Assured Guaranty Corp. v. Fin. Oversight & Mgmt. Bd. for Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for Puerto Rico)
| Decision Date | 31 July 2019 |
| Docket Number | 18-1166,Nos. 18-1165,s. 18-1165 |
| Citation | 931 F.3d 111 (Mem) |
| 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 Authority ; 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. |
| Court | U.S. Court of Appeals — First Circuit |
ORDER OF COURT
The central issue in this case is whether the creditor-bondholders, without first obtaining permission from the Title III court, may commence a judicial proceeding against a Commonwealth debtor to obtain a court order restoring the flow of post-petition pledged special revenues from the debtor. Two panels of this court recently held that sections 922 and 928 of the municipal bankruptcy code do not afford creditors a shortcut to bypass the requirement of obtaining traditional stay relief in order to bring such an enforcement action. See Ambac Assurance Corp. v. Commonwealth of Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for P.R. ), 927 F.3d 597, 604–05 (1st Cir. 2019) ; Assured Guar. Corp. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R. ), 919 F.3d 121, 127–32 (1st Cir. 2019). Because I believe that the dissent's objection to our denial of the creditors' petition for rehearing en banc is unsupported by the text of sections 922 and 928 and misconstrues the legislative context and history accompanying those provisions, I elaborate on my support for the panel's holding and for the denial of the petition.
The creditors' desire to commence a proceeding without permission from the Title III court implicates section 362(a) of the bankruptcy code, which automatically stays a broad variety of creditor actions against the debtor or the debtor's property upon the debtor's filing of a bankruptcy petition. See generally 11 U.S.C. § 362(a). One of the creditor actions that section 362(a) stays is the "commencement ... of a judicial ... proceeding against the debtor that ... could have been commenced before the commencement of the [bankruptcy] case ... or to recover a claim against the debtor that arose before the commencement of the [bankruptcy] case." Id. § 362(a)(1). Under other subsections, the stay also applies to many creditor actions that fall short of commencing a judicial proceeding. These include, in relevant part, "any act ... to exercise control over property of the [debtor]," id. § 362(a)(3) ; see also id. § 902(1) (), "any act to ... enforce any lien against property of the [debtor]," id. § 362(a)(4), "any act to ... enforce against property of the debtor any lien to the extent that such lien secures a lien that arose before the commencement of the [bankruptcy] case," id. § 362(a)(5), and "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the [bankruptcy] case," id. § 362(a)(6).
The leading treatise on bankruptcy law recognizes the breadth of actions encompassed by the collective subsections of section 362(a), particularly in the municipal bankruptcy context. See 3 Collier on Bankruptcy ¶ 362.03 (Richard Levin & Henry J. Sommer eds. 16th ed. 2018) [hereinafter Collier] ("[I]nnocent conduct such as the cashing of checks received from account debtors of accounts assigned as security may be a technical violation [of section 362(a)(6) ]."); id. (); see also 6 Collier, supra, ¶ 901.04 ( ). The case law also acknowledges the breadth of creditor conduct stayed by section 362(a). See, e.g., Thompson v. Gen. Motors Corp., 566 F.3d 699, 703 (7th Cir. 2009) (); Lex Claims, LLC v. Fin. Oversight & Mgmt. Bd., 853 F.3d 548, 551–52 (1st Cir. 2017) (citing Thompson with approval); Metromedia Fiber Network Servs. v. Lexent, Inc. (In re Metromedia Fiber Network, Inc. ), 290 B.R. 487, 493 (Bankr. S.D.N.Y. 2003) (); In re Reed, 102 B.R. 243, 245 (Bankr. E.D. Okla. 1989) ().1
More importantly, the drafters of what became section 922(d) expressed concern about the broad reach of the automatic stay as applied to what the municipal bankruptcy code labels "special revenues." See 11 U.S.C. § 902(2) (defining "special revenues"). Under many municipal bond arrangements, like those at issue in this case, the debtor turns over funds to a fiscal agent, or trustee, who then turns over the funds to the creditor, who in turn applies the funds to outstanding debt. But the breadth of the automatic stay poses a problem for this general scheme. As the Senate Report accompanying the 1988 amendments to the municipal bankruptcy code observes, "[t]he automatic stay of Bankruptcy Code Section 362 is extremely broad, preventing any post-petition collection activities against the debtor, including application of the debtor's funds held by a secured lender to secure indebtedness." S. Rep. No. 100-506, at 11 (1988) (emphasis added). New section 922(d), enacted in the wake of that Senate Report, addressed this concern directly. It states: "Notwithstanding [the automatic stay], a petition filed under this chapter does not operate as a stay of application of pledged special revenues in a manner consistent with section [928] of this title to payment of indebtedness secured by such revenues." 11 U.S.C. § 922(d).
There is some ambiguity in the text of section 922(d). The passive syntax fails to indicate who (e.g., creditor, debtor, or fiscal agent) it is that the provision permits to apply pledged special revenues to the debt. And, I suppose, one might also wonder what exactly "application" means.
To answer those questions, one might most easily look at that part of the Senate Report that specifically addresses section 922, quoted above. That portion of the Report expressly and unambiguously refers to the application of pledged special revenues already in the hands of the secured creditor. And, if one views the fiscal agent or trustee as an agent of the creditor in transmitting funds when due, one might find in section 922(d) permission for such a transfer by the fiscal agent as well. This latter view finds support in another portion of the Senate Report, which explicitly clarifies that section 922(d) makes the automatic stay inapplicable to the bond trustee's application of funds to the payment of outstanding debt. See S. Rep. No. 100-506, at 13 (). This reading would not somehow render section 922(d) superfluous or of no effect. Rather, it would clearly permit exactly what the Senate Report said Congress was concerned about in referring to the "application of the debtor's funds held by a secured lender to secure indebtedness." Id. at 11.
The foregoing notwithstanding, the bondholders and the dissent point to this ambiguity in section 922(d) as license to hunt the legislative record for bigger game: a conclusion that section 922(d) was intended to allow creditors to commence, without prior permission from the Title III court, a judicial proceeding to secure a court order compelling the debtor to continue making payments in accordance with the bondholder resolutions after the filing of a Title III petition. I see two flaws in this hunt through the legislative record.
First, its aim exceeds the license afforded by the relevant ambiguity in section 922(d). If a hypothetical statutory provision were deemed to be ambiguous because it refers to "motor vehicles operated on public roads," we might look to the pertinent legislative history to see if "electric bikes" were in mind when Congress drafted that provision. But we would not seize upon language in the legislative history to hold that "motor vehicles" includes "kayaks." See 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 259 n.6, 129 S.Ct. 1456, 173 L.Ed.2d 398 (2009) ( ); Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005) (...
To continue reading
Request your trial