Peaje Investments LLC v. Garcia-Padilla, et al

Filing

OPINION issued by Jeffrey R. Howard, Chief Appellate Judge; Rogeriee Thompson, Appellate Judge and William J. Kayatta , Jr., Appellate Judge. Published. [16-2377, 16-2430, 16-2431, 16-2433, 16-2435, 16-2437, 16-2438, 16-2439, 16-2440]

Case: 16-2377

Document: 00117103509

Page: 1

Date Filed: 01/11/2017

Entry ID: 6061118

United States Court of Appeals
For the First Circuit
No. 16-2377
PEAJE INVESTMENTS LLC,
Movant, Appellant,
v.
ALEJANDRO GARCÍA-PADILLA ET AL.,
Respondents, Appellees.

No. 16-2430
PEAJE INVESTMENTS LLC,
Movant, Appellee,
v.
ALEJANDRO GARCÍA-PADILLA ET AL.,
Respondents, Appellees,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

No. 16-2431
ASSURED GUARANTY CORPORATION; ASSURED GUARANTY MUNICIPAL
CORPORATION,
Plaintiffs, Appellees,
v.
COMMONWEALTH OF PUERTO RICO ET AL.,

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Entry ID: 6061118

Defendants, Appellees,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

No. 16-2433
ALTAIR GLOBAL CREDIT OPPORTUNITIES FUND (A), LLC ET AL.,
Movants, Appellants,
CLAREN ROAD CREDIT MASTER FUND, LTD. ET AL.,
Movants,
v.
ALEJANDRO GARCÍA-PADILLA, in his official capacity as the
Governor of Puerto Rico, ET AL.,
Respondents, Appellees.

No. 16-2435
PUERTO RICO FIXED INCOME FUND V, INC. ET AL.,
Movants, Appellees,
v.
ALEJANDRO GARCÍA-PADILLA, in his official capacity as the
Governor of Puerto Rico, ET AL.,
Respondents, Appellees,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

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No. 16-2437
BRIGADE LEVERAGED CAPITAL STRUCTURES FUND LTD. ET AL.,
Plaintiffs, Appellees,
v.
ALEJANDRO J. GARCÍA-PADILLA, in his official capacity as
Governor of Puerto Rico, ET AL.,
Defendants, Appellees,
GOVERNMENT DEVELOPMENT BANK OF PUERTO RICO,
Defendant,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

No. 16-2438
NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION,
Plaintiff, Appellee,
v.
ALEJANDRO J. GARCÍA-PADILLA ET AL.,
Defendants, Appellees,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

No. 16-2439
US BANK TRUST NATIONAL ASSOCIATION,
Plaintiff, Appellee,

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v.
ALEJANDRO GARCÍA-PADILLA, in his official capacity as Governor
of the Commonwealth of Puerto Rico, ET AL.,
Defendants, Appellees,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

No. 16-2440
DIONISIO TRIGO-GONZALEZ ET AL.,
Plaintiffs, Appellees,
CARMEN FELICIANO VARGAS ET AL.,
Plaintiffs,
v.
ALEJANDRO GARCÍA-PADILLA, in his official capacity as Governor
of Puerto Rico, ET AL.,
Defendants, Appellees,

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD,
Movant, Appellant.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Francisco A. Besosa, U.S. District Judge]

Before
Howard, Chief Judge,
Thompson and Kayatta, Circuit Judges.

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G. Eric Brunstad, Jr., with whom Allan S. Brilliant, Robert
J. Jossen, Andrew C. Harmeyer, Dechert LLP, Dora L. Monserrate
Peñagarícano, and Monserrate Simonet & Gierbolini, LLC were on
brief, for Peaje Investments LLC.
Erin E. Murphy, with whom Susan Marie Davies, Michael F.
Williams, Peter A. Farrell, Matthew D. Rowen, Kirkland & Ellis
LLP, and Margarita Luisa Mercado-Echegaray, Solicitor General of
Puerto Rico, were on brief, for Alejandro García-Padilla, Juan C.
Zaragoza-Gómez, Luis Cruz-Batista, and Carmen Villar-Prados.
Michael Luskin, with whom Stephan E. Hornung and Luskin, Stern
& Eisler LLP were on brief, for Financial Oversight and Management
Board.
Richard A. Chesley, with whom John M. Hillebrecht, Neal F.
Kronley, and DLA Piper LLP (US) were on brief, for The Employees
Retirement System of the Commonwealth of Puerto Rico.
Sparkle L. Sooknanan, with whom Beth Heifetz, Geoffrey S.
Stewart, Bruce Bennett, Benjamin Rosenblum, Jones Day, Alfredo
Fernández-Martínez, Delgado & Fernández, LLC, Arturo DíazAngueira, José C. Sánchez-Castro, Alicia I. Lavergne-Ramírez,
Maraliz Vázquez-Marrero, Lopez Sanchez & Pirillo LLC, Glenn M.
Kurtz, John K. Cunningham, Jason N. Zakia, and White & Case LLP
were on brief, for Altair Global Credit Opportunities Fund (A),
LLC, Glendon Opportunities Fund, LP, Nokota Capital Master Fund,
L.P., Oaktree-Forrest Multi-Strategy, L.L.C. (Series B), Oaktree
Opportunities Fund IX, L.P., Oaktree Opportunities Fund IX
(Parallel 2), L.P., Oaktree Value Opportunities Fund, L.P., SV
Credit, L.P., Claren Road Credit Master Fund, Ltd., Claren Road
Credit Opportunities Master Fund, Ltd., and Ocher Rose, L.L.C.

January 11, 2017

Case: 16-2377

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HOWARD,

Chief

Page: 6

Judge.

Date Filed: 01/11/2017

These

appeals

Entry ID: 6061118

involve

the

application of certain provisions of the Puerto Rico Oversight,
Management, and Economic Stability Act ("PROMESA"), see 48 U.S.C.
§§ 2101-2241, a statute enacted by Congress in June 2016 to address
Puerto Rico's financial crisis. As relevant here, PROMESA provides
for a temporary stay of debt-related litigation against the Puerto
Rico government.

See id. § 2194(a)-(b).

But the statute does not

leave creditors entirely without recourse during the presumptive
pause.

Rather, it allows them to move for relief from the stay

and directs district courts to grant such relief "after notice and
a hearing . . . for cause shown."

Id. § 2194(e)(2).

Because we

conclude that Movant-Appellant Peaje Investments LLC ("Peaje")
failed to set forth a legally sufficient claim of "cause" to lift
the PROMESA stay, we affirm the district court's denial of its
lift-stay motion.

By contrast, the various appellants in Altair

Global Credit Opportunities Fund (A), LLC v. García-Padilla (No.
16-2433) (the "Altair Movants" and, together with Peaje, the
"Movants")1 presented sufficient allegations to entitle them to a
hearing.

Accordingly, we vacate the district court's denial of

1

Some of the co-movants in this case elected not to appeal.
For simplicity, this opinion uses the phrase "Altair Movants" to
refer only to those movants that have appealed. Appellee GarcíaPadilla, who was solely an official capacity defendant in these
appeals, is no longer Governor of Puerto Rico. We use his name in
this opinion merely to avoid confusion.

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their lift-stay motion and remand for the court to hold such a
hearing.
I.
Peaje is the beneficial owner of certain bonds issued by
the Puerto Rico Highways and Transportation Authority ("PRHTA").
The bonds are secured by a lien on toll revenues, among other
things.

In July 2016, Peaje initiated the instant action in

district court by filing a motion to lift the PROMESA stay so that
it could challenge the diversion of PRHTA toll revenues pledged as
collateral for the bonds.

Peaje alleged that, acting pursuant to

the Puerto Rico Emergency Moratorium and Financial Rehabilitation
Act ("Moratorium Act"), see 2016 P.R. Laws Act 21, the Puerto Rico
government was diverting the toll revenues to other uses, thereby
diminishing the value of Peaje's collateral.
About two months later, the Altair Movants, holders of
certain bonds issued by the Commonwealth's Employees Retirement
System ("ERS"), filed a similar motion to lift the PROMESA stay.
The Altair Movants claimed that the Commonwealth had suspended
required transfers to the fiscal agent of employer contributions
pledged as collateral for the bonds.
PROMESA's stay of the commencement of certain actions
until February 15, 2017, applies to the lawsuits the Movants seek
to pursue.

See 48 U.S.C. § 2194(d)(1)(A)(i).

The stay may be

extended until as late as April 17, 2017, if the district court

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determines that additional time is needed to complete a voluntary
restructuring process, or to May 1 if the Financial Oversight and
Management Board ("Board") makes a similar finding.
§ 2194(d)(1)(B)-(C).

See id.

The district court is directed to grant

relief from the PROMESA stay "for cause shown" after "notice and
a hearing."

Id. § 2194(e)(2).

After consolidating the actions, the district court
scheduled a November 3 hearing on the motions to lift the PROMESA
stay for cause.

On the eve of the hearing, however, the court

issued an order denying the lift-stay motions.

In seeking to

define the "cause" standard, the court looked to the Bankruptcy
Code's automatic stay provision.

The court held that "lack of

adequate protection" for creditors constitutes cause for lifting
the PROMESA stay, just as it does under the Bankruptcy Code.
Turning to the Movants' specific claims, the court held that
neither Peaje nor the Altair Movants lacked adequate protection.
Because the toll revenues are "constantly replenished," Peaje
continued "to hold a security interest in a stable, recurring
source of income that will eventually provide funds for the
repayment

of

the

PRHTA

bonds."

Similarly,

the

employer

contributions in which the Altair Movants claimed an interest "are
a perpetual revenue stream whose value is not decreased by the
Commonwealth's acts of temporary suspension."
appealed.

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The Movants timely

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II.
A.

Appellate Jurisdiction
As

an

initial

matter,

we

jurisdiction under 28 U.S.C. § 1291.

address

our

appellate

In the analogous bankruptcy

context,2 we have held that the denial of relief from a stay is
not necessarily a final decision sufficient to confer appellate
jurisdiction.
(1st

Cir.

See In re Atlas IT Exp. Corp., 761 F.3d 177, 185

2014).

such

decide[s]

"conclusively

But

the

a

decision

is

final

fully-developed,

substantive

arguments,

holding

that

collateral were adequately protected.

it

unreviewable-

elsewhere issue that triggered the stay-relief fight."
order on appeal here did precisely that.

where

Id.

The

It rejected the Movants'
their

interests

in

the

After that ruling, there

was nothing left for the district court to do.
B.

Denial of Relief from Stay
Turning to the merits of the lift-stay motions, the

parties primarily dispute two issues concerning whether actions by
Puerto Rico that impair or remove the collateral securing the

2

Appellees García-Padilla, Zaragoza-Gómez, Cruz-Batista, and
Villar-Prados seek to distinguish the district court's refusal to
lift the PROMESA stay from a similar ruling on a motion to lift a
bankruptcy stay, primarily because the PROMESA stay is of limited
duration and is designed to protect unique interests. While these
differences may bear on whether the stay should be lifted, they do
not signal congressional intent for the denial of stay relief to
have different jurisdictional consequences in these two related
contexts. Compare 48 U.S.C. § 2194, with 11 U.S.C. § 362.

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pertinent bonds is cause for lifting the stay:

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(1) whether such

an impairment or removal satisfies PROMESA's "cause" standard if
it leaves the creditor's interest in having the debt repaid
inadequately protected; and (2) if so, did the district court
commit reversible error by failing to conduct a hearing on whether
the Movants here were inadequately protected.

On the record in

this case, we answer the first question in the affirmative.
the second question, we issue a split decision.

On

Because Peaje

failed even to make a legally sufficient claim that it lacked
adequate protection, we conclude that the district court did not
commit reversible error in denying its lift-stay motion without an
evidentiary hearing.

The Altair Movants, on the other hand, were

entitled to such a hearing.
On the threshold issue of whether lack of adequate
protection constitutes cause to lift the PROMESA stay, Appellees
García-Padilla, Zaragoza-Gómez, Cruz-Batista, Villar-Prados, and
ERS (together, the "Appellees") point out that the relevant section
of the Bankruptcy Code, unlike PROMESA, expressly defines "cause"
to include lack of adequate protection.
362(d)(1),
PROMESA's

with

48

omission

U.S.C.
on

this

§

Compare 11 U.S.C. §

2194(e)(2).

point

is

They

meaningful

contend
and

that

reflects

Congress's intent that "cause" not be defined to include actions
impairing the collateral in a manner that leaves the interest in
having the debt repaid inadequately protected.

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But the Appellees' contention runs headlong into the
"cardinal principle" of constitutional avoidance.
Benson, 285 U.S. 22, 62 (1932).

Crowell v.

Under this canon, when confronted

with a statute of questionable constitutional validity, we must
"first ascertain whether a construction . . . is fairly possible
by which the [constitutional] question may be avoided."
so, we adopt that construction.

Id.

If

In the bankruptcy context,

Congress's explicit designation of lack of adequate protection as
cause to lift a stay was based, at least in part, on constitutional
concerns.

See H.R. Rep. No. 95-595, at 339 (1977), reprinted in

1978 U.S.C.C.A.N. 5963, 6295 (explaining that the concept of
adequate

protection

"is

derived

from

the

[F]ifth

[A]mendment

protection of property interests"). Indeed, prior to the enactment
of the current bankruptcy stay provision, the Supreme Court had
recognized

that

creditors

are

constitutionally

entitled

to

protection "to the extent of the value of the[ir] property."
Wright v. Union Cent. Life Ins. Co., 311 U.S. 273, 278 (1940); see
also United States v. Sec. Indus. Bank, 459 U.S. 70, 75-78 (1982)
(applying principle of constitutional avoidance to provision of
Bankruptcy Code where a contrary reading "would result in a
complete destruction of the property right of the secured party"
in its collateral).

The PROMESA stay implicates these same

constitutional concerns.

Under the Appellees' reading of the

statute, the Commonwealth could expend every penny of the Movants'

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collateral, leaving the debt entirely unsecured.

Entry ID: 6061118

Because we doubt

the constitutionality of such a result, we hold that lack of
adequate protection for creditors constitutes cause to lift the
PROMESA stay.3
In the bankruptcy context, one "common form" of adequate
protection is "the existence of an equity cushion."

3 Collier on

Bankruptcy ¶ 362.07[3][d][i] (Alan N. Resnick & Henry J. Sommer
eds., 16th ed. 2016) [hereinafter Collier]; see also BaybankMiddlesex v. Ralar Distribs., Inc., 69 F.3d 1200, 1203 (1st Cir.
1995).

Such an equity cushion exists "if the value of the

collateral available to the creditor exceeds by a comfortable
margin

the

amount

362.07[3][d][i].

of

the

creditor's

claim."

for

¶

The widespread acceptance of an equity cushion

as a form of adequate protection makes eminent sense.
"interest"

Collier

which

the

bankruptcy

stay

Indeed, the

statute

requires

protection is "the right of a secured creditor to have the security
applied in payment of the debt."

United Sav. Ass'n of Tex. v.

Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 370 (1988)
(emphasis

added).

Therefore,

an

3

oversecured

creditor

cannot

This conclusion is also consistent with bankruptcy precedent
considering possible harm to creditors as part of the "cause"
inquiry, even before the concept of adequate protection was
explicitly codified. See, e.g., In re Timbers of Inwood Forest
Assocs., Ltd., 793 F.2d 1380, 1390-91 (5th Cir. 1986), aff'd, 484
U.S. 365 (1988); In re Anchorage Boat Sales, Inc., 4 B.R. 635,
641-42 (Bankr. E.D.N.Y. 1980).

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"demand to keep its collateral rather than be paid in full."

In

re Pac. Lumber Co., 584 F.3d 229, 247 (5th Cir. 2009).
Here, in denying the lift-stay motions, the district
court, while not using the precise term, relied on the existence
of an equity cushion.

It cited future toll revenues and employer

contributions, which it concluded would eventually flow to the
fiscal agents in sufficient quantity to repay the bonds, to support
its finding of adequate protection. On appeal, the Movants contend
that the district court erred in finding these future funds
sufficient to ensure repayment of the bonds without first holding
a hearing.
PROMESA appears to contemplate that rulings on lift-stay
motions will issue only "after notice and a hearing."

48 U.S.C.

§ 2194(e)(2). And we agree that it certainly could have simplified
matters had the district court conducted a hearing in these cases.
But, under the bankruptcy stay statute, we have held that this
same language does not require an actual hearing in every case.
See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 814
F.2d 844, 847 (1st Cir. 1987) (affirming decision vacating stay
without a hearing where "the court had the benefit of the papers
filed by both parties" and the debtor "identified no . . . viable
reasons for maintaining the stay"); see also In re Sullivan Ford
Sales, 2 B.R. 350, 354 (Bankr. D. Me. 1980) ("There was complete
awareness on the part of the principal congressional architect of

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the Code that 'after notice and a hearing' did not contemplate a
hearing in every instance.").

A hearing may be unnecessary where,

for example, the material facts are not disputed.

See In re

Marron, 485 B.R. 485, 491 (D. Mass. 2012).
The
because

the

sufficient

Appellees
Movants

to

contend

did

establish

not
lack

that

claim
of

no
or

hearing
propose

adequate

was
to

required

show

facts

protection.

The

significance of this purported shortcoming depends upon PROMESA's
allocation of the burden of proof.

We begin with the statutory

language, which provides that district courts shall grant relief
from the stay "for cause shown."

48 U.S.C. § 2194(e)(2).

By

requiring a "show[ing]" of cause, the statute places the burden on
the movant.

Where, as here, the only cause identified is an

impairment of collateral that leaves the interest in repayment
inadequately protected, it follows that the movant bears the burden
of establishing such cause.
Congress

altered

this

In the bankruptcy context, however,

result

by

enacting

an

express

burden-

shifting framework under which the movant "has the burden of proof
on the issue of the debtor's equity in property," but the debtor
"has the burden of proof on all other issues."

11 U.S.C. § 362(g).

PROMESA contains no analogous provision.
While the complexity of the Bankruptcy Code and the sui
generis nature of PROMESA counsel caution in too readily inferring
that any silence in PROMESA on a matter addressed in the Code is

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a legislative rejection of the Code's approach on that matter,
such differences nevertheless do raise the possibility that such
was precisely Congress's intent.

See Helmer v. Goodyear Tire &

Rubber Co., 828 F.3d 1195, 1202 (10th Cir. 2016) (explaining that
where "a legislature models an act on another statute but does not
include a specific provision in the original, a strong presumption
exists that the legislature intended to omit that provision"
(citation omitted)).

Enhancing that possibility here is the fact

that, prior to the enactment of § 362, bankruptcy courts placed
the burden on creditors to show that they would be harmed by
continuation of the stay.

See, e.g., In re Planned Sys., Inc., 78

B.R. 852, 858 (Bankr. S.D. Ohio 1987); Anchorage Boat Sales, 4
B.R. at 641 n.6.

Where the alleged harm was a decrease in the

value of the creditor's collateral, the required showing included
evidence "that the value of the collateral [was] not substantially
in excess of the amount of the debt."

In re Wynn Homes, Inc., 14

B.R. 520, 523 (Bankr. D. Mass. 1981).
decision

not

to

transplant

the

In light of Congress's

Bankruptcy

Code's

express

alteration of the pre-Code burden regime into PROMESA, we hold
that PROMESA, like the pre-Code regime, places the burden on
creditors

to

establish

cause,

including

lack

of

adequate

protection.
Indeed,

there

are

sound

policy

reasons

supporting

Congress's choice to allocate the burden of proof differently under

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PROMESA and the Bankruptcy Code.

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The PROMESA stay, while similar

in operation to its bankruptcy counterpart, was designed to address
a truly unique situation, namely the "immediate . . . and imminent"
fiscal

crisis

facing

Puerto

Rico.

48

U.S.C.

§

2194(n)(1).

Congress found that a stay of litigation was necessary to allow
the Commonwealth "a limited period of time during which it can
focus its resources on negotiating a voluntary resolution with its
creditors

instead

lawsuits."
lasts

a

of

defending

Id. § 2194(n)(2).

maximum

of

about

numerous,

costly

creditor

Moreover, the PROMESA stay, which

ten

months,

is

less

burdensome

to

creditors than a bankruptcy stay, which may persist for the
entirety of the bankruptcy proceeding.4

In light of the temporary

nature of the PROMESA stay, as well as Congress's express intent
to

minimize

creditors

to

"creditor
shoulder

lawsuits,"
the

burden

it
of

makes

sense

to

demonstrating

require

that

the

impairment of the collateral will likely harm their protected
interest in repayment.
Thus, in order to establish an entitlement to relief,
the Movants were required to prove, respectively, that future toll
revenues and employer contributions more likely than not failed to

4

If debt-adjustment proceedings are commenced under Title
III of PROMESA, the statute contemplates that the bankruptcy stay
provision will become fully applicable. See 48 U.S.C. § 2161(a)
(incorporating by reference 11 U.S.C. § 362). Assuming that this
possibility materializes, presumably the Movants will have the
option of seeking relief from the stay under § 362.

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provide a sufficient equity cushion to protect their interests in
the wake of the Commonwealth's ongoing diversion of collateral.
It follows that, absent any allegation that these future funds
would be insufficient, the Movants lacked a viable claim to relief,
and the district court was not required to hold a hearing to
consider a claim that was facially insufficient.

See Mitsubishi,

814 F.2d at 847.
Peaje's claim failed to clear this hurdle.

In its

motion, Peaje alleged that the applicable bond resolution requires
the PRHTA to deposit monthly toll revenues with a fiscal agent.
The agent, in turn, credits the funds to one of several accounts,
which must be maintained at certain levels.

According to Peaje,

the

required

Commonwealth

has

stopped

making

resulting in depletion of the accounts.

the

deposits,

In opposing Peaje's lift-

stay motion, the Commonwealth responded that "[a]ny particular
toll revenue not allocated to the . . . bonds today could simply
be made up for by toll revenues collected tomorrow."

Peaje sought

to rebut this proposition by asserting that the Commonwealth failed
to "argue, let alone demonstrate, that any future collateral will
be sufficient to cover the expenses coming due" in the future "and
to make up all obligations falling into arrears during the stay
period."

This

statement

reflects

adequate protection requirement.

a

misunderstanding

of

the

While Peaje may have had a

contractual right to monthly deposits with the fiscal agent and

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the maintenance of the accounts at particular levels, its protected
interest for purposes of the lift-stay motion was limited to its
interest in repayment of the debt owed.
370; Pac. Lumber, 584 F.3d at 247.

See Timbers, 484 U.S. at

Nowhere in its district court

filings did Peaje claim that the current diversion of toll revenues
would leave that interest inadequately protected.

In light of

Peaje's admitted security interest in future toll revenues, this
omission was fatal.
The Altair Movants' claim, by contrast, warranted a
hearing.

Unlike Peaje, they included in their district court

filings a 2014 statement by ERS that uncertainty about future
employer contributions could affect "the repayment of the [ERS's]
bond payable."
contributions

Crucially, this alleged uncertainty applies to
from

Commonwealth.
insufficiency

The
of

municipalities
Altair

future

as

Movants'

funds

to

well

as

those

allegations

protect

their

repayment of the debt entitled them to a hearing.

from

the

to

the

as

interest

in

ERS attempts to

avoid this result by citing a joint stipulation filed in the
district court reflecting ERS's representation that the allegedly
diverted employer contributions are currently being held in an
operating account.

The parties, however, dispute whether the

Altair Movants' lien extends to this account.
Altair

Movants

unsecured claim.

face

the

prospect

of

being

If it does not, the
left

with

a

mere

ERS provides no authority for the proposition

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that such a claim may constitute adequate protection.

Entry ID: 6061118

Because the

district court made no finding as to whether the Altair Movants'
lien extends to the operating account, and the parties have not
briefed the issue on appeal, we decline to address this question
in the first instance.5
C.

Denial of Intervention
Having

established

the

need

to

remand

for

further

proceedings on the Altair Movants' lift-stay motion, we must now
consider the district court's denial of the Board's motion to

5

We note that the Altair Movants' request for adequate
protection here appears to be quite modest. They ask only that
the employer contributions collected during the PROMESA stay be
placed "in an account established for the benefit of Movants." In
light of ERS's representation that it is not currently spending
the funds, but instead simply holding them in an operating account,
this solution seems to be a sensible one. At oral argument, ERS
expressed concern that transferring the contributions to an
account subject to the Altair Movants' lien might violate the
Moratorium Act. But this concern may not present an obstacle to
ERS's ability to settle or otherwise resolve this federal action.
See, e.g., Badgley v. Santacroce, 800 F.2d 33, 38 (2d Cir. 1986)
("When the defendants chose to consent to a judgment . . . the
result was a fully enforceable federal judgment that overrides any
conflicting state law . . . ."); Brown v. Neeb, 644 F.2d 551, 563
(6th Cir. 1981) ("A federal court's power under the Supremacy
Clause to override conflicting state laws . . . is well
established.").
Of course, this is not the only path to a finding that the
Altair Movants' interest is adequately protected.
An equity
cushion is not the "sine-qua-non for adequate protection," which
is a "flexible concept to be tailored to the facts and
circumstances of each case." In re Smithfield Estates, Inc., 48
B.R.
910,
914
(Bankr.
D.R.I.
1985);
see
also
Collier
¶ 362.07[3][f].
Again, we leave the existence of adequate
protection to the district court to assess on remand.

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Case: 16-2377

Document: 00117103509

Page: 20

Date Filed: 01/11/2017

Entry ID: 6061118

intervene as of right in those proceedings under PROMESA and
Federal Rule of Civil Procedure 24.6
consider an appeal from this decision.
746 F.3d 30, 34 (1st Cir. 2014).

We have jurisdiction to
See, e.g., In re Efron,

The Board, an entity created by

Congress to help Puerto Rico "achieve fiscal responsibility and
access to the capital markets," 48 U.S.C. § 2121(a), moved to
intervene in district court to oppose the lift-stay motions.

The

court denied the Board's motion, citing its purported failure to
attach a "pleading that sets out the claim or defense for which
intervention is sought," as required by Fed. R. Civ. P. 24(c).
Several

circuits,

including

our

own,

have

eschewed

overly technical readings of Rule 24(c) similar to that applied by
the district court here.

See, e.g., City of Bangor v. Citizens

Commc'ns Co., 532 F.3d 70, 95 n.11 (1st Cir. 2008) (finding "no
abuse of discretion in the district court's decision to elevate
substance over form" and excuse the failure to file a pleading
with a motion to intervene); United States v. Metro. St. Louis

6

The Board filed five additional appeals raising almost
identical issues (Nos. 16-2431, 16-2437, 16-2438, 16-2439, and 162440). The movants in these cases, unlike Peaje and the Altair
Movants, have not challenged the district court's denial of their
lift-stay motions.
For this reason, the Board's appeals are
dismissed as moot. See, e.g., Pittsburgh Terminal Corp. v. Balt.
& Ohio R.R. Co., 824 F.2d 249, 256 (3d Cir. 1987) (finding appeal
from denial of motion to intervene moot where "[t]he disputes in
which [the appellant] s[ought] to protect his interests ha[d] been
resolved in his favor"). Similarly, in light of our ruling today
on Peaje's appeal, the Board's appeal in that case (No. 16-2430)
is dismissed as moot.

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Case: 16-2377

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Date Filed: 01/11/2017

Entry ID: 6061118

Sewer Dist., 569 F.3d 829, 834 (8th Cir. 2009) (finding that
"statement

of

interest

satisfie[d]

Rule

24(c)

because

it

provide[d] sufficient notice to the court and the parties of [the
movant's] interests"); Massachusetts v. Microsoft Corp., 373 F.3d
1199, 1236 n.19 (D.C. Cir. 2004) (explaining that, absent any claim
of "inadequate notice," there was "no reason to bar intervention
based solely upon" the "technical defect" of failure to attach a
pleading).

Accordingly, denial of a motion to intervene based

solely on the movant's failure to attach a pleading, absent
prejudice to any party, constitutes an abuse of discretion.

See

Providence Baptist Church v. Hillandale Comm., Ltd., 425 F.3d 309,
314-15 (6th Cir. 2005).

That is exactly what the district court

did here.
The district court's reliance on an overly technical
reading of Rule 24(c) was particularly problematic in the unique
procedural context of this case.

The Movants initiated the

proceedings by filing motions to lift the PROMESA stay.

No other

pleadings (e.g., a complaint) were pending when the Board moved to
intervene.

The Board could hardly have been expected to respond

to a complaint that had not yet been filed.

And the Board did

attach to its motion an opposition to the requests to lift the
PROMESA stay, setting forth its position on the issue.

In these

circumstances, there was no prejudice from the Board's failure to
attach some additional unspecified pleading to its intervention

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Case: 16-2377

motion.

Document: 00117103509

Page: 22

Date Filed: 01/11/2017

Entry ID: 6061118

Indeed, no party has opposed the Board's intervention in

district court or on appeal.7
We hold that the district court's rejection of the
Board's

intervention

motion

constituted

supported exercise of discretion.

an

insufficiently

Accordingly, we remand to the

district court to apply the proper standard.

See Negrón–Almeda v.

Santiago, 528 F.3d 15, 27 (1st Cir. 2008).

Rule 24(a) requires

district courts to allow intervention where the movant "is given
an unconditional right to intervene by a federal statute."
R. Civ. P. 24(a)(1).

Fed.

While we leave the resolution of this issue

to the district court in the first instance, we note that PROMESA
appears to grant the Board such a right.

See 48 U.S.C. § 2152(a).

III.
For

the

foregoing

reasons,

we

AFFIRM

the

district

court's denial of Peaje's motion to lift the PROMESA stay, but
VACATE its denial of the Altair Movants' motion.

We also VACATE

the court's denial of the Board's motion to intervene in the
litigation of the Altair Movants' motion for relief from the stay.

7

In denying the Board's motion, the district court relied
exclusively on our prior statement that failure to comply with
Rule 24(c) "ordinarily would warrant dismissal" of an intervention
motion. Pub. Serv. Co. v. Patch, 136 F.3d 197, 205 n.6 (1st Cir.
1998). But this statement about the "ordinar[y]" consequences of
failure to attach a pleading provides little guidance in the
present case, where the Board did attach an opposition to the liftstay motions clearly setting forth its position on the issue for
which it sought intervention.

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Case: 16-2377

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Date Filed: 01/11/2017

Entry ID: 6061118

The case is remanded for further proceedings consistent with this
opinion. In conducting such proceedings, the district court should
be mindful of Congress's explicit direction to "expedite" its
disposition of the matter "to the greatest possible extent."
U.S.C. § 2126(d).

48

The parties shall bear their own costs, and the

mandate shall issue forthwith.

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