Doral Financial in San Juan, Puerto Rico, has prevailed in its court battle with the territory’s Treasury Department over a substantial tax refund.
The $7.8 billion-asset company said in a press release late Friday that Puerto Rico’s Court of First Instance ruled that its tax agreement with the agency is valid. Doral has been seeking $229 million.
“We are deeply gratified by the court's ruling,” Matthew McGill, a lawyer at Gibson, Dunn & Crutcher who represented Doral, said in the release. “Doral stands ready to work to put this litigation behind us all and to move forward serving the people of Puerto Rico.”
Doral and the Puerto Rican government reached an accord in 2012 to reclassify money the company claimed it had over paid in taxes as a prepaid tax asset. Doral pushed for a refund, but the territory's Treasury Department rejected the refund request, stating that the agreement was null for several reasons, including a determination that the refund was barred by a statute of limitations.
Doral responded earlier this year by filing a lawsuit claiming its constitutional rights were violated and that the defendants "acknowledged that Doral was entitled to a refund" in previous agreements.
The company needs the capital after the Federal Deposit Insurance Corp. determined earlier this year that the company could not count Puerto Rican tax receivables as part of its Tier 1 capital, putting it in violation of a consent order. The FDIC has also been pushing the company for certain written plans.
Doral has been selling assets to improve capital and liquidity levels in recent months.
Puerto Rico Treasury Secretary Melba Acosta Febo said in a written statement: "We respectfully disagree with the court's ruling in this matter, which is inconsistent with the Internal Revenue Code, applicable laws and regulations. This ruling sets a dangerous precedent and we plan to pursue all legal options available to appeal the court's decision.”
"The refund payment of over $200 million, which according to the 2012 agreement is to be paid in five installments over a five year period, will remain contested by the Commonwealth of Puerto Rico until appeal processes within the judiciary system are resolved. Also, applicable law allows for longer payment plans for payment of judgments."
Acosta Febo continued, “The Department of the Treasury maintains that it is correct in its contention regarding the nullity of the 2012 Agreement and that Doral's allegations are unfounded. Our commitment has always been to protect the interests of the people of Puerto Rico and we will continue to do so.”
The ruling “draws draws more negative attention to Puerto Rico’s management practices and its inconsistent willingness to honor obligations,” Municipal Market Advisor managing director Robert Donahue wrote in the firm’s Weekly Outlook. “MMA also notes the lawsuits filed by several large municipal bond funds and a hedge fund over the Recovery Act that allege, in many ways, similar charges raised in the Doral case.”
