IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO, Debtor.
COMMONWEALTH OF PUERTO RICO; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, Defendants, Appellees. AURELIUS CAPITAL MASTER, LTD.; ACP MASTER, LTD.; AURELIUS CONVERGENCE MASTER, LTD.; AURELIUS INVESTMENT, LLC; AURELIUS OPPORTUNITIES FUND, LLC; AUTONOMY MASTER FUND LIMITED; CORBIN OPPORTUNITY FUND, L.P.; FCO SPECIAL OPPORTUNITIES (A1) LP; FCO SPECIAL OPPORTUNITIES (D1) LP; FCO SPECIAL OPPORTUNITIES (E1) LLC - MASTER SERIES 1; FUNDAMENTAL CREDIT OPPORTUNITIES MASTER FUND, LP; JACANA HOLDINGS I, LLC; JACANA HOLDINGS II, LLC; JACANA HOLDINGS III, LLC; JACANA HOLDINGS IV, LLC; JACANA HOLDINGS V, LLC; LEX CLAIMS, LLC; LMAP 903 LIMITED; MCP HOLDINGS MASTER LP; MONARCH ALTERNATIVE SOLUTIONS MASTER FUND LTD; MONARCH CAPITAL MASTER PARTNERS II LP; MONARCH CAPITAL MASTER PARTNERS III LP; MONARCH CAPITAL MASTER PARTNERS IV LP; MONARCH DEBT RECOVERY MASTER FUND LTD.; MONARCH SPECIAL OPPORTUNIES MASTER FUND LTD.; MPR INVESTORS, LLC; P MONARCHY RECOVERY LTD.; PINEHURST PARTNERS, LP; PRISMA SPC HOLDINGS LTD - SEGREGATED PORTFOLIO AG; RRW I LLC, Plaintiffs, Appellants, P STONE LION IE, A FUND OF PERMAL MANAGED ACCOUNT PLATFORM ICAV; PERMAL STONE LION FUND; SENATOR GLOBAL OPPORTUNITY MASTER FUND LP; SL LIQUIDATION FUND LP; SL PUERTO RICO FUND II, L.P.; SL PUERTO RICO FUND LP, Plaintiffs,
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. Laura Taylor Swain, [*] U.S. District Judge]
Lawrence S. Robbins, with whom Mark T. Stancil, Donald Burke,
Peter B. Siegal, and Robbins, Russell, Englert, Orseck,
Untereiner & Sauber LLP were on brief, for appellants.
J. Bienenstock, with whom Stephen L. Ratner, Timothy W.
Mungovan, Mark D. Harris, Jonathan E. Richman, Jeffrey W.
Levitan, and Proskauer Rose LLP were on brief, for appellees.
Heath Gershengorn, with whom Lindsay C. Harrison, Robert
Gordon, Richard Levin, Catherine Steege, and Melissa Root,
were on brief, for intervenor The Official Committee of
Retired Employees of the Commonwealth of Puerto Rico.
Heifetz, with whom Benjamin Rosenblum, Bruce Bennett,
Geoffrey S. Stewart, Victoria Dorfman, Christopher DiPompeo,
Sparkle L. Sooknanan, Parker Rider-Longmaid, Jones Day,
Alfredo Hernández-Martínez, Delgado &
Fernández, LLC, on brief, for amici curiae Altair
Global Credit Opportunies Fund (A), LLC, et al.
Howard, Chief Judge, Torruella, and Thompson, Circuit Judges.
TORRUELLA, CIRCUIT JUDGE.
once again required to consider an appeal arising from the
restructuring of Puerto Rico's public debt under Title
III of the Puerto Rico Oversight, Management, and Economic
Stability Act of 2016 ("PROMESA"). See
generally Aurelius Inv., LLC v. Commonwealth of P.R.,
915 F.3d 838, 844-47 (1st Cir. 2019) (discussing PROMESA and
the capabilities of the Board it created). Appellants are
Puerto Rico general obligation ("GO") bondholders
("Bondholders"). On June 27, 2017, they filed suit
seeking injunctive and declaratory relief claiming that they
possess a priority and property interest over certain
revenues of the Puerto Rico government. Specifically, the
Bondholders sought declarations to confirm their property
rights to the revenues; determine that the diversion of the
revenues constitutes an unconstitutional taking; and specify
permissible uses for these revenues. Appellee, the Financial
Oversight and Management Board for Puerto Rico
("Board"), thereafter filed --as sole representative
of the Commonwealth in the Title III proceedings -- a motion
to dismiss for lack of subject matter jurisdiction and
failure to state a claim. The district court granted the
Board's motion on January 30, 2018, and the instant
us, the Bondholders challenge the district court's
decision to dismiss Counts 3 to 6 of their complaint as
seeking improper advisory opinions; Count 8, presenting a
Takings Claim, as unripe; and Counts 1, 2, 9, and 10 as
barred under Section 305 of PROMESA. We affirm.
reviewing a district court's dismissal pursuant to
Fed.R.Civ.P. 12(b)(1) and 12(b)(6), "we consider only
'the facts alleged in the complaint, and exhibits
attached thereto.'" Newman v. Lehman Bros.
Holdings Inc., 901 F.3d 19, 25 (1st Cir. 2018) (quoting
Freeman v. Town of Hudson, 714 F.3d 29, 35 (1st Cir.
2013)). We accordingly derive the details that follow from
the Bondholders' complaint.
-- the Bondholders -- own a substantial amount of GO bonds
and other debt issued by Commonwealth entities. The
Bondholders characterize the GO bonds as "Constitutional
Debt" because it is "secured by an absolute and
enforceable first claim and enforceable first claim and lien
on all of the Commonwealth's 'available
resources,' in addition to, and complemented by, a pledge
of the Commonwealth's good faith, credit, and taxing
power" under the Puerto Rico Constitution. Along with
this priority claim, the Bondholders allege a property
interest in revenues "that, although conditionally
earmarked for payment of certain obligations of Commonwealth
instrumentalities, are required by Puerto Rico law to be
'clawed back' for the express and sole purpose of
paying Constitutional Debt when other available resources are
insufficient to do so." They refer to these revenues as
the "Clawback Revenues." Lastly, the Bondholders
assert a claim over "certain proceeds of property taxes
that Puerto Rico statutory law requires be levied and
collected for the benefit of Constitutional Debtholders and
segregated in a trust for the express and sole purpose of
paying Constitutional Debt." The Bondholders refer to
these as the "Special Property Tax Revenues," which
together with the "Clawback Revenues" make up what
they anoint as the "Restricted Revenues" that the
Commonwealth must set aside to repay the "Constitutional
Debt" that they own. According to the Bondholders, in
2017, the Commonwealth collected approximately $940 million
in "Restricted Revenues," and it will collect an
equal or greater amount in upcoming years.
Bondholders base their priority claims on several
authorities. First, they point to the Puerto Rico
Constitution, which provides in relevant part that when
"the available resources . . . are insufficient to meet
the appropriations made for that year, interest on the public
debt and amortization thereof shall be first
paid." P.R. Const. art. VI, § 8. The
Bondholders also claim that Section 4(c) of the Office of
Management and Budget Organic Act, P.R. Laws Ann. tit. 23,
§ 104(c)(1), establishes the same priority. Finally, the
Bondholders note that the 2014 GO Bond Resolution and the
Official Statement for the 2006 Puerto Rico Infrastructure
Financing Authority bonds establish that the "[t]he
Constitution of Puerto Rico provides that public debt . . .
constitutes a first lien on available Commonwealth taxes and
revenues." In support of their alleged property interest
in the "Restricted Revenues," the Bondholders rely
again on provisions of the Commonwealth Constitution, as well
as on several local laws and executive orders that they
describe as creating the "Restricted Revenues."
Bondholders aver that, since 2015, the Commonwealth
government, "first through its elected leaders and now
through the Oversight Board[, ] has engaged in a consistent
pattern of unlawful conduct designed to avoid their
obligations to Constitutional Debtholders for the benefit of
more politically favored causes and creditors."
Specifically, they claim that in fiscal year 2016 the
Commonwealth clawed back around $289 million in
"Clawback Revenues," yet failed to apply any of
these to the repayment of "Constitutional Debt."
The Bondholders insist that this conduct has continued since
2016. As an example, they note that neither the Fiscal Plan
the Board certified in March 2017 nor the 2018 fiscal year
budget provide for the setting aside of "Clawback
Revenues" to service the "Constitutional
on the foregoing allegations, the Bondholders' complaint
sought the following:
[I]n Counts One and Two . . . declaratory
judgments that under Puerto Rico law, the Restricted Revenues
are restricted by law and cannot be used by the Commonwealth
for any purpose except to satisfy the Commonwealth's