Franklin CA Tax-Free Trust v. Commonwealth of Puerto Rico
- Summarized by David Baker , Law Office of David G. Baker
- 7 years 8 months ago
- First Circuit #15-1218, 1221, 1271 & 1272
- Affirms District Court's holding that §903 of the Bankruptcy Code pre-empts Puerto Rico's recently enacted "Recovery Act", relating to municipal bankruptcy. One judge concurred, but would find that §903 is unconstitutional as violating the bankruptcy code's "uniformity" requirement since Puerto Rican municipalities cannot file under Chapter 9. Declines to reach Tenth Amendment issues since the limits under that amendment do not apply to Puerto Rico
- Procedural context:
- After Puerto Rico enacted the "Recovery Act", which permits municipalities in Puerto Rico to see relief under a Puerto Rican variation on chapter 9, numerous bondholders sued to enjoin enforcement of the Act. The District Court granted the plaintiffs relief, and Puerto Rican defendants appealed.
- The court extensively analyzed the history of municipal bankruptcies and noted that until about 1984, Puerto Rican municipalities could file a bankruptcy case. At that point, however, Congress changed the law, probably because Puerto Rico is "constitutionally a territory", not a state. The court noted that there is the possibility of a Congressional solution and that Puerto Rico is seeking it.
- Lynch (author), Howard, and Toruella (concurring in the judgment but would hold that exclusion of Puerto Rico is unconstitutional).
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