[00:00:00] Speaker 04:
Our next case for argument is 2023-2100, Din v. United States.

[00:00:07] Speaker 04:
Mr. Marzula, please proceed.

[00:00:10] Speaker 00:
Thank you and good morning, Your Honor.

[00:00:14] Speaker 00:
If, hypothetically, Congress were to pass a statute that canceled the Covina bonds in question and seized the $600 million that was held in trust, transferred it to the General Treasury of Puerto Rico without compensating the bond holders at all, I think we'd agree that that would be a taking under the Fifth Amendment requiring just compensation.

[00:00:45] Speaker 00:
The issue in this case is whether it makes a difference that Congress, instead of doing that, chose to create an entity, the Oversight Board, and a process, the Title III Court, and accomplish effectively the same thing.

[00:01:11] Speaker 00:
Can Congress, in short, do indirectly what it cannot do directly to circumvent the requirements of the Fifth Amendment?

[00:01:21] Speaker 03:
Counsel, let me ask you a question.

[00:01:23] Speaker 03:
Haven't the real underlying substantive

[00:01:26] Speaker 03:
disputes here, been litigated before an Article III district judge from the Southern District of New York appealed and affirmed to the First Circuit, and then the Supreme Court's denied cert.

[00:01:38] Speaker 03:
I mean, hasn't this all been through the process?

[00:01:42] Speaker 03:
Why have these questions really not already been asked and answered?

[00:01:48] Speaker 03:
Or is this some kind of Hail Mary after losing at the district court, the circuit court, and then getting rebuffed at the Supreme Court?

[00:01:56] Speaker 00:
Well, first of all, the Supreme Court didn't grant cert, Your Honor.

[00:02:00] Speaker 00:
And the First Circuit found that there was a mootness by estoppel.

[00:02:06] Speaker 00:
That was a new one on me.

[00:02:08] Speaker 00:
But because the process had proceeded, because everything had lost.

[00:02:15] Speaker 00:
You lost at the First Circuit.

[00:02:16] Speaker 00:
We lost at the First Circuit not on the merits, but on the procedural ground that the monies had already been transferred and that there was reliance on that.

[00:02:32] Speaker 00:
So the First Circuit never reached the merits.

[00:02:34] Speaker 00:
The Title III court did look at the question of whether

[00:02:43] Speaker 00:
Puerto Rico or the Overseas.

[00:02:45] Speaker 03:
You mean the Article III district judge?

[00:02:47] Speaker 03:
I'm sorry?

[00:02:48] Speaker 03:
You said the Title III court.

[00:02:50] Speaker 03:
Yes.

[00:02:51] Speaker 03:
You mean the Article III judge from the Southern District?

[00:02:53] Speaker 03:
Or what are you talking about?

[00:02:54] Speaker 00:
Oh, no, Your Honor.

[00:02:56] Speaker 00:
PROMESA provides for the establishment under Title III of PROMESA provides for the establishment of a court appointed by the

[00:03:08] Speaker 00:
Chief Judge.

[00:03:10] Speaker 00:
Yes.

[00:03:11] Speaker 00:
So that process was a very limited process.

[00:03:16] Speaker 00:
It was not a litigation, did not involve the United States.

[00:03:19] Speaker 00:
And yes, you are entirely correct that some of the parties did raise the issue of is this a taking.

[00:03:28] Speaker 00:
However, that court did not have jurisdiction

[00:03:32] Speaker 00:
Similar to the Tucker Act, the United States was not a party.

[00:03:35] Speaker 00:
So I would say no.

[00:03:37] Speaker 00:
The issue has not yet been litigated.

[00:03:40] Speaker 00:
The trial judge did a pretty good job with most of the issues before him on this motion to dismiss.

[00:03:47] Speaker 00:
He found that he had jurisdiction.

[00:03:49] Speaker 00:
He found that statute of limitations hadn't run, that the plaintiffs had a compensable property right.

[00:03:56] Speaker 00:
But he slipped on the ice, if I could use that term today, in choosing the wrong test.

[00:04:05] Speaker 00:
for takings.

[00:04:07] Speaker 00:
That is, he looked at the test that this court prescribed on a very different factual situation in A&D Auto.

[00:04:17] Speaker 00:
And that test was whether the party had been coerced or was acting as an agent of the United States

[00:04:29] Speaker 00:
performing the actions, claiming attention.

[00:04:32] Speaker 02:
Why doesn't that rule apply here?

[00:04:34] Speaker 02:
I'm having a hard time appreciating that.

[00:04:36] Speaker 02:
I know you're going to get to it.

[00:04:38] Speaker 02:
But why wouldn't the A and D auto sales rule apply?

[00:04:43] Speaker 00:
Go ahead.

[00:04:44] Speaker 00:
Factually, Your Honor, A and D auto involved the question of whether a government offered loan to a private party, Chrysler.

[00:04:54] Speaker 00:
could still constitute a taking because of certain conditions attached to it by the government.

[00:05:00] Speaker 00:
And that's why the court came out with saying, well, if you can prove that Chrysler was coerced, or if you can prove that Chrysler was acting as the nation of the United States, then you may have a taking.

[00:05:14] Speaker 00:
In this situation, what we have, of course, is an oversight board created by Congress

[00:05:24] Speaker 00:
the members of which are appointed by the president, they operate above and beyond the authority of the territorial government of Puerto Rico.

[00:05:37] Speaker 02:
That is the- They have independent discretion, right?

[00:05:42] Speaker 02:
Yes.

[00:05:42] Speaker 02:
To take action.

[00:05:44] Speaker 00:
They have.

[00:05:46] Speaker 02:
I'm still not understanding, other than that there's factual differences, why the test of A&D auto sales wouldn't apply.

[00:05:54] Speaker 02:
I mean, A&D Auto went through multiple pages of talking about here are circumstances in which, even though it wasn't the government that was the direct actor, the government still could be held accountable.

[00:06:05] Speaker 02:
And here is these examples.

[00:06:08] Speaker 02:
And one of them was where there was coercion.

[00:06:11] Speaker 02:
One of them was where there's an agency relationship.

[00:06:14] Speaker 02:
I'm having a hard time understanding why that's not a reasonable test to also apply here, notwithstanding the factual differences.

[00:06:21] Speaker 02:
I don't think Andy was saying, this is the test to apply in the particular facts of this case only.

[00:06:28] Speaker 00:
And the difference, Your Honor, I think it comes down to the word authorization.

[00:06:33] Speaker 00:
This Court has held in cases like Hendler, where the government authorized state agents to come on plaintiff's property.

[00:06:44] Speaker 00:
in Purcell, the early Rails to Trails case, in which the government authorized the town of Burlington to create a hiking trail over the plaintiff's property, that where the government authorizes, where the Congress authorizes a third party to take private property without just compensation, that that, too, is a taker.

[00:07:11] Speaker 00:
And Indiato just didn't involve that.

[00:07:14] Speaker 04:
Congress authorized them to create an oversight board.

[00:07:17] Speaker 04:
And then from that point, it was up to the oversight board to decide what actions were necessary.

[00:07:23] Speaker 00:
What actions were necessary, Your Honor?

[00:07:25] Speaker 00:
I think that's exactly right to accomplish the congressional purpose.

[00:07:31] Speaker 00:
What was the congressional purpose in the Puerto Rico Oversight Management and Economic Stabilization Act?

[00:07:41] Speaker 00:
Congressional purpose was to provide a, quote, federal solution to the economic problems of Puerto Rico.

[00:07:50] Speaker 00:
There are statements that the bondholders, not the taxpayers, should be responsible for helping to stabilize the Puerto Rican economy.

[00:08:01] Speaker 00:
So the oversight board.

[00:08:02] Speaker 04:
That wasn't required.

[00:08:04] Speaker 04:
The oversight board, there's nothing in that statute that requires the oversight board to choose to hold the bondholders liable.

[00:08:15] Speaker 00:
Well, clearly, would the oversight board be performing its function?

[00:08:20] Speaker 00:
I suppose they could have just said, we're not going to do anything.

[00:08:24] Speaker 00:
But then I suspect that they would have been terminated for cause and new board members appointed.

[00:08:29] Speaker 00:
That is, there was a very specific purpose here.

[00:08:33] Speaker 00:
Congress knew that Puerto Rico had outstanding obligations, both bonds and other debts, that were hindering its economic stability.

[00:08:47] Speaker 00:
And one of the specific ways in which Congress sought to address that issue was to

[00:08:53] Speaker 00:
restructure the existing debts, specific discussion, and this is in our complaint, by the sponsor of the bill, Mr. Duffy, that without including the cofino bonds, you would get only about 30% of the debt, and that wouldn't do the job.

[00:09:14] Speaker 00:
You had to include at least 75% of the debt, which is

[00:09:19] Speaker 00:
using the Kofina bonds.

[00:09:21] Speaker 00:
So you have this extraordinary circumstance.

[00:09:23] Speaker 02:
Can I ask you something?

[00:09:24] Speaker 02:
Your argument, I think, hinges on your allegation that what happened with the Kofina bonds is a direct intended result of the government action here, right?

[00:09:39] Speaker 00:
Precisely, Your Honor.

[00:09:39] Speaker 00:
I think it is a causation issue.

[00:09:42] Speaker 02:
And so if we didn't agree with you, that would be the end of your argument, right?

[00:09:46] Speaker 02:
I'm just trying to make sure I understand.

[00:09:49] Speaker 00:
If you didn't agree with me that it's a causation issue- Or that it's a direct intended result of the- Oh, yeah.

[00:09:57] Speaker 00:
If you said that PROMESA wasn't intended- I mean, that's what the court below said.

[00:10:04] Speaker 02:
If we affirm that on that basis, then your argument would be lost.

[00:10:10] Speaker 00:
No, I don't think that's what the court below said, Your Honor.

[00:10:12] Speaker 00:
I think the court below looked at that narrow test, coercion or aging of the United States.

[00:10:19] Speaker 00:
and said, you're neither of those.

[00:10:21] Speaker 00:
Therefore, it's not a taking.

[00:10:23] Speaker 00:
And what he overlooked was that if Congress has authorized a third party to do the taking, Congress doesn't have to coerce them.

[00:10:35] Speaker 00:
And they don't have to be an agent of the United States.

[00:10:37] Speaker 00:
They can still be constituting a taking.

[00:10:41] Speaker 00:
That is, Congress can't simply say to someone, I'm not going to take the property.

[00:10:47] Speaker 00:
I'll tell Joe Smith to go take the property, and then I'm off the hook.

[00:10:52] Speaker 00:
This was done for a public use, just like other public actions.

[00:10:58] Speaker 00:
And that, of course, is a requirement of the Fifth Amendment as well.

[00:11:02] Speaker 00:
So we have a myriad cases.

[00:11:05] Speaker 00:
The government says, oh, this is only limited to real property cases.

[00:11:09] Speaker 00:
Well, this court and the Supreme Court have found legislative takings in cases like Sienega Gardens, where Congress altered the relationship between the mortgagee and the mortgagee.

[00:11:25] Speaker 00:
The same thing with the Depression Era foreclosure statute, which prohibited the mortgagee

[00:11:34] Speaker 00:
from foreclosing.

[00:11:37] Speaker 00:
Recently, the Supreme Court in the Cedar Point nursery case held that a regulation, it wasn't a statute, it was a California regulation, that allowed labor organizers to come on the property without permission was a taking.

[00:12:02] Speaker 00:
Again, the action was by the third party.

[00:12:05] Speaker 00:
It was simply the authorization of that action that constituted it.

[00:12:10] Speaker 03:
Let me ask you a question.

[00:12:11] Speaker 03:
So far, I haven't heard anything about your jurisdictional argument.

[00:12:14] Speaker 03:
Are you conceding the jurisdictional argument here?

[00:12:17] Speaker 00:
The trial court found there was jurisdiction, Your Honor, and I think correctly so.

[00:12:23] Speaker 00:
As you know, the rule is that

[00:12:28] Speaker 00:
jurisdiction in a case like this, in a taking case under the Tucker Act, seeking money damages under a provision of the Constitution, is presumed to be within the jurisdiction of the Court of Federal Claims, and only if there is a clear revocation of that jurisdiction.

[00:12:53] Speaker 00:
Do we find that the court is deprived of Tucker Act jurisdiction?

[00:12:57] Speaker 00:
I think that the trial court got that one entirely correct.

[00:13:01] Speaker 04:
Um, if it's okay, I just want to ask you one last question.

[00:13:05] Speaker 04:
Then we'll save the rest of your time for a bottle, which is just, so my problem is you want us to look at the direct intended result of government action test.

[00:13:15] Speaker 04:
Um, and you don't want, and you think the court of federal claims aired to the extent that it required coercion or agent of the United States, which comes from our A and D decision.

[00:13:24] Speaker 04:
I just don't see how I get around our A&D decision.

[00:13:29] Speaker 04:
What is your best argument for why that A&D decision doesn't apply?

[00:13:34] Speaker 04:
Or is your argument that our A&D decision is inconsistent with regional circuits, which allowed for takings to be found in broader circumstances than what we require in A&D?

[00:13:47] Speaker 00:
Yeah.

[00:13:49] Speaker 00:
What I'm saying, Your Honor, is that

[00:13:52] Speaker 00:
A&E was correct in its circumstances.

[00:13:57] Speaker 00:
It wouldn't apply, let's say, in a flooding case.

[00:14:01] Speaker 04:
Would you say that if the government... Let's just agree that water is just different.

[00:14:04] Speaker 00:
Okay, water's different.

[00:14:05] Speaker 04:
Let's just leave water off on the side, because everything about water is different.

[00:14:08] Speaker 04:
Go ahead, tell me something else.

[00:14:11] Speaker 00:
So how about the taking of money?

[00:14:17] Speaker 00:
I'm thinking here of Webb's Fabulous Pharmacy, those interest cases.

[00:14:23] Speaker 00:
How about Loretta, a case in which New York had a statute that said cable companies can come install cable on your property?

[00:14:36] Speaker 00:
Again, there was no coercion.

[00:14:38] Speaker 00:
There was no requirement.

[00:14:40] Speaker 00:
that cable companies install cable.

[00:14:43] Speaker 04:
So then why is A&D correct?

[00:14:45] Speaker 04:
Why isn't your argument that our decision in A&D needs to be overruled?

[00:14:50] Speaker 00:
No, because in A&D, there wasn't any question of government authorizing any action by Pricelar.

[00:15:00] Speaker 00:
That simply wasn't the factual circumstance.

[00:15:04] Speaker 00:
So they are different for factual circumstances where a taking can occur.

[00:15:11] Speaker 00:
So Andy was simply the wrong choice for this fact pattern.

[00:15:18] Speaker 00:
Just as flood may have a certain fact pattern, water rights takings may have a different fact pattern, and they're looked at differently.

[00:15:29] Speaker 00:
What we do know, what you'd have to do to

[00:15:34] Speaker 00:
to affirm what the trial court found was to say that Hendler was wrongly decided because nobody coerced the state of California to come on Hendler's property.

[00:15:50] Speaker 00:
Purcell was wrongly decided because nobody coerced the town of Burlington to build a hiking path on Purcell's property.

[00:16:01] Speaker 00:
That is, that's simply a different set of facts that also constitutes a tanking.

[00:16:10] Speaker 00:
We do have these cases, like the interest cases I mentioned, Webb's Fabulous Pharmacy, holding that the interest on a deposit with the court belonged to the party that deposited the money, or the parties that were entitled to the money, and a statute requiring that that money be sent elsewhere.

[00:16:35] Speaker 00:
was the taking.

[00:16:36] Speaker 04:
OK, we've used all your time and all your rebuttal time and more than that.

[00:16:39] Speaker 04:
I'm going to restore your rebuttal time, but let's go ahead and hear from him.

[00:16:41] Speaker 00:
I appreciate that.

[00:16:42] Speaker 00:
Thank you, Your Honor.

[00:16:52] Speaker 01:
If Your Honor may it please the Court, I can address the jurisdictional argument first, if you would like, or I could get right into the merits of, I think, what most of the colloquy here was.

[00:17:04] Speaker 01:
I mean, A&D is the correct test to apply here.

[00:17:07] Speaker 01:
It's not just been applied in A&D.

[00:17:09] Speaker 01:
If you look at cases following it, Welty is a case that we cited in our brief.

[00:17:14] Speaker 01:
Within the past year, Great Northern Properties was another case.

[00:17:18] Speaker 01:
where you have a third party, the allegation is instigation of that third party's government action by the federal government, including Congress.

[00:17:30] Speaker 02:
What about the argument that

[00:17:33] Speaker 02:
Um, this is an authorization case, the Congress authorized, uh, action.

[00:17:40] Speaker 02:
And so therefore that's why it's different than the A and D. Sure.

[00:17:43] Speaker 01:
A few points about that.

[00:17:45] Speaker 01:
All of the cases that were cited in the trial court evaluated those cases.

[00:17:51] Speaker 01:
If we talk about Cedar Point, Loretto, what we're talking about there is on the face of the statute, there is a taking.

[00:18:01] Speaker 01:
The Supreme Court found that on the face of the statute at issue in Cedar Point,

[00:18:07] Speaker 01:
It essentially created a physical easement, same thing in Loretto.

[00:18:11] Speaker 01:
Handler involved a direct order from the federal government, essentially an order that allowed state officials to go onto property in the first instance.

[00:18:24] Speaker 01:
So that's direct and intended.

[00:18:26] Speaker 01:
So what we have here is a broad generalized statute

[00:18:29] Speaker 01:
Um, and I want to address a couple of things on that, um, because unlike in these other cases where there's a direct, uh, government action that the legislature's imposing that in and of itself imposes a taking and those cases, physical takings here, we have a statute that incorporates all sorts of provisions of the bankruptcy code.

[00:18:54] Speaker 01:
And so there's no requirement essentially.

[00:18:58] Speaker 01:
The conclusion that the Title III Court reached and the First Circuit affirmed was not inevitable.

[00:19:04] Speaker 01:
It was not required.

[00:19:05] Speaker 01:
It was not commanded.

[00:19:06] Speaker 01:
It was not ordered.

[00:19:07] Speaker 01:
And you can see that even when you look at the complaint in this case.

[00:19:12] Speaker 01:
Plaintiffs are essentially saying here, we have secure debt.

[00:19:15] Speaker 01:
We have special revenue debt.

[00:19:17] Speaker 01:
And as we set forth in our briefing, PROMESA in section 2161 incorporates many, many provisions of the municipal bankruptcy law.

[00:19:28] Speaker 01:
So essentially, all of those provisions that protect special revenue have been incorporated into PROMESA.

[00:19:36] Speaker 01:
Uh, it also has, uh, you know, there's also provisions that with respect to an automatic stay where, um, you know, a litigant can essentially go and try to get adequate protection for their property interests through that process.

[00:19:51] Speaker 01:
All of those come in through chapter nine from the chapter nine municipal bankruptcy law.

[00:19:56] Speaker 01:
And so essentially what we have here is plaintiffs sat on their rights.

[00:20:01] Speaker 01:
Congress enacted a broad overall statute.

[00:20:03] Speaker 01:
It didn't require anything.

[00:20:05] Speaker 01:
It provided discretion to the Oversight Board.

[00:20:08] Speaker 01:
The Oversight Board had to make numerous discretionary decisions.

[00:20:11] Speaker 01:
Plaintiffs did not file to seek to

[00:20:18] Speaker 01:
essentially get relief from the automatic stay.

[00:20:20] Speaker 01:
Plenty of litigants did.

[00:20:22] Speaker 01:
If you compare the Altair case, which was in the Court of Federal Claims, they went and tried to get relief from the automatic stay and got relief from the automatic stay.

[00:20:30] Speaker 01:
So all of these are steps that plaintiffs could have taken.

[00:20:34] Speaker 01:
But what we're looking at here is we have a third party taking all of these discretionary actions.

[00:20:40] Speaker 01:
And when we're talking about a legislative takings claim,

[00:20:42] Speaker 01:
You have to look at the statute.

[00:20:45] Speaker 01:
What does the statute say?

[00:20:46] Speaker 01:
And there's no coercion, and there's no agency.

[00:20:51] Speaker 01:
And we know this because the trial court found that plaintiff conceded those below.

[00:20:56] Speaker 01:
And they've conceded them in the opening brief here.

[00:20:58] Speaker 02:
So the only case- Can I make sure I understand?

[00:21:01] Speaker 02:
You're saying there's no direct and intended result because there's so many options that the Oversight Board had in dealing with the situation.

[00:21:09] Speaker 02:
Is that a summary of it, like so many different actions?

[00:21:13] Speaker 01:
There's so many discretionary actions, but also you have to look at the provisions of PROMESA.

[00:21:19] Speaker 01:
So not only are there these various options, if what plaintiffs are claiming, which they do claim, is they have this specific type of debt, and they claim that about five or six places in the complaint in their briefing,

[00:21:31] Speaker 01:
PROMESA incorporated the protections from the municipal bankruptcy law into PROMESA.

[00:21:38] Speaker 01:
And so plaintiffs could have gone and tried to essentially use those provisions to achieve a situation where they got 100% recovery on their debt.

[00:21:51] Speaker 01:
So if you think about a situation here, let's just say that

[00:21:56] Speaker 01:
Let's just say that plaintiffs, hypothetically, their debt was 100% protected.

[00:22:04] Speaker 01:
Everyone agreed on that.

[00:22:05] Speaker 01:
But premises said you had to file a claim.

[00:22:08] Speaker 01:
And plaintiffs just never filed a claim.

[00:22:10] Speaker 01:
Would that be a legislative taking by Congress?

[00:22:13] Speaker 01:
Because they didn't take any of these steps, even though they could?

[00:22:16] Speaker 04:
One place I'm struggling is where the line is between

[00:22:22] Speaker 04:
maybe authorization on the one hand versus coercion and agency on the other.

[00:22:29] Speaker 04:
I'm having trouble putting these cases all nicely into two discrete buckets, one that sort of honors A and D and the notion that there has to be coercion or something, and then others which say if the government

[00:22:46] Speaker 04:
expressly authorized a taking, that that is sufficient.

[00:22:52] Speaker 04:
So where is that line?

[00:22:54] Speaker 04:
How do I put those two buckets clearly apart?

[00:22:58] Speaker 04:
And by the way, nothing's ever clear in takings.

[00:23:00] Speaker 01:
Sure, Your Honor.

[00:23:01] Speaker 01:
And I recognize that.

[00:23:02] Speaker 01:
But I think A&D sets out the general standard, and for the most part, for third party action.

[00:23:07] Speaker 01:
You have to show coercion.

[00:23:08] Speaker 01:
You have to show agency.

[00:23:10] Speaker 01:
There are a limited number of cases, which we've talked about here, where essentially, on its face, Congress is essentially, or the federal government, is commanding, requiring something that in and of itself is a taking.

[00:23:24] Speaker 01:
So that's a little bit different than sort of

[00:23:29] Speaker 01:
the sort of A and D model, but it's all getting to the same point.

[00:23:33] Speaker 04:
They weren't requiring something.

[00:23:34] Speaker 04:
I mean, like in Loretto, they authorized it.

[00:23:36] Speaker 04:
They didn't require it.

[00:23:37] Speaker 04:
They didn't say, you must go on their land.

[00:23:39] Speaker 01:
But on its face, the statue in Loretto was a taking and there was nothing else.

[00:23:46] Speaker 01:
Because the direct and intended consequence was that essentially there was a physical easement on anyone's property who was going to get the cable wire.

[00:23:57] Speaker 01:
So all of these cases,

[00:23:59] Speaker 01:
are direct and intended cases that have been put forth.

[00:24:02] Speaker 01:
And for the reason I just talked about, there's nothing direct and intended about incorporating in into PROMESA all of these various steps, having what plaintiffs have essentially conceded as a third party here, the oversight board, taking all of these various steps.

[00:24:18] Speaker 01:
And then plaintiff not coming in and essentially exercising its rights, as other parties did,

[00:24:25] Speaker 04:
uh... so there are a lot i think that one of the arguments i mean i think you're on but i understand the argument to be that there wasn't anything oversight could or could really do other than that well that i think this is the only way they could really capture a sufficient amount of the debt to do that restructuring but respectfully on the one hand so the argument is completely inconsistent because they say they have special revenue debt

[00:24:48] Speaker 01:
And under the code provisions that had been applied, 552, for example, would not apply for special revenues coming in going forward.

[00:24:59] Speaker 01:
And so if that is the case, then there are naked allegations that this debt was targeted cannot be true.

[00:25:09] Speaker 02:
Why did the Court of Federal Claims assume they were?

[00:25:12] Speaker 01:
assumes well they assume that uh... this was a direct intended result and then went on well i think you know i i think he was specifically applying a and d and getting towards uh... you know sort of what was directed intended i think when i think when he evaluated these other cases including cedar point and whatnot

[00:25:37] Speaker 01:
I think he's getting towards the same point, which is those are physical taking cases, which, essentially, on their face,

[00:25:45] Speaker 01:
are direct and intended because there's a taking on its face.

[00:25:49] Speaker 01:
So I think where he's coming from is exactly applying the A&D framework when we have a third party action, which is what we have here.

[00:26:01] Speaker 04:
But you think to the extent that he said, I accept for purposes of this order, that this was the direct and intended effect, or that's probably not right?

[00:26:11] Speaker 01:
Well, I don't think that it could possibly be right that the direct and intended, when you look at the statute on its face, which is what you have to do, when you look at Cedar Point, what the Supreme Court is doing is they didn't look at whether there was a trial as to whether or not union organizers went onto a property a set number of days.

[00:26:31] Speaker 01:
They looked at the statute on the face and whether that was direct and intended.

[00:26:35] Speaker 01:
It was direct and intended because,

[00:26:37] Speaker 01:
On its face, that created a physical easement for those union organizers to go to the property.

[00:26:43] Speaker 01:
As complicated as takings law is, this set of cases actually goes well together.

[00:26:51] Speaker 01:
Because as this court has said a number of times, the Supreme Court has said, there's generally not takings liability for the federal government, for Congress, when you just have a general statute.

[00:27:03] Speaker 01:
I mean, it itself says that.

[00:27:06] Speaker 04:
Suppose the statute said, in contrast to what it does, it created promessa, it created an oversight board, and suppose it's expressly said, and the oversight board is authorized to basically devalue the junior bondholders' value, if necessary, to achieve the overall restructuring that is required.

[00:27:27] Speaker 04:
Suppose the statute expressly said that, that the oversight board doesn't have to do it, but they are authorized to do so in order to effectuate the necessary restructuring.

[00:27:40] Speaker 01:
Well, it's obviously a contrafactual, because it's going through and removing 552, 922, 928.

[00:27:46] Speaker 01:
But setting all of that aside, I mean, it could be it's potentially a different case.

[00:27:52] Speaker 01:
I mean, we don't think it's a per se.

[00:27:54] Speaker 02:
We understand that it doesn't have that in the rule.

[00:27:57] Speaker 02:
But what is your answer to the kind of set it up?

[00:28:00] Speaker 01:
I mean, I think we would have to see what it says.

[00:28:03] Speaker 01:
If, for example, the statute said we're going to eliminate all of the junior bondholders, it made it essentially inevitable.

[00:28:14] Speaker 01:
There was no discretion by this third party to actually do this.

[00:28:18] Speaker 02:
What if it just authorized them to do it?

[00:28:21] Speaker 01:
Authorized them to do what, Your Honor?

[00:28:24] Speaker 02:
To devalue these particular bonds.

[00:28:27] Speaker 01:
Well, again, mostly on its face.

[00:28:31] Speaker 01:
Well, I think

[00:28:32] Speaker 01:
Potentially, that's a different case.

[00:28:33] Speaker 01:
But here we have all sorts of provisions.

[00:28:37] Speaker 02:
Do you have an answer to the hypothetical, just assuming that was the case in front of us?

[00:28:41] Speaker 01:
Well, I would like to see the exact language of what it's saying, because we have PROMESA.

[00:28:47] Speaker 01:
If you look at 2161, it incorporates, I think, over 100 provisions that all have to be evaluated when you're looking at whether or not something is direct and intended.

[00:29:01] Speaker 01:
If the statute said the oversight board has to eliminate junior bondholders or get to a certain number.

[00:29:11] Speaker 01:
But here, they don't have to get to a certain number.

[00:29:14] Speaker 01:
And part of the reason why we know this.

[00:29:15] Speaker 02:
But you didn't when you said if.

[00:29:18] Speaker 02:
And then if you're hypothetical, what language do you think would cause this to be a directed and intended result?

[00:29:25] Speaker 01:
Well, if it was directed, for example, at the Covina bonds, if it said that there had to be a certain percentage of a recovery, because here what we have is there can be 100% recovery.

[00:29:37] Speaker 01:
And part of the reason why we know this is plaintiffs submitted a 28-J letter that talked about a first circuit decision involving PREPA, which is another instrumentality of Puerto Rico, within the last 10 days.

[00:29:51] Speaker 01:
And that, essentially, the First Circuit basically was saying that some of those are special revenues.

[00:29:59] Speaker 01:
Some of that has to be protected.

[00:30:01] Speaker 01:
And essentially, they can't get a haircut.

[00:30:03] Speaker 01:
So none of this was inevitable.

[00:30:05] Speaker 04:
So my problem is, Loretto, they authorized the cable companies to go out on property.

[00:30:09] Speaker 04:
But they didn't say, go to this property and take this.

[00:30:12] Speaker 04:
They authorized them to do so as necessary.

[00:30:15] Speaker 04:
That's it.

[00:30:17] Speaker 04:
I want you to go here and put your box here or do here and go here.

[00:30:19] Speaker 04:
They weren't expressly authorized to take property from particular individuals.

[00:30:27] Speaker 04:
Likewise here, this oversight board was authorized to restructure the debt in Puerto Rico.

[00:30:33] Speaker 04:
So it's not that they earmarked particular individuals who would have to be the ones who lost out.

[00:30:41] Speaker 04:
It gave them the authority to do that, though.

[00:30:44] Speaker 01:
But Your Honor, restructured with certain statutory guideposts that have to be followed, and that's the difference.

[00:30:52] Speaker 01:
Again, all of those provisions are incorporated into PROMESA from Chapter 9 of the Municipal Bankruptcy Law.

[00:30:59] Speaker 01:
So there's all sorts of rights that plaintiffs had here.

[00:31:03] Speaker 01:
And again, if we're talking about special revenue debt, that was

[00:31:07] Speaker 01:
Again, plaintiffs argue that that was protected under Chapter 9, and that's why they didn't just incorporate those Chapter 9 provisions.

[00:31:14] Speaker 01:
But those are incorporated in whole here.

[00:31:16] Speaker 01:
So Loretto is one for one.

[00:31:18] Speaker 01:
On its face, it's a physical taking.

[00:31:21] Speaker 01:
And in that case, there may not be just compensation at all, because what is the harm

[00:31:28] Speaker 04:
essentially but that's why I'm wondering that's why I got you I get on its face physical taking that's why I'm wondering if this case expressly authorized if the statute says you may turn to the Covina bonds and devalue the junior bondholders if necessary to achieve the restructuring

[00:31:46] Speaker 04:
you know, identified herein.

[00:31:48] Speaker 04:
They don't have to do it that way.

[00:31:50] Speaker 04:
They have the discretion to choose if they can find a different way to do it, they can.

[00:31:53] Speaker 04:
But if Congress went so far as to narrowly give them this exact example of how they are in fact authorized to proceed

[00:32:00] Speaker 04:
to effectuate restructuring.

[00:32:02] Speaker 01:
I don't know what to do with that.

[00:32:03] Speaker 01:
Respectfully, what exact example?

[00:32:04] Speaker 01:
Are you talking about something other than the language of the statute?

[00:32:08] Speaker 01:
Yes, of course.

[00:32:09] Speaker 04:
I'm saying suppose that the statute itself expressly told the Oversight Board it had permission to take the exact actions that were taken here if necessary to do the debt restructuring that's required overall.

[00:32:24] Speaker 01:
Well, I mean, I guess if it said that these were otherwise protected, and the Oversight Board is authorized to go and do that.

[00:32:34] Speaker 01:
But again, that's so far away from what happened.

[00:32:38] Speaker 01:
That would be certainly a different situation here.

[00:32:42] Speaker 01:
I don't think it's even, I think it's still more attenuated than any of the direct statutory examples that we've talked about, where there's a- I get it.

[00:32:53] Speaker 04:
All right, I got it.

[00:32:54] Speaker 04:
Anything else?

[00:32:57] Speaker 04:
He went over.

[00:32:57] Speaker 04:
I'll let you go over.

[00:32:58] Speaker 01:
I'm sort of happy to address the jurisdictional argument really quick.

[00:33:02] Speaker 01:
I mean, our argument there is just on the face of the statute, claims have to be brought into district court because

[00:33:11] Speaker 01:
This taking lawsuit constitutes, quote, any action.

[00:33:16] Speaker 01:
It arises at least in part under PROMESA.

[00:33:19] Speaker 01:
And we think that those would have to be channeled.

[00:33:22] Speaker 01:
Congress is intended for those to be channeled to district court.

[00:33:25] Speaker 01:
We think that other provisions 2150 of the statute supports that, where Congress said they did not want to essentially be on the hook for paying any money with respect to the principal and interest on the bonds.

[00:33:39] Speaker 01:
We also think that within the Title III process, a plan could not be confirmed if it violated the law.

[00:33:47] Speaker 01:
And so the Title III court even evaluated takings claims in that situation.

[00:33:52] Speaker 01:
And when you look at really what it comes down to, what property we have here, what we have here is principal and interest.

[00:34:00] Speaker 01:
And so if the Title III court were to find that by essentially, for example, getting rid of what plaintiffs are saying is secure debt, if that was a taking, the end result would be that they would get the full principle and interest on the bonds.

[00:34:18] Speaker 01:
And so we think that there's avenues for

[00:34:21] Speaker 01:
plaintiffs to have taken.

[00:34:24] Speaker 01:
We think that that's really what Congress intended for these claims.

[00:34:28] Speaker 01:
And that matches with just the situation on the ground where... I know.

[00:34:34] Speaker 04:
But even the language that you just used, we think that's what Congress really intended with these claims.

[00:34:39] Speaker 04:
Inherent and exactly the language it just chose is a lack of express.

[00:34:44] Speaker 04:
We think that's what Congress really intended.

[00:34:48] Speaker 04:
It has to be expressed.

[00:34:50] Speaker 04:
The way you just argued it was the best acknowledgment I could have gotten that it wasn't expressed, because you didn't even say it was expressed.

[00:34:58] Speaker 04:
You used Squish language.

[00:35:01] Speaker 04:
And that's OK, but I'm just telling you why I also don't think it's expressed.

[00:35:08] Speaker 01:
Well, we don't think that the language in 2126 is Squish.

[00:35:14] Speaker 01:
you can't read that to sort of carve out taking slimes just on its face.

[00:35:21] Speaker 01:
And that makes it different from the various cases like Persult.

[00:35:25] Speaker 01:
It makes a difference from Ruckelshaus.

[00:35:27] Speaker 01:
It makes a difference from all of the situations where the government has pointed to language where essentially channeling.

[00:35:36] Speaker 04:
To be clear, I think the language could be construed the way you want.

[00:35:39] Speaker 04:
I just don't find it to be expressed.

[00:35:41] Speaker 04:
And the case law says to take the weight off your jurisdiction, it has to be expressed.

[00:35:45] Speaker 01:
Well, again, I think on its face, I don't think the trial court actually went through and parsed the specific language of what constitutes any action, what constitutes arising under, at least in part.

[00:35:59] Speaker 01:
Arising under, at least in part, I'm not sure what meaning that could possibly have if there could only be essentially one essentially substantive law that a claim could arise under.

[00:36:11] Speaker 04:
Okay, I think we have your argument.

[00:36:13] Speaker 04:
I thank you.

[00:36:14] Speaker 04:
And Mr. Mosuloff, you have some rebuttal time.

[00:36:18] Speaker 01:
Thank you, Your Honor.

[00:36:23] Speaker 00:
Thank you, Your Honor.

[00:36:24] Speaker 00:
And I really want to make, I think, just two points.

[00:36:27] Speaker 00:
First of all, this case is here on a motion to dismiss in which the facts of the complaint are assumed to be true.

[00:36:37] Speaker 00:
I think we've gotten well beyond the allegations of the complaint.

[00:36:41] Speaker 00:
The complaint certainly alleges that Congress adopted promessa for the purposes we've described and that it was a direct and intended result of Congress that this statute

[00:36:53] Speaker 00:
which it was passed by Congress for the purpose of restructuring debt of Puerto Rico, was, in fact, that the direct and intended result was that at least debts like Covina's, Covina was specifically mentioned

[00:37:16] Speaker 00:
and we've alleged this in our complaint, specifically mentioned during the debate.

[00:37:21] Speaker 00:
We need to have the Kofina debts in this process.

[00:37:26] Speaker 00:
Now, let's talk about Kofina or PROMESA for just a moment.

[00:37:30] Speaker 00:
Council would like you to think, or perhaps leave you with the thought, that, oh, this is just a bankruptcy statute.

[00:37:37] Speaker 00:
It is not.

[00:37:39] Speaker 00:
First of all, it does not require that any

[00:37:44] Speaker 00:
of the entities, like Kofina, be insolvent, because Kofina was not insolvent.

[00:37:50] Speaker 00:
It was paying its debts up to the day the statute was passed, and it had $600 million in a trust fund, which was sufficient to pay off the principle and interest of these bonds as they arose.

[00:38:07] Speaker 00:
What Congress created in PROMESA was a process whereby the

[00:38:14] Speaker 00:
The Oversight Board was tasked with going out to certify, that's the term used, territorial instrumentalities.

[00:38:27] Speaker 00:
Remember, it's the territory of the United States.

[00:38:30] Speaker 00:
The statute was passed under Congress's authority over territories and property of the United States.

[00:38:39] Speaker 00:
It's a regulation of property of the United States.

[00:38:43] Speaker 00:
The Oversight Board was tasked with going out and restructuring existing debts.

[00:38:50] Speaker 00:
Covina was discussed during the congressional debates.

[00:38:54] Speaker 04:
And the Oversight Committee... Your time is up and you're repeating yourself.

[00:38:57] Speaker 04:
So we're going to call it a day.

[00:39:00] Speaker 00:
Very good, Your Honor.

[00:39:00] Speaker 00:
I would just ask then that you look at the provisions of PROMESA by which Covina does not file.

[00:39:10] Speaker 00:
It's filed by the Oversight Board.

[00:39:12] Speaker 00:
without Kofina's authorization.

[00:39:14] Speaker 04:
OK.

[00:39:14] Speaker 04:
Thank you very much.

[00:39:15] Speaker 00:
Thank you, Your Honor.

[00:39:16] Speaker 04:
I thank both counsels.

[00:39:16] Speaker 04:
This case is taken under submission.