919 F.3d 638
1st Cir.2019Background
- Appellants are holders of Puerto Rico general obligation (GO) bonds who allege a priority/property interest in certain revenues: “Clawback Revenues” and “Special Property Tax Revenues” (together, “Restricted Revenues”) that must be used to pay “Constitutional Debt.”
- Bondholders sued in a PROMESA Title III adversary proceeding seeking declaratory and injunctive relief that the Restricted Revenues are dedicated to them, that the Commonwealth lacks competing interests, that a statutory lien exists, and that diversion without compensation would be a Fifth Amendment taking.
- The Financial Oversight and Management Board (Board), as Title III representative, moved to dismiss for lack of subject-matter jurisdiction and failure to state a claim. The district court granted the motion, dismissing Counts 3–6 (property/lien declarations) as nonjusticiable advisory opinions; Count 8 (takings) as unripe; and Counts 1, 2, 9, 10 (declarations/segregation of revenues) as barred by PROMESA §305.
- Bondholders appealed the dismissals (except Counts 7 and 11), arguing declaratory relief was proper and that takings and other claims were ripe and permissible.
- The First Circuit affirmed: Counts 3–6 nonjusticiable (no immediate, concrete dispute suitable for declaratory relief); Count 8 unripe (no final government decision or exhaustion of state remedies); Counts 1, 2, 9, 10 barred by PROMESA §305 (federal court may not interfere with debtor’s revenues/political powers absent Board consent or plan language).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Justiciability of Counts 3–6 (declarations that Bondholders hold equitable interests/statutory liens in Restricted Revenues) | Bondholders: DJA permits declaratory relief now; clarifying rights will assist plan formation and creditor positions | Board: Requests seek abstract, advisory declarations not tied to any concrete dispute and would affect other creditors; non-justiciable | Affirmed dismissal — counts 3–6 nonjusticiable advisory opinions (no immediate, concrete controversy) |
| Ripeness of Count 8 (Takings Claim) | Bondholders: diversion of revenues would be a taking; declaratory relief appropriate now | Board: No final governmental decision; claim hypothetical and unripe under Williamson County | Affirmed dismissal — takings claim unripe (no final decision and no exhaustion of compensation procedures) |
| Counts 1,2,9,10 (declarations/segregation restricting Commonwealth’s use of revenues) and PROMESA §305 preclusion | Bondholders: declaratory judgments are noncoercive and therefore do not “interfere” with Commonwealth powers | Board: Declarations would effectively direct how debtor uses revenues and thus interfere with debtor autonomy, barred by §305 absent Board consent or plan provision | Affirmed dismissal — relief would impermissibly interfere with debtor’s political/governmental powers or revenues under PROMESA §305 |
Key Cases Cited
- Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (DJA "case of actual controversy" tied to Article III justiciability)
- Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270 (declaratory relief requires substantial controversy of sufficient immediacy and reality)
- Williamson Cnty. Reg'l Planning Comm'n v. Hamilton Bank, 473 U.S. 172 (ripeness for Takings Clause requires final decision and exhaustion of state compensation procedures)
- Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237 (caution in declaratory judgments that reach beyond particular case)
- Steffel v. Thompson, 415 U.S. 452 (declaratory judgments are noncoercive but often persuasive)