Assured Guaranty Corp. v. Financial Oversight & Management Board for Puerto Rico, 872 F.3d 57

Background

Congress enacted PROMESA to address Puerto Rico's fiscal crisis and created a Financial Oversight and Management Board that may commence Title III debt-adjustment proceedings, which incorporate many provisions of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.
The Board filed a Title III petition for the Commonwealth; insurers (Assured Guaranty and National Public Finance Guarantee) filed an adversary proceeding challenging the Board-approved Fiscal Plan and a Commonwealth statute as violating PROMESA and the Constitution.
The Official Committee of Unsecured Creditors (UCC) was appointed in the Title III case and moved to intervene in the adversary proceeding under Bankruptcy Rule 7024 (which incorporates Fed. R. Civ. P. 24), asserting a statutory right under 11 U.S.C. § 1109(b).
§ 1109(b) grants a "party in interest," including a creditors’ committee, the ability to "raise and may appear and be heard on any issue in a case under this chapter."
The district court denied the UCC’s motion relying on dicta from Thompson suggesting § 1109(b) does not confer intervention as of right; the UCC appealed.
The First Circuit reversed, holding § 1109(b) provides an unconditional statutory right to intervene under Fed. R. Civ. P. 24(a)(1), but remanded for the district court to define the permissible scope of participation.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether 11 U.S.C. § 1109(b) gives creditors’ committees an "unconditional right to intervene" under Fed. R. Civ. P. 24(a)(1) in an adversary proceeding	§1109(b) confers a broad right to appear and be heard that equates to intervention as of right	§1109(b) does not literally mention intervention and has been interpreted to permit only limited participation short of Rule 24 intervention	Yes. §1109(b) provides an unconditional right to intervene under Rule 24(a)(1) and applies to adversary proceedings
Whether Thompson’s footnote precludes intervention here	N/A (relied on Thompson to deny intervention)	Thompson’s dicta bars treating §1109(b) as a statutory intervention right	No. Thompson’s discussion was dicta and not controlling; the court is not bound by it
Whether district court may limit scope of intervenor’s participation	UCC sought limited participation (review discovery, attend depositions without examination, file briefs, argue)	Plaintiffs argued limits or denial appropriate to protect case management and settle authority	Court affirmed district court has broad discretion to impose appropriate conditions or restrictions on intervenors’ participation
Whether Rule 24(c) pleading requirement barred intervention	UCC conceded technical noncompliance but argued interest was clear	Plaintiffs argued Rule 24(c) requires accompanying pleading	Court excused technical noncompliance given circumstances but permitted district court to require a more detailed pleading on remand

Key Cases Cited

Peaje Invs. LLC v. García-Padilla, 845 F.3d 505 (1st Cir.) (discussing PROMESA stay and Title III framework)
Kowal v. Malkemus (In re Thompson), 965 F.2d 1136 (1st Cir. 1992) (original source of dictum that §1109(b) does not afford Rule 24 intervention)
Term Loan Holder Comm. v. Ozer Grp. (In re Caldor Corp.), 303 F.3d 161 (2d Cir. 2002) (holding §1109(b) provides statutory right to intervene under Rule 24)
Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228 (3d Cir. 1994) (recognizing creditors’ committees’ participatory rights under §1109(b))
Fuel Oil Supply & Terminaling v. Gulf Oil Corp., 762 F.2d 1283 (5th Cir. 1985) (earlier decision rejecting that §1109(b) creates unconditional intervention rights)
Official Unsecured Creditors' Comm. v. Michaels (In re Marin Motor Oil, Inc.), 689 F.2d 445 (3d Cir. 1982) (interpreting §1109(b) to allow broad participatory rights)
Hartford Underwriters Ins. v. Union Planters Bank, N.A., 530 U.S. 1 (2000) (noting inapplicability of §1109(b) outside chapter-specified cases)
United States v. City of Detroit, 712 F.3d 925 (6th Cir. 2013) (discussing courts’ authority to condition intervention of right)