Assured Guaranty Corp. v. Fin. Oversight & Mgmt. Bd. for Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for Puerto Rico), s. 18-1165

• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Writing for the Court: TORRUELLA, Circuit Judge.
• Citation: 919 F.3d 121
• 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 & Transportation Authority, Debtors. Assured Guaranty Corporation; Assured Guaranty Municipal Corporation; Financial Guaranty Insurance Company; National Public Finance Guarantee Corporation, Plaintiffs, Appellants, v. The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; Financial Oversight and Management Board for Puerto Rico; Puerto Rico Fiscal Agency and Financial Advisory Aurthority; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways & Transportation Authority ; Ricardo Rosselló-Nevares; Gerardo José Portela-Franco; Carlos Contreras-Aponte; José Iván Marrero-Rosado; Raúl Maldonado-Gautier; Natalie A. Jaresko, Defendants, Appellees, José B. Carrión III; Andrew G. Briggs; Carlos M. García; Arthur J. González; José R. González; Ana J. Matosantos; David A. Skeel, Jr.; Christian Sobrino, Defendants.
• Docket Number: 18-1166,Nos. 18-1165,s. 18-1165
• Decision Date: 26 March 2019

919 F.3d 121

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 & Transportation Authority, Debtors.

Assured Guaranty Corporation; Assured Guaranty Municipal Corporation; Financial Guaranty Insurance Company; National Public Finance Guarantee Corporation, Plaintiffs, Appellants,
v.
The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; Financial Oversight and Management Board for Puerto Rico; Puerto Rico Fiscal Agency and Financial Advisory Aurthority; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways & Transportation Authority ; Ricardo Rosselló-Nevares; Gerardo José Portela-Franco; Carlos Contreras-Aponte; José Iván Marrero-Rosado; Raúl Maldonado-Gautier; Natalie A. Jaresko, Defendants, Appellees,

José B. Carrión III; Andrew G. Briggs; Carlos M. García; Arthur J. González; José R. González; Ana J. Matosantos; David A. Skeel, Jr.; Christian Sobrino, Defendants.

Nos. 18-1165
18-1166

United States Court of Appeals, First Circuit.

March 26, 2019

Mark C. Ellenberg, Washington, DC, with whom Howard R. Hawkins, Jr., Lary Stromfeld, Ellen V. Holloman, Gillian Groarke Burns, Thomas J. Curtin, Casey Servais, New York, NY, Cadwalader, Wickersham & Taft LLP, Heriberto Burgos-Pérez, Ricardo F. Casellas-Sánchez, Hato Rey, PR, Diana Pérez-Seda, and Casellas Alcover & Burgos, San Juan, PR, were on brief, for appellants Assured Guaranty Corp. and Assured Guaranty Municipal Corp.

Eric Pérez-Ochoa, Alexandra Casellas-Cabrera, Lourdes Arroyo-Portela, Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C., San Juan, PR, Jonathan Polkes, Marcia Goldstein, Gregory Silbert, Kelly DiBlasi, Gabriel A. Morgan, and Weil, Gotshal & Manges LLP, New York, NY, on brief, for appellant National Public Finance Guarantee Corporation.

María E. Picó, Rexach & Picó, CSP, Martin A. Sosland, Dallas, TX, Jason W. Callen, Nashville, TN, and Butler Snow LLP on brief, for appellant Financial Guaranty Insurance Company.

Mark D. Harris, New York, NY, with whom Timothy W. Mungovan, Boston, MA, Martin J. Bienenstock, Stephen J. Ratner, Jeffrey W. Levitan, New York, NY, Michael A. Firestein, Lary Alan Rappaport, Los Angeles, CA, Proskauer Rose LLP, Hermann D. Bauer, and O'Neill & Borges LLC, San Juan, PR, were on brief, for appellees The Financial Oversight and Management Board for Puerto Rico, for itself and as representative for the Commonwealth of Puerto Rico and the Puerto Rico Highways and Transportation Authority, and Natalie A. Jaresko.

Luis Marini, Marini Pietrantoni Muñiz, LLC, John J. Rapisardi, New York, NY, Peter Friedman, Washington, DC, Elizabeth L. McKeen, Newport Beach, CA, and O'Melveny & Myers LLP on brief, for appellees the Puerto Rico Fiscal Agency and Financial Advisory Authority and Gerardo Portela-Franco.

Luc A. Despins, New York, NY, with whom William K. Whitner, Atlanta, GA, James B. Worthington, New York, NY, James T. Grogan III, Paul Hastings LLP, Juan J. Casillas-Ayala, Diana M. Battle-Barasorda, Alberto J.E. Añeses-Negrón, Ericka C. Montull-Novoa, and Casillas, Santiago & Torres LLC, San Juan, PR, were on brief, for Official Committee of Unsecured Creditors.

Laura E. Appleby, with whom Steven Wilamowsky, New York, NY, Aaron Krieger, Chicago, IL, Chapman and Cutler LLP and Kevin Carroll, New York, NY, as amicus curiae for The Securities Industry and Financial Markets Association.

Vincent J. Marriott III, Philadelphia, PA, with whom Chantelle D. McClamb, Wilmington, DE, and Ballard Spahr LLP, as amicus curiae for The National Federation of Municipal Analysts.

Before Howard, Chief Judge, Torruella, and Thompson, Circuit Judges.

TORRUELLA, Circuit Judge.

919 F.3d 124

Appellants, financial guarantee insurers that had insured bonds from the Puerto Rico Highway and Transportation Authority ("PRHTA") (hereinafter the "Insurers"), appeal from the dismissal of their Amended Complaint in an adversary proceeding arising within the debt adjustment proceeding that the Financial Oversight and Management Board (the "Board") commenced on behalf of the PRHTA under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), see 48 U.S.C. §§ 2161 - 2177. Because the district court did not err when it dismissed the Insurers' Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6) on the grounds that neither Section 922(d) nor Section 928(a) of the United States Bankruptcy Code entitle the Insurers to the relief they sought, we affirm.

I. Background

1. PROMESA

This is one of a sequence of appeals related to PROMESA, a statute enacted by Congress "in June 2016 to address an ongoing financial crisis in the Commonwealth of Puerto Rico." In re Fin. Oversight & Mgmt. Bd. for Puerto Rico, 872 F.3d 57, 59 (1st Cir. 2017) (citation omitted). To "help Puerto Rico achieve fiscal responsibility and access to the capital markets," the statute created the Board, which has "the ability to commence quasi-bankruptcy proceedings to restructure the Commonwealth's debt under a part of the

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statute often referred to as ‘Title III.’ " Id. PROMESA is largely modeled on municipal debt reorganization principles set forth in Chapter 9 of the Bankruptcy Code.

2. The PRHTA Bonds

In 1965, the Commonwealth of Puerto Rico ("the Commonwealth") created the PRHTA, a public corporation, to "oversee and manage the development of roads and various means of transportation" in the Commonwealth by passing Act No. 74-1965, known as the " Enabling Act." Assured Guar. Corp. v. Commonwealth of Puerto Rico (In re Fin. Oversight & Mgmt. Bd. of P.R.), 582 B.R. 579, 585-86 (D.P.R. 2018) ; see generally P.R. Laws Ann. tit. 9, § 2002. Pursuant to its Enabling Act, the PRHTA can secure capital by issuing municipal bonds. The PRHTA has issued several series of bonds (the "PRHTA Bonds") under Resolution No. 68-18 and Resolution No. 98-06 (collectively the "Resolutions"). The Insurers allege that pursuant to the Enabling Act and the Resolutions, the PRTHA Bonds are secured by a gross lien on (i) the revenues derived from the tolls on four highways within the Commonwealth (the "Pledged Toll Revenues"); (ii) gasoline, diesel, crude oil, and other special excise taxes levied by the Commonwealth (the "PRHTA Pledged Tax Revenues"); and (iii) special excise taxes consisting of motor vehicle license fees collected by the Commonwealth (together with the PRHTA Pledged Tax Revenues, the "PRHTA Pledged Special Excise Taxes"). According to the Insurers, the Puerto Rico Secretary of Treasury is required by statute to transfer the PRHTA Pledged Special Excise Taxes to PRHTA each month for the benefit of PRHTA bondholders. They further allege that the Pledged Toll Revenues and the PRHTA Pledged Special Excise Taxes (collectively, the "PRHTA Pledged Special Revenues") are the Insurers' property, which the PRHTA must transfer to the fiscal agent for the PRHTA Bonds on a monthly basis to replenish tripartite¹ funds (the "Reserve Accounts") held in trust by The Bank of New York Mellon ("BNYM").

3. The Debt Adjustment Proceeding

In March 2017, after the enactment of PROMESA and appointment of the Board,² the Board certified a financial plan by which the PRHTA Pledged Special Revenues formerly being deposited in the Reserve Accounts would instead be diverted and subsumed into the general revenues of Puerto Rico. On May 3 and 21, 2017, the Board commenced debt adjustment proceedings on behalf of the Commonwealth and the PRHTA, respectively, pursuant to Title III of PROMESA.

BNYM continued to make payments to the PRHTA bondholders through June 20, 2017, when the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF" for its Spanish acronym), on behalf of PRHTA, instructed BNYM to cease making scheduled payments from the Reserve Accounts. The reasoning behind the instruction was that making such payments would constitute an act "to exercise control" over PRHTA's property in violation of the automatic stay that arose under 11 U.S.C. § 362(a), as incorporated by Section 301 of PROMESA, following the filing of the Title III petition on the PRHTA's behalf. Thereafter, on July 3, 2017, the PRHTA defaulted on a scheduled bond

919 F.3d 126

payment of $219 million. BNYM is abstaining from distributing funds from the Reserve Accounts until this matter is resolved.³

In June 2017, the Insurers initiated adversary proceedings against the Commonwealth, the PRHTA, the Board, the AAFAF, the Governor of the Commonwealth, and other individual defendants in their official capacity (collectively the "Debtors").⁴ In their Amended Complaint, which included four claims for relief, the Insurers essentially alleged that failure to continue to remit the PRHTA Pledged Special Revenues into the Reserve Accounts and pay them as payments come due violates Chapter 9 of the Bankruptcy Code. Specifically, the Insurers' first claim sought declarations that the PRHTA Bonds were...