In the United States Court of Appeals For the First Circuit

Case: 16-2377 Document: 00117080506 Page: 1 Date Filed: 11/15/2016 Entry ID: 6047830 No. 16-2377 In the United States Court of Appeals For the First Circuit PEAJE INVESTMENTS LLC, Movant-Appellant, v. HON. ALEJANDRO GARCIA PADILLA, HON. JUAN C. ZARAGOZA GÓMEZ, HON. LUIS G. CRUZ BATISTA, HON. CARMEN VILLAR PRADO, PUERTO RICO HIGHWAYS & TRANSPORTATION AUTHORITY, Respondents-Appellees. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO MOTION OF APPELLANT PEAJE TO EXPEDITE BRIEFING SCHEDULE AND FOR EXPEDITED CONSIDERATION OF ITS APPEAL DECHERT LLP G. Eric Brunstad, Jr. Allan S. Brilliant* Robert J. Jossen* John D. Biancamano* Andrew C. Harmeyer* 1095 Avenue of the Americas New York, NY 10036 Phone: (212) 698-3500 Fax: (212) 698-0627 *Application for Admission In Progress MONSERRATE SIMONET & GIERBOLINI, LLC Dora L. Monserrate Peñagarícano 101 San Patricio Avenue Maramar Plaza, Suite 1120 Guaynabo, Puerto Rico 00968 Telephone: (787) 620-5300 Fax: (787) 620-5305 Attorneys for Peaje Investments LLC 22854652

Case: 16-2377 Document: 00117080506 Page: 2 Date Filed: 11/15/2016 Entry ID: 6047830 This appeal arises from the District Court s final order (Hon. Francisco Besosa, D.J.) denying the request of Peaje Investments LLC ( Peaje ) for relief from the interim stay in effect under the Puerto Rico Oversight, Management, and Economic Stability Act, Pub. L. 114-187 ( PROMESA ), a copy of which order is attached (the Order ). Peaje is the beneficial owner of certain bonds secured by a lien on, among other collateral, various toll revenues ( Toll Revenues ) collected by Appellee the Puerto Rico Highways & Transportation Authority ( PRHTA ). Under applicable law, PRHTA is required to collect the Toll Revenues and deposit them with a fiscal agent for the bondholders to secure payment of the bonds. Recently, however, Appellee Alejandro García Padilla, the Governor of Puerto Rico (the Governor ), directed PRHTA and various officials of the Commonwealth to divert the Toll Revenues to the payment of other expenses, thereby taking and dissipating Peaje s collateral. This taking is ongoing, resulting in accumulating harm to Peaje and all bondholders with similar liens. Yet, under PROMESA, Peaje is barred from seeking a remedy for this taking unless it first obtains relief from the PROMESA stay, which relief the District Court denied in the order that is the subject of this appeal. To the best of Peaje s knowledge, this is the first appeal to arise from a decision under PROMESA. Peaje seeks expedited briefing and review of its appeal for two principal reasons. First, good cause exists to grant expedited review because Peaje s property

Case: 16-2377 Document: 00117080506 Page: 3 Date Filed: 11/15/2016 Entry ID: 6047830 is being taken unilaterally without Peaje being able to challenge the legality of the taking, leaving Peaje without an adequate remedy. Second, PROMESA itself directs expedited review. Specifically, PROMESA directs the applicable United States Court of Appeals to advance on the docket and to expedite to the greatest possible extent the disposition of any matter brought under this Act. PROMESA 106(d) 1 ; see also First Circuit Internal Operating Procedures, Part VII, Section B (providing for expedition where required by statute). JURISDICTIONAL STATEMENT The District Court had jurisdiction under 28 U.S.C. 1331. This Court has jurisdiction under 28 U.S.C. 1291 and section 106(b) of PROMESA. The District Court s Order is a final order for purposes of appeal. The sole issue in the proceeding below was whether to lift the PROMESA stay. The District Court s denial of Peaje s request to lift the stay ends the litigation below, leaving nothing more for the District Court to do but execute its order. See Apollo Computer v. Berg, 886 F.2d 469, 471 (1st Cir. 1989) (an order is final and appealable for purposes of 28 U.S.C. 1291 when it is determinative of the entire action and leaves nothing 1 PROMESA also recognizes the urgency of motions to lift the automatic stay, requiring all such motions be generally resolved within 45 days. See PROMESA 405(f). 2

Case: 16-2377 Document: 00117080506 Page: 4 Date Filed: 11/15/2016 Entry ID: 6047830 to be done except execution of the judgment ) (quotations omitted). Peaje timely filed its notice of appeal on November 9, 2016. BACKGROUND Peaje is the beneficial owner of in excess of $63 million in bonds issued by PRHTA pursuant to a binding municipal resolution adopted in 1968 (the 1968 Resolution, and the bonds issued thereunder, collectively, the 1968 Bonds ). In issuing the 1968 Bonds, PRHTA pledged and granted a lien in favor of the bondholders on certain Toll Revenues collected by PRHTA, in addition to certain other revenues and funds, to secure payment of the bonds. PRHTA is obligated under the 1968 Resolution to deposit these pledged revenues on a monthly basis with a fiscal agent for the 1968 Bonds. In a willful breach of this undertaking, the Governor, acting pursuant to the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act (the Moratorium Act ) and a series of executive orders, directed PRHTA and various Commonwealth officials to retain or otherwise divert the pledged revenues to the payment of other expenses, thereby avoiding and dissipating the bondholders liens on such revenues. As special revenue bonds, the 1968 Bonds are limited recourse obligations, meaning such bonds are ordinarily payable solely from the pledged revenues and from no other source. As a result, Appellees expropriation of these 3

Case: 16-2377 Document: 00117080506 Page: 5 Date Filed: 11/15/2016 Entry ID: 6047830 pledged revenues immediately reduces the limited pool of collateral available to bondholders, thereby increasing the risk of non-payment. On June 29, 2016, Congress enacted, and on June 30, 2016, the President signed into law, PROMESA. Section 405(b) of PROMESA imposes an interim stay on certain creditor actions running from the date of the statute s enactment and terminating on the earlier of: (a) February 15, 2017, subject to extension under certain circumstances; and (b) with respect to the Commonwealth or any of its territorial instrumentalities, the filing of a petition for relief under Title III of PROMESA. See PROMESA 405(b), (d). PROMESA allows a party in interest to file a motion in the U.S. District Court for the District of Puerto Rico to lift the interim stay before its expiration date. Section 405(e)(2) of PROMESA states: On motion of or action filed by a party in interest and after notice and a hearing, the United States District Court for the District of Puerto Rico, for cause shown, shall grant relief from the stay provided under subsection (b) of this section. PROMESA 405(e)(2). On July 17, 2016, Peaje filed an action in the District Court to lift the PROMESA stay for cause shown under section 405(e)(2) of PROMESA so that it could file its complaint challenging on constitutional grounds, among other things, Appellees unlawful diversion of the pledged Toll Revenues under color of the Moratorium Act, and the constitutionality of the Act itself. Peaje s action did not 4

Case: 16-2377 Document: 00117080506 Page: 6 Date Filed: 11/15/2016 Entry ID: 6047830 seek relief with respect to Appellees expropriation of the non-toll moneys pledged as bondholder collateral, instead reserving its rights with respect to those claims. Peaje argued that the District Court should grant relief from the PROMESA stay because Peaje lacked adequate protection of its interest owing to Appellees ongoing taking of the Toll Revenues without providing tangible assurance that this taking would not harm Peaje. In support of its position, Peaje cited precedent interpreting the nearly identical for cause standard for lifting the automatic stay in bankruptcy cases (see 11 U.S.C. 362), which precedent establishes that a lack of adequate protection on its own demonstrates cause for stay relief. Under these precedents, the concept of adequate protection requires that Appellees show that the taking of Peaje s property would not jeopardize Peaje s position as a secured creditor. Peaje further argued that, without relief from the stay, PROMESA itself would be unconstitutional because Peaje would be left without redress for the taking of its property without just compensation. Although PROMESA requires an expeditious hearing, the District Court scheduled a hearing to consider Peaje s motion and the evidence supporting the parties positions and the merits for November 3, 2016. 2 Less than 12 hours before 2 Upon filing the motion to lift the stay, Peaje requested a hearing as soon as possible consistent with the Court s schedule. The November 3rd date was selected by the District Court for an evidentiary hearing after the lift-stay hearing held early in 5

Case: 16-2377 Document: 00117080506 Page: 7 Date Filed: 11/15/2016 Entry ID: 6047830 the hearing, however, the District Court cancelled the hearing and, without taking evidence on key questions of fact, erroneously denied Peaje s motion. Notably, the District Court agreed with Peaje that a secured creditor s lack of adequate protection with respect to its collateral constitutes cause to lift the PROMESA stay, reasoning that the concept of adequate protection has constitutional roots, not just statutory ones[,] and these concerns entitle secured creditors to constitutional protection of [their] bargained for property interest. See Order, pp. 10-11 (internal quotations and citation omitted). The District Court further recognized that, as a matter of law, [i]t it well settled that the debtor bears the burden to demonstrate that a creditor is adequately protected. See Order, p. 15 (internal quotations and citation omitted). Nonetheless, the court ruled against Peaje, concluding, without any evidentiary basis, that Peaje was adequately protected because, once the stay expired and PRHTA (theoretically) resumed its required deposits of the pledged Toll Revenues, these revenues would eventually provide funds for the repayment of the PRHTA bonds. See Order, p. 16. 3 October in another set of cases, Brigade Leveraged Capital Structures Fund, Ltd. v. Garcia Padilla, Civil No. 16-1610, et al. (on which the District Court still has not ruled). 3 The District Court found in dicta that provisions of the Moratorium Act and PROMESA (see Moratorium Act 204(a); PROMESA 405(k)) effectively preserve [Peaje s] contractual security interest in PRHTA s pledged revenues so that bondholders will receive the benefit of the future revenues once the stay expires. See Order, p. 16. While those statutory provisions do provide that the Moratorium 6

Case: 16-2377 Document: 00117080506 Page: 8 Date Filed: 11/15/2016 Entry ID: 6047830 In its reply brief filed in the District Court, Peaje explicitly disputed (see Peaje Reply [Docket No. 36], 11) Appellees assertion that any particular toll revenue not allocated to the movant s bonds today could simply be made up for by toll revenues collected tomorrow[,] a contention going to the heart of the case and one that the District Court simply accepted as true without investigation or evidence (see Order, p. 16). In addition, Peaje intended to call an expert witness at the hearing to refute this contention and testify regarding the risks to the bondholders of nonpayment and collateral deprivation. Peaje, however, was never afforded an opportunity to present its case. This was clear error, as demonstrated by, among other things, the fact that PROMESA explicitly requires notice and a hearing on motions such as Peaje s in this case. See PROMESA 405(e)(2). Under applicable law, the issue whether a creditor is adequately protected is a question of fact. See In re Martin, 761 F.2d 472, 474 (8th Cir. 1985) (finding that adequate protection is a question of fact and remanding with instructions for the lower court to determine the value of the creditor s security interest and the risks to the creditor resulting from the debtor s proposed use of the collateral); see also In re Park W. Hotel Corp., 64 B.R. 1013, 1018 (Bankr. D. Mass. 1986) ( [C]ourts are Act and PROMESA, respectively, are not supposed to impair creditors liens, any perceived benefit of those provisions is illusory here, as the bondholders liens have been impaired due to the expropriation of their collateral, notwithstanding that the statutes purport to prohibit this result. 7

Case: 16-2377 Document: 00117080506 Page: 9 Date Filed: 11/15/2016 Entry ID: 6047830 in agreement that what constitutes adequate protection is a factual question to be determined by the bankruptcy judge. ). It was simply not possible for the District Court to determine that Peaje was adequately protected without hearing evidence on such things as the amount of the Toll Revenues that are being diverted, the amount of likely future Toll Revenues, and whether future revenues would be sufficient to cover not only current obligations that may not be paid but also future obligations. Further, under applicable law, a mere promise of future payment from future collateral is never adequate protection for the taking of tangible collateral securing payment today. See, e.g., In re Buttermilk Towne Ctr., LLC, 442 B.R. 558, 566 (B.A.P. 6th Cir. 2010) (where a secured party held a lien on future rents from an apartment complex, the debtor could not promise such future rents as a means of providing adequate protection to replace the [debtor s] expenditure of the prior months rents[,] even if the future rents were thought to exceed the amount of debt owed) (emphasis in original; citation omitted); 11 U.S.C. 361 (an administrative claim in bankruptcy does not result in the indubitable equivalent of the secured creditor s property interest for purposes of providing such creditor with adequate protection). The District Court thus clearly erred in reaching its determination. ARGUMENT Good cause exists to expedite this appeal. Without expedition, Peaje continues to suffer harm through the taking of its property without just compensation 8

Case: 16-2377 Document: 00117080506 Page: 10 Date Filed: 11/15/2016 Entry ID: 6047830 or judicial review. The severity of the irreparable harm to Peaje only increases the longer the PROMESA stay remains in effect under the District Court s erroneous ruling. Furthermore, both the Moratorium Act and the automatic stay under PROMESA are subject to extension, increasing the risk that harm to Peaje will continue to accumulate for the foreseeable future. See Moratorium Act 103(m), 201(a); PROMESA 405(d). Moreover, expedition of this appeal is appropriate under the Federal Rules of Appellate Procedure and required by this Circuit s Internal Operating Procedures. Pursuant to Rule 2, [o]n its own or a party s motion, a court of appeals may to expedite its decision or for other good cause suspend any provision of these rules in a particular case and order proceedings as it directs, except as otherwise provided in Rule 26(b). FED. R. APP. P. 2. Rule 31 further provides that [a] court of appeals that routinely considers cases on the merits promptly after the briefs are filed may shorten the time to serve and file briefs, either by local rule or by order in a particular case. FED. R. APP. P. 31. The First Circuit s Internal Operating Procedures, in turn, provide that [e]xpedited scheduling is provided automatically in those cases where it is required by statute and in other cases, requests should be made shortly after the case is docketed. See First Circuit Internal Operating Procedures, Part VII, Section B. 9

Case: 16-2377 Document: 00117080506 Page: 11 Date Filed: 11/15/2016 Entry ID: 6047830 Consistent with its Internal Operating Procedures, this Court should automatically expedite this appeal because it is required by statute. PROMESA explicitly directs the applicable United States Court of Appeals to advance on the docket and to expedite to the greatest possible extent the disposition of any manner brought under this Act. PROMESA 106(d). This Court has expedited other appeals based on similar statutory directives. In Yaman v. Yaman, 730 F.3d 1, 3 (1st Cir. 2013), the Court expedited an appeal under the Hague Convention on the Civil Aspects of International Child Abduction, reasoning that it was required to do so under Art. 2 of the Convention, which states, in relevant part: Contracting States shall use the most expeditious procedures available to secure within their territories the implementation of the objectives of the Convention[.] Similarly, in In re Extradition of Howard, 996 F.2d 1320, 1328 (1st Cir. 1993), the Court found that a treaty between the United States and United Kingdom required expedited review of appeals from extradition proceedings because the treaty provided for immediate appeals and expedited consideration at every stage. WHEREFORE, Peaje respectfully requests that the Court expedite the briefing and determination of this appeal and to that end enter an order: Directing that Peaje s brief on the merits and appendix shall be due on or before November 28, 2016; Appellees brief on the merits shall be due on or before December 19, 2016; and Peaje s reply brief shall be due on or before December 28, 2016; 10

Case: 16-2377 Document: 00117080506 Page: 12 Date Filed: 11/15/2016 Entry ID: 6047830 Scheduling an expedited oral argument for the first week of January 2017; and Granting such other and further relief to Peaje as the Court deems just and proper. Dated: November 15, 2016 Respectfully Submitted, MONSERRATE SIMONET & GIERBOLINI, LLC /s/ Dora L. Monserrate Peñagarícano Dora L. Monserrate Peñagarícano 101 San Patricio Avenue Maramar Plaza, Suite 1120 Guaynabo, Puerto Rico 00968 Phone: (787) 620-5300 Fax: (787) 620-5305 DECHERT LLP /s/ G. Eric Brunstad, Jr. G. Eric Brunstad, Jr. Allan S. Brilliant* Robert J. Jossen* John D. Biancamano* Andrew C. Harmeyer* 1095 Avenue of the Americas New York, New York 10036 Phone: (212) 698-3500 Fax: (212) 698-3599 *Application for Admission In Progress Attorneys for Peaje Investments LLC 11

Case: 16-2377 Document: 00117080506 Page: 13 Date Filed: 11/15/2016 Entry ID: 6047830 CERTIFICATE OF SERVICE I hereby certify that I served the foregoing Motion of Appellant Peaje to Expedite Briefing Schedule and for Expedited Consideration of its Appeal by Federal Express to Appellees counsel as follows: Counsel for Appellees Alejandro Garcia-Padilla, Juan C. Zaragoza-Gomez and Luis G. Cruz-Batista: Jose L. Ramirez-Coll Michael F. Williams Salvador Antonetti-Zequeria Peter A. Farrell Antonetti Montalvo & Ramirez-Coll Kirkland & Ellis LLP PO Box 13128 655 Fifteenth Street NW San Juan, Puerto Rico 00908 Washington, DC 20005 Counsel for Carmen Villar-Prado and Puerto Rico Highways and Transportation Authority: Julio Cesar Alejandro-Serrano Yassmin Gonzalez-Velez 90 Avenue Rio Hondo PMB 130 Gonzalez Velez Law Offices Bayamon, Puerto Rico 00961 PMB 131 La Cumbre 273 Sierra Morena San Juan, Puerto Rico 00926 Date: November 15, 2016 /s/ G. Eric Brunstad, Jr. G. Eric Brunstad, Jr.