Fin. Oversight & Mgmt. Bd. for Puerto Rico v. Andalusian Global Designated Activity Co. (In re Fin. Oversight & Mgmt. Bd. for Puerto Rico)
| Decision Date | 30 January 2020 |
| Docket Number | No. 19-1699, No. 19-1700,19-1699 |
| Citation | 948 F.3d 457 |
| Parties | IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, Debtors. The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, Plaintiff, Appellee, Official Committee of Retired Employees of the Commonwealth of Puerto Rico, Interested Party, Appellee, v. Andalusian Global Designated Activity Company ; Glendon Opportunities Fund, LP ; Mason Capital Master Fund LP ; Oaktree Opportunities Fund IX (Parallel 2), L.P.; Oaktree Opportunities Fund IX, L.P.; Oaktree Value Opportunities Fund, L.P. ; Oaktree-Forrest Multi-Strategy, L.L.C. (Series B); Ocher Rose, L.L.C.; SV Credit, L.P., Defendants, Appellants, Puerto Rico AAA Portfolio Bond Fund II, Inc.; Puerto Rico AAA Portfolio Bond Fund, Inc.; Puerto Rico AAA Portfolio Target Maturity Fund, Inc.; Puerto Rico Fixed Income Fund II, Inc.; Puerto Rico Fixed Income Fund III, Inc. ; Puerto Rico Fixed Income Fund IV, Inc.; Puerto Rico Fixed Income Fund V, Inc.; Puerto Rico Fixed Income Fund, Inc.; Puerto Rico GNMA And U.S. Government Target Maturity Fund, Inc. ; Puerto Rico Investors Bond Fund I, Inc. ; Puerto Rico Investors Tax-Free Fund II, Inc.; Puerto Rico Investors Tax-Free Fund III, Inc. ; Puerto Rico Investors Tax-Free Fund IV, Inc.; Puerto Rico Investors Tax-Free Fund V, Inc. ; Puerto Rico Investors Tax-Free Fund VI, Inc. ; Puerto Rico Investors Tax-Free Fund, Inc.; Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Inc. ; Tax-Free Puerto Rico Fund II, Inc.; Tax-Free Puerto Rico Fund, Inc.; Tax-Free Puerto Rico Target Maturity Fund, Inc.; UBS IRA Select Growth & Income Puerto Rico Fund; Altair Global Credit Opportunities Fund (A), LLC; Nokota Capital Master Fund, L.P., Defendants. In re: The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for The Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, Debtors. The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, Plaintiff, Appellee, Official Committee of Retired Employees of the Commonwealth of Puerto Rico, Interested Party, Appellee, v. Puerto Rico AAA Portfolio Target Maturity Fund, Inc.; Puerto Rico AAA Portfolio Bond Fund, Inc.; Puerto Rico AAA Portfolio Bond Fund II, Inc.; Puerto Rico Fixed Income Fund II, Inc.; Puerto Rico Fixed Income Fund III, Inc. ; Puerto Rico Fixed Income Fund IV, Inc.; Puerto Rico Fixed Income Fund V, Inc.; Puerto Rico Fixed Income Fund, Inc.; Puerto Rico GNMA And U.S. Government Target Maturity Fund, Inc. ; Puerto Rico Investors Bond Fund I, Inc. ; Puerto Rico Investors Tax-Free Fund II, Inc.; Puerto Rico Investors Tax-Free Fund III, Inc. ; Puerto Rico Investors Tax-Free Fund IV, Inc.; Puerto Rico Investors Tax-Free Fund V, Inc. ; Puerto Rico Investors Tax-Free Fund VI, Inc. ; Puerto Rico Investors Tax-Free Fund, Inc.; Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Inc. ; Tax-Free Puerto Rico Fund II, Inc.; Tax-Free Puerto Rico Fund, Inc.; Tax-Free Puerto Rico Target Maturity Fund, Inc., Defendants, Appellants, Altair Global Credit Opportunities Fund (A), LLC; Andalusian Global Designated Activity Company ; Glendon Opportunities Fund, LP ; Mason Capital Master Fund LP ; Nokota Capital Master Fund, L.P. ; Oaktree Opportunities Fund IX (Parallel 2), L.P.; Oaktree Opportunities Fund IX, L.P.; Oaktree Value Opportunities Fund, L.P. ; Oaktree-Forrest Multi-Strategy, L.L.C. (Series B); Ocher Rose, L.L.C.; SV Credit, L.P. ; UBS IRA Select Growth & Income Puerto Rico Fund, Defendants. |
| Court | U.S. Court of Appeals — First Circuit |
Bruce Bennett, with whom Benjamin Rosenblum, David R. Fox, Washington, DC, Geoffrey S. Stewart, Beth Heifetz, Sparkle L. Sooknanan, Washington, DC, Isel M. Perez, Miami, FL, Jones Day, Alfredo Fernández-Martínez, and Delgado & Fernández, LLC, San Juan, PR, were on brief, for Andalusian Global Designated Activity Company; Glendon Opportunities Fund, LP; Mason Capital Master Fund LP; Nokota Capital Master Fund, L.P.; Oaktree Opportunities Fund IX (Parallel 2), L.P.; Oaktree Value Opportunities Fund, L.P.; Oaktree-Forrest Multi-Strategy, L.L.C. (Series B); Ocher Rose, L.L.C; and SV Credit, L.P.
Jason N. Zakia, Glenn M. Kurtz, New York, NY, John K. Cunningham, Miami, FL, White & Case LLP, Alicia I. Lavergne-Ramírez, San Juan, PR, José C. Sánchez-Castro, San Juan, PR, Maraliz Vázquez-Marrero, San Juan, PR, and Sánchez Pirillo LLC on brief for Puerto Rico AAA Portfolio Target Maturity Fund, Inc.; Puerto Rico AAA Portfolio Bond Fund II, Inc.; Puerto Rico AAA Portfolio Bond Fund, Inc.; Puerto Rico Fixed Income Fund II, Inc.; Puerto Rico Fixed Income Fund III, Inc.; Puerto Rico Fixed Income Fund IV, Inc.; Puerto Rico Fixed Income Fund V, Inc.; Puerto Rico Fixed Income Fund, Inc.; Puerto Rico GNMA and U.S. Government Target Maturity Fund, Inc.; Puerto Rico Investors Bond Fund I, Inc.; Puerto Rico Investors Tax-Free Fund II, Inc.; Puerto Rico Investors Tax-Free Fund III, Inc.; Puerto Rico Investors Tax-Free Fund IV, Inc.; Puerto Rico Investors Tax-Free Fund V, Inc.; Puerto Rico Investors Tax-Free Fund VI, Inc.; Puerto Rico Investors Tax-Free Fund, Inc.; Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Inc.; Tax-Free Puerto Rico Fund II, Inc.; Tax-Free Puerto Rico Fund, Inc.; Tax-Free Puerto Rico Target Maturity Fund, Inc.; and UBS IRA Select Growth & Income Puerto Rico Fund.
Martin J. Bienenstock, New York, NY, with whom Timothy W. Mungovan, John E. Roberts, William D. Dalsen, Boston, MA, Stephen L. Ratner, Mark D. Harris, Jeffrey W. Levitan, Margaret A. Dale, New York, NY, and Proskauer Rose LLP were on brief, for the Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico.
Catherine L. Steege, Chicago, IL, with whom Melissa M. Root, Chicago, IL, Ian Heath Gershengorn, Lindsay C. Harrison, Washington, DC, Robert D. Gordon, Richard Levin, New York, NY, Jenner & Block LLP, A.J. Bennazar-Zequeira, Hato Rey, PR, Héctor M. Mayol Kauffmann, and Bennazar, García & Milián, C.S.P. were on brief, for the Official Committee of Retired Employees of the Commonwealth of Puerto Rico.
Before Howard, Chief Judge, Lynch and Lipez, Circuit Judges.
The appellant Bondholders own bonds issued in 2008 by the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (the "System"). More than eight years after the bond issuance, Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), 48 U.S.C. §§ 2101 – 2241, to address Puerto Rico's financial crisis and, under PROMESA's Title III, id. §§ 2161-2177, provided many bankruptcy protections to Puerto Rico's government agencies. The Commonwealth and the System filed Title III petitions for such protections.
Pursuant to a stipulation in earlier litigation between the System and the Bondholders in 2017, the System filed two lawsuits against the Bondholders in the Title III court seeking declaratory relief on the "validity, priority, extent and enforceability" of the Bondholders' asserted security interest in the System's "postpetition assets," including "[employer] contributions [to the System] received postpetition." On summary judgment, the Title III court addressed three arguments made by the Bondholders. Fin. Oversight & Mgmt. Bd. for P.R. v. Andalusian Glob. Activity Co. (In re Fin. Oversight & Mgmt. Bd. for P.R. ), 385 F. Supp. 3d 138, 147–55 (D.P.R. 2019). First, the Bondholders claimed that their security interests fit within exceptions under § 552 of the Bankruptcy Code. Id. at 152. The Title III court rejected that claim. Second, the Bondholders argued that they are entitled to the protection of the "special revenue" provisions of PROMESA. Id.; see also 48 U.S.C. § 2161(a) (). The Title III court held that the Bondholders were not so protected, as Employers' Contributions were not special revenues. Andalusian, 385 F. Supp. 3d at 154. Finally, the Bondholders argued that the statutes should be construed in their favor on their first two arguments to avoid an impermissible taking under the Takings Clause of the Fifth Amendment. Id. at 154–55. The Title III court rejected this argument as well. Id. at 155. We affirm.
We describe the relevant statutes, facts, and procedural history of the appeals. For additional facts and procedural history, we refer the reader to the earlier litigation between these parties about these bonds. See Altair Glob. Credit Opportunities Fund,...
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