297 F. Supp. 3d 269
D.P.R.2018Background
- Plaintiff Ambac is a financial guaranty insurer and partial direct holder of Puerto Rico Highways and Transportation Authority (PRHTA) revenue bonds; it alleges bondholders have senior secured interests in pledged tolls, excise taxes, and vehicle fees and that reserve accounts secure bond payments.
- Puerto Rico enacted Moratorium legislation and executive orders (2016–2017) that suspended certain payments and authorized diversion of pledged revenues during a declared fiscal emergency; Governor and AAFAF implemented directives that halted some transfers to PRHTA.
- Congress enacted PROMESA, creating an Oversight Board empowered to certify fiscal plans and commence Title III cases; the Board certified a Fiscal Plan in March 2017 and filed Title III proceedings for the Commonwealth and PRHTA in May 2017.
- PRHTA defaulted on a July 1, 2017 payment after AAFAF instructed the fiscal agent to refrain from paying bondholders; Ambac paid ~$52 million on insured PRHTA bonds and sued seeking constitutional, statutory, and declaratory relief challenging the Moratorium measures, Fiscal Plan, and related transfers.
- Court considered Defendants’ Rule 12(b)(1) and 12(b)(6) motions and: dismissed the Second Claim (Takings/Due Process) for lack of subject-matter jurisdiction (ripeness); limited dismissal of First and Fourth Claims where they sought to invalidate Oversight Board certification (PROMESA §106(e)); dismissed Fifth and Sixth Claims on other grounds; Seventh Claim dismissed in part (ownership/trust theories) and for lack of jurisdiction insofar as premised on lien theory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing / redressability | Ambac: diversion of pledged revenues and resulting default caused concrete injury (Ambac paid claims); relief could redress harm | Defs: Fiscal Plan and compliance laws are blueprints and do not presently discharge liens; any injury is contingent on future plan adjustments | Court: Ambac alleged sufficient injury and traceability; standing denied as basis for dismissal rejected |
| Ripeness of Takings/Due Process claim (Second Claim) | Ambac: Challenged actions deprived bondholders of senior secured interests and seek compensation/relief now | Defs: No final state decision; Title III process will determine ultimate treatment; claim is premature | Court: Claim not ripe; lacks final decision and justiciability — Second Claim dismissed under Rule 12(b)(1) |
| PROMESA §106(e) preclusion of review of Fiscal Plan certification | Ambac: §106(e) should be narrowly read and not bar constitutional or contract challenges to Fiscal Plan | Defs: §106(e) bars federal courts from reviewing Oversight Board certification determinations | Held: Court lacks jurisdiction to review claims that attack the Oversight Board’s certification or compliance with §201(b); but §106(e) does not bar constitutional or contract claims that do not seek to invalidate certification |
| PROMESA §303 preemption of Moratorium / Fiscal Plan measures (Fourth Claim) | Ambac: Territory moratorium and Fiscal Plan Compliance Act are preempted as composition/moratorium laws or unlawful executive orders altering creditor rights | Defs: Measures are temporary suspensions (not binding composition), Fiscal Plan isn’t a territory law, and §303(3) applies only to unlawful executive orders | Held: Section 303(1) inapplicable because measures do not prescribe a composition or permanently prohibit payments; §303(3) claim fails because Ambac did not plead unlawful executive action; remainder of Fourth Claim fails under Rule 12(b)(6) |
| PROMESA §407 avoidance liability (Fifth Claim) | Ambac: Transfers made in violation of applicable law that protected creditors’ security interests; transferees should be liable under §407 | Defs: §407(b) enforcement barred while Title III automatic stay is in effect; Section 922(d) does not grant relief from stay | Held: §407(b) expressly precludes enforcement while a Title III stay is in effect; Fifth Claim dismissed without prejudice under Rule 12(b)(6) |
| Bankruptcy Code §§922(d) and 928 — turnover of pledged special revenues (Sixth Claim) | Ambac: §§928 and 922(d) require application/turnover of pledged special revenues to bondholders during Title III | Defs: §928 preserves liens but does not mandate turnover; §922(d) excepts application from stay but does not require payment or create enforcement rights during Title III | Held: §§928 and 922(d) do not require turnover or authorize injunctions; Sixth Claim dismissed under Rule 12(b)(6) |
| Nature of Reserve Account interests (Seventh Claim) | Ambac: Reserve Account funds are bondholder property, held in trust, or subject to lien — seeks declarations to that effect | Defs: Resolution language does not give bondholders outright ownership; at most PRHTA retains contingent reversionary interests; PROMESA §305 limits interference with debtor property | Held: Outright ownership and trust-beneficiary theories fail to state claim; lien theory is non-justiciable at this stage (lack of jurisdiction). Seventh Claim dismissed in part (Rule 12(b)(6) for ownership/trust; Rule 12(b)(1) for lien theory) |
Key Cases Cited
- Deniz v. Municipality of Guaynabo, 285 F.3d 142 (1st Cir.) (jurisdictional questions should be decided before merits)
- Johansen v. United States, 506 F.3d 65 (1st Cir.) (party invoking federal jurisdiction bears burden)
- Sanchez ex rel. D.R.-S. v. United States, 671 F.3d 86 (1st Cir.) (credit plaintiff's well-pled factual allegations on standing)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing elements and burden)
- Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (injury-in-fact requirement for standing)
- Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937) (Declaratory Judgment Act limited by Article III case-or-controversy requirement)
- Golden v. Zwickler, 394 U.S. 103 (1969) (federal courts may not issue advisory opinions)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to presumption of truth)
- United Auto., Aero., Agric. Implement Workers v. Fortuño, 633 F.3d 37 (1st Cir.) (Contracts Clause two-pronged test; reasonableness/necessity factors)
- Garcia-Rubiera v. Calderon, 570 F.3d 443 (1st Cir.) (ripeness for takings claims requires final decision and compensation procedures)