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In re The Financial Oversight And Management Board For Puerto Rico

United States Court of Appeals, First Circuit

September 25, 2019

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 AND TRANSPORTATION AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO SALES TAX FINANCING CORPORATION, a/k/a Cofina; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, ASREPRESENTATIVE FOR THE EMPLOYEES RETIREMENT SYSTEM OF THE GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO, Debtors,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THEFINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, ASREPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATIONAUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FORPUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA), Debtors, Appellees, AUTONOMOUS MUNICIPALITY OF PONCE (AMP), Movant, Appellant, THE PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY, Movant, Appellee.

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

          Carlos Fernandez-Nadal for appellant Autonomous Municipality of Ponce (AMP).

          John E. Roberts, with whom Timothy W. Mungovan, Martin J. Bienenstock, Steven L. Ratner, Jeffrey W. Levitan, Mark D. Harris, and Proskauer Rose LLP were on brief for 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 and Transportation Authority; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA).

          Before Lynch, Lipez, and Thompson, Circuit Judges.

          LYNCH, Circuit Judge.

         This appeal primarily concerns whether the Title III court abused its discretion in refusing to lift the automatic stay in PROMESA, 48 U.S.C. § 2161(a) (incorporating 11 U.S.C. § 362), to allow the Municipality of Ponce to secure specific performance by the Commonwealth of Puerto Rico of public works projects required under a Puerto Rico Commonwealth court judgment. The Title III court plainly did not abuse its discretion. In essence, Ponce seeks priority over the claims of other communities and creditors of the Commonwealth. Ponce has not shown cause why its claim warrants this priority. We affirm.

         I.

         We describe the relevant statutory context, the events surrounding Ponce's prepetition judgment, and facts of the instant case.

         A. PROMESA's Automatic Stay

         The Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), 48 U.S.C. §§ 2101–2241, created the Financial Oversight and Management Board ("FOMB") and, under its Title III, empowered the Board to restructure the debt of the Commonwealth of Puerto Rico through "quasi-bankruptcy proceedings." Assured Guaranty Corp. v. Fin. Oversight Mgmt. Bd. for P.R., 872 F.3d 57, 59 (1st Cir. 2017). PROMESA automatically stays any action to recover on a prepetition claim or "the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [Title III case]." 48 U.S.C. § 2161(a) (incorporating 11 U.S.C. § 362(a)(1), (2)). PROMESA defines a "claim" in several ways, including as a "right to payment" and separately as a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." Id. (incorporating 11 U.S.C. § 101(5)).

         B. Ponce's Prepetition Judgment It Now Seeks To Enforce

         On October 28, 1992, Ponce, the Commonwealth, the Puerto Rico Electric Power Authority ("PREPA"), and the Puerto Rico Highways and Transportation Authority ("PRHTA") agreed to develop municipal projects in Ponce. These projects included installing sewer and transmission lines, building various medical, police, and educational facilities, modernizing local housing, and improving several highways. Within a year, the Commonwealth, PREPA, and PRHTA ("the debtors") withdrew from the agreement. In response, Ponce brought suit in Commonwealth court on October 28, 1993. The suit resulted in a June 24, 1996 judgment that required the debtors to fulfill their commitments under the original agreement and deferred determining monetary damages until after they completed the municipal projects. The Commonwealth court also appointed a monitor to supervise and audit the projects' progress. In December 2004, Ponce and the debtors settled the issue of damages for $34 million, of which a significant portion remains unpaid. That portion is not at issue: The parties agree the stay applies to it.

         On May 3, 2017, the Commonwealth filed a petition for debt adjustment relief under Title III of PROMESA.[1] PRHTA and PREPA filed similar Title III petitions on May 21 and July 3, 2017, respectively. Filing these petitions initiated the automatic stay at issue here, see 11 U.S.C. § 362(a), and transferred exclusive jurisdiction over the debtors' property to the Title III court, see 48 U.S.C. § 2166(b).

         The parties agree that most of the projects required by the 1992 Agreement have been completed and this case concerns a subset of uncompleted projects. As of September 2019, the two highway projects required by the judgment and funded by the Federal Highway Administration's Puerto Rico Highway Program, 23 U.S.C. § 165(b), continued to progress, as they did not involve use of the debtors' property. Due to the stay however, the court-appointed monitor, who is paid out of the debtors' property, is not auditing these projects. So the projects are proceeding and Ponce is complaining only that its monitor is not monitoring the progress on these two projects.[2] Ponce conceded that funding the monitor for the two highway projects would cost the PRHTA between $90, 000 and $150, 000 per year.

         As to another project, Ponce alleges PREPA could complete an outstanding project to replace overhead electrical lines with underground alternatives for only $700, 000. PREPA has stated that its "resources are both extremely limited and fully committed to the restoration and repairs of its electric system." It further stated that its efforts focus on preparing the Commonwealth "for the uncertainty for another hurricane season."[3]

         Other outstanding projects covered by Ponce's request to lift the stay include channeling the Río Matilde in Ponce and rehabilitating a lighthouse -- a project which does not affect the safety of the surrounding navigable waters.

         C. Procedural History of ...


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