Puerto Rico v. Franklin Cal. Tax-Free Trust, 579 U.S. ___ (2016)


Issues:

Intro

Contents

NOTE:?Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U.?S. 321 .

SUPREME COURT OF THE UNITED STATES

COMMONWEALTH OF PUERTO RICO et?al. v. FRANKLIN CALIFORNIA TAX-FREE TRUST et?al.

certiorari to the united states court of appeals for the first circuit

No. 15?233.?Argued March 22, 2016?Decided June 13, 20161

Syllabus/Summary

In response to an ongoing fiscal crisis, petitioner Puerto Rico enacted the Puerto Rico Public Corporation Debt Enforcement and Recovery Act. Portions of the Recovery Act mirror Chapters 9 and 11 of the Federal Bankruptcy Code and enable Puerto Rico?s public utility corporations to restructure their climbing debt. Respondents, a group of investment funds and utility bondholders, sought to enjoin the Act. They contended, among other things, that a Bankruptcy Code provision explicitly pre-empts the Recovery Act, see 11 U.?S.?C. ?903(1). The District Court enjoined the Act?s enforcement, and the First Circuit affirmed, concluding that the Bankruptcy Code?s definition of ?State? to include Puerto Rico, except for purposes of defining who may be a debtor under Chapter 9, ?101(52), did not remove Puerto Rico from the scope of the pre-emption provision.

Held: ?Section 903(1) of the Bankruptcy Code pre-empts Puerto Rico?s Recovery Act. Pp.?5?15.

(a)?Three federal municipal bankruptcy provisions are relevant here. First, the ?gateway? provision, ?109(c), requires a Chapter 9 debtor to be an insolvent municipality that is ?specifically authorized? by a State ?to be a debtor.? Second, the pre-emption provision, ?903(1), expressly bars States from enacting municipal bankruptcy laws. Third, the definition of ?State,? ?101(52), as amended in 1984, ?includes .?.?. Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9.? Pp.?5?8.

(b)?If petitioners are correct that the amended definition of ?State? excludes Puerto Rico altogether from Chapter 9, then the pre-emption provision does not apply. But if respondents? narrower reading is correct and the definition only precludes Puerto Rico from authorizing its municipalities to seek Chapter 9 relief, then Puerto Rico is barred from implementing its Recovery Act. Pp.?8?14.

(1)?The Bankruptcy Code?s plain text supports respondents? reading. The unambiguous language of the pre-emption provision ?contains an express pre-emption clause,? the plain wording of which ?necessarily contains the best evidence of Congress? pre-emptive intent.?Chamber of Commerce of United States of America v. Whiting, 563 U.?S. 582 . The definition provision excludes Puerto Rico for the single purpose of defining who may be a Chapter 9 debtor, an unmistakable reference to the ?109 gateway provision. This conclusion is reinforced by the definition?s use of the phrase ?defining who may be a debtor under chapter 9,? ?101(52), which is tantamount to barring Puerto Rico from ?specifically authorizing? which municipalities may file Chapter 9 petitions under the gateway provision, ?903(1). The text of the exclusion thus extends no further. Had Congress intended to exclude Puerto Rico from Chapter 9 altogether, including Chapter 9?s pre-emption provision, Congress would have said so. Pp.?9?11.

(2)?The amended definition of ?State? does not exclude Puerto Rico from all of Chapter 9?s provisions. First, Puerto Rico?s exclusion as a ?State? for purposes of the gateway provision does not also remove Puerto Rico from Chapter 9?s separate pre-emption provision. A State that chooses under the gateway provision not to authorize a municipality to file is still bound by the pre-emption provision. Likewise, Puerto Rico is bound by the pre-emption provision, even though Congress has removed its authority under the gateway provision to authorize its municipalities to seek Chapter 9 relief. Second, because Puerto Rico was not ?by definition? excluded from Chapter 9, both ?903?s introductory clause and its proviso, the pre-emption provision, continue to apply in Puerto Rico. Finally, the argument that the Recovery Act is not a ?State law? that can be pre-empted is based on technical amendments to the terms ?creditor? and ?debtor? that are too ?subtle? to support such a ?[f]undamental chang[e] in the scope? of Chapter 9?s pre-emption provision. Kellogg Brown & Root Services, Inc. v. United States ex?rel. Carter, 575 U.?S. ___, ___. Pp.?11?14.

805 F.?3d 322, affirmed.

Thomas, J., delivered the opinion of the Court, in which Roberts, C.?J., and Kennedy, Breyer, and Kagan, JJ., joined. Sotomayor, J., filed a dissenting opinion, in which Ginsburg, J., joined. Alito, J., took no part in the consideration or decision of these cases.

Footnotes

1. ?Together with No. 15?255, Acosta-Febo et?al. v. Franklin California Tax-Free Trust et?al., also on certiorari to the same court.