FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. Francisco A. Besosa, U.S. District Judge]
Michael Luskin, with whom Stephan Hornung and Luskin, Stern
& Eisler LLP were on brief, for appellant Financial
Oversight and Management Board.
Susheel Kirpalani, with whom David Cooper, Daniel
Salinas-Serrano, Darren M. Goldman, Daniel P. Mach, Quinn
Emanuel Urquhart & Sullivan LLP, Rafael Escalera, Sylvia
M. Arizmendi, Carlos R. Rivera-Ortiz, and Reichard &
Escalera were on brief, for appellants Jose F. Rodriguez,
Decagon Holdings 2, LLC, Decagon Holdings 1, LLC, Decagon
Holdings 3, LLC, Decagon Holdings 4, LLC, Decagon Holdings 5,
LLC, Decagon Holdings 6, LLC, Decagon Holdings 7, LLC,
Decagon Holdings 8, LLC, Decagon Holdings 9, LLC, Decagon
Holdings 10, LLC, Golden Tree Asset Management LP, Merced
Capital, LP, Old Bellows Partners LLP, Scoggin Management
LLP, Taconic Master Fund 1.5 LP, Taconic Opportunity Master
Fund LP, Tilden Park Capital Management LP, Whitebox Advisors
LLC, Varde Credit Partners Master, LP, Varde Investment
Partners, LP, Varde Investment Partners Offshore Master, LP,
and Varde Skyway Master Fund, LP.
F. Dunne, with whom Andrew M. Leblanc, Atara Miller, Grant R.
Mainland, Milbank, Tweed, Hadley & McCloy, LLP, Roberto
A. Cámara-Fuertes, and Ferraiuoli LLC were on brief,
for appellant Ambac Assurance Corporation.
T. Stancil, with whom Ariel N. Lavinbuk, Donald Burke, and
Robbins, Russell, Englert, Orseck, Untereiner & Sauber
LLP were on brief, for appellees.
Howard, Chief Judge, Lynch and Barron, Circuit Judges.
our second set of appeals involving the automatic stay
provision of the Puerto Rico Oversight, Management, and
Economic Stability Act ("PROMESA"), see 48
U.S.C. §§ 2101-2241, which employs language very
similar to that of the bankruptcy stay statute. For
additional background, we refer the reader to our prior
opinion in Peaje Investments LLC v.
García-Padilla, 845 F.3d 505 (1st Cir. 2017).
Here, the parties dispute whether four claims included in the
plaintiffs' Second Amended Complaint (namely, the first,
second, third, and twelfth causes of action) are within the
scope of PROMESA's temporary stay (set to expire on May
1, 2017). See 48 U.S.C. § 2194(a)-(b).
district court, the plaintiffs, holders of general obligation
("GO") bonds issued by the Commonwealth of Puerto
Rico, conceded that the majority of their claims were subject
to the stay. The court, however, allowed the suit to proceed
on the four specific counts now at issue, all of which are
purportedly brought under various provisions of PROMESA.
Appellants Financial Oversight and Management Board, Jose F.
Rodriguez et al. (the "Senior COFINA bondholders"),
and Ambac Assurance Corporation (together, the
"Appellants") challenge this ruling on appeal. We
have jurisdiction under 28 U.S.C. § 1291. See In re
Atlas Exp. Corp., 761 F.3d 177, 182 (1st Cir. 2014).
March 20, 2017, we stayed the district court action pending
further notice. We found it unnecessary to consider whether
the PROMESA stay should be applied to the entire "action
or proceeding, " as the Appellants argue, or
claim-by-claim, as the district court ruled. Noting the
unitary nature of the plaintiffs' claims and the relief
sought during the PROMESA stay period, we saw a substantial
likelihood that the entire action should have been stayed.
Full briefing and oral argument followed. After expedited
consideration, and applying de novo review, see Parkview
Adventist Med. Ctr. v. United States,
842 F.3d 757, 762 (1st Cir. 2016), we now hew to the same
outcome and reverse the decision of the district court
insofar as it denied a stay of the first, second, third, and
twelfth counts of the Second Amended Complaint. We write
briefly in explanation.
Commonwealth has various creditors, of which the two
dominant groups by debt load are the GO bondholders and the
Puerto Rico Sales Tax Financing Corporation
("COFINA") bondholders. We can safely assume that
the Oversight Board's PROMESA negotiations, now entering
their critical stage in the final month of the PROMESA stay,
must find a way to accommodate and balance the respective
interests of these bondholders if there is to be a consensual
Congress enacted PROMESA and its "immediate--but
temporary--stay" of litigation, 48 U.S.C. §
2194(m)(5), it could hardly have envisaged that, during the
stay period, one of these groups of bondholders could seek
and potentially obtain injunctive relief that would
dispossess the other by driving its bonds into default. And
yet, that is what the GO bondholders evidently intend to do.
The "Relief That Plaintiffs Seek At This Time"
(meaning during the stay period) is sweeping. Beyond certain
declarations as to the legality of the Commonwealth's
post-PROMESA measures and the constitutional priority of the
GO bonds "over all other expenditures, including
payments to COFINA and COFINA bondholders, " the
plaintiffs also seek to:
--"[e]njoi[n] enforcement or implementation of the
unlawful Executive Order and the Moratorium Act" as
applied to the Constitutional Debt;
--"prohibi[t] the diversion of revenues arising from
collection of the SUT [sales and use tax] (or any substitute
revenues) to COFINA and requir[e] the Commonwealth Officer
Defendants . . . and the COFINA Defendants to direct ...