors other than COFINA rather than serve as a watchdog for HTA because, according to Ambac, the UCC lacks standing to do so since the unsecured creditors of the Commonwealth have no claim to the HTA Pledged Special Revenues. Ambac Opposition 8. Similarly, the Defendants caution that while the UCC has section 1109(b) standing as a party in interest to appear and be heard, it lacks constitutional and prudential standing of a party to control any of the issues. Defendants Response at 4. However, the UCC s intervention is limited to its rights under Section 1109(b), and it has not requested, and is not being permitted, to intervene to control any of the issues. If the UCC seeks to exceed the scope of its permissible intervention, the opposing parties may raise their objections at the appropriate time. For present purposes, [5]

6 Document Page 6 of 13 however, the UCC has standing to intervene. See In re Applied Theory Corp., 493 F.3d 82, (2d Cir. 2007) (the UCC was authorized under 1109(b) to raise, appear and be heard on any issue, although it was not authorized to assert a claim absent a direct interest). To establish standing, a party must establish that it presents a case[] or controvers[y] within the meaning of Article III of the Constitution. Clapper v. Amnesty Int l USA, 568 U.S , 133 S. Ct. 1138, 1146, 185 L. Ed. 2d 264 (2013). When analyzing standing for a party in interest under Section 1109(b), the participation of [that party] satisfies the requirements of Article III if the outcome of the proceeding may affect the ultimate disposition of the party s stake in the chapter 11 case, either as a direct result of the outcome of the proceeding... or as a result of the effect of the proceeding on the case as a whole[.] Alan N. Resnick & Henry J. Sommer, eds., 7 Collier on Bankruptcy [4] (16th ed.) (hereinafter Collier ). In the instant case, the UCC persuasively argues that the results of this proceeding will, directly or indirectly, impact the funds available for the unsecured creditors it represents. This is enough to satisfy the Article III standing requirement under 1109(b). See Collier [4][a] ( [i]n almost every instance, the outcome of any particular proceeding in a chapter 11 case will have a sufficient effect on the interests of stakeholders generally so that their participation in the proceeding will satisfy the standing aspect of the case or controversy requirement. ). In Assured, the First Circuit also recognized that the intervenor must be within the zone of interests at issue in the specific proceeding. As the Court ruled: While Article III standing is almost always satisfied with respect to any party in interest in a chapter 11 case, courts have additionally required that the interests of a party seeking to participate lie within the zone of interests protected by the particular statute or legal rule implicated in the given proceeding. Collier [4]; see also In re James Wilson [6]

7 Document Page 7 of 13 Assocs., 965 F.2d 160, 169 (7th Cir. 1992) (holding that 1109(b) was not intended to waive this limitation[ ] on standing. ) Assured, 872 F.3d at 64 n.7. This means that the intervenor must have a legally protected interest that could be affected by [the] bankruptcy proceeding[.] In re James Wilson Assocs., 965 F.2d at 169. See also Unofficial Comm. of Zero Coupon Noteholders v. Grand Union Co., 179 B.R. 56, 59 (D. Del. 1995) (while bondholders were not creditors or shareholders of the debtor and had no direct claim to the debtor s assets, they had a practical stake in the outcome of these proceedings to warrant intervention under Section 1109(b)). The zone of interests test is to be liberally construed in favor of participation in chapter 11 cases. Collier, 1109[4][b][ii]. In the instant case, this Court recognizes that [t]he function of an official creditors committee is to aid, assist and monitor the debtor to ensure that the unsecured creditors views are heard and their interests promoted and protected. Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438, 514 (S.D.N.Y. 1994) (citing Official, Unsecured Creditors Comm. v. Stern (In re SPM Mfg. Corp.), 984 F.2d 1305, (1st Cir. 1993)). The assignment of rights to certain revenues will have an impact on the funds available to the unsecured creditors. Therefore, the unsecured creditors represented by the Committee have a practical stake in the outcome of the adversary proceeding and the UCC has standing to intervene under Section 1109(b). V. Limitation Analysis The fact that the UCC is entitled to participate in the district court proceedings does not, of course, dictate the scope of that participation. Assured, 872 F.3d at 64 (citing Adelphia Commc ns Corp. v. Rigas, 285 B.R. at 851). This Court has the discretion to tailor intervention as needed to ensure the rights of the respective parties and the efficiency of the litigation. [7]

8 Document Page 8 of 13 [C]ourts are not faced with an all or nothing choice between grant or denial: Rule 24 also provides for limited in scope intervention. US v. City of Detroit, 712 F.3d 925, 931 (6th Cir. 2013). Intervention of right, whether obtained, as here, through Section 1109(b) or more generally through Rule 24, may be subject to appropriate conditions or restrictions responsive among other things to the requirements of efficient conduct of the proceedings. Fed. R. Civ. P. 24, advisory committee s note, 1966 amendment. Moreover, a distinction can be drawn between the right to intervene in an adversary proceeding, to which [the Committee is] plainly entitled, and the right to take ownership of the debtor s claims in that adversary proceeding. In re Smart World Techs., LLC, 423 F.3d 166, 182 (2nd Cir. 2005). Finally, [l]imited intervention is particularly appropriate [where]... getting all interested parties to the table promotes an effective and fair solution, but preventing an expansion of the scope is necessary to keep control of the case. City of Detroit, 712 F.3d at 932. As the First Circuit explained in Assured, [t]hese competing concerns are particularly poignant in the present case, which represents the largest proceeding to restructure debt in the history of the American municipal bond market. Assured, 872 F.3d at 64 (internal quotation omitted). Bearing in mind these considerations, this Court modifies the scope of the Committee s proposed intervention as follows. a. Discovery i. Right to Receive Discovery The Committee requests to receive all discovery taken to date... within seven (7) calendar days of the date of this Order and all future discovery within seven (7) calendar days of the production of discovery, or the production of the transcript of a deposition, as the case [8]

9 Document Page 9 of 13 may be, subject to execution of any relevant protective order. Proposed Order 2. As no party opposes this proposal, it will be allowed. Ambac requests that any production of documents be conditioned on entry of a suitable protective order providing that the discovery can be used only in connection with this adversary proceeding. Ambac s Objection 13. This Court has no reason before it to condition the request for discovery on an undefined protective order. However, the parties should meet and confer about the terms of any protective order they deem relevant. ii. Depositions The Committee asks to attend any depositions subsequently taken in the Adversary Proceeding. Proposed Order 2. Ambac opposes this position, requesting instead that the Committee be limited to receiving transcripts of depositions [i]n light of logistical considerations and the UCC s disclaimer of a need to examine witnesses. Ambac s Objection 12. This court finds, however, that the ability to attend depositions, like the ability to receive and review discovery, is consistent with the Committee s role under Section 1109(b) and its obligation to monitor the proceedings. Therefore, unless the Committee s attendance presents some unforeseen logistical problems, the Committee shall be permitted to attend depositions. See Adelphia, 285 B.R. at iii. Right to Propound Discovery The Committee proposes that it shall not have the right to propound discovery requests, nor shall the Committee have the right to examine witnesses during depositions, hearings, or trial. Counsel for the Defendants shall use reasonable efforts to confer with counsel for the Committee in advance of depositions, hearings, or trial, and shall allow counsel [9]

10 Document Page 10 of 13 for the Committee an opportunity to suggest questions and arguments in advance of such depositions, hearings or trial. Proposed Order 3. As no party opposes this request, it is allowed. b. Right to File Briefs and Argue The Committee requests to be able to file briefs stating its positions on issues raised in the Adversary Proceeding, and, subject to such notice or other requirements as the Court may impose... be heard at arguments concerning issues raised in the Adversary Proceeding. Proposed Order 4. Ambac objects and argues that the UCC should be limited to raising arguments only in favor of HTA s unsecured creditors and not in favor of the Commonwealth s unsecured creditors. Ambac s Objection 11. The Committee as a whole has standing to be heard on issues in this proceeding. This Court will not dictate what positions the Committee can or cannot take. However, the right to intervene under Section 1109(b) is not coextensive with the right to control claims in the proceeding. In re Smart World Tech., LLC, 423 F.3d at 182. Therefore, the Committee shall be limited in its briefing to the issues already raised by the existing parties. See Assured, 872 F.3d at 64 (citing Fund for Animals, Inc. v. Norton, 322 F.3d 728, 737 n.11 (D.C. Cir. 2003)). Additionally, and as the Committee suggests, the right to be heard at argument will be subject to requirements that this Court may impose. As a result, the Committee shall move for leave from this Court prior to appearing at a particular argument. c. Right to Settle or Appeal Settlement The Committee, in its Motion, admits that it should not have the right... to control, appeal or settle causes of action.... Motion 8 (emphasis in original). However, in its Proposed Order, the Committee suggests that the ruling of this Court be without prejudice to [10]

11 Document Page 11 of 13 any rights of the Committee to object to any settlement of the Adversary Proceeding, nor shall this Order restrict the Committee s standing, if any, to file appeals (including as an objector) relating to any settlement.... Proposed Order 5. This request is too broad and shall be stricken. As the First Circuit recognized, any intervening party cannot preclude other parties from settling their own disputes. Assured, 872 F.3d at 64 (internal quotation omitted). See also Smart World, 423 F.3d at 183 (intervenor under Section 1109(b) does not have authority to bring a motion to settle or compromise a claim). The fact that the UCC is permitted to intervene under Section 1109(b) does not expand its authority over settlements or appeals. Without prejudice to any other rights the Committee holds, the Committee shall not be able to settle, oppose settlement, or appeal settlement of any cause of action in this case based on its status as an intervenor. VI. Conclusion In accordance with the above, it is hereby ORDERED that: 1. The Committee is not required to file a Rule 24(c) pleading in this adversary proceeding. 2. The Committee shall be permitted to raise, appear and be heard in this adversary proceeding, pursuant to Section 1109(b). 3. Producing parties shall make all discovery taken to date available to the Committee within seven (7) calendar days of this order. Further discovery must be made available within seven (7) days of the production of discovery, or the production of the transcript of a deposition, subject to execution of any relevant protective order. The parties shall meet and [11]

12 Document Page 12 of 13 confer about the terms of any protective order they deem relevant. Counsel to the Committee shall be entitled to attend any deposition(s) subsequently taken in connection with the above captioned adversary proceeding. 4. The Committee shall not have the right to propound discovery requests, nor shall the Committee have the right to examine witnesses during depositions, hearings, or trial. Counsel for Defendants shall use reasonable and good faith efforts to confer with counsel for the Committee in advance of depositions, hearings, or trial, and shall allow counsel for the Committee an opportunity to suggest questions and arguments in advance of such depositions, hearings or trial. 5. The Committee shall have the right to file briefs stating its positions, restricted to those issues already raised by the original parties in this adversary proceeding. The Committee may be heard at arguments concerning issues raised in this adversary proceeding if prior leave from this Court is granted with respect to that particular argument. 6. Without prejudice to any other rights the Committee holds, the Committee shall not be able to settle, oppose settlement, or appeal settlement of any cause of action in this case based on its status as an intervenor. [12]

13 Document Page 13 of 13 SO ORDERED. DATED: October 27, 2017 / s / Judith Gail Dein Judith Gail Dein United States Magistrate Judge [13]

Case: LTS Doc#:3093 Filed:05/17/18 Entered:05/17/18 18:07:24 Document Page 1 of 17

Case: LTS Doc#:3093 Filed:05/17/18 Entered:05/17/18 18:07:24 Document Page 1 of 17 Document Page 1 of 17 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO In re: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, PROMESA Title III as representative of THE COMMONWEALTH