Ambac Assurance Corp. v. Commonwealth (In re Fin. Oversight & Mgmt. Bd. for Puerto Rico)
Decision Date | 24 June 2019 |
Docket Number | No. 18-1214,18-1214 |
Citation | 927 F.3d 597 |
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, Debtors. Ambac Assurance Corporation, Plaintiff, Appellant, v. Commonwealth of Puerto Rico, through the Secretary of Justice; Financial Oversight and Management Board; Puerto Rico Fiscal Agency and Financial Advisory Authority, through the Secretary of Justice; Puerto Rico Highways and Transportation Authority, through the Secretary of Justice; Ricardo Rossello Nevares, through the Secretary of Justice; Raul Maldonado Gautier, through the Secretary of Justice; Jose Ivan Marrero-Rosado; Jose B. Carrion, III; Christian Sobrino Vega; Andrew G. Biggs; Carlos M. Garcia ; Arthur J. Gonzalez; Jose R. Gonzalez ; Ana J. Matosantos; David A. Skeel, Jr.; Elias Sanchez, Defendants, Appellees, Official Committee of Unsecured Creditors, Intervenor, John Does 1–12, Defendants. |
Court | U.S. Court of Appeals — First Circuit |
Atara Miller, with whom Dennis F. Dunne, Andrew M. Leblanc, Grant F. Mainland, Milbank, Tweed, Hadley & McCloy LLP, Roberto A. Cámara-Fuertes, and Ferraiouli LLC were on brief, for appellant.
Mark C. Ellenberg, Howard R. Hawkins, Jr., Lary Stromfeld, Ellen V. Holloman, Gillian Groarke Burns, Thomas J. Curtin, Casey Servais, Cadwalder, Wickersham & Taft LLP, Heriberto Burgos Pérez, Ricardo F. Casellas-Sánchez, Diana Pérez-Seda, Casellas Alcover & Burgos, Maria E. Picó, Rexach & Picó, CSP, Martin A. Sosland, Jason W. Callen, and Butler Snow LLP on brief for Assured Guaranty Corporation, Assured Guaranty Municipal Corporation, and Financial Guaranty Insurance Company, amici curiae.
Vincent Levy, Daniel M. Sullivan, Margot Hoppin, Evan H. Stein, and Holwell Shuster & Goldberg LLP on brief for Professor John W. Ely, Jr., amicus curiae.
Bruce R. Zirinsky and Zirinsky Law Partners LLC on brief for Representative Rob Bishop, amicus curiae.
Martin J. Bienenstock, with whom Stephen L. Ratner, Mark D. Harris, Michael A. Firestein, Lary Alan Rappaport, Timothy W. Mungovan, John E. Roberts, Proskauer Rose LLP, Hermann D. Bauer-Alvarez, and O'Neill & Borges LLC were on brief, for appellee Financial Oversight and Management Board for Puerto Rico.
Peter M. Friedman, with whom Isaías Sánchez-Báez, Solicitor General of Puerto Rico, Carlos Lugo-Fiol, John J. Rapisardi, Elizabeth L. McKeen, Ashley M. Pavel, O'Melveny & Myers LLP, Luis Marini, and Marini Pietrantoni Muñoz, LLC were on brief, for appellees the Puerto Rico Fiscal Agency and Financial Advisory Authority, Christian Sobrino Vega, Ricardo Rosselló Nevares, Raul Maldonado Gautier, and Jose Ivan Marrero Rosado.
Paul S. Samson, Riemer & Braunstein LLP, Gregory E. Garman, Erick T. Gjerdingen, and Garman Turner Gordon LLP on brief for Congressman Raúl Grijalva, ranking member of the House Committee on Natural Resources, and Congresswoman Nydia Velázquez, member of the House Committee on Natural Resources, amici curiae.
Luc A. Despins, with whom Nicholas A. Bassett, Paul Hastings LLP, Juan J. Casillas Ayala, and Casillas, Santiago & Torres LLC were on brief, for the Official Committee of Unsecured Creditors of All Puerto Rico Title III Debtors (Other than COFINA).
Before Torruella, Lipez, and Kayatta, Circuit Judges.
Ambac is a financial guaranty insurer and individual holder of Puerto Rico Highways and Transportation Authority (HTA) bonds. In this Title III adversary proceeding arising within HTA's debt-adjustment proceedings pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), Ambac brings constitutional and statutory challenges to measures the Commonwealth of Puerto Rico has taken to block payments to holders of HTA bonds. Because the Title III court lacks the authority to grant the declaratory and injunctive relief that Ambac seeks, we affirm the dismissal of Ambac's claims.
Because this appeal comes before us from the dismissal of Ambac's constitutional and statutory claims, "we take as true the facts presented in [Ambac's] complaint and draw all reasonable inferences in [its] favor." Maloy v. Ballori-Lage, 744 F.3d 250, 251 (1st Cir. 2014).
HTA develops, operates, and maintains Puerto Rico's highways and transportation infrastructure. It has the ability to issue bonds to finance its operations pursuant to the Puerto Rico Highways and Transportation Authority Act, P.R. Laws Ann. tit. 9, § 2012. In 1968 and 1998, HTA adopted resolutions issuing bonds. The resolutions set forth the contractual relationship between HTA and bondholders and "pledge[ ]" for the payment of "principal, interest and premiums" certain "[r]evenues" and "funds received by [HTA] ... from the Commonwealth" (referred to here as "HTA revenues"). P.R. Highways & Transp. Authority, Resolution No. 98-06, at 58 [hereinafter 1998 Resolution]; see also P.R. Highways & Transp. Authority, Resolution No. 68-18, at 50 [hereinafter 1968 Resolution]. The HTA revenues include, among other funds: (1) "all moneys received by [HTA] on account of the crude oil tax allocated to [HTA] by Act No. 34"; (2) proceeds from gasoline and oil taxes and from annual motor-vehicle license fees; (3) "any tolls or other charges imposed by [HTA]"; and (4) "the proceeds of any other taxes, fees or charges" that the Puerto Rico legislature authorizes for payment of "principal of and interest on bonds or other obligations of [HTA]." 1998 Resolution at 7, 13; see also 1968 Resolution at 11 ( ).
The bond resolutions require HTA to deposit the HTA revenues on a monthly basis with a fiscal agent, the Bank of New York Mellon, which holds the funds in trust for bondholders and then pays bondholders in accordance with the terms of the resolutions. 1998 Resolution at 47; 1968 Resolution at 42. The resolutions further provide that the bondholders' interest in the HTA revenues is paramount, subject to one qualification: Commonwealth law requires that revenues be used to first pay interest and amortization of the public debt (i.e., general obligation bonds) in years in which other available resources are insufficient to meet appropriations. See P.R. Const. art. VI, § 8 ; see also 1998 Resolution at 19; 1968 Resolution at 17.1
A succession of related events upset the parties' contractual arrangement concerning the HTA revenues, giving rise to this lawsuit. In brief, the Commonwealth and Governor of Puerto Rico promulgated a series of laws and executive orders -- known as the "Moratorium Laws and Orders" -- that halted the flow of revenues from the Commonwealth and HTA to the fiscal agent for payment to bondholders and, instead, directed those revenues to the payment of other, ordinary Commonwealth expenses.2 The Moratorium Laws and Orders also stayed creditor remedies to enforce their contractual rights under the bondholder resolutions.
Thereafter, the Financial Oversight and Management Board for Puerto Rico ("Oversight Board") -- established by PROMESA, 48 U.S.C. §§ 2101 – 2241, and tasked with "provid[ing] a method for [Puerto Rico] to achieve fiscal responsibility and access to the capital markets," id. § 2121(a) -- certified a "Fiscal Plan" for Puerto Rico to which all Commonwealth laws and budgets must conform, see id. §§ 2141(c), 2144(a)–(c). The Fiscal Plan calls for the continued diversion of HTA revenues over the course of the next decade.3 The Oversight Board, pursuant to its authority under section 304 of PROMESA, id. § 2164(a), subsequently initiated Title III debt-adjustment proceedings on behalf of HTA, which also triggered an automatic stay of actions to collect preexisting debts from the agency, 11 U.S.C. § 362(a)(1), (5) ; 48 U.S.C. § 2161(a) (incorporating 11 U.S.C. § 362 ). The Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF) then ordered the Bank of New York Mellon, as fiscal agent, to halt payments to HTA bondholders, reasoning that the funds held in trust are still the property of the Commonwealth and their application to HTA bonds would violate the automatic stay. In July 2017, HTA defaulted on a bond payment in the amount of $219 million.
Ambac, which is both a holder and insurer of the defaulted HTA bonds, commenced this adversary action in the so-called "Title III court," bringing Contracts Clause, Takings Clause, Due Process Clause, preemption, and statutory challenges to the Commonwealth's actions. Ambac asked that court to declare as null the Moratorium Laws and Orders and the Fiscal Plan, and it sought a negative injunction preventing the Commonwealth from continuing to impair the flow of HTA revenues to bondholders. The Title III court carefully reviewed and rejected all of Ambac's requested relief, dismissing the complaint with prejudice. See Ambac Assurance Corp. v. Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for P.R. ), 297 F. Supp. 3d 269 (D.P.R. 2018). Ambac then filed this timely appeal.
Two sections of PROMESA prevent the Title III court from granting the relief that Ambac requests in this adversary proceeding.
Section 106 of PROMESA provides: "There shall be no jurisdiction in any United States district court to review challenges to the Oversight Board's certification determinations under this chapter." 48 U.S.C. § 2126(e). As this court recently explained, Méndez-Núñez v. Fin. Oversight & Mgmt. Bd. for P.R., (In re Fin. Oversight & Mgmt. Bd. for P.R. ), 916 F.3d 98, 112 (1st Cir. 2019). In its First Amended Complaint, Ambac repeatedly requests "injunctive relief invalidating the Oversight Board's certification of the Fiscal Plan." This relief is plainly precluded as a result of section 106 and our holding in Ménde...
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