United States Court of Appeals For the First Circuit

No. 18-2194

IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO SALES TAX FINANCING CORPORATION, a/k/a Cofina; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE EMPLOYEES RETIREMENT SYSTEM OF THE GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO,

Debtors,

AUTONOMOUS MUNICIPALITY OF PONCE (AMP),

Movant, Appellant,

v.

THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA),

Debtors, Appellees,

THE PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY,

Movant, Appellee. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. Laura Taylor Swain,* U.S. District Judge]

Before

Lynch, Lipez, and Thompson, Circuit Judges.

Carlos Fernandez-Nadal for appellant Autonomous Municipality of Ponce (AMP). John E. Roberts, with whom Timothy W. Mungovan, Martin J. Bienenstock, Steven L. Ratner, Jeffrey W. Levitan, Mark D. Harris, and Proskauer Rose LLP were on brief for the Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA).

September 25, 2019

* Of the Southern District of New York, sitting by designation. LYNCH, Circuit Judge. This appeal primarily concerns

whether the Title III court abused its discretion in refusing to

lift the automatic stay in PROMESA,

(a)

(incorporating

), to allow the Municipality of Ponce

to secure specific performance by the Commonwealth of Puerto Rico

of public works projects required under a Puerto Rico Commonwealth

court judgment. The Title III court plainly did not abuse its

discretion. In essence, Ponce seeks priority over the claims of

other communities and creditors of the Commonwealth. Ponce has

not shown cause why its claim warrants this priority. We affirm.

I.

We describe the relevant statutory context, the events

surrounding Ponce's prepetition judgment, and facts of the instant

case.

A. PROMESA's Automatic Stay

The Puerto Rico Oversight, Management, and Economic

Stability Act ("PROMESA"), 48 U.S.C. §§ 2101–2241, created the

Financial Oversight and Management Board ("FOMB") and, under its

Title III, empowered the Board to restructure the debt of the

Commonwealth of Puerto Rico through "quasi-bankruptcy

proceedings." Assured Guaranty Corp. v. Fin. Oversight Mgmt. Bd.

for P.R.,

, 59 (1st Cir. 2017). PROMESA automatically

stays any action to recover on a prepetition claim or "the

enforcement, against the debtor or against property of the estate,

- 3 - of a judgment obtained before the commencement of the [Title III

case]."

(a) (incorporating

(a)(1),

(2)). PROMESA defines a "claim" in several ways, including as a

"right to payment" and separately as a "right to an equitable

remedy for breach of performance if such breach gives rise to a

right to payment."

(incorporating

(5)).

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

On October 28, 1992, Ponce, the Commonwealth, the Puerto

Rico Electric Power Authority ("PREPA"), and the Puerto Rico

Highways and Transportation Authority ("PRHTA") agreed to develop

municipal projects in Ponce. These projects included installing

sewer and transmission lines, building various medical, police,

and educational facilities, modernizing local housing, and

improving several highways. Within a year, the Commonwealth,

PREPA, and PRHTA ("the debtors") withdrew from the agreement. In

response, Ponce brought suit in Commonwealth court on October 28,

1993. The suit resulted in a June 24, 1996 judgment that required

the debtors to fulfill their commitments under the original

agreement and deferred determining monetary damages until after

they completed the municipal projects. The Commonwealth court

also appointed a monitor to supervise and audit the projects'

progress. In December 2004, Ponce and the debtors settled the

issue of damages for $34 million, of which a significant portion

- 4 - remains unpaid. That portion is not at issue: The parties agree

the stay applies to it.

On May 3, 2017, the Commonwealth filed a petition for

debt adjustment relief under Title III of PROMESA.1 PRHTA and

PREPA filed similar Title III petitions on May 21 and July 3, 2017,

respectively. Filing these petitions initiated the automatic stay

at issue here, see

(a), and transferred exclusive

jurisdiction over the debtors' property to the Title III court,

see

(b).

The parties agree that most of the projects required by

the 1992 Agreement have been completed and this case concerns a

subset of uncompleted projects. As of September 2019, the two

highway projects required by the judgment and funded by the Federal

Highway Administration's Puerto Rico Highway Program,

(b), continued to progress, as they did not involve use of

the debtors' property. Due to the stay however, the court-

appointed monitor, who is paid out of the debtors' property, is

not auditing these projects. So the projects are proceeding and

Ponce is complaining only that its monitor is not monitoring the

progress on these two projects.2 Ponce conceded that funding the

1 We note that the Title III court's order denying relief from the stay states that the Commonwealth filed for debt adjustment relief on May 9, 2017, but the correct date is May 3, 2017. See Title III Petition, In re Commonwealth of P.R., Bankruptcy Case No. 17-BK-3283 (LTS) (D.P.R. May 3, 2017). 2 This monitoring by the master would be in addition to

- 5 - monitor for the two highway projects would cost the PRHTA between

$90,000 and $150,000 per year.

As to another project, Ponce alleges PREPA could

complete an outstanding project to replace overhead electrical

lines with underground alternatives for only $700,000. PREPA has

stated that its "resources are both extremely limited and fully

committed to the restoration and repairs of its electric system."

It further stated that its efforts focus on preparing the

Commonwealth "for the uncertainty for another hurricane season."3

Other outstanding projects covered by Ponce's request to

lift the stay include channeling the Río Matilde in Ponce and

rehabilitating a lighthouse -- a project which does not affect the

safety of the surrounding navigable waters.

federal oversight of highway funds. See

(g) (requiring the Secretary of Transportation to establish oversight programs to monitor the use federal highway funds);

(authorizing the Federal Highway Administrator to withhold federal funds, withhold project approval, or take other action if the recipient fails to comply with federal laws or Department of Transportation regulations). 3 Over the past ten years, PREPA has faced issues stemming from a declining population, economic downturn, multiple hurricanes devastating its already underperforming electrical system, and, as of May 2017, $9.25 billion in unsustainable debt obligations ($4.5 billion of which PREPA must service over the next five years). Puerto Rico Electric Power Authority, 2019 Fiscal Plan for the Puerto Rico Electric Power Authority 5, 103 (2019).

- 6 - C. Procedural History of Ponce's Motion

On May 4, 2018, Ponce moved for relief from the automatic

stay to compel the debtors to complete the municipal projects and

to allow the Commonwealth court to assess their compliance with

its judgment. Ponce argued that continuing the projects would not

entail further litigation, and so it would not interfere with the

Title III cases. Ponce also argued that the projects were close

to completion and the litigants could complete them under the

monitor's supervision, without significantly siphoning off time or

resources from the Title III cases.

The Commonwealth objected to this motion on July 5, 2018.

The Puerto Rico Fiscal Agency and Financial Authority ("AAFAF")

then filed joinders to the objection for PREPA and PRHTA on July

5 and July 20, 2018, respectively.

On August 3, 2018, Ponce moved for an evidentiary hearing

to support its motion to lift the stay, which the debtors opposed.

The parties submitted an October 4, 2018 joint report detailing

their disputed and undisputed facts: Ponce asserted that

completing the projects would cost only certain sums; the debtors

said the figures were much higher. The details of the dispute are

immaterial to our resolution given the Title III court's

acceptance, arguendo, of Ponce's sums. On November 2, 2018, the

Title III court denied Ponce's motions for the hearing and relief

from the stay. This appeal followed.

- 7 - II.

Ponce's first argument -- that the prepetition judgment

is not a "claim" and so was never subject to the automatic

stay -- turns on an interpretation of law, which we review de novo.

Municipality of San Juan v. Puerto Rico,

(1st

Cir. 2019). By contrast, review of the denial of motions for

relief from an automatic stay and from the denial of an evidentiary

hearing is for abuse of discretion. Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc.,

(1st Cir. 1987).

The Title III court treated Ponce's version of alleged facts as

undisputed and we do as well.

We first address Ponce's newly raised argument that the

prepetition judgment is not a "claim" subject to the automatic

stay. We then turn to whether the Title III court abused its

discretion both in denying stay relief and in doing so without

holding an evidentiary hearing.

A. Applicability of the Automatic Stay

Ponce argues that the prepetition judgment for specific

performance, as an equitable remedy, is not a "claim" subject to

the automatic stay under § 362 of the Bankruptcy Code. But Ponce

failed to raise this argument in its motion for relief from the

stay. And in doing so, Ponce has waived this argument on appeal.

Alicea v. Machete Music,

(1st Cir. 2014).

- 8 - Because the issue may arise again, we put aside Ponce's waivers4

and also hold that there is no merit to Ponce's argument, even if

it had been properly raised, for at least two reasons.

1. Ponce Seeks the Enforcement of a Judgment Obtained Before the Title III Case Commenced, Which Is Subject to the Automatic Stay

Under

(a)(2), an automatic stay applies

to "the enforcement, against the debtor or against property of the

estate, of a judgment obtained before the commencement of the

[bankruptcy] case." The judgment at issue was obtained before the

commencement of the Title III case. The plain meaning of § 362

covers this prepetition Commonwealth court judgment against the

debtors and their property for specific performance of the

municipal projects. See Municipality of San Juan,

(applying the automatic stay to an injunction and collecting cases

that do the same).

2. Even if § 362(a)(2) Does Not Apply, Ponce's Prepetition Judgment Is a Claim Subject to the Automatic Stay

Even if we concluded that § 362(a)(2) does not apply

here, the prepetition judgment is also a "claim" subject to the

automatic stay under a different provision,

(a)(1).

A § 362(a)(1) "claim" comprises rights to equitable remedies for

4 Ponce also failed to address the issue of an exception to waiver in its initial appellate brief and so has waived any argument as to exceptions to waivers for that reason. See Pignons S.A. de Mecanique v. Polaroid Corp.,

(1st Cir. 1983).

- 9 - breach of performance that "give[] rise to a right of payment,"

(5)(B) -- i.e., "if a monetary payment is an

alternative for the equitable remedy," Rederford v. U.S. Airways,

Inc.,

(1st Cir. 2009).

The parties agree that Ponce's judgment is an equitable

remedy and is for breach of performance, but dispute whether it

"gives rise to a right of payment." Ponce argues that its

equitable remedy cannot be reduced to a monetary award because,

even if Ponce recovered the cost of completing the projects, it

lacks the debtors' expertise and authorization to "wire . . .

underground power distributions" for a specific project. Ponce

does not say whether these, or similar, impediments also affect

the remaining projects.

Regardless of whether and to what extent Ponce requires

the debtors' assistance, its argument fails. Ponce assumes that

monetary damages would only be the amount necessary to complete

the projects and, without the debtors' assistance, it could not be

made whole. But if the Commonwealth court could reduce the delay

in project completion to monetary damages, then the Title III court

could similarly reduce the projects' further delay or cancellation

to monetary damages.

This court, and others, have reduced other equitable

judgments to money damages, despite the asserted inability of a

damages remedy to "purchase" the performance of the underlying

- 10 - contract. See Rederford,

(concluding that

reinstatement following termination was a "claim," as money

damages served as an alternate remedy); In re Nickels Midway Pier,

LLC,

, 637–38 (3d Cir. 2007) (reducing an action

for specific performance of a contract for real property to money

damages and classifying it as a "claim"); Vil v. Poteau, No. 11–

cv–11622–DJC,

, at *8–9 (D. Mass. July 26, 2013)

(classifying as a "claim" an injunction to cease copyright

infringement); see also In re The Ground Round, Inc.,

(1st Cir. 2007) (dictum) (stating that

(5) would

classify as a claim a specific performance remedy for which money

damages could substitute -- were the remedy not for the "return of

specific property"); 2 Collier on Bankruptcy ¶ 101.05 [5] (16th

ed. 2009) (stating that when a right to payment may satisfy a

judgment for specific performance, the judgment is a "claim"). We

add that the fact that the costs of compliance with the prepetition

judgment may be difficult to estimate does not prevent the

enforcement action from being a "claim." See Woburn Assocs. v.

Kahn (In re Hemingway Transp., Inc.),

, 8 (1st Cir. 1992)

(holding a "contingent, unliquidated, and unmatured" right to

indemnification to be a "claim"). We conclude that the right to

equitable remedies here gives rise to money damages under the

meaning of § 362(a)(1). Independently, the stay applies for that

reason.

- 11 - B. Denial of Relief from the Automatic Stay

The Title III court properly looked to the Sonnax factors

outlined by the Second Circuit as a helpful guide to granting or

denying relief from a stay. See In re Fin. Oversight & Mgmt. Bd.

for P.R.,

(1st Cir. 2018) (citing Sonnax Indus. v.

Tri Component Prods. Corp. (In re Sonnax Indus.),

(2d Cir. 1990)). Of Sonnax's relevant factors under PROMESA,5

the Title III court analyzed the following factors, and found them

to favor maintaining the stay: (1) "whether relief would result in

a partial or complete resolution of the issues"; (2) "lack of any

connection with or interference with the bankruptcy case"; (3)

"whether litigation in another forum would prejudice the other

creditors"; (4) "the interests of judicial economy and the

expeditious and economical resolution of litigation"; and (5) the

"impact of the stay on the parties and the balance of harms."

Sonnax,

. The Title III court did not abuse its

discretion in finding the factors favor maintaining the stay.

5 We reject Ponce's argument that the court-appointed monitor is a "special tribunal" that implicates the fourth Sonnax factor: "whether a specialized tribunal with the necessary expertise has been established to hear the cause of action." See Sonnax,

. The monitor can only "supervis[e] and audit[]"; he cannot "hear the cause of action" and so this factor is not at issue. See

- 12 - 1. Partial or Complete Resolution of the Issues and the Interests of Judicial Economy (Sonnax Factors 1 and 10)

The Title III court may lift the stay when it would

resolve "significant open issues in the [debtors'] bankruptcy

case" efficiently -- not issues in Ponce's separate enforcement

action. See In re Taub,

(Bankr. E.D.N.Y. 2009)

(emphasis added). The Title III court found that relief would not

efficiently resolve any open issues that would aid the Title III

cases; rather, it would divert the debtors' resources to Ponce's

projects and give Ponce an advantage. We agree.

Further, to allow separate litigation over the debtors'

compliance with the judgment, as Ponce seeks, would conflict with

one of PROMESA's core purposes: "centraliz[ing] all disputes

concerning property of the [Commonwealth's] estate so that

reorganization can proceed efficiently, unimpeded by uncoordinated

proceedings." Municipality of San Juan,

(applying

the purposes of the Bankruptcy Code to PROMESA). To give one

example, lifting the stay to allow the monitor to begin to oversee

the federally financed highway projects could, as the Title III

court stated, lead to "costly litigation in the Commonwealth Court

concerning . . . the extent or quality of the work." Ponce has

not shown that lifting the stay would allow the Commonwealth court

to resolve significant open issues in the Title III case more

efficiently than the Title III court could resolve them.

- 13 - 2. Interference with the Bankruptcy Case and Prejudice to Other Creditors (Sonnax Factors 2 and 7)

The Title III court found that diverting funds from the

debtors to Ponce and to potential litigation over compliance with

the judgment would interfere with the bankruptcy cases and cause

prejudice to the other creditors. Ponce argues that, because its

judgment predates the debtors' bankruptcy, the stay should not

apply (or instead, should be lifted). This argument lacks merit,

as excluding prepetition claims and judgments -- even decades old

ones -- contravenes the purpose of PROMESA's debt restructuring

provisions. See Municipality of San Juan,

(stating

that PROMESA's automatic stay provision should "protect[] the

debtor's assets from disorderly, piecemeal dismemberment outside

the bankruptcy proceedings" (alteration in original)). Ponce

correctly, and to its credit, does not argue that granting its

request for stay relief would not prejudice other creditors.

Even taking Ponce's alleged facts as to the costs of

compliance as setting a top line as the Title III court did, it is

clear that lifting the stay would compel the debtors to spend at

least $44 million. This sum would impede resolving other Title

III claims and prejudice the other creditors to that amount. See,

e.g., U.S. Bank Tr. Nat'l Ass'n v. AMR Corp. (In re AMR Corp.),

(2d Cir. 2013) (finding no abuse of discretion in

maintaining a stay to prevent diverting funds from other

- 14 - creditors). And potential litigation over the debtors' compliance

with project commitments could both interfere with resolving the

Title III case and result in additional expenses to the prejudice

of the other creditors.

3. The Impact of the Stay on the Parties and the Balance of Harms (Sonnax Factor 12)

For the final factor, the Title III court explicitly

weighed how stay relief would lead to improvement for the people

of Ponce's quality of life against how it would impact the debtors'

overall fiscal health and ability to repair critical

infrastructure throughout the Commonwealth. The Title III court

expressed sympathy toward the people of Ponce and noted their long

battle to compel the debtors to complete the projects, but in

weighing the equities, the Title III court found that they favored

maintaining the stay. The Title III court also noted that Ponce

failed to show that any of the municipal projects "were related to

any federally authorized or delegated program for the protection

of health, safety, or the environment." (Emphasis added.)

Despite its own expert witness assessing the projects'

cost to the debtors at around $44 million, Ponce argues that

lifting the stay would not "affect [the] debtors['] budgets" and

we should not consider the Commonwealth's financial crisis. So,

Ponce concludes, the balance of harms favor relief. We disagree.

- 15 - The cost of the local projects and of likely attendant litigation

weigh strongly against stay relief.

At oral argument, Ponce focused on lifting the stay for

the $700,000 electrification project and funding for the monitor

to oversee the highway projects, arguing that the benefits of each

dwarfed the costs to the Commonwealth. We reject characterizing

these projects in this manner. Even if we were to consider the

remaining cost of the electrification project to be relatively

small, the Board and PREPA opposed stay relief noting PREPA's

extremely limited resources and their view that at present those

resources are best spent elsewhere. The record shows the rest of

the cities and towns in the Commonwealth use the same above-ground

electrical system that this project would replace. Given the

critical infrastructure issues from which the Commonwealth suffers

and the importance of prioritizing the most pressing issues, the

debtors are correct that there is no basis to disturb the judgment

of the Title III court. In effect, Ponce requests priority for

its projects over the countless other projects needed by other

communities in the Commonwealth. The Title III court clearly did

not abuse its discretion in declining to give Ponce this priority.6

Cf. Begier v. IRS,

(1990) ("Equality of

6 We note that denying relief from the stay does not deny Ponce the opportunity to press its claim for the projects in the future. Ponce may still later seek relief in the Title III proceedings.

- 16 - distribution among creditors is a central policy of the Bankruptcy

Code.").

C. Declining to Hold an Evidentiary Hearing

After moving for stay relief, Ponce requested an

"evidentiary hearing to submit evidence even by testimonial of

Monitor [sic] or documents of the reports made by the debtor[s']

attorneys." Ponce did not request the hearing for any non-

evidentiary purpose. The Title III court accepted the costs

alleged by Ponce as true and consequently found holding an

evidentiary hearing unnecessary. Ponce does not allege that there

is any additional material evidence that it would have submitted

in the requested hearing. Without any disputed, material facts,

the Title III court concluded that an evidentiary hearing was

unnecessary. We agree. A Title III court need not always hold a

hearing before granting or denying relief from a stay. Peaje Invs.

LLC v. García-Padilla,

(1st Cir. 2017). A Title

III court may proceed without an evidentiary hearing when the

parties do not dispute any material facts.

In its brief on appeal, Ponce for the first time asserts

that it would have argued at the hearing that the prepetition

judgment, as an equitable remedy, was not a "claim" subject to the

automatic stay (an argument we rejected earlier). Ponce did not

- 17 - argue this in its motion to the Title III court.7 Regardless, the

Title III court, having considered the parties' written arguments,

reasonably concluded that Ponce had not shown cause to lift the

stay and a hearing would provide no additional benefit. Cf.

Mitsubishi Motors,

(affirming decision lifting

stay without hearing when the court reviewed briefing by both

parties and the debtor did not show "viable reasons for maintaining

the stay"). Consequently, we hold that the Title III court did

not abuse its discretion in declining to hold a hearing.

III.

We affirm the judgment of the Title III court.

7 Had Ponce wished to make this argument to the Title III court, it should have briefed the issue in its motion, requested a non-evidentiary hearing to argue the issue, or moved for reconsideration. See, e.g.,

(incorporating the Federal Rules of Bankruptcy Procedure into PROMESA Title III cases, including Fed. R. Bankr. P. 9024, which allows for a motion for reconsideration).

- 18 -