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

No. 22-367

In the Supreme Court of the United States

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD

FOR PUERTO RICO, PETITIONER

v.

COOPERATIVE DE AHORRO Y CREDITO

ABRAHAM ROSA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

BRIAN H. FLETCHER

Deputy Solicitor General

Counsel of Record

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

MICHAEL S. RAAB

DANIEL WINIK

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

In debt-restructuring proceedings under the Puerto

Rico Oversight, Management, and Economic Stability

Act (PROMESA), 48 U.S.C. 2101 et seq., petitioner proposed a plan of adjustment for the debts of the Commonwealth of Puerto Rico that would have treated certain

prepetition eminent-domain and inverse-condemnation

claims against the Commonwealth and its instrumentalities as general unsecured claims, which would have

been paid on a pro rata basis (i.e., only in part) and otherwise discharged. The district court rejected that aspect of the proposed plan and required petitioner to

submit an amended plan that did not impair the claims

at issue, after determining that PROMESA did not permit approval of a plan that would have relieved the

Commonwealth of any obligation to pay the full amount

of just compensation for takings of private property.

The question presented is as follows:

Whether the amended plan of adjustment for the

Commonwealth of Puerto Rico’s debts properly excluded from impairment prepetition claims for just compensation arising from the Commonwealth’s takings of

private property for public use.

(I)

TABLE OF CONTENTS

Page

Opinions below .............................................................................. 1

Jurisdiction .................................................................................... 1

Statement ...................................................................................... 2

Argument....................................................................................... 8

Conclusion ................................................................................... 21

TABLE OF AUTHORITIES

Cases:

Artis v. District of Columbia, 138 S. Ct. 594 (2018)........... 14

Bivens v. Six Unknown Named Agents of Fed.

Bureau of Narcotics, 403 U.S. 388 (1971) ........................ 12

Calero-Toledo v. Pearson Yacht Leasing Co.,

416 U.S. 663 (1974)................................................................ 9

Chicago, Burlington & Quincy R.R. v. Chicago,

166 U.S. 226 (1897)................................................................ 9

City of Detroit, In re, 524 B.R. 147

(Bankr. E.D. Mich. 2014) ................................................... 14

Cobb v. Stockton (In re City of Stockton),

909 F.3d 1256 (9th Cir. 2018) ................................ 7, 8, 15-17

Financial Oversight & Mgmt. Bd. for P.R. v.

Aurelius Inv., LLC, 140 S. Ct. 1649 (2020) .................. 2, 20

First English Evangelical Lutheran Church v.

County of Los Angeles, 482 U.S. 304 (1987)........... 9, 11, 12

INS v. St. Cyr, 533 U.S. 289 (2001) ...................................... 14

Jacobs v. United States,

290 U.S. 13 (1933) ............................................................... 13

Knick v. Township of Scott,

139 S. Ct. 2162 (2019) ............................ 5, 6, 9, 12, 13, 17, 18

Kuehner v. Irving Trust Co., 299 U.S. 445 (1937) .............. 11

Louisville Joint Stock Land Bank v. Radford,

295 U.S. 555 (1935)............................................ 10, 11, 15, 18

(III)

IV

Cases—Continued:

Page

Poinsett Lumber & Mfg. Co. v. Drainage Dist.

No. 7 of Poinsett Cnty., 119 F.2d 270

(8th Cir. 1941)...................................................................... 17

Puerto Rico v. Franklin Cal. Tax-Free Trust,

579 U.S. 115 (2016)................................................................ 2

United States v. Mitchell, 463 U.S. 206 (1983) ................... 13

United States v. Security Indus. Bank,

459 U.S. 70 (1982) ................................................ 9-11, 13, 15

Wal-Mart P.R., Inc. v. Zaragoza-Gomez,

174 F. Supp. 3d 585 (D.P.R.), aff ’d,

834 F.3d 110 (1st Cir. 2016) ................................................. 2

Williamson Cnty. Reg’l Planning Comm’n v.

Hamilton Bank, 473 U.S. 172 (1985), overruled by

Knick v. Township of Scott, 139 S. Ct. 2162 (2019) ......... 18

Constitution and statutes:

U.S. Const.:

Art. I ............................................................................. 9, 15

§ 8, Cl. 4 ........................................................................ 9

Art. IV .............................................................................. 20

§ 3, Cl. 2 ...................................................................... 20

Amend. V ..................................... 6-9, 11, 12, 14, 15, 18, 20

Takings Clause..................................6, 9, 11, 12, 18, 20

Amend. XIV ....................................................................... 9

Bankruptcy Code, 11 U.S.C. 101 et seq. ................................ 2

11 U.S.C. 101(40) ............................................................. 19

11 U.S.C. 109(c)(1) ........................................................... 19

11 U.S.C. 522(f )(1) ........................................................... 10

11 U.S.C. 523 (2018 & Supp. II 2022) ............................ 14

11 U.S.C. 727(b) ............................................................... 14

V

Statutes—Continued:

Page

Ch. 9: .................................................................. 8, 15, 19-21

11 U.S.C. 944(c)(1) ............................................. 5, 8, 14

Ch. 11: ................................................................................. 3

11 U.S.C. 1141(d) ....................................................... 14

11 U.S.C. 1228(c) ............................................................. 14

11 U.S.C. 1328(c) ............................................................. 14

Bankruptcy Reform Act of 1978,

Pub. L. No. 95-598, 92 Stat. 2549 ........................................ 9

Puerto Rico Oversight, Management, and Economic

Stability Act, 48 U.S.C. 2101 et seq. ................................. 2

Tit. I, 48 U.S.C. 2121-2129:

48 U.S.C. 2121(b)(1) ..................................................... 2

48 U.S.C. 2121(b)(2) ................................................... 20

Tit. III, 48 U.S.C. 2161-2177 .....................2, 3, 5, 8, 13, 20

48 U.S.C. 2161(a) ............................................... 3, 5, 13

48 U.S.C. 2164 .............................................................. 3

48 U.S.C. 2172(a) ..................................................... 2, 3

48 U.S.C. 2174(b)(3) ............................................... 5, 14

Tucker Act, Act of Mar. 3, 1887, ch. 359, 24 Stat. 505 ........ 13

28 U.S.C. 2403(a) ..................................................................... 4

42 U.S.C. 1983 .................................................................. 12, 18

P.R. Laws Ann. tit. 32, § 2907(5) (Supp. 2022) ..................... 3

Miscellaneous:

Jeff Chapman et al., The Pew Charitable Trusts,

By the Numbers: A Look at Municipal Bankruptcies Over the Past 20 Years (July 6, 2020),

https://www.pewtrusts.org/en/research-andanalysis/articles/2020/07/07/by-the-numbers-a-lookat-municipal-bankruptcies-over-the-past-20-years......... 19

In the Supreme Court of the United States

No. 22-367

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD

FOR PUERTO RICO, PETITIONER

v.

COOPERATIVE DE AHORRO Y CREDITO

ABRAHAM ROSA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-33a)

is reported at 41 F.4th 29. The order of the district

court confirming the plan of adjustment (Pet. App.

242a-362a) is reported at 636 B.R. 1. The district court’s

findings of fact and conclusions of law (Pet. App. 46a241a) are reported at 637 B.R. 223.

JURISDICTION

The judgment of the court of appeals (Pet. App. 34a45a) was entered on July 18, 2022. The petition for a

writ of certiorari was filed on October 17, 2022 (Monday). The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

(1)

2

STATEMENT

1. In 2016, the Commonwealth of Puerto Rico faced

the most debilitating fiscal crisis in its history. The

Commonwealth and its instrumentalities carried approximately $71 billion in debt. Financial Oversight &

Mgmt. Bd. for P.R. v. Aurelius Inv., LLC, 140 S. Ct.

1649, 1655 (2020). The Commonwealth could not service

those staggering debts, nor could it easily restructure

them. Ibid. Congress had made Puerto Rico and its

municipalities ineligible to petition for bankruptcy under the Bankruptcy Code, 11 U.S.C. 101 et seq., but the

Code also preempted Puerto Rico’s effort to restructure

its debts under local law. See Aurelius Inv., 140 S. Ct.

at 1655; Puerto Rico v. Franklin Cal. Tax-Free Trust,

579 U.S. 115, 125 (2016). The fiscal crisis threatened

“the Commonwealth’s very ability to persist.” WalMart P.R., Inc. v. Zaragoza-Gomez, 174 F. Supp. 3d

585, 592 (D.P.R.), aff ’d, 834 F.3d 110 (1st Cir. 2016).

Congress responded by enacting the Puerto Rico

Oversight, Management, and Economic Stability Act

(PROMESA), 48 U.S.C. 2101 et seq., which established

a Financial Oversight and Management Board for

Puerto Rico—petitioner here—to oversee the Commonwealth’s finances. 48 U.S.C. 2121(b)(1). Among its other

powers, petitioner serves as Puerto Rico’s representative in “Title III” cases, which are bankruptcy-like judicial proceedings authorized by Title III of PROMESA

for restructuring the debts of the Commonwealth and

its instrumentalities. 48 U.S.C. 2172(a); see 48 U.S.C.

2161-2177.

2. In 2017, petitioner initiated a series of Title III

proceedings on behalf of the Commonwealth and its

governmental entities, as well as certain of its public

corporations, in federal district court in Puerto Rico.

3

Pet. App. 14a; see 48 U.S.C. 2164. “After nearly five

years of extensive mediation, negotiation, and litigation

involving a vast array of stakeholders, [petitioner] proposed a plan of adjustment for the Commonwealth and

two of its instrumentalities (the Employees Retirement

System and the Puerto Rico Buildings Authority).” Pet.

App. 14a; see 48 U.S.C. 2172(a). A “plan of adjustment”

under PROMESA, like a plan of reorganization under

Chapter 11 of the Bankruptcy Code, “designates classes

of claims to be adjusted and specifies treatments for any

class of claims that is impaired.” Pet. App. 14a; see 48

U.S.C. 2161(a) (incorporating select provisions of Chapter 11 into Title III proceedings).

This case arises from petitioner’s proposed treatment of two sets of prepetition claims against the Commonwealth (or its instrumentalities). The first set of

claims at issue “resulted from proceedings initiated by

the Commonwealth under its ‘quick take’ eminent domain statute,” which permits Puerto Rico to acquire private property via eminent domain after “depositing an

estimated compensation amount with the Puerto Rico

court of first instance.” Pet. App. 15a. If the property

owner is dissatisfied with the deposited amount, the

property owner may ask the Puerto Rico court to determine the amount of “just compensation.” P.R. Laws

Ann. tit. 32, § 2907(5) (Supp. 2022). The second set of

claims at issue are prepetition claims for inverse condemnation, in which the Commonwealth had taken or

was alleged to have taken the claimants’ property interests without invoking eminent domain or otherwise paying just compensation. Pet. App. 15a.

Petitioner proposed to treat the eminent-domain

claims as secured claims (to be paid in full) to the extent

that the Commonwealth had deposited funds for the

4

property at issue under the quick-take statute and otherwise as general unsecured claims. Pet. App. 15a-16a.

Thus, to the extent a property owner alleged that the

amount of just compensation for a prepetition taking exceeded the funds already on deposit under the quicktake statute, petitioner proposed to treat the property

owner’s claim for the difference as a general unsecured

claim. See ibid. Petitioner also proposed to treat all of

the inverse-condemnation claims as general unsecured

claims. Id. at 16a. The proposed plan of adjustment

called for general unsecured claims to be paid on a pro

rata basis and otherwise discharged. See ibid.

Creditors holding prepetition eminent-domain and

inverse-condemnation claims against the Commonwealth (collectively, takings claims) objected to the

plan’s proposed impairment of those claims, asserting

“that Congress lacks power to legislate the discharge of

[such] Claims for less than payment in full of just compensation.” Pet. App. 107a-108a. The district court certified those and other constitutional objections to the

Attorney General under 28 U.S.C. 2403(a), and the

United States intervened to defend the constitutionality

of PROMESA. See Pet. App. 83a n.15. Before the

United States made any further filing, the district court

entered proposed findings of fact and conclusions of law

that rejected the creditors’ constitutional challenges to

PROMESA. Ibid.

As relevant here, the district court declined to approve petitioner’s proposed treatment of the takings

claims and ordered petitioner to revise the plan of adjustment so that the takings claims would not be

impaired—i.e., so that the claims would be paid in full,

to the extent they were ultimately found to be meritorious. Pet. App. 167a-181a; see id. at 16a n.1 (explaining

5

that the court “did not purport to decide the quantum of

just compensation owed to any particular takings claimant”). The court determined that “holders of takings

claims have a constitutional right to just compensation

that is not subject to impairment or discharge under a

plan of adjustment.” Id. at 174a. The court also found

that the plan of adjustment, if revised so as not to impair

takings claims, would satisfy PROMESA’s requirement

that the debtor not be “prohibited by law from taking

any action necessary to carry out the plan.” 48 U.S.C.

2174(b)(3); see Pet. App. 167a-168a.

Petitioner submitted a revised plan providing for

payment in full of the takings claims, while preserving

an objection for appeal. Pet. App. 17a. The district

court confirmed the revised plan. Id. at 242a-362a.

3. The court of appeals affirmed. Pet. App. 1a-33a.

The court determined that the district court “properly

found that the [Commonwealth] was prohibited by law

from carrying out the plan as proposed,” and therefore

the plan as proposed could not have been confirmed under PROMESA, insofar as the plan would have “rejected any obligation by the Commonwealth to pay just

compensation” for prepetition takings. Id. at 33a (citing

48 U.S.C. 2174(b)(3)).1

Petitioner contended that, under this Court’s decision in Knick v. Township of Scott, 139 S. Ct. 2162

The United States participated in the appeal as an intervenor

and urged the court of appeals to affirm on an alternative theory—

namely, that the district court had discretion under 11 U.S.C.

944(c)(1), made applicable to Title III proceedings by 48 U.S.C.

2161(a), to except the takings claims from discharge in order to

avoid the serious constitutional questions that would have arisen under the plan as it had been proposed. See Pet. App. 18a. The court

of appeals declined to affirm on that basis. See id. at 18a-21a.

1

6

(2019), any prepetition violation of the Fifth Amendment’s just-compensation requirement was complete

when the Commonwealth took property without paying

just compensation for it, after which the property owners had a claim for money owed to them by the Commonwealth but not any entitlement to specific property

(except with respect to funds on deposit under the

quick-take statute). Pet. App. 24a-25a. Petitioner further contended that “claims for money * * * may be

adjusted in bankruptcy without issue,” id. at 24a, and

that the Takings Clause is implicated in bankruptcy

proceedings only when Congress has exercised its

bankruptcy powers to divest creditors of vested “rights

in specific property,” id. at 26a.

The court of appeals rejected those contentions. In

its view, petitioner had “overread[]” this Court’s decision in Knick. Pet. App. 25a. The court of appeals explained that Knick establishes that “a Fifth Amendment violation occurs ‘as soon as a government takes

. . . property for public use without paying for it,’ ” ibid.

(quoting Knick, 139 S. Ct. at 2170), but that Knick does

not support petitioner’s theory that any “subsequent

denial of [ just] compensation,” including by operation

of bankruptcy law, is beyond the purview of the Fifth

Amendment, id. at 26a. And with respect to petitioner’s

reliance on cases “standing for the proposition that the

Fifth Amendment only protects rights in specific property and not unsecured claims for money,” ibid., the

court explained that those cases addressed a different

constitutional question—namely, whether Congress itself has “effected a taking of property” through federal

bankruptcy law, id. at 27a, not whether Congress may

eliminate a state or local government’s obligation to pay

7

just compensation for takings that have already occurred.

The court of appeals also rejected petitioner’s analogy between the takings claims at issue here and other

claims for money damages for constitutional violations,

which the court assumed arguendo to be dischargeable

in bankruptcy. Pet. App. 28a & n.6. In the court’s view,

the “language and nature of the Takings Clause” indicate that “just compensation is different in kind from

other monetary remedies” for a constitutional violation.

Id. at 29a. The court observed that the Fifth Amendment uniquely “spells out both a monetary remedy” for

the taking of private property for public use and also

“the necessary quantum of compensation due.” Id. at

30a. The court stated that a divided panel of the Ninth

Circuit had taken a different view on “a similar question

in the context of the municipal bankruptcy of Stockton,

California,” but it found the dissenting opinion in that

case to be more persuasive. Ibid. (discussing Cobb v.

Stockton (In re City of Stockton), 909 F.3d 1256 (9th Cir.

2018)).

Finally, the court of appeals found petitioner’s policy

arguments to be unavailing. Pet. App. 33a. Petitioner

speculated that affirmance would invite a “parade of

horribles” in the future by making it more difficult for

a municipality to restructure its debts in bankruptcy.

Ibid. But that speculation was based on a hypothetical

municipality that “owes a considerable amount of

money to property owners” for past takings. Ibid. The

court saw no reason to adopt petitioner’s position in order to relieve such a municipality from the consequences of its prior uncompensated takings. Ibid.

8

ARGUMENT

Petitioner contends (Pet. 12-22) that the district

court erred in refusing to confirm a plan of adjustment

that would have treated certain prepetition takings

claims against the Commonwealth of Puerto Rico as

general unsecured claims, to be paid on a pro rata basis

(i.e., only in part) and otherwise discharged. Petitioner

further contends (Pet. 8-11) that the decision below conflicts with a decision by the Ninth Circuit involving a

municipal bankruptcy, Cobb v. Stockton (In re City of

Stockton), 909 F.3d 1256 (2018). Those contentions do

not warrant further review. Interpreting PROMESA

to authorize the impairment of prepetition takings

claims would have raised serious constitutional questions. Therefore, as the United States explained below,

it would have been proper as a matter of constitutional

avoidance for the district court to exercise its discretion

under 11 U.S.C 944(c)(1) to treat the takings claims as

nondischargeable. Although the court of appeals declined to affirm on that basis, petitioner fails to identify

any error in the decision below that would warrant this

Court’s review, or any square conflict of authority. This

case would also be an unsuitable vehicle in which to address the Fifth Amendment question petitioner seeks to

present because this case arises in the idiosyncratic

context of a Title III proceeding under PROMESA, rather than a municipal bankruptcy under Chapter 9 of

the Bankruptcy Code. Accordingly, the petition for a

writ of certiorari should be denied.

1. The judgment below is correct. Whether or not

the district court was compelled to treat the prepetition

takings claims at issue here as nondischargeable,

PROMESA authorized the court to do so. A contrary

9

construction of PROMESA would give rise to serious

constitutional questions under this Court’s precedent.

a. The Fifth Amendment provides: “[N]or shall private property be taken for public use, without just compensation.” U.S. Const. Amend. V. “As its language indicates, and as [this] 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.” First English Evangelical Lutheran

Church v. County of Los Angeles, 482 U.S. 304, 314

(1987). If the government takes private property for

public use, the affected property owner has a “Fifth

Amendment right to full compensation * * * at the time

of the taking.” Knick v. Township of Scott, 139 S. Ct.

2162, 2170 (2019). Although the compensation may be

paid later, including through a post-taking judicial process, this Court has stated that the property owner’s

right to just compensation is “irrevocable.” Id. at 2172

(citing First English, 482 U.S. at 315, 318).2

This Court has considered the intersection of the

Takings Clause and Congress’s Article I power to enact

“uniform Laws on the subject of Bankruptcies,” U.S.

Const. Art. I, § 8, Cl. 4, on several occasions. In United

States v. Security Industrial Bank, 459 U.S. 70 (1982),

the Court considered a provision of the Bankruptcy

Code, enacted as part of the Bankruptcy Reform Act of

The Fifth Amendment applies of its own force only to the federal

government but is applicable to the States through the Fourteenth

Amendment. See, e.g., Chicago, Burlington & Quincy R.R. v. Chicago, 166 U.S. 226, 241 (1897). This Court has assumed that the

Takings Clause of the Fifth Amendment also applies to Puerto Rico

(and petitioner does not contend otherwise), either directly or by

incorporation. See Calero-Toledo v. Pearson Yacht Leasing Co., 416

U.S. 663, 668 n.5 (1974).

2

10

1978 (1978 Act), Pub. L. No. 95-598, 92 Stat. 2549, authorizing individual debtors to avoid certain liens on

household goods. See 11 U.S.C. 522(f )(1). Lien holders

contended that application of that provision to avoid

liens that predated the 1978 Act “would violate the Fifth

Amendment.” Security Indus. Bank, 459 U.S. at 73.

This Court agreed with the lien holders’ premise that

“[t]he bankruptcy power is subject to the Fifth Amendment’s prohibition against taking private property

without compensation.” Id. at 75 (citing Louisville

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

The Court therefore had “substantial doubt whether

the retroactive destruction of the * * * liens,” without

just compensation, would “comport[] with the Fifth

Amendment.” Id. at 78. Citing the “cardinal principle

that this Court will first ascertain whether a construction of [a] statute is fairly possible by which the constitutional question may be avoided,” ibid. (citation omitted), the Court construed the relevant provision not to

apply to liens that had attached before the enactment of

the 1978 Act. See id. at 78-82.

In Radford, the Court likewise observed that “[t]he

bankruptcy power, like the other great substantive

powers of Congress, is subject to the Fifth Amendment.” 295 U.S. at 589. That case concerned a 1934

amendment to the federal Bankruptcy Act, which was

designed to limit mortgage foreclosures on farms during the Depression. The statute provided a bankrupt

farmer with an option to retain possession of a mortgaged farm and ultimately to purchase it, free and clear

of any mortgage, at its currently appraised value. See

id. at 575-576. This Court concluded that the statute,

which applied only retroactively to mortgages already

in existence at the time of its enactment, operated as an

11

uncompensated taking of the lending banks’ property

interests, and the Court held the statute “void” on that

basis. Id. at 602; see id. at 589, 601-602; cf. Kuehner v.

Irving Trust Co., 299 U.S. 445, 451-452 (1937) (explaining that Radford involved secured interests in property

and that the Takings Clause does not limit Congress’s

authority to provide for the readjustment of other obligations in bankruptcy, such as contracts).

b. In light of the foregoing principles, the United

States argued below that serious constitutional questions would arise if PROMESA were construed to authorize the discharge of valid prepetition claims for just

compensation under the Takings Clause. See U.S. C.A.

Br. 6-17. If the Fifth Amendment applies when Congress itself takes private property for public use

through the operation of bankruptcy law, cf. Security

Indus. Bank, 459 U.S. at 75; Radford, 295 U.S. at 601602, it is not obvious how Congress could extinguish another governmental entity’s Fifth Amendment obligation to pay just compensation for a taking that has already occurred. Cf. First English, 482 U.S. at 321 (stating that “no subsequent action by the government can

relieve it of the duty to provide compensation” for a taking that has already occurred).

Petitioner contends (Pet. 16-20) that this Court’s decisions in Security Industrial Bank and Radford are

distinguishable because those cases concerned security

interests—liens and mortgages—held by creditors

when the bankruptcy proceedings commenced. In petitioner’s view (see ibid.), those cases stand only for the

proposition that the security interests themselves are

the kind of vested interests in property to which the

protections of the Fifth Amendment apply. And petitioner describes (Pet. 16) the takings claims in this case

12

as involving only “unsecured rights to payment” of

money from the Commonwealth, not any secured interests in specific property (setting aside any funds on deposit under the quick-take statute, see pp. 3-4, supra).

But petitioner fails to explain why those distinctions

should carry the day here. The right to receive just compensation for the taking of private property is secured

by the text of the Fifth Amendment itself. “Because of

‘the self-executing character’ of the Takings Clause

‘with respect to compensation,’ a property owner has a

constitutional claim for just compensation at the time of

the taking,” Knick, 139 S. Ct. at 2171 (quoting First

English, 482 U.S. at 315), and this Court has stated that

later governmental action generally “cannot nullify” the

property owner’s just-compensation claim, ibid. The

text of the Takings Clause also distinguishes the claims

at issue in this case from other claims for money damages for alleged violations of the Constitution that lower

courts have found to be dischargeable in municipal

bankruptcies. See Pet. 12-13, 15 (citing 42 U.S.C. 1983

and Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971)). Unlike other

constitutional provisions, the Takings Clause “prescribe[s] the quantum of compensation required in the

event of a violation.” Pet. App. 32a. Not paying just

compensation to the property owner is a constituent

part of the constitutional violation under the Takings

Clause in a way that cannot be said, for example, of not

paying money damages to remedy an unlawful search.

Petitioner observes that, “historically, money damages were an alternative remedy and never the exclusive remedy for a Fifth Amendment taking.” Pet. 14

(citing Knick, 139 S. Ct. at 2175-2176). Petitioner is correct that, as an original matter, the Fifth Amendment

13

does not require the federal government or the States

to afford property owners a judicial remedy for money

damages, or to waive sovereign immunity from such

suits. Indeed, “[a]t the time of the founding there usually was no compensation remedy available to property

owners.” Knick, 139 S. Ct. at 2175.3 But that history

does not support petitioner’s position in this case. Petitioner does not identify any “alternative remedy” (Pet.

14) that would have remained available to the affected

property owners here. The plan of adjustment, as proposed, would have allowed the Commonwealth to keep

the private property that it had taken, without paying

just compensation.

Approving such a plan would, at a minimum, have

raised serious constitutional questions. Consistent with

this Court’s reasoning in Security Industrial Bank, supra, the United States urged the lower courts to avoid

confronting those questions by instead resolving this

dispute on statutory grounds. See U.S. C.A. Br. 17-20.

Specifically, the United States invoked Section 944(c)(1)

of the Bankruptcy Code, which PROMESA makes applicable in Title III cases, see 48 U.S.C. 2161(a), and

which states that a “debtor is not discharged * * * from

Congress did not generally authorize suits against the United

States for just compensation until 1887, when it enacted the Tucker

Act and authorized the Court of Claims to hear cases “founded upon

the Constitution.” Act of Mar. 3, 1887, ch. 359, 24 Stat. 505; see

United States v. Mitchell, 463 U.S. 206, 212-214 (1983); Jacobs v.

United States, 290 U.S. 13, 15-16 (1933). Before then, individuals

asserting that the federal government had taken their property

without paying just compensation were left to lobby Congress for

private bills or to sue individual federal officials for trespass. See

Mitchell, 463 U.S. at 212-213; cf. Knick, 139 S. Ct. at 2175-2176 (describing common-law actions against responsible officials as the

“typical recourse” before the 1870s).

3

14

any debt * * * excepted from discharge by the plan or

order confirming the plan,” 11 U.S.C. 944(c)(1). That

provision authorized the district court to except the takings claims from discharge in the plan of adjustment,

even if the court was not compelled to do so.

To be sure, other provisions of the Bankruptcy Code

generally specify which debts are nondischargeable.

See, e.g., 11 U.S.C. 523 (2018 & Supp. II 2022); 11 U.S.C.

727(b), 1141(d), 1228(c), 1328(c). But those other provisions do not foreclose treating additional debts as nondischargeable where the Code does not expressly forbid

doing so and where doing so would avoid “serious constitutional problems.” Artis v. District of Columbia,

138 S. Ct. 594, 606 (2018) (quoting INS v. St. Cyr, 533

U.S. 289, 300 (2001)) (brackets omitted); see In re City

of Detroit, 524 B.R. 147, 267-270 (Bankr. E.D. Mich.

2014) (invoking Section 944(c)(1), at the urging of the

United States, to except from discharge certain takings

claims against the City of Detroit).

c. The court of appeals declined to resolve this case

on the statutory ground advocated by the United

States. Pet. App. 18a-21a. The court instead invoked

an alternative provision of PROMESA, which states

that a plan of adjustment may be confirmed only if,

among other things, “the debtor is not prohibited by law

from taking any action necessary to carry out the plan.”

48 U.S.C. 2174(b)(3); see Pet. App. 33a. In the court’s

view, the plan as proposed by petitioner did not satisfy

that requirement because the Fifth Amendment would

have prohibited the Commonwealth from failing to pay

just compensation for prepetition takings that it had already effected. See Pet. App. 22a-33a.

The court of appeals was mistaken insofar as it

viewed the alternative ground advocated by the United

15

States as an impermissible basis for affirmance on this

record. But any analytical error in the decision below

would not warrant further review by this Court.

Although the court of appeals could have avoided the

Fifth Amendment questions that it addressed, the court

answered those questions in such a way as to reach the

correct bottom-line result in any event. The district

court refused to confirm a plan of adjustment that

would have discharged prepetition takings claims, and

the court of appeals affirmed. As a result, the judgment

below respects this Court’s admonition that Congress’s

Article I bankruptcy powers are “subject to the Fifth

Amendment’s prohibition against taking private property without compensation.” Security Indus. Bank, 459

U.S. at 75 (citing Radford, supra).

2. Petitioner does not identify any compelling basis

for further review.

a. Petitioner principally contends (Pet. 8-11) that

the decision below conflicts with the Ninth Circuit’s decision in City of Stockton, supra. In that case, the City

of Stockton petitioned for bankruptcy under Chapter 9

of the Bankruptcy Code, and the bankruptcy court confirmed a complex plan of reorganization over the objection of a creditor with a prepetition taking claim against

the City. 909 F.3d at 1261-1262. The plan treated the

creditor’s claim as a general unsecured claim. See ibid.

The objecting creditor did not seek a stay, id. at 1263,

and the court of appeals principally held that the case

was “equitably moot,” id. at 1259—i.e., that it would

have been inequitable to attempt to unwind the many

transactions that had already occurred under the confirmed plan in order to grant relief to the objecting

creditor. See id. at 1265-1266.

16

In the alternative, the majority in City of Stockton

reasoned that the objecting creditor’s arguments

against plan confirmation lacked merit. 909 F.3d at

1266. The court stated that the “Takings Clause is only

implicated in bankruptcy if the creditor has actual property rights,” and not if the creditor merely has “a contractual or statutory right for monetary relief.” Ibid.

And the court viewed the objecting creditor’s claim as

the latter kind of claim. It explained that the creditor

had “waive[d] all claims and defenses,” other than “a

claim for greater compensation” under the California

quick-take statute; had allowed the City to construct a

road on the property; and had accepted the City’s characterization of his claim as unsecured in the bankruptcy

proceeding. Ibid.; see id. at 1266-1268. The court

viewed the creditor’s arguments against plan confirmation as an improper attempt to “excuse all of these failures,” observing that “[o]ne cannot play possum during

bankruptcy proceedings and then claim some new interest after a plan has been confirmed.” Id. at 1267-1268.

Petitioner fails to show any square conflict of authority between the decision below and the Ninth Circuit’s

decision in City of Stockton. Much of the reasoning of

the latter decision was driven by the objecting creditor’s dilatory conduct—lying in wait and then asking the

court of appeals to reverse the entire plan. See City of

Stockton, 909 F.3d at 1266-1268. Notably, the objecting

creditor “did not seek exemption from discharge,” id. at

1267, which is the revision to the plan that the district

court required here. It is thus far from clear that the

Ninth Circuit would reach the same result in a case like

this one, where the creditors have diligently preserved

their objections to petitioner’s proposal to treat their

prepetition takings claims as general unsecured claims.

17

Moreover, the Ninth Circuit’s decision in City of

Stockton rested at least in part on the premise that

“ ‘just compensation’ under the Takings Clause is not

equivalent to ‘full compensation,’ ” 909 F.3d at 1268 (citation omitted)—a premise undercut by this Court’s

later decision in Knick, which referred to “[t]he Fifth

Amendment right to full compensation” and explained

that “the compensation must generally consist of the total value of the property when taken, plus interest from

that time.” 139 S. Ct. at 2170 (emphasis added). In light

of Knick, as well as the First Circuit’s opinion here, the

Ninth Circuit might well revisit City of Stockton if

asked to do so in an appropriate case.

Petitioner also errs in asserting (Pet. 11) that the decision below conflicts with the Eighth Circuit’s decision

in Poinsett Lumber & Manufacturing Co. v. Drainage

District No. 7 of Poinsett County, 119 F.2d 270 (1941).

That case does not address whether Congress may authorize the discharge of prepetition takings claims

against another governmental entity. Instead, the creditor in that case contended that it was entitled to an exception from a stay entered in a “composition” proceeding, id. at 271, so that the creditor could pursue a taking

claim against the debtor in state court. As relevant

here, the creditor argued that its taking claim was not

within the set of claims that could be addressed in the

composition proceeding (and therefore fell outside the

stay of litigation) because the taking claim was “invested with a constitutional sanctity.” Id. at 272. The

court of appeals rejected that argument, explaining that

it had previously determined that takings claims could

be addressed in composition proceedings because any

adjustment in such proceedings required the general

assent of the class of affected creditors. Id. at 272-273;

18

cf. Radford, 295 U.S. at 585 (explaining that a “composition is an agreement with * * * creditors in lieu of a

distribution of the property in bankruptcy”). The court

of appeals did not actually address any composition

agreement, nor did it determine whether the bankruptcy court had authority to discharge any prepetition

takings claims over the objection of the holders of such

claims.

b. Petitioner also briefly reprises (Pet. 13-14) its argument that the bankruptcy court’s order was inconsistent with this Court’s decision in Knick. The court of

appeals correctly rejected petitioner’s “overread[ing]”

of Knick. Pet. App. 25a. In Knick, this Court determined that an alleged violation of the Takings Clause by

a state or local government is complete, and therefore

ripe for adjudication in federal court under 42 U.S.C.

1983, when the taking occurs—even if the state or local

government provides a post-taking remedy for the payment of just compensation that the property owner has

not yet invoked. See 139 S. Ct. at 2170-2173; see also id.

at 2177-2179 (overruling Williamson Cnty. Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172 (1985),

to the extent that decision held otherwise). The Court

made clear in Knick that a violation of the Takings

Clause is “complete at the time of the taking.” Id. at

2177.

Nothing in Knick suggests, however, that the Fifth

Amendment exits the scene after a taking has occurred,

such that any later denial of just compensation for the

already-completed taking—including by operation of

bankruptcy law—is constitutionally innocuous. If anything, Knick emphasized that the right to just compensation is “irrevocable” and is “ ‘required by the Constitution’ ” itself. 139 S. Ct. at 2172 (citation omitted).

19

c. Even if the question presented were the subject

of a square conflict of authority, further review would

not be warranted. The question whether Congress may

authorize the discharge of prepetition takings claims

against another governmental entity does not arise frequently, as demonstrated by the dearth of appellate authority on the issue. Few governmental entities with

eminent-domain authority file for bankruptcy. Only a

handful of cities appear to have petitioned for bankruptcy since the landmark Detroit bankruptcy in 2013.

See Jeff Chapman et al., The Pew Charitable Trusts, By

the Numbers: A Look at Municipal Bankruptcies Over

the Past 20 Years (July 6, 2020) (online data set as of

2020, identifying three cities filing after Detroit). The

higher number cited by petitioner (Pet. 23) reflects the

fact that many “municipal” bankruptcies (i.e., filings under Chapter 9 of the Bankruptcy Code) in fact involve

special-purpose governmental entities like school districts, transportation authorities, or hospital systems.

See 11 U.S.C. 109(c)(1) (allowing Chapter 9 filings by “a

municipality” that state law authorizes to be a debtor);

11 U.S.C. 101(40) (defining a “municipality” as a “political subdivision or public agency or instrumentality of a

State”). Petitioner does not explain why bankruptcies

involving those kinds of entities would be relevant here.

Nor does petitioner support any dire prediction (see

Pet. 23) that future municipal debtors will be unable to

restructure their debts unless they can discharge prepetition obligations to pay just compensation for their

takings of private property. In this particular case, petitioner told the district court that the exclusion of takings claims from discharge would not render the plan

infeasible, and the court agreed. Pet. App. 203a n.47.

Petitioner cannot now undercut that representation by

20

suggesting that reversal is necessary to the viability of

Puerto Rico’s debt adjustment. And in general, the

question whether prepetition takings claims are ever

dischargeable in bankruptcy would bear on the feasibility of a municipality’s reorganization only in the presumably rare event that unpaid takings claims constitute “a substantial portion” of the “municipality’s debt

obligations”—that is, if the municipality “owes a considerable amount of money to property owners for past

takings and files for bankruptcy in the hopes that it may

leave the takings in place without paying anything like

just compensation for the property.” Id. at 33a. Petitioner fails to demonstrate that those circumstances,

which are not present here, are likely to arise with any

frequency.

3. In any event, this case would be an unsuitable vehicle in which to address the Fifth Amendment question

that petitioner seeks to present. This case arises in the

idiosyncratic context of a reorganization of the debts of

a territorial government under PROMESA—which

rests in part on Congress’s Article IV authority over

territories, U.S. Const. Art. IV, § 3, Cl. 2—rather than

a reorganization of the debts of a municipality under

Chapter 9 of the Bankruptcy Code. See 48 U.S.C.

2121(b)(2). This Court has never squarely addressed

whether or how the Takings Clause applies to the government of Puerto Rico. See p. 9 n.2, supra. Moreover,

under PROMESA the choice to commence a Title III

proceeding for the Commonwealth and its instrumentalities rested with petitioner—a Board established by

federal law—rather than with the governmental entities that had effected the prepetition takings. See Financial Oversight & Mgmt. Bd. for P.R. v. Aurelius

Inv., LLC, 140 S. Ct. 1649, 1655, 1662 (2020). And be-

21

cause PROMESA incorporates only certain provisions

of the Code, any consideration of whether alternative

statutory grounds are available in this case to avoid the

constitutional questions might be different than in a

typical Chapter 9 bankruptcy.

If, as petitioner maintains, the question is significant

and likely to recur, the Court would benefit from awaiting a future case in which the question is presented in a

more typical municipal bankruptcy.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

BRIAN H. FLETCHER*

Deputy Solicitor General

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

MICHAEL S. RAAB

DANIEL WINIK

Attorneys

JANUARY 2023

* The Solicitor General did not participate in the preparation of

this brief.