Opinion
No. 17 BK 3283-LTS (Jointly Administered) No. 17 BK 3567-LTS Adv. Proc. No. 21-00068-LTS
2021-10-29
IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico et al., Debtors. In re: The Financial Oversight and Management Board for Puerto Rico, as representative of Puerto Rico Highways and Transportation Authority, Debtor. AmeriNational Community Services, LLC, as Servicer for the GDB Debt Recovery Authority and Cantor-Katz Collateral Monitor LLC, Plaintiffs, v. Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp., National Public Finance Guarantee Corporation, Financial Guaranty Insurance Company, Peaje Investments LLC, and the Bank of New York Mellon, as Fiscal Agent, Defendants.
MCCONNELL, VALDÉS LLC, By: Arturo J. García-Solá, Alejandro J. Cepeda-Diaz, Nayuan Zouairabani, 270 Muñoz Rivera Avenue, Suite 7, Hato Rey, Puerto Rico 00918, PO Box 364225, San Juan, Puerto Rico 00936-4225, Attorneys for AmeriNational Community Services, LLC as servicer for the GDB Debt Recovery Authority. C. CONDE & ASSOC. LAW OFFICES, By: Carmen D. Conde Torres, Luisa S. Valle Castro, 254 San José Street, Suite 5, San Juan, PR 00901-1523, SCHULTE ROTH & ZABEL LLP, By: Douglas S. Mintz, 901 Fifteenth Street, NW, Suite 800, Washington, DC 20005 and Douglas Koff, Abbey Walsh, Peter J. Amend, 919 Third Avenue, New York, NY 10022, Attorneys for Cantor-Katz Collateral Monitor LLC, as Collateral Monitor for GDB Debt Recovery Authority. O'NEILL & BORGES LLC, By: Hermann D. Bauer, 250 Muñoz Rivera Avenue, Suite 800, San Juan, PR 00918-1813, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Brian S. Rosen, Jeffrey W. Levitan, Ehud Barak, Eleven Times Square, New York, NY 10036 and Michael Firestein, Lary Alan Rappaport, 2029 Century Park East, Suite 2400, Los Angeles, CA 90067, Attorneys for the Financial Oversight and Management Board for Puerto Rico, as representative of the Commonwealth of Puerto Rico. CASELLAS ALCOVER & BURGOS P.S.C., By: Heriberto Burgos Perez, Diana Pérez-Seda, P.O. Box 364924, San Juan, PR 00936-4924, CADWALADER, WICKERSHAM & TAFT LLP, By: Howard R. Hakwins, Jr., Mark C. Ellenberg, William J. Natbony, Thomas J. Curtin, Casey J. Servais, 200 Liberty Street, New York, NY 10281, Attorneys for Assured Guaranty Corp. and Assured Guaranty Municipal Corp. SEPULVADO, MALDONADO & COURET, By: Albéniz Couret Fuentes, 304 Ponce de León Ave. Suite 990, San Juan, PR 00918, REED SMITH LLP, By: Luke Sizemore, Jared S. Roach, 225 Fifth Avenue, Suite 1200, Pittsburgh, PA 15222 and Kurt F. Gwynne, 1201 Market Street, Suite 1500, Wilmington, DE 19801, Attorneys for The Bank of New York Mellon, as Fiscal Agent. FERRAIUOLI LLC, By: Roberto Cámara-Fuertes, Sonia Colón, 221 Ponce de León Avenue, 5th Floor, San Juan, PR 00917, MILBANK LLP, By: Dennis F. Dunne, Atara Miller, Grant R. Mainland, John J. Hughes III, Jonathan Ohring, 55 Hudson Yards, New York, NY 10001, Attorneys for Ambac Assurance Corporation. ADSUAR MUNIZ GOYCO SEDA & PEREZ-OCHOA PSC, By: Eric Pérez-Ochoa, Luis A. Oliver-Fraticelli, 208 Ponce de Leon Ave., Suite 1600, San Juan, PR 00936, WEIL, GOTSHAL & MANGES LLP, By: Jonathan Polkes, Gregory Silbert, Robert Berezin, Kelly DiBlasi, Gabriel A. Morgan, 767 Fifth Avenue, New York, NY 10153, Counsel for National Public Finance Guarantee Corp. REXACH & PICÓ, CSP, By: Maria E. Picó, 802 Ave. Fernández Juncos, San Juan PR 00907-4315, BUTLER SNOW LLP, By: Martin A. Sosland, 2911 Turtle Creek Blvd., Suite 1400, Dallas, TX 75219 and James E. Bailey III, Adam M. Langley, 6075 Poplar Ave., Suite 500, Memphis, TN 38119, Counsel for Financial Guaranty Insurance Company. MONSERRATE SIMONET & GIERBOLINI, LLC, By: Dora L. Monserrate-Peñagarícano, Fernando J. Gierbolini-González, Richard J. Schell, 101 San Patricio Avenue, Maramar Plaza, Suite 1120, Guaynabo, Puerto Rico 00968, DECHERT LLP, By: Allan S. Brilliant, Yehuda Goor, 1095 Avenue of the Americas, New York, New York 10036 and G. Eric Brunstad, Jr., 90 State House Square, Hartford, Connecticut 06103 and Stuart T. Steinberg, Cira Centre, 2929 Arch Street, Philadelphia, Pennsylvania 19104, Attorneys for Peaje Investments LLC. MARINI PIETRANTONI MUÑIZ LLC, By: Luis C. Marini-Biaggi, Carolina Velaz-Rivero, 250 Ponce de León Ave., Suite 900, San Juan, PR 00918, O'MELVENY & MYERS LLP, By: John J. Rapisardi, Matthew P. Kremer, 7 Times Square, New York, NY 10036 and Peter Friedman, 1625 Eye Street, NW, Washington, DC 20006, Attorneys for the Puerto Rico Fiscal Agency and Financial Advisory Authority.
MCCONNELL, VALDÉS LLC, By: Arturo J. García-Solá, Alejandro J. Cepeda-Diaz, Nayuan Zouairabani, 270 Muñoz Rivera Avenue, Suite 7, Hato Rey, Puerto Rico 00918, PO Box 364225, San Juan, Puerto Rico 00936-4225, Attorneys for AmeriNational Community Services, LLC as servicer for the GDB Debt Recovery Authority.
C. CONDE & ASSOC. LAW OFFICES, By: Carmen D. Conde Torres, Luisa S. Valle Castro, 254 San José Street, Suite 5, San Juan, PR 00901-1523, SCHULTE ROTH & ZABEL LLP, By: Douglas S. Mintz, 901 Fifteenth Street, NW, Suite 800, Washington, DC 20005 and Douglas Koff, Abbey Walsh, Peter J. Amend, 919 Third Avenue, New York, NY 10022, Attorneys for Cantor-Katz Collateral Monitor LLC, as Collateral Monitor for GDB Debt Recovery Authority.
O'NEILL & BORGES LLC, By: Hermann D. Bauer, 250 Muñoz Rivera Avenue, Suite 800, San Juan, PR 00918-1813, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Brian S. Rosen, Jeffrey W. Levitan, Ehud Barak, Eleven Times Square, New York, NY 10036 and Michael Firestein, Lary Alan Rappaport, 2029 Century Park East, Suite 2400, Los Angeles, CA 90067, Attorneys for the Financial Oversight and Management Board for Puerto Rico, as representative of the Commonwealth of Puerto Rico.
CASELLAS ALCOVER & BURGOS P.S.C., By: Heriberto Burgos Perez, Diana Pérez-Seda, P.O. Box 364924, San Juan, PR 00936-4924, CADWALADER, WICKERSHAM & TAFT LLP, By: Howard R. Hakwins, Jr., Mark C. Ellenberg, William J. Natbony, Thomas J. Curtin, Casey J. Servais, 200 Liberty Street, New York, NY 10281, Attorneys for Assured Guaranty Corp. and Assured Guaranty Municipal Corp.
SEPULVADO, MALDONADO & COURET, By: Albéniz Couret Fuentes, 304 Ponce de León Ave. Suite 990, San Juan, PR 00918, REED SMITH LLP, By: Luke Sizemore, Jared S. Roach, 225 Fifth Avenue, Suite 1200, Pittsburgh, PA 15222 and Kurt F. Gwynne, 1201 Market Street, Suite 1500, Wilmington, DE 19801, Attorneys for The Bank of New York Mellon, as Fiscal Agent.
FERRAIUOLI LLC, By: Roberto Cámara-Fuertes, Sonia Colón, 221 Ponce de León Avenue, 5th Floor, San Juan, PR 00917, MILBANK LLP, By: Dennis F. Dunne, Atara Miller, Grant R. Mainland, John J. Hughes III, Jonathan Ohring, 55 Hudson Yards, New York, NY 10001, Attorneys for Ambac Assurance Corporation.
ADSUAR MUNIZ GOYCO SEDA & PEREZ-OCHOA PSC, By: Eric Pérez-Ochoa, Luis A. Oliver-Fraticelli, 208 Ponce de Leon Ave., Suite 1600, San Juan, PR 00936, WEIL, GOTSHAL & MANGES LLP, By: Jonathan Polkes, Gregory Silbert, Robert Berezin, Kelly DiBlasi, Gabriel A. Morgan, 767 Fifth Avenue, New York, NY 10153, Counsel for National Public Finance Guarantee Corp.
REXACH & PICÓ, CSP, By: Maria E. Picó, 802 Ave. Fernández Juncos, San Juan PR 00907-4315, BUTLER SNOW LLP, By: Martin A. Sosland, 2911 Turtle Creek Blvd., Suite 1400, Dallas, TX 75219 and James E. Bailey III, Adam M. Langley, 6075 Poplar Ave., Suite 500, Memphis, TN 38119, Counsel for Financial Guaranty Insurance Company.
MONSERRATE SIMONET & GIERBOLINI, LLC, By: Dora L. Monserrate-Peñagarícano, Fernando J. Gierbolini-González, Richard J. Schell, 101 San Patricio Avenue, Maramar Plaza, Suite 1120, Guaynabo, Puerto Rico 00968, DECHERT LLP, By: Allan S. Brilliant, Yehuda Goor, 1095 Avenue of the Americas, New York, New York 10036 and G. Eric Brunstad, Jr., 90 State House Square, Hartford, Connecticut 06103 and Stuart T. Steinberg, Cira Centre, 2929 Arch Street, Philadelphia, Pennsylvania 19104, Attorneys for Peaje Investments LLC.
MARINI PIETRANTONI MUÑIZ LLC, By: Luis C. Marini-Biaggi, Carolina Velaz-Rivero, 250 Ponce de León Ave., Suite 900, San Juan, PR 00918, O'MELVENY & MYERS LLP, By: John J. Rapisardi, Matthew P. Kremer, 7 Times Square, New York, NY 10036 and Peter Friedman, 1625 Eye Street, NW, Washington, DC 20006, Attorneys for the Puerto Rico Fiscal Agency and Financial Advisory Authority.
PROMESA Title III
OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT
LAURA TAYLOR SWAIN, United States District Judge Before the Court is the Defendants’ Motion to Dismiss the Complaint (Docket Entry No. 44, the "Defendants’ Motion"), filed by Assured Guaranty Corp., Assured Guaranty Municipal Corp. (together, "Assured"), Ambac Assurance Corporation ("Ambac"), The Bank of New York Mellon, as Fiscal Agent, the National Public Finance Guarantee Corp. ("National"), the Financial Guaranty Insurance Company ("FGIC"), and Peaje Investments LLC (together, the "Defendants") on August 26, 2021, as well as the Intervening Defendant Financial Oversight and Management Board's Memorandum of Law in Support of Motion to Dismiss, or in the Alternative, to Stay Counts I, II, and IV of the Complaint (Docket Entry No. 40, the "Oversight Board's Motion"), filed by the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board"), and the Notice of Limited Joinder of Intervening Defendant Puerto Rico Fiscal Agency and Financial Advisory Authority to Intervening Defendant Financial Oversight and Management Board's Motion to Dismiss, or in the Alternative, to Stay Counts I, II, and IV of the Complaint (Docket Entry No. 42, "AAFAF's Joinder") filed by the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF"). As explained in in the Defendants’ Motion, the Defendants seek dismissal under rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, made applicable to this Adversary Proceeding under rule 7012(b) of the Federal Rules of Bankruptcy Procedure, of all four counts of the Adversary Complaint (Docket Entry No. 1, the "Complaint") of AmeriNational Community Services, LLC and Cantor-Katz Collateral Monitor LLC (the "DRA Parties"), acting on behalf of the GDB Debt Recovery Authority (the "DRA").
Unless otherwise specified, all docket entry references in this Order are to entries in Adversary Proceeding No. 28-68.
The DRA Parties filed their consolidated opposition to the Defendants’ Motion and Oversight Board's Motion on September 23, 2021 (Docket Entry No. 60, the "Opposition"), and on October 8, 2021, the Defendants and the Oversight Board filed their replies (Docket Entry Nos. 67, 68). The Court has jurisdiction of this adversary proceeding pursuant to 48 U.S.C. section 2166(a). The Court has reviewed carefully all of the submissions in connection with this motion practice and, for the reasons set forth below, the Defendants’ Motion is granted, and the Oversight Board's Motion, together with AAFAF's Joinder, is denied as moot.
I.
BACKGROUND
The following recitation of facts is drawn from the Complaint and exhibits attached thereto, unless otherwise specified.
A. Legal Background
1. The HTA Bond Resolutions
Act 74 of 1965 (the "HTA Enabling Act") authorized the Puerto Rico Highways 221 and Transportation Authority ("HTA") to issue bonds. HTA did so pursuant to resolutions it adopted in 1968 (Compl. Ex. A, the "1968 Resolution") and 1998 (Compl. Ex. B, the "1998 Resolution" and, together with the 1968 Resolution, the "Bond Resolutions"). See 9 L.P.R.A. § 2001 et seq. Bonds issued under the Bond Resolutions (the "Bonds") are payable from (i) "Revenues" (see 1968 Res. § 601; 1998 Res. § 601); (ii) other monies and funds received by the HTA for that purpose from the Commonwealth (id. ); and (iii), in the case of any deficiency in the funding of any of the accounts established for the payment of the Bonds (the "Bond Revenue Accounts"), from other funds received by HTA from the Commonwealth or from any other source for the purpose of making up the deficiency (see, e.g., 1968 Res. § 401; 1998 Res. § 401). As to this last requirement, the 1998 Resolution provides (for example) that
If the amount so deposited in any month to the credit of any [part of the Bond Revenue Accounts] shall be less than the required amount, the requirement therefor shall nevertheless be cumulative and the amount of any deficiency in any month shall be added to the amount otherwise required to be deposited to the credit of such account in each month thereafter until such time as such deficiency shall be made up. [HTA] further covenants that any other funds which it receives from the Commonwealth or any other source to make up any deficiencies in the amounts needed to pay the principal of and interest on any bonds issued under the provisions of the 1968 Resolution and this Resolution will be applied for such purpose first to make up any deficiencies in the amounts needed to pay the principal of and interest on any 1968 Resolution Bonds and then to make up any such deficiencies needed to pay such principal of and interest on the senior bonds and then the subordinated bonds.
(1998 Res. § 401 (emphasis added).)
The Bond Resolutions define the term "Revenues" in similar fashions. The 1968 Resolution defines "Revenues" as:
[A]ll moneys received by [HTA] on account of gasoline tax allocated to [HTA] by Act No. 75, approved June 23, 1965; (b) Toll Revenues; [and] (c) the proceeds of any other taxes, fees or charges which the Legislature of Puerto Rico has allocated or may hereafter allocate to [HTA] and expressly authorize [HTA] to pledge to the payment of the principal of and interest on Bonds or other obligations of [HTA] and which are pledged by [HTA] to the payment of the principal and interest on Bonds or other obligations issued under the provisions of this Resolution; provided that written notice of such pledge has been delivered to Standard & Poor's Corporation, Moody's Investors Service, Inc. and any other rating agency then rating the bonds ....
(1968 Res. at 11 (emphasis added).)
The 1998 Resolution defines "Revenues" as:
[A]ll moneys received by [HTA] on account of the crude oil tax allocated to [HTA] by Act No. 34, approved July 16, 1997, as amended, all Existing Tax and Fee Revenues upon the repeal and cancellation of the 1968 Resolution, any tolls or other charges imposed by [HTA] for the use of any of the Toll Facilities other than Existing Toll Facilities Revenues received by [HTA] prior to the repeal and cancellation of the 1968 Resolution, the proceeds of any other taxes, fees or charges which the Legislature of Puerto Rico may hereafter allocate to [HTA] and expressly authorize [HTA] to pledge to the payment of the principal of and
interest on bonds or other obligations of [HTA] and which are pledged by [HTA] to the payment of the principal of and interest on bonds or other obligations issued under the provisions of this Resolution, and investment earnings on deposits to the credit of funds and accounts established hereunder, except for the Construction Fund.
(1968 Res. at 13.) Such sources of revenues are derived, at least in part, from legislation that has since been augmented, as discussed below.
The Bond Resolutions also protect bondholders by prohibiting HTA from unilaterally incurring any subsequent debt that ranks equally with or prior to the seniority of the Bonds (1968 Res. § 602 ("Any other indebtedness incurred by [HTA] after the effective date hereof under documents not in effect on the effective date hereof shall contain a statement that such indebtedness is junior, inferior and subordinate in all respects to the Bonds and agreements with issuers of Credit Facilities or Liquidity Facilities secured on a parity with the Bonds as to lien on and source and security for payment from Revenues hereunder."); 1998 Res. § 602. See also 1998 Res. § 802; 1968 Res. § 802; 9 L.P.R.A. §§ 2012(b), (e)).
As for the condition of the Bond Revenue Accounts, Plaintiffs allege, and the parties appear to be in agreement, that the current balance in those accounts is zero. (Compl. ¶¶ 35, 110.)
2. Acts 30 and 31
On June 25, 2013, the Governor of Puerto Rico signed into law Act Nos. 30-2013 (Compl. Ex. C, "Act 30") and 31-2013 (Compl. Ex. D, "Act 31") which amended existing legislation that provided revenues to HTA (section 23.01 of Act No. 22-2000 and section 3060.11(a)(1)(E) of Act No. 1-2011, respectively). See 9 L.P.R.A. § 5681 ; 13 L.P.R.A. § 31751(a)(1)(C). According to the Statements of Motives included in Acts 30 and 31, both statutes were designed, at least in part, to meet outstanding obligations of HTA to repay loans granted by the Government Development Bank for Puerto Rico (the "GDB"), by increasing the tax on motor vehicle or trailer license fees (Act No. 22-2000), and increasing HTA's receipt of excise taxes imposed, collected, and paid on crude oil, other petroleum products, and cigarettes (Act No. 1-2011). (See Act 30; Act 31; Compl. ¶¶ 42-46.) Revenues from Acts 30 and 31 (the "Acts 30-31 Revenues") could be allocated by HTA, and even pledged by HTA for the payment of Bonds. The parties disagree as to the meaning of relevant provisions of each bill, which include section 1 of Act 30:
[HTA] is hereby authorized to pledge or encumber the proceeds of the taxes collected for the payment of the principal of and interest on any bonds or other obligation or for any other lawful purpose of the [HTA].... The proceeds of the taxes collected shall be used solely for the payment of the interest on and amortization of the public debt ... insofar as the other available resources referred to in said Section does not suffice to attain such purposes. Otherwise, the proceeds of said tax, in the necessary amount, shall be used solely for the payment of principal of and interest on the bonds and other obligations of the [HTA] and to meet any stipulation agreed upon by the [HTA] to the holders of its bonds and other obligations.
(Act 30 § 1 (emphasis added). See also 9 L.P.R.A. § 5681.) The use of the phrase "bonds and other obligations" precludes a reading of Act 30 that contemplates an allocation of revenues that excludes either the repayment of Bonds or of other obligations. Section 3(a)(3)(C) of Act 31, which concerns the cigarette tax, contains nearly identical language. In addition, section 3(a)(1)(E) of Act 31 reads as follows:
In case the amount of the proceeds of the [gas and petroleum taxes appropriated to HTA] may at any time be insufficient to pay the principal of and the interest on the bonds or other obligations over money taken on a loan or issued by [HTA, certain taxes and a reserve fund will be] applied to cover the deficiency in the amount needed to make such payments, the amounts of said reserve fund used to cover said deficiency shall be reimbursed to [HTA] from the first proceeds received on the next fiscal year or subsequent fiscal years by the Government of Puerto Rico from: (1) any other taxes in effect on any other fuel or propellant used, among other purposes, to propel road vehicles; and (2) any remaining portion of the tax on gasoline, gas oil, or diesel oil established in Section 3020.06 that are in effect.
(Act 31 § 3(a)(1)(E). See also 13 L.P.R.A. § 31751(a)(1)(C).) Defendants refer to this provision as the "Reimbursement Obligation," under which terms, they argue, the Commonwealth is required to reimburse HTA and the holders of the Bonds (the "Bondholders") if there is a deficiency in the Bond Revenue Accounts. (Defendants’ Mot. ¶ 11.) Nevertheless, the plain text of this provision contemplates payment insufficiencies with respect to the "bonds or other obligations" of HTA and does not exclusively contemplate Bond payments.
3. The Security Agreement with the GDB
On August 28, 2013, the GDB and HTA executed an Assignment and Security Agreement (Compl. Ex. F, the "Security Agreement") under which HTA "absolutely, irrevocably, and unconditionally assign[ed], convey[ed] and transfer[ed] without recourse, to [GDB all of its] rights, title, obligations and interest in" the Acts 30-31 Revenues, including HTA's right to receive such revenues, and granted GDB a security interest "which shall be junior, inferior and subordinate in all respects to the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions, in all of the right, title and interest of [HTA] in the [Acts 30-31 Revenues], whether presently held or hereafter acquired and wherever located (collectively, the ‘Collateral’)." (Security Agmt. §§ 1.1, 1.2.) The DRA Parties argue that the lien granted by the Security Agreement was perfected by the filing of an accompanying financing statement and that no other creditor has a lien on the Acts 30-31 Revenues. (Compl. ¶¶ 53-54.) Relatedly, section 2.5 states that "[t]his Agreement creates a valid and perfected security interest in the Collateral, securing the payment of the Obligations, and junior, inferior and subordinate in all respects only to the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions." (Security Agmt. § 2.5 (emphasis added).)
Notably, the financing statement provides that loan interests in the Acts 30-31 Revenues allocated to HTA by the Commonwealth "shall be junior, inferior and subordinate in all respects to the outstanding bonds of [HTA] issued pursuant to (i) [the 1998 Resolution], as amended, and (ii) Resolution No. 13-41, adopted by [HTA] on August 28, 2013." (Compl. Ex. G ¶ 4.)
The Security Agreement also creates a waterfall of payment priorities for "Revenues," that is, "all revenues allocated in favor of [HTA] by Acts No. 30-2013 & 31-2013 approved by the Legislature of the Commonwealth of Puerto Rico on June 25, 2013 assigned to the [GDB] pursuant to this Agreement for the payment of the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions and other outstanding Obligations." (Security Agmt. § 5.1.) Section 3.2, which creates the payment priority waterfalls, provides as follows:
The Revenues assigned and Proceeds acquired under the Collateral shall be applied by the [GDB] as follows: (i) to the payment of the outstanding bonds of the [HTA] issued pursuant to the Bond Resolutions; [and] (iii) next, any surplus then remaining to the payment of the Obligations in the following order of priority: (1) all interest accrued and unpaid owing on the Loan Agreement; (2) the principal amount owing on the Loan Agreement; (3) the fees then owing to the [GDB]; and (4) all other outstanding Obligations then owing by [HTA] to [GDB].
(Security Agmt. § 3.2.)
4. The Loan Agreements
Between March 2008 and January 2014, the GDB and HTA entered into 15 loan agreements (the "Loan Agreements") giving rise to loans in that period (the "Loans"). (Compl. ¶ 48.) The DRA Parties argue that the Loans (including those which post-date the Bond Resolutions but predate Acts 30 and 31), are payable from Acts 30-31 Revenues, public-private partnership proceeds, proceeds from future HTA bond issuances, and any available monies and resources of HTA. (Compl. ¶ 49.) The DRA, which was created to give effect to the qualifying modification for the GDB under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), acquired the Loans in connection with that qualifying modification. (Compl. ¶¶ 20-21, 79.)
The Complaint provides one Loan Agreement, dated August 28, 2013, as an exemplar. (Compl. Ex. E.)
PROMESA is codified at 48 U.S.C. § 2101 et seq.
B. Factual and Procedural Background
1. The HTA PSA and the Proposed Plan of Adjustment
On May 3, 2017 and May 21, 2017, the Oversight Board commenced Title III cases for the Commonwealth and HTA, respectively. As reflected in the public records of these cases, the Oversight Board and certain bondholders (including Assured and National) entered into a plan support agreement in May 2021 (Docket Entry No. 17628-3 in Case No. 17-3283, the "HTA PSA"), under which the parties settled clawback claims (i.e., claims concerning the Commonwealth's retention of certain revenues, including Acts 30-31 Revenues, from which HTA bonds and other obligations were to be paid prepetition) by such bondholders. Ambac and FGIC proffer that certain bondholders, including Ambac and FGIC, executed joinders to the HTA PSA. (Defendants’ Mot. ¶ 32 & n.5.) After several prior iterations, the Oversight Board filed the Seventh Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, et al. on July 30, 2021. (Docket Entry No. 17627 in Case No. 17-3283, and as the same may be supplemented or amended, the "Proposed Plan.") The Proposed Plan provides for the issuance of a "contingent value instrument" (the "HTA CVI") as consideration for the settlement of clawback claims under the HTA PSA, and it provides for the allocation of the HTA CVI first, on account of 1968 Bonds; second, on account of the Senior 1998 Bonds; third, on account of the Junior 1998 Bonds; and fourth, on account of Loans. (Proposed Plan at J-12. See also id. at arts. 1.171, 63.2; Docket Entry No. 17628 in Case No. 17-3283 at 480 n.449 ("The Oversight Board believes that based on the language of the indenture for the [19]68 Bonds, the [19]98 Bonds, the DRA Parties’ loans with GDB, and the HTA Enabling Act, among other documents, the DRA's HTA Loan claims are subordinate to the CW/HTA Claims, and proposed to treat them accordingly.").)
The "Clawback Actions" settled in the HTA PSA refer collectively to the litigated matters styled as Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corporation, et al., Adv. Pro. No. 20-00005-LTS; Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corporation, et al., Adv. Pro. No. 20-00004-LTS; Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corporation, et al., Adv. Pro. No. 20-00003-LTS; and Financial Oversight and Management Board for Puerto Rico v. Ambac Assurance Corporation, et al., Adv. Pro. No. 20-00007-LTS. (See HTA PSA at 5.)
Under the Proposed Plan, disbursement under the "CVI Payment Reserve" simultaneously presumes that Loan claims are subordinated to the claims of Bondholders, and acknowledges that the question of subordination of the Loan claims, which it defines as the "GDB Loan Priority Determination," has not been resolved. (Proposed Plan art. 1.171.) Article 1.258 further defines the "GDB Loan Priority Determination" as "[t]he determination, in either the Commonwealth Title III Case or the HTA Title III Case, (a) with respect to the relative rights of recovery and priority of payment of the [19]68 Bonds and the [19]98 Bonds to the rights of GDB with respect to the GDB HTA Loans, and/or (b) that the [DRA] does not possess an allowable claim or entitlement to recover with respect to the HTA Clawback CVI based upon such GDB HTA Loans." (Id. art. 1.258.)
2. The DRA Parties’ Adversary Complaint
The DRA Parties commenced the instant Adversary Proceeding against the Defendants (holders of HTA Bonds) on June 26, 2021, asserting an interest in "property of the Commonwealth and/or HTA" (without naming either debtor as a defendant) (Compl. ¶ 14), and pleading the following four counts seeking declaratory relief against the Defendants:
"The DRA Parties are pursuing this Adversary Complaint to protect the right and recoveries of the DRA bondholders under the Loan Claims, which ... have been disregarded by the Defendants and the [Oversight Board]." (Compl. ¶ 23. See also Compl. ¶¶ 94-95 ("DRA has also asserted clawback claims against the Commonwealth," and "[a]ll of the clawback claims are based on the Commonwealth's retention of the Act[s] 30-31 Revenues beginning in 2015, thereby depriving HTA of the revenue streams that would have otherwise been used to repay the Loan Claims, in accordance with applicable claim and lien priorities."); ¶ 101 ("The instant Complaint is intended to provide a means to resolve the priority question with respect to the payments made by the Commonwealth on account of the clawback claims, and any payments that may be made on account of the Loan Claims and the HTA Bonds under a future plan for HTA.").)
(1) A "[d]eclaration that the DRA is the only party with a right to collect from and a valid, perfected security interest in the Act[s] 30-31 Revenues" (Compl. ¶¶ 103-15);
(2) A "[d]eclaration that the HTA Bondholders have limited collateral to secure the Bonds, that the HTA Bonds are limited recourse obligations, and neither the Collateral pledged to secure the Bonds, nor the Bond revenues to which the Bondholders have recourse, includes the Act[s] 30-31 Revenues" (Compl. ¶¶ 116-29);
(3) A "[d]eclaration that the DRA's Loans are not subordinate to the Bonds" (Compl. ¶¶ 130-40); and
(4) A "[d]eclaration that the DRA's Loans are entitled to collect on the
Loan Claims from the Bond Revenues not deposited in the Bond Revenue Accounts" (Compl. ¶¶ 141-45).
II.
DISCUSSION
On August 26, 2021, the Defendants filed their motion to dismiss the DRA's Complaint, arguing, inter alia, that dismissal is appropriate under Rule 12(b)(1) because at least Counts 1, 2, and 4 of the Complaint seek an impermissible advisory opinion, and under Rule 12(b)(6) because the Complaint fails to state a claim upon which relief can be granted. (Defendants’ Mot. ¶¶ 42-43, 49.) Although a Court presented with motions to dismiss under both Rules 12(b)(1) and 12(b)(6) should ordinarily decide jurisdictional questions before addressing the merits, Deniz v. Municipality of Guaynabo, 285 F.3d 142, 149 (1st Cir. 2002), there is no assertion that Count 3 can be dismissed under Rule 12(b)(1), and since the resolution of Count 3 depends on determining whether the Bonds are payable from Acts 30-31 Revenues, the Court finds (for reasons set forth more fully below) that dismissal is appropriate under Rule 12(b)(6) of the Federal Rules of Civil Procedure because the Bonds are payable from Acts 30-31 Revenues, making dismissal of Count 1 appropriate, and because the Security Agreement ensures that the Loans are subordinated to the Bonds in terms of prioritization and satisfaction of payment from Acts 30-31 Revenues, making dismissal of the remaining Counts appropriate.
Put differently, there is no dispute that the Proposed Plan immanentizes the need to address the GDB Loan Priority Determination. Thus, with respect to the subordination issue raised in Count 3, it appears that "the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941). See also Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241, 57 S.Ct. 461, 81 L.Ed. 617 (1937) (Complaint must present a "real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts."); 28 U.S.C. § 2201(a). The analysis of the subordination question requires first considering whether the Bondholders have any rights to receive Acts 30-31 Revenues to which the DRA Parties could be subordinated, and that question implicates Count 1.
A. Count 1: Whether only DRA has a right to collect Acts 30-31 Revenues
As to the DRA Parties’ request for a declaration that "the DRA is the only party with a valid, perfected, first-priority lien on, security interest in, and a right to collect from the Act[s] 30-31 Revenues" (Compl. at 31), that Count must be dismissed because the Bonds are payable from Acts 30-31 Revenues.
The operative language of Acts 30 and 31 unambiguously provides that, to the extent revenues generated thereunder are made available to HTA by the Commonwealth, "the proceeds ... shall be used solely for the payment of principal of and interest on the bonds and other obligations of the [HTA] and to meet any stipulation agreed upon by the [HTA] to the holders of its bonds and other obligations." (Act 30 § 1 (emphasis added); 9 L.P.R.A. § 5681. See also Act 31 § 3(a)(3)(C) (substantially the same); 13 L.P.R.A. § 31751(a)(1)(C). See also Act 31 § 3(a)(1)(E).) Because these provisions are clear, it is unnecessary to look beyond the text of Acts 30 and 31 to determine that existing bonds are contemplated. See Oquendo-Lorenzo v. Hospital San Antonio, Inc., 256 F. Supp. 3d 103, 107 (D.P.R. 2017) ("Statutory construction in Puerto Rico begins with the text of the underlying statute, and ends there as well if the text is unambiguous.") (quoting Scotiabank De P.R. v. Burgos (In re Plaza Resort at Palmas, Inc.), 741 F.3d 269, 274 (1st Cir. 2014) ).
Such language forecloses neither Bond payments, nor Loan payments (which, considered in light of the Statements of Motives, are presumably contemplated by the reference to "other obligations"). Moreover, Act 31, which amends section 3060.11(a)(1)(E) of Act No. 1-2011, provides that, "[i]n case the amount of the proceeds of the [relevant petroleum taxes appropriated to the HTA] may at any time be insufficient to pay the principal of and the interest on the bonds or other obligations," funds placed into a reserve fund are to be "applied to cover the deficiency in the amount needed to make such payments, [and] the amounts of said reserve fund used to cover said deficiency shall be reimbursed to [HTA] from the first proceeds received on the next fiscal year or subsequent fiscal years" out of taxes levied on petroleum products. (Act 31 § 3(a)(1)(E) (emphasis added); 13 L.P.R.A. § 31751(a)(1)(E).) Thus, the plain terms of Acts 30 and 31 specifically contemplate Bond payments, compelling the conclusion that holders of Loan claims are not the only parties with a right to receive Acts 30-31 Revenues. That alone merits dismissal of Count 1, which seeks a declaration that DRA alone has a right to collect from Acts 30-31 Revenues.
The Security Agreement, consistent with the language of Acts 30 and 31, emphasizes and prioritizes the rights of Bondholders to be paid from the Acts 30-31 Revenues. Section 1.2 plainly states that the security interest granted therein to the GDB "shall be junior, inferior and subordinate in all respects to the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions, in all of the right, title and interest of [HTA] in the revenues allocated to it by [Acts 30 and 31], whether presently held or hereafter acquired and wherever located (collectively, the ‘Collateral’)." (Security Agmt. § 1.2.) Independent of its impact on the question of subordination, which is discussed further below (at II.B), section 1.2 makes clear that the Bonds are not only contemplated, but prioritized by the Security Agreement. (See also id. § 2.5.) That fact is only reinforced by the Security Agreement's definition of "Revenues," which reiterates that the Acts 30-31 Revenues are payable toward the "outstanding bonds of [HTA] issued pursuant to the Bond Resolutions and other outstanding Obligations." (Id. § 5.1.) Moreover, the waterfall of payment priorities established under section 3.2 makes an affirmative provision for "the payment of the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions[.]" (Id. § 3.2)
But see In re Fin. Oversight & Mgmt. Bd. for P.R., 618 B.R. 619, 641 (D.P.R. 2020) (declining to find that a security agreement expanded the scope of whatever security interest the Bond Resolutions established), aff'd, 989 F.3d 170 (1st Cir. 2021).
Far from being ambiguous, the affirmative grant of a right to receive Acts 30-31 Revenues to the GDB is accompanied by a reaffirmation that the Bonds are also payable from the same revenues, as shown by the clear language of Acts 30 and 31 and as further demonstrated by the Security Agreement. Nor do these texts support the DRA Parties’ suggestion that only their Bonds were contemplated by Acts 30 and 31 for repayment (see Compl. ¶¶ 21-23 & n.6, 53 & n.9; Opp. ¶¶ 3 & n.5, 128), as sections 201 and 802 of the Bond Resolutions preclude any preference or priority among Bonds issued under them. (1968 Res. §§ 201, 802; 1998 Res. §§ 201, 802.)
In the absence of any textual ambiguity as to whether the Bonds are payable from Acts 30-31 Revenues—a conclusion that is unaffected even if Acts 30 and 31 were enacted primarily for the sake of Loan repayments—the Court finds that discovery directed to extrinsic evidence is not warranted, both because no extrinsic evidence can override the clear statutory language, which does not lend itself to any reasonable alternative interpretation that would preclude existing Bondholders from being paid out of Acts 30-31 Revenues, see United States v. Howe, 736 F.3d 1, 4 (1st Cir. 2013), and because the terms of the Security Agreement are "clear and leave no doubt as to the intentions of the contracting parties," 31 L.P.R.A. § 3471. Therefore, because Count 1 seeks a declaration that only the DRA has a right to collect from Acts 30-31 Revenues, and because such a declaration would be contrary to Acts 30 and 31 and the Security Agreement, Count 1 is dismissed under Rule 12(b)(6) for failure to state a claim.
For instance, Acts 30 and 31 make no distinction between past and future Bond obligations or between current Bondholders.
B. Count 3: Whether the Loans are Subordinated to the Bonds
The Court now turns to the issue of whether the Complaint (including the exhibits attached thereto) fails to state a claim for declaratory relief that the DRA's Loans are not subordinate to the Bonds. First, the Court must consider the DRA Parties’ argument that Defendants lack standing to enforce the subordination provisions of the Security Agreement or the Loan Agreements against the DRA Parties, as third-party beneficiaries or otherwise. (Opp. ¶ 131.) Not only is it strange to assert that the captioned Defendants lack standing to respond to a Count for relief asserted against them and which directly affects their interests, the DRA Parties have not disputed that the HTA Enabling Act provides that Bondholders "shall have the right and power ... by action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the bondholders[.]" 9 L.P.R.A. § 2013(a)(3). Count 3, which seeks a declaration that affects the rights of the Bondholders, clearly falls within the purview of the enforceability provision of the HTA Enabling Act.
Contrary to the DRA Parties’ assertion that the Security Agreement is ambiguous and that it therefore "will need to be tested in light of ... relevant extrinsic evidence," (Opp. ¶ 138), the Security Agreement (submitted with the Complaint) clearly subordinates the Loans to the Bonds. From the outset, sections 1.2 and 2.5 subordinate the interests of the Loans to the Bonds, using a nearly identical clause providing that the security interest created therein "shall be junior, inferior and subordinate in all respects to the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions, in all of the right, title and interest of [HTA] in the revenues allocated to it by [Acts 30 and 31], whether presently held or hereafter acquired and wherever located[.]" (Security Agmt. § 1.2 (emphasis added). See also Security Agmt. § 2.5.) These provisions of the Security Agreement make no distinction between types of bonds, nor do they express a preference for future bond issuances, but instead they refer expressly to "outstanding bonds" as of the execution of the Security Agreement.
In addition, section 3.2 unambiguously prioritizes Bond payments by establishing a waterfall (or "turnover") mechanism, in the following terms:
The Revenues assigned and Proceeds acquired under the Collateral shall be applied by the [GDB] as follows: (i) to the payment of the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions; [and] (iii) next, any surplus then remaining to the payment of the Obligations in the following order of priority: (1) all interest accrued and unpaid owing on the Loan Agreement; (2) the principal amount owing on the Loan Agreement; (3) the fees then owing to the [GDB]; and (4) all other outstanding Obligations then owing by [HTA] to [GDB].
(Security Agmt. § 3.2 (emphasis added).) Despite the DRA Parties’ theory that section 3.2 contemplates only future bonds (or "bonding out") which were to be issued for the purpose of repaying the Loans (Opp. ¶¶ 159-67), section 3.2 refers to "outstanding bonds" rather than future bonds, as does section 2.2 which provides that HTA "will at all times be, the legal and beneficial owner of the Collateral free and clear from any lien, security interest, or other charge or encumbrance, except the security interest created by this Agreement[.]" (Security Agmt. §§ 2.2, 3.2.) Thus, the Security Agreement provides no plausible basis for construing the terms "Bond Resolutions" in a manner that excludes the 1968 Resolution or the 1998 Resolution from the scope of the subordination provision.
The only Loan Agreement attached to the Complaint reinforces this conclusion. It states that "[t]he Lender understands and agrees that the obligations of the Borrower hereunder with respect to the payment of principal and interest on the Loan from the revenues approved by Acts 30-2013 & 31-2013 is junior and subordinated in all respects to the payment of the outstanding bonds of the Borrower issued pursuant to (i) Resolution No. 98-06, adopted by [HTA] on February 26, 1998, as amended, and (ii) Resolution No. 13-41, adopted by [HTA] on August 28, 2013 (... collectively, the ‘Bond Resolutions’)." (Compl. Ex. E § 2.6 (emphasis added). See also Security Agmt. § 3.2.)
That the aforementioned Loan Agreement refers to the 1998 Resolution and not the 1968 Resolution is inconsequential, even if the Court were to agree with the DRA Parties that the definition of "Bond Resolutions" within the only Loan Agreement attached to the Complaint is incorporated by reference into the Security Agreement, which does not define that term. (Opp. ¶ 182.) Because the Loan Agreement affirms that the Loan is subordinated to the 1998 Resolution "in all respects," and because the DRA Parties do not dispute that the 1998 Resolution is subordinated to payment in full of the 1968 Resolution (compare Opp. ¶ 185 with 1998 Res. § 401), the conclusion cannot be evaded that the Loans are effectively subordinated to the 1968 Resolution by force of being subordinated "in all respects" to the 1998 Resolution, even if the Court were to agree that the definition of Bond Resolutions contemplated by the Security Agreement did not expressly include the 1968 Resolution. Accordingly, under the terms of the Security Agreement, the Loans are subordinated to Bonds issued under both the 1968 Resolution and the 1998 Resolution.
Some jurisdictions distinguish between lien subordination and payment subordination, see, e.g., In re Lantana Motel, 124 B.R. 252, 256 (Bankr. S.D. Ohio 1990), but whatever distinctions may be evident or reasonably inferred in other contexts are precluded here by the plain language of the Security Agreement. Although the DRA Parties do agree that the Security Agreement subordinates the legal priority of some creditors’ liens to those of other creditors, they oppose any interpretation of the Security Agreement that would subordinate the payment priorities of the Loans to those of the Bonds. (Opp. ¶¶ 172-74.) Nevertheless, that is precisely what the Security Agreement accomplishes.
Sections 1.2 and 2.5 of the Security Agreement both provide that the interests secured therein (including those of the Loans) are subordinated "in all respects [only] to the outstanding bonds of [HTA] issued pursuant to the Bond Resolutions." (Security Agmt. §§ 1.2, 2.5.) Moreover, the waterfall or "turnover" provision in section 3.2 makes abundantly clear that, whatever else is meant by the phrase "in all respects," the payment priority of the Bonds is higher than that of the Loans. (Id. § 3.2.) None of the cases cited by the DRA Parties supports or compels a different outcome. Accordingly, Count 3 is dismissed under Rule 12(b)(6) for failure to state plausibly a claim upon which relief can be granted, in light of the unambiguous text of the Security Agreement attached to the Complaint.
C. Counts 2 and 4: Whether Loan and Bond Rights are Further Determinable
Having determined that the Bonds are payable from Acts 30-31 Revenues and that whatever interests the DRA Parties may have in the Loans are subordinated to the Bonds, it becomes necessary to dismiss Counts 2 and 4, which logically depend on Counts 1 and 3.
Count 4, which asks this Court to declare that the DRA's Loans are entitled to collect on the Loan claims from the Bond Revenues not deposited in the Bond Revenue Accounts, must be dismissed precisely because Count 3 is dismissed. Count 4 is predicated on a false assumption that is based on a misapplication of this Court's prior lift stay decision, namely, that so long as Bond Revenues are not deposited into the Bond Revenue Accounts, the Loans may be paid out of the Bond Revenues (even if the Bond obligations are unsatisfied) under the terms of the Security Agreement. (See Compl. ¶¶ 34-35, 58-61 (discussing In re Fin. Oversight & Mgmt. Bd. for P.R., 618 B.R. 619, 631-42 (D.P.R. 2020) (finding, inter alia, that excise tax statutes did not afford bondholders colorable claims to statutory liens against HTA assets not deposited in the Bond Revenue Accounts)).) To the extent Count 4 seeks a declaration that the Loans are entitled to monies that are allocable and owed to the Bond Revenue Accounts, but which have not been deposited into those accounts (Compl. ¶ 61), the Security Agreement precludes such a possibility. (Security Agmt. §§ 1.2, 2.5, 3.2.)
The Complaint defines the term "Bond Revenues" in the terms that the 1998 Resolution defines "Revenues" (Compl. ¶ 31), as those monies received by HTA "and which are pledged by [HTA] to the payment of the principal of and interest on bonds or other obligations issued under the provisions of this Resolution, and investment earnings on deposits to the credit of funds and accounts established hereunder, except for the Construction Fund." (1998 Res. at 13.)
The Court does not determine today what interest the Bondholders may or may not have in funds not deposited in the Bond Revenue Accounts, but the Security Agreement unambiguously compels the conclusion that, before any funds are paid toward the Loans, Bond payment obligations must first be satisfied. (Security Agmt. §§ 1.2, 2.5, 3.2.) Thus, Count 4 must be dismissed for failure to state a claim upon which relief can be granted.
Count 2 essentially seeks three declarations, by asking this Court to declare that (i) the Bondholders have limited collateral to secure the Bonds; (ii) the Bonds are limited recourse obligations; and (iii) neither the collateral pledged to secure the Bonds, nor the Bond revenues to which the Bondholders have recourse, includes the Acts 30-31 Revenues. (Compl. ¶¶ 116-29; Compl. at 31.) The relief requested in the last part of Count 2 must be denied for the same reason the relief requested in Count 1 was denied: the Bonds are payable from Acts 30-31 Revenues. To say anything beyond that and to accept an invitation (implicit in Count 4 and explicit in Count 2) to define the rights of the Bondholders is also inappropriate, because doing so amounts to an objection to the Bondholders’ claims, which are the subject of settlement.
The Complaint infers from this Court's previous ruling in the context of a motion for stay relief, that section 601 in both Bond Resolutions limits "the lien granted by the Bond Resolutions to Revenues that are actually received by HTA and actually deposited in the applicable [Bond Revenue Accounts]." (Compl. ¶ 2) (quoting In re Fin. Oversight & Mgmt. Bd. For P.R., 618 B.R. 619, 638 (D.P.R. 2020), aff'd, 989 F.3d 170 (1st Cir. 2021).) That determination, which concerned the nature of the Bondholders’ purported security interest, comes nowhere close to the DRA Parties’ preferred conclusion (see Compl. ¶¶ 34, 38, 118, 129) that the Bonds are not even payable from sources outside the Bond Revenue Accounts (such as Acts 30 and 31), otherwise the Bond Revenue Accounts could never receive contributions. Indeed, the Court does not reach the question of whether the HTA Bondholders have a claim to Acts 30-31 Revenues not transferred to HTA or not deposited in the Bond Revenue Accounts, but simply concludes here that whatever right to receive Acts 30-31 Revenues the Bondholders enjoy takes priority over the DRA Parties’ right to receive payments from the same Acts 30-31 Revenues by force of the Security Agreement. See In re Fin. Oversight & Mgmt. Bd. for P.R., 618 B.R. 619, 631-42 (D.P.R. 2020), aff'd, 989 F.3d 170 (1st Cir. 2021).
As this Court has previously held, by asking the Court to "resolve claim objections prior to approving a settlement would ‘undermine the important policy of promoting settlements in bankruptcy proceedings by requiring the parties to litigate the very issues that the settlement seeks to resolve.’ " (Docket Entry No. 9695 in Case No. 17-3283 at 6 (quoting In re Kaiser Aluminum Corp., 339 B.R. 91, 94 (D. Del. 2006) ).) Moreover, "section 305 of PROMESA allows a Title III debtor," as here, "to pay or otherwise resolve claims without court interference, and PROMESA provides substantial deference to the strategy and tactics of the Oversight Board." (Id. ) Indeed, the Court has adjudicated the narrow question of subordination today, only because the Proposed Plan invites adjudication of that issue. (See Proposed Plan art. 1.171.)
III.
CONCLUSION
For the foregoing reasons, the Court grants the Defendants’ Motion and Counts 1, 2, 3, and 4 of the Complaint are dismissed under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. In light of the dismissal of the Complaint for reasons set forth in the Defendants’ Motion, the Court deems it unnecessary to address the remaining arguments of the Defendants, the Oversight Board, and AAFAF, raised in support of dismissal, and the Oversight Board's Motion and AAFAF's Joinder are accordingly denied as moot. This Opinion and Order resolves Docket Entry Nos. 40, 42, and 44 in Adversary Proceeding No. 21-68.
SO ORDERED.