Over a vigorous dissent implying that the appeals court should rehear the appeal en banc, a majority on the First Circuit held that Section 106 of the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.), waived sovereign immunity as to the Financial Oversight and Management Board for Puerto Rico.
After the Supreme Court ruled Puerto Rico ineligible for chapter 9 municipal bankruptcy, Congress quickly adopted PROMESA. Large swaths of chapter 9 are incorporated into PROMESA. Puerto Rico and many of its instrumentalities sought relief under PROMESA in 2017.
In the debt-adjustment proceedings, Puerto Rico’s federally appointed Financial Oversight and Management Board effectively represented Puerto Rico and its instrumentalities. In April, the First Circuit upheld confirmation of the plan of adjustment for the Commonwealth of Puerto Rico. To read ABI’s report, click here.
In 2017 and again in 2019, nonprofit media organizations filed lawsuits in the PROMESA court aiming to compel the Oversight Board to disclose broad categories of information and communications regarding the proceedings. The Board filed a motion to dismiss based on Eleventh Amendment sovereign immunity, among other things.
The district court denied the motion to dismiss and ordered the production of documents and other information. The district court reasoned that the Board was entitled to sovereign immunity but that Section 106 of PROMESA had waived and abrogated immunity.
The Board appealed. The First Circuit granted a stay pending appeal and agreed to review the sovereign immunity ruling under the collateral order doctrine.
The Statutory Basis for Sovereign Immunity
Writing for the majority on May 17, Circuit Judge O. Rogeriee Thompson said that the First Circuit had “long treated” Puerto Rico like a state for purposes of sovereign immunity. However, the treatment of Puerto Rico “doesn’t resolve whether the Board itself is also entitled to immunity,” she said.
The First Circuit had not previously decided whether PROMESA abrogated the Board’s sovereign immunity. Finding statutory abrogation of sovereign immunity, Judge Thompson assumed without deciding that the Board “is an arm of Puerto Rico.”
Judge Thompson principally relied on Section 106 of PROMESA, which says that “any action against the . . . Board, [or] . . . otherwise arising out of [PROMESA] . . . shall be brought in [the district court for the district of Puerto Rico].” 48 U.S.C. § 2126(a).
Although Section 106 may not be “precise,” Judge Thompson said that there are no “magic words” required to waive sovereign immunity and that Congress is not required to state its intent in any particular way.
By including Section 106, Judge Thompson reasoned that “Congress unequivocally stated its intention that the Board could be sued for ‘any action . . . arising out of [PROMESA],’ but only in federal court. Congress was unmistakably clear that it had contemplated remedies for constitutional violations and that injunctive or declaratory relief against the Board may be granted.”
Judge Thompson affirmed the district court’s order denying the motion to dismiss based on the abrogation of sovereign immunity.
The Dissent
Circuit Judge Sandra L. Lynch dissented, with “respect.”
Judge Lynch began by noting that Puerto Rico had been “long recognized” as being entitled to sovereign immunity, and the Board, she said, “is part of the Puerto Rico government.” As it was for the majority, the question for Judge Lynch was whether Section 106 “expressly abrogated that immunity.”
Under Supreme Court authority, Judge Lynch said that abrogation “must be clearly and unequivocally stated [and] that grants of jurisdiction to Article III courts alone do not abrogate Eleventh Amendment immunity.” She found “[a]bsolutely nothing in the text of [Section 106 that] sets forth an intent to abrogate Eleventh Amendment immunity.”
To the contrary, Judge Lynch said that “Section 106(a) is a limited jurisdiction-granting provision. The Supreme Court has repeatedly held that jurisdiction-granting clauses like § 106 do not abrogate Eleventh Amendment immunity.” [Footnote omitted.]
Judge Lynch said that the majority had “turn[ed] the longstanding rule on its head” by “requiring Congress to include a clear statement that it did not intend to abrogate Eleventh Amendment immunity.”
Judge Lynch would have found no abrogation. She said that the majority’s opinion “conflicts with Supreme Court precedent, First Circuit precedent, and precedent from other circuits, and will have dire consequences.”
Judge Lynch ended her dissent by saying that “today’s decision should not go uncorrected.”
Over a vigorous dissent implying that the appeals court should rehear the appeal en banc, a majority on the First Circuit held that Section 106 of the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.), waived sovereign immunity as to the Financial Oversight and Management Board for Puerto Rico.
After the Supreme Court ruled Puerto Rico ineligible for chapter 9 municipal bankruptcy, Congress quickly adopted PROMESA. Large swaths of chapter 9 are incorporated into PROMESA. Puerto Rico and many of its instrumentalities sought relief under PROMESA in 2017.
In the debt-adjustment proceedings, Puerto Rico’s federally appointed Financial Oversight and Management Board effectively represented Puerto Rico and its instrumentalities. In April, the First Circuit upheld confirmation of the plan of adjustment for the Commonwealth of Puerto Rico.