Source: https://supreme.justia.com/cases/federal/us/579/15-233/
Timestamp: 2019-07-20 17:47:44
Document Index: 122044572

Matched Legal Cases: ['§109', '§101', '§903', '§8', '§101', '§109', '§109', '§109', '§101', '§109', '§109', '§903', '§109', '§903', '§903', '§109', '§109', '§109', '§903', '§903', '§903']

Puerto Rico v. Franklin Cal. Tax-Free Trust :: 579 U.S. ___ (2016) :: Justia US Supreme Court Center
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Puerto Rico v. Franklin Cal. Tax-Free Trust, 579 U.S. ___ (2016)
Parts of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act mirrored Chapters 9 and 11 of the Federal Bankruptcy Code and enabled Puerto Rico’s public utility corporations to restructure their debt. The First Circuit affirmed an injunction, concluding that the Act is preempted by 11 U.S.C. 903(1). The Supreme Court affirmed, analyzing three federal municipal bankruptcy provisions. The “gateway” provision, section 109(c), requires a Chapter 9 debtor to be an insolvent municipality that is “specifically authorized” by a state “to be a debtor.” The pre-emption provision, 903(1), expressly bars states from enacting municipal bankruptcy laws. The definition of “State,” 101(52), “includes . . . Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9.” The definition excludes Puerto Rico for the single purpose of defining who may be a Chapter 9 debtor, an unmistakable reference to the gateway provision. The definition of “State” does not exclude Puerto Rico from all of Chapter 9’s provisions. Puerto Rico is bound by the pre-emption provision, even though Congress removed its gateway provision authority to authorize its municipalities to seek Chapter 9 relief. An argument that the Recovery Act is not a “State law” that can be pre-empted is based on technical amendments to the terms “creditor” and “debtor” that are too “subtle” to support such a “[f]undamental chang[e] in the scope” of Chapter 9’s pre-emption provision.
The sections of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act that mirror Chapters 9 and 11 of the Federal Bankruptcy Code are preempted because states may not enact municipal bankruptcy laws, and Puerto Rico is included in the definition of a "state" for the purposes of most applications of the Federal Bankruptcy Code.
No. 15–233. Argued March 22, 2016—Decided June 13, 2016[1]
(1) The Bankruptcy Code’s plain text supports respondents’ reading. The unambiguous language of the pre-emption provision “contains an express pre-emption clause,” the plain wording of which “necessarily contains the best evidence of Congress’ pre-emptive intent.” Chamber of Commerce of United States of America v. Whiting, 563 U. S. 582 . The definition provision excludes Puerto Rico for the single purpose of defining who may be a Chapter 9 debtor, an unmistakable reference to the §109 gateway provision. This conclusion is reinforced by the definition’s use of the phrase “defining who may be a debtor under chapter 9,” §101(52), which is tantamount to barring Puerto Rico from “specifically authorizing” which municipalities may file Chapter 9 petitions under the gateway provision, §903(1). The text of the exclusion thus extends no further. Had Congress intended to exclude Puerto Rico from Chapter 9 altogether, including Chapter 9’s pre-emption provision, Congress would have said so. Pp. 9–11.
We granted the Commonwealth’s petitions for writs of certiorari. 577 U. S. ___ (2015).[1]
The Constitution empowers Congress to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” Art. I, §8, cl. 4. Congress first exercised that power by enacting a series of temporary bankruptcy Acts beginning in 1800, which gave way to a permanent federal bankruptcy scheme in 1898. See An Act To Establish a Uniform System of Bankruptcy Throughout the United States, 30Stat. 544; Hanover Nat. Bank v. Moyses, 186 U. S. 181, 184 (1902) . But Congress did not enter the field of municipal bankruptcy until 1933 when it enacted the precursor to Chapter 9, a chapter of the Code enabling an insolvent “municipality,” meaning a “political subdivision or public agency or instrumentality of a State,” 11 U. S. C. §101(40), to restructure municipal debts. See McConnell & Picker, When Cities Go Broke: A Conceptual Introduction to Municipal Bankruptcy, 60 U. Chi. L. Rev. 425, 427, 450–451 (1993).
Congress has tailored the federal municipal bankruptcy laws to preserve the States’ reserved powers over their municipalities. This Court struck down Congress’ first attempt to enable the States’ political subdivisions to file for federal bankruptcy relief after concluding that it infringed the States’ powers “to manage their own affairs.” Ashton v. Cameron County Water Improvement Dist. No. One, 298 U. S. 513, 531 (1936) . Congress tried anew in 1937, and the Court upheld the amended statute as an appropriate balance of federal and state power. See United States v. Bekins, 304 U. S. 27 –53 (1938). Critical to the Court’s constitutional analysis was that the State had first authorized its instrumentality to seek relief under the federal bankruptcy laws. See id., at 47–49, 53–54.
The States’ powers are not unlimited, however. The federal bankruptcy laws changed again in 1946 to bar the States from enacting their own municipal bankruptcy schemes. The amendment overturned this Court’s holding in Faitoute Iron & Steel Co. v. Asbury Park, 316 U. S. 502 –509 (1942) (rejecting contention that Congress occupied the field of municipal bankruptcy law). In Faitoute, the Court held that federal bankruptcy laws did not pre-empt New Jersey’s municipal bankruptcy scheme, which required municipalities to seek relief under state law before resorting to the federal municipal bankruptcy scheme. Ibid. To override Faitoute, Congress enacted a provision expressly pre-empting state municipal bankruptcy laws. Act of July 1, 1946, 60Stat. 415.
The plain text of the Bankruptcy Code begins and ends our analysis. Resolving whether Puerto Rico is a “State” for purposes of the pre-emption provision begins “with the language of the statute itself,” and that “is also where the inquiry should end,” for “the statute’s language is plain.” United States v. Ron Pair Enterprises, Inc., 489 U. S. 235, 241 (1989) . And because the statute “contains an express pre-emption clause,” we do not invoke any presumption against pre-emption but instead “focus on the plain wording of the clause, which necessarily contains the best evidence of Congress’ pre-emptive intent.” Chamber of Commerce of United States of America v. Whiting, 563 U. S. 582, 594 (2011) (internal quotation marks omitted); see also Gobeille v. Liberty Mut. Ins. Co., 577 U. S. ___, ___ (2016) (slip op., at 12).
The text of the definition extends no further. The exception excludes Puerto Rico only for purposes of the gateway provision. Puerto Rico is no less a “State” for purposes of the pre-emption provision than it was before Congress amended the definition. The Code’s pre-emption provision has prohibited States and Territories defined as “States” from enacting their own municipal bankruptcy schemes for 70 years. See 60Stat. 415 (overturning Faitoute, 316 U. S., at 507–509). Had Congress intended to “alter th[is] fundamental detai[l]” of municipal bankruptcy, we would expect the text of the amended definition to say so. Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001) . Congress “does not, one might say, hide elephants in mouseholes.” Ibid.
First, the dissent agrees with petitioners’ view that the exclusion of Puerto Rico as a “State” for purposes of the gateway provision effectively removed Puerto Rico from all of Chapter 9. See post, at 7–8 (opinion of Sotomayor, J.). To be sure, §109(c) and the surrounding subsections serve an important gatekeeping role. Those provisions “specify who qualifies—and who does not qualify—as a debtor under the various chapters of the Code.” Toibb v. Radloff, 501 U. S. 157, 161 (1991) . For instance, a railroad must file under Chapter 11, not Chapter 7, §§109(b)(1), (d), whereas only “family farmer[s] or family fisherm[e]n” may file under Chapter 12. The provision delineating who may be a debtor under Chapter 9 is no exception. Only municipalities may file under Chapter 9, and only if the State has “specifically authorized” the municipality to do so. §§109(c)(1)–(2); see also McConnell & Picker, 60 Chi. L. Rev., at 455–461 (discussing the gatekeeping requirements for Chapter 9).
The dissent concludes that “the government and people of Puerto Rico should not have to wait for possible congressional action to avert the consequences” of the Commonwealth’s fiscal crisis. Post, at 9. But our constitutional structure does not permit this Court to “rewrite thestatute that Congress has enacted.” Dodd v. United States, 545 U. S. 353, 359 (2005) ; see also Electric Storage Battery Co. v. Shimadzu, 307 U. S. 5, 14 (1939) . That statute precludes Puerto Rico from authorizing its municipalities to seek relief under Chapter 9. But it does not remove Puerto Rico from the scope of Chapter 9’s pre-emption provision. Federal law, therefore, pre-empts the Recovery Act. The judgment of the Court of Appeals for the First Circuit is affirmed.
When debtors face untenable debt loads, bankruptcy is the primary tool the law uses to forge workable long-term solutions. By requiring a debtor and creditors to negotiate together and forcing both sides to make concessions within the limits set by law, bankruptcy gives the debtor a “fresh start,” discourages creditors from racing each other to sue the debtor, prohibits a small number of holdout creditors from blocking a compromise, protects important creditor rights such as the prioritization of debts, and allows all parties to find equitable and efficient solutions to fiscal problems. See Marrama v. Citizens Bank of Mass., 549 U. S. 365, 367 (2007) ; Young v. Higbee Co., 324 U. S. 204, 210 (1945) .
These concerns are starkly presented in the context of municipal entities like public utilities. While a business corporation can use bankruptcy to reorganize, and, if that fails, fold up shop and liquidate all of its assets, governments cannot shut down power plants, water, hospitals, sewers, and trains and leave citizens to fend for themselves. A “fresh start” can help not only the unfortunate individual debtor but also—and perhaps especially—the unfortunate municipality and its people. See United States v. Bekins, 304 U. S. 27 –54 (1938).
The second eligibility requirement is relevant here. Only a municipality “authorized . . . by State law” may pass through the “gateway” and file for bankruptcy under Chapter 9’s provisions. But Chapter 1’s definitional provision, which applies throughout the Code, provides that the “term ‘State’ includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title.” §101(52). It is undisputed that the “except for the purpose of defining who may be a debtor under chapter 9” clause is referring to the second eligibility prerequisite in §109’s gateway provision. Ante, at 8. So, in short, Puerto Rico cannot “specifically authoriz[e]” any of its municipalities to apply for Chapter 9 bankruptcy. No Puerto Rican municipality will thus satisfy the state authorization requirement of §109’s gateway for municipalities, and so no Puerto Rican municipality can access Chapter 9.[1]
This “reservation” of power to the States was added to the Code in response to this Court’s earlier recognition that States possess plenary control over their municipalities, particularly in fiscal matters. Faitoute Iron & Steel Co. v. Asbury Park, 316 U. S. 502, 509 (1942) , overruled in part by Act of July 1, 1946, 60Stat. 415. Section 903 says that States continue to possess those powers not implicated by the bankruptcy itself by noting that “[t]his chapter,” i.e., Chapter 9, “does not limit or impair the power of a State to control” its municipalities. §903. For example, even if a municipality is in Chapter 9 bankruptcy, a State could still revoke its charter.
But this distribution of power between the State and the bankruptcy court is irrelevant to Puerto Rico. Because Puerto Rico’s municipalities cannot pass through the §109(c) gateway to Chapter 9, nothing in the operation of a Chapter 9 case affects Puerto Rico’s control over its municipalities. The “reservation” preamble is therefore meaningless to Puerto Rico—there is no power to reserve from Chapter 9’s operation. And if this preamble does not and cannot apply to Puerto Rico, it follows that §903(1)’s pro-viso qualifying that reservation of power to the States does not apply to Puerto Rico either. See, e.g., United States v. Morrow, 266 U. S. 531 –535 (1925).
This understanding of §903 is fundamentally confirmed by the careful gateway structure the Code sets out for understanding how its chapters work together. See Utility Air Regulatory Group v. EPA, 573 U. S. ___, ___ (2014) (slip op., at 15) (“ ‘ “[W]ords of a statute must be read in their context and with a view to their place in the overall statutory scheme” ’ ” (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U. S. 120, 133 (2000) )). Chapter 1’s definitions section prevents Puerto Rico from defining “who may be a debtor under chapter 9” under §109(c)’s gateway. Because of the structure of the Code, that change to Chapter 1’s definition has ripple effects. By amending the definition of State to exclude Puerto Rico, the District of Columbia, and their municipalities from §109(c)’s gateway, Congress excluded Puerto Rico from Chapter 9 for all purposes—it shut the gate and barred it tight. And because Chapter 9’s process and rules by their terms can only affect municipalities and States eligible to pass through the gateway in §109(c), that must mean that none of Chapter 9’s provisions—including §903’s pre-emption provision—apply to Puerto Rico and its municipalities.
The majority argues that, in light of the longstanding nature of the §903(1)’s pre-emption provision to preclude state municipal bankruptcy laws, “[h]ad Congress in-tended to ‘alter this fundamental detail’ of municipal bankruptcy” to not apply to Puerto Rico, “we would expect the text of the amended definition to say so. Congress ‘does not, one might say, hide elephants in mouseholes.’ ” Ante, at 10–11 (quoting Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001) ; citation and brackets omitted). But the Court ignores that Congress already altered the fundamental details of municipal bankruptcy when it amended the definition of “State” to exclude Puerto Rico from authorizing its municipalities to take advantage of Chapter 9. Nobody has presented a compelling reason for why Congress would have done so, and the legislative history of the amendment is unhelpful.[2] Under either interpretation the scheme has been fundamentally altered by Congress. And, in context, the proper understanding of that alteration is that Puerto Rico and its municipalities have been removed entirely from Chapter 9—both from the benefits it provides and from the burden of the pre-emption clause in §903(1).