Court Opinion

ID: 2814762
Source: CourtListenerOpinion
Date Created: 2015-07-07 04:00:40.1141+00
Date Added: 2024-06-11T11:30:33.373328
License: Public Domain

United States Court of Appeals
                      For the First Circuit

Nos. 15-1218
     15-1221
     15-1271
     15-1272

           FRANKLIN CALIFORNIA TAX-FREE TRUST, et al.,

                      Plaintiffs, Appellees,

                                v.

               COMMONWEALTH OF PUERTO RICO, et al.,

                     Defendants, Appellants,

          PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA),

                            Defendant.

          APPEALS FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF PUERTO RICO

        [Hon. Francisco   A. Besosa, U.S. District Judge]

                              Before

                       Howard, Chief Judge,
               Torruella and Lynch, Circuit Judges.

     Christopher Landau, with whom Margarita Mercado-Echegaray,
Solicitor General for the Commonwealth of Puerto Rico, Beth A.
Williams, Michael A. Glick, Claire M. Murray, and Kirkland & Ellis
LLP were on brief, for the Commonwealth of Puerto Rico, Governor
Alejandro   García-Padilla,   and  César   R.   Miranda-Rodríguez,
appellants.
     Martin J. Bienenstock, with whom John E. Roberts, Andrea G.
Miller, Proskauer Rose LLP, Mark D. Harris, Sigal P. Mandelker,
Philip M. Abelson, and Ehud Barak were on brief, for Melba Acosta-
Febo and John Doe, appellants.
     Lewis J. Liman, with whom Jorge R. Roig, Joanne A. Tomasini-
Muñiz, González, Machado & Roig, LLC, Lawrence B. Friedman, Richard
J. Cooper, Sean A. O'Neal, and Cleary Gottlieb Steen & Hamilton LLP
were on brief, for the Puerto Rico Electric Power Authority
(PREPA), amicus curiae.
     Gabriel R. Avilés-Aponte and Tapia & Avilés on brief for
Clayton P. Gillette and David A. Skeel, Jr., amici curiae.
     Edilberto Berríos-Pérez and Berríos & Longo Law Office, P.S.C.
on brief for Edilberto Berríos-Pérez, amicus curiae.
     Matthew D. McGill, with whom David C. Indiano, Jeffrey M.
Williams, Leticia Casalduc-Rabell, Indiano & Williams, PSC,
Theodore B. Olson, Scott G. Stewart, Matthew J. Williams, and
Gibson, Dunn & Crutcher LLP were on brief, for BlueMountain Capital
Management, LLC, appellee.
     Thomas Moers Mayer, with whom Kramer Levin Naftalis & Frankel
LLP, Philip Bentley, David E. Blabey, Jr., Toro, Colón, Mullet,
Rivera & Sifre, P.S.C., Manuel Fernández-Bared, and Linette
Figueroa-Torres were on brief, for Franklin California Tax-Free
Trust et al., appellees.
     Marc E. Kasowitz, with whom Daniel R. Benson, Hon. Joseph I.
Lieberman (ret.), Hon. Clarine Nardi Riddle (ret.), Andrew K.
Glenn, and Kasowitz, Benson, Torres & Friedman LLP were on brief,
for the Association of Financial Guaranty Insurers, amicus curiae.
     Kate Comerford Todd, Steven P. Lehotsky, U.S. Chamber
Litigation Center, Inc., William S. Consovoy, Thomas R. McCarthy,
J. Michael Connolly, and Consovoy McCarthy PLLC on brief for the
Chamber of Commerce of the United States of America, amicus curiae.

                           July 6, 2015
          LYNCH, Circuit Judge.   The defendants, the Commonwealth

of Puerto Rico, its Governor, its Secretary of Justice, and the

Government Development Bank ("GDB"), assert that Puerto Rico is

facing the most serious fiscal crisis in its history, and that its

public utilities risk becoming insolvent.     Puerto Rico, unlike

states, may not authorize its municipalities, including these

utilities, to seek federal bankruptcy relief under Chapter 9 of the

U.S. Bankruptcy Code.   11 U.S.C. §§ 101(40), 101(52), 109(c).   In

June 2014, the Commonwealth attempted to allow its utilities to

restructure their debt by enacting its own municipal bankruptcy

law, the Puerto Rico Public Corporation Debt Enforcement and

Recovery Act ("Recovery Act"), which expressly provides different

protections for creditors than does the federal Chapter 9.

          Plaintiffs are investors who collectively hold nearly two

billion dollars of bonds issued by one of the distressed public

utilities, the Puerto Rico Electric Power Authority ("PREPA").

Fearing that a PREPA filing under the Recovery Act was imminent,

they brought suit in summer 2014 to challenge the Recovery Act's

validity and enjoin its implementation.   The district court found

in their favor and permanently enjoined the Recovery Act on the

ground that it is preempted under 11 U.S.C. § 903(1).            See

Franklin Cal. Tax-Free Trust v. Puerto Rico, ___ F. Supp. 3d ___,

Nos. 14-1518, 14-1569, 2015 WL 522183, at *1, *12-18, *29 (D.P.R.

Feb. 6, 2015); Franklin Cal. Tax-Free Trust v. Puerto Rico, No. 14-

                                -3-
1518,   2015 WL 574008,       at   *1    (D.P.R.          Feb.   10,   2015).    That

provision, § 903(1), ensures the uniformity of federal bankruptcy

laws by prohibiting state municipal debt restructuring laws that

bind creditors without their consent.                        11 U.S.C. § 903(1); see S.

Rep. No. 95-989, at 110 (1978).

            The primary legal issue on appeal is whether § 903(1)

preempts Puerto Rico's Recovery Act.                           That question turns on

whether the definition of "State" in the federal Bankruptcy Code --

as   amended    in   1984     --   renders         §    903(1)'s      preemptive     effect

inapplicable to Puerto Rico.                 Bankruptcy Amendments and Federal

Judgeship      Act   of    1984,    Pub.     L.        No.    98-353,   sec.   421(j)(6),

§ 101(44), 98 Stat. 333, 368-39 (codified as amended at 11 U.S.C.

§ 101(52)).      The post-1984 definition of "State" includes Puerto

Rico, "except" for the purpose of "defining" a municipal debtor

under § 109(c).           11 U.S.C. §§ 101(52), 109(c) (emphasis added).

All parties agree that Puerto Rico now lacks the power it once had

been granted by Congress to authorize its municipalities to file

for Chapter 9 relief.

            We hold that § 903(1) preempts the Recovery Act.                            The

prohibition now codified at § 903(1) has applied to Puerto Rico

since the predecessor of that section's enactment in 1946.                              The

statute does not currently read, nor does anything about the 1984

amendment suggest, that Puerto Rico is outside the reach of

§ 903(1)'s prohibitions.            See Cohen v. de la Cruz, 523 U.S. 213,

                                             -4-
221 (1998) ("We . . . 'will not read the Bankruptcy Code to erode

past bankruptcy practice absent a clear indication that Congress

intended such a departure.'" (citation omitted)); cf. Kellogg Brown

& Root Servs. Inc. v. United States ex rel. Carter, 135 S. Ct.
1970, 1977 (2015) ("Fundamental changes in the scope of a statute

are not typically accomplished with so subtle a move.").              Indeed,

the Recovery Act would frustrate the precise purpose underlying the

enactment of § 903(1).     Accordingly, we affirm.

            Defendants argue that this leaves Puerto Rico without

relief.     Although § 101(52) denies to Puerto Rico the power to

authorize its municipalities to pursue federal Chapter 9 relief,

Puerto Rico may turn to Congress for recourse.           Indeed, Congress

preserved    to   itself   that   power     to   authorize   Puerto     Rican

municipalities to seek Chapter 9 relief.         Puerto Rico is presently

seeking authorization or other relief directly from Congress.

See Puerto Rico Chapter 9 Uniformity Act of 2015, H.R. 870, 114th

Cong. (2015).

                                    I.

                           Procedural History

            Two groups of PREPA bondholders sued almost immediately

following the Recovery Act's passage to prevent its enforcement.

PREPA had issued their bonds pursuant to a trust agreement with the

U.S. Bank National Association.          The bondholders allege that the

very enactment of the Recovery Act impaired these contractual

                                   -5-
obligations by abrogating certain protections that were promised in

the event of default.1    The first group, the Franklin plaintiffs,2

filed on June 28, 2014, and cross-motioned for summary judgment on

August   11,   2014.     The   second   group,   BlueMountain   Capital

     1
        Compare, e.g., Puerto Rico Electric Power Authority Act
("Authority Act"), P.R. Laws Ann. tit. 22, § 207 (providing for a
court-appointed receiver in event of default); Trust Agreement
between PREPA & U.S. Bank National Association as Successor Trustee
dated Jan. 1, 1974, as amended and supplemented through Aug. 1,
2011 ("Trust Agreement"), § 804 (permitting U.S. Bank National
Association to seek court-appointed receiver pursuant to the
Authority Act), with Recovery Act, § 108(b) ("This Act supersedes
and annuls any insolvency or custodian provision included in the
enabling or other act of any public corporation, including
[Authority Act, P.R. Laws Ann. tit. 22, § 207] . . . .").
     2
        We use "Franklin plaintiffs" to denote the plaintiffs who
brought the first suit. The Franklin plaintiffs consist of two
subsets of plaintiffs, referred to by the district court as the
"Franklin plaintiffs" and the "Oppenheimer Rochester plaintiffs."
The former are Delaware corporations or trusts that collectively
hold about $692,855,000 of PREPA bonds. The latter are Delaware
statutory trusts holding about $866,165,000 of PREPA bonds. For
simplicity, we do not distinguish between these two subsets, but
refer to both subsets collectively.
     The individual parties who comprise the "Franklin plaintiffs"
are: Franklin California Tax-Free Trust; Franklin New York Tax-Free
Trust; Franklin Tax-Free Trust; Franklin Municipal Securities
Trust; Franklin California Tax-Free Income Fund; Franklin New York
Tax-Free Income Fund; Franklin Federal Tax-Free Income Fund;
Oppenheimer Rochester Fund; Municipals Oppenheimer Municipal Fund;
Oppenheimer Multi-State Municipal Trust; Oppenheimer Rochester Ohio
Municipal Fund; Oppenheimer Rochester Arizona Municipal Fund;
Oppenheimer Rochester Virginia Municipal Fund; Oppenheimer
Rochester Maryland Municipal Fund; Oppenheimer Rochester Limited
Term California Municipal Fund; Oppenheimer Rochester California
Municipal Fund; Rochester Portfolio Series; Oppenheimer Rochester
Amt-Free Municipal Fund; Oppenheimer Rochester Amt-Free New York
Municipal Fund; Oppenheimer Rochester Michigan Municipal Fund;
Oppenheimer Rochester Massachusetts Municipal Fund; Oppenheimer
Rochester North Carolina Municipal Fund; and Oppenheimer Rochester
Minnesota Municipal Fund.

                                  -6-
Management, LLC ("BlueMountain"), for itself and on behalf of the

funds it manages, filed on July 22, 2014.      Together, the Franklin

plaintiffs and BlueMountain hold nearly two billion dollars in

PREPA bonds.

          Both the Franklin plaintiffs and BlueMountain sought

declaratory relief under 28 U.S.C. §§ 2201-02 that the Recovery Act

is preempted by the federal Bankruptcy Code, violates the Contracts

Clause, violates the Bankruptcy Clause, and unconstitutionally

authorizes a stay of federal court proceedings.         The Franklin

plaintiffs (but not BlueMountain) also brought a Takings Claim

under the Fifth and Fourteenth Amendments.     And BlueMountain (but

not the Franklin plaintiffs) brought a claim under the contracts

clause of the Puerto Rico constitution.    These claims were brought

against the Commonwealth of Puerto Rico, Governor Alejandro García-

Padilla, and various Commonwealth officials, including GDB agents.3

The district court consolidated the cases and aligned the briefing

on   August    20,   2014,   but   did   not   merge   the   suits.

          The district court issued an order and opinion in both

cases on February 6, 2015, resolving the motions to dismiss and the

     3
        The Franklin plaintiffs and BlueMountain named different
Commonwealth defendants. Both sued the Governor and agents of the
GDB. But only the Franklin plaintiffs (not BlueMountain) sued the
Commonwealth itself, while BlueMountain (not the Franklin
plaintiffs) named Puerto Rico's Secretary of Justice, César
Miranda-Rodríguez, as a defendant.
     The Franklin plaintiffs (not BlueMountain) had also sued PREPA
itself, but those claims were dismissed for lack of standing.

                                   -7-
Franklin plaintiffs' outstanding cross-motion for summary judgment.

Franklin Cal. Tax-Free Trust, __ F. Supp. 3d __, 2015 WL 522183, at

*1. It entered judgment in the Franklin case on February 10, 2015.

Franklin        Cal.     Tax-Free       Trust,     2015 WL 574008,      at    *1.

                As relevant here, the district court held that the

Recovery Act was preempted by federal law and permanently enjoined

its   enforcement.         It    also    denied    the    motion      to     dismiss    the

Contracts Clause claim and one of the Franklin plaintiffs' Takings

claims.4

                The Commonwealth defendants appeal from the permanent

injunction,       the    grant    of     summary    judgment         to    the   Franklin

plaintiffs, and further argue that the district court erred by

reaching the Contracts Clause and Takings Claims in its February 6

order.

                                           II.

                Because the appeal presents a narrow legal issue, we

summarize only those facts as are necessary.                    We do not address in

any detail the extent of the fiscal crisis facing the Commonwealth,

PREPA,     or    other    Commonwealth      entities.           We    begin      with   the

considerations         shaping   the     state-authorization              requirement   of

§ 109(c)(2), the provision that presently, in combination with

      4
         The district court dismissed without prejudice the
remaining claims for lack of ripeness, and all claims asserted
against PREPA for lack of standing.

                                           -8-
§ 101(52), bars Puerto Rico from authorizing its municipalities to

bring claims for federal Chapter 9 relief.

A.          The History of Federal Municipal Bankruptcy Relief, and
            the State-Authorization Requirement

            Modern municipal bankruptcy relief is shaped by two

features:    the   difficulties    inherent   in   enforcing     payment   of

municipal debt, and the historic understanding of constitutional

limits on fashioning relief.       M.W. McConnell & R.C. Picker, When

Cities Go Broke: A Conceptual Introduction to Municipal Bankruptcy,

60 U. Chi. L. Rev. 425, 426-28 (1993).             The difficulties arise

because municipalities are government entities, and so the methods

for addressing their insolvency are limited in ways that the

methods for addressing individual or corporate insolvency are not.5

Id.   at    426-50;   see   also    11    U.S.C.   §   101(40)    (defining

"municipality" as "political subdivision[s]," "public agenc[ies],"

      5
           For example, remedies traditionally available in
bankruptcy, like seizing assets, corporate reorganization,
liquidation, or judicial oversight of the debtor's day-to-day
affairs, are traditionally unavailable in enforcing the payment of
municipal debt. See McConnell & Picker, 60 U. Chi. L. Rev. at 426-
50; see also City of East St. Louis v. United States ex rel.
Zebley, 110 U.S. 321, 324 (1884) ("[W]hat expenditures are proper
and necessary for the municipal administration, is not judicial; it
is confided by law to the discretion of the municipal authorities.
No court has the right to control that discretion, much less to
usurp and supersede it."). The relative unavailability of these
"bitter medicine[s]" makes it more difficult for municipal
bankruptcy regimes to navigate the gauntlet between addressing the
"holdout" problem that bankruptcy is designed to resolve, and
limiting the "moral hazard" problem that is exacerbated by the
availability of bankruptcy relief. McConnell & Picker, 60 U. Chi.
L. Rev. at 426-27, 494-95.

                                    -9-
and other "instrumentalit[ies] of a State").       Navigating these

difficulties is further complicated, for state municipalities, by

a two-prong dilemma created by the Contracts Clause and the Tenth

Amendment.    See McConnell & Picker, 60 U. Chi. L. Rev. at 427-28.

             For these reasons, municipalities remained completely

outside any bankruptcy regime for much of the nation's history.

See id. at 427-28.    Indeed, the prevailing assumption was that the

constitutional limitations precluded either level of government,

state or federal, from enacting a municipal bankruptcy regime.

See id.   States could not provide an effective solution to the

"holdout problem" presented by insolvency because doing so "would

[require] impair[ing] the obligation of contracts" in violation of

the Contracts Clause.6    See id. at 426-28.   Federal intervention,

     6
        The holdout problem occurs in restructuring negotiations
because creditors who refuse to capitulate early can often secure
more favorable terms by "holding out."     See, e.g., McConnell &
Picker, 60 U. Chi. L. Rev. at 449-50. Municipal bankruptcy relief
can ameliorate this problem by binding the dissenters -- the
holdouts -- provided a large enough class of creditors agrees. See
generally McConnell & Picker, 60 U. Chi. L. Rev. 425. Indeed, some
have suggested that even the shadow of the law in this area can
assist negotiations, and that its absence can hinder it.      See,
e.g., D.A. Skeel, Jr., States of Bankruptcy, 79 U. Chi. L. Rev.
677, 689-90 (2012) (suggesting that "a bankruptcy law could prove
beneficial even if it is never used"). Compare id. at 720 & nn.
191 & 192 (discussing a series of studies concerning the effect on
debt price of a bankruptcy alternative to the holdout problem, so-
called "collective-action clauses" (citing, e.g., S.J. Choi, M.
Gulati, & E.A. Posner, Pricing Terms in Sovereign Debt Contracts:
A Greek Case Study with Implications for the European Crisis
Resolution Mechanism *10-11 (U. Chi. John M. Olin L. & Econ.
Working Paper No. 541, Feb. 1, 2011))), with Municipal Bankruptcy
-- Preemption -- Puerto Rico Passes New Municipal Reorganization
Act, 128 Harv. L. Rev. 1320, 1327 (2015) (suggesting that the

                                 -10-
on the other hand, might interfere with states' rights under the

Tenth Amendment in controlling their own municipalities.            Id. at

427-28; see also Ashton v. Cameron Cnty. Water Improvement Dist.

No. 1, 298 U.S. 513, 530-32 (1936) (striking down the first federal

municipal bankruptcy law on federalism grounds).

            The   problems   created   by   this   absence   of   municipal

bankruptcy relief became acute during the Great Depression.            And

so, in 1933, Congress enacted Chapter 9's predecessor to provide to

states a mechanism for addressing municipal insolvency that they

could not create themselves. See McConnell & Picker, 60 U. Chi. L.

Rev. at 427-29, 450-54 (summarizing the history).

            Although it had a rocky start, see, e.g., Ashton, 298
U.S. at 530-32 (invalidating the initial act), Congress eventually

succeeded in avoiding a Tenth Amendment problem. It did so in part

by requiring a state's consent in the federal municipal bankruptcy

regime before permitting municipalities of that state to seek

relief under it, and in part by emphasizing that the statute did

not effect "'any restriction on the powers of the States or their

arms of government in the exercise of their sovereign rights and

duties.'"   See, e.g., United States v. Bekins, 304 U.S. 27, 49-54

(1938) (quoting H.R. Rep. No. 75-517, at 2 (1937); S. Rep. No. 75-

911, at 2 (1937)) (recognizing that this created a "cooperati[ve]"

scheme); cf. McConnell & Picker, 60 U. Chi. L. Rev. at 452-53.

Recovery Act forced creditors to the negotiation table).

                                  -11-
This is the origin of the state-authorization requirement of

§ 109(c).7     That provision of the Code provides that a municipality

may be a debtor under Chapter 9 only if it "is specifically

authorized . . . to be a debtor under such chapter by State law, or

by a governmental officer or organization empowered by State law to

[so] authorize."     11 U.S.C. § 109(c)(2).

              This requirement of state consent is based on reason: a

state might instead decide to bail out an ailing municipality, if

its own fiscal situation permits, to avoid the negative impact that

a municipal bankruptcy would have on that state's economy and other

municipalities.      See C.P. Gillette, Fiscal Federalism, Political

Will, and Strategic Use of Municipal Bankruptcy, 79 U. Chi. L. Rev.

281, 302-08 (2012) (explaining the problem of "debt contagion").

But allowing state municipalities to bypass the state and seek

federal Chapter 9 relief would undermine a state's ability to do

so.       See id. at 285-86.   In this way, the state-authorization

      7
          This is the historical gloss given by courts and
commentators alike because the Bekins Court declined to follow
Ashton but without expressly overruling it. See Bekins, 304 U.S.
at 49-54; see, e.g., In re Jefferson Cnty., Ala., 469 B.R. 92, 99
(N.D. Ala. 2012); McConnell & Picker, 60 U. Chi. L. Rev. at 452-53.
A similar state-authorization requirement had been present in the
original municipal bankruptcy act that the Court struck down in
Ashton, but the Bekins Court recognized that state consent
alleviates a potential "constitutional obstacle . . . in the right
of the State to prevent a municipality from seeking bankruptcy
protection," and makes the federal scheme a cooperative endeavor.
See McConnell & Picker, 60 U. Chi. L. Rev. at 452-53 (discussing
the cases and changes to the Act made in the interim between them);
see also Bekins, 304 U.S. at 49-54.

                                  -12-
requirement not only addresses constitutional difficulties by

making Chapter 9 a "cooperati[ve]" state-federal scheme, Bekins,
304 U.S. at 49-54, it also promotes state sovereignty by preventing

municipalities from strategically seeking (or threatening to seek)

federal municipal relief to "reduce the conditions that states

place on a proposed bailout," Gillette, 79 U. Chi. L. Rev. at 285-

86.

B.        Puerto Rico Municipalities Under the Code: 1938-1984

          Puerto Rico was granted the authority to issue bonds, and

to authorize its municipalities to issue bonds, in 1917.8   See Act

      8
        The authorizing act also created Puerto Rico's "triple tax-
exempt" status by prohibiting federal, state, and local taxation of
Puerto Rico's municipal bonds. See Act of Mar. 2, 1917, ch. 145,
§ 3, 39 Stat. at 953 (codified as amended at 48 U.S.C. § 745).
This provision has not been amended since 1961, when limits on the
amount of municipal debt that could be issued (as a percentage of
the municipalities' property valuation) were removed, subject to
approval by a vote in the Commonwealth. See Joint Resolution of
Aug. 3, 1961, Pub. L. No. 87-121, sec. 1, § 3, 75 Stat. 245.
     But Puerto Rico's status in this respect is not entirely
remarkable. State and local bonds have enjoyed federal tax-exempt
status "since the modern income tax system was enacted in 1913."
Nat'l Assoc. of Bond Lawyers, Tax-Exempt Bonds: Their Importance to
the National Economy and to State and Local Governments 5 (Sept.
2012) ("Tax-Exempt Bonds"); see also 26 U.S.C. § 103. The main
difference is that states and local governments may not tax Puerto
Rico municipal bonds, though they may tax their own or other
states' municipal bonds.     See T. Chin, Puerto Rico's Possible
Statehood Could Affect Triple Tax-Exempt Status, 121 The Bond Buyer
No. 213 (Nov. 5, 2012); see also Tax-Exempt Bonds, supra, at 5
(explaining that, until 1988, "the tax-exempt status of interest on
state and local government bonds also was believed to be
constitutionally protected under the doctrine of intergovernmental
immunities"); Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429,
583-86 (1895), modified, 158 U.S. 601 (1895), overruled in part by
U.S. Const. amend. XVI, South Carolina v. Baker, 485 U.S. 505, 515-
27 (1988).

                               -13-
of Mar. 2, 1917, ch. 145, § 3, 39 Stat. 951, 953 (codified as

amended at 48 U.S.C. § 741).          Like municipalities of a state, a

municipality in Puerto Rico is excluded from bankruptcy relief

under the Code's other chapters if it becomes unable to meet these

bond obligations.        See, e.g., 11 U.S.C. § 109; cf. McConnell &

Picker, 60 U. Chi. L. Rev. at 426-50 (explaining the obstacles to

treating municipal insolvency like corporate insolvency).          And, at

least from 1938 until the modern Bankruptcy Code was introduced in

1978,       Puerto   Rico,   like   the   states,   could   authorize   its

municipalities to obtain federal municipal bankruptcy relief.9

See 11 U.S.C. §§ 1(29), 403(e)(6) (1938); 48 U.S.C. § 734 (1934);

Bekins, 304 U.S. at 49; accord 11 U.S.C. §§ 1(29), 404 (1976); 48

U.S.C. § 734 (1976); see also S.J. Lubben, Puerto Rico and the

Bankruptcy Clause, 88 Am. Bankr. L.J. 553, 572 (2014).                  And

        9
         From 1938 until the modern Code's enactment, state
authorization was required for plan confirmation. See Act of Aug.
16, 1937, Pub. L. No. 302, ch. 657, sec. 83(e)(6), 50 Stat. 653,
658 (codified at 11 U.S.C. § 403(e)(6) (1937) (conditioning
confirmation of a plan on, inter alia, petitioner being "authorized
by law to take all action necessary to be taken by it to carry out
the plan")); Bekins, 304 U.S. at 49 (holding that "law" in
§ 403(e)(6) refers to "state" law); accord 11 U.S.C. § 404 (1976).
Puerto Rico's power to provide this authorization to its
municipalities follows from two other statutory provisions: the
Bankruptcy Act's definition of "State," in effect from 1938 to
1978, which defined "State" to include "the Territories and
possessions to which this Act is or may hereafter be applicable,"
Act of June 22, 1938, Pub. L. No. 696, ch. 575, § 1(29), 52 Stat.
840, 842 (codified at 11 U.S.C. § 1(29) (1938)); accord 11 U.S.C.
§ 1(29) (1976); and the extension of United States laws to Puerto
Rico "except as . . . otherwise provided," in effect from 1917 to
the present, 48 U.S.C. § 734. See also S.J. Lubben, Puerto Rico
and the Bankruptcy Clause, 88 Am. Bankr. L.J. 553, 572 (2014).

                                     -14-
although the modern Code omitted a definition of the term "State"

from its enactment in 1978 until it was re-introduced in 1984, most

commentators agree that this did not affect Puerto Rico's ability

during that time to provide its municipalities authorization.10

See, e.g., Lubben, 88 Am. Bankr. L.J. at 572-73 & n.125; An Act to

Establish a Uniform Law on the Subject of Bankruptcies ("Bankruptcy

Reform Act of 1978"), Pub. L. No. 95-598, 92 Stat. 2549 (1978)

     10
         The omission of a definition of "State" from the modern
Bankruptcy Code was recognized as an error almost as soon as the
modern Code was enacted. See Lubben, 88 Am. Bankr. L.J. at 573-75.
Most assumed that the Code would still apply to Puerto Rico
because, despite the significant substantive and procedural changes
that the Code made to pre-Code law, those changes were tangential
to the continued applicability of the federal bankruptcy law to
Puerto Rico. See, e.g., id. at 572-73 & n.125; see also In re
Segarra, 14 B.R. 870, 872-73 (D.P.R. 1981) (finding nothing that
"would indicate that anyone in the vast bureaucracy of the federal
government has had the slightest doubt that Congress did not intend
the Bankruptcy Code to extend to Puerto Rico"); cf. Cohen, 523 U.S.
at 221-22 (explaining that the Code is not to be construed "to
erode past bankruptcy practice absent a clear indication that
Congress intended such a departure"); Wellness Int'l Network, Ltd.
v. Sharif, 135 S. Ct. 1932, 1939 (2015) (describing the Code's
expansion of power given to courts adjudicating bankruptcy cases).
     Even so, this omission and others in the Code's early years
led to at least some ambiguity about the Code's applicability to
Puerto Rico. See Lubben, 88 Am. Bankr. L.J. at 572-73 & n.125
(explaining this was because both the definition of "State" and
that of "United States" were absent in the original 1978 Code); see
also In re Segarra, 14 B.R. at 872-73 (holding that the Code
applied to Puerto Rico under 48 U.S.C. § 734). In addition to the
general ambiguity about the applicability of the Code, in its
entirety, to Puerto Rico, the applicability of Chapter 9 relief in
particular was "further confused" by the inclusion of a definition
for "governmental unit" that referenced both "State" and
"Commonwealth" separately. Lubben, 88 Am. Bankr. L.J. at 572-73
n.125; An Act to Establish a Uniform Law on the Subject of
Bankruptcies ("Bankruptcy Reform Act of 1978"), Pub. L. No. 95-598,
§ 101(21), 92 Stat. 2549, 2552 (1978) (codified as amended at 11
U.S.C. § 101(27)).

                               -15-
(codified as amended at 11 U.S.C. §§ 101 et seq.); see also Cohen,
523 U.S. at 221-22; In re Segarra, 14 B.R. 870, 872-73 (D.P.R.

1981).

            This changed in 1984, when Congress re-introduced a

definition of "State" to the Code.11        Bankruptcy Amendments and

Federal Judgeship Act of 1984, sec. 421(j)(6), § 101(44), 98 Stat.

at 368-69 (codified as amended at 11 U.S.C. § 101(52)).         This 1984

amendment   is   key   to   this   case.   Like   previous   definitions,

§ 101(52) defines "State" to "include[] . . . Puerto Rico."          But

importantly, and unlike previous versions of the definition, the

re-introduced definition of "State" includes Puerto Rico "except

for the purpose of defining who may be a debtor under chapter 9 of

[the Bankruptcy Code]."12      11 U.S.C. § 101(52) (emphasis added).

     11
        Correcting the Code's omission of this definition was one
of many changes made. Indeed, the primary purpose of the Act was
entirely unrelated: Congress enacted the Bankruptcy Amendments and
Federal Judgeship Act of 1984 in large part to "respond[]" to the
Court's decision in Northern Pipeline Construction Co. v. Marathon
Pipe Line Co., 458 U.S. 50 (1982), which had held parts of the
Code's new system of bankruptcy courts and expanded bankruptcy
jurisdiction to be unconstitutional. See Wellness Int'l Network,
Ltd., 135 S. Ct. at 1939.
     12
         The new version, unlike previous versions, also excludes
the District of Columbia from the definition of "State" for
purposes of defining Chapter 9 debtors.        Compare 11 U.S.C.
§ 101(52), with Act of June 22, 1938, Pub. L. No. 696, ch. 575,
§ 1(29), 52 Stat. 840, 842.
     And, unlike the previous version, the other territories are
not expressly included for any purpose. 11 U.S.C. § 101(52). Only
two definitions in § 101 refer to "territories": subsection (27),
defining "governmental unit," and subsection (55), defining the
geographical scope of the "United States." See 11 U.S.C. § 101(27)
("The term 'governmental unit' means United States; State;

                                    -16-
Compare id., with Act of June 22, 1938, Pub. L. No. 696, ch. 575,

§ 1(29), 52 Stat. 840, 842.        As a result of this exception, Puerto

Rico municipalities became expressly (though indirectly) forbidden

from filing under Chapter 9 absent further congressional action:

the   change   deprived   Puerto    Rico    of   the   power   to   grant   its

municipalities the authorization required by § 109(c)(2) to file

for Chapter 9 relief.     See 11 U.S.C. § 109(c) (defining who may be

a Chapter 9 debtor).      The two sides to this controversy dispute

whether this change was also meant to transform the preemption

provision of § 903(1) without Congress expressly saying so.

C.         The Recovery Act: Puerto Rico's Stated Attempt to "Fill
           the Gap"

           Facing a fiscal crisis and lacking the power to authorize

its municipalities to seek Chapter 9 relief, the Commonwealth

enacted the Recovery Act in June 2014, to take effect immediately.

Somewhat modeled after Chapter 9, but with significant differences,

the Recovery Act "establish[ed] a debt enforcement, recovery, and

restructuring    regime   for   the    public     corporations      and   other

Commonwealth; District; Territory; municipality; foreign state;
department, agency, or instrumentality of the United States . . . ,
a State, a Commonwealth, a District, a Territory, a municipality,
or a foreign state; or other foreign or domestic government."); 11
U.S.C. § 101(55) ("The term 'United States', when used in a
geographical sense, includes all locations where the judicial
jurisdiction of the United States extends, including territories
and possessions of the United States."); cf. 11 U.S.C. § 109(a)
("Notwithstanding any other provision of this section, only a
person that resides or has a domicile, a place of business, or
property in the United States, or a municipality, may be a debtor
under this title.").

                                     -17-
instrumentalities of the Commonwealth of Puerto Rico during an

economic emergency."        Recovery Act, Preamble (translation provided

by the parties); id., Stmt. of Motives, § E.            In particular, the

Act was intended to ameliorate the fiscal situations of several

distressed Puerto Rican public corporations whose combined deficit

in 2013 totaled $800 million, and whose combined debt reaches $20

billion: PREPA, the Aqueduct and Sewer Authority ("PRASA"), and the

Highways and Transportation Authority ("PRHTA").             Id., Stmt. of

Motives, § A.

           The Recovery Act provides two methods for restructuring

debt: Chapter 2 "Consensual Debt Relief," and Chapter 3 "Debt

Enforcement."    Id., Preamble.     Although defendants say these serve

as a substitute for Chapter 9, both Chapter 2 and Chapter 3 relief

under the Recovery Act appear to provide less protection for

creditors than the federal Chapter 9 counterpart.                  See   L.S.

McGowen, Puerto Rico Adopts a Debt Recovery Act for Its Public

Corporations, 10 Pratt's J. Bankr. L. 453, 460-62 (2014).            This is

one form of harm that plaintiffs say the Recovery Act has caused

them.

           For example, Chapter 2 relief under the Recovery Act

purports   to   offer   a    "consensual    debt   modification   procedure"

leading to a recovery plan that would only become binding "with the

consent of a supermajority" of creditors.           Recovery Act, Stmt. of

Motives, § E.     But this is belied by the provisions: Chapter 2

                                     -18-
permits a binding modification, including debt reduction, to a

class of debt instruments with the assent of creditors holding just

over one-third of the affected debt.13        Id. § 202(d)(2); see also

id., Stmt. of Motives, § E.       There is no analogous "consensual

procedure" under federal law.

          Chapter   3   relief,   on    the   other   hand,   is   a   court-

supervised process designed to mirror, in some ways, Chapter 9 and

Chapter 11 of the federal Code.        Id., Stmt. of Motives, § E.        But

while Chapter 3 debtors, like federal Chapter 9 debtors, may avoid

certain contractual claims, protections for creditors are again

reduced. Compare, e.g., id. §§ 325, 326, with 11 U.S.C. §§ 365(e),

901(a); see also McGowen, 10 Pratt's J. Bankr. L. at 461.                 For

example, unlike in the federal Code, the Recovery Act does not

provide a "safe harbor" for derivative contracts. Compare Recovery

Act, § 325(a), with 11 U.S.C. § 365(e); see also Recovery Act,

§ 205(c); McGowen, 10 Pratt's J. Bankr. L. at 461.

          Municipalities that the Commonwealth may not authorize

for federal Chapter 9 relief are nonetheless purportedly made

eligible by the Recovery Act to seek both Chapter 2 and 3 relief,

either simultaneously or sequentially, with approval from the GDB.

     13
         Specifically, a proposed modification becomes binding on
all creditors within a class of affected debt instruments if (1)
creditors of at least 50% of the amount of debt in that class
participate in a vote or consent solicitation; and (2) creditors of
at least 75% of the amount of debt that participates in the vote or
consent solicitation approves the proposed modifications. Recovery
Act, § 202(d)(2).

                                  -19-
Recovery Act, §§ 112, 201(b), 301(a). Unlike the federal Code, the

Recovery Act also expressly permits the Governor to institute an

involuntary proceeding if the GDB determines that doing so is in

the   best    interest   of    both    the   distressed   entity    and   the

Commonwealth.14     Recovery Act, §§ 201(b)(2), 301(a)(2).

             Plaintiffs argue that the very enactment of these and

other provisions cause them harm in several ways: by denying them

the protection for which they bargained under the Trust Agreement,

by denying them the protection to which they would be entitled

under federal relief, and by injecting uncertainty into the bond

market that reduces their bargaining position to address pending

default.      See   McGowen,    10    Pratt's   J.   Bankr.   L.   at   460-61

(discussing other examples, including the lack of protection for

holders of liens on revenue should the municipality need to obtain

credit to perform public functions).

      14
         The federal Code does not permit involuntary Chapter 9
proceedings brought by creditors, see 11 U.S.C. § 303(a) (limiting
involuntary petitions to cases under Chapter 7 or 11), and does not
expressly address whether states may institute these quasi-
involuntary proceedings on behalf of their municipalities.       At
least one commentator has suggested that states are prohibited from
doing so by § 109(c)(4), which requires that a potential municipal
debtor "desire[] to effect a plan to adjust such debts."        See
Gillette, 79 U. Chi. L. Rev. at 297.
     By contrast, the Recovery Act similarly precludes involuntary
proceedings brought by creditors, Recovery Act, § 301(c), but
expressly allows these quasi-involuntary proceedings to be
initiated by the government, see id. § 301(a)(2).

                                      -20-
                                    III.

A.        Jurisdiction

          We have appellate jurisdiction over the final judgment

granting summary judgment and issuing a permanent injunction in

favor of the Franklin plaintiffs under 28 U.S.C. § 1291.            We have

appellate jurisdiction over the injunction issued in favor of

BlueMountain under 28 U.S.C. § 1292(a)(1).15       Because we affirm the

preemption ruling and attendant injunction, we decline to exercise

jurisdiction   over   defendants'    appeal   of   the   district   court's

February 6, 2015 order denying the motions to dismiss the surviving

Contracts Clause and Takings Claims.       Cf. First Med. Health Plan,

Inc. v. Vega-Ramos, 479 F.3d 46, 50 (1st Cir. 2007) (discussing an

exception to the general rule that denials of 12(b)(6) motions to

dismiss are interlocutory rulings outside the scope of appellate

jurisdiction).16

     15
         This difference is an odd quirk of the procedure below:
BlueMountain never moved for summary judgment, and so there is no
final judgment from which to appeal, only the injunction from the
order dated February 6, 2015.
     16
         The defendants challenged the ripeness of the relevant
claims before the district court, but not on appeal. "[A]lthough
[they] do not press this issue on appeal, it concerns our
jurisdiction under Article III, so we must consider the question on
our own initiative." Metro. Wash. Airports Auth. v. Citizens for
the Abatement of Aircraft Noise, Inc., 501 U.S. 252, 265 n.13
(1991) (citing Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 740
(1976)).
     We conclude that the defendants were correct in conceding
ripeness: The plaintiffs allege that the Recovery Act itself
impairs the terms of the agreements governing the PREPA bonds.
Compare, e.g., Authority Act, P.R. Laws Ann. tit. 22, § 207

                                    -21-
B.           Preemption under § 903(1)

             Puerto Rico may not enact its own municipal bankruptcy

laws to cover the purported gap created by the 1984 amendment if

such laws are preempted by the federal Bankruptcy Code.                   U.S.

Const. art. VI, cl. 2; CSX Transp., Inc. v. Easterwood, 507 U.S.
658, 663 (1993).      Thus, the issue on this appeal is whether 11

U.S.C.   §   903(1)   preempts    Puerto   Rico   from   enacting   its   own

municipal bankruptcy law.        Our answer to that question is largely

driven by examining whether the 1984 amendment adding § 101(52)

(providing for a court-appointed receiver in event of default);
Trust Agreement, § 804 (permitting U.S. Bank National Association
to seek court-appointed receiver pursuant to the Authority Act),
with Recovery Act, § 108(b) ("This Act supersedes and annuls any
insolvency or custodian provision included in the enabling or other
act of any public corporation, including [Authority Act, P.R. Laws
Ann. tit. 22, § 207] . . . ."). That is, plaintiffs allege that
the very enactment of the Recovery Act, rather than the manner of
enforcement, impairs their contractual rights -- allegations that
present purely legal issues or factual issues controlled by past
events. Accordingly, the outcome of the case cannot be affected by
subsequent events (except to be mooted), and so these issues
satisfy the "fitness" prong of our ripeness inquiry. See Roman
Catholic Bishop of Springfield v. City of Springfield, 724 F.3d 78,
89-93 (1st Cir. 2013). And because "the sought-after declaration"
on the surviving Contracts Clause and preemption claims "would be
of practical assistance in setting the underlying controversy to
rest," a refusal to grant relief would result in hardship to the
parties. See Rhode Island v. Narragansett Indian Tribe, 19 F.3d
685, 693 (1st Cir. 1994). This claim is ripe for review. See
Mass. Delivery Ass'n v. Coakley, 769 F.3d 11, 16-17 (1st Cir. 2014)
("Basically, the question in each case is whether 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." (quoting MedImmune, Inc. v.
Genentech, Inc., 549 U.S. 118, 127 (2007)) (internal quotation
marks omitted)).

                                    -22-
altered § 903(1)'s effect.   See Dewsnup v. Timm, 502 U.S. 410, 419

(1992) ("When Congress amends the bankruptcy laws, it does not

write 'on a clean slate.'" (quoting Emil v. Hanley (In re John M.

Russell, Inc.), 318 U.S. 515, 521 (1943))); CSX Transp., 507 U.S.

at 663-64 ("Where a state statute conflicts with, or frustrates,

federal law, the former must give way.").   Our review is de novo.

Mass. Delivery Ass'n v. Coakley, 769 F.3d 11, 17 (1st Cir. 2014)

(citing DiFiore v. Am. Airlines, Inc., 646 F.3d 81, 85 (1st Cir.

2011)).

          Whether a federal law preempts a state law "is a question

of congressional intent."    Hawaiian Airlines, Inc. v. Norris, 512
U.S. 246, 252 (1994).   We begin with the statutory language, which

often "contains the best evidence of Congress' pre-emptive intent."

Mass. Delivery Ass'n, 769 F.3d at 17 (quoting Dan's City Used Cars,

Inc. v. Pelkey, 133 S. Ct. 1769, 1778 (2013)) (internal quotation

marks omitted).   We also consider "the clause's purpose, history,

and the surrounding statutory scheme."   Id.

          The relevant provision, § 903(1), states in full: "a

State law prescribing a method of composition of indebtedness of

such municipality may not bind any creditor that does not consent

                                -23-
to such composition." 11 U.S.C. § 903(1).17 This provision, by its

plain language, bars a state law like the Recovery Act.

             There is no disputing that the Recovery Act is a "law

prescribing a method of composition of indebtedness" of eligible

Puerto Rico municipalities that may "bind" said municipalities'

creditors without those creditors' "consent." And, because "State"

is defined to include Puerto Rico under § 101(52), the Recovery Act

is a "State law" that does so.      But this, under § 903(1), Puerto

Rico "may not" do, and so we hold that the Recovery Act is

preempted.     Compare 11 U.S.C. § 903(1) ("[A] State law . . . may

not bind any creditor that does not consent . . . ." (emphasis

added)), with 49 U.S.C. § 14501(c)(1) ("[A] State . . . may not

enact or enforce a law . . . related to a price, route, or

service . . . ." (emphasis added)); Dan's City, 133 S. Ct. at 1778

     17
          This provision appears in § 903, which reads in full:

          This chapter does not limit or impair the power of
     a State to control, by legislation or otherwise, a
     municipality of or in such State in the exercise of the
     political or governmental powers of such municipality,
     including expenditures for such exercise, but--

             (1) a State law prescribing a method of composition
             of indebtedness of such municipality may not bind
             any creditor that does not consent to such
             composition; and

             (2) a judgment entered under such a law may not
             bind a creditor that does not consent to such
             composition.

                                 -24-
(noting that this language in § 14501(c)(1) "prohibits enforcement

of state laws 'related to a price, route or service . . . .'").

               The context and history of this provision confirm this

construction      --   that   this   provision    was   intended    to   have   a

preemptive effect.       Cf. Dan's City, 133 S. Ct. at 1778; Cohen, 523
U.S.    at     221.    Context   and    history    also   confirm    that   our

construction is consistent with the previous constructions of this

provision, and so, absent clear congressional intention to modify

the bankruptcy law, we "will not read the Bankruptcy Code to erode

past bankruptcy practice."           Cohen, 523 U.S. at 221 (citation and

internal quotation marks omitted); see also Dewsnup, 502 U.S. at

419 ("When Congress amends the bankruptcy laws, it does not write

'on a clean slate.'" (quoting Emil, 318 U.S. at 521)).

               The Code, at § 903(1), "is derived, with stylistic

changes, from" its precursor, Section 83(i). S. Rep. No. 95-989 at

110.        The legislative history reveals, and the parties do not

dispute, that the purpose of Section 83(i) was to overrule an early

Supreme Court decision which had upheld a state law permitting the

adjustment of municipal debt if the city and 85% of creditors

agreed.      See Faitoute Iron & Steel Co. v. City of Asbury Park, 316
U.S. 502, 504, 513-16 (1942).18         Before Faitoute, most had assumed

       18
        The GDB defendants, at oral argument, presented a strained
reading of the manner in which Section 83(i) overruled Faitoute.
They argued that the sole purpose of Congress in overruling
Faitoute was to allow municipalities to convert to federal
proceedings those state municipal bankruptcy proceedings that, like

                                       -25-
that states could not themselves address the holdout problem that

municipal bankruptcy relief is designed to resolve because they

were barred from adjusting debt obligations (without all creditors'

consent) under the Contracts Clause. See McConnell & Picker, 60 U.

Chi. L. Rev. at 452-54.

           Congress enacted Section 83(i) to restore what had been

believed to be the pre-Faitoute status quo by expressly prohibiting

state municipal bankruptcy laws adjusting creditors' debts without

their consent.19   See, e.g., H.R. Rep. No. 79-2246, at 4 (1946)

("State   adjustment   acts   have   been   held   to   be   valid,   but

. . . . [o]nly under a Federal law should a creditor be forced to

accept such an adjustment without his consent." (emphasis added)).

And Congress sought to preserve Section 83(i) when it re-codified

the one in Faitoute, had arisen in the absence of a federal
municipal bankruptcy regime from 1933-1937. We do not share this
limited reading of Faitoute, which also does not comport with
either the legislative history or the scholarship on the subject.
     19
          The full text of Section 83(i) as enacted in 1946 reads:

     Nothing contained in this chapter shall be construed to
     limit or impair the power of any State to control, by
     legislation or otherwise, any municipality or any
     political subdivision of or in such State . . . Provided,
     however, That no State law prescribing a method of
     composition of indebtedness of such agencies shall be
     binding upon any creditor who does not consent to such
     composition, and no judgment shall be entered under such
     State law which would bind a creditor to such composition
     without his consent.

Act of July 1, 1946, Pub. L. No. 481, ch. 532, sec. 83(i), 60 Stat.
409, 415.

                                 -26-
the section as § 903(1) in 1978.      See S. Rep. No. 95-989 at 110

(noting that this was necessary to maintain the uniformity of the

bankruptcy laws by preventing states from "'enact[ing] their own

versions of Chapter IX'" (quoting L.P. King, Municipal Insolvency:

Chapter IX, Old and New; Chapter IX Rules, 50 Am. Bankr. L.J. 55,

65 (1976))); cf. Kellogg, 135 S. Ct. at 1977 (explaining that

retention of language indicates absence of alteration).20

          These provisions on their face barred Puerto Rico and the

Territories, just as they did the states, from enacting their own

versions of Chapter 9 creditor debt adjustment.    From the time of

its enactment in 1946, Section 83(i)'s prohibition on "State law[s]

prescribing a method of composition of indebtedness" expressly

applied to Puerto Rico law because "State" had been defined to

include the "Territories and possessions," like Puerto Rico, to

which the Bankruptcy Act was applicable. See Act of June 22, 1938,

     20
        The Senate notes concerning the enactment of § 903 explain
in relevant part:

     Section 903 is derived, with stylistic changes, from
     section 83 of current Chapter IX.     It sets forth the
     primary authority of a State, through its constitution,
     laws, and other powers, over its municipalities. The
     proviso in section 83, prohibiting State composition
     procedures for municipalities, is retained. Deletion of
     the provision would "permit all States to enact their own
     versions of Chapter IX", Municipal Insolvency, 50 Am.
     Bankr. L.J. 55, 65, which would frustrate the
     constitutional mandate of uniform bankruptcy laws.
     Constitution of the United States. Art. I, Sec. 8.

S. Rep. No. 95-989 at 110.

                               -27-
Pub. L. No. 696, ch. 575, § 1(29), 52 Stat. at 842 (defining

"States"); Act of July 1, 1946, Pub. L. No. 481, ch. 532, sec.

83(i), 60 Stat. 409, 415 (prohibiting "State law[s] prescribing a

method of composition of indebtedness"); Act of Mar. 2, 1917,

ch. 145, § 9, 39 Stat. 951, 954 (codified as amended at 48 U.S.C.

§ 734) ("[T]he statutory laws of the United States not locally

inapplicable, except as . . . otherwise provided, shall have the

same force and effect in Porto Rico as in the United States

. . . .").

             The re-codification of this provision, § 903(1), must

continue to apply to Puerto Rico because there is no evidence of

express modification by Congress. See Dewsnup, 502 U.S. at 419-20.

The mere absence of a definition of "state" in the Code from 1978

until the 1984 amendment does not provide such evidence, nor does

the legislative history.21       Cf. id.    "Fundamental changes in the

scope of a statute are not typically accomplished with so subtle a

move."    Kellogg,    135   S.   Ct.   at   1977   (declining   to   find   a

significant change to a statute based on the removal of a small

phrase while retaining the operative language).

     21
         If anything, the legislative history suggests that the
missing definition was a mistake, and so no alteration of
§ 903(1)'s or the rest of the Code's applicability to Puerto Rico
was intended. See Lubben, 88 Am. Bankr. L.J. at 573 (explaining
that adding a definition of "State" was among the proposed 1979
amendments "to 'clean up' errors in the original 1978 Code").

                                   -28-
          There is little doubt that § 903(1) would have pre-empted

the Recovery Act, save for the questions occasioned by the 1984

amendment at issue.    There is no disputing that the Recovery Act

was a "State law" under Section 83(i), and so too under § 903(1)

from 1978-1984.    And there is no disputing that the Recovery Act

binds creditors without their consent or that it is Puerto Rico's

"own version[] of Chapter [9]," such that it directly conflicts

with § 903(1)'s prohibition of such laws.22   S. Rep. No. 95-989 at

110; Recovery Act, Stmt. of Motives, § E; see CSX Transp., Inc.,
507 U.S. at 663 ("Where a state statute conflicts with . . .

federal law, the former must give way.").

          The question is whether the preemption provision of

§ 903(1) still applies in the face of the 1984 amendment.    We hold

that it does.     The addition of the definition of "State" in 1984

does not, by its text or its history, change the applicability of

§ 903(1) to Puerto Rico.23   11 U.S.C. § 101(52).   To the contrary,

     22
         For this reason, we need not address the exact scope of
this preemption under either Section 83(i) or § 903(1). Cf. Dan's
City, 133 S. Ct. at 1778 (noting that when "Congress has superseded
state legislation by statute," the only task remaining is to
"identify the domain expressly pre-empted" (quoting Lorillard
Tobacco Co. v. Reilly, 533 U.S. 525, 541 (2001)) (internal
quotation marks omitted)).
     23
        The parties agree that there is nothing in the legislative
history directly indicating a change to § 903(1), only a change to
§ 109(c). Amici bankruptcy law experts, Clayton Gillette and David
Skeel, Jr., inform us that "almost the only reference to the new
definition in the legislative history came in testimony by
Professor Frank Kennedy . . . who stated: 'I do not understand why
the municipal corporations of Puerto Rico are denied by the

                                -29-
because § 903(1) does not define who may be a debtor under

Chapter 9, § 101(52) confirms that the "State law[s]" prohibited

include   those   of   Puerto   Rico,   as   has   always   been   the   case.

Cf. Dewsnup, 502 U.S. at 419 ("[T]his Court has been reluctant to

accept arguments that would interpret the Code . . . to effect a

major change in pre-Code practice that is not the subject of at

least some discussion in the legislative history."); Kellogg, 135
S. Ct. at 1977 ("The retention of the same term in the later laws

suggests that no fundamental alteration was intended.").                   If

Congress had wanted to alter the applicability of § 903(1) to

Puerto Rico, it "easily could have written" § 101(52) to exclude

Puerto Rico laws from the prohibition of § 903(1), just as it had

excluded Puerto Rico from the definition of debtor under § 109(c).

See Burgess v. United States, 553 U.S. 124, 130 (2008).                   But

Congress did not.

           The legislative history is silent as to the reason for

the exception set forth in the 1984 amendment.                One apparent

possibility concerns the different constitutional status of Puerto

Rico.     Because of this different status, the limitations on

Congress's ability to address municipal insolvency in the states

proposed definition of 'State' of the right to seek relief under
Chapter 9, but the addition of the definition of 'State' is
useful.'"   Brief for C.P. Gillette & D.A. Skeel, Jr., as Amici
Curiae Supporting Defendants-Appellants, at *8; see also Lubben, 88
Am. Bankr. L.J. at 575 (noting that the exception in § 101(52) says
"nothing about how the word 'State' should be interpreted in
section 903").

                                   -30-
discussed above are not directly applicable to Puerto Rico. United

States v. Rivera Torres, 826 F.2d 151, 154 (1st Cir. 1987); see

also Harris v. Rosario, 446 U.S. 651, 651-52 (1980) (per curiam).

Accordingly, Congress may wish to adopt other -- and possibly

better   --    options   to   address    the   insolvency   of   Puerto    Rico

municipalities that are not available to it when addressing similar

problems in the states.        See Rivera Torres, 826 F.2d at 154; cf.

McConnell & Picker, 60 U. Chi. L. Rev. at 494-95 (arguing that

because Chapter 9 "leaves control in the hands of the state" and

because "[t]he bankruptcy court lacks the powers typically given to

state municipal receivers," "[t]he structure for making decisions

that led to financial problems continues").

              Our construction is consistent with a congressional

choice to exercise such other options "pursuant to the plenary

powers conferred by the Territorial Clause."            Rivera Torres, 826
F.2d at 154.      If Puerto Rico could determine the availability of

Chapter 9 for Puerto Rico municipalities, that might undermine

Congress's ability to do so.       Cf. Gillette, 79 U. Chi. L. Rev. at

285-86 (discussing the strategic use of municipal bankruptcy relief

to avoid other solutions).              Similarly, Congress's ability to

exercise such other options would also be undermined if Puerto Rico

could fashion its own municipal bankruptcy relief.               Cf. id.   The

                                    -31-
1984 amendment ensures that these options remain open to Congress

by denying Puerto Rico the power to do either.24 Cf. id.

     24
         Defendants argue that we should not construe § 903(1) to
continue to apply to Puerto Rico after the 1984 amendment because
to do so creates a "no-man's land" that Congress did not intend and
could not have created. We disagree both as to Congress's intent
and as to whether a no-man's land is created. Our construction
does not create one, because congressional retention of authority
is not the same as a no-man's land. Further, defendants' argument
fails in any event.
     First, defendants' reliance on a congressional report stating
that it was "not prepared to admit that the situation presents a
legislative no-man's land" reveals nothing about Congress's intent
in enacting § 101(52). Bekins, 304 U.S. at 51 (quoting H.R. Rep.
No. 75-517, at 3 (1937)).        Congress, in making the quoted
statement, was concerned not with a lack of laws, but a lack of
constitutional authority. That statement, made in the wake of the
first municipal bankruptcy law's demise in Ashton, rejects the view
that creation of a federal municipal bankruptcy regime was
constitutionally impossible. See Bekins, 304 U.S. at 51-54; cf.
Ashton, 298 U.S. at 530-32.        Accordingly, the statement is
inapposite; Congress's stated rejection of a legislative no-man's
land and assertion of authority is entirely consistent with
intending to retain that authority in deciding how to address
municipal insolvency in Puerto Rico.
     Second, any reliance on Guss v. Utah Labor Relations Board,
353 U.S. 1 (1957), is misplaced. Far from creating a rule against
the creation of a no-man's land -- here, understood as the absence
of laws providing relief -- the Supreme Court held that where
"Congress' power in the area . . . is plenary, its judgment must be
respected whatever policy objections there may be to [the] creation
of a no-man's-land." Id. at 11.
     The Court's reasoning in Guss is fully applicable here:
Congress, through the provisions of § 109(c)(2) and § 903,
"demonstrated that it knew how to cede jurisdiction to the states"
and "demonstrated its ability to spell out with particularity those
areas in which it desired state regulation to be operative." Guss,
353 U.S. at 9-10 (citation and internal quotation marks omitted).
It prohibited states from enacting municipal insolvency laws that
would "bind any creditor that does not consent," but not from
devising other solutions or from controlling whether their
municipalities could access a federal alternative.       11 U.S.C.
§§ 109(c)(2), 903. Guss therefore supports our conclusion that
"Congress has expressed its judgment" to retain its own authority
by denying to Puerto Rico both the power to choose Chapter 9 relief

                               -32-
C.             The Defendants' Creative But Unsound And Unsuccessful
               Alternative Readings

               Our construction follows straightforwardly from the plain

text and is confirmed by both statutory history and legislative

history.   Nonetheless, the defendants object to it on two grounds.

               First, they offer a novel argument in light of the

Bankruptcy Code's definition of "creditor" that the provision only

applies to creditors of entities who have or could have filed for

Chapter    9    relief:   because   Puerto   Rico   cannot    authorize   its

municipalities       to   become    "debtors,"      those    municipalities'

bondholders cannot be "creditors," and so the Recovery Act does not

bind "creditors" in violation of § 903(1).             That is, defendants

argue that Congress, without saying so, did indirectly what it

could have easily done directly but did not.

and to enact its own version thereof. Guss, 353 U.S. at 10-11.
Because "Congress' power" over Puerto Rico "is plenary," the
Supreme Court dictates that Congress' "judgment [in this regard]
must be respected." Id.; Rivera Torres, 826 F.2d at 154.
     In any event, these cases do not provide a reason to construe
the statute differently. However remarkable a no-man's land might
be, assuming dubitante that there is one under our construction, it
would be even more remarkable to find that Congress decided to
abandon -- without comment and through a definition -- its forty-
year old prohibition on local insolvency laws that bind creditors
without their consent. See Cohen, 523 U.S. at 221-22. The former
can at least be reconciled with congressional purpose to retain its
authority, and, if the literature on incentives is correct, may
have been the only way for Congress to do so efficaciously. Cf.
Gillette, 79 U. Chi. L. Rev. at 285-86.      Unlike defendants, we
cannot "ignore[] [this] more plausible explanation" of Congress's
decision. Kellogg, 135 S. Ct. at 1977-78.

                                     -33-
           Second, they make a structural argument that § 903(1)

cannot apply to Puerto Rico because Chapter 9, of which § 903(1) is

a part, does not apply to Puerto Rico.

           Neither attempt succeeds.     If Congress had wanted to

exclude Puerto Rico from § 903(1), it would have done so directly

without relying on the creativity of parties arguing before the

courts.   Cf. Kellogg, 135 S. Ct. at 1977 ("If Congress had meant to

make such a change, we would expect it to have used language that

made this important modification clear to litigants and courts.").

Instead, as discussed above, Congress did the opposite.

           1.     Who May Be "Creditors" under § 903(1)

           Ignoring other language in the Code, the defendants'

first argument begins by observing that the Bankruptcy Code defines

"creditor" in relation to "debtor."        11 U.S.C. § 101(10)(A)

(defining "creditor" as an "entity that has a claim against the

debtor that arose at the time of or before the order for relief

concerning the debtor").25   But a "debtor" is defined as a "person

or municipality concerning which a case under [the Bankruptcy Code]

has been commenced."      11 U.S.C. § 101(13) (emphasis added).

Because Puerto Rico cannot authorize its municipalities to commence

"a case under [the Bankruptcy Code]," the argument goes, creditors

of Puerto Rico municipalities are not "creditors" within the

     25
         Subsections (B) and (C) of § 101(10) provide additional
definitions of "creditor" not relevant here.

                                -34-
meaning of § 101(10)(A), and so the Recovery Act does not bind

"creditors" without their consent in violation of § 903(1).

          This argument ignores congressional language choices, as

well as context, and proves too much.26     Although "'[s]tatutory

definitions control the meaning of statutory words . . . in the

usual case,'" Burgess, 553 U.S. at 129-30 (second alteration in

original) (quoting Lawson v. Suwannee Fruit & S.S. Co., 336 U.S.
198, 201 (1949)), we should not apply statutory definitions in a

manner that directly undermines the legislation, Philko Aviation,

Inc. v. Shacket, 462 U.S. 406, 411-12 (1983) (citing Lawson, 336
U.S. at 201).   But that is exactly what defendants ask us to do.27

     26
          The defendants are correct that their interpretation of
"creditor" would not, as the Franklin plaintiffs contend, "reduce
Section 903(1) to mere surplus." As Professors Gillette and Skeel
explain in their amici curiae brief, their construction of
§ 903(1), which limits "creditor" to the statutory definition,
makes clear that even though Chapter 9 does not infringe on the
power of states to manage their own municipalities,

     a State composition law could not be used to alter a
     creditor's claim against a municipality that has filed
     for Chapter 9[:] [a]ny prior or concurrent State law
     composition proceeding would be superseded pursuant to
     section 903(1) [upon filing], and any judgment previously
     obtained would be reopened under section 903(2).

The difficulty is that the Professors' construction cannot be
squared with either the history of this provision, or the
legislative intent in enacting it, of barring states from enacting
their own municipal bankruptcy laws. To the contrary, it would
undermine the applicability of this provision to states.
     27
         Defendants attempt to escape this conclusion by arguing,
in the alternative, that "debtor" is a person against whom a claim
"has been [or could be] commenced," and so "creditors" are those
who have a claim against an entity eligible for Chapter 9 relief.

                               -35-
          Construing "creditor" in § 903(1) so narrowly would

undermine the stated purpose of the provision in prohibiting states

from "enact[ing] their own versions of Chapter [9]."    See S. Rep.

No. 95-989, at 110; H.R. Rep. No. 79-2246, at 4. Under defendants'

construction, any state could avoid the prohibition by denying its

municipalities authorization to file under § 109(c)(2). State laws

governing the adjustment of these municipalities' debts could not

then, on defendants' reading, "bind any creditor" because there

would be none: no case would "ha[ve] been commenced" concerning the

municipalities because no case could commence under § 109(c)(2).

          Nor does a reference to the changes in 1978 or 1984 make

this argument any more plausible.     The 1978 version similarly

defined "debtor" as a "person or municipality concerning which a

case under this title has been commenced," and "creditor" in

relation to a "debtor" against whom the creditor had a claim "that

arose at the time of or before the order for relief."   Bankruptcy

Reform Act of 1978, §§ 101(9), 101(12), 92 Stat. at 2550-51

(codified at 11 U.S.C. §§ 101(9), 101(12) (1977-1980)) (emphasis

added). Defendant's reading undermines the express purpose, stated

in 1978, of enacting § 903(1): to "prohibit[] State composition

procedures for municipalities." S. Rep. No. 95-989, at 110. If we

follow defendants' suggestion, then either Congress was directly

     There is no textual basis to do so. It is simply another
gesture at their structural argument, which we address next.

                               -36-
self-defeating in enacting this legislation in 1978, or else in

1984 made a stark and drastic change -- without comment and in "an

obscure way" -- to the law as previously enacted. Cf. Dewsnup, 502
U.S. at 419; Kellogg, 135 S. Ct. at 1977.      But "[a] statutory

definition should not be applied in such a manner."         Philko

Aviation, 462 U.S. at 412; see also Dewsnup, 502 U.S. at 419-20.

          Where statutory definitions give rise to such problems,

a term may be given its ordinary meaning.28   Philko Aviation, 462

     28
        The Code is replete with use of the term "creditor" in ways
not limited by the statutory definition on which defendants rely.
For example, § 502(a) uses creditor in a manner that is expressly
inconsistent with the statutory definition because "a creditor of
a general partner in a partnership that is a debtor" is not,
itself, a holder of a "claim against the debtor" and so not a
"creditor" under § 101(10)(A). See 11 U.S.C. § 502(a) ("A claim of
interest . . . is deemed allowed, unless a party in interest,
including a creditor of a general partner in a partnership that is
a debtor in a case under Chapter 7 . . . objects." (emphasis
added)).
     Similarly, § 101(12A)(C) also uses "creditor" in a manner that
is expressly inconsistent with § 101(10)(A). That provision, which
defines "debt relief agency" to be "any person who provides any
bankruptcy assistance to an assisted person . . . ," excludes "a
creditor of such an assisted person." 11 U.S.C. § 101(12A)(C).
But because an "assisted person" might never file for bankruptcy
(presumably one of the goals of the agency), an "assisted person"
might never become a debtor. "Creditor" here must have its plain
meaning.
     Following defendants' proffered strict construction would also
create mischief for other portions of § 109 itself. For example,
an entity may only be a Chapter 9 debtor if it has, inter alia,
"obtained the agreement of [certain] creditors," "negotiated in
good faith with creditors," or been "unable to negotiate with
creditors," or else "reasonably believes that a creditor may
attempt to obtain a[n] [avoidable] transfer."            11 U.S.C.
§ 109(c)(5). These requirements refer to the debtor's interactions
with its "creditors" before filing. But if we mechanically apply
the definitions in the manner suggested, we obtain an absurd
result: there would have been no creditors with whom to negotiate

                               -37-
U.S. at 411-12.     Doing so resolves the problem: a "creditor" is

simply "[o]ne to whom a debt is owed."29 Black's Law Dictionary 424

(9th ed. 2009). With this usage, states cannot escape the reach of

§   903(1),   in   all   or   specific   cases,   merely   by   denying

authorization.     And so Congress's stated purpose, of preventing

"States [from] enact[ing] their own versions of Chapter IX," is

fulfilled.    S. Rep. No. 95-989, at 110.

because "creditors" only exist once a suit "has been commenced,"
and so all potential debtors would automatically satisfy
§ 109(c)(5) under the "unable to negotiate with creditors" prong.
     The GDB defendants' argument that the district court erred by
ignoring the "order for relief" language in the definition of
creditor fails for similar reasons.       11 U.S.C. § 101(10)(A)
(defining "creditor" as an "entity that has a claim against the
debtor that arose at the time of or before the order for relief
concerning the debtor" (emphasis added)). GDB argues that PREPA's
creditors do not have claims that arose at or before "the order for
relief" because PREPA is ineligible to receive an "order for
relief."   But there may never be an "order for relief" if a
municipality fails to obtain agreement from, negotiate in good
faith with, or show it is unable to negotiate with "creditors." 11
U.S.C. §§ 109(c)(5)(A)-(D).      Indeed, other provisions of the
Bankruptcy Code that use the term "creditor" expressly contemplate
that there are "creditors" though there may never be an "order for
relief." See, e.g., 11 U.S.C. § 303(c) ("After the filing of a
petition . . . but before the case is dismissed or relief is
ordered, a creditor holding an unsecured claim . . . may join in
the petition . . . ." (emphasis added)).
     29
        This definition of "creditor" is essentially the same as
the prevailing definition when the prohibition was first enacted
and when it was re-codified.          See, e.g., Webster's New
International Dictionary of the English Language 621 (2d ed. 1941)
(defining "creditor" as "one to whom money is due"); Black's Law
Dictionary 476 (3d ed. 1933) (defining "creditor" as "[a] person to
whom a debt is owing by another person"); Webster's Third New
International Dictionary of the English Language 533 (3d ed. 1976)
(defining "creditor" as "one to whom money is due"); Black's Law
Dictionary 441 (rev. 4th ed. 1968) (essentially same as 1933
definition).

                                 -38-
            As     a    final     effort,    the       defendants     resort      to    the

presumption against preemption.                   See Antilles Cement Corp. v.

Fortuño, 670 F.3d 310, 323 (1st Cir. 2012).                    But "[p]reemption is

not a matter of semantics."               Wos v. E.M.A. ex rel. Johnson, 133

S.   Ct.   1391,       1398    (2013).      Puerto      Rico   "may   not       evade   the

preemptive    force       of    federal     law   by    resorting     to    a    creative

statutory interpretation or description at odds with the statute's

intended operation and effect."               Id.       This is particularly true

where, as here, the presumption is weak, if present at all.                             See

United States v. Locke, 529 U.S. 89, 108 (2000) (citing Jones v.

Rath Packing Co., 430 U.S. 519, 525 (1977)) (holding that the

presumption is weaker, if triggered at all, where there is not a

tradition    of    state       legislation);      Ry.    Labor    Execs.'       Ass'n    v.

Gibbons, 455 U.S. 457, 472-73 & n.14 (1982) (noting the nearly

exclusive federal presence in the bankruptcy field because of

Contracts Clause); see also McConnell & Picker, 60 U. Chi. L. Rev.

at 427-28 (noting that for much of the nation's history it was

thought    that    states        were    precluded      from     enacting       municipal

bankruptcy legislation). In any event, Congress was quite clear in

the Bankruptcy Code that Puerto Rico was to be treated like a

state, except for the power to authorize its municipalities to file

under Chapter 9.              11 U.S.C. § 101(52).         This is sufficient to

overcome the presumption to the extent it applies.                     See Locke, 529
U.S. at 108 ("The question in each case is what the purpose of

                                          -39-
Congress was." (quoting Rice v. Santa Fe Elevator Corp., 331 U.S.
218, 230 (1947)) (internal quotation marks omitted)).

          2.       "State law" under § 903(1)

          Defendants' second argument is that Puerto Rico laws,

like the Recovery Act, are not really "State law[s]" for purposes

of § 903(1).30     The argument begins with the observation that

§ 903(1) appears within the larger provision of § 903, and so is an

exception to it.

          The terms of § 903 clarify that the remedies of "[t]his

chapter" (i.e., Chapter 9) do not alter the ordinary powers that

states have over their municipalities.      This provision, together

with § 904, "carr[ies] forward doctrines of federal common law that

had governed municipal insolvency before the first federal act, as

well as the constitutional principle against federal interference

in state and local governance."   McConnell & Picker, 60 U. Chi. L.

Rev. at 462-63 (footnote omitted).     "The effect is to preserve the

power of political authorities to set their own domestic spending

priorities, without restraint from the bankruptcy court." Id.; cf.

     30
         The argument that we should read "State" in § 903(1)
differently from its statutory definition, as we do "creditor," is
a nonstarter: unlike with "creditor," reading the definition
mechanically into the provision does not create strange results or
ones that are inconsistent with the historic purpose of § 903(1).
To the contrary, it confirms that Congress did not intend to alter
the historic applicability of § 903(1) to Puerto Rico. Cf. Cohen,
523 U.S. at 221; see also Kellogg, 135 S. Ct. at 1977 (noting that
"[t]he retention of the same term in later laws suggests that no
fundamental alteration was intended").

                                -40-
City of East St. Louis v. United States, 110 U.S. 321, 324 (1884)

(holding that "[n]o court has the right to control [the] discretion

[of municipal authorities]" as to "what expenditures are proper and

necessary for the municipal administration").

          Relying on the context of § 903, the defendants argue

that § 903(1), rather than itself preempting state municipal

bankruptcy laws (or similar), clarifies that the power to enact

municipal bankruptcy laws is not one of the powers preserved once

Chapter 9 is, or can be, invoked.     Because Puerto Rico is already

excluded from Chapter 9, the argument goes, § 903 -- including

§ 903(1) -- does not apply because there is no need to stipulate

that the remedies of Chapter 9 do not undermine Puerto Rico's

control over its own municipalities.

          The defendants further argue that the presumption against

preemption bolsters this reasoning and provides a reason to adopt

this argument. See Antilles Cement, 670 F.3d at 323. Indeed, they

argue that the presumption applies to this case with particular

force because "Title 11 suspends the operation of state insolvency

laws except as to those classes of persons specifically excluded

from being debtors under the Code."      In re Cash Currency Exch.,

Inc., 762 F.2d 542, 552 (7th Cir. 1985) (holding that currency

exchanges were not excluded from being debtors under the Code, such

that their filing under Chapter 11 was permitted, and rejecting the

argument that a state insolvency law might preclude such exchanges

                               -41-
from    filing).       "[T]o     permit      the   blocking     of     [a]   state

reorganization herein," defendants argue, "would be tantamount to

imposing a federal reorganization which is clearly forbidden by the

Act's    exemption"     of     Puerto       Rico   municipalities,       and    is

"inconsistent with the congressional scheme of the Bankruptcy Act"

which sought to provide to states a mechanism that was unavailable

under the Contracts Clause.           In re Bankers Trust Co., 566 F.2d
1281,   1288   (5th   Cir.    1978)     (discussing   the     Bankruptcy     Act's

"exemption     of   savings    and   loan    associations");     see    generally

McConnell & Picker, 60 U. Chi. L. Rev. 425 (explaining how the

federal law attempts to provide states with a mechanism to solve

the holdout problem of municipal bankruptcy).

           To accept the defendants' reading, we must accept one of

the two following propositions: Either states that do not authorize

their municipalities to file for Chapter 9 relief are similarly

"exempted," and so not barred by § 903(1) from enacting their own

bankruptcy laws. Or the availability of Chapter 9 relief for state

municipalities, regardless of whether a particular state chooses to

exercise the option, occupies the field of nonconsensual municipal

debt restructuring, and § 903(1) merely aims to clarify that the

operative clause of § 903 does not undermine that background

assumption. Thus, ironically, it is the defendants' argument which

relies on the notion of field preemption.

                                      -42-
              We have already rejected the first proposition, for the

reasons stated above.               The second is undermined by the very

presumption against preemption that defendants seek to employ:

field preemption is generally disfavored absent clear intent, and

is, in any event, unnecessary in light of § 903(1).                     See Arizona v.

United States, 132 S. Ct. 2492, 2501 (2012); Mass. Ass'n of Health

Maint. Orgs. v. Ruthardt, 194 F.3d 176, 178-79 & n.1 (1st Cir.

1999); cf. C. Nelson, Preemption, 86 Va. L. Rev. 225, 227-28 & n.12

(2000) ("The Court has grown increasingly hesitant to read implicit

field-preemption clauses into federal statutes.").

              Defendants' second argument fails for another, related

reason.      For if field preemption of municipal bankruptcy exists by

virtue of the availability of Chapter 9, the defendants must show

that it does not apply to Puerto Rico.                     This they cannot do.

              Unlike    state       bankruptcy       laws     governing       banks    and

insurance companies, which are not preempted by the federal Code in

light   of    congressional         language       which    directly    and    expressly

excludes them from the Code, 11 U.S.C. § 109(b); see In re Cash

Currency, 762 F.2d    at    552,     the    exclusion     of     Puerto      Rico

municipalities is not direct and is of a different sort.                         Rather,

Puerto Rico is precluded from granting its municipalities the

required authorization, and so its municipalities fail to qualify

for   the     municipal       bankruptcy      protection       that     is    available.

11 U.S.C. §§ 101(52), 109(c)(2). But failure to qualify is not the

                                            -43-
same as direct and express exclusion.          On defendants' reasoning,

states could offer bankruptcy relief to municipalities that fail to

qualify for municipal bankruptcy protection for other reasons --

including, for example, municipalities that are not "insolvent" as

required by § 109(c)(3), or that refuse to "negotiate[] in good

faith" with creditors as required by § 109(c)(5).         To exclude such

municipalities from the preemptive scope of § 903(1) would be an

absurd result.      The terms of § 101(52) do not exclude Puerto Rico

municipalities from federal relief; rather, they deny to Puerto

Rico the authority to decide when they might access it.            On this

reading,   absent    further   congressional    action,   §   903(1)   still

applies.

           3.        Conflict Preemption

           Before moving on, we pause to note that defendants'

arguments fail in any event, for they assume that a law containing

the provisions of the Recovery Act, so long as it is passed by

either Puerto Rico or the District of Columbia, is not otherwise

preempted. But even where an express preemption provision does not

apply, federal law preempts state laws that "stand[] as an obstacle

to the accomplishment and execution of the full purposes and

objectives of Congress."       See Pac. Gas & Elec. Co. v. State Energy

Res. Conservation & Dev. Comm'n, 461 U.S. 190, 204 (1983) (quoting

Hines v. Davidowitz, 312 U.S. 52, 67 (1941)) (internal quotation

marks omitted).       Where this occurs, conflict preemption also

                                   -44-
applies.   See In re Celexa & Lexapro Mktg. & Sales Practices

Litig., 779 F.3d 34, 40 (1st Cir. 2015) (citing Freightliner Corp.

v. Myrick, 514 U.S. 280, 287 (1995)).

           Conflict preemption applies here because the Recovery Act

frustrates Congress's undeniable purpose in enacting § 903(1).   As

discussed above, all of the relevant authority shows that Congress

quite plainly wanted a single federal law to be the sole source of

authority if municipal bondholders were to have their rights

altered without their consent.    See, e.g., H.R. Rep. No. 79-2246,

at 4 ("Only under a Federal law should a creditor be forced to

accept such an adjustment without his consent."). But the Recovery

Act does just that: both Chapter 2 and Chapter 3 relief, the only

forms of relief under the Recovery Act, bind creditors without

their consent.31   Thus, there is an independent basis to affirm,

namely that the Recovery Act is also preempted under conflict

preemption principles.

           That conflict preemption applies confirms our conclusion

that Congress did not remove Puerto Rico and the District of

Columbia from the express reach of § 903 or § 903(1).      See Pac.

     31
          For this reason, we also reject the GDB defendants'
contention that at least part of the Act is severable from any
portion of the law so preempted. The GDB defendants point to two
different areas of the Recovery Act, §§ 307-09, and § 135. On
their face, these provisions are dependent on the sustainability of
the remainder of the law, and so cannot survive independently of
the Act. Nor, we note, have we found any other section which might
stand alone.

                                 -45-
Gas, 461 U.S. at 204.      Defendants would have us hold that Congress

somehow inadvertently introduced a provision into the Code that

would fly in the face of its long-professed intent to ensure that

all municipalities seeking reorganization must do so under federal

law.   See, e.g., H.R. Rep. No. 79-2246, at 4; S. Rep. 95-989, at

110.   But we should not accept defendants' invitation to impute

mistakes to Congress to reach defendants' desired result.               Cf.

Jackson v. Liquid Carbonic Corp., 863 F.2d 111, 114 (1st Cir. 1988)

("Our task in construing the statutory language is 'to interpret

the words of the[] statute[] in light of the purposes Congress

sought to serve.'" (alterations in original) (quoting Chapman v.

Hous. Welfare Rights Org., 441 U.S. 600, 608 (1979))); Philko

Aviation, 462 U.S. at 411 ("Any other construction would defeat the

primary congressional purpose for the [provision's] enactment

. . . ."); Demko v. United States, 216 F.3d 1049, 1053 (Fed. Cir.

2000) ("When a statute is as clear as a glass slipper and fits

without strain, courts should not approve an interpretation that

requires a shoehorn.").

D.         Tenth Amendment Concerns

           Finally,     defendants     argue    that    the     canon    of

constitutional avoidance weighs against our view of congressional

intent as to preemption.         They argue that if § 903(1) bars the

Recovery   Act   because    it   expressly   preempts   local   municipal

bankruptcy law, then it directly raises a constitutional question

                                    -46-
under        the   Tenth    Amendment    of     whether     §    903(1)    (and    (2))

"constitute[s] an impermissible interference with a state's control

over its municipalities."             6 Collier on Bankruptcy ¶ 903.03[2]

(A.N. Resnick & H.J. Sommer, eds., 16th ed. 2015).                    The concern is

that:

               If a state composition procedure does not run
               afoul of the [C]ontracts [C]lause, then
               municipal financial adjustment under a state
               procedure should be a permissible exercise of
               state power, and a congressional enactment
               prohibiting    that    exercise    would    be
               congressional overreaching in violation of the
               Tenth Amendment.

Id.; cf. City of Pontiac Retired Emps. Ass'n v. Schimmel, 751 F.3d
427, 430-31 (6th Cir. 2014) (en banc) (per curiam) (declining to

reach the issue on appeal).

               Our construction leaves this question open and we need

not resolve it in this case.32            The limits of the Tenth Amendment

do   not      apply   to    Puerto    Rico,   which    is       "constitutionally     a

territory," United States v. Lopez Andino, 831 F.2d 1164, 1172 (1st

Cir. 1987) (Torruella, J., concurring), because Puerto Rico's

powers       are   not     "[those]   reserved    to   the       States"   but    those

specifically granted to it by Congress under its constitution. See

        32
        For example, there may be a saving construction of § 903(1)
that narrows its preemptive scope, an issue we did not reach
because we were not called upon to define the limits of § 903(1)'s
preemptive effect. Cf. City of Pontiac, 751 F.3d at 430-31. Or it
may be the case that the Bankruptcy Clause permits this imposition
on state sovereignty and that Ashton is no longer good law.
Cf. McConnell & Picker, 60 U. Chi. L. Rev. at 451-52 (citing
Ashton, 298 U.S. at 530-31); Lubben, 88 Am. Bankr. L.J. at 566.

                                         -47-
U.S. Const. art. IV, § 3, cl. 2; id., amend. X; Davila-Perez v.

Lockheed Martin Corp., 202 F.3d 464, 468 (1st Cir. 2000) (citing

Harris, 446 U.S. 651).              Accordingly, that § 903(1) expressly

preempts a Puerto Rico law does not implicate these Tenth Amendment

concerns.

                                           IV.

             We observe, in closing, that municipal bankruptcy regimes

run   a   particularly        difficult     gauntlet    between      remedying     the

"holdout problem" among creditors that bankruptcy is designed to

resolve, and avoiding the "moral hazard" problem presented by the

availability of bankruptcy relief -- namely, "the tendency of

debtors to prefer to devote their resources to their own interests

instead of repaying their debts."                See McConnell & Picker, 60 U.

Chi. L. Rev. at 426.

             In   creating      federal     Chapter    9    relief     for   states,

Congress's ability to effectively run this gauntlet was constrained

by our federalist structure and the limitations posed by the Tenth

Amendment.        See   id.    at   428,    494.      But   Congress    is   not    so

constrained in addressing Puerto Rican municipal insolvency owing

to Puerto Rico's different constitutional status. Cf. id.; Harris,
446 U.S. at 651-52.       That is, other solutions may be available.

             In denying Puerto Rico the power to choose federal

Chapter 9 relief, Congress has retained for itself the authority to

decide which solution best navigates the gauntlet in Puerto Rico's

                                       -48-
case.   The 1984 amendment ensures Congress's ability to do so by

preventing    Puerto   Rico   from    strategically   employing   federal

Chapter 9 relief under § 109(c), and from strategically enacting

its own version under § 903(1), to avoid such options as Congress

may choose.    See Gillette, 79 U. Chi. L. Rev. at 285-86.        We must

respect Congress's decision to retain this authority.

             We affirm.   No costs are awarded.

                    - Concurring Opinion Follows -

                                     -49-
             TORRUELLA, Circuit Judge (Concurring in the judgment).

Since at least 1938, the definition of the term "States" in § 1(29)

of the Bankruptcy Act included the Territories and possessions of

the United States, making Puerto Rico's municipalities eligible for

federal bankruptcy protection.33      All parties to this case agree

that this is so.       As provided in § 109(c)(2) of the Bankruptcy

Reform Act of 1978, a municipality could be an eligible debtor

under Chapter 9 if it was "generally authorized to be a debtor

under such chapter by State law, or by a governmental officer or

organization empowered by State law to [so] authorize."34             This

situation remained unchanged until 198435 when Congress enacted

§ 421(j)(6) of the Bankruptcy Amendments and Federal Judgeship Act

of 198436 (the "1984 Amendments"), which -- for the first time --

eliminated    Puerto   Rico's   decades-long   power   to   seek   federal

bankruptcy protection for its municipalities by amending § 101(52)

to exclude Puerto Rico's ability under § 109(c)(2) to authorize a

"debtor" for purposes of Chapter 9.

     33
         See Act of June 22, 1938, Pub. L. No. 75-696, ch. 575,
§ 1(29), 52 Stat. 840, 842.
     34
        Pub. L. No. 95-598, § 109(c)(2), 92 Stat. 2549, 2557. The
current text requires "specific" authorization by State law rather
than "general" authorization. 11 U.S.C. § 109(c)(2).
     35
        The majority accurately recounts the legislative path of
the predecessors to the bankruptcy section presently in
controversy. See Maj. Op. at 13-16.
     36
        Pub. L. No. 98-353, sec. 421(j)(6), § 101 (44), 98 Stat.
333, 368-69 (codified as amended at 11 U.S.C. § 101(52)).

                                  -50-
             Because there is no dispute that under the pre-1984

federal bankruptcy laws, Puerto Rico had -- as did all the states

-- the power to authorize its municipalities to file for the

protection of Chapter 9, I agree with the majority's conclusion

that the 1984 Amendments are the "key to this case."

             Although I also agree that Puerto Rico's Recovery Act

contravenes § 903(1) -- which applies uniformly to Puerto Rico,

together with the rest of Chapter 9 -- and thus is invalid, I am

compelled to write separately in order to note that the 1984

Amendments are equally invalid.             Not only do they attempt to

establish bankruptcy legislation that is not uniform with regards

to the rest of the United States, thus violating the uniformity

requirement of the Bankruptcy Clause of the Constitution,37 but they

also    contravene   both   the   Supreme    Court's   and   this   circuit's

jurisprudence in that there exists no rational basis or clear

policy reasons for their enactment.           See Harris v. Rosario, 446
U.S. 651, 651-52 (1980) ("Congress, which is empowered under the

Territory Clause of the Constitution . . . to 'make all needful

Rules and Regulations respecting the Territory . . . belonging to

the United States,' may treat Puerto Rico differently from States

so long as there is a rational basis for its actions." (emphasis

added)) (per curiam); Califano v. Torres, 435 U.S. 1, 5 (1978) (per

curiam); Córdova & Simonpietri Ins. Agency, Inc. v. Chase Manhattan

       37
            U.S. Const. art. I, § 8, cl. 4.

                                    -51-
Bank N.A., 649 F.2d 36, 41-42 (1st Cir. 1981) ("We believe that

there would have to be specific evidence or clear policy reasons

embedded in a particular statute to demonstrate a statutory intent

to intervene more extensively into the local affairs of post-

Constitutional Puerto Rico than into the local affairs of a state."

(emphasis added)).

           Furthermore, to assume that the 1984 Amendments are a

valid exercise of Congress's powers to manage the local financial

affairs of Puerto Rico's municipalities is inconsistent with this

court's long-lasting Commonwealth-endorsing case law.    Finally, I

also take issue with the majority's proposal that Puerto Rico

simply ask Congress for relief; such a suggestion is preposterous

given Puerto Rico's exclusion from the federal political process.

    I.    Congress's Uniform Power under the Bankruptcy Clause

           In enacting the 1984 Amendments, Congress acted pursuant

to the power enumerated in the Bankruptcy Clause, which states that

"Congress shall have the power . . . [t]o establish . . . uniform

laws on the subject of bankruptcies throughout the United States."

U.S. Const. art. I, § 8, cl. 4.    The term "uniform" is unequivocal

and unambiguous language, which is defined as "always the same, as

in character or degree; unvarying,"38 and as "[c]haracterized by a

     38
        The American Heritage Dictionary of the English Language
1881 (4th ed. 2000).

                                  -52-
lack of variation; identical or consistent."39   Prohibiting Puerto

Rico from authorizing its municipalities to request Chapter 9

relief, while allowing all the states to benefit from such power,

is hardly in keeping with these definitions.40   It would be absurd

to argue that the exclusion of Puerto Rico from the protection of

the Bankruptcy Code by the enactment of the 1984 Amendments is not

prohibited by the unequivocal language of the Bankruptcy Clause of

the Constitution.     This should end the analysis of Congress's

powers under the Constitution, as "reliance on legislative history

is unnecessary in light of the statute's unambiguous language."

Mohamad v. Palestinian Auth., 132 S. Ct. 1702, 1709 (2012) (quoting

Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229,

236 n.3 (2010)); see also Circuit City Stores, Inc. v. Adams, 532
U.S. 105, 119 (2001) ("[W]e do not resort to legislative history to

cloud a statutory text that is clear." (alteration in original)

(quoting Ratzlaf v. United States, 510 U.S. 135, 147–148 (1994))).

     39
          Black's Law Dictionary, 1761 (10th ed. 2014).
     40
        Any effort to understand rather than rewrite the Bankruptcy
Clause must accept and apply the presumption that the lawmakers
used words in "their natural and ordinary signification."
Pensacola Tel. Co. v. W. Union Tel. Co., 96 U.S. 1, 12 (1878).
Furthermore, it has long been established as a fundamental rule of
statutory construction that lawmakers do not use terms in
enactments that "have no operation at all." Marbury v. Madison, 1
Cranch 137, 174 (1803) ("[O]ur task is to apply the text, not to
improve upon it."); see also Pavelic & LeFlore v. Marvel Entm't
Grp. Div. of Cadence Indus. Corp., 493 U.S. 120, 126 (1989).

                                -53-
             Even if we did turn to legislative history, there is

little in the Federalist Papers, or elsewhere in our canonical

sources, to aid us in finding any hidden meaning to the clear

language of the Bankruptcy Clause.41 This gives added weight to the

conclusion    that   the   language   in   the   Clause   means   what   it

unequivocally states: bankruptcy laws must be uniform throughout

the United States or else are invalid.           See Daniel A. Austin,

Bankruptcy and the Myth of "Uniform Laws", 42 Seton Hall L. Rev.

1081, 1141-47 (2012); Judith Schenck Koffler, The Bankruptcy Clause

and Exemption Laws: A Reexamination of the Doctrine of Geographic

Uniformity, 58 N.Y.U. L. Rev. 22, 99 (1983).

     41
        See The Federalist No. 42, at 237 (James Madison) (Robert
A. Ferguson, ed., 2006) ("The power of establishing uniform laws of
bankruptcy is so intimately connected with the regulation of
commerce, and will prevent many frauds where the parties or
property may lie or be removed into different States, that the
expediency of it seems not likely to be drawn into question."). No
further comment is found before the Bankruptcy Clause was
incorporated into the Constitution as it presently appears. It
also bears noting that the Congressional powers to regulate
commerce uniformly under the Commerce Clause -- which contains
language identical to the Bankruptcy Clause -- apply in full force
to Puerto Rico.     See Trailer Marine Transp. Corp. v. Rivera
Vázquez, 977 F.2d 1, 8 (1st Cir. 1992) ("The central rationale of
[the] dormant Commerce Clause doctrine . . . is . . . to foster
economic integration and prevent local interference with the flow
of the nation's commerce. This rationale applies with equal force
to official actions of Puerto Rico. Full economic integration is
as important to Puerto Rico as to any state in the Union."
(citation omitted)).

                                  -54-
            Although Congress's powers under the Bankruptcy Clause

are broad,42 they are nonetheless limited by the Clause's uniformity

requirement, which is geographical in nature.             Ry. Labor Execs,

Ass'n v. Gibbons, 455 U.S. 457, 471 (1982) ("A law can hardly be

said to be uniform throughout the country if it applies only to one

debtor and can be enforced only by the one bankruptcy court having

jurisdiction over the debtor." (citing In Re Sink, 27 F.2d 361, 363

(W.D. Va. 1928), appeal dismissed per stipulation, 30 F.2d 1019

(4th Cir. 1929))).      "The uniformity requirement . . . prohibits

Congress from enacting a bankruptcy law that . . . applies only to

one regional debtor.      To survive scrutiny under the Bankruptcy

Clause, a law must at least apply uniformly to a defined class of

debtors."    Id. at 473; cf. Blanchette v. Conn. Gen. Ins. Corps.,

419 U.S. 102, 159 (1974).

  II.     The 1984 Amendments Fail the Rational Basis Requirement

            The   non-uniform   treatment   of   Puerto    Rico   under   the

bankruptcy laws not only violates the Bankruptcy Clause, but also

fails the rational basis requirement.       As explained above, Harris,
446 U.S. at 651-52, and Califano, 435 U.S. at 5, held that Congress

may legislate differently for Puerto Rico, as long as it has a

rational basis for such disparate treatment.              These were equal

protection and substantive due process cases brought by U.S.

     42
        See Cont'l Ill. Nat'l Bank v. Chicago, R.I. & Pac. Ry. Co.,
294 U.S. 648, 668 (1935).

                                   -55-
citizens of Puerto Rico who challenged Congress's discriminatory

treatment in certain welfare programs.       The plaintiffs in these

cases claimed to have been discriminated against based on their

classification as Puerto Ricans, an insular minority purportedly

subject   to   heightened   scrutiny.    However,   the   Supreme   Court

rejected their argument, holding that, pursuant to Congress's

powers under the Territorial Clause, only rational basis review is

warranted when considering the validity of a statute that treats

Puerto Rico differently. Harris, 446 U.S. at 651-52; Califano, 435
U.S. at 5.43

           It is black letter law that this tier of scrutiny "is a

paradigm of judicial restraint," FCC v. Beach Commc'ns, Inc., 508
U.S. 307, 314 (1993), and courts should not question "[r]emedial

choices made by . . . legislative . . . bod[ies] [unless] 'there

exists no fairly conceivable set of facts that could ground a

rational relationship between the challenged classification and the

government's legitimate goals.'" Medeiros v. Vincent, 431 F.3d 25,

29 (1st Cir. 2005) (quoting Wine and Spirits Retailers, Inc. v.

Rhode Island, 418 F.3d 36, 54 (1st Cir. 2005)).

     43
          The same rational basis requirement that regulates
disparate treatment of Puerto Ricans applies to the Commonwealth
itself.   See Jusino-Mercado v. Puerto Rico, 214 F.3d 34, 44
(1st Cir. 2000) (citing Harris, 446 U.S. at 651-52) (recognizing
that Congress could have legislated differently for the
Commonwealth).

                                  -56-
            This    implies    that      Congress's        justification    for     its

legislative actions need not be expressly articulated, and thus the

action     of   removing    Puerto       Rico's    power       to     authorize     its

municipalities to file under Chapter 9 must be allowed if there is

any set of conceivable reasons rationally related to a legitimate

interest of Congress.         See Beach Commc'ns, 508 U.S. at 313                 ("[A]

statutory classification that neither proceeds along suspect lines

nor infringes fundamental constitutional rights must be upheld

against equal protection challenges if there is any reasonably

conceivable state of facts that could provide a rational basis for

the classification.").           Furthermore, in order to pass rational

basis review, legislation cannot be arbitrary or irrational.                        See

City of Cleburne, Tex. v. Cleburne Living Ctr., 473 U.S. 432, 446

(1985)   ("The     State   may     not   rely     on   a    classification        whose

relationship to an asserted goal is so attenuated as to render the

distinction     arbitrary     or    irrational.").            Here,    there   is    no

conceivable set of facts rationally related to a legitimate purpose

of Congress in these amendments, and thus these amendments are

invalid.

            This legislation unreasonably and arbitrarily removed a

power delegated to Puerto Rico by the previous legislation.                         Had

there been any justification for not granting Puerto Rico the

managerial power to authorize its municipalities to seek bankruptcy

protection before 1984, Congress certainly did not express or even

                                         -57-
imply it at any time up to and including the present.      How could

such a justification arbitrarily materialize without explanation?

            A.   The 1984 Amendments Lack any Record or Justification

            As previously stated, there is no legislative record on

which to rely for determining Congress's reasons behind the 1984

Amendments. A tracing of its travels through the halls of Congress

sheds less light than a piece of coal on a moonless night regarding

the reason for its enactment.    Thus, the majority's statement that

"Congress [sought to] preserve to itself th[e] power to authorize

Puerto Rican municipalities to seek Chapter 9 relief,"44 is pure

fiction.     There is absolutely nothing in the record of the 1984

Amendments to justify this statement or Congress's legitimate

purpose in adopting them.

            The Puerto Rico exception actually predates the 1984 Act.

It appeared out of thin air during the 96th Congress in 1980 in a

House Report, accompanying S. 658.      See H.R. Rep. No. 96-1195, at

38 (1980). That proposal was a failed bill similar in substance to

Pub. L. No. 98-353, which later became the Bankruptcy Amendments

and Federal Judgeship Act of 1984, 98 Stat. 333.    See 98 Stat. 368-

69 (containing the Puerto Rico language under "Subtitle H -

Miscellaneous Amendments to Title 11"). When S. 658 arrived in the

House from the Senate, on September 11, 1979, it did not contain

the Puerto Rico-excluding language. The Puerto Rico provision was,

     44
           Maj. Op. at 5.

                                 -58-
however, included in the version that emerged from the House

Committee   on    the   Judiciary   on   July   25,   1980.   There   is   no

legislative history on the Puerto Rico clause, as hearings from the

House Committee on the Judiciary from 1979-1980 reveal nothing

about the amendment's purpose or justification.

            The story was not very different with regard to the 1984

Amendments.      On March 21, 1984, the House passed H.R. 5174 without

the Chapter 9 debtor eligibility exclusion for Puerto Rico.                On

that same day, Senator Strom Thurmond (R-SC) introduced S. Amdt.

3083.     Subtitle I, section 421(j)(6) of the amendment proposed

altering Section 101 of Title 11 to provide that "(44) '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."    130 Cong. Rec. S6118 (daily ed. May 21, 1984) (statements

of Sen. Thurmond).       And that is how we got the current text of 11

U.S.C. § 101(52).        On the day that he introduced the amendment,

Senator Thurmond addressed the Senate to explain several of its

numerous stipulations, yet said little about the newly added Puerto

Rico exemption.         He noted, "Subtitles C through I contain the

remaining substantive provisions passed by the Senate in S. 1013.

These provisions were not in the House bill.             They do, however,

have broad support in the Senate and were therefor included in the

substitute amendment."        130 Cong. Rec. S6083 (daily ed. May 21,

1984) (statement of Sen. Thurmond).

                                    -59-
             The original S. 1013 also did not contain the Puerto Rico

exclusion when it was reported in the Senate on April 7, 1983.

Senators Dole, Thurmond, and Hefflin introduced Amendment 1208 on

April 27, 1983, which contained the Puerto Rico Chapter 9 debtor

eligibility exclusion.         129 Cong. Rec. S5441 (daily ed. Apr. 27,

1983).       The Senators gave no explanation for the Puerto Rico

exclusion in S. 1013.         Thurmond described Subtitle I of Amendment

3083 as "Technical Amendments to Title 11," which is consistent

with the rest of the statute and gave no further reasons for its

inclusion.       130   Cong.    Rec.   S6083    (daily    ed.   May   21,   1984)

(Statement of Sen. Strom Thurmond).            The Senate Amendments to H.R.

5174, including 3083, passed on June 20, 1984.              The Congressional

Record from the House on that day announced that "the Senate

insists upon its amendments" and therefore it would have to

conference with the House which was not in agreement with them.

130 Cong. Rec. H6085 (daily ed. June 20, 1984).

             The House adopted the Conference Report, including the

Puerto Rico exclusion, without specific mention or comment on June

28, 1984, with a vote of 394 yeas, 0 nays, and 39 abstentions.               The

Senate also voted for the Conference Report, thereby making H.R.

5174 into Public Law No. 98-353.               Congress never articulated a

reason for the Puerto Rico-excluding language.

             To ignore this silence is striking given that the central

task   for    courts   when    interpreting     changes   to    the   bankruptcy

                                       -60-
statutes is to carefully examine Congress's statutory text and

justifications.    See Cohen v. de la Cruz, 523 U.S. 213, 221 (1998)

("We . . . 'will not read the Bankruptcy Code to erode past

bankruptcy   practice   absent   a   clear   indication   that   Congress

intended such a departure.'" (citation omitted)); United Sav. Ass'n

of Tex. v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 380

(1980) ("Such a major change in the existing rules would not likely

have been made without specific provision in the text of the

statute; it is most improbable that it would have been made without

even any mention in the legislative history." (citation omitted));

cf. Kellogg Brown & Root Servs. Inc. v. United States ex rel.

Carter, 135 S. Ct. 1970, 1977 (2015) ("Fundamental changes in the

scope of a statute are not typically accomplished with so subtle a

move.").

           Tellingly, the parties do not dispute this absolute lack

of Congressional justification for the Puerto Rico language in the

1984 Amendments.   See also Frank R. Kennedy, The Commencement of a

Case under the New Bankruptcy Code, 36 Wash. & Lee L. Rev. 977, 991

n.75 (1979) ("While there may be special reasons why Washington,

D.C., should not be eligible for relief under Chapter 9, it is not

self-evident why all political subdivisions, public agencies, and

instrumentalities in Puerto Rico, Guam, and other territories and

possessions of the United States should be precluded from relief

under the chapter.").

                                 -61-
             And yet, there is one undisputed fact that is self-

evident in all this: no one proposed a need for the 1984 change, or

protested the efficacy of the Code as it existed without this

amendment.     There is hermetic silence regarding all of the issues

or questions that would normally arise and be discussed when a

provision that was on the Bankruptcy Code for close to half a

century, and whose elimination would affect millions of U.S.

citizens, is deleted.

             B.   Congress's Power over Puerto Rico's Internal Affairs

             The 1984 Amendments deprived Puerto Rico of a fundamental

and inherently managerial function over its municipalities that has

no connection to any articulated or discernible Congressional

interest.    See Bennet v. City of Holyoke, 362 F.3d 1, 12 (1st Cir.

2004) (explaining that "municipalities are creatures of the state"

subject to control of the state's legislature). All the states and

territories -- including Puerto Rico before 1984 -- had the power

to control, manage, and regulate the local financial affairs of

their municipalities.      See Faitoute Iron & Steel Co. v. City of

Asbury Park, 316 U.S. 502, 513-15 (1942); Armstrong v. Goyco, 29
F.2d 900, 902 (1st Cir. 1928) ("In the matter of local regulations

and the exercise of police power Porto Rico possesses all the

sovereign powers of a state, and any exercise of this power which

is reasonable and is exercised for the health, safety, morals, or

welfare of the public is not in contravention of the Organic Act

                                  -62-
nor of any provision of the Federal Constitution.").               As the Court

explained in Faitoute Iron & Steel Co.,

               Can it be that a power that . . . was
               carefully circumscribed to reserve full
               freedom to the states, has now been completely
               absorbed by the federal government -- that a
               state which . . . has . . . elaborate[d]
               machinery for the autonomous regulation of
               problems as peculiarly local as the fiscal
               management of its own household, is powerless
               in this field? We think not.
316 U.S. at 508-09; see also New York v. United States, 505 U.S.
144,    156-57     (1992)    (explaining      that   the   structure   of    the

Constitution protects the rights of the states to control their

internal affairs).          Puerto Rico has the same level of authority

over its municipalities.         See United States v. Laboy-Torres, 553
F.3d 715,    722-23   (3d   Cir.   2009)    (O'Connor,    J.,   sitting    by

designation) ("[C]ongress has accorded the Commonwealth of Puerto

Rico 'the degree of autonomy and independence normally associated

with States of the Union.'") (quoting United States v. Cirino, 419
F.3d 1001, 1003-04 (9th Cir. 2005) (per curiam)).

               When the Supreme Court held in 1976 that Puerto Rico has

"[t]he degree of autonomy and independence normally associated with

States of the Union,"45 it reaffirmed this proposition, which had

longstanding vitality even before the 1984 Amendments or the

       45
        Examining Bd. of Eng'rs, Architects & Surveyors v. Flores
de Otero, 426 U.S. 572, 594 (1976).

                                      -63-
enactment of the Federal Relations Act46 and the creation of the so-

called "Commonwealth status."           See Puerto Rico v. Shell Co., 302
U.S. 253, 261-62 (1937) ("The aim of the Foraker Act and the

Organic Act was to give Puerto Rico full power of local self-

determination with an autonomy similar to that of the states and

incorporated territories.").

            Even this court has questioned the basis for Congress's

power to legislate over Puerto Rico local affairs.               In one of its

Commonwealth-endorsing decisions dealing with the question of

whether Congress had the intention to limit Puerto Rico's powers to

regulate internal antitrust violations through the Sherman Act's

control of purely local affairs of the territories, the court held

that "[t]he states are clearly able to adopt such variations as to

purely    local    matters.      And,    there   is   no   reason   of    policy

discernible       in    the   Sherman    Act   for    treating   Puerto     Rico

differently."          Córdova, 649 F.2d at 42 (emphasis added).47           The

court went on to explain how Congress's power to legislate purely

local affairs of Puerto Rico is constrained: "We believe that there

     46
        Act of July 3, 1950, Pub. L. No. 81-600, ch. 446, 64 Stat.
319 (codified at 48 U.S.C. § 731b et seq.); 48 U.S.C. § 821.
     47
        As in Córdova, there is no discernible policy justification
in the Bankruptcy Code to support the conclusion that Congress
intended to control the purely local affairs of Puerto Rico. In
fact, if anything, the policy reasons embodied in the
constitutional requirement that bankruptcy legislation be uniform
throughout the United States would support the opposite conclusion.
The 1984 Amendments clearly violate the constitutional policy
mandate.

                                        -64-
would have to be specific evidence or clear policy reasons embedded

in a particular statute to demonstrate a statutory intent to

intervene   more   extensively    into    the    local   affairs   of   post-

Constitutional Puerto Rico than into the local affairs of a state."

Id. at 42 (emphasis added); see also Antilles Cement Corp. v.

Fortuño, 670 F.3d 310, 322 (1st Cir. 2012).

            In   the   instant   case,   there    are    no   articulated   or

conceivable "clear policy reasons."              And while the "specific

evidence" requirement could be met by the clear statutory text of

the 1984 Amendments, this court has stated that Congress's powers

to legislate differently for Puerto Rico under the Territorial

Clause are also subject to some "outer limits," in addition to the

rational-basis constraints of Harris and Califano.               See Jusino-

Mercado, 214 F.3d at 44.         At a minimum, there should be some

explanation as to why Congress's enactment of the 1984 Amendments

fits within those "outer limits" given the complete absence of

clear policy reasons.

            Congress has expressly delegated to Puerto Rico the power

to manage its municipalities.      Section 37 of the Federal Relations

Act provides:

            That the legislative authority herein provided
            shall extend to all matters of a legislative
            character not locally inapplicable, including
            power to create, consolidate, and reorganize
            the municipalities so far as may be necessary,
            and to provide and repeal laws and ordinances
            therefor; also the power to alter, amend,
            modify, or repeal any or all laws and

                                   -65-
               ordinances of every character now in force in
               Puerto Rico or municipality or district
               thereof,   insofar    as   such   alteration,
               amendment, modification, or repeal may be
               consistent with the provisions of this Act.

P.R.    Laws    Ann.   tit.       1,   Federal    Relations   Act   §   37;   Federal

Relations Act, Pub. L. No. 64-368, § 37, 39 Stat. 951, 954 (1917),

as amended by Act of July 3, 1950, Pub. L. No. 81-600, 64 Stat. 319

(codified at 48 U.S.C. § 821).48

               This court has further reiterated the norm that Puerto

Rico has authority to control its internal affairs in several other

Commonwealth-endorsing decisions.                  See, e.g., United States v.

Quiñones, 758 F.2d 40, 42 (1st Cir. 1985) ("Puerto Rico ceased

being a territory of the United States subject to the plenary

powers of Congress as provided in the Federal Constitution. . . .

[T]he government of Puerto Rico is no longer a federal government

agency exercising delegated power."); Córdova, 649 F.2d at 41.

Because Congress was precluded from enacting the 1984 Amendments,

they    cannot     serve      a    legitimate      purpose    and   are   therefore

irrational.

       48
        For a more detailed description of Puerto Rico's powers to
control its internal affairs, even before the "Commonwealth
status," see, e.g., People of Porto Rico v. E. Sugar Assocs., 156
F.2d 316, 321 (1st Cir. 1946) ("[T]his grant of legislative power
with respect to local matters . . . is as broad and comprehensive
as language could make it. . . . [T]he legislative powers conferred
upon the Insular Legislature by Congress are nearly, if not quite,
as extensive as those exercised by the state legislatures."
(citations and internal quotation marks omitted)); González v.
People of Porto Rico, 51 F.2d 61, 62 (1st Cir. 1932) (quoting
Armstrong, 29 F.2d at 902).

                                           -66-
             The    degree      of   authority      granted     to    Puerto     Rico    to

regulate its local affairs is very different from Congress's

exclusive powers over the District of Columbia, the other territory

excluded by § 101(52) from authorizing its municipalities under §

109(c)(2) of the Bankruptcy Code.                   See Trailer Marine Transp.

Corp., 977 F.2d at 8 ("If the government of Puerto Rico were

nothing other than the alter ego or immediate servant of the

federal government, then the dormant Commerce Clause doctrine would

have no pertinence, for a doctrine designed to safeguard federal

authority    against      usurpation        has     no   role      when    the      federal

government itself is effectively the actor."); cf. Palmore v.

United States, 411 U.S. 389, 397 (1973) ("Not only may statutes of

Congress of otherwise nationwide application be applied to the

District of Columbia, but Congress may also exercise all the police

and regulatory powers which a state legislature or municipal

government      would     have       in    legislating      for      state     or     local

purposes."); Berman v. Parker, 348 U.S. 26, 31 (1954) ("The power

of   Congress      over   the    District     of    Columbia       includes      all    the

legislative powers which a state may exercise over its affairs.").

             Any    comparison        of   Puerto    Rico     to     the   District      of

Columbia, therefore, including the proposition made by the majority

that Congress may have intended to retain plenary powers to

regulate the local affairs of Puerto Rico as it does for the seat

of the Federal Government, fundamentally changes the current nature

                                           -67-
of   Puerto    Rico-federal    relations.     To    argue   that   Congress's

rationale      for   the   disparate    treatment   enacted   in    the   1984

Amendments is that it may have wanted to adopt "other -- and

possibly better -- options to address the insolvency of Puerto Rico

municipalities"49 overturns over half a century of binding case law

that purported to recognize that Congress delegated to Puerto Rico

the power to control its municipalities and legislate for its local

affairs.      Congress's solution to the budgetary and fiscal crisis

faced by the District of Columbia during the mid-1990s, through the

enactment of the District of Columbia Financial Responsibility and

Management Assistance Act of 1995, Pub. L. No. 104-8, 109 Stat. 97,

could have been taken for granted considering that the Federal

Government and Congress itself would be directly affected by the

District's financial crisis.       But, the circumstances here are very

different, since no such sense of urgency is evident in Congress,

nor is the requisite political clout available to Puerto Ricans.

And, even if it were, instituting direct Congressional control of

Puerto Rico's finances through a financial control board would

require fundamentally redefining Puerto Rico's relationship to the

United States.       See Flores de Otero, 426 U.S. at 594.

              Without an adequate explanation, the majority chooses to

ignore our own binding case law and suggests that Congress chose to

unreasonably interfere with a managerial decision affecting Puerto

      49
           Maj. Op. at 31.

                                       -68-
Rico's local municipal affairs.          Although Congress may, in special

circumstances, legislate to amend or repeal uniform bankruptcy

legislation, such an act, on a totally silent record, cannot be

rational considering the long and substantiated jurisprudence that

militates to the contrary.

            C.    Rational Basis Review After Harris and Califano

            This is an extraordinary case involving extraordinary

circumstances,     in    which   the    economic   life   of   Puerto   Rico's

three-and-a-half million U.S. citizens hangs in the balance; this

court should not turn a blind eye to this critical situation by

ignoring Congress's constraints to legislate differently for Puerto

Rico.50    Besides being irrational and arbitrary, the exclusion of

Puerto Rico's power to authorize its municipalities to request

federal bankruptcy relief, should be re-examined in light of more

recent rational-basis review case law.             In certain cases, where

laws have been found to be arbitrary and unreasonable, and where

minorities have been specifically targeted for discriminatory

treatment, judicial deference -- even under such a deferential

rational-basis standard -- must yield.                 See United States v.

Windsor,    133   S.    Ct.   2675,    2693   (2013)   ("The   Constitution's

guarantee of equality 'must at the very least mean that a bare

congressional desire to harm a politically unpopular group cannot'

justify disparate treatment of that group.") (quoting Dep't of

     50
           See Maj. Op. 8.

                                       -69-
Agric. v. Moreno, 413 U.S. 528, 534-35 (1973)).                  Moreover, this

Court has recognized that "Supreme Court equal protection decisions

have both intensified scrutiny of purported justifications where

minorities are subject to discrepant treatment and have limited

permissible justification."        Massachusetts v. Dep't of Health &

Human Servs., 682 F.3d 1, 10 (1st Cir. 2012).                    "[T]he usually

deferential 'rational basis' test has been applied with greater

rigor in some contexts, particularly those in which courts have had

reason to be concerned about possible discrimination."                 Id. at 11

(citing United States v. Then, 56 F.3d 464, 468 (2d Cir. 1995)

(Calabresi, J., concurring)).        Rightly so, because, when facing

"historic patterns of disadvantage suffered by the group adversely

affected by the statute . . . [t]he Court . . . undertake[s] a more

careful assessment of the justifications than the light scrutiny

offered by conventional rational basis review."                  Id.     The 1984

Amendments are just another example of a historic pattern of

disadvantage   suffered    by     Puerto    Rico,    but    no    such    careful

assessment is performed.     See Igartúa-De La Rosa v. United States,

626 F.3d 592, 612 (1st Cir. 2010) (Torruella, J., concurring in

part,   dissenting   in   part)    ("This   is   a   most    unfortunate      and

denigrating predicament for citizens who for more than one hundred

years have been branded with a stigma of inferiority, and all that

follows therefrom.").

                                    -70-
               A less-deferential rational basis review should also be

performed in light of the aforementioned considerations regarding

the well-settled law of Puerto Rico's authority over its internal

matters.       See Dep't of Health & Human Servs., 682 F.3d at 11-12

("Supreme Court precedent relating to federalism-based challenges

to federal laws reinforce the need for closer than usual scrutiny

. . . and diminish somewhat the deference ordinarily accorded.").

         III.    This Court Now Sends Puerto Ricans to Congress

               The justification for the degree of judicial deference

afforded by our constitutional jurisprudence under the typical

rational basis review is founded on the basic democratic tenet

that, "absent some reason to infer antipathy," courts should not

intervene       with   legislative    choices    because     "even    improvident

decisions will eventually be rectified by the democratic process

. . . ."         Beach Commc'ns, 508 U.S. at 314 (quoting Vance v.

Bradley, 440 U.S. 93, 97 (1979)).                And, while the democratic

process was equally foreclosed to Puerto Ricans at the time Harris

and   Califano     were   resolved,    here     the   situation      is   different

because, contrary to the Supreme Court's statements in those two

cases,    we    have   not   been    presented    with   a   single       plausible

explanation of why Congress opted for the disparate treatment of

Puerto Rico.

               The majority offers Puerto Rico the alternative to seek

a political solution in Congress and cites proposed changes in the

                                       -71-
relevant legislation pending before Congress to show that Puerto

Rico is advancing in that direction.      While I acknowledge that, in

some contexts, the fact that Congress has taken steps to remedy a

purportedly   unfair   statutory    distinction   may   be   relevant   to

avoiding judicial intervention under rational basis review, see

Vance, 440 U.S. at n.12, when Puerto Rico is effectively excluded

from the political process in Congress, this is asking it to play

with a deck of cards stacked against it,51 something this same panel

of this court has previously recommended, but to no avail.52

     51
        Pursuant to the majority's construction of the statutory
text, obtaining Congress's authorization to file for Chapter 9
protection would imply a procedure that need not require the
enactment of a statute. Regardless of this, Puerto Rico has no
political representation in Washington, other than a non-voting
member of Congress.     See, e.g., Igartúa-De La Rosa v. United
States, 417 F.3d 145, 159 (1st Cir. 2005) (Torruella, J.,
dissenting); Juan R. Torruella, Hacia Dónde Vas Puerto Rico? Puerto
Rico, 107 Yale L.J. 1503, 1519-20 (1998) (reviewing José Trías
Monge, The Trials of the Oldest Colony in the World (Yale
University   Press,    1997))   ("[T]hat   Puerto    Rico   has   a
'representative' in Congress without a vote is not only a pathetic
parody of democracy within the halls of that most democratic of
institutions, but also a poignant reminder that Puerto Rico is even
more of a colony now than it was under Spain.").
     52
        See Sánchez ex rel. D.R.-S. v. United States, 671 F.3d 86,
103 (1st Cir. 2012) (stating in dismissing a claim against the
United States for injuries caused by the Navy's pollution of
Vieques, that "the plaintiffs' pleadings, taken as true, raise
serious health concerns. [. . .] The Clerk of Court is instructed
to send a copy of this opinion to the leadership of both the House
and Senate."); see also id. at 120 (Torruella, J., dissenting)
("Access to the political forum available to most other citizens of
the United States has already been blocked by this same Court."
(citations omitted)).

                                   -72-
    IV.    The "Business-as-Usual" Colonial Treatment Continues

            The    majority's     disregard    for    the      arbitrary    and

unreasonable      nature   of   the   legislation    enacted    in   the   1984

Amendments showcases again this court's approval of a relationship

under which Puerto Rico lacks any national political representation

in both Houses of Congress and is wanting of electoral rights for

the offices of President and Vice-President.           That discriminatory

relationship allows legislation -- such as the 1984 Amendments --

to be enacted and applied to the millions of U.S. citizens residing

in Puerto Rico without their participation in the democratic

process.     This is clearly a colonial relationship, one which

violates our Constitution and the Law of the Land as established in

ratified treaties.53       Given the vulnerability of these citizens

before the political branches of government, it is a special duty

of the courts of the United States to be watchful in their defense.

As the Supreme Court pronounced in United States v. Carolene

Products Co., 304 U.S. 144, 152 n.4 (1938), "prejudice against .

. . insular minorities may be a special condition, which tends

seriously to curtail the operation of those political processes

ordinarily to be relied upon to protect minorities, and which may

call for a correspondingly more searching judicial inquiry."               I am

     53
         See Igartúa-De La Rosa, 417 F.3d at 185-86 (Howard, J.,
dissenting) (questioning the U.S. Senate's declaration that the
International Covenant on Civil and Political Rights, ratified by
Congress in 1992, is not self-executing).

                                      -73-
sorry to say this special duty to perform a "more searching

inquiry" has been woefully and consistently shirked by this court

when it comes to Puerto Rico, with the majority opinion just being

the latest in a series of such examples.54

           When    the     economic   crisis     arose,     after    considering

Congress's cryptic revocation of Puerto Rico's powers to manage its

own internal affairs through the 1984 Amendments, Puerto Rico

looked elsewhere for a solution.             It developed the Recovery Act

enacted   pursuant    to    the    police    powers   this    very    court   had

sustained, to fill the black hole left by the 1984 Amendments

introducing of the definition now codified in § 101(52). And while

I agree with the majority that Puerto Rico could not take this step

because Chapter 9 applies to Puerto Rico in its entirety, I commend

the Commonwealth for seeking ways to resolve its predicament.

           Even if one ignores the uncertain outcome of any proposed

legislation,      questions       still     remain:   why     would    Congress

intentionally take away a remedy from Puerto Rico that it had

before 1984 and leave it at the sole mercy of its creditors?                  What

legitimate purpose can such an action serve, other than putting

     54
        See, e.g., Igartúa-De La Rosa, 626 F.3d at 612; Igartúa-De
La Rosa, 417 F.3d at 159; Igartúa-De La Rosa v. United States, 229
F.3d 80, 85 (1st Cir. 2000) (Torruella, J., concurring); López v.
Arán, 844 F.2d 898, 910 (1st Cir. 1988) (Torruella, J., concurring
in part and dissenting in part); see also Juan R. Torruella, The
Insular Cases: A Declaration of Their Bankruptcy and My Harvard
Pronouncement 61 (Gerald L. Neuman and Tomiko Brown-Nagin eds.,
2015).

                                      -74-
Puerto Rico's creditors in a position that no other creditors enjoy

in the United States? While favoring particular economic interests

-- i.e., Puerto Rico creditors -- to the detriment of three-and-a-

half million U.S. citizens, is perhaps "business as usual" in some

political circles, one would think it hardly qualifies as a

rational constitutional basis for such discriminatory legislation.

                               V.    Conclusion

              The 1984 Amendments are unconstitutional.            Puerto Rico

should   be    free   to   authorize    its   municipalities   to       file   for

bankruptcy     protection    under     the    existing   Chapter    9    of    the

Bankruptcy Code if that is the judgment of its Legislature.

              I concur in the Judgment.

                                       -75-