927 F.3d 597
1st Cir.2019Background
- HTA (Puerto Rico Highways & Transportation Authority) issued bonds in 1968 and 1998 secured by dedicated HTA "revenues" (tolls, fuel taxes, vehicle fees, etc.), to be deposited with a fiscal agent (Bank of New York Mellon) for bond payments.
- Commonwealth moratorium laws and executive orders diverted those revenues for general Commonwealth expenses and stayed creditor remedies.
- PROMESA established an Oversight Board that certified a Fiscal Plan continuing diversion of HTA revenues and initiated Title III proceedings for HTA, triggering the automatic stay.
- AAFAF instructed the fiscal agent to stop payments; HTA defaulted on a $219 million bond payment.
- Ambac (bondholder and insurer) sued in the Title III adversary proceeding, seeking declaratory and injunctive relief (Contracts Clause, Takings, Due Process, preemption, and statutory claims) to compel remittance of HTA revenues for bond payments and to invalidate the Moratorium Laws/ Fiscal Plan; the Title III court dismissed the complaint with prejudice.
Issues
| Issue | Plaintiff's Argument (Ambac) | Defendant's Argument (Commonwealth/Oversight Board) | Held |
|---|---|---|---|
| Whether a Title III court may review and invalidate the Oversight Board's Fiscal Plan certification | Ambac: Court can review and enjoin certification-related actions; Fiscal Plan diversion is unlawful | Defendants: 48 U.S.C. § 2126(e) precludes district-court review of Board certification determinations | Held: Section 106 bars district-court review of Oversight Board certification; Ambac's request to invalidate the Fiscal Plan is precluded |
| Whether the Title III court may order the Commonwealth to remit pledged HTA revenues to bondholders (i.e., directly interfere with debtor property/revenues) | Ambac: Sections 922(d) and 928(a) (pledged special revenues rules) permit enforcement and payment; Title III court can compel turnover | Defendants: 48 U.S.C. § 2165 (section 305) prohibits any Title III court from interfering with debtor political powers, property, or revenues absent Board consent | Held: Section 305 bars the Title III court from ordering the Commonwealth to turn over revenues or otherwise directly interfere with debtor property/revenues |
| Whether sections 922(d)/928(a) trump section 305 for pledged special revenues | Ambac: Specific provisions for pledged revenues control over general bar in section 305 | Defendants: No actual conflict; 922/928 address application of revenues to debt and stay exceptions, not the court's power to compel turnover; section 305’s broad "notwithstanding" language controls | Held: No operative conflict; section 305 still precludes the Title III court from granting Ambac’s requested relief |
| Whether Oversight Board consent or non-coercive declaratory relief avoids section 305 bar | Ambac: Filing Title III or Board action implies consent; declaratory relief is non-coercive and thus permissible | Defendants: Filing Title III is not consent to interference; declarations or injunctions that force use of revenues are coercive and barred | Held: Mere initiation of Title III is not consent; declaratory or injunctive relief that would compel or effectively direct use of debtor revenues is barred by section 305 |
Key Cases Cited
- Maloy v. Ballori-Lage, 744 F.3d 250 (1st Cir. 2014) (standard for accepting complaint allegations on dismissal)
- Méndez-Núñez v. Fin. Oversight & Mgmt. Bd. for P.R., 916 F.3d 98 (1st Cir. 2019) (PROMESA grants Oversight Board exclusive authority to certify Fiscal Plans; certification decisions insulated from review)
- Financial Oversight & Mgmt. Bd. for P.R. v. Ad Hoc Grp. of P.R. Elec. Power Auth. Bondholders (PREPA), 899 F.3d 13 (1st Cir. 2018) (section 305 bars direct interference by Title III court; narrow carve-out for stay relief to allow territorial processes)
- Aurelius Capital Master, Ltd. v. Puerto Rico, 919 F.3d 638 (1st Cir. 2019) (section 305 prevents Title III court from blocking Commonwealth's use of revenues for certain general-obligation debt)
- Lyda v. City of Detroit (In re City of Detroit), 841 F.3d 684 (6th Cir. 2016) (section 904 of Bankruptcy Code bars bankruptcy court from ordering city to restore services; declarations can also interfere)
- Assured Guaranty Corp. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 919 F.3d 121 (1st Cir. 2019) (interpretation of pledged-revenue provisions and limits on automatic-stay exceptions)
- Aurelius Inv., LLC v. Puerto Rico, 915 F.3d 838 (1st Cir. 2019) (principles of statutory interpretation; relation of specific and general provisions)