Over a dissent by Justice Clarence Thomas, the Supreme Court assumed that Puerto Rico and the Financial Oversight and Management Board are entitled to sovereign immunity like a state. In her opinion of the Court on May 11, Justice Elena Kagan reversed the First Circuit by holding that nothing in the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.), waived the Oversight Board’s sovereign immunity.
The Origins of PROMESA and the Board
After the Supreme Court ruled that Puerto Rico was ineligible for municipal bankruptcy in chapter 9 of the Bankruptcy Code, Congress quickly enacted PROMESA, which adopts large portions of chapter 9. Puerto Rico and many of its instrumentalities sought relief under PROMESA in 2017 in what is known as Title III debt-adjustment proceedings.
In the Title III proceedings, Puerto Rico’s federally appointed Financial Oversight and Management Board in substance represented Puerto Rico and its instrumentalities. In April 2022, the First Circuit upheld confirmation of the Oversight Board’s 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 suit in federal district court in Puerto Rico, asking the PROMESA court 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.
First Circuit Finds a Waiver of Immunity
The First Circuit had previously held that Puerto Rico and the Oversight Board were entitled to sovereign immunity. Therefore, the First Circuit only considered on appeal whether PROMESA had waived sovereign immunity as to the suit by the news organization.
Finding a waiver of sovereign immunity, the majority on the First Circuit panel 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).
By the inclusion of Section 106, the First Circuit majority 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.” Financial Oversight & Management Board for Puerto Rico v. Centro de Periodismo Investigativo Inc., 35 F.4th 1, 17 (1st Cir. May 17, 2022). To read ABI’s story, click here.
The majority on the appeals court panel affirmed the district court’s order denying the motion to dismiss, finding a waiver of sovereign immunity.
In dissent, Circuit Judge O. Rogeriee Thompson found “[a]bsolutely nothing in the text of [Section 106 that] sets forth an intent to abrogate Eleventh Amendment immunity.” Id. at 21. Announcing a theme that later persuaded Justice Kagan, Judge Thompson said that the “Supreme Court has repeatedly held that jurisdiction-granting clauses like § 106 do not abrogate Eleventh Amendment immunity. [Footnote omitted.]” Id. at 22.
Believing there was no abrogation of sovereign immunity, Judge Thompson “respectfully” dissented, ending her opinion by saying that “today’s decision should not go uncorrected.” Id. at 25.
The Oversight Board filed a petition for certiorari in July 2022. The petition stated the question presented as whether Section 106 of PROMESA abrogated the Oversight Board’s sovereign immunity. The Court granted the petition in October. Argument was held in January.
The Opinion of the Court
Justice Kagan restated the question presented as “whether [PROMESA] categorically abrogates (legalspeak for eliminates) any sovereign immunity the board enjoys from legal claims.”
Telling the reader in the first paragraph that she was reversing, Justice Kagan said:
Under long-settled law, Congress must use unmistakable language to abrogate sovereign immunity. Nothing in the statute creating the Board meets that high bar.
Justice Kagan found nothing “explicit” in PROMESA about the abrogation of sovereign immunity except for Title III cases. “In particular,” she said, “no provision states that it is abrogating any immunity the Board possesses from legal claims.”
“At the same time,” Justice Kagan said, “several provisions of PROMESA contemplate that, even outside the Title III context, the Board may confront legal claims against it.”
Justice Kagan found only two circumstances where Congress has issued an “unequivocal declaration” abrogating immunity. The first is when the statute “says in so many words that it is stripping immunity.” The second “is when a statute creates a cause of action and authorizes suit against a government on that claim.”
“PROMESA fits neither of those molds,” Justice Kagan said.
Reversing the First Circuit and remanding, Justice Kagan held:
In short, nothing in PROMESA makes Congress’s intent to abrogate the Board’s sovereign immunity “unmistakably clear.” Kimel, 528 U.S., at 73. The statute does not explicitly strip the Board of immunity. It does not expressly authorize the bringing of claims against the Board. And its judicial review provisions and liability protections are compatible with the Board’s generally retaining sovereign immunity.
The Dissent by Justice Thomas
Justice Kagan said that the First Circuit and the district court “simply assumed the Board’s immunity before turning to the abrogation issue.”
“We took the case on those terms, and we resolve it on those terms,” Justice Kagan said. “That means we assume without deciding that Puerto Rico is immune from suit in federal district court, and that the Board partakes of that immunity.”
Justice Thomas would have affirmed the First Circuit, but on the very ground that the majority assumed without deciding.
Justice Thomas explained how the Oversight Board claimed sovereign immunity under the Eleventh Amendment. He paraphrased the amendment to mean that “the Constitution does not allow federal or state courts to hear cases against States without their consent.”
Working from the proposition that Puerto Rico is a territory and not a state, Justice Thomas said it “is difficult to see how the same inherent sovereign immunity that the States enjoy in federal court would apply to Puerto Rico.” He said that the Oversight Board’s argument for Eleventh Amendment immunity was “untenable.”
Justice Thomas would have affirmed because he believes that the Oversight Board had not established its immunity.
Observations
For Puerto Rico, the case is notable in that the majority ducked the question of whether territories are entitled to sovereign immunity. If the question is ever presented to the Court, the dissent means that Justice Thomas would see no constitutional immunity for territories because they are not states. How he would feel about tribes of Native Americans is less clear.
Indeed, tribal sovereign immunity is sub judice in the Supreme Court in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 22-227 (Sup. Ct.). The case was argued on April 24. Similar to the PROMESA case, the First Circuit had deepened an existing circuit split by holding over a lengthy dissent in Lac du Flambeau that Sections 106(a) and 101(27) of the Bankruptcy Code waived sovereign immunity as to Native American tribes. To read ABI’s report on oral argument, click here.
The PROMESA decision doesn’t indicate how the Court will decide Lac du Flambeau, except to say that “abrogation requires an ‘unequivocal declaration’ from Congress.” Presumably, the decision in Lac du Flambeau will tell us whether “other foreign or domestic government” in Section 101(27) is an unequivocal reference to tribes that waives immunity.
It’s a good bet, however, that Justice Kagan will write the opinion in Lac du Flambeau.
Over a dissent by Justice Clarence Thomas, the Supreme Court assumed that Puerto Rico and the Financial Oversight and Management Board are entitled to sovereign immunity like a state. In her opinion of the Court on May 11, Justice Elena Kagan reversed the First Circuit by holding that nothing in the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.), waived the Oversight Board’s sovereign immunity.