Opposition Brief — Financial Oversight and Management Board for Puerto Rico, Petitioner v. Cooperative de Ahorro y Credito Abraham Rosa, et al.

No. 22-367

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In The

Supreme Court of the United States

---------------------------------♦--------------------------------THE FINANCIAL OVERSIGHT AND MANAGEMENT

BOARD FOR PUERTO RICO, AS REPRESENTATIVE

OF THE COMMONWEALTH OF PUERTO RICO,

THE EMPLOYEES RETIREMENT SYSTEM OF THE

GOVERNMENT OF THE COMMONWEALTH OF

PUERTO RICO, AND THE PUERTO RICO

PUBLIC BUILDINGS AUTHORITY,

Petitioner,

v.

COOPERATIVA DE AHORRO Y CREDITO

ABRAHAM ROSA, ET AL.,

Respondents.

---------------------------------♦--------------------------------On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The First Circuit

---------------------------------♦--------------------------------BRIEF IN OPPOSITION TO A PETITION

FOR A WRIT OF CERTIORARI

FILED BY SUIZA DAIRY, CORP.

---------------------------------♦--------------------------------RAFAEL A. GONZALEZ VALIENTE

Counsel of Record for

Suiza Dairy, Corp.

GODREAU & GONZALEZ LAW, LLC

P.O. Box 9024176

San Juan, P.R. 00902-4176

(787) 726-0077

rgv@g-glawpr.com

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COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

Can governmental entities discharge “just compensation” claims incurred on account of the Fifth

Amendment through restructuring proceedings?

ii

PARTIES TO THE PROCEEDINGS

Suiza Dairy, Corp. is a party to the proceedings as

a creditor with a regulatory taking claim against the

Commonwealth of Puerto Rico and who filed a response to the appeal filed by the Petitioners before the

First Circuit. Suiza Dairy, Corp. adopts the listing in

the Petition as to the additional parties to the action.

However, Suiza Dairy, Corp. notes that while the individual property owners listed in Exhibit A of Petitioners’ Rule 12.6 letter did not file their own pleadings in

the courts below, they absolutely have an interest in

the outcome of this petition because their just compensation awards were protected by the First Circuit decision below.

CORPORATE DISCLOSURE STATEMENT

Respondent Suiza Dairy, Corp. is a privately held

corporation whose parent corporation is Grupo Gloria

Holding, Corp. No publicly held company owns 10% or

more of its stock.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED...................................

i

PARTIES TO THE PROCEEDING ......................

ii

CORPORATE DISCLOSURE STATEMENT ......

ii

TABLE OF CONTENTS ......................................

iii

TABLE OF AUTHORITIES .................................

iv

INTRODUCTION AND SUMMARY OF REASONS FOR DENYING THE PETITION ..........

1

STATEMENT OF THE CASE..............................

6

REASONS FOR DENYING THE PETITION ...... 11

I.

PROMESA is not a Bankruptcy Statute.....

11

II.

There is no “Circuit Split” that Merits the

Court’s Intervention .................................. 12

III.

The First Circuit Decision Correctly Interprets the Fifth Amendment and the Decisions of this Honorable Court .................... 16

IV.

The First Circuit Decision Below does not

have “Significant” Effect on Municipal Restructurings ............................................... 23

CONCLUSION..................................................... 26

iv

TABLE OF AUTHORITIES

Page

FEDERAL CASES

Almota Farmers Elevator & Warehouse Co. v.

United States, 409 U.S. 470 (1973) ...........................9

Armstrong v. United States, 364 U.S. 40 (1960) ....4, 19, 25

Bivens v. Six Unknown Named Agents of Fed.

Bureau of Narcotics, 403 U.S. 388 (1971) ...............18

Catalina Properties, Inc. v. United States, 143 Ct.

Cl. 657 (1959) ..........................................................22

Cedar Point v. Hassid, 141 S.Ct. 2063 (2021) ..............7

Cobb v. City of Stockton, California, 909 F.3d

1256 (9th Cir. 2018) .............. 4, 5, 6, 12, 13, 14, 21, 24

Culebras Enterprises Corp. v. Rivera Ríos, 813

F.2d 506 (1st Cir. 1987) ...........................................12

First English Evangelical Lutheran Church of

Glendale v. County of Los Angeles, 482 U.S.

304 (1987) ...............................3, 10, 17, 18, 19, 20, 25

In re City of Detroit, 524 B.R. 147 (Bankr. E.D.

MI. 2014) ............................................................. 5, 24

In re Commonwealth of Puerto Rico, No. 17,628

(D.P.R. Jul. 30, 2021) ............................................. 2, 8

In re Commonwealth of Puerto Rico, No. 17,639

(D.P.R. Jul. 30, 2021) ............................................. 2, 8

Jacobs v. U.S., 290 U.S. 13 (1933) ...............................18

Knick v. Township of Scott, 139 S.Ct. 2162

(2019) ........................................... 4, 10, 17, 18, 19, 25

v

TABLE OF AUTHORITIES – Continued

Page

Louisville Joint Stock Land Bank v. Radford,

295 U.S. 555 (1935) ..................................... 16, 17, 20

Mac’Avoy v. The Smithsonian Inst., 757 F.Supp.

60 (1991) ..................................................................22

Monongahgela Navigation Co. v. United States,

148 U.S. 312 (1893) .................................................16

Palazzolo v. Rhode Island, 553 U.S. 606 (2001) ...........8

Poinsett Lumber Mfg. v. Drainage Dist. No. 7,

119 F.2d 270 (8th Cir. 1941) .............................. 14, 15

Tenoco Oil Company v. Department of Consumer

Affairs, 876 F.2d 1013 (1st Cir. 1989) .....................12

U.S. v. Security Indus. Bank, 459 U.S. 70 (1982)........20

UNITED STATES CONSTITUTION

U.S. Const. art. I, §8, cl. 4...................................... 11, 20

U.S. Const. art. IV, §3 ....................................................1

U.S. Const. amend. V ........ 1, 2, 3, 4, 7, 9, 11, 12, 16, 17,

................................................... 18, 19, 20, 22, 23, 25

FEDERAL LAWS

11 U.S.C. §523 .............................................................21

42 U.S.C. §1983 ...........................................................18

48 U.S.C. §2101 ......................................................... 1, 6

48 U.S.C. §2121(a) .........................................................6

48 U.S.C. §2121(b)(2) ..................................................11

vi

TABLE OF AUTHORITIES – Continued

Page

48 U.S.C. §2164 ...........................................................21

48 U.S.C. §2164(a) .........................................................7

48 U.S.C. §2174(b)(3) ................................................ 1, 9

PUERTO RICO LAWS

P.R. Laws Ann. Tit. 32, §2907 .......................................7

SECONDARY SOURCES

James Madison, “Property” (March 29, 1792) ...........16

1

INTRODUCTION AND SUMMARY OF

REASONS FOR DENYING THE PETITION

Suiza Dairy, Corp. (hereinafter “Suiza”) has a nondischargeable claim against the Commonwealth of

Puerto Rico (hereinafter “Commonwealth”) for just

compensation on account of a regulatory taking in violation of the Fifth Amendment of the U.S. Constitution.

By end of the first decade and the beginning of the

second decade of the new century, the Commonwealth

reached an economic and financial crisis which required that Congress take action. Exercising its power

over its territories under Article IV, Section 3 of the

Constitution, Congress formulated the Puerto Rico

Oversight, Management, and Economic Stability Act

(hereinafter “PROMESA”) to allow the Commonwealth

to restructure its debts and finances. 48 U.S.C. §2101

et seq. PROMESA required that a Financial Oversight

and Management Board (hereinafter the “Board”) be

established which would then be in charge of the Commonwealth’s restructuring processes. Among other

options, Title III of PROMESA provides for the presentation of a petition before the Federal District Court for

the restructuring of the debts of the Commonwealth

and/or its instrumentalities.

Title III of PROMESA then allows the District

Court to approve a Plan of Adjustment if it meets certain conditions. One of those conditions is that the

“debtor is not prohibited by law from taking any action

necessary to carry out the plan.” 48 U.S.C. §2174(b)(3).

2

As part of the restructuring process, the Board

presented a Plan of Adjustment that would affect and

discharge certain claims held by property owners for

just compensation pursuant to the Fifth Amendment

of the Constitution of the United States of America.

The property owners in question include the whole

spectrum of eminent domain claimants, from direct action claimants where the government exercised its eminent domain powers to inverse condemnation actions

and regulatory takings claims.

The Plan of Adjustment, as proposed by the Board,

would have treated eminent domain claims as partially secured in the case of property owners with a direct-action claim – to wit, those claims in which the

Commonwealth initiated a “quick-take” eminent domain procedure and for which funds were deposited in

Court. Any portion of those claims not secured by the

funds deposited in Court and all other eminent domain

claims, including inverse condemnations and regulatory takings claims, would be treated as unsecured

claims. Under the Plan of Adjustment proposed by the

Board, unsecured claims would receive approximately

twenty percent (20%) of their claims and the rest

would be discharged.1

Suiza and the other property owners opposed the

treatment proposed by the Board in the Plan of

See, In re Commonwealth of Puerto Rico, No. 17,628 (D.P.R.

Jul. 30, 2021), pg. 24. See also, In re Commonwealth of Puerto

Rico, No. 17,639 (D.P.R. Jul. 30, 2021), Attachment #1, p. 24.

1

3

Adjustment and requested that they be paid the full

just compensation owed to them under the Fifth

Amendment.

The District Court in charge of the Title III

PROMESA proceedings concluded that takings claims

are constitutionally protected by the Fifth Amendment

and have to be paid in full through the Plan of Adjustment. The First Circuit Court later confirmed the ruling of the District Court, holding that “if the

government takes private property, it must pay just

compensation.” Ap. 33a.

The Fifth Amendment of the U.S. Constitution recognizes that government has the power to “take” private property for public use, but it conditions that

power to the payment of “just compensation” to the victim of said taking. U.S. Const. Amend. V. (“[N]or shall

private property be taken for public use, without just

compensation.”). See also, First English Evangelical

Lutheran Church of Glendale v. County of Los Angeles,

482 U.S. 304, 314 (1987) (“As its language indicates,

and as the Court has frequently noted, this provision

does not prohibit the taking of private property, but instead places a condition on the exercise of that power.”)

As the District Court correctly held, the payment of

just compensation is a “a necessary condition to the exercise of government power to take private property for

public use.” Ap. 174a.

Once the taking has occurred, the owner of the

property is entitled to just compensation immediately

and no future action of the government may relieve it

4

of the obligation to provide said compensation. Knick v.

Township of Scott, 139 S.Ct. 2162, 2167 (2019). No law,

such as PROMESA, may trump the constitutional imperative of providing just compensation.

The Board’s assertion that the Commonwealth

could use the $300 million owed to the taking’s claimants “to provide essential public services to its residents”2 is exactly the reason why the Fifth Amendment

was created – to prohibit the taking of property from

certain individuals to pay public expenses “which, in

all fairness and justice, should be borne by the public

as a whole.” Armstrong v. United States, 364 U.S. 40, 49

(1960).

To paraphrase Justice Thomas, if the requirement

of enforcing the Takings Clause of the U.S. Constitution makes PROMESA “unworkable, so be it”. Knick,

supra at 2180. But the matter is less dire than that. By

the Board’s own admission, the Plan of Adjustment is

still viable even if the Commonwealth has to pay the

just compensation claims in full.3

The Board also claims that the Ninth Circuit decision in Cobb v. City of Stockton, California, 909 F.3d

1256 (9th Cir. 2018) creates a circuit split. Pet. at 9-10.

But in reality, the Ninth Circuit held that the appeal

was equitably moot. (“None of the factors that we

See, Pet. 22.

Ap. 203a, fn. 47 (“The Plan remains feasible even accounting for the payment in full of the total of Eminent Domain/Inverse

Condemnation Claims asserted to arise out of the Takings

Clause.”).

2

3

5

consider in deciding whether to apply the doctrine of

equitable mootness favor Cobb.”) Id, at 1266. The holding that purportedly favors the Board’s position is, at

best, dicta. No such circuit split actually exists.

The Board then alleges that the issue is of such

importance that it requires this Court’s intervention.

But the same “statistics” put forth by the Board show

that the issue is not one of real importance in municipal restructurings, much less determinative. The

Board posits that one hundred and seventy (170) municipal entities have filed for bankruptcy protection

since the year 2000. Pet. at 2. Out of those one hundred

and seventy (170) cases, the issue of whether takings

claims can be discharged has only arisen in three (3) of

them – (i) City of Stockton, (ii) City of Detroit and (iii)

Puerto Rico.4 That does not denote that this issue is of

“tremendous importance”5 in municipal restructuring

cases, but quite the opposite.

More importantly, in none of the three cases was

the payment of the takings claims an impediment to

the restructuring. The City of Detroit and the Commonwealth were able to confirm their plans in spite of

being required to pay takings claims in full. And, although the City of Stockton did not pay takings claims

In its Opinion and Order the First Circuit could only identify two other cases where the issue had been addressed by the

courts, and In re City of Detroit, 524 B.R. 147 (Bankr. E.D. Mich.

2014). See, Ap. 30a-31a.

5

See, Pet. 23.

4

6

in full, it appears to have been able to do so also.6 In

short, the Board does not provide any evidence to support its contention that this is such a critical issue in

municipal bankruptcies as to merit this Court’s intervention.

The First Circuit correctly confirmed the District

Court’s decision below. The petition should be denied.

---------------------------------♦---------------------------------

STATEMENT OF THE CASE

(1) After the turn of the century, Puerto Rico

went through a dire financial downturn that eventually led to the Commonwealth not being able to meet

its obligations or provide basic services for its citizens.

Since the Commonwealth is exempted from Chapter 9

of the Bankruptcy Code, Congress exerted its power

under the Territorial Clause to enact PROMESA in order to provide for the restructuring of the Commonwealth’s debts. 48 U.S.C. §2101, et seq.

PROMESA provides for the creation of the Board,

which in turn is tasked with guiding the Commonwealth into financial stability and access to the capital

markets. Id, §2121(a). Its Title III allows the Board to

file a restructuring procedure for the Commonwealth

See, City of Stockton, supra at 1279 (“I am not blind to the

City’s herculean task of pulling itself out of bankruptcy, but a ruling for Cobb would not topple the Plan, or somehow throw the

City back into bankruptcy.”).

6

7

or any of its instrumentalities before the Federal District Court. Id, §2164(a).

(2) Prior to the filing of the restructuring procedure, the Commonwealth had availed itself of the

eminent domain power recognized by the Fifth Amendment. The Commonwealth used a local “quick-take”

statute to acquire properties for public use. P.R. Laws

Ann. Tit. 32, §2907. As part of that “quick-take” process, the Commonwealth deposited funds in State

Court for what the Commonwealth understood was the

fair value of the property in question. Some of those

property owners challenged the value that the Commonwealth assigned to the property and obtained

judgments awarding them additional money as just

compensation for the taking of said property.

The Commonwealth also faced myriad claims for

inverse condemnation and regulatory takings where

the property owners argued that the Commonwealth

had either invaded the property or impaired the use of

said property to the extent that it constituted a taking.

Those property owners have judgments which grant

them just compensation for the uncompensated taking,

regulatory taking or impairment of use of the property

in question.

Since all types of takings are the same for purposes of the Fifth Amendment, all such claims need to

be treated the same. Cedar Point v. Hassid, 141 S.Ct.

2063, 2072 (2021) (“Government action that physically

appropriates property is no less a physical taking

8

because it arises from a regulation.”); see also,

Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001).

Suiza suffered a regulatory taking at the hands of

the Commonwealth through an improper price-fixing

scheme enacted for the milk industry. In order to obtain just compensation, Suiza and Vaquerias Tres

Monjitas filed a complaint before the Federal District

Court for the District of Puerto Rico. After nearly a decade of litigation, the case culminated in a settlement

for the payment of the just compensation owed on account of the regulatory taking.

(3) In 2017, the Board filed a restructuring proceeding for the Commonwealth under Title III of

PROMESA which culminated in the presentation of a

Plan of Adjustment. The Plan of Adjustment proposed

to pay “victims” of “quick-take” actions the full

amounts deposited in State Court by the Commonwealth. All other taking or eminent domain claims, including deficiency claims in the “quick take” actions,

would have been treated as unsecured claimants

which would have been paid twenty percent (20%) of

the actual value of their claims.7 In other words, most

eminent domain/takings claimants would be paid

much less than the actual value of their property in

The Plan of Adjustment provides for payment of only 20%

to unsecured creditors. See, In re Commonwealth of Puerto Rico,

No. 17,628 (D.P.R. Jul. 30, 2021), pg. 24. See also, In re Commonwealth of Puerto Rico, No. 17,639 (D.P.R. Jul. 30, 2021), Attachment #1, p. 24.

7

9

contravention of the Fifth Amendment and the holdings of this Court.8

The District Court held that this violated the Fifth

Amendment right to just compensation. Thus, the Plan

of Adjustment could not be confirmed as it did not meet

the requirement that “the debtor is not prohibited by

law from taking any action necessary to carry out the

plan.” 48 U.S.C. §2174(b)(3).

The Board modified the Plan of Adjustment to provide an alternative in which eminent taking claimants

would be paid in full according to the Fifth Amendment, while preserving the right to appeal the determination of the District Court.

The Board filed an appeal to the First Circuit, who

in turn confirmed the ruling below. The First Circuit

held that “[b]ecause the prior plan proposed by the

Board rejected any obligation by the Commonwealth to

pay just compensation, the Title III court properly

found that the debtor was prohibited by law from carrying out the plan as proposed.” Ap. 33a.

As part of its decision, the First Circuit recognized

that the Fifth Amendment is special, in as much as it

is the only constitutional right/provision that requires

the government to compensate the affected property

As the First Circuit correctly states in its Opinion and

Order, “just compensation” is “the full monetary equivalent of the

property taken”; that is, “[t]he owner is to be put in the same position monetarily as he would have occupied if his property had

not been taken.” Quoting, Almota Farmers Elevator & Warehouse

Co. v. United States, 409 U.S. 470, 473–74 (1973). See, p. 22a.

8

10

owner.9 Without just compensation, the government

simply may not take property from private citizens for

public use. “[T]he Takings Clause ‘does not prohibit the

taking of private property, but instead places a condition on the exercise of that power.’ ” Quoting, First English Evangelical Lutheran Church of Glendale v. Los

Angeles Cnty., 482 U.S. 304, 314 (1987). See, Ap. 29a. In

order to take property for public use, the government

must provide just compensation. One simply cannot

exist without the other.10

(4) The Board now requests that this Honorable

Court issue a petition for writ of certiorari from the

First Circuit decision. The Board raises a host of arguments in a scattershot approach in an attempt to sway

the Court. But as we shall see, the Board is simply incorrect and the Court should deny the request to issue

a writ of certiorari.

---------------------------------♦---------------------------------

“This makes the payment of just compensation unlike most

other instances in which the government engages in a constitutional violation and is required to remedy that violation by paying

money. For instance, nothing in the Constitution itself specifies

any particular remedy that must be provided when the government engages in a Fourth Amendment violation. Indeed, absent

remedies provided for by statute or federal common law, there is

no right to monetary relief for most constitutional violations.” See,

Ap. 29a.

10

Knick v. Township of Scott, supra at 2180 (“A ‘purported

exercise of the eminent-domain power’ is therefore ‘invalid’ unless

the government ‘pays just compensation before or at the time of

its taking.’ ”).

9

11

REASONS FOR DENYING THE PETITION

I.

PROMESA is not a Bankruptcy Statute.

All of the Board’s arguments are based on the assumption that PROMESA is a bankruptcy statute

approved under the Bankruptcy Clause of the U.S.

Constitution,11 and that there is a conflict between the

Fifth Amendment and the power to create uniform

bankruptcy laws. (“This Court should grant certiorari

to resolve this irreconcilable disagreement that the

Fifth Amendment conflicts with the bankruptcy power

. . . ”) Ap. 2.12

The problem with that argument is that

PROMESA was not approved pursuant to the Bankruptcy Clause. Rather, §101(b)(2) of the statute clearly

states that “Congress enacts [P.R.O.M.E.S.A.] pursuant to Article IV, Section 3 of the Constitution of

the United States, which provides Congress the

power to dispose of and make all needful rules and

regulations for territories.” 48 U.S.C. §2121(b)(2).

[Emphasis added].

There can be no question that the Fifth Amendment applies to Puerto Rico and the other Territories.

U.S. Const. art. I, §8, cl. 4.

See also, Ap. 3 (“The court below also mistakenly thought

that the Takings Clause and Congress’s bankruptcy power are in

conflict when a debtor seeks to discharge a just compensation

claim.”); Ap. 20 (“This Court has never suggested that the discharge of a just-compensation claim or any other unsecured claim

violated the Fifth Amendment because there is no conflict between the Fifth Amendment’s creation of a claim and the bankruptcy power’s restructuring of a claim.”).

11

12

12

Tenoco Oil Company v. Department of Consumer Affairs, 876 F.2d 1013, 1029 N. 23 (1st Cir. 1989) (“We

have no doubt, however, that the takings clause, like

the due process and equal protection clauses, applies

to the Commonwealth of Puerto Rico. See, e.g., Culebras Enterprises Corp. v. Rivera Ríos, 813 F.2d 506

(1st Cir. 1987)”). Thus, the examination of whether

PROMESA can supersede the requirements of the

Fifth Amendment should end there.

Simply put, although PROMESA is a restructuring statute it was not passed pursuant to the Bankruptcy Clause but rather pursuant to the Territories

Clause. Therefore, there is no “irreconcilable disagreement that the Fifth Amendment conflicts with the

bankruptcy power”. Ap. 2.

For that reason alone, the Court should deny the

petition.

II.

There is no “Circuit Split” that Merits the

Court’s Intervention.

Petitioners claim that the First Circuit decision

conflicts with the Ninth Circuit ruling in Cobb v. City

of Stockton, supra. Pet. 9-10. There is no such conflict.

Although the Ninth Circuit discusses the takings issue, the actual ruling of the Court is based on the equitable mootness doctrine.

In Stockton, as opposed to the instant case, Cobb’s

appeal did not request that he receive just compensation or that his claim be found to be non-dischargeable.

13

Cobb requested that the plan be unwound and the

bankruptcy petition be dismissed.13 On the other hand,

Suiza and the other claimants simply requested that

their constitutionally protected claims for just compensation be paid in full.

After analyzing Cobb’s request to unwind the

plan, the Ninth Circuit concluded that:

Cobb did not pursue any bankruptcy stay

remedies, much less pursue them with the

requisite diligence. The plan has long been

substantially consummated. He offers too little, too late. None of the factors that we consider in deciding whether to apply the

doctrine of equitable mootness favor Cobb.

Thus, his appeal must be dismissed.

Id, at 1266.

The equitable mootness holding should have

ended the discussion. Any further holdings are dicta

and need not be considered by this Court.

But there are also several other important differences between Cobb’s claim in Stockton and the respondent’s claims in the instant case. For example,

the Ninth Circuit found that Cobb “listed his claim as

unsecured and did not file any proceeding to have the

court determine its secured status”, he “did not object

to the disclosure statement” and “did not seek

“On appeal, [Cobb] reiterated his objection to the plan and

repeated his claim that where a bankruptcy plan cannot be confirmed, the remedy is dismissal of the bankruptcy case.” Id, at

1265.

13

14

exemption from discharge.” Id, at 1267. On the other

hand, Suiza listed its claim as a “Non-Dischargeable

Regulatory Accrual Claim for U.S. Constitution Violations Involving Takings Clause” which has not been objected. Suiza and the other takings claimants objected

to the Disclosure Statement submitted by the Board as

well as the Plan of Adjustment. Suiza and the other

takings claimants also specifically requested that their

takings claim be excepted from discharge. All of these

differences make Stockton inapplicable to the case at

hand and differentiates it from the First Circuit decision below.

Finally, Stockton has a well thought out dissent by

Judge Friedland. Id, at 1274-79. The dissenting analysis on the matter of the takings claim, coincides and is

cited favorably by the First Circuit below. This, combined with the First Circuit decision below and the decision in the City of Detroit case, could lead to a change

in the Ninth Circuit’s position on the matter.

The Board then claims that the First Circuit decision conflicts with Poinsett Lumber Mfg. v. Drainage

Dist. No. 7, 119 F.2d 270, 274 (8th Cir. 1941). But as the

First Circuit correctly stated, Poinsett does not tackle

the question of whether a just compensation claim is

dischargeable in bankruptcy.

Poinsett addresses whether the bankruptcy court

had jurisdiction over the appellant’s claim and

“whether or not the court abused its discretion in entering the order” denying appellant’s request “to institute suit against the debtor in the state court”. Id, at

15

271-272. The Eighth Circuit then explains that the appellant’s claim could “have been adjudicated as fairly

and as expeditiously in the bankruptcy court as it

could be in the state court.” Id, at 272. The appellant

refused to participate in the restructuring process even

though “every opportunity was given appellant to appear in the proceeding and assert its rights and claims”

so it could not make a “a collateral attack” to the plan

of composition. Id, at 274. It is important to note that

the appellant in Poinsett only had a claim that could

possibly constitute a taking but for which there was no

ruling as to whether it was a taking or not.14 But the

fact of the matter is that appellant refused to litigate

the action before the bankruptcy court despite being

given every opportunity to do so.15 The Eighth Circuit

never addressed whether a just compensation claim

could be discharged in bankruptcy or not.16 Thus, no

“For its claim and cause of action on which it asked permission to institute suit, appellant alleged in its petition that it

owns 21,000 acres of land in Cross County, Arkansas, which has

been damaged by water cast upon it by a floodway constructed by

the debtor district, and for which it has not been compensated.”

Poinsett, supra at 271.

15

“Thus, every opportunity was given appellant to appear in

the proceeding and assert its rights and claims. If it claimed that

it was not included in the plan nor affected by it, under §403, sub.

a, it should have raised the question and that issue would have

been determined by the judge, after hearing.” Poinsett, supra at

274.

16

“There can be but one final question presented upon such

an appeal: that is whether or not the court abused its discretion in

entering the order complained of. All alleged errors not relevant

to that question are immaterial.” [Emphasis added] Poinsett, supra at 272.

14

16

circuit split exists between the Eighth Circuit and the

First Circuit on the issue presented in the instant petition.

III. The First Circuit Decision Correctly Interprets the Fifth Amendment and the Decisions of this Honorable Court.

The Framers specifically intended for the Constitution to protect the property rights of the people

against encroachment from the government. Madison

famously stated that it “is not a just government, nor is

property secure under it, where the property which a

man has in his personal safety and personal liberty, is

violated by arbitrary seizures of one class of citizens for

the service of the rest.”17 Without the right to private

property, there is no liberty.

This Court has followed that guiding light for centuries. As far back as 1893, in Monongahgela Navigation Co. v. United States, 148 U.S. 312, 325 (1893), this

Court held “that no private property shall be appropriated to public uses unless a full and exact equivalent

for it be returned to the owner.”

As Justice Brandeis stated in Louisville Joint

Stock Land Bank v. Radford, 295 U.S. 555, 602 (1935),

“no matter however great the Nation’s need, private property shall not be thus taken even for a

wholly public use without just compensation.” Justice

Brandeis continues: “If the public interest requires,

17

James Madison, “Property” (March 29, 1792).

17

and permits, the taking of property of individual mortgagees in order to relieve the necessities of individual

mortgagors, resort must be had to proceedings by eminent domain; so that, through taxation, the burden

of the relief afforded in the public interest may be

borne by the public.” Id, [Emphasis added].

More recently, the Court has stated that the taking of the property itself creates “a claim for a violation

of the Takings Clause as soon as a government takes

his property for public use without paying for it.”

Knick, supra at 2167. The only remedy for such a violation is the one required by the Fifth Amendment itself – providing just compensation. First English,

supra at 316. In the event of a taking, the government

has the inescapable “duty to pay imposed by the

amendment”. Id, at 315. “[N]o subsequent action by the

government can relieve it of the duty to provide compensation.” Knick, supra at 2167.

In response, the Board raises a series of arguments that purportedly support its position that takings claims can be discharged in a municipal

restructuring proceeding. Let’s examine them in turn.

The Board’s allegation that just compensation is a

simple “damage remedy” that may be discharged in

bankruptcy simply has no merit.18 Just compensation

is not a “damages remedy”, it is a constitutional

Pet. 14. (“Today, most jurisdictions have enacted procedures to award damages for takings, making equitable relief unavailable. See id, at 2176. But that does not mean the Takings

Clause requires a damages remedy.”).

18

18

imperative.19 “[O]nce there is a taking, compensation

must be awarded . . . and [t]he government’s post taking actions [ . . . ] cannot nullify the property owner’s

existing Fifth Amendment right.” Knick, supra at 2167

& 2172.

But the Board itself accepts that “this Court has

explained that the denial of just compensation is an

element of a takings claim, not a remedy.” Pet., at

2 [Emphasis added]. In other words, the just compensation is not “damages” remedy as claimed by the

Board, but an inescapable requirement of the taking

itself.

Following that same line of argument, the Board

also attempts to equate a just compensation claim to a

damages claims for the violation constitutional rights

under Bivens20 and 42 U.S.C. §1983. According to the

Board, since Bivens and §1983 damages’ claims can be

discharged, just compensation claims can also be discharged.

This argument ignores what is protected by each

of the different constitutional rights. As examples, the

First Amendment guarantees the freedom of expression and the Fourteenth Amendment protects a citizen

from being deprived of his liberty without due process

Jacobs v. U.S., 290 U.S. 13 (1933); see also, First English,

supra at 315 (“Jacobs, moreover, does not stand alone, for the

Court has frequently repeated the view that, in the event of a taking, the compensation remedy is required by the Constitution”).

20

Bivens v. Six Unknown Named Agents of Fed. Bureau of

Narcotics, 403 U.S. 388, 389, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971).

19

19

of the law. These Amendments prohibit certain governmental action.

On the other hand, the Fifth Amendment does not

prohibit any act of the government. It mandates just

compensation as the counterpoint to the governmental

power to take private property for public use – “the

compensation remedy is required by the Takings

Clause itself.” See, Knick v. Township of Scott, supra, at

2173 (“Certainly it is correct that a fully compensated

plaintiff has no further claim, but that is because the

taking has been remedied by compensation, not

because there was no taking in the first place.”). [Emphasis added]. As correctly stated by the First Circuit,

“the Fifth Amendment contemplates a ‘constitutional

obligation to pay just compensation.’ ” (quoting First

English, supra and Armstrong, supra at 49). See, Ap.

29a.

A violation of the right to free speech is not resolved until that person is allowed to speak. Nor, in the

case of a person imprisoned without due process, is the

constitutional violation remedied until he is released.

In the case of a taking, the constitutional violation

is not resolved until just compensation is provided, the

property is returned or the offending regulation invalidated. First English, supra at 321 (“Once a court determines that a taking has occurred, the government

retains the whole range of options already available –

amendment of the regulation, withdrawal of the invalidated regulation, or exercise of eminent domain.”).

20

No statute, be it a bankruptcy statute or otherwise, may thwart the “constitutional obligation to pay

just compensation”21, any more than it could suppress

free speech.22 This Court has been clear: “[t]he bankruptcy power, like the other great substantive powers

of Congress, is subject to the Fifth Amendment.” Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555,

589 (1935). See also, U.S. v. Security Indus. Bank, 459

U.S. 70, 75 (1982) (“The bankruptcy power is subject to

the Fifth Amendment’s prohibition against taking private property without compensation.”).

The Board then claims that the First Circuit decision “creates an unprecedented exception to the rule

that unsecured claims may be discharged in bankruptcy.” Pet. 16-20. First, as explained above, this assumes that just compensation claims can be

considered unsecured claims and not a constitutional

right. But even if such a contention were correct, the

Board’s assertions are still without merit, since they

are based on the incorrect assumption that all unsecured claims are always dischargeable.

The reality is that there are multiple exceptions to

the discharge of unsecured debts. The Bankruptcy

21

First English, supra.

See also, First Circuit Opinion and Order – Ap. 23a-24a

(“Accordingly, although the Constitution grants Congress the

express authority to enact “uniform Laws on the subject of Bankruptcies,” U.S. Const. art. I, §8, cl. 4, those laws are not categorically exempt from the requirements of the Fifth Amendment (any

more than they are exempt from, for example, the First Amendment).”).

22

21

Code excepts nineteen types of unsecured debts from

discharge23 and PROMESA itself excepts several types

of unsecured claims from discharge.24 The Board’s argument would lead to the illogical conclusion that a

mere statute can create an exception to discharge, but

the Constitution could not.

But that discussion misses the point entirely. As

the dissent in Stockton stated, “the Constitution’s

mandate that takings claims be excepted from discharge does not depend on whether those claims were

initially classified in any bankruptcy proceeding as secured or unsecured; the whole point of nondischargeability is that nondischargeable claims pass through

bankruptcy unaffected[.]” City of Stockton, supra at

1278. A just compensation claim must pass through

bankruptcy unaffected by constitutional imperative.

Finally, the Board claims that the First Circuit

decision will create “anomalous outcomes” in certain

hypothetical situations. First and foremost, those hypotheticals were not before the First Circuit and are

not before this Court. Thus, the Court should not issue

a writ of certiorari to address such hypothetical situations.

But in any event, the Board is not correct in the

interpretation of those hypotheticals. The first such

example is a situation in which “a municipality unlawfully took a painting to display it in a city museum”

23

24

11 U.S.C. §523.

48 U.S.C. §2164.

22

and according to the Board the municipality “would

not be liable under the Takings Clause to pay just compensation but instead would have liability under the

tort of conversion.” Pet. 21. The suggestion is that the

municipality could then discharge the supposed tort

for the unlawful acquisition of the painting.

As a preliminary matter, said controversy was not

before the First Circuit below nor is it before the Court

now. This is hypothetical situation that has no bearing

on the matter at hand and does not merit the Court’s

intervention.

But the argument fails on the most basic level. It

seeks to compare clear and accepted takings claims,

protected by the Fifth Amendment, to what amounts

to a tort. Under the hypothetical scenario presented by

the Board, the unlawful acts of the government simply

do not constitute a taking and are dischargeable because they are not protected by the Fifth Amendment.

(“An unauthorized or unlawful taking is not compensable under the fifth amendment, but is a claim sounding in tort.” Catalina Properties, Inc. v. United States,

143 Ct. Cl. 657, 660, 166 F. Supp. 763 (1959)).

For there to be a taking, certain factors must be

met. A Takings claimant must “demonstrate that the

invasion of his property rights was the natural and

probable result of the [government’s] actions” . . . as a

“prerequisite for a Takings Clause claim”. Mac’Avoy v.

The Smithsonian Inst., 757 F.Supp. 60 (1991). Thus,

the hypothetical scenario is simply inapplicable to the

23

case at hand because the requirements and protections

of the Fifth Amendment are not present.

In sum, none of the Boards arguments have any

weight and the Court should not waste precious resources in reviewing the clearly correct and well substantiated decision of the First Circuit.

IV. The First Circuit Decision Below does not

have “Significant” Effect on Municipal Restructurings

In an attempt to sway the Court into accepting the

writ of certiorari, the Board argues that this issue is

central and determinative to municipal restructurings.

But the Board’s own statements show this to be

untrue. The Board asserts that since the year 2000, one

hundred and seventy (170) municipal bankruptcies

have been filed. To our knowledge, out of those one

hundred and seventy (170) cases, only three (3) have

addressed the issue at hand – the City of Stockton, the

Commonwealth of Puerto Rico and the City of Detroit.

In none of those three (3) cases has the issue been determinative.

Although the City of Detroit and the Commonwealth were required to pay the takings claims in full,

they were able to confirm their respective plans. And,

even though, the City of Stockton was not required to

do so, Judge Friedland explains that the City of Stockton never claimed it was unable to pay the takings

claims or that payment of the eminent domain claims

24

would derail the confirmation or execution of the

plan.25

The matter does not appear to have been an issue

that was even raised in the other one hundred and

sixty-seven (167) municipal bankruptcy cases, and it

was definitely not an issue of “tremendous importance”

in any of them. In fact, it does not seem to have been a

factor in the countless other municipal bankruptcies

filed prior to the year 2000 either, since no other Court

appears to have issued a ruling on the matter.26

The amounts involved also support the conclusion

that the matter is not really significant. In the case at

hand, the Board itself states that the amount the Commonwealth would have to pay is somewhere around

$300 million dollars. Although this is a large amount,

it is a drop in the bucket in a restructuring that “proposed to reduce the Commonwealth’s debt by 80%, saving more than $50 billion in debt-service payments and

addressing nearly $55 billion in unfunded pension liabilities.” Pet. at 5.

This leads us to the inescapable conclusion that

the controversy is not really decisive in municipal

Cobb v. City of Stockton, supra at 1279. (“I am not blind to

the City’s herculean task of pulling itself out of bankruptcy, but a

ruling for Cobb would not topple the Plan, or somehow throw the

City back into bankruptcy.”).

26

In its Opinion and Order the First Circuit could only identify two other cases where the issue had been addressed by the

courts, Cobb v. City of Stockton, supra and In re City of Detroit,

supra. See, Ap. 30a-31a.

25

25

bankruptcies in general. Thus, it is not something that

requires the Court’s attention at this time.

Finally, it is important to remember that in most

cases, the municipal entities can opt to return the

property that was unconstitutionally taken or can

have the offending regulation amended/invalidated

instead of providing just compensation.27 This would

obviate the need to provide just compensation at all.

The Board argues that the Commonwealth can

use those funds to provide additional essential services. But that is exactly what the Framers wished to

prevent and what this Court has repeatedly repudiated. Any essential services that the Commonwealth,

or any other governmental entity, wishes to provide for

the benefit of all citizens, must “be borne by the public

as a whole.” Armstrong, supra at 49.

To quote Justice Thomas, “[i]f [the requirement of

enforcing the Fifth Amendment] makes some regulatory programs ‘unworkable in practice,’ so be it – [the

Court’s] role is to enforce the Takings Clause as written.” Knick, supra at 2180.

---------------------------------♦---------------------------------

First English, supra at 321 (“Once a court determines that

a taking has occurred, the government retains the whole range of

options already available – amendment of the regulation, withdrawal of the invalidated regulation, or exercise of eminent domain.”).

27

26

CONCLUSION

The petition should be denied.

DATED: January 9, 2023.

Respectfully submitted,

RAFAEL A. GONZALEZ VALIENTE

Counsel of Record for

Suiza Dairy, Corp.

GODREAU & GONZALEZ LAW, LLC

P.O. Box 9024176

San Juan PR, 00902-4176

(787) 726-0077

rgv@g-glawpr.com