Peaje Investments LLC v. Garcia-Padilla
845 F.3d 505
| 1st Cir. | 2017Background
- PROMESA (48 U.S.C. §§ 2101–2241) imposes a temporary stay on certain debt-related litigation against Puerto Rico but allows motions to lift the stay "for cause shown" after notice and a hearing.
- Peaje Investments (holder of PRHTA toll-revenue bonds) moved to lift the stay, alleging diversion of toll revenues under Puerto Rico's Moratorium Act that diminished its collateral.
- The Altair Movants (holders of ERS-backed bonds) moved to lift the stay, alleging suspension/diversion of employer contributions pledged as collateral and uncertainty about future contributions.
- The district court denied both lift-stay motions without an evidentiary hearing, reasoning that future toll revenues and employer contributions provided an "equity cushion" adequate to protect creditors.
- Peaje and Altair appealed; the Financial Oversight and Management Board sought to intervene below to oppose lift-stay motions but was denied for failure to attach a pleading to its motion to intervene.
- The First Circuit affirmed denial of Peaje’s motion, vacated denial as to the Altair Movants (remanding for a hearing), and vacated the denial of the Board’s motion to intervene.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether lack of "adequate protection" is "cause" to lift PROMESA stay | Movants: impairment/diversion of collateral that leaves repayment interest unprotected is cause to lift stay | Appellees: PROMESA omits an explicit adequate-protection definition found in § 362; omission shows Congress did not intend to include it | Court: Lack of adequate protection constitutes "cause" (constitutional-avoidance rationale) |
| Allocation of burden of proof on a lift-stay motion under PROMESA | Movants: (implicitly) district court should require the Commonwealth to show adequate protection | Appellees: similar to bankruptcy allocation (debtor bears certain burdens) | Court: Movant bears burden to show cause (including that collateral will not provide an adequate equity cushion) |
| Whether district court erred by denying lift-stay motions without a hearing | Movants: hearings required where they alleged facts showing inadequate protection | Appellees: hearing unnecessary because filings did not show lack of adequate protection | Court: No error as to Peaje (no adequate allegation that repayment interest is unprotected); error as to Altair Movants (they alleged uncertainty about future contributions; remand for hearing) |
| Whether the Financial Oversight and Management Board could intervene as of right | Board: PROMESA authorizes intervention; it sought to protect statutory duties | District court: denied for technical failure to attach a pleading under Fed. R. Civ. P. 24(c) | Court: Denial was an abuse of discretion given substance-over-form; remand to apply correct standard (Rule 24 and PROMESA rights) |
Key Cases Cited
- Crowell v. Benson, 285 U.S. 22 (canon of constitutional avoidance) (1932)
- Wright v. Union Cent. Life Ins. Co., 311 U.S. 273 (secured-creditor constitutional protections) (1940)
- United States v. Sec. Indus. Bank, 459 U.S. 70 (applying constitutional-avoidance to preserve property rights) (1982)
- United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (adequate protection protects right to have security applied to debt) (1988)
- In re Pacific Lumber Co., 584 F.3d 229 (secured creditor cannot insist on keeping collateral if fully protected) (5th Cir. 2009)
- Baybank–Middlesex v. Ralar Distribs., Inc., 69 F.3d 1200 (equity cushion as form of adequate protection) (1st Cir. 1995)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 814 F.2d 844 (hearing not required where papers suffice) (1st Cir. 1987)
- In re Atlas IT Exp. Corp., 761 F.3d 177 (finality of stay-relief denials in bankruptcy context) (1st Cir. 2014)