COMMONWEALTH OF PUERTO RICO and Puerto Rico Public Buildings Authority (PBA)
17-03283
Bankr. D.P.R.Mar 3, 2022Background
- Court confirmed the Modified Eighth Amended Title III Joint Plan of Adjustment (the Plan) for the Commonwealth, ERS, and PBA on Jan. 18, 2022, resolving many creditor claims and reducing GO/PBA debt substantially.
- The Plan preserves accrued pension benefits but freezes future accruals and eliminates post-Effective Date COLAs; it treats prospective TRS accrual rights as rejected under the Plan.
- Act 53-2021 conditioned issuance of Plan securities on elimination of a prior “Monthly Benefit Modification”; the Oversight Board removed that modification and sought court rulings that Act 53 therefore permits issuance of the securities.
- Teachers’ Associations and several credit unions (the Movants) appealed confirmation and moved for stays pending appeal to block effectiveness of the Confirmation Order.
- Movants argued (1) Act 53 forbids the Plan’s pension freezes; (2) the Plan unlawfully preempts Commonwealth pension statutes and lacks enabling legislation; (3) Cooperativas’ takings claims cannot be discharged. The Oversight Board and other stakeholders opposed stays.
- The court denied the stay motions, finding Movants unlikely to succeed on the merits, failing to show irreparable harm, and that a stay would substantially injure other creditors and public interests.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Act 53 prohibits issuance of Plan securities because the Plan freezes pensions | Associations: Act 53 requires more than removing Monthly Benefit Modification; freeze violates Act 53 | Oversight Bd/Court: Act 53 conditions applied only to the Monthly Benefit Modification; text does not bar freeze/COLA removal | Court: Act 53 does not bar the pension freeze; removal of Monthly Benefit Modification satisfied Act 53. |
| Whether Plan unlawfully preempts Commonwealth pension laws or needs enabling legislation | Associations: Commonwealth laws protect pension accruals; Plan cannot preempt legislature or change retirement systems without enabling law | Oversight Bd/Court: PROMESA and incorporated Bankruptcy Code provisions permit rejection/discharge and prevail over inconsistent territorial law; plan can implement treatment without separate enabling statute | Court: PROMESA/Bankruptcy mechanisms validly preempt inconsistent statutes; Plan’s rejection/discharge of future accruals is permissible; enabling legislation not required. |
| Whether Cooperativas’ takings claims are non-dischargeable | Cooperativas: Impairment/discharge of bond claims equals a per se or regulatory taking; discharge barred | Oversight Bd/Court: Takings claims assessed under Penn Central factors; discharge does not violate Takings Clause here; prior adversary dismissal supported | Court: Applied Penn Central; found takings arguments fail and discharge is permissible; Cooperativas unlikely to succeed on appeal. |
| Whether a stay pending appeal is warranted (likelihood of success, irreparable harm, balance of harms, public interest) | Movants: Risk of equitable mootness and irreparable pension/credit union harm if Plan proceeds; stay preserves appeals | Oversight Bd/Court: Movants have low chance on merits; harms remediable by money; stay would delay ~$10.8B distributions, threaten Plan settlements, and harm public interest in prompt restructuring | Court: Denied stays—Movants failed to show likelihood of success or irreparable harm; balance of harms and public interest weigh strongly against a stay. |
Key Cases Cited
- Bos. Parent Coal. for Acad. Excellence Corp. v. Sch. Comm. of City of Bos., 996 F.3d 37 (1st Cir. 2021) (stay-pending-appeal factors in First Circuit context)
- Hilton v. Braunskill, 481 U.S. 770 (1987) (four-factor standard for stay pending appeal)
- Nken v. Holder, 556 U.S. 418 (2009) (movant bears burden; irreparable harm and likelihood of success are critical)
- Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978) (multi-factor takings framework applied to regulatory takings)
- Pinto-Lugo v. Fin. Oversight & Mgmt. Bd. for P.R., 987 F.3d 173 (1st Cir. 2021) (equitable mootness and diligence in seeking stays)
- Cooperativa de Ahorro y Credito Dr. Manuel Zeno Gandia v. Fin. Oversight & Mgmt. Bd., 989 F.3d 123 (1st Cir. 2021) (equitable mootness and appellants’ diligence in Puerto Rico Title III appeals)
- Rederford v. U.S. Airways, Inc., 589 F.3d 30 (1st Cir. 2009) (statutory-based obligations give rise to dischargeable claims in bankruptcy)