Franklin California/BlueMountain v PR

8/20/2019 Franklin California/BlueMountain v PR

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United States Court of AppealsFor the First Circuit

Nos. 15- 121815- 122115- 127115- 1272

FRANKLI N CALI FORNI A TAX- FREE TRUST, et al . ,

Pl ai nt i f f s , Appel l ees,

v.

COMMONWEALTH OF PUERTO RI CO, et al . ,

Def endant s, Appel l ant s,

PUERTO RI CO ELECTRI C POWER AUTHORI TY ( PREPA) ,

Def endant .

APPEALS FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF PUERTO RI CO

[ Hon. Franci sco A. Besosa, U. S. Di st r i ct J udge]

Bef or e

Howard, Chi ef J udge, Tor r uel l a and Lynch, Ci r cui t J udges.

Chr i st opher Landau, wi t h whom Margar i t a Mer cado- Echegaray,Sol i ci t or Gener al f or t he Commonweal t h of Puer t o Ri co, Bet h A.

Wi l l i ams, Mi chael A. Gl i ck, Cl ai r e M. Mur r ay, and Ki r kl and & El l i sLLP were on br i ef , f or t he Commonweal t h of Puert o Ri co, GovernorAl ej andr o Gar cí a- Padi l l a, and César R. Mi r anda- Rodr í guez,appel l ant s.

Mar t i n J . Bi enenst ock, wi t h whom J ohn E. Rober t s, Andr ea G.Mi l l er , Pr oskauer Rose LLP, Mar k D. Har r i s, Si gal P. Mandel ker ,Phi l i p M. Abel son, and Ehud Bar ak wer e on br i ef , f or Mel ba Acost a-Febo and J ohn Doe, appel l ant s.

Lewi s J . Li man, wi t h whom J or ge R. Roi g, J oanne A. Tomasi ni -


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Muñi z, Gonzál ez, Machado & Roi g, LLC, Lawr ence B. Fr i edman, Ri char d J . Cooper , Sean A. O' Neal , and Cl ear y Got t l i eb St een & Hami l t on LLPwer e on br i ef , f or t he Puer t o Ri co El ect r i c Power Aut hor i t y( PREPA) , ami cus cur i ae.

Gabr i el R. Avi l és- Apont e and Tapi a & Avi l és on br i ef f orCl ayt on P. Gi l l et t e and Davi d A. Skeel , J r . , ami ci cur i ae.

Edi l ber t o Ber r í os- Pér ez and Ber r í os & Longo Law Of f i ce, P. S. C.on br i ef f or Edi l ber t o Ber r í os- Pér ez, ami cus cur i ae.

Mat t hew D. McGi l l , wi t h whom Davi d C. I ndi ano, J ef f r ey M.Wi l l i ams, Let i ci a Casal duc- Rabel l , I ndi ano & Wi l l i ams, PSC, Theodore B. Ol son, Scot t G. St ewar t , Mat t hew J . Wi l l i ams, andGi bson, Dunn & Cr ut cher LLP wer e on br i ef , f or Bl ueMount ai n Capi t alManagement , LLC, appel l ee.

Thomas Moers Mayer , wi t h whomKramer Levi n Naf t al i s & Fr ankelLLP, Phi l i p Bent l ey, Davi d E. Bl abey, J r . , Tor o, Col ón, Mul l et ,Ri ver a & Si f r e, P. S. C. , Manuel Fer nández- Bar ed, and Li net t eFi guer oa- Tor r es wer e on br i ef , f or Fr ankl i n Cal i f or ni a Tax- Fr ee Tr ust et al . , appel l ees.

Mar c E. Kasowi t z, wi t h whom Dani el R. Benson, Hon. J oseph I .Li eber man ( r et . ) , Hon. Cl ar i ne Nar di Ri ddl e ( r et . ) , Andr ew K.Gl enn, and Kasowi t z, Benson, Tor r es & Fr i edman LLP were on br i ef ,f or t he Associ at i on of Fi nanci al Guar ant y I nsur er s, ami cus cur i ae.

Kat e Comer f ord Todd, Steven P. Lehot sky, U. S. ChamberLi t i gat i on Cent er , I nc. , Wi l l i am S. Consovoy, Thomas R. McCar t hy, J . Mi chael Connol l y, and Consovoy McCar t hy PLLC on br i ef f or t heChamber of Commerce of t he Uni t ed Stat es of Amer i ca, ami cus cur i ae.

J ul y 6, 2015


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LYNCH, Circuit Judge. The def endant s, t he Commonweal t h

of Puer t o Ri co, i t s Gover nor , i t s Secretary of J ust i ce, and t he

Government Devel opment Bank ( "GDB") , asser t t hat Puert o Ri co i s

f aci ng t he most ser i ous f i scal cr i s i s i n i t s hi stor y, and t hat i t s

publ i c ut i l i t i es r i sk becomi ng i nsol vent . Puer t o Ri co, unl i ke

st at es, may not aut hor i ze i t s muni ci pal i t i es, i ncl udi ng t hese

ut i l i t i es, t o seek f eder al bankr upt cy r el i ef under Chapt er 9 of t he

U. S. Bankrupt cy Code. 11 U. S. C. §§ 101( 40) , 101( 52) , 109( c) . I n

J une 2014, t he Commonweal t h at t empt ed t o al l ow i t s ut i l i t i es t o

r est r uct ur e t hei r debt by enact i ng i t s own muni ci pal bankrupt cy

l aw, t he Puer t o Ri co Publ i c Corporat i on Debt Enf orcement and

Recover y Act ( "Recover y Act " ) , whi ch expr essl y pr ovi des di f f er ent

pr ot ect i ons f or cr edi t or s t han does t he f eder al Chapt er 9.

Pl ai nt i f f s ar e i nvest or s who col l ect i vel y hol d near l y t wo

bi l l i on dol l ar s of bonds i ssued by one of t he di st r essed publ i c

ut i l i t i es, t he Puer t o Ri co El ect r i c Power Aut hor i t y ( "PREPA") .

Fear i ng t hat a PREPA f i l i ng under t he Recover y Act was i mmi nent ,

t hey br ought sui t i n summer 2014 t o chal l enge the Recover y Act ' s

val i di t y and enj oi n i t s i mpl ement at i on. The di st r i ct cour t f ound

i n t hei r f avor and per manent l y enj oi ned t he Recover y Act on t he

gr ound t hat i t i s pr eempt ed under 11 U. S. C. § 903( 1) . See

Frankl i n Cal . Tax- Free Tr ust v. Puer t o Ri co, ___ F. Supp. 3d ___ ,

Nos. 14- 1518, 14- 1569, 2015 WL 522183, at *1, *12- 18, *29 (D. P. R.

Feb. 6, 2015) ; Frankl i n Cal . Tax- Free Tr ust v. Puer t o Ri co, No. 14-

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1518, 2015 WL 574008, at *1 ( D. P. R. Feb. 10, 2015) . That

pr ovi si on, § 903( 1) , ensur es t he uni f or mi t y of f eder al bankrupt cy

l aws by pr ohi bi t i ng st at e muni ci pal debt r est r uct ur i ng l aws t hat

bi nd cr edi t or s wi t hout t hei r consent . 11 U. S. C. § 903( 1) ; see S.

Rep. No. 95- 989, at 110 ( 1978) .

The pr i mar y l egal i ssue on appeal i s whether § 903( 1)

pr eempt s Puer t o Ri co' s Recover y Act . That quest i on t ur ns on

whet her t he def i ni t i on of "St at e" i n t he f eder al Bankrupt cy Code - -

as amended i n 1984 - - r ender s § 903( 1) ' s pr eempt i ve ef f ect

i nappl i cabl e t o Puert o Ri co. Bankr upt cy Amendment s and Federal

J udgeshi p Act of 1984, Pub. L. No. 98- 353, sec. 421( j ) ( 6) ,

§ 101( 44) , 98 St at . 333, 368- 39 ( codi f i ed as amended at 11 U. S. C.

§ 101( 52) ) . The post - 1984 def i ni t i on of "Stat e" i ncl udes Puer t o

Ri co, "except " f or t he pur pose of "def i ni ng" a muni ci pal debt or

under § 109( c) . 11 U. S. C. §§ 101( 52) , 109( c) ( emphasi s added) .

Al l par t i es agr ee t hat Puer t o Ri co now l acks t he power i t once had

been gr ant ed by Congr ess t o aut hor i ze i t s muni ci pal i t i es t o f i l e

f or Chapt er 9 r el i ef .

We hol d t hat § 903( 1) preempts t he Recovery Act . The

pr ohi bi t i on now codi f i ed at § 903( 1) has appl i ed t o Puer t o Ri co

si nce t he pr edecessor of t hat sect i on' s enact ment i n 1946. The

st at ut e does not cur r ent l y r ead, nor does anythi ng about t he 1984

amendment suggest , t hat Puer t o Ri co i s out si de t he r each of

§ 903( 1) ' s pr ohi bi t i ons. See Cohen v. de l a Cr uz, 523 U. S. 213,

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221 ( 1998) ( "We . . . ' wi l l not r ead t he Bankrupt cy Code t o er ode

past bankrupt cy pr act i ce absent a cl ear i ndi cat i on t hat Congr ess

i nt ended such a depar t ur e. ' " ( ci t at i on omi t t ed) ) ; cf . Kel l ogg Br own

& Root Ser vs. I nc. v. Uni t ed St at es ex r el . Car t er , 135 S. Ct .

1970, 1977 ( 2015) ( "Fundament al changes i n t he scope of a st at ut e

ar e not t ypi cal l y accompl i shed wi t h so subt l e a move. " ) . I ndeed,

t he Recover y Act woul d f r ust r at e the pr eci se pur pose under l yi ng t he

enact ment of § 903( 1) . Accor di ngl y, we af f i r m.

Def endant s ar gue t hat t hi s l eaves Puer t o Ri co wi t hout

r el i ef . Al t hough § 101( 52) deni es t o Puer t o Ri co t he power t o

aut hor i ze i t s muni ci pal i t i es t o pur sue f eder al Chapt er 9 r el i ef ,

Puer t o Ri co may t ur n t o Congr ess f or r ecour se. I ndeed, Congr ess

pr eser ved t o i t sel f t hat power t o aut hor i ze Puer t o Ri can

muni ci pal i t i es t o seek Chapt er 9 r el i ef . Puer t o Ri co i s pr esent l y

seeki ng aut hor i zat i on or ot her r el i ef di r ectl y f r om Congr ess.

See Puer t o Ri co Chapt er 9 Uni f ormi t y Act of 2015, H. R. 870, 114t h

Cong. ( 2015) .

I .

Pr ocedur al Hi st or y

Two groups of PREPA bondhol ders sued al most i mmedi at el y

f ol l owi ng t he Recover y Act ' s passage t o pr event i t s enf or cement .

PREPA had i ssued t hei r bonds pur suant t o a t r ust agr eement wi t h t he

U. S. Bank Nat i onal Associ at i on. The bondhol der s al l ege t hat t he

ver y enact ment of t he Recover y Act i mpai r ed t hese cont r act ual

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obl i gat i ons by abr ogat i ng cer t ai n pr ot ect i ons t hat wer e pr omi sed i n

t he event of def aul t . 1 The f i r st gr oup, t he Fr ankl i n pl ai nt i f f s, 2

f i l ed on J une 28, 2014, and cross- mot i oned f or summary j udgment on

August 11, 2014. The second gr oup, Bl ueMount ai n Capi t al

1 Compar e, e. g. , Puer t o Ri co El ect r i c Power Aut hor i t y Act( "Aut hor i t y Act ") , P. R. Laws Ann. t i t . 22, § 207 ( pr ovi di ng f or acour t - appoi nt ed r ecei ver i n event of def aul t ) ; Tr ust Agr eementbetween PREPA & U. S. Bank Nat i onal Associ at i on as Successor Trust eedat ed J an. 1, 1974, as amended and suppl ement ed t hrough Aug. 1,2011 ( "Trust Agr eement " ) , § 804 ( per mi t t i ng U. S. Bank Nat i onalAssoci at i on t o seek cour t - appoi nt ed r ecei ver pur suant t o t he

Aut hor i t y Act ) , wi t h Recover y Act , § 108( b) ( "Thi s Act super sedesand annul s any i nsol vency or cust odi an pr ovi si on i ncl uded i n t heenabl i ng or ot her act of any publ i c cor por at i on, i ncl udi ng[ Aut hor i t y Act, P. R. Laws Ann. t i t . 22, § 207] . . . . ") .

2 We use "Fr ankl i n pl ai nt i f f s" t o denot e t he pl ai nt i f f s whobr ought t he f i r st sui t . The Fr ankl i n pl ai nt i f f s consi st of t wosubset s of pl ai nt i f f s, r ef er r ed t o by t he di st r i ct cour t as t he"Fr ankl i n pl ai nt i f f s" and t he "Oppenhei mer Rochest er pl ai nt i f f s. " The f or mer ar e Del awar e cor porat i ons or t r ust s t hat col l ect i vel yhol d about $692, 855, 000 of PREPA bonds. The l at t er ar e Del awarest atut ory t r ust s hol di ng about $866, 165, 000 of PREPA bonds. For

si mpl i ci t y, we do not di st i ngui sh bet ween t hese t wo subsets, butr ef er t o bot h subset s col l ect i vel y. The i ndi vi dual par t i es who compr i se t he "Fr ankl i n pl ai nt i f f s"

ar e: Frankl i n Cal i f or ni a Tax- Free Tr ust ; Frankl i n New Yor k Tax- Free Tr ust ; Fr ankl i n Tax- Fr ee Tr ust ; Fr ankl i n Muni ci pal Secur i t i es Tr ust ; Fr ankl i n Cal i f or ni a Tax- Fr ee I ncome Fund; Fr ankl i n New Yor k Tax- Fr ee I ncome Fund; Fr ankl i n Federal Tax- Fr ee I ncome Fund;Oppenhei mer Rochest er Fund; Muni ci pal s Oppenhei mer Muni ci pal Fund;Oppenhei mer Mul t i - St at e Muni ci pal Trust ; Oppenhei mer Rochest er Ohi oMuni ci pal Fund; Oppenhei mer Rochest er Ar i zona Muni ci pal Fund;Oppenhei mer Rochest er Vi r gi ni a Muni ci pal Fund; Oppenhei merRochest er Maryl and Muni ci pal Fund; Oppenhei mer Rochest er Li mi t ed

Term Cal i f or ni a Muni ci pal Fund; Oppenhei mer Rochest er Cal i f or ni aMuni ci pal Fund; Rochest er Por t f ol i o Ser i es; Oppenhei mer Rochest erAmt - Fr ee Muni ci pal Fund; Oppenhei mer Rochest er Amt - Fr ee New Yor kMuni ci pal Fund; Oppenhei mer Rochest er Mi chi gan Muni ci pal Fund;Oppenhei mer Rochest er Massachuset t s Muni ci pal Fund; Oppenhei merRochest er Nor t h Carol i na Muni ci pal Fund; and Oppenhei mer Rochest erMi nnesota Muni ci pal Fund.

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Management , LLC ( "Bl ueMount ai n" ) , f or i t sel f and on behal f of t he

f unds i t manages, f i l ed on J ul y 22, 2014. Toget her , t he Frankl i n

pl ai nt i f f s and Bl ueMount ai n hol d near l y t wo bi l l i on dol l ar s i n

PREPA bonds.

Bot h t he Fr ankl i n pl ai nt i f f s and Bl ueMount ai n sought

decl ar at ory rel i ef under 28 U. S. C. §§ 2201- 02 t hat t he Recover y Act

i s pr eempt ed by t he f eder al Bankrupt cy Code, vi ol at es t he Cont r act s

Cl ause, vi ol at es t he Bankrupt cy Cl ause, and unconst i t ut i onal l y

aut hor i zes a st ay of f eder al cour t proceedi ngs. The Frankl i n

pl ai nt i f f s ( but not Bl ueMount ai n) al so br ought a Taki ngs Cl ai m

under t he Fi f t h and Four t eent h Amendment s. And Bl ueMountai n ( but

not t he Fr ankl i n pl ai nt i f f s) br ought a cl ai m under t he cont r act s

cl ause of t he Puer t o Ri co const i t ut i on. These cl ai ms wer e brought

agai nst t he Commonweal t h of Puert o Ri co, Governor Al ej andr o Garcí a-

Padi l l a, and var i ous Commonweal t h of f i ci al s, i ncl udi ng GDB agent s. 3

The di st r i ct cour t consol i dat ed t he cases and al i gned t he br i ef i ng

on August 20, 2014, but di d not mer ge the sui t s.

The di st r i ct cour t i ssued an or der and opi ni on i n bot h

cases on Febr uary 6, 2015, r esol vi ng t he mot i ons t o di smi ss and t he

3 The Frankl i n pl ai nt i f f s and Bl ueMount ai n named di f f er ent

Commonweal t h def endant s. Bot h sued t he Gover nor and agent s of t heGDB. But onl y t he Frankl i n pl ai nt i f f s (not Bl ueMount ai n) sued t heCommonweal t h i t sel f , whi l e Bl ueMount ai n ( not t he Fr ankl i npl ai nt i f f s) named Puer t o Ri co' s Secret ar y of J ust i ce, CésarMi r anda- Rodr í guez, as a def endant .

The Fr ankl i n pl ai nt i f f s ( not Bl ueMount ai n) had al so sued PREPAi t sel f , but t hose cl ai ms wer e di smi ssed f or l ack of st andi ng.

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Frankl i n pl ai nt i f f s' out st andi ng cr oss- mot i on f or summar y j udgment .

Frankl i n Cal . Tax- Free Tr ust , __ F. Supp. 3d __ , 2015 WL 522183, at

*1. I t ent er ed j udgment i n t he Frankl i n case on Febr uar y 10, 2015.

Fr ankl i n Cal . Tax- Fr ee Trust , 2015 WL 574008, at *1.

As r el evant her e, t he di st r i ct cour t hel d t hat t he

Recovery Act was preempted by f ederal l aw and permanent l y enj oi ned

i t s enf or cement . I t al so deni ed t he mot i on t o di smi ss t he

Cont r act s Cl ause cl ai m and one of t he Fr ankl i n pl ai nt i f f s' Taki ngs

cl ai ms. 4

The Commonweal t h def endant s appeal f r om t he permanent

i nj unct i on, t he gr ant of summar y j udgment t o the Frankl i n

pl ai nt i f f s, and f ur t her ar gue t hat t he di st r i ct cour t er r ed by

r eachi ng t he Cont r act s Cl ause and Taki ngs Cl ai ms i n i t s Febr uar y 6

order.

I I .

Because t he appeal pr esent s a narr ow l egal i ssue, we

summar i ze onl y t hose f act s as are necessary. We do not addr ess i n

any det ai l t he ext ent of t he f i scal cr i si s f aci ng t he Commonweal t h,

PREPA, or ot her Commonweal t h ent i t i es. We begi n wi t h t he

consi der at i ons shapi ng t he st at e- aut hor i zat i on r equi r ement of

§ 109( c) ( 2) , t he pr ovi si on t hat pr esent l y, i n combi nat i on wi t h

4 The di st r i ct cour t di smi ssed wi t hout pr ej udi ce t her emai ni ng cl ai ms f or l ack of r i peness, and al l cl ai ms asser t edagai nst PREPA f or l ack of st andi ng.

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§ 101( 52) , bar s Puer t o Ri co f r omaut hor i zi ng i t s muni ci pal i t i es t o

br i ng cl ai ms f or f eder al Chapt er 9 r el i ef .

A. The Hi st or y of Feder al Muni ci pal Bankr upt cy Rel i ef , andt he St at e- Aut hor i zat i on Requi r ement

Moder n muni ci pal bankr upt cy rel i ef i s shaped by t wo

f eat ur es: t he di f f i cul t i es i nher ent i n enf or ci ng payment of

muni ci pal debt , and t he hi st or i c under st andi ng of const i t ut i onal

l i mi t s on f ashi oni ng r el i ef . M. W. McConnel l & R. C. Pi cker , When

Ci t i es Go Br oke: A Concept ual I nt r oduct i on t o Muni ci pal Bankrupt cy,

60 U. Chi . L. Rev. 425, 426- 28 ( 1993) . The di f f i cul t i es ar i se

because muni ci pal i t i es ar e gover nment ent i t i es, and so t he met hods

f or addr essi ng t hei r i nsol vency ar e l i mi t ed i n ways t hat t he

met hods f or addr essi ng i ndi vi dual or cor por at e i nsol vency ar e not . 5

I d. at 426- 50; see al so 11 U. S. C. § 101( 40) ( def i ni ng

"muni ci pal i t y" as "pol i t i cal subdi vi si on[ s] , " "publ i c agenc[ i es] , "

5 For exampl e, remedi es t r adi t i onal l y avai l abl e i nbankrupt cy, l i ke sei zi ng asset s, cor por at e r eor gani zat i on,l i qui dat i on, or j udi ci al over si ght of t he debt or ' s day- t o- dayaf f ai r s, ar e t r adi t i onal l y unavai l abl e i n enf or ci ng t he payment of muni ci pal debt . See McConnel l & Pi cker , 60 U. Chi . L. Rev. at 426-50; see al so Ci t y of East St . Loui s v. Uni t ed St at es ex r el .Zebl ey, 110 U. S. 321, 324 ( 1884) ( " [ W] hat expendi t ur es ar e pr operand necessar y f or t he muni ci pal admi ni st r at i on, i s not j udi ci al ; i ti s conf i ded by l aw t o t he di scret i on of t he muni ci pal aut hor i t i es.No cour t has t he r i ght t o cont r ol t hat di scret i on, much l ess t o

usur p and super sede i t . ") . The r el at i ve unavai l abi l i t y of t hese"bi t t er medi ci ne[ s] " makes i t mor e di f f i cul t f or muni ci palbankr upt cy r egi mes t o navi gate t he gaunt l et bet ween addr essi ng t he"hol dout " pr obl em t hat bankrupt cy i s desi gned t o resol ve, andl i mi t i ng t he "mor al hazar d" probl em t hat i s exacer bat ed by t heavai l abi l i t y of bankr upt cy r el i ef . McConnel l & Pi cker , 60 U. Chi .L. Rev. at 426- 27, 494- 95.

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and ot her "i nst r ument al i t [ i es] of a St at e") . Navi gat i ng t hese

di f f i cul t i es i s f ur t her compl i cat ed, f or stat e muni ci pal i t i es, by

a t wo- pr ong di l emma cr eat ed by the Cont r act s Cl ause and t he Tent h

Amendment . See McConnel l & Pi cker , 60 U. Chi . L. Rev. at 427- 28.

For t hese r easons, muni ci pal i t i es r emai ned compl et el y

out si de any bankr upt cy r egi me f or much of t he nat i on' s hi st or y.

See i d. at 427- 28. I ndeed, t he pr evai l i ng assumpt i on was t hat t he

const i t ut i onal l i mi t at i ons pr ecl uded ei t her l evel of gover nment ,

st at e or f eder al , f r om enact i ng a muni ci pal bankrupt cy regi me.

See i d. St at es coul d not provi de an ef f ect i ve sol ut i on t o t he

"hol dout pr obl em" pr esent ed by i nsol vency because doi ng so "woul d

[ r equi r e] i mpai r [ i ng] t he obl i gat i on of cont r acts" i n vi ol at i on of

t he Cont r act s Cl ause. 6 See i d. at 426- 28. Feder al i nt er vent i on,

6 The hol dout pr obl em occur s i n r est r uct ur i ng negot i at i onsbecause credi t or s who ref use t o capi t ul at e ear l y can of t en secur e

mor e f avor abl e t er ms by "hol di ng out . " See, e. g. , McConnel l &Pi cker , 60 U. Chi . L. Rev. at 449- 50. Muni ci pal bankrupt cy r el i ef can amel i or at e t hi s pr obl em by bi ndi ng t he di ssent er s - - t hehol dout s - - pr ovi ded a l ar ge enough cl ass of cr edi t or s agr ees. Seegener al l y McConnel l & Pi cker , 60 U. Chi . L. Rev. 425. I ndeed, somehave suggest ed t hat even t he shadow of t he l aw i n t hi s ar ea canassi st negot i at i ons, and t hat i t s absence can hi nder i t . See,e. g. , D. A. Skeel , J r . , St at es of Bankr upt cy, 79 U. Chi . L. Rev.677, 689- 90 ( 2012) ( suggest i ng t hat "a bankr upt cy l aw coul d pr ovebenef i ci al even i f i t i s never used") . Compar e i d. at 720 & nn.191 & 192 ( di scussi ng a ser i es of st udi es concer ni ng t he ef f ect ondebt pr i ce of a bankrupt cy al t er nat i ve t o t he hol dout pr obl em, so-

cal l ed "col l ect i ve- act i on cl auses" (c i t i ng, e. g. , S. J . Choi , M.Gul at i , & E. A. Posner , Pr i ci ng Ter ms i n Sover ei gn Debt Cont r act s:A Gr eek Case St udy wi t h I mpl i cat i ons f or t he Eur opean Cr i si sResol ut i on Mechani sm *10- 11 ( U. Chi . J ohn M. Ol i n L. & Econ.Wor ki ng Paper No. 541, Feb. 1, 2011) ) ) , wi t h Muni ci pal Bankrupt cy- - Pr eempt i on - - Puer t o Ri co Passes New Muni ci pal Reor gani zat i onAct , 128 Harv. L. Rev. 1320, 1327 ( 2015) ( suggest i ng t hat t he

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on t he ot her hand, mi ght i nt er f er e wi t h st at es' r i ght s under t he

Tent h Amendment i n cont r ol l i ng t hei r own muni ci pal i t i es. I d. at

427- 28; see al so Asht on v. Cameron Cnty. Wat er I mprovement Di st .

No. 1, 298 U. S. 513, 530- 32 ( 1936) ( st r i ki ng down t he f i r st f eder al

muni ci pal bankrupt cy l aw on f eder al i sm gr ounds) .

The probl ems cr eat ed by t hi s absence of muni ci pal

bankr upt cy r el i ef became acut e dur i ng t he Gr eat Depr essi on. And

so, i n 1933, Congr ess enacted Chapt er 9' s pr edecessor t o pr ovi de t o

st at es a mechani sm f or addr essi ng muni ci pal i nsol vency t hat t hey

coul d not cr eate t hemsel ves. See McConnel l & Pi cker , 60 U. Chi . L.

Rev. at 427- 29, 450- 54 ( summar i zi ng t he hi st or y) .

Al t hough i t had a r ocky st ar t , see, e. g. , Asht on, 298

U. S. at 530- 32 ( i nval i dat i ng t he i ni t i al act ) , Congr ess event ual l y

succeeded i n avoi di ng a Tent h Amendment pr obl em. I t di d so i n par t

by r equi r i ng a st at e' s consent i n t he f eder al muni ci pal bankrupt cy

r egi me bef or e per mi t t i ng muni ci pal i t i es of t hat st at e t o seek

r el i ef under i t , and i n par t by emphasi zi ng t hat t he st at ut e di d

not ef f ect "' any r est r i ct i on on t he power s of t he St at es or t hei r

ar ms of gover nment i n t he exer ci se of t hei r sover ei gn r i ght s and

dut i es. ' " See, e. g. , Uni t ed St at es v. Beki ns, 304 U. S. 27, 49- 54

( 1938) ( quot i ng H. R. Rep. No. 75- 517, at 2 ( 1937) ; S. Rep. No. 75-

911, at 2 ( 1937) ) ( r ecogni zi ng t hat t hi s cr eat ed a "cooper at i [ ve] "

scheme) ; cf . McConnel l & Pi cker , 60 U. Chi . L. Rev. at 452- 53.

Recover y Act f or ced cr edi t or s t o t he negot i at i on t abl e) .

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Thi s i s t he or i gi n of t he st at e- aut hor i zat i on r equi r ement of

§ 109( c) . 7 That pr ovi si on of t he Code pr ovi des t hat a muni ci pal i t y

may be a debt or under Chapt er 9 onl y i f i t "i s speci f i cal l y

aut hor i zed . . . t o be a debt or under such chapt er by St at e l aw, or

by a gover nment al of f i cer or organi zat i on empower ed by St ate l aw t o

[ so] aut hor i ze. " 11 U. S. C. § 109( c) ( 2) .

Thi s r equi r ement of st at e consent i s based on r eason: a

st at e mi ght i nst ead deci de t o bai l out an ai l i ng muni ci pal i t y, i f

i t s own f i scal si t uat i on per mi t s, t o avoi d t he negat i ve i mpact t hat

a muni ci pal bankr upt cy woul d have on t hat st at e' s economy and ot her

muni ci pal i t i es. See C. P. Gi l l et t e, Fi scal Feder al i sm, Pol i t i cal

Wi l l , and St r at egi c Use of Muni ci pal Bankrupt cy, 79 U. Chi . L. Rev.

281, 302- 08 ( 2012) ( expl ai ni ng t he pr obl em of "debt cont agi on" ) .

But al l owi ng st at e muni ci pal i t i es t o bypass t he st at e and seek

f eder al Chapt er 9 r el i ef woul d under mi ne a st at e' s abi l i t y t o do

so. See i d. at 285- 86. I n t hi s way, t he st at e- aut hor i zat i on

7 Thi s i s t he hi st or i cal gl oss gi ven by cour t s andcomment at or s al i ke because t he Beki ns Cour t decl i ned to f ol l owAsht on but wi t hout expr essl y over r ul i ng i t . See Beki ns, 304 U. S.at 49- 54; see, e. g. , I n r e J ef f er son Cnt y. , Al a. , 469 B. R. 92, 99( N. D. Al a. 2012) ; McConnel l & Pi cker , 60 U. Chi . L. Rev. at 452- 53.A si mi l ar st at e- aut hor i zat i on requi r ement had been pr esent i n t heor i gi nal muni ci pal bankrupt cy act t hat t he Cour t st r uck down i n

Asht on, but t he Beki ns Cour t r ecogni zed t hat st at e consental l evi at es a pot ent i al "const i t ut i onal obstacl e . . . i n t he r i ghtof t he St at e t o pr event a muni ci pal i t y f r om seeki ng bankrupt cypr otect i on, " and makes t he f eder al scheme a cooperat i ve endeavor .See McConnel l & Pi cker , 60 U. Chi . L. Rev. at 452- 53 ( di scussi ngt he cases and changes t o t he Act made i n t he i nt er i mbet ween t hem) ;see al so Beki ns, 304 U. S. at 49- 54.

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r equi r ement not onl y addr esses const i t ut i onal di f f i cul t i es by

maki ng Chapt er 9 a "cooper at i [ ve] " st at e- f eder al scheme, Beki ns,

304 U. S. at 49- 54, i t al so pr omot es st at e sover ei gnt y by pr event i ng

muni ci pal i t i es f r omst r at egi cal l y seeki ng ( or t hr eat eni ng t o seek)

f eder al muni ci pal r el i ef t o "r educe t he condi t i ons t hat st at es

pl ace on a pr oposed bai l out , " Gi l l et t e, 79 U. Chi . L. Rev. at 285-

86.

B. Puer t o Ri co Muni ci pal i t i es Under t he Code: 1938- 1984

Puer t o Ri co was grant ed the aut hor i t y t o i ssue bonds, and

t o aut hor i ze i t s muni ci pal i t i es t o i ssue bonds, i n 1917. 8 See Act

8 The aut hor i zi ng act al so creat ed Puer t o Ri co' s "t r i pl e t ax-exempt " st at us by pr ohi bi t i ng f eder al , st at e, and l ocal t axat i on of Puer t o Ri co' s muni ci pal bonds. See Act of Mar . 2, 1917, ch. 145,§ 3, 39 St at . at 953 ( codi f i ed as amended at 48 U. S. C. § 745) . Thi s provi si on has not been amended si nce 1961, when l i mi t s on t heamount of muni ci pal debt t hat coul d be i ssued ( as a percent age of t he muni ci pal i t i es' pr oper t y val uat i on) wer e r emoved, subj ect t oapproval by a vot e i n t he Commonweal t h. See J oi nt Resol ut i on of

Aug. 3, 1961, Pub. L. No. 87- 121, sec. 1, § 3, 75 St at . 245.But Puer t o Ri co' s st at us i n t hi s r espect i s not ent i r el yr emarkabl e. St at e and l ocal bonds have enj oyed f ederal t ax- exemptst at us " si nce t he modern i ncome t ax syst em was enact ed i n 1913. "Nat ' l Assoc. of Bond Lawyer s, Tax- Exempt Bonds: Thei r I mport ance tot he Nat i onal Economy and t o St at e and Local Gover nment s 5 (Sept .2012) ( "Tax- Exempt Bonds" ) ; see al so 26 U. S. C. § 103. The mai ndi f f er ence i s t hat st at es and l ocal gover nment s may not t ax Puer t oRi co muni ci pal bonds, t hough t hey may t ax t hei r own or ot herst at es' muni ci pal bonds. See T. Chi n, Puer t o Ri co' s Possi bl eSt at ehood Coul d Af f ect Tr i pl e Tax- Exempt St at us, 121 The Bond BuyerNo. 213 ( Nov. 5, 2012) ; see al so Tax- Exempt Bonds, supr a, at 5

( expl ai ni ng t hat , unt i l 1988, "t he t ax- exempt st at us of i nt er est onst at e and l ocal government bonds al so was bel i eved t o beconst i t ut i onal l y pr ot ect ed under t he doct r i ne of i nt er gover nment ali mmuni t i es" ) ; Pol l ock v. Far mer s' Loan & Tr ust Co. , 157 U. S. 429,583- 86 ( 1895) , modi f i ed, 158 U. S. 601 ( 1895) , over r ul ed i n par t byU. S. Const . amend. XVI , Sout h Carol i na v. Baker , 485 U. S. 505, 515-27 ( 1988) .

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of Mar . 2, 1917, ch. 145, § 3, 39 St at . 951, 953 ( codi f i ed as

amended at 48 U. S. C. § 741) . Li ke muni ci pal i t i es of a st at e, a

muni ci pal i t y i n Puer t o Ri co i s excl uded f r om bankrupt cy r el i ef

under t he Code' s ot her chapt er s i f i t becomes unabl e to meet t hese

bond obl i gat i ons. See, e. g. , 11 U. S. C. § 109; cf . McConnel l &

Pi cker , 60 U. Chi . L. Rev. at 426- 50 ( expl ai ni ng t he obst acl es t o

t r eat i ng muni ci pal i nsol vency l i ke cor por at e i nsol vency) . And, at

l east f r om1938 unt i l t he moder n Bankr upt cy Code was i nt r oduced i n

1978, Puer t o Ri co, l i ke t he st at es, coul d aut hor i ze i t s

muni ci pal i t i es t o obt ai n f eder al muni ci pal bankrupt cy r el i ef . 9

See 11 U. S. C. §§ 1( 29) , 403( e) ( 6) ( 1938) ; 48 U. S. C. § 734 ( 1934) ;

Beki ns, 304 U. S. at 49; accor d 11 U. S. C. §§ 1( 29) , 404 ( 1976) ; 48

U. S. C. § 734 ( 1976) ; see al so S. J . Lubben, Puer t o Ri co and t he

Bankr upt cy Cl ause, 88 Am. Bankr . L. J . 553, 572 ( 2014) . And

9

From 1938 unt i l t he moder n Code' s enact ment , st at eaut hor i zat i on was requi r ed f or pl an conf i r mat i on. See Act of Aug.16, 1937, Pub. L. No. 302, ch. 657, sec. 83( e) ( 6) , 50 St at . 653,658 ( codi f i ed at 11 U. S. C. § 403( e) ( 6) ( 1937) ( condi t i oni ngconf i r mat i on of a pl an on, i nt er al i a, pet i t i oner bei ng "aut hor i zedby l aw t o take al l act i on necessary t o be t aken by i t t o car r y outt he pl an") ) ; Beki ns, 304 U. S. at 49 ( hol di ng t hat "l aw" i n§ 403( e) ( 6) r ef er s t o "st at e" l aw) ; accor d 11 U. S. C. § 404 ( 1976) .Puer t o Ri co' s power t o pr ovi de t hi s aut hor i zat i on t o i t smuni ci pal i t i es f ol l ows f r om t wo ot her st at ut or y pr ovi si ons: t heBankr upt cy Act' s def i ni t i on of "St at e, " i n ef f ect f r om 1938 t o1978, whi ch def i ned "St at e" t o i ncl ude " t he Ter r i t or i es and

possessi ons t o whi ch t hi s Act i s or may her eaf t er be appl i cabl e, "Act of J une 22, 1938, Pub. L. No. 696, ch. 575, § 1( 29) , 52 St at .840, 842 ( codi f i ed at 11 U. S. C. § 1( 29) ( 1938) ) ; accor d 11 U. S. C.§ 1(29) ( 1976) ; and t he extensi on of Uni t ed St at es l aws t o Puer t oRi co "except as . . . ot her wi se pr ovi ded, " i n ef f ect f r om 1917 t ot he pr esent , 48 U. S. C. § 734. See al so S. J . Lubben, Puer t o Ri coand the Bankr upt cy Cl ause, 88 Am. Bankr . L. J . 553, 572 ( 2014) .

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al t hough t he moder n Code omi t t ed a def i ni t i on of t he t er m "St at e"

f r omi t s enact ment i n 1978 unt i l i t was r e- i nt r oduced i n 1984, most

comment at or s agr ee t hat t hi s di d not af f ect Puer t o Ri co' s abi l i t y

dur i ng t hat t i me t o pr ovi de i t s muni ci pal i t i es aut hor i zat i on.10

See, e. g. , Lubben, 88 Am. Bankr . L. J . at 572- 73 & n. 125; An Act t o

Est abl i sh a Uni f or mLaw on t he Subj ect of Bankrupt ci es ( "Bankrupt cy

Ref or m Act of 1978") , Pub. L. No. 95- 598, 92 St at . 2549 ( 1978)

10 The omi ssi on of a def i ni t i on of "St at e" f r om t he moder nBankr uptcy Code was r ecogni zed as an err or al most as soon as t he

modern Code was enact ed. See Lubben, 88 Am. Bankr . L. J . at 573- 75.Most assumed t hat t he Code woul d st i l l appl y t o Puer t o Ri cobecause, despi t e t he si gni f i cant subst ant i ve and pr ocedur al changest hat t he Code made to pr e- Code l aw, t hose changes were tangent i alt o t he cont i nued appl i cabi l i t y of t he f eder al bankrupt cy l aw t oPuer t o Ri co. See, e. g. , i d. at 572- 73 & n. 125; see al so I n r eSegar r a, 14 B. R. 870, 872- 73 ( D. P. R. 1981) ( f i ndi ng not hi ng t hat"woul d i ndi cat e that anyone i n t he vast bur eaucr acy of t he f eder algover nment has had t he sl i ght est doubt t hat Congr ess di d not i nt endt he Bankr upt cy Code t o ext end t o Puer t o Ri co") ; cf . Cohen, 523 U. S.at 221- 22 ( expl ai ni ng t hat t he Code i s not t o be const r ued " t oer ode past bankrupt cy pr act i ce absent a cl ear i ndi cat i on t hat

Congr ess i nt ended such a depar t ur e" ) ; Wel l ness I nt ' l Net wor k, Lt d.v. Shar i f , 135 S. Ct . 1932, 1939 ( 2015) ( descr i bi ng t he Code' sexpansi on of power gi ven to cour t s adj udi cat i ng bankrupt cy cases) .

Even so, t hi s omi ssi on and ot her s i n t he Code' s ear l y year sl ed t o at l east some ambi gui t y about t he Code' s appl i cabi l i t y t oPuer t o Ri co. See Lubben, 88 Am. Bankr . L. J . at 572- 73 & n. 125( expl ai ni ng t hi s was because bot h t he def i ni t i on of "St at e" andt hat of "Uni t ed St at es" wer e absent i n t he or i gi nal 1978 Code) ; seeal so I n r e Segarr a, 14 B. R. at 872- 73 ( hol di ng t hat t he Codeappl i ed t o Puer t o Ri co under 48 U. S. C. § 734) . I n addi t i on t o t hegener al ambi gui t y about t he appl i cabi l i t y of t he Code, i n i t sent i r et y, t o Puer t o Ri co, t he appl i cabi l i t y of Chapt er 9 r el i ef i n

par t i cul ar was "f ur t her conf used" by t he i ncl usi on of a def i ni t i onf or "gover nment al uni t " t hat r ef er enced bot h "St at e" and"Commonweal t h" separat el y. Lubben, 88 Am. Bankr . L. J . at 572- 73n. 125; An Act t o Est abl i sh a Uni f or m Law on t he Subj ect of Bankrupt ci es ( "Bankrupt cy Ref or mAct of 1978") , Pub. L. No. 95- 598,§ 101( 21) , 92 St at . 2549, 2552 ( 1978) ( codi f i ed as amended at 11U. S. C. § 101( 27) ) .

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( codi f i ed as amended at 11 U. S. C. §§ 101 et seq. ) ; see al so Cohen,

523 U. S. at 221- 22; I n r e Segar r a, 14 B. R. 870, 872- 73 ( D. P. R.

1981) .

Thi s changed i n 1984, when Congr ess r e- i nt r oduced a

def i ni t i on of "Stat e" t o t he Code. 11 Bankr upt cy Amendment s and

Feder al J udgeshi p Act of 1984, sec. 421( j ) ( 6) , § 101( 44) , 98 St at .

at 368- 69 ( codi f i ed as amended at 11 U. S. C. § 101( 52) ) . Thi s 1984

amendment i s key t o t hi s case. Li ke pr evi ous def i ni t i ons,

§ 101( 52) def i nes "St at e" t o "i ncl ude[ ] . . . Puer t o Ri co. " But

i mpor t ant l y, and unl i ke pr evi ous ver si ons of t he def i ni t i on, t he

r e- i nt r oduced def i ni t i on of "Stat e" i ncl udes Puer t o Ri co "except

f or t he pur pose of def i ni ng who may be a debt or under chapt er 9 of

[ t he Bankr upt cy Code] . " 12 11 U. S. C. § 101( 52) ( emphasi s added) .

11 Cor r ect i ng t he Code' s omi ssi on of t hi s def i ni t i on was oneof many changes made. I ndeed, t he pr i mary purpose of t he Act was

ent i r el y unr el at ed: Congr ess enact ed t he Bankr upt cy Amendment s andFeder al J udgeshi p Act of 1984 i n l ar ge par t t o " r espond[ ] " t o t heCour t ' s deci si on i n Nor t her n Pi pel i ne Const r uct i on Co. v. Mar at honPi pe Li ne Co. , 458 U. S. 50 ( 1982) , whi ch had hel d par t s of t heCode' s new syst em of bankr upt cy cour t s and expanded bankr upt cy j ur i sdi ct i on t o be unconst i t ut i onal . See Wel l ness I nt ' l Net wor k,Lt d. , 135 S. Ct . at 1939.

12 The new ver si on, unl i ke pr evi ous ver si ons, al so excl udest he Di st r i ct of Col umbi a f r om t he def i ni t i on of "St at e" f orpur poses of def i ni ng Chapt er 9 debt ors. Compar e 11 U. S. C.§ 101( 52) , wi t h Act of J une 22, 1938, Pub. L. No. 696, ch. 575,

§ 1(29) , 52 St at . 840, 842.And, unl i ke t he pr evi ous ver si on, t he ot her t er r i t or i es ar e

not expr essl y i ncl uded f or any pur pose. 11 U. S. C. § 101( 52) . Onl yt wo def i ni t i ons i n § 101 r ef er t o "t er r i t or i es": subsecti on ( 27) ,def i ni ng "gover nment al uni t , " and subsect i on ( 55) , def i ni ng t hegeogr aphi cal scope of t he "Uni t ed St at es. " See 11 U. S. C. § 101( 27)( "The ter m ' gover nment al uni t ' means Uni t ed St at es; St at e;

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Compar e i d. , wi t h Act of J une 22, 1938, Pub. L. No. 696, ch. 575,

§ 1( 29) , 52 St at . 840, 842. As a r esul t of t hi s except i on, Puer t o

Ri co muni ci pal i t i es became expr essl y ( t hough i ndi r ect l y) f or bi dden

f r om f i l i ng under Chapt er 9 absent f ur t her congr essi onal act i on:

t he change depr i ved Puer t o Ri co of t he power t o gr ant i t s

muni ci pal i t i es t he aut hor i zat i on r equi r ed by § 109( c) ( 2) t o f i l e

f or Chapt er 9 r el i ef . See 11 U. S. C. § 109( c) ( def i ni ng who may be

a Chapt er 9 debt or ) . The t wo si des t o t hi s cont r over sy di sput e

whet her t hi s change was al so meant t o t r ansf orm t he pr eempt i on

pr ovi si on of § 903( 1) wi t hout Congr ess expr essl y sayi ng so.

C. The Recovery Act : Puer t o Ri co' s St at ed At t empt t o " Fi l lt he Gap"

Faci ng a f i scal cr i si s and l acki ng t he power t o aut hor i ze

i t s muni ci pal i t i es t o seek Chapt er 9 r el i ef , t he Commonweal t h

enacted t he Recover y Act i n J une 2014, t o t ake ef f ect i mmedi atel y.

Somewhat model ed af t er Chapt er 9, but wi t h si gni f i cant di f f er ences,

t he Recover y Act "est abl i sh[ ed] a debt enf or cement , r ecover y, and

r est r uct ur i ng r egi me f or t he publ i c cor por at i ons and ot her

Commonweal t h; Di st r i ct ; Ter r i t or y; muni ci pal i t y; f or ei gn st at e;depar t ment , agency, or i nst r ument al i t y of t he Uni t ed St at es . . . ,a St at e, a Commonweal t h, a Di st r i ct , a Ter r i t or y, a muni ci pal i t y,or a f or ei gn st at e; or ot her f or ei gn or domest i c gover nment . " ) ; 11U. S. C. § 101( 55) ( "The t er m ' Uni t ed St at es' , when used i n a

geogr aphi cal sense, i ncl udes al l l ocat i ons wher e t he j udi ci al j ur i sdi ct i on of t he Uni t ed St at es ext ends, i ncl udi ng t er r i t or i esand possessi ons of t he Uni t ed St at es. " ) ; cf . 11 U. S. C. § 109( a)( "Not wi t hst andi ng any ot her pr ovi si on of t hi s sect i on, onl y aper son t hat r esi des or has a domi ci l e, a pl ace of busi ness, orpr oper t y i n t he Uni t ed St at es, or a muni ci pal i t y, may be a debt orunder t hi s t i t l e. " ) .

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i nst r ument al i t i es of t he Commonweal t h of Puer t o Ri co dur i ng an

economi c emer gency. " Recover y Act , Preambl e ( t r ansl at i on pr ovi ded

by t he par t i es); i d. , St mt . of Mot i ves, § E. I n par t i cul ar , t he

Act was i nt ended t o amel i or at e t he f i scal si t uat i ons of sever al

di st r essed Puer t o Ri can publ i c cor por at i ons whose combi ned def i ci t

i n 2013 t ot al ed $800 mi l l i on, and whose combi ned debt r eaches $20

bi l l i on: PREPA, t he Aqueduct and Sewer Aut hor i t y ( "PRASA") , and the

Hi ghways and Tr anspor t at i on Aut hor i t y ( "PRHTA") . I d. , St mt . of

Mot i ves, § A.

The Recover y Act provi des t wo met hods f or r est r uct ur i ng

debt : Chapt er 2 "Consensual Debt Rel i ef , " and Chapt er 3 "Debt

Enf or cement . " I d. , Pr eambl e. Al t hough def endant s say t hese serve

as a subst i t ut e f or Chapt er 9, bot h Chapt er 2 and Chapt er 3 r el i ef

under t he Recover y Act appear t o pr ovi de l ess pr ot ect i on f or

cr edi t or s t han t he f eder al Chapt er 9 count er par t . See L. S.

McGowen, Puer t o Ri co Adopt s a Debt Recover y Act f or I t s Publ i c

Cor por at i ons, 10 Pr at t ' s J . Bankr. L. 453, 460- 62 ( 2014) . Thi s i s

one f or m of har m t hat pl ai nt i f f s say t he Recover y Act has caused

t hem.

For exampl e, Chapt er 2 r el i ef under t he Recover y Act

pur por t s t o of f er a "consensual debt modi f i cat i on pr ocedur e"

l eadi ng t o a recover y pl an t hat woul d onl y become bi ndi ng "wi t h t he

consent of a super maj or i t y" of cr edi t or s. Recover y Act , St mt . of

Mot i ves, § E. But t hi s i s bel i ed by t he pr ovi si ons: Chapt er 2

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per mi t s a bi ndi ng modi f i cat i on, i ncl udi ng debt r educt i on, t o a

cl ass of debt i nst r ument s wi t h t he assent of cr edi t or s hol di ng j ust

over one- t hi r d of t he af f ect ed debt . 13 I d. § 202( d) ( 2) ; see al so

i d. , St mt . of Mot i ves, § E. Ther e i s no anal ogous "consensual

pr ocedur e" under f eder al l aw.

Chapt er 3 r el i ef , on t he ot her hand, i s a cour t -

super vi sed pr ocess desi gned t o mi r r or , i n some ways, Chapt er 9 and

Chapt er 11 of t he f eder al Code. I d. , St mt . of Mot i ves, § E. But

whi l e Chapt er 3 debt or s, l i ke f eder al Chapt er 9 debt or s, may avoi d

cer t ai n cont r act ual cl ai ms, pr ot ect i ons f or credi t or s ar e agai n

r educed. Compar e, e. g. , i d. §§ 325, 326, wi t h 11 U. S. C. §§ 365( e) ,

901( a) ; see al so McGowen, 10 Pr at t ' s J . Bankr . L. at 461. For

exampl e, unl i ke i n t he f eder al Code, t he Recover y Act does not

pr ovi de a "saf e harbor " f or der i vat i ve cont r act s. Compar e Recover y

Act , § 325( a) , wi t h 11 U. S. C. § 365( e) ; see al so Recover y Act ,

§ 205( c) ; McGowen, 10 Pr at t ' s J . Bankr . L. at 461.

Muni ci pal i t i es t hat t he Commonweal t h may not aut hor i ze

f or f eder al Chapt er 9 r el i ef ar e nonet hel ess pur por t edl y made

el i gi bl e by the Recover y Act t o seek bot h Chapt er 2 and 3 r el i ef ,

ei t her si mul t aneousl y or sequent i al l y, wi t h appr oval f r omt he GDB.

13 Speci f i cal l y, a pr oposed modi f i cat i on becomes bi ndi ng onal l credi t or s wi t hi n a cl ass of af f ect ed debt i nst r ument s i f ( 1)credi t or s of at l east 50% of t he amount of debt i n t hat cl asspar t i ci pat e i n a vot e or consent sol i ci t at i on; and ( 2) credi t or s of at l east 75%of t he amount of debt t hat par t i ci pat es i n t he vot e orconsent sol i ci t at i on appr oves t he pr oposed modi f i cat i ons. Recover yAct , § 202( d) ( 2) .

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Recover y Act , §§ 112, 201( b) , 301( a) . Unl i ke t he f eder al Code, t he

Recover y Act al so expr essl y per mi t s t he Gover nor t o i nst i t ut e an

i nvol unt ary pr oceedi ng i f t he GDB det er mi nes t hat doi ng so i s i n

t he best i nt er est of bot h t he di st r essed ent i t y and t he

Commonweal t h. 14 Recover y Act , §§ 201( b) ( 2) , 301( a) ( 2) .

Pl ai nt i f f s argue t hat t he ver y enact ment of t hese and

ot her pr ovi si ons cause t hem har m i n sever al ways: by denyi ng t hem

t he pr ot ect i on f or whi ch t hey bargai ned under t he Tr ust Agr eement ,

by denyi ng t hem t he pr ot ect i on t o whi ch t hey woul d be ent i t l ed

under f eder al r el i ef , and by i nj ect i ng uncer t ai nt y i nt o t he bond

mar ket t hat r educes t hei r bar gai ni ng posi t i on t o addr ess pendi ng

def aul t . See McGowen, 10 Pr at t ' s J . Bankr . L. at 460- 61

( di scussi ng ot her exampl es, i ncl udi ng t he l ack of pr ot ect i on f or

hol der s of l i ens on r evenue shoul d t he muni ci pal i t y need t o obt ai n

credi t t o per f or m publ i c f uncti ons) .

14 The f ederal Code does not per mi t i nvol unt ary Chapt er 9pr oceedi ngs br ought by cr edi t or s, see 11 U. S. C. § 303( a) ( l i mi t i ngi nvol unt ary pet i t i ons t o cases under Chapt er 7 or 11) , and does notexpr essl y addr ess whet her st at es may i nst i t ut e t hese quasi -i nvol unt ar y pr oceedi ngs on behal f of t hei r muni ci pal i t i es. Atl east one comment ator has suggest ed t hat st ates are pr ohi bi t ed f r om

doi ng so by § 109( c) ( 4) , whi ch r equi r es t hat a pot ent i al muni ci paldebt or " desi r e[ ] t o ef f ect a pl an t o adj ust such debt s. " SeeGi l l et t e, 79 U. Chi . L. Rev. at 297.

By cont r ast , t he Recover y Act si mi l ar l y pr ecl udes i nvol unt ar ypr oceedi ngs br ought by cr edi t or s, Recover y Act , § 301( c) , butexpr essl y al l ows t hese quasi - i nvol unt ar y pr oceedi ngs t o bei ni t i at ed by t he gover nment , see i d. § 301( a) ( 2) .

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I I I .

A. J ur i sdi ct i on

We have appel l at e j ur i sdi ct i on over t he f i nal j udgment

gr ant i ng summary j udgment and i ssui ng a permanent i nj unct i on i n

f avor of t he Frankl i n pl ai nt i f f s under 28 U. S. C. § 1291. We have

appel l at e j ur i sdi ct i on over t he i nj unct i on i ssued i n f avor of

Bl ueMount ai n under 28 U. S. C. § 1292( a) ( 1) . 15 Because we af f i r mt he

pr eempt i on r ul i ng and at t endant i nj unct i on, we decl i ne t o exer ci se

j ur i sdi ct i on over def endant s' appeal of t he di st r i ct cour t ' s

Febr uary 6, 2015 order denyi ng t he mot i ons t o di smi ss t he survi vi ng

Cont r act s Cl ause and Taki ngs Cl ai ms. Cf . Fi r st Med. Heal t h Pl an,

I nc. v. Vega- Ramos, 479 F. 3d 46, 50 ( 1st Ci r . 2007) ( di scussi ng an

except i on t o t he gener al r ul e t hat deni al s of 12( b) ( 6) mot i ons t o

di smi ss ar e i nt er l ocut or y r ul i ngs out si de t he scope of appel l at e

j ur i sdi ct i on) . 16

15 Thi s di f f er ence i s an odd qui r k of t he pr ocedur e bel ow:Bl ueMount ai n never moved f or summar y j udgment , and so t her e i s nof i nal j udgment f r om whi ch t o appeal , onl y t he i nj unct i on f r om t heorder dat ed Febr uary 6, 2015.

16 The def endant s chal l enged t he r i peness of t he r el evantcl ai ms bef or e t he di st r i ct cour t , but not on appeal . "[ A] l t hough[ t hey] do not pr ess t hi s i ssue on appeal , i t concer ns our j ur i sdi ct i on under Ar t i cl e I I I , so we must consi der t he quest i on onour own i ni t i at i ve. " Met r o. Wash. Ai r por t s Aut h. v. Ci t i zens f or

t he Abat ement of Ai r cr af t Noi se, I nc. , 501 U. S. 252, 265 n. 13( 1991) ( ci t i ng Li ber t y Mut . I ns. Co. v. Wet zel , 424 U. S. 737, 740( 1976) ) .

We concl ude t hat t he def endant s were cor r ect i n concedi ngr i peness: The pl ai nt i f f s al l ege t hat t he Recover y Act i t sel f i mpai r s t he t erms of t he agr eement s governi ng t he PREPA bonds.Compar e, e. g. , Aut hor i t y Act , P. R. Laws Ann. t i t . 22, § 207

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B. Pr eempt i on under § 903( 1)

Puert o Ri co may not enact i t s own muni ci pal bankr upt cy

l aws t o cover t he pur por t ed gap cr eat ed by t he 1984 amendment i f

such l aws ar e preempt ed by t he f ederal Bankr upt cy Code. U. S.

Const . ar t . VI , cl . 2; CSX Tr ansp. , I nc. v. East er wood, 507 U. S.

658, 663 ( 1993) . Thus, t he i ssue on t hi s appeal i s whet her 11

U. S. C. § 903( 1) pr eempt s Puer t o Ri co f r om enact i ng i t s own

muni ci pal bankrupt cy l aw. Our answer t o t hat quest i on i s l ar gel y

dr i ven by exami ni ng whether t he 1984 amendment addi ng § 101( 52)

( pr ovi di ng f or a cour t - appoi nt ed r ecei ver i n event of def aul t ) ; Tr ust Agr eement , § 804 ( permi t t i ng U. S. Bank Nat i onal Associ at i ont o seek cour t - appoi nt ed r ecei ver pur suant t o t he Aut hor i t y Act ) ,wi t h Recover y Act , § 108( b) ( "Thi s Act super sedes and annul s anyi nsol vency or cust odi an pr ovi si on i ncl uded i n t he enabl i ng or ot heract of any publ i c cor por at i on, i ncl udi ng [ Aut hor i t y Act , P. R. LawsAnn. t i t . 22, § 207] . . . . " ) . That i s, pl ai nt i f f s al l ege t hatt he very enact ment of t he Recover y Act , r at her t han the manner of enf or cement , i mpai r s t hei r cont r act ual r i ght s - - al l egat i ons t hat

pr esent pur el y l egal i ssues or f act ual i ssues cont r ol l ed by pastevent s. Accordi ngl y, t he out come of t he case cannot be af f ect ed bysubsequent event s ( except t o be moot ed) , and so t hese i ssuessat i sf y t he " f i t ness" pr ong of our r i peness i nqui r y. See RomanCat hol i c Bi shop of Spr i ngf i el d v. Ci t y of Spr i ngf i el d, 724 F. 3d 78,89- 93 ( 1st Ci r . 2013) . And because " t he sought - af t er decl ar at i on"on t he sur vi vi ng Cont r act s Cl ause and pr eempt i on cl ai ms " woul d beof pr act i cal assi st ance i n set t i ng t he under l yi ng cont r over sy t or est , " a r ef usal t o gr ant r el i ef woul d r esul t i n har dshi p t o t hepar t i es. See Rhode I sl and v. Nar r aganset t I ndi an Tr i be, 19 F. 3d685, 693 ( 1st Ci r . 1994) . Thi s cl ai m i s r i pe f or r evi ew. SeeMass. Del i ver y Ass' n v. Coakl ey, 769 F. 3d 11, 16- 17 ( 1st Ci r . 2014)

( "Basi cal l y, t he quest i on i n each case i s whet her t he f act sal l eged, under al l t he ci r cumst ances, show t hat t her e i s asubst ant i al cont r over sy, bet ween par t i es havi ng adver se l egali nt er est s, of suf f i ci ent i mmedi acy and r eal i t y t o war r ant t hei ssuance of a decl aratory j udgment . " ( quot i ng MedI mmune, I nc. v.Genent ech, I nc. , 549 U. S. 118, 127 ( 2007) ) ( i nt er nal quot at i onmarks omi t t ed) ) .

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al t er ed § 903( 1) ' s ef f ect . See Dewsnup v. Ti mm, 502 U. S. 410, 419

( 1992) ( "When Congress amends t he bankrupt cy l aws, i t does not

wr i t e ' on a cl ean sl at e. ' " ( quot i ng Emi l v. Hanl ey ( I n r e J ohn M.

Russel l , I nc. ) , 318 U. S. 515, 521 ( 1943) ) ) ; CSX Tr ansp. , 507 U. S.

at 663- 64 ( "Wher e a st at e st at ut e conf l i ct s wi t h, or f r ust r at es,

f eder al l aw, t he f or mer must gi ve way. " ) . Our r evi ew i s de novo.

Mass. Del i ver y Ass' n v. Coakl ey, 769 F. 3d 11, 17 ( 1st Ci r . 2014)

( ci t i ng Di Fi or e v. Am. Ai r l i nes, I nc. , 646 F. 3d 81, 85 ( 1st Ci r .

2011) ) .

Whet her a f eder al l aw pr eempt s a st ate l aw " i s a quest i on

of congr essi onal i nt ent . " Hawai i an Ai r l i nes, I nc. v. Nor r i s, 512

U. S. 246, 252 ( 1994) . We begi n wi t h t he st atut ory l anguage, whi ch

of t en "cont ai ns t he best evi dence of Congr ess' pr e- empt i ve i nt ent . "

Mass. Del i ver y Ass' n, 769 F. 3d at 17 ( quot i ng Dan' s Ci t y Used Car s,

I nc. v. Pel key, 133 S. Ct . 1769, 1778 ( 2013) ) ( i nt er nal quot at i on

mar ks omi t t ed) . We al so consi der " t he cl ause' s pur pose, hi st or y,

and t he surr oundi ng st at ut or y scheme. " I d.

The r el evant pr ovi si on, § 903( 1) , st at es i n f ul l : "a

St ate l aw pr escr i bi ng a met hod of composi t i on of i ndebt edness of

such muni ci pal i t y may not bi nd any credi t or t hat does not consent

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t o such composi t i on. " 11 U. S. C. § 903( 1) . 17 Thi s pr ovi si on, by i t s

pl ai n l anguage, bar s a st at e l aw l i ke t he Recover y Act .

Ther e i s no di sput i ng t hat t he Recover y Act i s a " l aw

pr escr i bi ng a met hod of composi t i on of i ndebt edness" of el i gi bl e

Puer t o Ri co muni ci pal i t i es t hat may "bi nd" sai d muni ci pal i t i es'

credi t or s wi t hout t hose cr edi t or s' "consent . " And, because "Stat e"

i s def i ned t o i ncl ude Puer t o Ri co under § 101( 52) , t he Recover y Act

i s a "St at e l aw" t hat does so. But t hi s, under § 903( 1) , Puer t o

Ri co "may not " do, and so we hol d t hat t he Recover y Act i s

pr eempt ed. Compare 11 U. S. C. § 903( 1) ( " [ A] St ate l aw . . . may

not bi nd any cr edi t or t hat does not consent . . . . " ( emphasi s

added) ) , wi t h 49 U. S. C. § 14501( c) ( 1) ( " [ A] St at e . . . may not

enact or enf or ce a l aw . . . r el at ed t o a pr i ce, r out e, or

ser vi ce . . . . " ( emphasi s added) ) ; Dan' s Ci t y, 133 S. Ct . at 1778

17 Thi s pr ovi si on appears i n § 903, whi ch r eads i n f ul l :

Thi s chapt er does not l i mi t or i mpai r t he power of a St at e t o cont r ol , by l egi sl at i on or ot her wi se, amuni ci pal i t y of or i n such St at e i n t he exer ci se of t hepol i t i cal or gover nment al power s of such muni ci pal i t y,i ncl udi ng expendi t ur es f or such exer ci se, but - -

( 1) a St at e l aw pr escr i bi ng a met hod of composi t i on

of i ndebt edness of such muni ci pal i t y may not bi ndany credi t or t hat does not consent t o suchcomposi t i on; and

( 2) a j udgment ent ered under such a l aw may notbi nd a cr edi t or t hat does not consent t o suchcomposi t i on.

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( not i ng t hat t hi s l anguage i n § 14501( c) ( 1) "pr ohi bi t s enf or cement

of stat e l aws ' r el at ed t o a pr i ce, r out e or ser vi ce . . . . ' ") .

The cont ext and hi st or y of t hi s provi si on conf i r m t hi s

const r uct i on - - t hat t hi s pr ovi si on was i nt ended t o have a

pr eempt i ve ef f ect . Cf . Dan' s Ci t y, 133 S. Ct . at 1778; Cohen, 523

U. S. at 221. Cont ext and hi st or y al so conf i r m t hat our

const r uct i on i s consi st ent wi t h t he pr evi ous const r uct i ons of t hi s

pr ovi si on, and so, absent cl ear congr essi onal i nt ent i on t o modi f y

t he bankr upt cy l aw, we "wi l l not r ead t he Bankr upt cy Code to er ode

past bankrupt cy pr act i ce. " Cohen, 523 U. S. at 221 ( ci t at i on and

i nt er nal quotat i on marks omi t t ed) ; see al so Dewsnup, 502 U. S. at

419 ( "When Congr ess amends t he bankr upt cy l aws, i t does not wr i t e

' on a cl ean sl at e. ' " ( quot i ng Emi l , 318 U. S. at 521) ) .

The Code, at § 903( 1) , " i s der i ved, wi t h st yl i st i c

changes, f r om" i t s pr ecur sor , Sect i on 83( i ) . S. Rep. No. 95- 989 at

110. The l egi sl at i ve hi st or y r eveal s, and t he par t i es do not

di sput e, t hat t he pur pose of Sect i on 83( i ) was t o over r ul e an ear l y

Supr eme Cour t deci si on whi ch had uphel d a st at e l aw permi t t i ng t he

adj ust ment of muni ci pal debt i f t he ci t y and 85% of credi t or s

agr eed. See Fai t out e I r on & St eel Co. v. Ci t y of Asbur y Par k, 316

U. S. 502, 504, 513- 16 ( 1942) . 18 Bef ore Fai t out e, most had assumed

18 The GDB def endant s, at oral argument , pr esent ed a st r ai nedr eadi ng of t he manner i n whi ch Sect i on 83( i ) over r ul ed Fai t out e. They ar gued t hat t he sol e pur pose of Congr ess i n over r ul i ngFai t out e was t o al l ow muni ci pal i t i es t o conver t t o f eder alpr oceedi ngs t hose st at e muni ci pal bankrupt cy pr oceedi ngs t hat , l i ke

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t hat st at es coul d not t hemsel ves addr ess t he hol dout pr obl em t hat

muni ci pal bankrupt cy rel i ef i s desi gned to r esol ve because t hey

wer e bar r ed f r omadj ust i ng debt obl i gat i ons ( wi t hout al l credi t or s'

consent ) under t he Cont r act s Cl ause. See McConnel l & Pi cker , 60 U.

Chi . L. Rev. at 452- 54.

Congr ess enacted Sect i on 83( i ) t o rest ore what had been

bel i eved t o be t he pr e- Fai t out e st at us quo by expr essl y pr ohi bi t i ng

st at e muni ci pal bankrupt cy l aws adj ust i ng cr edi t or s' debt s wi t hout

t hei r consent . 19 See, e. g. , H. R. Rep. No. 79- 2246, at 4 ( 1946)

( "St ate adj ust ment act s have been hel d to be val i d, but

. . . . [ o] nl y under a Feder al l aw shoul d a credi t or be f or ced t o

accept such an adj ust ment wi t hout hi s consent . " ( emphasi s added) ) .

And Congr ess sought t o pr eserve Sect i on 83( i ) when i t r e- codi f i ed

t he one i n Fai t out e, had ar i sen i n t he absence of a f eder al

muni ci pal bankr upt cy r egi me f r om 1933- 1937. We do not share t hi sl i mi t ed r eadi ng of Fai t out e, whi ch al so does not compor t wi t hei t her t he l egi sl at i ve hi st or y or t he schol ar shi p on t he subj ect .

19 The f ul l t ext of Sect i on 83( i ) as enact ed i n 1946 r eads:

Not hi ng cont ai ned i n t hi s chapt er shal l be const r ued t ol i mi t or i mpai r t he power of any St at e t o cont r ol , byl egi sl at i on or ot her wi se, any muni ci pal i t y or anypol i t i cal subdi vi si on of or i n such St at e . . . Pr ovi ded,however , That no St at e l aw pr escr i bi ng a method of composi t i on of i ndebt edness of such agenci es shal l be

bi ndi ng upon any credi t or who does not consent t o suchcomposi t i on, and no j udgment shal l be ent ered under suchSt at e l aw whi ch woul d bi nd a cr edi t or t o such composi t i onwi t hout hi s consent .

Act of J ul y 1, 1946, Pub. L. No. 481, ch. 532, sec. 83( i ) , 60 St at .409, 415.

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t he sect i on as § 903( 1) i n 1978. See S. Rep. No. 95- 989 at 110

( not i ng t hat t hi s was necessary to mai nt ai n t he uni f or mi t y of t he

bankrupt cy l aws by pr event i ng st at es f r om " ' enact [ i ng] t hei r own

ver si ons of Chapt er I X' " ( quot i ng L. P. Ki ng, Muni ci pal I nsol vency:

Chapt er I X, Ol d and New; Chapt er I X Rul es, 50 Am. Bankr . L. J . 55,

65 ( 1976) ) ) ; cf . Kel l ogg, 135 S. Ct . at 1977 ( expl ai ni ng t hat

r et ent i on of l anguage i ndi cat es absence of al t er at i on) . 20

These provi si ons on t hei r f ace bar r ed Puer t o Ri co and t he

Ter r i t or i es, j ust as t hey di d t he st at es, f r om enact i ng t hei r own

ver si ons of Chapt er 9 cr edi t or debt adj ust ment . From t he t i me of

i t s enact ment i n 1946, Sect i on 83( i ) ' s pr ohi bi t i on on "St at e l aw[ s]

pr escr i bi ng a met hod of composi t i on of i ndebt edness" expr essl y

appl i ed t o Puer t o Ri co l aw because "St at e" had been def i ned t o

i ncl ude t he "Ter r i t or i es and possessi ons, " l i ke Puer t o Ri co, t o

whi ch t he Bankr upt cy Act was appl i cabl e. See Act of J une 22, 1938,

20 The Senat e not es concerni ng t he enact ment of § 903 expl ai ni n r el evant par t :

Sect i on 903 i s der i ved, wi t h st yl i st i c changes, f r omsect i on 83 of cur r ent Chapt er I X. I t set s f or t h t hepr i mar y aut hor i t y of a St at e, t hr ough i t s const i t ut i on,l aws, and ot her power s, over i t s muni ci pal i t i es. Thepr ovi so i n sect i on 83, pr ohi bi t i ng St at e composi t i onpr ocedur es f or muni ci pal i t i es, i s r et ai ned. Del et i on of

t he pr ovi si on woul d "per mi t al l St at es t o enact t hei r ownver si ons of Chapt er I X" , Muni ci pal I nsol vency, 50 Am.Bankr. L. J . 55, 65, whi ch woul d f r ust r at e t heconst i t ut i onal mandat e of uni f or m bankrupt cy l aws.Const i t ut i on of t he Uni t ed St at es. Ar t . I , Sec. 8.

S. Rep. No. 95- 989 at 110.

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Pub. L. No. 696, ch. 575, § 1( 29) , 52 St at . at 842 ( def i ni ng

"Stat es") ; Act of J ul y 1, 1946, Pub. L. No. 481, ch. 532, sec.

83( i ) , 60 St at . 409, 415 ( pr ohi bi t i ng "St at e l aw[ s] pr escri bi ng a

met hod of composi t i on of i ndebt edness" ) ; Act of Mar . 2, 1917,

ch. 145, § 9, 39 St at . 951, 954 ( codi f i ed as amended at 48 U. S. C.

§ 734) ( "[ T] he st at ut or y l aws of t he Uni t ed St at es not l ocal l y

i nappl i cabl e, except as . . . ot her wi se pr ovi ded, shal l have t he

same f or ce and ef f ect i n Por t o Ri co as i n t he Uni t ed St at es

. . . . " ) .

The r e- codi f i cat i on of t hi s provi si on, § 903( 1) , must

cont i nue t o appl y to Puer t o Ri co because t her e i s no evi dence of

expr ess modi f i cat i on by Congr ess. See Dewsnup, 502 U. S. at 419- 20.

The mer e absence of a def i ni t i on of "st at e" i n t he Code f r om 1978

unt i l t he 1984 amendment does not provi de such evi dence, nor does

t he l egi sl at i ve hi stor y. 21 Cf . i d. "Fundament al changes i n t he

scope of a st at ut e ar e not t ypi cal l y accompl i shed wi t h so subt l e a

move. " Kel l ogg, 135 S. Ct . at 1977 ( decl i ni ng t o f i nd a

si gni f i cant change t o a st atut e based on t he r emoval of a smal l

phr ase whi l e r et ai ni ng t he oper at i ve l anguage) .

21 I f anyt hi ng, t he l egi sl at i ve hi st or y suggest s t hat t hemi ssi ng def i ni t i on was a mi st ake, and so no al t er at i on of § 903( 1) ' s or t he r est of t he Code' s appl i cabi l i t y t o Puer t o Ri cowas i nt ended. See Lubben, 88 Am. Bankr . L. J . at 573 ( expl ai ni ngt hat addi ng a def i ni t i on of "St ate" was among t he pr oposed 1979amendment s " t o ' cl ean up' er r or s i n t he or i gi nal 1978 Code") .

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Ther e i s l i t t l e doubt t hat § 903( 1) woul d have preempt ed

t he Recover y Act , save f or t he quest i ons occasi oned by t he 1984

amendment at i ssue. There i s no di sput i ng t hat t he Recover y Act

was a "St ate l aw" under Sect i on 83( i ) , and so t oo under § 903( 1)

f r om 1978- 1984. And t her e i s no di sput i ng t hat t he Recover y Act

bi nds credi t or s wi t hout t hei r consent or t hat i t i s Puer t o Ri co' s

"own ver si on[ ] of Chapt er [ 9] , " such t hat i t di r ectl y conf l i cts

wi t h § 903( 1) ' s pr ohi bi t i on of such l aws. 22 S. Rep. No. 95- 989 at

110; Recover y Act , St mt . of Mot i ves, § E; see CSX Tr ansp. , I nc. ,

507 U. S. at 663 ( "Wher e a st at e st at ut e conf l i ct s wi t h . . .

f eder al l aw, t he f or mer must gi ve way. " ) .

The quest i on i s whet her t he preempt i on provi si on of

§ 903( 1) st i l l appl i es i n t he f ace of t he 1984 amendment . We hol d

t hat i t does. The addi t i on of t he def i ni t i on of "St at e" i n 1984

does not , by i t s t ext or i t s hi st or y, change t he appl i cabi l i t y of

§ 903( 1) t o Puer t o Ri co. 23 11 U. S. C. § 101( 52) . To t he cont r ar y,

22 For t hi s r eason, we need not addr ess t he exact scope of t hi s pr eempt i on under ei t her Sect i on 83( i ) or § 903( 1) . Cf . Dan' sCi t y, 133 S. Ct . at 1778 ( not i ng t hat when "Congr ess has super sededst at e l egi sl at i on by st at ut e, " t he onl y t ask r emai ni ng i s t o" i dent i f y t he domai n expr essl y pr e- empt ed" ( quot i ng Lor i l l ar d Tobacco Co. v. Rei l l y, 533 U. S. 525, 541 ( 2001) ) ( i nt er nalquot at i on mar ks omi t t ed) ) .

23 The par t i es agr ee t hat t her e i s not hi ng i n t he l egi sl at i vehi st or y di r ect l y i ndi cat i ng a change t o § 903( 1) , onl y a change t o§ 109( c) . Ami ci bankrupt cy l aw exper t s, Cl ayt on Gi l l et t e and Davi dSkeel , J r . , i nf or m us t hat "al most t he onl y r ef er ence t o t he newdef i ni t i on i n t he l egi sl at i ve hi st or y came i n t est i mony byPr of essor Frank Kennedy . . . who st at ed: ' I do not under st and whyt he muni ci pal cor por at i ons of Puer t o Ri co ar e deni ed by t he

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because § 903(1) does not def i ne who may be a debt or under

Chapt er 9, § 101( 52) conf i r ms t hat t he "St at e l aw[ s] " prohi bi t ed

i ncl ude t hose of Puer t o Ri co, as has al ways been t he case.

Cf . Dewsnup, 502 U. S. at 419 ( " [ T] hi s Cour t has been r el uct ant t o

accept ar gument s t hat woul d i nt er pr et t he Code . . . t o ef f ect a

maj or change i n pr e- Code pr act i ce t hat i s not t he subj ect of at

l east some di scussi on i n t he l egi sl at i ve hi st or y. ") ; Kel l ogg, 135

S. Ct . at 1977 ( "The r et ent i on of t he same t er m i n t he l at er l aws

suggest s t hat no f undament al al t er at i on was i nt ended. " ) . I f

Congr ess had want ed t o al t er t he appl i cabi l i t y of § 903( 1) t o

Puer t o Ri co, i t "easi l y coul d have wr i t t en" § 101( 52) t o excl ude

Puer t o Ri co l aws f r om t he pr ohi bi t i on of § 903( 1) , j ust as i t had

excl uded Puer t o Ri co f r om t he def i ni t i on of debt or under § 109( c) .

See Bur gess v. Uni t ed St ates, 553 U. S. 124, 130 ( 2008) . But

Congr ess di d not .

The l egi sl at i ve hi st or y i s si l ent as t o t he r eason f or

t he except i on set f or t h i n t he 1984 amendment . One appar ent

possi bi l i t y concer ns t he di f f er ent const i t ut i onal st at us of Puer t o

Ri co. Because of t hi s di f f er ent st at us, t he l i mi t at i ons on

Congr ess' s abi l i t y to addr ess muni ci pal i nsol vency i n t he st at es

pr oposed def i ni t i on of ' St at e' of t he r i ght t o seek r el i ef underChapt er 9, but t he addi t i on of t he def i ni t i on of ' St at e' i susef ul . ' " Br i ef f or C. P. Gi l l et t e & D. A. Skeel , J r . , as Ami ciCur i ae Suppor t i ng Def endant s- Appel l ant s, at *8; see al so Lubben, 88Am. Bankr . L. J . at 575 ( not i ng t hat t he except i on i n § 101( 52) says"not hi ng about how t he wor d ' St at e' shoul d be i nt er pr et ed i nsect i on 903") .

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di scussed above ar e not di r ect l y appl i cabl e t o Puer t o Ri co. Uni t ed

St at es v. Ri ver a Tor r es, 826 F. 2d 151, 154 ( 1st Ci r . 1987) ; see

al so Har r i s v. Rosar i o, 446 U. S. 651, 651- 52 ( 1980) ( per cur i am) .

Accor di ngl y, Congr ess may wi sh t o adopt ot her - - and possi bl y

bet t er - - opt i ons t o addr ess t he i nsol vency of Puer t o Ri co

muni ci pal i t i es t hat ar e not avai l abl e t o i t when addr essi ng si mi l ar

pr obl ems i n t he st at es. See Ri ver a Tor r es, 826 F. 2d at 154; cf .

McConnel l & Pi cker , 60 U. Chi . L. Rev. at 494- 95 ( ar gui ng t hat

because Chapt er 9 " l eaves cont r ol i n the hands of t he st at e" and

because "[ t ] he bankrupt cy cour t l acks t he power s t ypi cal l y gi ven t o

st at e muni ci pal r ecei ver s, " " [ t ] he st r uct ur e f or maki ng deci si ons

t hat l ed t o f i nanci al pr obl ems cont i nues") .

Our const r uct i on i s consi st ent wi t h a congr essi onal

choi ce t o exer ci se such ot her opt i ons "pur suant t o t he pl enar y

power s conf er r ed by t he Ter r i t or i al Cl ause. " Ri ver a Tor r es, 826

F. 2d at 154. I f Puer t o Ri co coul d det er mi ne t he avai l abi l i t y of

Chapt er 9 f or Puer t o Ri co muni ci pal i t i es, t hat mi ght under mi ne

Congr ess' s abi l i t y t o do so. Cf . Gi l l et t e, 79 U. Chi . L. Rev. at

285- 86 ( di scussi ng t he st r at egi c use of muni ci pal bankrupt cy r el i ef

t o avoi d ot her sol ut i ons) . Si mi l ar l y, Congr ess' s abi l i t y t o

exer ci se such ot her opt i ons woul d al so be under mi ned i f Puer t o Ri co

coul d f ashi on i t s own muni ci pal bankrupt cy r el i ef . Cf . i d. The

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1984 amendment ensures t hat t hese opt i ons r emai n open t o Congress

by denyi ng Puer t o Ri co t he power t o do ei t her . 24 Cf . i d.

24

Def endant s argue t hat we shoul d not const r ue § 903( 1) t ocont i nue to appl y t o Puer t o Ri co af t er t he 1984 amendment becauset o do so cr eates a "no- man' s l and" t hat Congr ess di d not i nt end andcoul d not have cr eated. We di sagr ee both as t o Congr ess' s i nt entand as t o whet her a no- man' s l and i s cr eat ed. Our const r uct i ondoes not cr eat e one, because congr essi onal r et ent i on of aut hor i t yi s not t he same as a no- man' s l and. Fur t her , def endant s' argumentf ai l s i n any event .

Fi r st , def endant s' r el i ance on a congr essi onal r epor t st at i ngt hat i t was "not pr epar ed t o admi t t hat t he si t uat i on pr esent s al egi sl at i ve no- man' s l and" r eveal s not hi ng about Congr ess' s i nt enti n enact i ng § 101( 52) . Beki ns, 304 U. S. at 51 ( quot i ng H. R. Rep.

No. 75- 517, at 3 ( 1937) ) . Congr ess, i n maki ng t he quotedst atement , was concer ned not wi t h a l ack of l aws, but a l ack of const i t ut i onal aut hor i t y. That st at ement , made i n t he wake of t hef i r st muni ci pal bankrupt cy l aw' s demi se i n Asht on, r ej ect s t he vi ewt hat cr eat i on of a f eder al muni ci pal bankrupt cy regi me wasconst i t ut i onal l y i mpossi bl e. See Beki ns, 304 U. S. at 51- 54; cf .Asht on, 298 U. S. at 530- 32. Accor di ngl y, t he st atement i si napposi t e; Congr ess' s st at ed r ej ect i on of a l egi sl at i ve no- man' sl and and asser t i on of aut hor i t y i s ent i r el y consi st ent wi t hi nt endi ng t o r et ai n t hat aut hor i t y i n deci di ng how t o addr essmuni ci pal i nsol vency i n Puer t o Ri co.

Second, any rel i ance on Guss v. Ut ah Labor Rel at i ons Boar d,

353 U. S. 1 ( 1957) , i s mi spl aced. Far f r om cr eat i ng a r ul e agai nstt he creat i on of a no- man' s l and - - her e, under st ood as t he absenceof l aws pr ovi di ng r el i ef - - t he Supr eme Cour t hel d t hat wher e"Congr ess' power i n t he ar ea . . . i s pl enar y, i t s j udgment must ber espect ed what ever pol i cy obj ect i ons t her e may be t o [ t he] cr eat i onof a no- man' s- l and. " I d. at 11.

The Cour t ' s r easoni ng i n Guss i s f ul l y appl i cabl e here:Congr ess, t hr ough t he pr ovi si ons of § 109( c) ( 2) and § 903,"demonst r at ed t hat i t knew how t o cede j ur i sdi ct i on t o t he st at es"and "demonst r at ed i t s abi l i t y t o spel l out wi t h par t i cul ar i t y t hosear eas i n whi ch i t desi r ed st at e r egul at i on t o be oper at i ve. " Guss,353 U. S. at 9- 10 ( ci t at i on and i nt er nal quot at i on mar ks omi t t ed) .

I t pr ohi bi t ed st at es f r om enact i ng muni ci pal i nsol vency l aws t hatwoul d "bi nd any cr edi t or t hat does not consent , " but not f r omdevi si ng ot her sol ut i ons or f r om cont r ol l i ng whet her t hei rmuni ci pal i t i es coul d access a f eder al al t er nat i ve. 11 U. S. C.§§ 109( c) ( 2) , 903. Guss t her ef or e suppor t s our concl usi on t hat"Congr ess has expr essed i t s j udgment " t o r et ai n i t s own aut hor i t yby denyi ng to Puer t o Ri co both t he power t o choose Chapt er 9 r el i ef

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C. The Def endant s ' Cr eat i ve But Unsound And Unsuccessf ulAl t er nat i ve Readi ngs

Our const r uct i on f ol l ows st r ai ght f or war dl y f r omt he pl ai n

t ext and i s conf i r med by bot h st at ut or y hi st or y and l egi sl at i ve

hi st or y. Nonet hel ess, t he def endant s obj ect t o i t on t wo gr ounds.

Fi r st , t hey of f er a novel ar gument i n l i ght of t he

Bankrupt cy Code' s def i ni t i on of "cr edi t or " t hat t he pr ovi si on onl y

appl i es t o credi t or s of ent i t i es who have or coul d have f i l ed f or

Chapt er 9 r el i ef : because Puer t o Ri co cannot aut hor i ze i t s

muni ci pal i t i es t o become "debt or s, " t hose muni ci pal i t i es'

bondhol ders cannot be "cr edi t ors, " and so t he Recover y Act does not

bi nd "cr edi t or s" i n vi ol at i on of § 903( 1) . That i s, def endant s

ar gue t hat Congr ess, wi t hout sayi ng so, di d i ndi r ect l y what i t

coul d have easi l y done di r ect l y but di d not .

and t o enact i t s own ver si on t her eof . Guss, 353 U. S. at 10- 11.Because "Congr ess' power " over Puer t o Ri co " i s pl enar y, " t heSupr eme Cour t di ct at es t hat Congr ess' " j udgment [ i n t hi s r egar d]must be r espect ed. " I d. ; Ri ver a Tor r es, 826 F. 2d at 154.

I n any event , t hese cases do not pr ovi de a r eason t o const r uet he st at ut e di f f er ent l y. However r emarkabl e a no- man' s l and mi ghtbe, assumi ng dubi t ant e t hat t her e i s one under our const r uct i on, i twoul d be even more remarkabl e t o f i nd t hat Congr ess deci ded t oabandon - - wi t hout comment and t hr ough a def i ni t i on - - i t s f or t y-year ol d pr ohi bi t i on on l ocal i nsol vency l aws t hat bi nd credi t or s

wi t hout t hei r consent . See Cohen, 523 U. S. at 221- 22. The f ormercan at l east be r econci l ed wi t h congr essi onal pur pose to ret ai n i t saut hor i t y, and, i f t he l i t er at ur e on i ncent i ves i s cor r ect, mayhave been t he onl y way f or Congr ess t o do so ef f i caci ousl y. Cf .Gi l l et t e, 79 U. Chi . L. Rev. at 285- 86. Unl i ke def endant s, wecannot "i gnor e[ ] [ t hi s] mor e pl ausi bl e expl anat i on" of Congr ess' sdeci si on. Kel l ogg, 135 S. Ct . at 1977- 78.

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Second, t hey make a st r uct ur al argument t hat § 903( 1)

cannot appl y to Puert o Ri co because Chapt er 9, of whi ch § 903( 1) i s

a par t , does not appl y t o Puer t o Ri co.

Nei t her at t empt succeeds. I f Congr ess had want ed t o

excl ude Puer t o Ri co f r om § 903( 1) , i t woul d have done so di r ect l y

wi t hout r el yi ng on t he creat i vi t y of par t i es ar gui ng bef or e t he

cour t s. Cf . Kel l ogg, 135 S. Ct . at 1977 ( " I f Congr ess had meant t o

make such a change, we woul d expect i t t o have used l anguage t hat

made thi s i mpor t ant modi f i cat i on cl ear t o l i t i gant s and cour t s. ") .

I nst ead, as di scussed above, Congr ess di d t he opposi t e.

1. Who May Be "Cr edi t or s" under § 903( 1)

I gnor i ng other l anguage i n t he Code, t he def endant s'

f i r st argument begi ns by observi ng t hat t he Bankr upt cy Code def i nes

"cr edi t or " i n r el at i on t o "debt or . " 11 U. S. C. § 101( 10) ( A)

( def i ni ng "cr edi t or " as an "ent i t y that has a cl ai m agai nst t he

debt or t hat ar ose at t he t i me of or bef or e t he or der f or r el i ef

concer ni ng t he debt or " ) . 25 But a "debt or " i s def i ned as a "per son

or muni ci pal i t y concerni ng whi ch a case under [ t he Bankr upt cy Code]

has been commenced. " 11 U. S. C. § 101( 13) ( emphasi s added) .

Because Puer t o Ri co cannot aut hor i ze i t s muni ci pal i t i es t o commence

"a case under [ t he Bankr upt cy Code] , " t he argument goes, cr edi t ors

of Puer t o Ri co muni ci pal i t i es ar e not "cr edi t or s" wi t hi n t he

25 Subsect i ons ( B) and ( C) of § 101( 10) provi de addi t i onaldef i ni t i ons of "cr edi t or " not r el evant her e.

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meani ng of § 101( 10) ( A) , and so t he Recover y Act does not bi nd

"cr edi t or s" wi t hout t hei r consent i n vi ol at i on of § 903( 1) .

Thi s ar gument i gnor es congressi onal l anguage choi ces, as

wel l as cont ext , and proves t oo much.26

Al t hough "' [ s] t at ut or y

def i ni t i ons cont r ol t he meani ng of st at ut or y wor ds . . . i n t he

usual case, ' " Bur gess, 553 U. S. at 129- 30 ( second al t er at i on i n

or i gi nal ) ( quot i ng Lawson v. Suwannee Frui t & S. S. Co. , 336 U. S.

198, 201 ( 1949) ) , we shoul d not appl y st at ut or y def i ni t i ons i n a

manner t hat di r ect l y under mi nes t he l egi sl at i on, Phi l ko Avi at i on,

I nc. v. Shacket , 462 U. S. 406, 411- 12 ( 1983) ( ci t i ng Lawson, 336

U. S. at 201) . But t hat i s exact l y what def endant s ask us t o do. 27

26 The def endant s ar e cor r ect t hat thei r i nt er pr et at i on of "cr edi t or " woul d not , as t he Fr ankl i n pl ai nt i f f s cont end, "r educeSect i on 903( 1) t o mer e sur pl us. " As Pr of essors Gi l l et t e and Skeelexpl ai n i n t hei r ami ci cur i ae br i ef , t hei r const r ucti on of § 903( 1) , whi ch l i mi t s "cr edi t or " t o t he st at ut or y def i ni t i on,makes cl ear t hat even t hough Chapt er 9 does not i nf r i nge on t he

power of st at es t o manage t hei r own muni ci pal i t i es,

a St ate composi t i on l aw coul d not be used t o al t er acr edi t or ' s cl ai m agai nst a muni ci pal i t y t hat has f i l edf or Chapt er 9[ : ] [ a] ny pr i or or concur r ent St at e l awcomposi t i on pr oceedi ng woul d be superseded pur suant t osect i on 903( 1) [ upon f i l i ng] , and any j udgment pr evi ousl yobt ai ned woul d be r eopened under sect i on 903( 2) .

The di f f i cul t y i s t hat t he Pr of essor s' const r uct i on cannot besquar ed wi t h ei t her t he hi st or y of t hi s pr ovi si on, or t hel egi sl at i ve i nt ent i n enact i ng i t , of bar r i ng stat es f r omenact i ng

t hei r own muni ci pal bankrupt cy l aws. To t he cont r ary, i t woul dunder mi ne t he appl i cabi l i t y of t hi s pr ovi si on t o st at es.

27 Def endant s at t empt t o escape t hi s concl usi on by argui ng,i n t he al t er nat i ve, t hat "debt or " i s a per son agai nst whom a cl ai m"has been [or coul d be] commenced, " and so "cr edi t ors" are t hosewho have a cl ai m agai nst an ent i t y el i gi bl e f or Chapt er 9 r el i ef .

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Const r ui ng "cr edi t or " i n § 903( 1) so nar r owl y woul d

under mi ne t he st at ed pur pose of t he pr ovi si on i n pr ohi bi t i ng st at es

f r om "enact [ i ng] t hei r own ver si ons of Chapt er [ 9] . " See S. Rep.

No. 95- 989, at 110; H. R. Rep. No. 79- 2246, at 4. Under def endant s'

const r uct i on, any st at e coul d avoi d t he pr ohi bi t i on by denyi ng i t s

muni ci pal i t i es aut hor i zat i on t o f i l e under § 109( c) ( 2) . St at e l aws

gover ni ng t he adj ust ment of t hese muni ci pal i t i es' debt s coul d not

t hen, on def endant s' r eadi ng, "bi nd any credi t or " because t her e

woul d be none: no case woul d "ha[ ve] been commenced" concer ni ng t he

muni ci pal i t i es because no case coul d commence under § 109( c) ( 2) .

Nor does a r ef erence t o t he changes i n 1978 or 1984 make

t hi s ar gument any mor e pl ausi bl e. The 1978 ver si on si mi l ar l y

def i ned "debt or " as a "per son or muni ci pal i t y concer ni ng whi ch a

case under t hi s t i t l e has been commenced, " and "cr edi t or " i n

r el at i on t o a "debt or " agai nst whom t he credi t or had a cl ai m "t hat

ar ose at t he t i me of or bef or e t he or der f or r el i ef . " Bankrupt cy

Ref or m Act of 1978, §§ 101( 9) , 101( 12) , 92 St at . at 2550- 51

( codi f i ed at 11 U. S. C. §§ 101( 9) , 101( 12) ( 1977- 1980) ) ( emphasi s

added) . Def endant ' s r eadi ng under mi nes t he expr ess pur pose, st ated

i n 1978, of enact i ng § 903( 1) : t o "prohi bi t [ ] St at e composi t i on

pr ocedur es f or muni ci pal i t i es. " S. Rep. No. 95- 989, at 110. I f we

f ol l ow def endant s' suggest i on, t hen ei t her Congr ess was di r ect l y

There i s no t ext ual basi s t o do so. I t i s si mpl y anothergest ur e at t hei r st r uct ur al argument , whi ch we addr ess next .

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sel f - def eat i ng i n enacti ng t hi s l egi sl at i on i n 1978, or el se i n

1984 made a st ark and dr ast i c change - - wi t hout comment and i n "an

obscure way" - - t o the l aw as pr evi ousl y enacted. Cf . Dewsnup, 502

U. S. at 419; Kel l ogg, 135 S. Ct . at 1977. But "[ a] st at ut or y

def i ni t i on shoul d not be appl i ed i n such a manner . " Phi l ko

Avi at i on, 462 U. S. at 412; see al so Dewsnup, 502 U. S. at 419- 20.

Wher e st at ut or y def i ni t i ons gi ve r i se t o such pr obl ems,

a t er m may be gi ven i t s or di nary meani ng. 28 Phi l ko Avi at i on, 462

28

The Code i s r epl et e wi t h use of t he t er m" cr edi t or " i n waysnot l i mi t ed by the st at ut or y def i ni t i on on whi ch def endant s r el y.For exampl e, § 502( a) uses credi t or i n a manner t hat i s expr essl yi nconsi st ent wi t h t he st at ut or y def i ni t i on because "a cr edi t or of a gener al par t ner i n a par t ner shi p t hat i s a debt or " i s not ,i t sel f , a hol der of a "cl ai m agai nst t he debt or " and so not a"cr edi t or " under § 101( 10) ( A) . See 11 U. S. C. § 502( a) ( "A cl ai mof i nt er est . . . i s deemed al l owed, unl ess a par t y i n i nt er est ,i ncl udi ng a credi t or of a gener al par t ner i n a par t ner shi p t hat i sa debt or i n a case under Chapt er 7 . . . obj ect s. " ( emphasi sadded) ) .

Si mi l ar l y, § 101( 12A) ( C) al so uses "cr edi t or " i n a manner t hat

i s expr essl y i nconsi st ent wi t h § 101( 10) ( A) . That provi si on, whi chdef i nes " debt r el i ef agency" t o be "any per son who pr ovi des anybankrupt cy assi st ance t o an assi st ed per son . . . , " excl udes " acr edi t or of such an assi st ed per son. " 11 U. S. C. § 101( 12A) ( C) .But because an "assi st ed per son" mi ght never f i l e f or bankrupt cy( pr esumabl y one of t he goal s of t he agency) , an "assi st ed per son"mi ght never become a debt or . "Cr edi t or" her e must have i t s pl ai nmeani ng.

Fol l owi ng def endant s' pr of f er ed st r i ct const r uct i on woul d al socreat e mi schi ef f or ot her por t i ons of § 109 i t sel f . For exampl e,an ent i t y may onl y be a Chapt er 9 debt or i f i t has, i nt er al i a,"obt ai ned t he agr eement of [ cer t ai n] credi t or s, " "negot i at ed i n

good f ai t h wi t h cr edi t or s, " or been "unabl e to negot i at e wi t hcredi t or s, " or el se "r easonabl y bel i eves t hat a credi t or mayat t empt t o obt ai n a[ n] [ avoi dabl e] t r ansf er . " 11 U. S. C.§ 109( c) ( 5) . These r equi r ement s r ef er t o t he debt or ' s i nt er act i onswi t h i t s "cr edi t or s" bef or e f i l i ng. But i f we mechani cal l y appl yt he def i ni t i ons i n t he manner suggest ed, we obt ai n an absurdr esul t : t her e woul d have been no cr edi t or s wi t h whom t o negot i at e

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U. S. at 411- 12. Doi ng so r esol ves the pr obl em: a "cr edi t or " i s

si mpl y "[ o]ne to whoma debt i s owed. " 29 Bl ack' s Law Di ct i onar y 424

( 9t h ed. 2009) . Wi t h t hi s usage, st at es cannot escape t he r each of

§ 903( 1) , i n al l or speci f i c cases, mer el y by denyi ng

aut hor i zat i on. And so Congr ess' s st at ed pur pose, of pr event i ng

"Stat es [ f r om] enact [ i ng] t hei r own ver si ons of Chapt er I X, " i s

f ul f i l l ed. S. Rep. No. 95- 989, at 110.

because "cr edi t ors" onl y exi st once a sui t "has been commenced, "and so al l pot ent i al debt or s woul d aut omat i cal l y sat i sf y

§ 109( c) ( 5) under t he "unabl e to negot i at e wi t h cr edi t or s" pr ong. The GDB def endant s' ar gument t hat t he di st r i ct cour t er r ed byi gnor i ng t he "order f or r el i ef " l anguage i n t he def i ni t i on of credi t or f ai l s f or si mi l ar r easons. 11 U. S. C. § 101( 10) ( A)( def i ni ng "cr edi t or " as an "ent i t y that has a cl ai m agai nst t hedebt or t hat ar ose at t he t i me of or bef or e t he or der f or r el i ef concerni ng t he debt or" ( emphasi s added) ) . GDB argues t hat PREPA' scr edi t or s do not have cl ai ms t hat ar ose at or bef or e " t he or der f orr el i ef " because PREPA i s i nel i gi bl e t o r ecei ve an "or der f orr el i ef . " But t her e may never be an "order f or r el i ef " i f amuni ci pal i t y f ai l s t o obt ai n agr eement f r om, negot i at e i n goodf ai t h wi t h, or show i t i s unabl e t o negot i at e wi t h "cr edi t or s. " 11

U. S. C. §§ 109( c) ( 5) ( A) - ( D) . I ndeed, ot her pr ovi si ons of t heBankrupt cy Code that use t he t er m"cr edi t or " expr essl y cont empl at et hat t her e ar e "cr edi t or s" t hough ther e may never be an "order f orr el i ef . " See, e. g. , 11 U. S. C. § 303( c) ( "Af t er t he f i l i ng of apet i t i on . . . but bef or e t he case i s di smi ssed or r el i ef i sor der ed, a cr edi t or hol di ng an unsecur ed cl ai m . . . may j oi n i nt he pet i t i on . . . . " ( emphasi s added) ) .

29 Thi s def i ni t i on of "cr edi t or " i s essent i al l y t he same ast he pr evai l i ng def i ni t i on when t he pr ohi bi t i on was f i r st enact edand when i t was r e- codi f i ed. See, e. g. , Webst er ' s NewI nt er nat i onal Di ct i onar y of t he Engl i sh Language 621 ( 2d ed. 1941)

( def i ni ng "cr edi t or " as "one t o whom money i s due" ) ; Bl ack' s LawDi ct i onar y 476 ( 3d ed. 1933) ( def i ni ng "credi t or " as " [ a] per son t owhom a debt i s owi ng by another per son") ; Webst er ' s Thi r d NewI nt er nat i onal Di ct i onar y of t he Engl i sh Language 533 ( 3d ed. 1976)( def i ni ng "cr edi t or " as "one t o whom money i s due" ) ; Bl ack' s LawDi ct i onar y 441 ( r ev. 4t h ed. 1968) ( essent i al l y same as 1933def i ni t i on) .

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As a f i nal ef f or t , t he def endant s r esor t t o t he

pr esumpt i on agai nst pr eempt i on. See Ant i l l es Cement Corp. v.

For t uño, 670 F. 3d 310, 323 ( 1st Ci r . 2012) . But " [ p] r eempt i on i s

not a mat t er of semant i cs. " Wos v. E. M. A. ex r el . J ohnson, 133

S. Ct . 1391, 1398 ( 2013) . Puert o Ri co "may not evade t he

pr eempt i ve f or ce of f eder al l aw by r esort i ng t o a cr eat i ve

st at ut or y i nt er pr et at i on or descri pt i on at odds wi t h t he st at ut e' s

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