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In re Financial Oversight and Management Board for Puerto Rico

United States Court of Appeals, First Circuit

September 22, 2017

IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO, Debtor.
v.
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; PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY; RICARDO ROSSELLO NEVARES, in his official capacity as Governor of the Commonwealth of Puerto Rico; GERARDO JOSE PORTELA FRANCO, in his official capacity as Executive Director of the Puerto Rico Fiscal Agency and Financial Advisory Authority; RAUL MALDONADO GAUTIER, in his official capacity as Secretary of Treasury of the Commonwealth of Puerto Rico, Defendants, Appellees, ASSURED GUARANTY CORP.; ASSURED GUARANTY MUNICIPAL CORP.; NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION, Plaintiffs, Appellees, OFFICIAL COMMITTEE OF UNSECURED CREDITORS, Movant, Appellant.

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Laura Taylor Swain, U.S. District Judge[*]]

          Luc A. Despins, with whom James B. Worthington, James T. Grogan III, William K. Whitner, Eric D. Stolze, Paul Hastings LLP, Juan J. Casillas Ayala, Diana M. Batlle-Barasorda, Alberto J. E. Añeses Negrón, Ericka C. Montull-Novoa, and Casillas, Santiago & Torres LLC were on brief, for movant-appellant.

          Gregory Silbert, with whom Marcia L. Goldstein, Jonathan D. Polkes, Salvatore A. Romanello, Kelly Diblasi, Gabriel A. Morgan, Weil, Gotshal & Manges LLP, Eric Pérez-Ochoa, Alexandra C. Casellas-Cabrera, Lourdes A. Arroyo-Portela, Adsuar Muñiz Goyco Seda, Pérez-Ochoa, PSC, Howard R. Hawkins, Jr., Mark C. Ellenberg, Ellen M. Halstead, Cadwalader, Wickersham & Taft LLP, Heriberto J. Burgos-Pérez, Ricardo F. Casellas-Sánchez, Diana Pérez-Seda, and Casellas Alcover & Burgos P.S.C. were on brief, for plaintiffs-appellees.

          Timothy W. Mungovan, with whom John E. Roberts, Martin J. Bienenstock, Stephen L. Ratner, Mark D. Harris, and Proskauer Rose LLP were on brief, for defendants-appellees the Financial Oversight and Management Board for Puerto Rico and the Commonwealth of Puerto Rico, by and through its representative the Financial Oversight and Management Board for Puerto Rico.

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

          HOWARD, CHIEF JUDGE.

         In this case, the able district court judge followed the guidance provided in a prior opinion of ours. Unfettered by the constraints that bound the district court, we now chart a different course.

         Movant-Appellant Official Committee of Unsecured Creditors ("UCC") appeals from the district court's denial of its motion to intervene in an adversary proceeding arising within the Commonwealth's debt adjustment case under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), see 48 U.S.C. §§ 2161-2177.[1] Because we hold that 11 U.S.C. § 1109(b), a provision of the Bankruptcy Code expressly incorporated by PROMESA, provides an "unconditional right to intervene" within the meaning of Fed.R.Civ.P. 24(a)(1), we reverse the order denying intervention and remand for further proceedings consistent with this opinion.

         I.

         Congress enacted PROMESA in June 2016 to address an ongoing financial crisis in the Commonwealth of Puerto Rico ("Commonwealth"). Peaje Invs. LLC v. García-Padilla, 845 F.3d 505, 509 (1st Cir. 2017). The statute created a Financial Oversight and Management Board ("Board") to "help Puerto Rico 'achieve fiscal responsibility and access to the capital markets.'" Id. at 515 (quoting 48 U.S.C. § 2121(a)). Among other things, PROMESA empowered the Board to oversee the development of an annual "Fiscal Plan" estimating the government's revenues and expenditures. 48 U.S.C. § 2141.

         PROMESA also gave the Board the ability to commence quasi-bankruptcy proceedings to restructure the Commonwealth's debt under a part of the statute often referred to as "Title III." See id. § 2164(a). Title III expressly incorporates large swaths of the Bankruptcy Code, as well as the entirety of the Federal Rules of Bankruptcy Procedure. See id. §§ 2161(a), 2170. On May 3, 2017, the Board commenced Title III proceedings on behalf of the Commonwealth, thus triggering these provisions. It subsequently commenced Title III cases for certain Commonwealth instrumentalities. The district court ordered that all of the Title III cases be jointly administered.

         On the same day that the Title III petition was filed, Plaintiffs-Appellees Assured Guaranty Corp., Assured Guaranty Municipal Corp., and National Public Finance Guarantee Corporation (together, the "plaintiffs"), companies that insure certain Puerto Rico bonds, initiated an adversary proceeding within the larger Title III case.[2] The plaintiffs alleged that the Commonwealth's Fiscal Plan (approved by the Board), as well as a recently enacted Commonwealth statute implementing that plan, violated both PROMESA and the United States Constitution. The plaintiffs sought declaratory relief, an injunction prohibiting the Commonwealth and the Board from implementing the Fiscal Plan, and a stay of the confirmation of any plan of adjustment in the Title III case.

         The UCC was appointed in June 2017. Such a creditors' committee, the duties and powers of which are outlined by statute, see 11 U.S.C. § 1103(c), is intended to serve as "the primary negotiating bod[y] for the formulation of the plan of reorganization" representing the interests of the "class[] of creditors . . . from which [it was] selected." H.R. Rep. No. 95-595, at 401 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6357. A creditors' committee is "arguably the one party in interest that, for all practical purposes, typically represents stakeholders with the most interest in the outcome of virtually every proceeding." Collier ¶ 1109.04[2][d][ii]; see also Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1240 (3d Cir. 1994) (noting that bankruptcy statutes have "relieved" courts "of most administrative matters" such that "the responsibility for monitoring the operations of the debtor and its compliance with appropriate bankruptcy procedures has fallen largely to the creditors' committee").

         Upon its appointment, the UCC filed a motion seeking "leave to intervene" in the adversary proceeding "under Bankruptcy Rule 7024." The relevant rule simply provides that Fed.R.Civ.P. 24 "applies in adversary proceedings." Fed.R.Bankr.P. 7024. Rule 24 states, in pertinent part, that "the court must permit anyone to intervene who . . . is given an unconditional right to intervene by a federal statute." Fed.R.Civ.P. 24(a)(1). The UCC's leading argument in district court was that 11 U.S.C. § 1109(b), one of the many subsections of the Bankruptcy Code made applicable in Title III proceedings, conferred such an "unconditional right." The statute provides that any "party in interest, " specifically defined to include "a creditors' committee, " "may raise and may appear and be heard on any issue in ...


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