Natbony Declaration Exhibit 6 

 

Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 1 of 43
United States Court of Appeals

for the

First Circuit

Case Nos. 22-1079, 22-1092, 

22-1119, 22-1120

IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR 

PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF 

PUERTO RICO; THE FINANCIAL OVERSIGHT AND MANAGEMENT 

BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO 

RICO SALES TAX FINANCING CORPORATION, a/k/a Cofina; THE 

FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO 

RICO, AS REPRESENTATIVE FOR THE EMPLOYEES RETIREMENT 

SYSTEM OF THE GOVERNMENT OF THE COMMONWEALTH 

OF PUERTO RICO;

(For Continuation of Caption See Inside Cover)

_____________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE 

DISTRICT OF PUERTO RICO, SAN JUAN, IN CASE NO. 3:17-BK-03283-LTS

REPLY BRIEF FOR DEBTORS-APPELLEES/CROSS-APPELLANTS

TIMOTHY W. MUNGOVAN 

JOHN E. ROBERTS

ADAM L. DEMING

PROSKAUER ROSE LLP

One International Place

Boston, Massachusetts 02110

(617) 526-9600

JOSEPH S. HARTUNIAN

PROSKAUER ROSE LLP

1001 Pennsylvania Avenue NW, 

Suite 600 South

Washington, DC 20004

(202) 416-6800

MARTIN J. BIENENSTOCK 

JEFFREY W. LEVITAN

MARK D. HARRIS

BRIAN S. ROSEN

EHUD BARAK

LUCAS KOWALCZYK

SHILOH A. RAINWATER

PROSKAUER ROSE LLP

11 Times Square

New York, New York 10036

(212) 969-3000

PAUL V. POSSINGER 

PROSKAUER ROSE LLP

70 West Madison, Suite 3800 

Chicago, Illinois 60602

(312) 962-3550

Attorneys for Debtors-Appellees/Cross-Appellants

Case: 22-1119 Document: 00117868026 Page: 1 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 2 of 43
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR 

PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO 

HIGHWAYS AND TRANSPORTATION AUTHORITY; THE FINANCIAL 

OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS 

REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC POWER 

AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, AS REPRESENTATIVE OF 

THE PUERTO RICO PUBLIC BUILDINGS AUTHORITY,

Debtors, 

____________________________ 

THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR 

PUERTO RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF 

PUERTO RICO; THE FINANCIAL OVERSIGHT AND MANAGEMENT 

BOARD FOR PUERTO RICO, AS REPRESENTATIVE OF THE 

PUERTO RICO PUBLIC BUILDINGS AUTHORITY,

Debtors-Appellees/Cross-Appellants,

THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR 

PUERTO RICO, AS REPRESENTATIVE FOR THE EMPLOYEES 

RETIREMENT SYSTEM OF THE GOVERNMENT OF THE 

COMMONWEALTH OF PUERTO RICO,

Debtor-Appellee,

v.

COOPERATIVA DE AHORRO Y CREDITO ABRAHAM ROSA; 

COOPERATIVA DE AHORRO Y CREDITO DE CIALES; COOPERATIVA 

DE AHORRO Y CREDITO DE JUANA DIAZ; COOPERATIVA DE AHORRO 

Y CREDITO DE RINCON; COOPERATIVA DE AHORRO Y CREDITO DE 

VEGA ALTA; COOPERATIVA DE AHORRO Y CREDITO DR. MANUEL 

ZENO GANDIA,

Objectors-Appellants/Cross-Appellees,

SUIZA DAIRY CORP.,

Objector/Claimant-Appellant/Cross-Appellee,

LUIS F. PABON BOSQUES; RAUL MARTINEZ PEREZ; ELVIN A. ROSADO 

MORALES; CARLOS A. ROJAS ROSARIO; RAFAEL TORRES RAMOS,

Creditors-Appellants/Cross-Appellees,

DESARROLLADORA ORAMA, S.E.; C.O.D. TIRE DISTRIBUTORS 

IMPORTS ASIA, INC.; CORREA TIRE DISTRIBUTOR INC.; WORLD WIDE 

TIRE, INC.; SEQUERIA TRADING CORPORATION; SABATIER TIRE 

CENTER, INC.; VICTOR LOPEZ CORTES, INC.; MULTI GOMAS, INC.; 

JOSE COLLAZO PEREZ; IVELISSE TAVARES MARRERO; MANUEL 

PEREZ ORTIZ; CORAL COVE, INC.; SUCESION ANGEL ALVAREZ 

Case: 22-1119 Document: 00117868026 Page: 2 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 3 of 43
PEREZ; ANTONIO COLON SANTIAGO; COOPERATIVA DE AHORRO Y 

CREDITO DE AGUADA; VILMA TERESA TORRES LOPEZ; VIVIANA 

ORTIZ MERCADO; ORLANDO TORRES BERRIOS; GERMAN TORRES 

BERRIOS; JUAN ALBERTO TORRES BERRIOS; VHERMANOS TORRES 

TORRES, INC.; CORPORACION PLAYA INDIA, S.E.; MARIANO RAMOS 

GONZALEZ; RAMON MORAN LOUBRIEL; RAFAEL MORAN LOUBRIEL; 

ANA MORAN LOUBRIEL; SAN GERONIMO CARIBE PROJECT, INC.; 

CARIBBEAN AIRPORT FACILITIES INC.; ESTATE OF RAUL DE PEDRO 

& DIANA MARTINEZ; ALFONSO FERNANDEZ CRUZ; SUN AND SAND 

INVESTMENTS, CORP.; FDR1500, CORP.; MARGARETA BLONDET; 

SUCESION COMPUESTO POR MARIA I. RUBERT BLONDET; SONIA 

RUBERT BLONDET; MARGARITA RUBERT BLONDET; SONIA RUBERT, 

Administradora; MANUEL A. RIVERA-SANTOS; PABLO MELENDEZ 

BRULLA; SUCESION AGUSTIN RODRIGUEZ COLON; GLORIA M. 

ESTEVA MARQUES; SUCESION MANUEL MARTINEZ RODRIGUEZ; 

LUIS REYES FEIKERT; JORGE RAMON POZAS; MIRIAM SANCHEZ 

LEBRON; JUAN A. TAPIA ORTIZ; ANTONIO PEREZ COLON,

Claimants-Appellees,

PFZ PROPERTIES, INC.; OSCAR ADOLFO MANDRY APARICIO; MARIA 

DEL CARMEN AMALIA MANDRY LLOMBART; SELMA VERONICA 

MANDRY LLOMBART; MARIA DEL CARMEN LLOMBART BAS; OSCAR 

ADOLFO MANDRY BONILLA; GUSTAVO ALEJANDRO MANDRY

BONILLA; YVELISE HELENA FINGERHUT MANDRY; MARGARET ANN 

FINGERHUT MANDRY; VICTOR ROBERT FINGERHUT MANDRY; JUAN

CARLOS ESTEVA FINGERHUT; PEDRO MIGUEL ESTEVA FINGERHUT; 

MARIANO JAVIER MCCONNIE FINGERHUT; JANICE MARIE MCCONNIE 

FINGERHUT; VICTOR MICHAEL FINGERHUT COCHRAN; MICHELLE 

ELAINE FINGERHUT COCHRAN; ROSA ESTELA MERCADO GUZMAN; 

EDUARDO JOSE MANDRY MERCADO; SALVADOR RAFAEL MANDRY 

MERCADO; MARGARITA ROSA MANDRY MERCADO; ADRIAN 

ROBERTO MANDRY MERCADO; VICENTE PEREZ ACEVEDO; 

CORPORACION MARCARIBE INVESTMENT; DEMETRIO AMADOR INC.; 

DEMETRIO AMADOR ROBERTS; MARUZ REAL ESTATE CORP.; LORTUTA LTD., INC.; LA CUARTEROLA, INC.; JUAZA, INC.; CONJUGAL 

PARTNERSHIP ZALDUONDO-MACHICOTE; FRANK E. TORRES 

RODRIGUEZ; EVA TORRES RODRIGUEZ; FINCA MATILDE, INC.; 

JORGE RAFAEL EDUARDO COLLAZO QUINONES,

Objectors/Claimants-Appellees,

ANTONIO MARTIN CERVERA; MARIA TERESITA MARTIN; WANDA 

ORTIZ SANTIAGO; NANCY I. NEGRON-LOPEZ; GROUP WAGE 

CREDITORS; YASHEI ROSARIO; ANA A. NUNEZ VELAZQUEZ; 

EDGARDO MARQUEZ LIZARDI; MARIA M. ORTIZ MORALES; ARTHUR 

SAMODOVITZ; MIGUEL LUNA DE JESUS; ISMAEL L. PURCELL SOLER; 

ALYS COLLAZO BOUGEOIS; MILDRED BATISTA DE LEON; JAVIER 

ALEJANDRINO OSORIO; SERVICE EMPLOYEES INTERNATIONAL 

UNION (SEIU); INTERNATIONAL UNION, UNITED AUTOMOBILE, 

AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF 

AMERICA; MAPFRE PRAICO INSURANCE COMPANY; CERTAIN 

CREDITORS WHO FILED ACTIONS IN THE UNITED STATES DISTRICT 

COURT FOR THE DISTRICT OF PUERTO RICO; MED CENTRO, INC., f/k/a 

Case: 22-1119 Document: 00117868026 Page: 3 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 4 of 43
Consejo de Salud de la Comunidad de la Playa de Ponce, Inc.; ASOCIACION DE

JUBILADOS DE LA JUDICATURA DE PUERTO RICO; HON. HECTOR 

URGELL CUEBAS; COOPERATIVA DE AHORRO Y CREDITO 

VEGABAJENA; UNIVERSITY OF PUERTO RICO RETIREMENT SYSTEM 

TRUST; PETER C. HEIN; MIRIAM E. LIMA COLON; BETZAIDA 

FELICIANO CONCEPCION; ANGEL L. MENDEZ GONZALEZ;

ASOCIACION DE MAESTROS PUERTO RICO; ASOCIACION DE 

MAESTROS DE PUERTO RICO-LOCAL SINDICAL; MORGAN STANLEY 

& CO. LLC; GOLDMAN SACHS & CO. LLC; J.P. MORGAN SECURITIES 

LLC; SANTANDER SECURITIES LLC; SIDLEY AUSTIN LLP; BMO 

CAPITAL MARKETS GKST, INC.; CITIGROUP GLOBAL MARKETS INC.; 

SAMUEL A. RAMIREZ & CO., INC.; MESIROW FINANCIAL, INC.; 

MERRILL LYNCH, PIERCE, FENNER & SMITH INC.; MERRILL LYNCH 

CAPITAL SERVICES, INC.; BARCLAYS CAPITAL INC.; RBC CAPITAL 

MARKETS, LLC; RAYMOND JAMES & ASSOCIATES, INC.; COMMUNITY 

HEALTH FOUNDATION OF P.R. INC.; QUEST DIAGNOSTICS OF PUERTO 

RICO, INC.; U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee for 

the PRPFC Outstanding Bonds and PRIFA Bonds, and Fiscal Agent for PRPBA 

Bonds; U.S. BANK NATIONAL ASSOCIATION, as Trustee for the PRPFC 

Outstanding Bonds and PRIFA Bonds, and Fiscal Agent for PRPBA Bonds; 

NILSA CANDELARIO; EL OJO DE AGUA DEVELOPMENT, INC.; PEDRO 

JOSE NAZARIO SERRANO; JOEL RIVERA MORALES; MARIA DE 

LOURDES GOMEZ PEREZ; HECTOR CRUZ VILLANUEVA; LOURDES 

RODRIGUEZ; LUIS M. JORDAN RIVERA; TACONIC CAPITAL ADVISORS 

LP; AURELIUS CAPITAL MANAGEMENT, LP; CANYON CAPITAL 

ADVISORS LLC; FIRST BALLANTYNE LLC; MOORE CAPITAL 

MANAGEMENT, LP; PUERTO RICO FISCAL AGENCY AND FINANCIAL 

ADVISORY AUTHORITY; HON. PEDRO R. PIERLUISI URRUTIA; UNITED

STATES, on behalf of the Internal Revenue Service; ASOCIACION 

PUERTORRIQUENA DE LA JUDICATURA, INC.; FEDERACION DE 

MAESTROS DE PUERTO RICO, INC.; GRUPO MAGISTERIAL 

EDUCADORES(AS) POR LA DEMOCRACIA, UNIDAD, CAMBIO, 

MILITANCIA Y ORGANIZACION SINDICAL, INC.; UNION NACIONAL 

DE EDUCADORES Y TRABAJADORES DE LA EDUCACION, INC.; MARIA 

A. CLEMENTE ROSA; JOSE N. TIRADO GARCIA, as President of the United 

Firefighters Union of Puerto Rico,

Objectors-Appellees,

VAQUERIA TRES MONJITAS, INC.; BLACKROCK FINANCIAL 

MANAGEMENT, INC.; EMSO ASSET MANAGEMENT LIMITED; MASON 

CAPITAL MANAGEMENT, LLC; SILVER POINT CAPITAL, L.P.; VR 

ADVISORY SERVICES, LTD; AURELIUS CAPITAL MANAGEMENT, LP, 

on behalf of its managed entities; GOLDENTREE ASSET MANAGEMENT LP, 

on behalf of funds under management; WHITEBOX ADVISORS LLC, on behalf 

of funds under management; MONARCH ALTERNATIVE CAPITAL LP, on 

behalf of funds under management; TACONIC CAPITAL ADVISORS L.P., on 

behalf of funds under management; ARISTEIA CAPITAL, LLC, on behalf of 

funds under management; FARMSTEAD CAPITAL MANAGEMENT, LLC, on 

behalf of funds under management; FOUNDATION CREDIT, on behalf of funds 

under management; CANYON CAPITAL ADVISORS LLC, in its capacity as a 

member of the QTCB Noteholder Group; DAVIDSON KEMPNER CAPITAL 

MANAGEMENT LP, in its capacity as a member of the QTCB Noteholder 

Group; SCULPTOR CAPITAL LP, in its capacity as a member of the QTCB 

Case: 22-1119 Document: 00117868026 Page: 4 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 5 of 43
Noteholder Group; SCULPTOR CAPITAL II LP, in its capacity as a member of 

the QTCB Noteholder Group; AMBAC ASSURANCE CORPORATION;

ANDALUSIAN GLOBAL DESIGNATED ACTIVITY COMPANY; CROWN 

MANAGED ACCOUNTS, for and on behalf of Crown/PW SP; LMA SPC, for 

and on behalf of Map 98 Segregated Portfolio; MASON CAPITAL MASTER 

FUND LP; OAKTREE-FORREST MULTI-STRATEGY, LLC (SERIES B); 

OAKTREE OPPORTUNITIES FUND IX, L.P.; OAKTREE OPPORTUNITIES 

FUND IX (PARALLEL), L.P.; OAKTREE OPPORTUNITIES FUND IX

(PARALLEL 2), L.P.; OAKTREE HUNTINGTON INVESTMENT FUND II, 

L.P.; OAKTREE OPPORTUNITIES FUND X, L.P.; OAKTREE 

OPPORTUNITIES FUND X (PARALLEL), L.P.; OAKTREE 

OPPORTUNITIES FUND X (PARALLEL 2), L.P.; OAKTREE VALUE 

OPPORTUNITIES FUND HOLDINGS, L.P.; OCEANA MASTER FUND LTD.; 

OCHER ROSE, L.L.C.; PENTWATER MERGER ARBITRAGE MASTER 

FUND LTD.; PWCM MASTER FUND LTD.; REDWOOD MASTER FUND, 

LTD.; BANK OF NEW YORK MELLON; OFFICIAL COMMITTEE OF 

UNSECURED CREDITORS; ASSURED GUARANTY CORP.; ASSURED 

GUARANTY MUNICIPAL CORP.; OFFICIAL COMMITTEE OF RETIRED 

EMPLOYEES; NATIONAL PUBLIC FINANCE GUARANTEE CORP.; 

FINANCIAL GUARANTY INSURANCE COMPANY; AMERINATIONAL 

COMMUNITY SERVICES, LLC, as servicer for the GDB Debt Recovery 

Authority; CANTOR-KATZ COLLATERAL MONITOR LLC, as Collateral 

Monitor for the GDB Debt Recovery Authority.; ATLANTIC MEDICAL 

CENTER, INC.; CAMUY HEALTH SERVICES, INC.; CENTRO DE SALUD 

FAMILIAR DR. JULIO PALMIERI FERRI, INC.; CIALES PRIMARY 

HEALTH CARE SERVICES, INC.; CORP. DE SERV. MEDICOS PRIMARIOS 

Y PREVENCION DE HATILLO, INC.; COSTA SALUD, INC.; CENTRO DE 

SALUD DE LARES, INC.; CENTRO DE SERVICIOS PRIMARIOS DE 

SALUD DE PATILLAS, INC.; HOSPITAL GENERAL CASTANER, INC.;

GNMA & US GOVERNMENT TARGET MATURITY FUND FOR PUERTO 

RICO RESIDENTS, INC., f/k/a Puerto Rico GNMA & U.S. Government Target 

Maturity Fund, Inc.; MORTGAGE-BACKED & US GOVERNMENT 

SECURITIES FUND FOR PUERTO RICO RESIDENTS, INC., f/k/a Puerto 

Rico Mortgage-Backed & U.S. Government Securities Fund, Inc.; PUERTO 

RICO RESIDENTS BOND FUND I, f/k/a Puerto Rico Investors Bond Fund I; 

PUERTO RICO RESIDENTS TAX-FREE FUND, INC., f/k/a Puerto Rico 

Investors Tax-Free Fund, Inc.; PUERTO RICO RESIDENTS TAX-FREE FUND 

II, INC., f/k/a Puerto Rico Investors Tax-Free Fund II, Inc.; PUERTO RICO 

RESIDENTS TAX-FREE FUND III, INC., f/k/a Puerto Rico Investors Tax-Free 

Fund III, Inc.; PUERTO RICO RESIDENTS TAX-FREE FUND IV, INC., f/k/a 

Puerto Rico Investors Tax-Free Fund IV, Inc.; PUERTO RICO RESIDENTS 

TAX-FREE FUND V, INC., f/k/a Puerto Rico Investors Tax-Free Fund V, Inc.; 

PUERTO RICO RESIDENTS TAX-FREE FUND VI, INC., f/k/a Puerto Rico 

Investors Tax-Free Fund VI, Inc.; TAX-FREE FIXED INCOME FUND FOR 

PUERTO RICO RESIDENTS, INC., f/k/a Puerto Rico Fixed Income Fund, Inc.; 

TAX-FREE FIXED INCOME FUND II FOR PUERTO RICO RESIDENTS, 

INC., f/k/a Puerto Rico Fixed Income Fund II, Inc.; TAX-FREE FIXED 

INCOME FUND III FOR PUERTO RICO RESIDENTS, INC., f/k/a Puerto Rico 

Fixed Income Fund III, Inc.; TAX-FREE FIXED INCOME FUND IV FOR 

PUERTO RICO RESIDENTS, INC., f/k/a Puerto Rico Fixed Income Fund IV, 

Inc.; TAX-FREE FIXED INCOME FUND V FOR PUERTO RICO 

RESIDENTS, INC., f/k/a Puerto Rico Fixed Income Fund V, Inc.; TAX-FREE 

FIXED INCOME FUND VI FOR PUERTO RICO RESIDENTS, INC., f/k/a 

Case: 22-1119 Document: 00117868026 Page: 5 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 6 of 43
Puerto Rico Fixed Income Fund VI, Inc.; TAX FREE FUND FOR PUERTO 

RICO RESIDENTS, INC., f/k/a Tax-Free Puerto Rico Fund, Inc.; TAX FREE 

FUND II FOR PUERTO RICO RESIDENTS, INC., f/k/a Tax-Free Puerto Rico 

Fund II, Inc.; TAX-FREE HIGH GRADE PORTFOLIO BOND FUND FOR 

PUERTO RICO RESIDENTS, INC., f/k/a Puerto Rico AAA Portfolio Bond 

Fund, Inc.; TAX-FREE HIGH GRADE PORTFOLIO BOND FUND II FOR 

PUERTO RICO RESIDENTS, INC., f/k/a Puerto Rico AAA Portfolio Bond Fund 

II, Inc.; TAX-FREE HIGH GRADE PORTFOLIO TARGET MATURITY FUND 

FOR PUERTO RICO RESIDENTS, INC., f/k/a Puerto Rico AAA Portfolio 

Target Maturity Fund, Inc.; TAX FREE TARGET MATURITY FUND FOR 

PUERTO RICO RESIDENTS, INC., f/k/a Tax-Free Puerto Rico Target Maturity 

Fund, Inc.; UBS IRA SELECT GROWTH & INCOME PUERTO RICO FUND; 

SERVICIOS INTEGRALES EN LA MONTANA (SIM),

Creditors-Appellees,

UNITED STATES,

Respondent-Appellee.

Case: 22-1119 Document: 00117868026 Page: 6 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 7 of 43
i

TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ...............................................................................1

ARGUMENT.............................................................................................................4

I. THE TITLE III COURT DECIDED JUST-COMPENSATION 

CLAIMS MUST BE PAID IN FULL AS A MATTER OF LAW, 

AND REVIEW IS DE NOVO. ........................................................................4

II. THE DISCHARGE OF UNSECURED, PREPETITION CLAIMS 

FOR JUST COMPENSATION DOES NOT VIOLATE THE FIFTH 

AMENDMENT. ..............................................................................................6

A. The Just-Compensation Claims at Issue Are Prepetition, 

Unsecured Rights to Payment. ..............................................................8

B. Unsecured Just-Compensation Claims are Dischargeable in 

Bankruptcy Consistent with the Fifth Amendment...............................8

1. The Takings Clause Protects Only Secured and 

Ownership Property Interests....................................................10

2. Just-Compensation Claims Are No Different from Other 

Unsecured Claims for Purposes of Discharge. .........................12

C. The Takings Clause Protects Only Secured or Ownership 

Interests in Specific Property in Existence when the Bankruptcy 

Case is Commenced. ...........................................................................16

D. The Eight and Ninth Circuits Resolved the Question Presented 

as the Board Urges Here......................................................................20

III. APPELLEES’ REMAINING ARGUMENTS FAIL. ...................................27

CONCLUSION........................................................................................................28

Case: 22-1119 Document: 00117868026 Page: 7 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 8 of 43
ii

TABLE OF AUTHORITIES

Page(s)

CASES

ACLU of Mass. v. U.S. Conf. of Cath. Bishops,

705 F.3d 44 (1st Cir. 2013).................................................................................27

Alt. Sys. Concepts, Inc. v. Synopsys, Inc.,

374 F.3d 23 (1st Cir. 2004).................................................................................21

Bank of N.Y. v. Treco (In re Treco),

240 F.3d 148 (2d Cir. 2001) ...............................................................................11

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

403 U.S. 388 (1971)............................................................................................13

Blanchette v. Conn. Gen. Ins. Corps.,

419 U.S. 102 (1974)......................................................................................10, 16

Block v. North Dakota,

461 U.S. 273 (1983)............................................................................................12

Boroff v. Tully (In re Tully),

818 F.2d 106 (1st Cir. 1987).................................................................................9

Chapman v. Houston Welfare Rights Org.,

441 U.S. 600 (1979)............................................................................................14

City of Monterey v. Del Monte Dunes,

526 U.S. 687 (1999)............................................................................................14

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

909 F.3d 1256 (9th Cir. 2018) ..........................................................21, 22, 23, 24

Davis v. Passman,

442 U.S. 228 (1979)............................................................................................13

E. Enters. v. Apfel,

524 U.S. 498 (1998)............................................................................................11

F.C.C. v. NextWave Pers. Commc’ns,

537 U.S. 293 (2003)..............................................................................................7

Case: 22-1119 Document: 00117868026 Page: 8 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 9 of 43
iii

Farrey v. Sanderfoot,

500 U.S. 291 (1991)..............................................................................................9

Francis v. Desmond (In re Francis),

996 F.3d 10 (1st Cir. 2021)...................................................................................9

Gonzaga Univ. v. Doe,

536 U.S. 273 (2002)............................................................................................14

In re Ahlers,

794 F.2d 388 (8th Cir. 1986) ..............................................................................19

In re Murel Holding Corp.,

75 F.2d 941 (2d Cir. 1935) .................................................................................19

In re Timbers of Inwood Forest Assocs., Ltd.,

793 F.2d 1380 (5th Cir. 1986) ........................................................................2, 19

Katz v. Pershing, LLC,

672 F.3d 64 (1st Cir. 2012).................................................................................27

Knick v. Twp. of Scott,

139 S. Ct. 2162 (2019)........................................................................7, 12, 18, 24

Kuehner v. Irving Tr. Co.,

299 U.S. 445 (1937)............................................................................7, 11, 16, 18

Louisville Joint Stock Land Bank v. Radford,

295 U.S. 555 (1935).....................................................................................passim

Luehrmann v. Drainage Dist. No. 7 of Poinsett Cnty.,

104 F.2d 696 (8th Cir. 1939) ..............................................................................26

Mission Prod. Holdings, Inc. v. Tempnology, LLC,

139 S. Ct. 1652 (2019)..........................................................................................9

New Haven Inclusion Cases, 

399 U.S. 392 (1970)......................................................................................19, 20

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

119 F.2d 270 (8th Cir. 1941) ..................................................................21, 25, 26

Case: 22-1119 Document: 00117868026 Page: 9 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 10 of 43
iv

Pratt v. GMAC (In re Pratt),

462 F.3d 14 (1st Cir. 2006)...................................................................................9

Sain v. Cypress Creek Drainage Dist.,

257 S.W. 49 (Ark. 1923).....................................................................................26

Soriano v. United States,

352 U.S. 270 (1957)............................................................................................12

St. Francis Drainage Dist. v. Austin,

296 S.W.2d 668 (Ark. 1956) ..............................................................................26

Torres-Rivera v. O’Neill-Cancel,

524 F.3d 331 (1st Cir. 2008).................................................................................6

United States v. Sec. Indus. Bank,

459 U.S. 70 (1982)..................................................................................11, 16, 18

Wright v. Union Cent. Life Ins. Co.,

311 U.S. 273 (1940)..............................................................................................9

STATUTES

11 U.S.C. § 101(5)(A)................................................................................................7

11 U.S.C. § 363..........................................................................................................3

11 U.S.C. § 547........................................................................................................17

11 U.S.C. § 552(b)...................................................................................................19

11 U.S.C. § 944(c) .............................................................................................5, 6, 9

42 U.S.C. § 1983................................................................................................14, 15

48 U.S.C. § 2161(a) ...............................................................................................5, 7

48 U.S.C. § 2175......................................................................................................27

OTHER AUTHORITIES

4 Collier on Bankruptcy ¶ 506.03 (Alan N. Resnick & Henry J. 

Sommer eds., 16th ed. 2017) ................................................................................8

Case: 22-1119 Document: 00117868026 Page: 10 Date Filed: 04/22/2022 Entry ID: 6491314 Case:17-03283-LTS Doc#:24541-6 Filed:06/12/23 Entered:06/12/23 22:44:57 Desc:

Exhibit 6 - FOMB Reply Brief in 22-1119 Page 11 of 43
v

Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation 

of Legal Texts (2012)............................................................................................4

House Rep., No. 595, 95th Cong., 1st Sess ...............................................................3

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PRELIMINARY STATEMENT

Appellees’ claims indisputably arose prepetition. And no appellee has 

identified any collateral or other property interest it held during the Title III case. 

Thus, most of them and the United States admit their claims are prepetition,

unsecured claims. Additionally, no appellee disputes that, as a general matter,

prepetition, unsecured claims arising under the Constitution are dischargeable in 

bankruptcy. Rather, appellees contend the affirmative obligation in the Fifth 

Amendment to pay just compensation puts prepetition, unsecured justcompensation claims outside the reach of the bankruptcy power the Constitution

grants Congress. Given that most rights are illusory if not enforceable with money 

damages, and the Supreme Court has recognized in many circumstances, violations 

of constitutional rights are remediable with damages, appellees’ whole argument 

turns on their proposition that the remedy for a taking is somehow unique and 

immune from the bankruptcy power while damages for violations of other 

constitutional rights are not. Unsurprisingly, the jurisprudence and logic disprove 

that proposition.

Appellees latch onto the Supreme Court’s ruling that the “bankruptcy power 

. . . is subject to the Fifth Amendment,” Louisville Joint Stock Land Bank v. 

Radford, 295 U.S. 555, 589 (1935), but they fail to acknowledge its context and 

Radford’s next three sentences. Under the Fifth Amendment, the Radford ruling 

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2

barred the bankruptcy statute from taking creditors’ interests (mortgage rights) in 

property of the bankruptcy estate. Here, appellees have no property interests. The 

next sentence in Radford provides: “Congress may discharge the debtor’s personal 

obligation.” Id. Here, that obligation is the Commonwealth’s obligation to pay 

just compensation. Appellees also ignore the next sentences of Radford explaining 

the taking there was of “substantive rights in specific property,” which the creditor 

held when the bankruptcy case was filed. Id. at 590. The creditors here had no 

substantive rights in specific property when the Title III case was filed. 

The United States concedes Radford’s statement that the bankruptcy power 

is “subject to” the Fifth Amendment does not control because it concerned a 

“question distinct from the one presented here.” U.S. Br. 8. It further concedes 

appellees in this case hold unsecured, prepetition claims. Id. at 11. The United 

States and other appellees nevertheless argue that unsecured claims under the 

Takings Clause are somehow special and must be paid in full because the Fifth 

Amendment requires payment of just compensation. 

Appellees overlook that, as shown below, application of the Fifth 

Amendment to bankruptcy cases is routine. Bankruptcy statute requirements to 

provide adequate protection of collateral and to pay creditors its value emanate

from the Fifth Amendment. See, e.g., In re Timbers of Inwood Forest Assocs., 

Ltd., 793 F.2d 1380, 1396 (5th Cir. 1986) (citing House Rep., No. 595, 95th Cong., 

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3

1st Sess., at 339). In Timbers and other chapter 11 cases of partnership or 

corporate entities, the government was not a party. Those cases’ treatment of 

secured claims can be tied to the Fifth Amendment only because the bankruptcy 

statute permits use and consumption of creditors’ collateral for a public use. 11 

U.S.C. § 363; House Rep., No. 595, at 334–35. As shown by the legislative history 

of the Bankruptcy Code, bankruptcy serves the public by preserving jobs, 

investments, and competitors. House Rep. No. 595 at 220–21. No appellee has 

cited a decision issued since the first constitutional municipal-bankruptcy statute in 

1937 holding a municipality liable for creditors’ collateral it consumed prepetition. 

Instead, the debt secured by that collateral has been discharged. Appellees are 

asking this Court to impose liabilities the debtor-creditor laws have no mechanism 

to restructure. This Court should thus join the only two Circuits to address the 

question and hold that unsecured, prepetition claims for just compensation are 

dischargeable in bankruptcy. 

Appellees accuse the Board of reading the bankruptcy power to override the 

Fifth Amendment. But there is no conflict between the bankruptcy power and the 

Fifth Amendment in this case. The Fifth Amendment applied fully here: When a 

taking occurred before bankruptcy, the claimholders immediately received a right 

to payment of just compensation. When the Commonwealth later commenced a 

Title III case, however, the bankruptcy power authorized Congress to discharge 

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4

those and other unsecured obligations without payment in full. In line with 

Supreme Court jurisprudence dating from Radford, the discharge of those personal 

obligations is permissible under the Fifth Amendment. It is appellees who strain to 

place the Fifth Amendment and the bankruptcy power into conflict by asserting

prepetition money claims to just compensation created by the Fifth Amendment 

conflict with the Constitution’s grant to Congress of the bankruptcy power to 

restructure money claims. Neither the Title III court nor appellees offer any 

rationale for interpreting the two provisions to conflict and overruling basic canons 

that favor interpretations giving each provision validity and rendering them 

compatible.

1

 Under the Board’s reading, both provisions are given effect. The 

Fifth Amendment provided appellees prepetition rights to just compensation, and 

the bankruptcy power allowed those claims to be restructured.

ARGUMENT

I. THE TITLE III COURT DECIDED JUST-COMPENSATION 

CLAIMS MUST BE PAID IN FULL AS A MATTER OF LAW, AND 

REVIEW IS DE NOVO. 

Below, several claimants objected to confirmation of the Plan’s predecessor 

on the ground it did not provide full payment for their Fifth Amendment takings 

claims for just compensation. The Confirmation Order sustained the objections 

 1 Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal 

Texts 180 (2012).

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5

and confirmed the revised Plan providing for (i) payment in full of such claims if 

the Confirmation Order becomes final and no longer subject to review, or (ii) the 

lesser treatment for other general unsecured claims if the Confirmation Order’s 

takings requirements are reversed. Because at present the takings claims are paid 

in full, the Confirmation Order nowhere provides that, pursuant to 11 U.S.C. 

§ 944(c)(1), the takings claims are non-dischargeable and it nowhere provides or 

implies the takings claims are made non-dischargeable in the court’s discretion to 

avoid a constitutional issue. To the contrary, the Title III court ruled at least 

fourteen times the takings claims must be paid in full to satisfy the Fifth 

Amendment. See, e.g., FOMB-Add55–57; FOMB-Add102–03, FOMB-Add106–

07. 

Remarkably, and clearly to avoid the de novo review standard, the United 

States ignores the record and, without record support, argues “the district court 

avoided the need to resolve that issue by exercising its discretion to exclude the 

claims from discharge under the plan.” U.S. Br. 5. But that is simply not what 

happened below. The United States also misrepresents the statute. It argues it is 

proper here to exclude claims from discharge under 11 U.S.C. § 944(c)(1) because 

“Congress has not specifically enumerated what debts are nondischargeable.” Id.

But Congress has enumerated which debts are non-dischargeable: 11 U.S.C. § 944

(incorporated by 48 U.S.C. § 2161(a)) provides “all debts” are discharged other 

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6

than those identified in § 944(c). Even other appellees reject the United States’

“discretion” argument because it has no support in the record. See, e.g., Finca 

Matilde Br. 12 n.1. In any case, even if the Title III court’s decision could be 

considered an exercise of discretion (which it was not), an exercise of discretion 

based on a mistake of law is reversible error. See Torres-Rivera v. O’Neill-Cancel, 

524 F.3d 331, 336 (1st Cir. 2008). 

II. THE DISCHARGE OF UNSECURED, PREPETITION CLAIMS FOR 

JUST COMPENSATION DOES NOT VIOLATE THE FIFTH 

AMENDMENT. 

Except for certain creditors’ rights to escrowed funds that partially secured

their takings claims (which were never proposed to be impaired), the justcompensation claims treated by the Plan are unsecured, prepetition rights to 

payment—a point the United States and other appellees concede. See, e.g., 

U.S. Br. 11. Nearly a century of jurisprudence confirms that unsecured, prepetition 

claims can be impaired and discharged regardless of whether they derive from 

constitutional violations. Consistent with that precedent, two Circuits have held 

claims for just compensation are dischargeable. 

Appellees nevertheless argue prepetition, unsecured claims for just

compensation under the Takings Clause are uniquely non-dischargeable because 

Radford provides “[t]he bankruptcy power . . . is subject to the Fifth Amendment.” 

295 U.S. at 589. The Supreme Court has never construed the Fifth Amendment to 

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7

restrict the dischargeability of any unsecured, prepetition claims, however. To the 

contrary, the Court has long held the Fifth Amendment proscribes only the exercise 

of the bankruptcy power to affect specific property interests in existence during the 

bankruptcy case. Each Supreme Court ruling shows the bankruptcy power being 

“subject to” the Fifth Amendment means the exercise of the bankruptcy power 

itself cannot effectuate a taking of property rights. 

The operation of the bankruptcy power on appellees’ prepetition, unsecured 

claims does not violate the Fifth Amendment because the Fifth Amendment does 

not protect unsecured claims. All appellees concede the relevant taking of their 

real property occurred prepetition, and the Supreme Court has made clear a claim 

for just compensation arises at the time of the taking. Knick v. Twp. of Scott, 139 

S. Ct. 2162, 2167 (2019). A just-compensation claim is a “right to payment” of 

money, falling within the broad definition of “claim” under the Bankruptcy Code

and PROMESA. 11 U.S.C. § 101(5)(A) (incorporated by 48 U.S.C. § 2161(a));

see also F.C.C. v. NextWave Pers. Commc’ns, 537 U.S. 293, 302 (2003) 

(construing “claim” as having the “broadest available definition”). No appellee 

has pointed to any specific property securing their claim. They are thus unsecured 

claims which arose prepetition, and the Supreme Court has long held the discharge 

of unsecured claims does not violate the Fifth Amendment. See, e.g., Kuehner v. 

Irving Tr. Co., 299 U.S. 445, 452 (1937).

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A. The Just-Compensation Claims at Issue Are Prepetition,

Unsecured Rights to Payment.

As an initial matter, it is clear the takings claims at issue in this appeal are 

prepetition, unsecured claims for payment. Appellees do not contest that the 

Commonwealth took their property prior to the commencement of its Title III case. 

Nor does any appellee identify any “specific items of property” securing their 

claims other than certain escrowed funds not at issue in this appeal. See 4 Collier 

on Bankruptcy ¶ 506.03 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2017) 

(defining “secured claims”). Indeed, several appellees concede—as they must—

the takings claims proposed to be discharged by the Plan are unsecured, prepetition 

rights to payment. See U.S. Br. 11; Finca Matilde Br. 27. The Title III court 

similarly acknowledged that characterization when it held just-compensation 

claims need not be secured to survive discharge. FOMB-Add106 n.37.2

B. Unsecured Just-Compensation Claims are Dischargeable in 

Bankruptcy Consistent with the Fifth Amendment. 

It is well established that unsecured claims may be impaired and discharged

in bankruptcy. As a general matter, the Bankruptcy Code “[s]afeguards . . . the 

 2 PFZ’s contrary assertion that its takings claim is “secured” by a “pledge” of just 

compensation under the Takings Clause itself is meaningless double-talk. PFZ is 

contending its claim for just compensation is secured by itself, without ever 

identifying any collateral. PFZ Br. 24. Notably, when PFZ filed its proof of claim 

against the Commonwealth, it conceded the claim was not secured. See FOMBApp64 (Claim No. 20351). PFZ has not attempted to amend its claim.

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9

rights of secured creditors . . . to the extent of the value of” their collateral. Wright 

v. Union Cent. Life Ins. Co., 311 U.S. 273, 278 (1940); see also Farrey v. 

Sanderfoot, 500 U.S. 291, 297 (1991) (stating that “secured interests survive 

bankruptcy”). Yet “unsecured creditors . . . in a typical bankruptcy may receive 

only cents on the dollar.” Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 

S. Ct. 1652, 1658 (2019); Pratt v. GMAC (In re Pratt), 462 F.3d 14, 17 (1st Cir. 

2006) (“[T]he unsecured portion of a secured creditor’s claim may be 

discharged.”). Allowing the discharge of such claims is critical to ensuring that

debtors receive a “fresh start,” which is a principal purpose of bankruptcy. See 

Francis v. Desmond (In re Francis), 996 F.3d 10, 14 (1st Cir. 2021). 

Suiza Dairy offers the unremarkable observation that unsecured claims are 

not “automatically” dischargeable because the Bankruptcy Code and PROMESA 

except certain unsecured claims from discharge. Suiza Dairy Br. 14. Congress’s 

decision to carve out specific exceptions does not help Suiza Dairy, however. In 

11 U.S.C. § 944(c), Congress excepted certain claims from discharge, but it did not 

except just-compensation claims. Exceptions to discharge should be construed 

narrowly in favor of the debtor. Boroff v. Tully (In re Tully), 818 F.2d 106, 110 

(1st Cir. 1987). 

None of the other appellees disputes the general rule that unsecured claims 

are dischargeable. They simply contend secured and unsecured takings claims are 

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immunized from discharge by the Fifth Amendment, to which the bankruptcy 

power is “subject” under Radford and its progeny. See, e.g., Sucesión Mandry 

Mercado Br. 7; Cooperativas Br. 22. That position has no legal support and runs

contrary to over a century of jurisprudence. 

1. The Takings Clause Protects Only Secured and Ownership 

Property Interests. 

Several appellees argue the text of the Takings Clause makes no distinction 

between secured and unsecured interests. See Finca Matilde Br. 25; see also Suiza 

Dairy Br. 14. Thus, they argue, the Title III court correctly ruled the existence of a 

security interest in specific property “is not determinative of Fifth Amendment 

protection.” PFZ Br. 18 (quoting FOMB-Add105). 

The Supreme Court has limited the Takings Clause’s protections in 

bankruptcy cases to secured property interests and ownership, however. See, e.g., 

Blanchette v. Conn. Gen. Ins. Corps., 419 U.S. 102, 162 (1974) (Fifth Amendment 

protected estate’s ownership of railroad assets); Radford, 295 U.S. at 589 (Fifth 

Amendment protected mortgagees’ security interests). In Radford, the Court made 

clear that, although the bankruptcy power is subject to the Fifth Amendment, 

secured and unsecured creditors receive “fundamentally” different protections. 

295 U.S. at 588. As the Court explained, the Fifth Amendment protects only 

“rights in specific property” while permitting the discharge of the debtor’s personal

obligations. See id. at 601. Expanding on that distinction, the Court subsequently 

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held that, where a creditor lacks a “property right in[] the debtor’s assets,” the Fifth 

Amendment does not prohibit impairing the creditor’s remedy against the debtor if 

such impairment is “consonant with a fair, reasonable, and equitable distribution of 

those assets.” Kuehner, 299 U.S. at 452. More recently, the Supreme Court

confirmed that a taking of “property within the prohibition of the Fifth 

Amendment” occurs only when the bankruptcy power is “used to defeat traditional 

property interests.” United States v. Sec. Indus. Bank, 459 U.S. 70, 75 (1982); see 

also E. Enters. v. Apfel, 524 U.S. 498, 544 (1998) (Kennedy, J., concurring in the 

judgment and dissenting in part) (under Security Industrial Bank, a taking “must 

relate to a specific property interest to implicate the Takings Clause”). It therefore

is irrelevant that the Takings Clause does not expressly distinguish between 

secured and unsecured interests. The Supreme Court has long recognized 

“fundamental” differences in the Fifth Amendment’s protections of secured and 

unsecured interests in bankruptcy. Simply put, “[i]f the claim is unsecured, it is 

not ‘property’ for purposes of the Takings Clause” and may be discharged without 

payment in full. Bank of N.Y. v. Treco (In re Treco), 240 F.3d 148, 161 (2d Cir. 

2001).3

 

 3 Notably, the Board is not proposing to pay appellees nothing. The Plan provides 

for fair payment for all unsecured claims, including just-compensation claims, if 

the Title III court’s just-compensation ruling is reversed.

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2. Just-Compensation Claims Are No Different from Other 

Unsecured Claims for Purposes of Discharge. 

Appellees argue the unsecured takings claims at issue are different from all 

other unsecured claims because they arise from alleged violations of the Fifth 

Amendment, which mandates “just compensation” when property is taken for 

public use. See, e.g., U.S. Br. 7. Unsurprisingly, they offer no authority for the 

proposition that the Takings Clause operates as a permanent guarantee of full 

collection that cannot be modified by statute. Nor could they. As no appellee 

disputes, a claim for just compensation under the Takings Clause is subject to 

statutes of limitation. See Block v. North Dakota, 461 U.S. 273, 292 (1983); 

Soriano v. United States, 352 U.S. 270, 277 (1957). The existence of a statute of 

limitations is fundamentally incompatible with appellees’ theory that a claim for 

just compensation can never be extinguished by statute or subsequent events.4

 

The United States counters that “greater” interests support denying just 

compensation when a limitations period lapses, see U.S. Br. 15–16, but it fails to 

identify what those interests are, much less explain how such “interests” override 

 4 The Supreme Court’s statement that nothing “can relieve [the government] of the 

duty to provide compensation” for a taking does not counsel otherwise. Suiza 

Dairy Br. 5 (quoting Knick, 139 S. Ct. at 2171). That statement meant only that a 

government cannot nullify a Fifth Amendment claim after it takes property by, for 

example, “repeal[ing] the challenged ordinance.” Knick, 139 S. Ct. at 2171. The 

Court did not suggest that Congress cannot modify just-compensation remedies by 

operation of law. 

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any constitutional concerns in that context or how to measure “greatness.” If the 

Constitution ensures an inviolable right to just compensation, that right would 

displace all other interests, no matter how “great.” Nor does the United States 

explain why the interests in a bankruptcy case, where almost all creditors receive

substantial reductions on their claims due to insufficient funds, are somehow lesser 

than with statutes of limitation. Notably, no appellee attempts to defend the Title 

III court’s reasoning relating to statutes of limitation.5

Contrary to the contention of some appellees, the reference to “just 

compensation” in the Takings Clause does not elevate Fifth Amendment claims 

over claims brought under other constitutional provisions. The Constitution 

provides an implied damages remedy for violations of other constitutional rights

besides the Fifth Amendment. See Davis v. Passman, 442 U.S. 228, 230 (1979); 

Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388, 

396 (1971). A damages remedy is often the only way to remedy certain violations 

of other constitutional rights. See Bivens, 403 U.S. at 409–10 (Harlan J. 

concurring). Since such damages remedies can be discharged in bankruptcy, there 

is no reason why Fifth Amendment claims cannot likewise be discharged. It is of 

 5 PFZ dismisses the analogy to statutes of limitation as “clearly inapplicable” in 

light of Radford’s supposed command that all takings claims survive bankruptcy. 

See PFZ Br. 29–30. As explained above, however, Radford does not prohibit the 

discharge of unsecured claims for just compensation. See pages 10–11, supra.

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no moment that such implied remedies are available only for a “narrowly limited 

set of constitutional violations” and not for a “particular amount of compensation.” 

U.S. Br. 16. Implied remedies are available for at least some violations, and they 

can result in a non-zero amount of compensation for those violations. The Takings 

Clause resembles a liquidated-damages provision in that it “specifies the quantum 

of compensation” for its violation, see id. at 5, but the measure of the remedy does 

not speak to whether a claim to that measure of damages can be discharged in 

bankruptcy. As the Supreme Court has explained, “just compensation is[] like 

ordinary money damages,” City of Monterey v. Del Monte Dunes, 526 U.S. 687, 

710 (1999), and there is thus no reason why unsecured claims for just 

compensation cannot be discharged the same as any other unsecured claim.

For similar reasons, appellees’ attempts to distinguish just-compensation 

claims from § 1983 claims fall short. As shown in the Board’s opening brief, 

constitutional claims under § 1983 are dischargeable in bankruptcy, and therefore 

Fifth Amendment claims should be as well. See FOMB Br. 39–40. PFZ argues 

that, unlike the Fifth Amendment, § 1983 is subject to “modifications” and “does 

not create any substantive rights.” PFZ Br. 32. But § 1983 is merely an 

enforcement mechanism for “rights independently ‘secured by the Constitution,’”

which are substantive and not subject to modification. Gonzaga Univ. v. Doe, 536 

U.S. 273, 285 (2002); Chapman v. Houston Welfare Rights Org., 441 U.S. 600, 

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617–18 (1979) (“All civil suits, as every lawyer understands, which [§ 1983] 

authorizes, are not based upon it; they are based upon the right of the citizen.”). 

That the enforcement mechanism is statutory does not justify differential treatment 

of the underlying fundamental claim in bankruptcy. 

The United States counters that the Fifth Amendment is unique in that it 

conditions governmental takings on the payment of just compensation, whereas 

other amendments prohibit certain actions altogether. U.S. Br. 5. The mention of 

“just compensation” in the Takings Clause, however, simply articulates the 

circumstances in which takings are allowed, i.e., where the taking is for public use 

and for just compensation. The mere allowance of a taking does not suggest an 

intent to create a non-dischargeable claim based on that taking. Other 

amendments do not allow the government to violate personal freedoms on the 

condition that it pays damages—those amendments just prohibit certain 

governmental conduct. There is no logical reason to infer from that fact alone that 

it was intended just compensation claims would for some reason be nondischargeable in bankruptcy, but other claims based on constitutional rights would 

not be. None of the appellees provide any reasoning to support such a contention. 

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C. The Takings Clause Protects Only Secured or Ownership 

Interests in Specific Property in Existence when the Bankruptcy 

Case is Commenced. 

As shown in the Board’s opening brief, the Fifth Amendment protects only 

property interests that exist after the filing of a bankruptcy case. FOMB Br. 29–35. 

Several appellees downplay the distinction between pre- and postpetition takings 

as “illogical” because the Fifth Amendment itself does not expressly make such a 

distinction. Sucesión Mandry Mercado Br. 2; Finca Matilde Br. 25. Manifestly, 

the Constitution sets forth broad principles, not details. Its grant of the bankruptcy 

power to Congress demonstrates its recognition that claims must be subject to 

adjustment in bankruptcy. Appellees gloss over binding jurisprudence narrowing

the scope of the Fifth Amendment’s protections in the bankruptcy context.

The Supreme Court has never held unsecured, prepetition claims are nondischargeable. Rather, it has held only that the bankruptcy power cannot be 

exercised in a manner that effectuates a taking of interests in specific property

without paying for it. See Sec. Indus. Bank, 459 U.S. at 74 (considering whether 

“the exercise of the bankruptcy power . . . takes property within the prohibition of 

the Fifth Amendment”); Kuehner, 299 U.S. at 451 (same). Indeed, every case in 

which the Court has addressed a takings issue in the bankruptcy context has 

centered on whether the treatment of a creditor’s specific property interest 

postpetition would effectuate a taking. See, e.g., Blanchette, 419 U.S. at 162 

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17

(Regional Rail Reorganization Act worked a taking by requiring that certain 

companies transfer assets); Radford, 295 U.S. at 589 (Frazier-Lemke Act effected

a taking by substantially impairing mortgagee’s enforcement rights). In that 

context, where the bankruptcy power and the Fifth Amendment both apply to 

property rights in existence during the bankruptcy case, the Court has ruled the 

former is “subject to” the latter, so the value of the property must be paid. 

Radford, 295 U.S. at 589. Nothing of the sort occurred here, where PROMESA 

did not cause the alleged takings, which occurred prepetition.6

The United States correctly points out that Radford and Blanchette

addressed a “question distinct from the one presented here,” i.e., whether the 

taking “of property rights in bankruptcy itself” requires just compensation. U.S. 

Br. 8; see also Finca Matilde Br. 23. That is precisely the point. The Supreme 

Court has held the Fifth Amendment protects only property interests in existence 

 6 As the Board explained in its opening brief, FOMB Br. 32–33, the bankruptcy 

power can take property interests protected by the Fifth Amendment even during 

bankruptcy, such as through the avoidance of prepetition preferential transfers 

under Bankruptcy Code § 547. That provision allows debtors to escape full 

payment of unsecured, prepetition obligations, yet the United States dismisses the 

comparison because the avoided obligation is not “the obligation to pay just 

compensation for a taking of property.” U.S. Br. 10–11. The United States also 

misunderstands how § 547 works. At the time of the clawback, the target of the 

clawback has full legal rights to funds received from the debtor in payment of a 

valid debt and is not a “creditor” with a claim that will be treated in the 

bankruptcy. In that sense, the clawback of a preference works a “taking” and is not 

precluded by the Fifth Amendment. 

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as of the commencement of the bankruptcy case and has never extended its

protections to unsecured, prepetition claims treated in bankruptcy. On the 

contrary, the Court has held such claims are not protected by the Fifth Amendment. 

See Kuehner, 299 U.S. at 452. Simply put, unless the exercise of the bankruptcy 

power “takes property within the prohibition of the Fifth Amendment,” the 

Takings Clause is not implicated. Sec. Indus. Bank, 459 U.S. at 75 (emphasis 

added). Applying the Fifth Amendment’s protections to the claims here would

thus be unprecedented.

Appellees contend Congress cannot use the bankruptcy power to “override”

the Takings Clause. U.S. Br. 10; see also Finca Matilde Br. 17; Sucesión Mandry 

Mercado Br. 5; Cooperativas Br. 18. Appellees imagine a conflict that does not 

exist, however. Any alleged violation of the Takings Clause giving rise to a claim 

for just compensation already occurred prepetition, when the Commonwealth took 

certain private property for public use and did not pay the full amount of just 

compensation. See Knick, 139 S. Ct. at 2171. Allowing the discharge of those 

claims in bankruptcy, years after the underlying takings occurred, does not 

implicate the Takings Clause. Instead, the Takings Clause and the bankruptcy 

power have two different effects at two different times, with the Fifth Amendment 

creating the claim for just compensation and the bankruptcy power later allowing 

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the claim and adjusting its treatment in accordance with the treatment of other 

prepetition, unsecured claims. 

Notably, as shown in the Board’s opening brief and not disputed by 

appellees, secured claimholders do not hold non-dischargeable just-compensation 

claims for a debtor’s prepetition consumption of their collateral or for postpetition 

diminutions in the collateral value before they request adequate protection. See In 

re Ahlers, 794 F.2d 388, 395 n.6 (8th Cir. 1986), rev’d on other grounds, 485 U.S. 

197 (1988)). Protections in bankruptcy for secured interests “derive[] from the 

fifth amendment protection of property interests,” but even those protections are 

not “absolute.” Inwood, 793 F.2d at 370; see also In re Murel Holding Corp., 75 

F.2d 941, 942 (2d Cir. 1935) (explaining Fifth Amendment mandates “completely 

compensatory” relief for secured creditors seeking adequate protection); 11 U.S.C. 

§ 552(b) (creating an “equities of the case” exception to treatment of secured 

claim). 

The New Haven Inclusion Cases, 399 U.S. 392, 492–94 (1970), shows the 

limits of the Fifth Amendment. There, a federal bankruptcy statute enabled a 

railroad to operate at a loss during the bankruptcy while the value of the secured 

bondholders’ collateral further depreciated. The Supreme Court correctly treated 

that as a taking of property for public use during the bankruptcy case, but it denied 

compensation for depreciation and losses predating the valuation of the remaining 

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collateral because the bondholders had not requested dismissal of the case and did 

not supply depreciation data. Id. The Supreme Court expressly held that while 

these secured bondholders’ rights were entitled to “respect,” even they “are not 

absolute” and had to be balanced against the public interest in a reorganization. Id.

at 491–92. Similarly, here, appellees have no priority Fifth Amendment claim for 

the taking of their property prior to the Commonwealth’s Title III case. The 

appellees’ argument essentially boils down to the contention they are entitled to an 

“absolute” right the Supreme Court expressly refused to accord to secured

creditors in the New Haven Inclusion Cases, even though appellees hold only 

unsecured claims, which the Supreme Court has consistently held can be 

discharged in bankruptcy without even implicating the Takings Clause.

At bottom, simply chanting the mantra the “bankruptcy power is subject to 

the Fifth Amendment” does not answer any question relevant to this appeal. 

Nothing in the Supreme Court’s takings jurisprudence suggests prepetition, 

unsecured claims for just compensation are protected from discharge, especially 

when they are treated fairly as allowed prepetition, unsecured claims.

D. The Eight and Ninth Circuits Resolved the Question Presented as 

the Board Urges Here. 

As the United States concedes, the Supreme Court has never decided 

whether unsecured, prepetition just-compensation claims must be paid in full. U.S. 

Br. 8; see also Finca Matilde Br. 23. The Eighth and Ninth Circuits, however,

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have held unsecured just-compensation claims have no such right. See Cobb v. 

City of Stockton (In re City of Stockton), 909 F.3d 1256 (9th Cir. 2018); Poinsett 

Lumber Mfg. v. Drainage Dist. No. 7, 119 F.2d 270 (8th Cir. 1941). This Court 

should follow the Eighth and Ninth Circuits, especially when the holding below 

creates a priority claim for the pre-bankruptcy use of creditors’ property interests 

for the first time ever. See Alternative Sys. Concepts, Inc. v. Synopsys, Inc., 374 

F.3d 23, 31 (1st Cir. 2004) (“A court of appeals should always be reluctant to 

create a circuit split without a compelling reason . . . .”).

Appellees’ attempts to distinguish the decisions from the Eighth and Ninth 

Circuits miss the mark. Several appellees argue Stockton is inapposite because the 

court found the appeal equitably moot. PFZ Br. 19; Cooperativas Br. 21; Sucesión 

Mandry Mercado Br. 12–13 n.10. But that argument ignores that the Ninth Circuit

went on to reach the merits of the precise question presented in this case. See

Stockton, 909 F.3d at 1266. 

Appellees further argue Stockton involved a “convoluted procedural history”

and the creditor there (unlike the claimants here) failed to protect his rights. PFZ 

Br. 21; see also U.S. Br. 18; Cooperativas Br. 21. The Stockton creditor’s failure 

to seek a determination of his claim’s secured status posed a distinct question from 

whether his unsecured claim was dischargeable as a matter of law if not paid in 

full, however. See 909 F.3d at 1266–69. And it is illogical speculation for the 

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United States to argue the Stockton court would have reached a different 

conclusion concerning the takings claims “had the creditor sought an exemption of 

the sort that the district court adopted here.” U.S. Br. 18. Indeed, as explained 

above, there was no exemption from dischargeability here.

Appellees also argue the Stockton majority placed undue emphasis on the 

fact the creditor held only a monetary claim, given that “all” takings claims are

“ultimately reduced to money claims.” PFZ Br. 20.7

 Appellees miss the point that 

the claim was not only “purely . . . monetary” but also untethered to any specific 

property, see 909 F.3d at 1267, just like the unsecured claims here.

The United States contends Stockton is no longer good law because the 

Ninth Circuit’s statement that the Takings Clause does not require “full 

compensation” for a taking has been overruled by Knick. See U.S. Br. 13. The 

statement about “full compensation” in Stockton was a mere aside, however, and

was not critical to the holding that unsecured, prepetition takings claims are 

dischargeable. See 909 F.3d at 1267–68. Stockton therefore remains the law of the 

Ninth Circuit. In fact, the Supreme Court’s ruling in Knick may well have caused 

 7 PFZ takes issue with Stockton’s characterization of the claim as a “money claim” 

because the creditor held “title to the property” during the bankruptcy case. PFZ 

Br. 20. As the Ninth Circuit explained, however, the creditor held only a “bare 

legal title” that was untethered to any specific property. See 909 F.3d at 1267. 

Such title is not cognizable as “property” in the bankruptcy context. See id.

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Stockton’s dissenting judge to change her mind. Prior to Knick, takings claims 

were held not to exist before just compensation was denied; so the dissent was 

effectively observing there was no prepetition claim to discharge in bankruptcy. 

Now that Knick has explained the taking claim existed before the bankruptcy case, 

the dissent may well have decided it should have been discharged.

8

Appellees urge this Court to side with the dissent in Stockton. U.S. Br. 12–

13; PFZ Br. 19; Sucesión Mandry Mercado Br. 12–13 n.10. The United States 

argues the dissent was correct that the guarantee of “just compensation” for a 

violation of the Takings Clause is unique in the Constitution and cannot be 

infringed in bankruptcy. U.S. Br. 12. But, the dissent answered none of the issues 

explained here and instead relied on its determination that the claimant still owned 

the property. It even acknowledged Radford’s “teach[ing]” that the Takings 

Clause prohibits the impairment of only “substantive rights in specific property.”

Stockton, 909 F.3d at 1272 (Friedland, J., dissenting). Despite that 

acknowledgment, it inexplicably found the distinction between secured and 

unsecured claims unfounded because the Fifth Amendment itself does not make 

that distinction. Id. at 1278. Similarly, despite noting the Supreme Court has 

found only takings effectuated in bankruptcy violative of the Fifth Amendment,

 8 Notably, the dissent agreed with the majority on this point. Stockton, 909 F.3d at 

1279 (Friedland, J., dissenting). 

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see id. at 1272–73, the dissent concluded that prepetition takings claims must “pass 

through bankruptcy unaffected,” id. at 1278, but again, based on its theory the 

claimant still owned the property. 

The dissent’s analysis rested on the assumption the creditor retained a 

postpetition interest in the property in the form of title to the property. Id. at 1276. 

The United States counters that the dissent’s assumption was relevant “only”

because it demonstrated the creditor had an outstanding constitutional claim for 

just compensation, U.S. Br. 13, but that is nonresponsive. Evidently, the dissent

believed the creditor had a non-dischargeable constitutional claim because he

retained an interest in the property; otherwise, it would have joined the majority. 

Additionally, the dissent erroneously posited the denial of a claim for just 

compensation in a bankruptcy case would violate the Takings Clause based on the 

since-overturned rule that “no constitutional violation occurs until just 

compensation has been denied.” Stockton, 909 F.3d at 1274 (Friedland, J.,

dissenting) (citing Williamson Cnty. Reg’l Planning Comm’n v. Hamilton Bank of 

Johnson City, 473 U.S. 172, 194 n.13 (1985)). The dissent effectively viewed the 

takings claim as a postpetition obligation which cannot be discharged in a 

bankruptcy case. The Supreme Court has since overruled Williamson County and 

held a takings claim arises at the moment of the taking. See Knick, 139 S. Ct. at 

2172–74. The precedent underpinning the dissent’s analysis is thus no longer good 

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law. The United States asserts that the dissent’s analysis did not “turn on” the 

overruled precedent, U.S. Br. 14, but that is simply incorrect. 

Appellees’ attempts to distinguish Poinsett similarly fail. There, the Eighth 

Circuit concluded an unsecured just-compensation claim against a drainage district 

that had condemned the claimant’s property was not “invested with a constitutional 

sanctity beyond other forms of liability” and thus could be adjusted in composition 

proceedings. Poinsett, 119 F.2d at 272–73. In support of that ruling, the court 

adverted to an earlier decision holding a plan of composition for the drainage 

district paying pennies on the dollar to bondholders did not effectuate a taking of 

the bondholders’ interests without just compensation. See id. (citing Luehrmann v. 

Drainage Dist. No. 7 of Poinsett Cnty., 104 F.2d 696, 702–03 (8th Cir. 1939)). 

The United States attempts to distinguish Poinsett on the ground the Plan in 

this case does not “itself effect an unconstitutional taking,” U.S. Br. 14, but—as 

explained above—that simply confirms the absence of a Fifth Amendment issue. 

The United States also notes that Luehrmann found the Fifth Amendment’s 

protections inapplicable to composition proceedings under Radford, “as opposed to 

a bankruptcy proceeding” like this case. Id. at 15. As the court explained, 

however, Radford opined that no Fifth Amendment issues arise in the context of 

composition proceedings because such proceedings have “[n]ever . . . affected a 

secured claim held by a single creditor.” Luehrmann, 104 F.2d at 703 (quoting 

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Radford, 295 U.S. at 586) (emphasis added). The Luehrmann court’s 

determination that composition proceedings are not “subject to” the Fifth 

Amendment is thus based on the same reasoning advanced by the Board here that 

only secured claims or ownership triggers the Fifth Amendment in bankruptcy. 

PFZ argues Poinsett is inapposite because the debtor drainage district was 

supposedly “not a governmental entity to which the Takings Clause applies.” PFZ 

Br. 21. That is not the ground on which either Poinsett or Luehrmann resolved the 

Fifth Amendment issue, however, likely because the drainage district had many 

attributes of a government such as taxing power.

9

 Those courts rejected the 

argument that the Takings Clause precluded the adjustment of just-compensation 

claims in composition proceedings on the ground the Fifth Amendment was 

inapplicable to those proceedings because they did not impair secured 

obligations—not because the Fifth Amendment was inapplicable to the debtor. 

See Poinsett, 119 F.2d at 272–73; Luehrmann, 104 F.2d at 702–03. 

 9 See Sain v. Cypress Creek Drainage Dist., 257 S.W. 49 (Ark. 1923) (drainage 

district liable to pay just compensation for taking private property); St. Francis 

Drainage Dist. v. Austin, 296 S.W.2d 668 (Ark. 1956) (same). Neither Poinsett 

nor Luehrmann undercut the proposition, supported by Arkansas law, that a 

drainage district has eminent-domain power and is liable to pay just compensation 

when it uses it.

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III. APPELLEES’ REMAINING ARGUMENTS FAIL. 

The remaining arguments raised in the answering briefs are sideshows easily 

dispelled. The Cooperativas contend that, because the Plan accounts for full 

payment of just-compensation claims, this Court’s determination as to the 

dischargeability of such claims “will have no practical effect.” Cooperativas Br. 

16–17. Thus, they contend, the Board seeks an advisory opinion. Id. The 

confirmed Plan, however, provides for full payment of just-compensation claims 

only if the Title III court’s ruling concerning the requirement to pay such claims in 

full is upheld on appeal. Coop-App946–47, § 58.1. A “live controversy” therefore 

exists because this appeal will determine whether potentially hundreds of millions 

of dollars will be paid to the claimants or instead will be available to the 

Commonwealth to provide essential services to its citizens. See ACLU of Mass. v. 

U.S. Conf. of Cath. Bishops, 705 F.3d 44, 54 (1st Cir. 2013)”). 

The Cooperativas also argue this appeal is improper because “no creditor has 

complained” about the Plan’s treatment of just-compensation claims. Cooperativas 

Br. 17. That is irrelevant because the Board, as Title III representative of the 

Commonwealth pursuant to 48 U.S.C. § 2175, is appealing an adverse ruling and 

has a “personal stake” in the outcome of the appeal. See Katz v. Pershing, LLC, 

672 F.3d 64, 71 (1st Cir. 2012). The Commonwealth plainly has an interest in 

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saving approximately $400 million. The Board’s standing to appeal is not 

dependent upon objections lodged by other parties.

CONCLUSION

The Board respectfully requests that the Court reverse the Title III court’s 

determination that prepetition, unsecured just-compensation claims cannot be 

impaired in Title III. 

Dated: April 22, 2022 Respectfully submitted, 

/s/ Timothy W. Mungovan

TIMOTHY W. MUNGOVAN

JOHN E. ROBERTS

ADAM L. DEMING

PROSKAUER ROSE LLP

One International Place

Boston, MA 02110

Tel: (617) 526-9600

tmungovan@proskauer.com

jroberts@proskauer.com

ademing@proskauer.com

JOSEPH S. HARTUNIAN

PROSKAUER ROSE LLP

1001 Pennsylvania Avenue NW,

Suite 600 South

Washington, DC 20004

Tel: (202) 416-6800

jhartunian@proskauer.com

MARTIN J. BIENENSTOCK

JEFFREY W. LEVITAN

MARK D. HARRIS

BRIAN S. ROSEN

EHUD BARAK

LUCAS KOWALCZYK

SHILOH RAINWATER

PROSKAUER ROSE LLP

Eleven Times Square

New York, NY 10036 

Tel: (212) 969-3000

mbienenstock@proskauer.com

jlevitan@proskauer.com

mharris@proskauer.com

brosen@proskauer.com

ebarak@proskauer.com

lkowalczyk@proskauer.com

srainwater@proskauer.com

PAUL V. POSSINGER

PROSKAUER ROSE LLP

70 West Madison, Suite 3800

Chicago, IL 60602

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Tel: (312) 962-3550

ppossinger@proskauer.com

Attorneys for Debtors-Appellees/Cross-Appellants

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CERTIFICATE OF COMPLIANCE

Pursuant to Federal Rules of Appellate Procedure 32(g), the undersigned 

counsel certifies that this document complies as follows:

1. This document complies with the type-volume limit of Federal Rule 

of Appellate Procedure 28.1(e)(2)(C) because, excluding the parts of the document 

exempted by Federal Rule of Appellate Procedure 32(f), this document contains 

6,498 words.

2. The document complies with the typeface requirements of Federal 

Rule of Appellate Procedure 32(a)(5) and the type-style requirements of Federal 

Rule of Appellate Procedure 32(a)(6) because this document has been prepared in 

a proportionally spaced typeface using Microsoft Word in 14 point Times New 

Roman font. As permitted by Federal Rule of Appellate Procedure 32(g)(1), the 

undersigned has relied upon the word count feature of this word processing system 

in preparing this certificate.

Dated: April 22, 2022

/s/ Timothy W. Mungovan

Timothy W. Mungovan

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CERTIFICATE OF SERVICE

I hereby certify that on this same date, I electronically filed the foregoing 

document with the United States Court of Appeals for the First Circuit by using the 

CM/ECF system, which electronically served a copy on all counsel of record.

Dated: April 22, 2022

/s/ Timothy W. Mungovan

Timothy W. Mungovan

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