COMMONWEALTH OF PUERTO RICO ET AL. v. FRANKLIN CALIFORNIA TAX-FREE TRUST ET AL.
Nos. 15-233 and 15-255
SUPREME COURT OF THE UNITED STATES
June 13, 2016
579 U. S. ____ (2016)
THOMAS, J.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
COMMONWEALTH OF PUERTO RICO ET AL. v. FRANKLIN CALIFORNIA TAX-FREE TRUST ET AL.
No. 15-233. Argued March 22, 2016—Decided June 13, 2016*
In response to an ongoing fiscal crisis, petitioner Puerto Rico enacted the Puerto Rico Public Corporation Debt Enforcement and Recovery Act. Portions of the Recovery Act mirror Chapters 9 and 11 of the Federal Bankruptcy Code and enable Puerto Rico‘s public utility corporations to restructure their climbing debt. Respondents, a group of investment funds and utility bondholders, sought to enjoin the Act. They contended, among other things, that a Bankruptcy Code provision explicitly pre-empts the Recovery Act, see
Held: Section 903(1) of the Bankruptcy Code pre-empts Puerto Rico‘s Recovery Act. Pp. 5–15.
(a) Three federal municipal bankruptcy provisions are relevant here. First, the “gateway” provision,
Syllabus
(b) If petitioners are correct that the amended definition of “State” excludes Puerto Rico altogether from Chapter 9, then the pre-emption provision does not apply. But if respondents’ narrower reading is correct and the definition only precludes Puerto Rico from authorizing its municipalities to seek Chapter 9 relief,
(1) The Bankruptcy Code‘s plain text supports respondents’ reading. The unambiguous language of the pre-emption provision “contains an express pre-emption clause,” the plain wording of which “necessarily contains the best evidence of Congress’ pre-emptive intent.” Chamber of Commerce of United States v. Whiting, 563 U. S. 582, 594. The definition provision excludes Puerto Rico for the single purpose of defining who may be a Chapter 9 debtor, an unmistakable reference to the
(2) The amended definition of “State” does not exclude Puerto Rico from all of Chapter 9‘s provisions. First, Puerto Rico‘s exclusion as a “State” for purposes of the gateway provision does not also remove Puerto Rico from Chapter 9‘s separate pre-emption provision. A State that chooses under the gateway provision not to authorize a municipality to file is still bound by the pre-emption provision. Likewise, Puerto Rico is bound by the pre-emption provision, even though Congress has removed its authority under the gateway provision to authorize its municipalities to seek Chapter 9 relief. Second, because Puerto Rico was not “by definition” excluded from Chapter 9, both
805 F. 3d 322, affirmed.
THOMAS, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, BREYER, and KAGAN, JJ., joined. SOTOMAYOR, J., filed a dissenting opinion, in which GINSBURG, J., joined. ALITO, J., took no part in the consideration or decision of these cases.
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that
SUPREME COURT OF THE UNITED STATES
Nos. 15-233 and 15-255
COMMONWEALTH OF PUERTO RICO, ET AL., PETITIONERS
15-233 v. FRANKLIN CALIFORNIA TAX-FREE TRUST, ET AL.
MELBA ACOSTA-FEBO, ET AL., PETITIONERS
15-255 v. FRANKLIN CALIFORNIA TAX-FREE TRUST, ET AL.
ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
[June 13, 2016]
JUSTICE THOMAS delivered the opinion of the Court.
The Federal Bankruptcy Code pre-empts state bankruptcy laws that enable insolvent municipalities to restructure their debts over the objections of creditors and instead requires municipalities to restructure such debts under Chapter 9 of the Code.
The Bankruptcy Code has long included Puerto Rico as a “State,” but in 1984 Congress amended the definition of “State” to exclude Puerto Rico “for the purpose of defining who may be a debtor under chapter 9.” Bankruptcy Amendments and Federal Judgeship Act, §421(j)(6), 98 Stat. 368, now codified at
I
A
Puerto Rico and its instrumentalities are in the midst of a fiscal crisis. More than $20 billion of Puerto Rico‘s climbing debt is shared by three government-owned public utilities companies: the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct and Sewer Authority, and the Puerto Rico Highways and Transportation Authority. For the fiscal year ending in 2013, the three public utilities operated with a combined deficit of $800 million. The Government Development Bank for Puerto Rico (Bank)—the Commonwealth‘s government-owned bank and fiscal agent—has previously provided financing to enable the utilities to continue operating without defaulting on their debt obligations. But the Bank now faces a fiscal crisis of its own. As of fiscal year 2013, it had loaned nearly half of its assets to Puerto Rico and its public utilities. Puerto Rico‘s access to capital markets has also been severely compromised since ratings agencies downgraded Puerto Rican bonds, including the utilities‘, to noninvestment grade in 2014.
Puerto Rico responded to the fiscal crisis by enacting the Puerto Rico Corporation
B
A group of investment funds, including the Franklin California Tax-Free Trust, and BlueMountain Capital Management, LLC, brought separate suits against Puerto Rico and various government officials, including agents of the Bank, to enjoin the enforcement of the Recovery Act. Collectively, the plaintiffs hold nearly $2 billion in bonds issued by the Electric Power Authority, one of the distressed utilities. The complaints alleged, among other claims, that the Federal Bankruptcy Code prohibited Puerto Rico from implementing its own municipal bankruptcy scheme.
The District Court consolidated the suits and ruled in the plaintiffs’ favor on their pre-emption claim. 85 F. Supp. 3d 577 (PR 2015). The court concluded that the pre-emption provision in Chapter 9 of the Federal Bankruptcy Code,
The First Circuit affirmed. 805 F. 3d 322 (2015). The court examined the 1984 amendment to the definition of “State” in the Federal Bankruptcy Code, which includes Puerto Rico as a “State” for purposes of the Code “except for the purpose of defining who may be a debtor under chapter 9.” Id., at 330–331 (quoting
We granted the Commonwealth‘s petitions for writs of certiorari. 577 U. S. ___ (2015).*
These cases require us to parse three provisions of the Bankruptcy Code: the “who may be a debtor” provision requiring States to authorize municipalities to seek Chapter 9 relief,
A
The Constitution empowers Congress to establish “uniform Laws on the subject of Bankruptcies throughout the United States.”
Congress has tailored the federal municipal bankruptcy laws to preserve the States’ reserved powers over their municipalities. This Court struck down Congress’ first attempt to enable the States’ political subdivisions to file for federal bankruptcy relief after concluding that it infringed the States’ powers “to manage their own affairs.” Ashton v. Cameron County Water Improvement Dist. No. One, 298 U. S. 513, 531 (1936). Congress tried anew in 1937, and the Court upheld the amended statute as an appropriate balance of federal and state power. See United States v. Bekins, 304 U. S. 27, 49–53 (1938). Critical to the Court‘s constitutional analysis was that the State had first authorized its instrumentality to seek relief under the federal bankruptcy laws. See id., at 47–49, 53–54.
Still today, the provision of the Bankruptcy Code defining who may be a debtor under Chapter 9, which we refer to here as the “gateway” provision, requires the States to authorize their municipalities to seek relief under Chapter 9 before the municipalities may file a Chapter 9 petition:
Ҥ109. Who may be a debtor
. . . . .
“(c) An entity may be a debtor under chapter 9 of this title if and only if such entity—
“(1) is a municipality;
“(2) is specifically authorized, in its capacity as a municipality or by name, to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter . . . .”
The States’ powers are not unlimited, however. The federal bankruptcy laws changed again in 1946 to bar the States
The express pre-emption provision, central to these cases, is now codified with some stylistic changes in
Ҥ903. Reservation of State power to control municipalities
“This chapter does not limit or impair the power of a State to control, by legislation or otherwise, a municipality of or in such State in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise, but—
“(1) a State law prescribing a method of composition of indebtedness of such municipality may not bind any creditor that does not consent to such composition; and
“(2) a judgment entered under such a law may not bind a creditor that does not consent to such composition.”
The third provision of the Bankruptcy Code at issue is the definition of “State,” which has included Puerto Rico since it became a Territory of the United States in 1898. The first Federal Bankruptcy Act, also enacted in 1898, defined “States” to include “the Territories, the Indian Territory, Alaska, and the District of Columbia.” 30 Stat. 545. When Congress recodified the bankruptcy laws to form the Federal Bankruptcy Code in 1978, the definition of “State” dropped out of the definitional section. See generally Bankruptcy Reform Act, 92 Stat. 2549–2554. Congress then amended the Code to reincorporate the definition of “State” in 1984. §421, 98 Stat. 368–369, now codified at
Ҥ101. Definitions
. . . . .
“(52) The term ‘State’ includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title.”
B
It is our task to determine the effect of the amended definition of “State” on the Code‘s other provisions governing Chapter 9 proceedings. We must decide whether, in light of the amended definition, Puerto Rico is no longer a “State” only for purposes of the gateway provision, which requires States to authorize their municipalities to seek Chapter 9 relief, or whether Puerto Rico is also no longer a “State” for purposes of the pre-emption provision.
The parties do not dispute that, before 1984, Puerto Rico was a “State” for purposes of Chapter 9‘s pre-emption provision. Accordingly, before 1984, federal law would have pre-empted the Recovery Act because it is a “State law prescribing a method of composition of indebtedness” for Puerto Rico‘s instrumentalities that would bind nonconsenting creditors,
The parties part ways, however, in deciphering how the 1984 amendment to the definition of “State” affected the pre-emption
Respondents have the better reading. We hold that Puerto Rico is still a “State” for purposes of the pre-emption provision. The 1984 amendment precludes Puerto Rico from authorizing its municipalities to seek relief under Chapter 9, but it does not remove Puerto Rico from the reach of Chapter 9‘s pre-emption provision.
1
The plain text of the Bankruptcy Code begins and ends our analysis. Resolving whether Puerto Rico is a “State” for purposes of the pre-emption provision begins “with the language of the statute itself,” and that “is also where the inquiry should end,” for “the statute‘s language is plain.” United States v. Ron Pair Enterprises, Inc., 489 U. S. 235, 241 (1989). And because the statute “contains an express pre-emption clause,” we do not invoke any presumption against pre-emption but instead “focus on the plain wording of the clause, which necessarily contains the best evidence of Congress’ pre-emptive intent.” Chamber of Commerce of United States of America v. Whiting, 563 U. S. 582, 594 (2011) (internal quotation marks omitted); see also Gobeille v. Liberty Mut. Ins. Co., 577 U. S. 312 (2016) (slip op., at 12).
The amended definition of “State” excludes Puerto Rico for the single “purpose of defining who may be a debtor under chapter 9 of this title.”
The amended definition‘s use of the term “defining” also confirms our conclusion that the amended definition excludes
The text of the definition extends no further. The exception excludes Puerto Rico only for purposes of the gateway provision. Puerto Rico is no less a “State” for purposes of the pre-emption provision than it was before Congress amended the definition. The Code‘s pre-emption provision has prohibited States and Territories defined as “States” from enacting their own municipal bankruptcy schemes for 70 years. See 60 Stat. 415 (overturning Faitoute, 316 U. S., at 507–509). Had Congress intended to “alter th[is] fundamental detai[l]” of municipal bankruptcy, we would expect the text of the amended definition to say so. Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001). Congress “does not, one might say, hide elephants in mouseholes.” Ibid.
2
The dissent, adopting many of petitioners’ arguments, reads the amended definition to say what it does not—that “for the purpose of . . . chapter 9,” Puerto Rico is not a State. The arguments in support of that capacious reading are unavailing.
First, the dissent agrees with petitioners’ view that the exclusion of Puerto Rico as a “State” for purposes of the gateway provision effectively removed Puerto Rico from all of Chapter 9. See post, at 7–8 (opinion of SOTOMAYOR, J.). To be sure,
Second, both petitioners and the dissent place great weight on the introductory clause of
This reading rests on the faulty assumption that Puerto Rico is, “by definition,” excluded from Chapter 9. Ibid. For all of the reasons already explained, see Part II–B–1, supra, it is not. The amended definition of “State” precludes Puerto Rico from authorizing its municipalities to seek Chapter 9 relief. But Puerto Rico is no less a “State” for purposes of
Third, the Government Development Bank contends that the Recovery Act does not run afoul of the pre-emption provision because the Recovery Act does not bind nonconsenting “creditors,” as the Bankruptcy Code now defines that term. In 1978, Congress redefined “creditor” to mean an “entity that has a claim against the debtor . . . .” 92 Stat. 2550, now codified at
Tellingly, the dissent does not adopt this reading. The Bank‘s interpretation would nullify the pre-emption provision. Applying the Bank‘s logic, a municipality that fails to meet any one of the requirements of Chapter 9‘s gatekeeping provision is not a “debtor” and would have no “creditors.” So a State could refuse to “specifically authoriz[e]” its municipalities to seek relief under Chapter 9,
*
The dissent concludes that “the government and people of Puerto Rico should not have to wait for possible congressional action to avert the consequences” of the Commonwealth‘s fiscal crisis. Post, at 9. But our constitutional structure does not permit this Court to “rewrite the statute that Congress has enacted.” Dodd v. United States, 545 U. S. 353, 359 (2005); see also Electric Storage Battery Co. v. Shimadzu, 307 U. S. 5, 14 (1939). That statute precludes Puerto Rico from authorizing its municipalities to seek relief under Chapter 9. But it does not remove Puerto Rico from the scope of Chapter 9‘s pre-emption provision. Federal law, therefore, pre-empts the Recovery Act. The judgment of the Court of Appeals for the First Circuit is affirmed.
It is so ordered.
JUSTICE ALITO took no part in the consideration or decision of these cases.
SOTOMAYOR, J., dissenting
SUPREME COURT OF THE UNITED STATES
Nos. 15-233 and 15-255
COMMONWEALTH OF PUERTO RICO, ET AL., PETITIONERS
15-233 v. FRANKLIN CALIFORNIA TAX-FREE TRUST, ET AL.
MELBA ACOSTA-FEBO, ET AL., PETITIONERS
15-255 v. FRANKLIN CALIFORNIA TAX-FREE TRUST, ET AL.
ON WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
[June 13, 2016]
JUSTICE SOTOMAYOR, with whom JUSTICE GINSBURG joins, dissenting.
Chapter 9 of the Federal Bankruptcy Code allows States’ “municipalities“—cities, utilities, levee boards, and the like—to file for federal bankruptcy with their State‘s authorization. But the Code excludes Puerto Rican municipalities from accessing federal bankruptcy.
The Court today holds that Puerto Rico‘s Recovery Act is barred by
I respectfully dissent.
I
The Commonwealth of Puerto Rico and its municipalities are in the middle of a fiscal crisis. Ante, at 2. The combined debt of Puerto Rico‘s three main public utilities exceeds $20 billion. These utilities
When debtors face untenable debt loads, bankruptcy is the primary tool the law uses to forge workable long-term solutions. By requiring a debtor and creditors to negotiate together and forcing both sides to make concessions within the limits set by law, bankruptcy gives the debtor a “fresh start,” discourages creditors from racing each other to sue the debtor, prohibits a small number of holdout creditors from blocking a compromise, protects important creditor rights such as the prioritization of debts, and allows all parties to find equitable and efficient solutions to fiscal problems. See Marrama v. Citizens Bank of Mass., 549 U. S. 365, 367 (2007); Young v. Higbee Co., 324 U. S. 204, 210 (1945).
These concerns are starkly presented in the context of municipal entities like public utilities. While a business corporation can use bankruptcy to reorganize, and, if that fails, fold up shop and liquidate all of its assets, governments cannot shut down power plants, water, hospitals, sewers, and trains and leave citizens to fend for themselves. A “fresh start” can help not only the unfortunate individual debtor but also—and perhaps especially—the unfortunate municipality and its people. See United States v. Bekins, 304 U. S. 27, 53–54 (1938).
Congress has excluded the municipalities of Puerto Rico and the District of Columbia from the federal municipal bankruptcy scheme in Chapter 9 of the Bankruptcy Code. See
After the Recovery Act was signed into law, mutual funds and hedge funds holding bonds of the Puerto Rico Electric Power Authority filed two lawsuits seeking to enjoin Puerto Rico‘s enforcement of the Act. The District Court held that the Recovery Act could not be enforced because, inter alia, it was prohibited by
II
Bankruptcy is not a one-size-fits-all process. The Federal Bankruptcy Code sets out specific procedures and governing law for each type of entity that seeks bankruptcy protection. To see how this approach works, consider the structure of the Code in more depth.
Because
Interpreting statutory provisions in the context of the operative chapters in the Bankruptcy Code in which they appear is not unusual—it is how the Code is designed to work. For example, both Chapter 9 and Chapter 13 require the debtor to “file a plan” proposing how the court should reorganize its debts. Compare
These cases concern
The second eligibility requirement is relevant here. Only a municipality “authorized . . . by State law” may pass through the “gateway” and file for bankruptcy under Chapter 9‘s provisions. But Chapter 1‘s definitional provision, which applies throughout the Code, provides that the “term ‘State’ includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title.”
Section 903 delineates the balance of power between the States that can authorize their municipalities to access Chapter 9 protection and the bankruptcy court that would preside over any municipal bankruptcy commenced under Chapter 9. To understand that interplay, and why
Section 903, titled “Reservation of State power to control municipalities,” reads in full:
“This chapter [Chapter 9] does not limit or impair the power of a State to control, by legislation or otherwise, a municipality of or in such State in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise, but—
“(1) a State law prescribing a method of composition of indebtedness of such municipality may not bind any creditor that does not consent to such composition; and
“(2) a judgment entered under such a law may not bind a creditor that does not consent to such composition.”
This “reservation” of power to the States was added to the Code in response to this Court‘s earlier recognition that States possess plenary control over their municipalities, particularly in fiscal matters. Faitoute Iron & Steel Co. v. Asbury Park, 316 U. S. 502, 509 (1942), overruled in part by Act of July 1, 1946, 60 Stat. 415. Section 903 says that States continue to possess those powers not implicated by the bankruptcy itself by noting that “[t]his chapter,” i.e., Chapter 9, “does not limit or impair the power of a State to control” its municipalities.
Section 903, however, also subjects that broad reservation to an exception articulated in the pre-emption provision that the Court now says bars Puerto Rico‘s Recovery Act. States may control their municipalities, but they may not “prescrib[e] a method of composition of indebtedness of [a] municipality” that “bind[s] any creditor that does not consent to such composition.”
But this distribution of power between the State and the bankruptcy court is irrelevant to Puerto Rico. Because Puerto Rico‘s municipalities cannot pass through the
This understanding of
III
The Court rejects contextual analysis in favor of a syllogism. According to the Court,
The majority‘s plain meaning syllogism is not without force. But it ignores this Court‘s repeated exhortations to read statutes in context of the overall statutory scheme. Utility Air, 573 U. S., at ___ (slip op., at 15). In context, for the reasons discussed,
Moreover, in an attempt to buttress its syllogism, the majority‘s analysis makes an additional critical misstep.
The majority argues that, in light of the longstanding nature of the
Pre-emption cases may seem like abstract discussions of the appropriate balance between state and federal power. But they have real-world consequences. Finding pre-emption here means that a government is left powerless and with no legal process to help its 3.5 million citizens.
Congress could step in to resolve Puerto Rico‘s crisis. But, in the interim, the government and people of Puerto Rico should not have to wait for possible congressional action to avert the consequences of unreliable electricity, transportation, and safe water—consequences that members of the Executive and Legislature have described as a looming “humanitarian crisis.” The White House, Addressing Puerto Rico‘s Economic and Fiscal Crisis and Creating a Path to Recovery, p. 1 (Oct. 26, 2015) (italics deleted); Letter from Sen. Richard Blumenthal et al. to Charles Grassley, Chair, Senate Committee on the Judiciary (Sept. 30, 2015). Statutes should not easily be read as removing the power of a government to protect its citizens.
*
For the foregoing reasons, I would hold that