939 F.3d 356
1st Cir.2019Background
- PROMESA created a Financial Oversight and Management Board and a Title III process that automatically stays enforcement of prepetition claims and transfers exclusive jurisdiction over debtor property to the Title III court.
- In 1992 Ponce and the Commonwealth (with PREPA and PRHTA) agreed to municipal projects; a 1996 Commonwealth-court judgment ordered the debtors to complete the projects and appointed a monitor; damages were later settled in 2004 (not at issue here).
- By 2017 most projects were completed; remaining disputes include two federally funded highway projects (proceeding but monitor unpaid due to the stay), an underground-electrification project (Ponce estimates $700,000; PREPA claims severely constrained resources), and other local works.
- The Commonwealth, PRHTA, and PREPA filed Title III petitions in May–July 2017, triggering PROMESA’s automatic stay.
- In May 2018 Ponce moved to lift the stay to compel specific performance and monitoring; the Title III court denied relief and an evidentiary hearing; Ponce appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ponce’s prepetition specific‑performance judgment is a “claim” subject to PROMESA/§ 362 | Ponce: equitable specific performance is not a monetary claim and thus not subject to the automatic stay | FOMB/Commonwealth: § 362(a)(2) bars enforcement of prepetition judgments, and § 362(a)(1) covers equitable remedies reducible to money damages | The judgment is subject to the automatic stay under § 362(a)(2) and, alternatively, § 362(a)(1) because monetary damages can substitute for the equitable remedy |
| Whether the Title III court abused its discretion in denying stay relief considering partial/complete resolution and judicial economy (Sonnax factors) | Ponce: lifting the stay would efficiently complete projects and avoid further Title III interference | Title III court/FOMB: lifting would create piecemeal litigation, divert debtor resources, and undermine centralized PROMESA administration | No abuse of discretion; Sonnax factors weigh against lifting the stay |
| Whether lifting the stay would unduly interfere with the bankruptcy case or prejudice other creditors (balance of harms) | Ponce: remaining projects are inexpensive (e.g., $700k plus monitor costs) and would not materially affect debtors’ budgets | FOMB/PREPA: even taking Ponce’s lower estimates, compliance could cost ~$44 million and would prejudice other creditors and priority decisions across Puerto Rico | No abuse of discretion; balance of harms favors maintaining the stay (no priority for Ponce’s projects) |
| Whether the Title III court erred in denying an evidentiary hearing and whether Ponce waived arguments | Ponce: requested a hearing to present monitor testimony and evidence; argues on appeal that the judgment is not a “claim” | FOMB: Title III court accepted Ponce’s factual cost estimates as true; no disputed material facts; Ponce did not raise the ‘‘not a claim’’ theory below (waived) | No abuse of discretion; hearing not required where no disputed material facts; the ‘‘not a claim’’ argument was waived and in any event fails on the merits |
Key Cases Cited
- Assured Guaranty Corp. v. Fin. Oversight Mgmt. Bd. for P.R., 872 F.3d 57 (1st Cir. 2017) (describing PROMESA Title III as a quasi‑bankruptcy regime and FOMB authority)
- Municipality of San Juan v. Puerto Rico, 919 F.3d 565 (1st Cir. 2019) (applying PROMESA’s automatic stay to prepetition injunctions and emphasizing centralized dispute resolution)
- Mitsubishi Motors Corp. v. Soler Chrysler‑Plymouth, Inc., 814 F.2d 844 (1st Cir. 1987) (abuse‑of‑discretion standard for stay/hearing rulings)
- Rederford v. U.S. Airways, Inc., 589 F.3d 30 (1st Cir. 2009) (equitable remedies can be reduced to money damages and treated as claims)
- Sonnax Indus. v. Tri Component Prods. Corp., 907 F.2d 1280 (2d Cir. 1990) (factors guiding stay‑relief decisions)
- In re AMR Corp., 730 F.3d 88 (2d Cir. 2013) (upholding a stay to prevent diversion of debtor funds that would prejudice other creditors)
- In re Hemingway Transp., Inc., 954 F.2d 1 (1st Cir. 1992) (contingent/unliquidated rights can constitute a claim)
- In re The Ground Round, Inc., 482 F.3d 15 (1st Cir. 2007) (dictum recognizing § 101(5) can classify certain specific‑performance remedies as claims)
- Begier v. IRS, 496 U.S. 53 (1990) (bankruptcy policy favors equality of distribution among creditors)
- Peaje Invs. LLC v. García‑Padilla, 845 F.3d 505 (1st Cir. 2017) (Title III courts may decide stay relief without an evidentiary hearing when material facts are undisputed)