Assured Guaranty Corporation v. Commonwealth of Puerto Rico , 919 F.3d 121 ( 2019 )

United States Court of Appeals
For the First Circuit
Nos. 18-1165, 18-1166
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 &
TRANSPORTATION AUTHORITY,
Debtors.
_____________________
ASSURED GUARANTY CORPORATION; ASSURED GUARANTY MUNICIPAL
CORPORATION; FINANCIAL GUARANTY INSURANCE COMPANY; NATIONAL
PUBLIC FINANCE GUARANTEE CORPORATION,
Plaintiffs, Appellants,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO,
AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO;
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO;
PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AURTHORITY;
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO,
AS REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS & TRANSPORTATION
AUTHORITY; RICARDO ROSSELLÓ-NEVARES; GERARDO JOSÉ PORTELA-
FRANCO; CARLOS CONTRERAS-APONTE; JOSÉ IVÁN MARRERO-ROSADO;
RAÚL MALDONADO-GAUTIER; NATALIE A. JARESKO,
Defendants, Appellees,
JOSÉ B. CARRIÓN III; ANDREW G. BRIGGS; CARLOS M. GARCÍA;
ARTHUR J. GONZÁLEZ; JOSÉ R. GONZÁLEZ; ANA J. MATOSANTOS;
DAVID A. SKEEL, JR.; CHRISTIAN SOBRINO,
Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Laura Taylor Swain,* U.S. District Judge]
Before
Howard, Chief Judge,
Torruella, and Thompson, Circuit Judges.
Mark C. Ellenberg, with whom Howard R. Hawkins, Jr., Lary
Stromfeld, Ellen V. Holloman, Gillian Groarke Burns, Thomas J.
Curtin, Casey Servais, Cadwalader, Wickersham & Taft LLP,
Heriberto Burgos-Pérez, Ricardo F. Casellas-Sánchez, Diana Pérez-
Seda, and Casellas Alcover & Burgos were on brief, for appellants
Assured Guaranty Corp. and Assured Guaranty Municipal Corp.
Eric Pérez-Ochoa, Alexandra Casellas-Cabrera, Lourdes Arroyo-
Portela, Adsuar Muñiz Goyco Seda & Pérez-Ochoa, P.S.C., Jonathan
Polkes, Marcia Goldstein, Gregory Silbert, Kelly DiBlasi,
Gabriel A. Morgan, and Weil, Gotshal & Manges LLP on brief, for
appellant National Public Finance Guarantee Corporation.
María E. Picó, Rexach & Picó, CSP, Martin A. Sosland, Jason W.
Callen, and Butler Snow LLP on brief, for appellant Financial
Guaranty Insurance Company.
Mark D. Harris, with whom Timothy W. Mungovan, Martin J.
Bienenstock, Stephen J. Ratner, Jeffrey W. Levitan, Michael A.
Firestein, Lary Alan Rappaport, Proskauer Rose LLP, Hermann D.
Bauer, and O'Neill & Borges LLC were on brief, for appellees The
Financial Oversight and Management Board for Puerto Rico, for
itself and as representative for the Commonwealth of Puerto Rico
and the Puerto Rico Highways and Transportation Authority, and
Natalie A. Jaresko.
Luis Marini, Marini Pietrantoni Muñiz, LLC, John J. Rapisardi,
Peter Friedman, Elizabeth L. McKeen, and O'Melveny & Myers LLP on
brief, for appellees the Puerto Rico Fiscal Agency and Financial
Advisory Authority and Gerardo Portela-Franco.
Luc A. Despins, with whom William K. Whitner, James B.
Worthington, James T. Grogan III, Paul Hastings LLP, Juan J.
Casillas-Ayala, Diana M. Battle-Barasorda, Alberto J.E. Añeses-
Negrón, Ericka C. Montull-Novoa, and Casillas, Santiago & Torres
LLC were on brief, for Official Committee of Unsecured Creditors.
Laura E. Appleby, with whom Steven Wilamowsky, Aaron Krieger,
* Of the Southern District of New York, sitting by designation.
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Chapman and Cutler LLP and Kevin Carroll, as amicus curiae for The
Securities Industry and Financial Markets Association.
Vincent J. Marriott III, with whom Chantelle D. McClamb, and
Ballard Spahr LLP, as amicus curiae for The National Federation of
Municipal Analysts.
March 26, 2019
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TORRUELLA, Circuit Judge. Appellants, financial
guarantee insurers that had insured bonds from the Puerto Rico
Highway and Transportation Authority ("PRHTA") (hereinafter the
"Insurers"), appeal from the dismissal of their Amended Complaint
in an adversary proceeding arising within the debt adjustment
proceeding that the Financial Oversight and Management Board (the
"Board") commenced on behalf of the PRHTA under Title III of the
Puerto Rico Oversight, Management, and Economic Stability Act
("PROMESA"), see 48 U.S.C. §§ 2161-2177. Because the district
court did not err when it dismissed the Insurers' Amended Complaint
pursuant to Fed. R. Civ. P. 12(b)(6) on the grounds that neither
Section 922(d) nor Section 928(a) of the United States Bankruptcy
Code entitle the Insurers to the relief they sought, we affirm.
I. Background
1. PROMESA
This is one of a sequence of appeals related to PROMESA,
a statute enacted by Congress "in June 2016 to address an ongoing
financial crisis in the Commonwealth of Puerto Rico." In re Fin.
Oversight & Mgmt. Bd. for Puerto Rico, 872 F.3d 57, 59 (1st Cir.
2017) (citation omitted). To "help Puerto Rico achieve fiscal
responsibility and access to the capital markets," the statute
created the Board, which has "the ability to commence quasi-
bankruptcy proceedings to restructure the Commonwealth's debt
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under a part of the statute often referred to as 'Title III.'"
Id. PROMESA is largely modeled on municipal debt reorganization
principles set forth in Chapter 9 of the Bankruptcy Code.
2. The PRHTA Bonds
In 1965, the Commonwealth of Puerto Rico ("the
Commonwealth") created the PRHTA, a public corporation, to
"oversee and manage the development of roads and various means of
transportation" in the Commonwealth by passing Act No. 74-1965,
known as the "Enabling Act." Assured Guar. Corp. v. Commonwealth
of Puerto Rico (In re Fin. Oversight & Mgmt. Bd. of P.R.), 582
B.R. 579, 585-86 (D.P.R. 2018); see generally P.R. Laws Ann. tit.
9, § 2002. Pursuant to its Enabling Act, the PRHTA can secure
capital by issuing municipal bonds. The PRHTA has issued several
series of bonds (the "PRHTA Bonds") under Resolution No. 68-18 and
Resolution No. 98-06 (collectively the "Resolutions"). The
Insurers allege that pursuant to the Enabling Act and the
Resolutions, the PRTHA Bonds are secured by a gross lien on (i) the
revenues derived from the tolls on four highways within the
Commonwealth (the "Pledged Toll Revenues"); (ii) gasoline, diesel,
crude oil, and other special excise taxes levied by the
Commonwealth (the "PRHTA Pledged Tax Revenues"); and (iii) special
excise taxes consisting of motor vehicle license fees collected by
the Commonwealth (together with the PRHTA Pledged Tax Revenues,
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the "PRHTA Pledged Special Excise Taxes"). According to the
Insurers, the Puerto Rico Secretary of Treasury is required by
statute to transfer the PRHTA Pledged Special Excise Taxes to PRHTA
each month for the benefit of PRHTA bondholders. They further
allege that the Pledged Toll Revenues and the PRHTA Pledged Special
Excise Taxes (collectively, the "PRHTA Pledged Special Revenues")
are the Insurers' property, which the PRHTA must transfer to the
fiscal agent for the PRHTA Bonds on a monthly basis to replenish
tripartite1 funds (the "Reserve Accounts") held in trust by The
Bank of New York Mellon ("BNYM").
3. The Debt Adjustment Proceeding
In March 2017, after the enactment of PROMESA and
appointment of the Board,2 the Board certified a financial plan by
which the PRHTA Pledged Special Revenues formerly being deposited
in the Reserve Accounts would instead be diverted and subsumed
into the general revenues of Puerto Rico. On May 3 and 21, 2017,
the Board commenced debt adjustment proceedings on behalf of the
Commonwealth and the PRHTA, respectively, pursuant to Title III of
PROMESA.
1 Each fund established by the Resolutions consists of a bond
service fund, a bond redemption fund, and a reserve fund.
2 For our decision regarding the constitutionality of the Board
members' appointment, see Aurelius Inv., LLC v. Commonwealth of
P.R., 915 F.3d. 838 (1st Cir. 2019).
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BNYM continued to make payments to the PRHTA bondholders
through June 20, 2017, when the Puerto Rico Fiscal Agency and
Financial Advisory Authority ("AAFAF" for its Spanish acronym), on
behalf of PRHTA, instructed BNYM to cease making scheduled payments
from the Reserve Accounts. The reasoning behind the instruction
was that making such payments would constitute an act "to exercise
control" over PRHTA's property in violation of the automatic stay
that arose under 11 U.S.C. § 362(a), as incorporated by Section
301 of PROMESA, following the filing of the Title III petition on
the PRHTA's behalf. Thereafter, on July 3, 2017, the PRHTA
defaulted on a scheduled bond payment of $219 million. BNYM is
abstaining from distributing funds from the Reserve Accounts until
this matter is resolved.3
In June 2017, the Insurers initiated adversary
proceedings against the Commonwealth, the PRHTA, the Board, the
AAFAF, the Governor of the Commonwealth, and other individual
defendants in their official capacity (collectively the
"Debtors"). 4 In their Amended Complaint, which included four
claims for relief, the Insurers essentially alleged that failure
to continue to remit the PRHTA Pledged Special Revenues into the
3 As of July 3, 2017, the Reserve Accounts contained cash and
investments valued at approximately $76 million.
4 The Insurers are subrogated to the rights of the PRHTA
bondholders whose claims they have paid.
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Reserve Accounts and pay them as payments come due violates Chapter
9 of the Bankruptcy Code. Specifically, the Insurers' first claim
sought declarations that the PRHTA Bonds were secured by special
revenues, that the application of such revenues to payments on the
bonds is exempted from the automatic stay imposed by Title III of
PROMESA, and that failure to continue to remit the PRHTA Pledged
Special Revenues during the pendency of the Title III proceedings
is in violation of Sections 922(d) and 928 of Chapter 9 of the
Bankruptcy Code (which Section 301 of PROMESA makes applicable to
Title III proceedings). The second claim sought declarations that
the funds held in the Reserve Accounts are: (a) property of the
PRHTA bondholders, (b) held in trust for the benefit of the
bondholders, and (c) subject to a lien in their favor. They
further sought a declaration that the PRHTA lacked enough property
interest to prevent the disbursement of the funds currently held
in the Reserve Accounts unless or until the PRHTA Bonds are fully
retired or defeased. The third claim sought injunctive relief
against further alleged violations of Sections 922(d) and 928 of
the Bankruptcy Code. Finally, the fourth claim sought injunctive
relief requiring the PRHTA to resume remittance of the special
revenues securing the PRHTA Bonds in accordance with
Sections 922(d) and 928 of the Bankruptcy Code.
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The Debtors moved to dismiss the Amended Complaint under
Fed. R. Civ. P. 12(b)(1) and 12(b)(6), for lack of subject matter
jurisdiction and failure to state a claim upon which relief could
be granted. They essentially argued that the Amended Complaint
failed to state a claim for relief because neither Section 922(d)
nor Section 928 of the Bankruptcy Code requires PRHTA to remit
payment of special revenues to bondholders during the pendency of
the Title III proceedings nor do those statutes create a cause of
action for bondholders to compel payment. Further, they claimed
the PRHTA bondholders did not have a property interest in the funds
in the Reserve Accounts.
After holding a hearing, the district court granted the
motion to dismiss. Assured, 582 B.R. at 585. It held that neither
provision of Chapter 9 requires or empowers the court to order
continued remittance of PRHTA Pledged Special Revenues to the
Reserve Accounts or payment of PRHTA Pledged Special Revenues to
the PRHTA bondholders during the pendency of Title III proceedings.
Specifically, the court found that "Section 928 does not mandate
the turnover of special revenues." Id. at 593. Rather, "Section
928(a) merely exempts consensual prepetition liens on special
revenues acquired by the debtor post-petition from Section 552(a)
of the Bankruptcy Code, which could otherwise invalidate such liens
with respect to revenues acquired post-petition." Id. Regarding
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Section 922(d), the court held that although it "excepts the
'application' of special revenues from the automatic stay," it
does not "except actions to enforce special revenue liens,"
id. at 596, or otherwise impose a payment obligation, id. at 594.
Therefore, the court concluded, the Insurers had failed to
adequately state a claim upon which relief can be granted.
Id. at 591-96. The court also held that the Insurers failed to
plausibly plead that the bondholders had a property interest in
the funds of the Reserve Accounts.5 Id. at 597-98.
5 The district court found the second claim for relief to be
premised on the following three different theories of bondholder
interests in the Reserve Accounts: that (1) the PRHTA bondholders
were outright owners of the funds in the Reserve Accounts and thus
neither the automatic stay nor Section 305 of PROMESA barred them
from collecting the funds; (2) the funds in the Reserve Accounts
are held in trust for the benefit of the PRHTA bondholders "under
terms that exclude cognizable property interests of PRHTA in those
funds"; and (3) the funds in the Reserve Accounts are held in trust
by BNYM for the benefit of the PRHTA bondholders. Assured,
582 B.R. at 591. The court concluded that, to the extent the
Insurers' claim was premised on the third theory, the court lacked
subject matter jurisdiction. It reasoned that a determination of
the lien interest, by itself, would not resolve "the question of
whether, when and from what, if any, funds the PRHTA bondholders
are entitled to be paid." Id. Accordingly, the issue was not
ripe, and the court lacked subject matter jurisdiction. The court
then addressed the merits of the remaining two theories.
Regarding the ownership-based theory, the court concluded that the
Resolutions and statutory provisions on which the Insurers relied
do not suggest that PRHTA bondholders were granted an outright
ownership interest in the Reserve Accounts or the funds therein.
Id. at 597-98. As to the trust-based theory, the court noted that
"[w]hile multiple interpretations could plausibly be supported" by
the language of the Resolutions and the allegations of the Amended
Complaint, each interpretation contemplates a contingent
revisionary beneficial interest in the trust corpus, and perhaps
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The Insurers appeal from the district court's dismissal
of the first, third, and fourth claims of their Amended Complaint.
II. Discussion6
We review de novo the district court's grant of a motion
to dismiss. In so doing, we treat all well-pleaded facts in the
complaint as true and draw all reasonable inferences in favor of
the plaintiff. Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 7
(1st Cir. 2011). A complaint will survive dismissal under Rule
12(b)(6) if it contains "enough facts to state a claim to relief
that is plausible on its face." Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007).
Whether the Amended Complaint properly pleads a claim
for relief as to the Insurers' first, third, and fourth claims
hinges on the statutory construction of Sections 928(a) and 922(d)
even title, by PRHTA. Id. at 598. The court concluded that,
given the revisionary interest on the part of PRHTA, Section 305
of PROMESA prevented the court from interfering with the Reserve
Accounts. Id. at 598-99. Hence, the court dismissed the second
claim for failure to state a claim upon which relief can be
granted. Id. at 599.
We need not address the district court's dismissal of the
Insurers' second claim for relief because the Insurers have failed
to develop on appeal any argument on the PRHTA bondholders'
property interest in the Reserve Account funds. See United States
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
6 Because the district court correctly decided the issues, and
persuasively explained its reasoning in a detailed opinion, we see
no reason to write at length. See Moses v. Mele, 711 F.3d 213,
216 (1st Cir. 2013).
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of the Bankruptcy Code. We thus turn to those statutes and provide
some statutory context necessary to understand the parties'
arguments.
Section 552(a) of the Bankruptcy Code establishes
generally that "property acquired by the . . . debtor after the
commencement of the case is not subject to any lien resulting from
any security agreement entered into by the debtor before the
commencement of the case." 11 U.S.C. § 552(a). Section 928,
however, exempts consensual prepetition liens on special revenues
from application of Section 552(a) in Chapter 9 cases.
Specifically, Section 928 states:
(a) Notwithstanding section 552(a) of this title and
subject to subsection (b) of this section, special
revenues acquired by the debtor after the commencement
of the case shall remain subject to any lien resulting
from any security agreement entered into by the debtor
before the commencement of the case.
(b) Any such lien on special revenues, other than
municipal betterment assessments, derived from a
project or system shall be subject to the necessary
operating expenses of such project or system, as the
case may be.
11 U.S.C. § 928.
The Insurers argue that Section 928(a) not only
overrides Section 522(a) and thus preserves prepetition liens, but
also requires continued payments of special revenue bonds, such as
the PRHTA Bonds, during the pendency of the Title III proceeding
to avoid debtor misuse of the property subject to the lien.
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It is elementary that in resolving a dispute over the
meaning of a statute we begin with the language of the statute
itself. Landreth Timber Co. v. Landreth, 471 U.S. 681, 685 (1985).
We first "determine whether the language at issue has a plain and
unambiguous meaning with regard to the particular dispute in the
case." Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997). "The
plainness or ambiguity of statutory language is determined by
reference to the language itself, the specific context in which
that language is used, and the broader context of the statute as
a whole." Id. at 341 (citing Estate of Cowart v. Nicklos Drilling
Co., 505 U.S. 469, 477 (1992); McCarthy v. Bronson, 500 U.S. 136,
139 (1991)). If "the statute's language is plain, 'the sole
function of the courts is to enforce it according to its terms.'"
United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)
(quoting Caminetti v. United States, 242 U.S. 470, 485 (1917)).
If, however, the language is not plain and unambiguous, we then
turn to other tools of statutory construction, such as legislative
history. See Arnold v. United Parcel Serv., Inc., 136 F.3d 854,
858 (1st Cir. 1998).
We find Section 928(a)'s plain language unambiguous.
Section 928(a) simply provides that consensual prepetition liens
on special revenues will remain in place after the filing of the
petition, despite the fact that Section 552(a) generally protects
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property acquired after the petition from being subject to
prepetition liens.7 That is, without Section 928(a), pursuant to
Section 552(a), consensual prepetition liens would be invalidated
with respect to special revenues acquired by the debtor post-
petition. As the district court found, Section 928, however, is
silent about enforcement of liens or "payment of the secured
obligation," and does not order any action on the part of the
debtor. Assured, 582 B.R. at 593. We thus agree with the district
court that Section 928 does not mandate the turnover of special
revenues or require continuity of payments of the PRHTA Bonds
during the pendency of the Title III proceeding. Id.
The Insurers contest the district court's conclusion
that this reading of Section 928 is supported by the legislative
history of the 1988 Municipal Bankruptcy Amendments
("1988 Amendments"), Pub. L. No. 100-597 (1988). See Assured,
582 B.R. at 593 (quoting a Senate Report "stating that Section 928
'is intended to negate Section 552(a),' which 'could terminate the
security for municipal revenue bonds, but 'to go no further'"
(quoting S. Rep. No. 100-506, at 12-13, 22-23 (1988))). Because
the language of the statute is unambiguous, however, we find it
7 For its part, Section 928(b) allows debtors to offset "necessary
operating expenses" of a "project or system" from "[a]ny such lien
on special revenues" "derived from [that] project or system."
11 U.S.C. § 928(b).
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unnecessary to turn to the legislative history. See Connecticut
Nat'l Bank v. Germain, 503 U.S. 249, 254 (1992) ("When the words
of a statute are unambiguous, then, th[e] first canon [of statutory
construction] is also the last: 'judicial inquiry is complete.'"
(quoting Rubin v. United States, 449 U.S. 424, 430 (1981))).
The Insurers next argue that Section 922(d) of the
Bankruptcy Code requires Debtors to continue to turn over the
revenues allegedly securing the PRHTA Bonds and exempts bondholder
enforcement actions from the automatic stays of Sections 362 and
922(a) of the Bankruptcy Code.
Pursuant to Section 362, an automatic stay goes into
effect upon the filing of a bankruptcy petition. See 11 U.S.C.
§§ 362, 901(a). "The automatic stay is one of the fundamental
protections that the Bankruptcy Court affords to debtors."
Jamo v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 398
(1st Cir. 2002). It is intended to "effectively stop all creditor
collection efforts, stop all harassment of a debtor seeking relief,
and to maintain the status quo between the debtor and [its]
creditors, thereby affording the parties and the [c]ourt an
opportunity to appropriately resolve competing economic interests
in an orderly and effective way." In re Witkowski, 523 B.R. 291,
296 (1st Cir. B.A.P. 2014) (alteration in original) (quoting Zeoli
v. RIHT Mortg. Corp., 148 B.R. 698, 700 (D.N.H. 1993)). The
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automatic stay is "extremely broad in scope" and "appl[ies] to
almost any type of formal or informal action against the debtor or
the property of the estate," In re Slabicki, 466 B.R. 572, 580
(1st Cir. B.A.P. 2012) (quoting Patton v. Bearden, 8 F.3d 343, 349
(6th Cir. 1993)), including "any act to . . . enforce any lien
against property of the estate," 11 U.S.C. § 362(a)(4).8
Section 922(a) expands the scope of the Section 362
automatic stay in Chapter 9 cases to "action[s] or proceeding[s]
against an officer or inhabitant of the debtor that seeks to
enforce a claim against the debtor," and to "enforcement of a lien
on or arising out of taxes or assessments owed to the debtor."9
11 U.S.C. § 922(a).
8 Section 362(b) establishes certain exceptions to Section
362(a)'s automatic stay, none applicable here. 11 U.S.C.
§ 362(b).
9 The statute reads as follows:
A petition filed under this chapter operates as a stay,
in addition to the stay provided by section 362 of this
title, applicable to all entities, of--
(1) the commencement or continuation, including the
issuance or employment of process, of a judicial,
administrative, or other action or proceeding against
an officer or inhabitant of the debtor that seeks to
enforce a claim against the debtor; and
(2) the enforcement of a lien on or arising out of
taxes or assessments owed to the debtor.
11 U.S.C. § 922(a).
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Section 922 further provides that notwithstanding the
automatic stays under Sections 362 and 922(a), "a petition filed
under [Chapter 9] does not operate as a stay of application of
pledged special revenues in a manner consistent with [S]ection
[928][10] of [Chapter 9] to payment of indebtedness secured by such
revenues." 11 U.S.C. § 922(d). That is, pursuant to Section
922(d), the automatic stays of Sections 362 and 922(a) do not stay
the "application" of "pledged special revenues" to payment of debt
secured by such revenues.
The Insurers take issue with the district court's
conclusion that although Section 922(d) "excepts the 'application'
of special revenues from the automatic stay" -- and thus allows
for voluntary payment by the debtor, "including the application of
the debtor's funds held by a secured lender to secure indebtedness"
-- it does not except bondholder actions seeking to enforce special
revenue liens, Assured, 582 B.R. at 595-96, or otherwise impose a
payment obligation, id. at 594. They allege that the district
court's reading of Section 922(d) renders it "superfluous" because
nothing prevents voluntary action of the debtor even in the absence
of Section 922(d). Thus, their argument goes, Section 922(d)'s
purpose is to exempt bondholder enforcement actions from the stay
10 The statute states "section 927," which the parties and the
district court agree appears to be a scrivener's error.
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when their lien is secured by pledged special revenues. According
to the Insurers, Section 922(d) operates as an absolute,
categorical exception to the automatic stay imposed by Sections
362 and 922(a) of the Bankruptcy Code, compelling the PRHTA to
continue to remit the proceeds of the Special Revenues into the
Reserve Accounts (after covering its operating expenses) and
allowing actions by bondholders to enforce their rights to those
revenues.
Again, we turn first to the statute's language to
determine its meaning. Landreth, 471 U.S. at 685. Section
922(d)'s plain language establishes that the application of
pledged special revenues is not a violation of the automatic stay.
It thus permits a debtor to pay creditors voluntarily during the
pendency of the bankruptcy case and allows a secured claimholder
to apply special revenues in its possession to pre-petition debt
without violating the automatic stays of Sections 362 and 922(a).
Nothing in the statute's plain language, however, addresses
actions to enforce liens on special revenues, which are
specifically stayed by Section 362(a)(4) of the Bankruptcy Code,
or allows for the compelling of debtors, or third parties holding
special revenues, to apply special revenues to outstanding
obligations. When Congress wants to command performance, turnover,
or payment, it knows how to do so expressly. See, e.g., 11 U.S.C.
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§ 365(d)(5) (providing that a "trustee shall timely perform all of
the" debtor's obligations); § 542(a) (instructing that "an entity"
in possession of estate property "shall deliver" it to the
trustee); § 542(b) (directing that "an entity . . . shall pay such
debt to . . . "). By contrast, Section 922(d), as the district
court found, "simply carves out one type of action (application of
special revenues) from the automatic stay, without addressing any
other constraints that may apply to that action, without any grant
of relief from other aspects of the automatic stay, [ ] without
imposing any requirement that the action be taken," and without
offering any language of the consequences of failing to apply
pledged special revenues to continued bond payments. Assured, 582
B.R. at 594; see also 6 Collier on Bankruptcy ¶ 922.05 (16th ed.
2018) (stating that "[S]ection 922(d) is limited to an exception
from the automatic stay [and] does not suggest that its language
compels payment of special revenues in the possession of the
municipality").
Our construction of Section 922(d) complies with the
tenet that in construing statutory provisions we must be mindful
of "the broader context of the statute as a whole" and avoid
creating a conflict between various sections. Robinson, 519 U.S.
at 341; see also La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 370
(1986). Although Section 922(d) provides an exception from the
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automatic stays of Sections 362 and 922(a), it does not carve out
Section 904 of the Bankruptcy Code. Therefore, Section 904, and
its analog at Section 305 of PROMESA -- which prohibits judicial
interference with the debtor's property or revenues11 -- remains
in full force in determining the effect of Section 922(d). Our
construction that Section 922(d) permits rather than mandates
payment during the course of the bankruptcy proceedings gives
effect to that section without running afoul of Section 305 of
PROMESA. See 6 Collier on Bankruptcy ¶ 922.05 (16th ed. 2018)
(noting that a broader reading of Section 922(d), such as the one
the Insurers advance, "could run afoul of [S]ection 904, which
prohibits the court from interfering with any of the property or
revenues of the debtor") (internal quotation marks and citation
omitted).12
11 Specifically, Section 904 of the Bankruptcy Code establishes:
Notwithstanding any power of the court, unless the
debtor consents or the plan so provides, the court
may not, by any stay, order, or decree, in the case
or otherwise, 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
debtor's use or enjoyment of any income-producing
property.
11 U.S.C. § 904. Section 305 of PROMESA mirrors this language.
See 48 U.S.C. § 2165.
12 The Insurers argue that Section 305 poses no impediment to
their more liberal construction of Section 922(d). Citing In re
City of Stockton, 478 B.R. 8, 22 (Bankr. E.D. Cal. 2012) and In re
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Furthermore, contrary to the Insurers' contention, our
construction does not render Section 922(d) superfluous. Before
Congress adopted the 1988 Amendments it was unclear whether Section
362(a) stayed a creditor from accepting voluntary payments from a
County of Orange, 179 B.R. 185, 190 (Bankr. C.D. Cal. 1995), the
Insurers argue that Section 305 of PROMESA does not foreclose the
relief they seek under Section 922(d) of the Bankruptcy Code
because, according to them, the latter is more specific than the
former and a "specific statute controls over a general without
regard to priority of enactment." Their argument is premised on
faulty grounds.
First, if Section 922(d) clearly mandated what the Insurers
contend, their argument would be stronger, and we would need to
examine whether one section of PROMESA controls over another.
But, when the plain language of a section is clear, we will not
assign it an alternate interpretation that clashes with other
clearly written sections. As Congress knows how to command
performance when it wants to, so too does it know how to create
exceptions to general rules when that is its intent. And, while
Section 922(d) provides an exception from the automatic stays of
Sections 362 and 922(a), it does not similarly provide an exception
from Section 904 of the Bankruptcy Code.
Second, the cases cited by the Insurers are clearly inapposite.
Section 305, like Section 904, prohibits judicial interference
with the property and revenues of the debtor "unless the Oversight
Board consents or the plan so provides." 48 U.S.C. § 2165. The
cases cited by the Insurers considered the debtors' voluntary
filing of the bankruptcy petitions as their consent for the
exercise of the court's powers over the debtors. Thus, in the
cases that the Insurers cite, Section 904 posed no impediment to
the courts' exercise of its power over the debtor. Yet, we
recently rejected this approach in Fin. Oversight & Mgmt. Bd. for
P.R. v. Ad Hoc Grp. of PREPA Bondholders (In re Fin. Oversight &
Mgmt. Bd. for P.R.), where we held that the Board's filing of the
Title III petition could not be construed as consent to interfere
with the debtor's property or revenues because such construction
"would render Section 305 a nullity." 899 F.3d 13, 19 (1st Cir.
2018).
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debtor. See, e.g., In re Hellums, 772 F.2d 379, 380-81 (7th Cir.
1985) (per curiam) (noting that a creditor's "continued acceptance
of the payments under the circumstances was a violation of the
stay regardless of the voluntary or involuntary nature of the
payments") (internal quotations omitted). Thus, Section 922(d)
served to clarify that a creditor's acceptance of a debtor's
voluntary payments are excepted from the automatic stay.
The Insurers also point us to In re Jefferson Cty.,
474 B.R. 228 (Bankr. N.D. Ala. 2012), to support their contention
that Section 922(d) mandates the turnover of special revenues.
We, however, find Jefferson County inapposite. In Jefferson
County -- where the county did not contest that the creditors held
a lien on the special revenues or whether it should turn over
special revenues if said revenues were determined covered by the
scope of the lien -- the issue was what revenues were covered by
the lien, rather than whether Sections 922(d) and 928 require
remittance of special revenues during the automatic stay. Because
the court in Jefferson County did not address whether the debtor's
payments were voluntary or mandatory, that case does not support
the Insurers' argument that Section 922(d) mandates the turnover
of special revenues.
The Insurers also challenge the district court's
conclusion that its reading of Section 922(d) is consistent with
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the legislative history of the 1988 Amendments. See Assured,
582 B.R. at 594-95 (noting that Congress recognized that a
municipality might want to continue to pay bondholders through the
course of Chapter 9 bankruptcy proceedings in order to "retain
access to credit markets" and -- mindful that the automatic stay
"broadly prohibits all collection efforts against a debtor
including the application of the debtor's funds held by a secured
lender to secure indebtedness" -- "sought to permit such third-
party applications . . . to proceed without having to seek relief
from the automatic stay." (citing S. Rep. No. 100-506, at 6-7,
11, 21 (1988))) (internal quotation marks omitted). But again,
because we find the statute's language unambiguous, there is no
need to rely on legislative history. See Connecticut Nat'l Bank,
503 U.S. at 254.
We thus agree with the district court that Section 922(d)
only makes clear that the automatic stay is not an impediment to
continued payment, whether by the debtor or by another party in
possession of pledged special revenues, of indebtedness secured by
such revenues. See Assured, 582 B.R. at 594-95.
The Insurers and their amici make several arguments
rooted in social policy and consideration of fairness urging the
court to adopt their proposed broader construction of Sections
928(a) and 922(d), and advance their theory about the possible
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effect upholding the district court's interpretation might have on
the municipal bonds market. Our duty, however, is to interpret
the law, not to re-write it. See Obergefell v. Hodges, 135 S. Ct.
2584, 2611 (2015) (Roberts, J., dissenting) ("[J]udges have power
to say what the law is, not what it should be.").
III. Conclusion
In sum, Sections 928(a) and 922(d) permit, but do not
require, continued payment during the pendency of the bankruptcy
proceedings. The two provisions stand for the premise that any
consensual prepetition lien secured by special revenues will
survive the period of municipal bankruptcy, and, accordingly,
municipalities can elect to voluntary continue payment on these
debts during the course of the bankruptcy proceedings so as to not
fall behind and thus be at risk of being unable to secure financing
in the future. Because neither provision requires Debtors to
continue to remit the PRHTA Pledged Special Revenues into the
Reserve Accounts or continue payments to bondholders during the
pendency of the Title III proceedings, the district court properly
dismissed the first, third, and fourth claims of the Amended
Complaint.
Affirmed.
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