Summary
The First Circuit affirmed dismissal of bondholders' claims seeking declaratory relief regarding priority and property interests in Puerto Rico's revenues during Title III restructuring under PROMESA. The court held that requests for declarations of property interests and liens were non-justiciable advisory opinions, and a Takings Clause claim was unripe for lack of a final decision. Additionally, declarations that would restrict the Commonwealth's use of its revenues were barred by Section 305 of PROMESA, which prohibits court interference with the debtor's governmental powers and property without Board consent.
Topics
Practice areas
Questions Presented
- Whether the district court erred in dismissing Counts 3-6 as seeking advisory opinions lacking an actual controversy.
- Whether the district court erred in dismissing Count 8 (Takings Claim) as unripe.
- Whether the district court erred in dismissing Counts 1, 2, 9, and 10 as barred by Section 305 of PROMESA.
Holdings
- The district court properly dismissed Counts 3-6 for lack of subject matter jurisdiction because the requests for declaratory relief sought advisory opinions on abstract rights, lacking a substantial controversy of sufficient immediacy and reality.
- The district court properly dismissed Count 8 as unripe because the Bondholders failed to allege a final decision from the Commonwealth regarding the use of the revenues and did not show they sought compensation through state procedures.
- The district court properly dismissed Counts 1, 2, 9, and 10 for failure to state a claim because the requested declarations would directly interfere with the Commonwealth's control over its revenues and political powers, in violation of Section 305 of PROMESA (48 U.S.C. § 2165).
Key quotations
“"the district court resolved that it lacked subject matter jurisdiction to entertain Counts 3 to 8 of the Bondholders' complaint. It noted that Counts 3 to 7 sought improper advisory opinions because these counts asked for 'abstract declarations of the parties' respective relationships to the subject revenues, without application of the relief to resolve any current concrete dispute, such as a claim objection proceeding, request for adequate protection or relief from stay, or confirmation-related proceeding.'"” (641)
“"To determine if the declaratory relief is sought within a case of actual controversy, district courts must examine 'whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" (quoting Maryland Cas., 312 U.S. at 273)” (642)
“"Section 305 of PROMESA establishes that: '[N]otwithstanding any power of the court, unless the Oversight Board consents or the plan so provides, the court may not, by any stay, order, or decree . . . interfere with -- (1) any of the political or governmental powers of the debtor; (2) any of the property or revenues of the debtor; or (3) the use or enjoyment by the debtor of any income-producing property.'" (quoting 48 U.S.C. § 2165)” (644)
Factual background
Appellants are holders of Puerto Rico general obligation bonds who claim a priority and property interest in certain revenues ('Restricted Revenues') under the Puerto Rico Constitution and local law. They allege that since 2015, the Commonwealth has diverted these revenues away from debt repayment, and they filed suit seeking declaratory and injunctive relief to enforce their alleged rights. The Board moved to dismiss, and the district court granted the motion.
Procedural history
The district court dismissed the Bondholders' complaint, ruling that Counts 3-6 sought advisory opinions, Count 8 was unripe, and Counts 1,2,9,10 were barred by Section 305 of PROMESA. The Bondholders appealed, challenging the dismissal of all counts except Counts 7 and 11.