United States Court of Appeals For the First Circuit
No. 23-1747
IN RE: PUERTO RICO PUBLIC FINANCE CORPORATION,
Debtor,
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as administrative supervisor for Puerto Rico Public Finance Corporation,
Petitioner, Appellee,
v.
AMERINATIONAL COMMUNITY SERVICES, LLC, as servicer for GDB Debt Recovery Authority; CANTOR-KATZ COLLATERAL MONITOR LLC, as collateral monitor for DRA Bondholders,
Objectors, Appellants,
INVESCO ADVISERS, INC.; YUSIF MAFUZ-BLANCO; PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY; U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee under the Trust Agreement between PFC and U.S. Bank dated as of June 1, 2004; U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Trust Agreement between PFC and U.S. Bank dated as of June 1, 2004,
Respondents, Appellees,
FIR TREE CAPITAL MANAGEMENT, LP,
Creditor, Appellee,
GDB DEBT RECOVERY AUTHORITY,
Interested Party, Appellee. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
[Hon. Laura Taylor Swain,* U.S. District Judge]
Before
Montecalvo, Lipez, and Rikelman, Circuit Judges.
Nayuan Zouairabani-Trinidad, with whom Arturo J. García-Solá and McConnell Valdés LLC were on brief, for appellant AmeriNational Community Services, LLC.
Benjamin S. Kaminetzky, with whom Brian M. Resnick, Marc J. Tobak, Stephanie Massman, Tess Liegeois, Davis Polk & Wardwell LLP, Carmen D. Conde Torres, William J. Alemañy-Mendez, and C. Conde & Associates were on brief, for appellant Cantor-Katz Collateral Monitor LLC.
Matthew P. Kremer, with whom Peter Friedman and O'Melveny & Myers LLP were on brief, for appellee Puerto Rico Fiscal Agency and Financial Advisory Authority.
Pieter H.B. Van Tol, III, with whom Ronald J. Silverman, Sara M. Posner, Katherine B. Wellington, Hogan Lovells US LLP, Eric A. Tulla, and Rivera, Tulla and Ferrer, LLC were on brief, for appellees U.S. Bank Trust National Association and U.S. Bank National Association.
Andrew D. Behlmann, with whom Michael Papandrea, Lowenstein Sandler LLP, Nayda I. Pérez-Román, and Toro Colón Mullet P.S.C., were on brief, for appellee Fir Tree Capital Management, LP.
Brian S. Rosen and Proskauer Rose LLP on brief for appellee Financial Oversight and Management Board for Puerto Rico.
Manuel Fernández-Bared, Linette Figueroa-Torres, Toro Colón Mullet P.S.C., Douglas Buckley, and Kramer Levin Naftalis & Frankel LLP on brief for appellee Invesco Advisers, Inc.
* Of the Southern District of New York, sitting by designation.
- 2 - July 17, 2024
- 3 - RIKELMAN, Circuit Judge. This appeal stems from the
restructuring of Puerto Rico's public debts under Title VI of the
Puerto Rico Oversight, Management, and Economic Stability Act
("PROMESA"). Although the specific debt restructuring transaction
at the heart of this appeal is complex, the legal issue before us
is straightforward: Do the preliminary or final transaction
documents control? Especially when the preliminary documents make
clear that they are provisional, and the final documents state
that they replace any earlier agreements, the final documents must
govern under basic contract law principles. The district court
concluded as much, and we agree and affirm.
I. BACKGROUND
This case involves an array of Puerto Rico government
entities, creditors, debt instruments, and legal documents. It
also involves two "Qualifying Modifications": the 2018
restructuring of the debts of the Government Development Bank
("GDB," and the "GDB Qualifying Modification"), and the 2022
restructuring of the debts of the Public Finance Corporation
("PFC," and the "PFC Qualifying Modification"). We explain the
complex facts involved in this appeal below.
A. Relevant Facts
GDB is a largely inactive government agency that was
established to "aid the Commonwealth Government in the performance
of its fiscal duties" and to "develop the economy of Puerto Rico."
- 4 - P.R. Laws Ann. tit. 7, § 551. One of its subsidiaries is PFC.
Between August 2011 and June 2012, GDB issued standby letters of
credit (the "PFC Letters of Credit") to certain PFC bondholders
(the "PFC Creditors"). A standby letter of credit is a guarantee
of a debt owed by a third party (in this case, GDB guaranteed PFC's
bonds). See Itek Corp. v. First Nat'l Bank of Bos., 704 F.2d 1,
8 (1st Cir. 1983) (citing Douglas G. Baird, Standby Letters of
Credit in Bankruptcy, 49 U. Chi. L. Rev. 130, 135 (1982)).
Unfortunately, Puerto Rico's public finances
deteriorated after 2012. Facing a growing financial crisis, the
Government of Puerto Rico implemented a moratorium on debt-service
payments in 2016, including GDB's payments to the PFC Creditors
based on the PFC Letters of Credit. Congress enacted PROMESA
shortly thereafter. In early 2017, GDB and its parent entity, the
Puerto Rico Fiscal Agency and Financial Advisory Authority
("AAFAF" by its Spanish acronym), began to consider restructuring
GDB's debts.
PROMESA contains two mechanisms -- one in Title III and
one in Title VI -- for restructuring Puerto Rico's public debts.1
1 "Title III" and "Title VI" refer to the portions of the PROMESA legislation as originally enacted by Congress. See Puerto Rico Oversight, Management, and Economic Stability Act, Pub. L. No. 114-187, tits. III, VI, 130 Stat. 549, 577, 603 (2016) (Title III codified at 48 U.S.C. §§ 2161-78; Title VI codified at 48 U.S.C. §§ 2231-32).
- 5 - The Title III restructuring process mirrors traditional bankruptcy
court proceedings and permits a party to petition a federal court
to compel the creation and enforcement of a plan of adjustment.
See 48 U.S.C. § 2164 (describing petition process under Title III);
see also id. § 2161(a) (incorporating provisions of the bankruptcy
code). By contrast, Title VI of PROMESA allows municipal entities
to enter voluntary and binding restructuring arrangements, called
Qualifying Modifications, with the consent of a supermajority of
their creditors. See id. § 2231(g), (j). The resulting debt
adjustment -- which is just an agreement or set of agreements
between the municipal borrowers and their creditors -- becomes a
"Qualifying" Modification if the Financial Oversight and
Management Board for Puerto Rico ("FOMB") certifies that it
complies with PROMESA and a federal district court approves it.
Id. § 2231(g)(2), (m)(1)(B), (m)(1)(D). The key feature of Title
VI is that a finalized Qualifying Modification becomes "conclusive
and binding on all holders of Bonds whether or not they have
given . . . consent." Id. § 2231(m)(1) (emphasis added).
At the direction of Puerto Rico's legislature,2 GDB began
initial negotiations to restructure its debts under Title VI in
2017. These negotiations resulted in a Restructuring Support
2Through the 2017 GDB Debt Restructuring Act, the Puerto Rico legislature formally directed GDB to seek a "restructuring transaction" under Title VI. P.R. Laws Ann. tit. 7, § 3162.
- 6 - Agreement (the "RSA") with GDB's major creditors, which outlined
the terms of a consensual reorganization of GDB's debts. The RSA
was executed on May 15, 2017, and included a Term Sheet detailing
important aspects of the proposed GDB Qualifying Modification.
The Term Sheet provided that GDB's creditors would swap their
existing bonds for new bonds worth fifty-five cents on the dollar.
These new bonds would be issued by the Debt Recovery Authority
("DRA"), an independent public trust created by the legislature to
facilitate the GDB Qualifying Modification.3 See P.R. Laws Ann.
tit. 7, § 3171. As part of the Title VI process, GDB would transfer
most of its assets to DRA to provide collateral for the new bonds.4
DRA would then transfer title to those assets to Wilmington Trust,
as the Indenture Trustee, to hold the property for payment on the
DRA bonds.
Key to the case before us, Schedule 2 of the Term Sheet
described GDB's outstanding contingent and unliquidated bond
claims, including its debt to the PFC Creditors under the PFC
Letters of Credit. In a footnote, the Term Sheet specified that
although the PFC Creditors were eligible to receive a "pro rata
distribution" of the new DRA bonds to satisfy GDB's guarantee, DRA
3 The key documents in this appeal thus refer to DRA as "the Issuer." 4 Many of the RSA's provisions were also reflected in the GDB Restructuring Act. See, e.g., P.R. Laws Ann. tit. 7, § 3194(a) (directing transfer of collateral property).
- 7 - would issue new bonds after closing5 only if the PFC Creditors
first demonstrated "valid claims." The provision read in full:
No New Bonds will be issued at closing in respect of contingent and unliquidated claims as to which no claim has been made prior to the Closing Date. If, subsequent to the Closing Date, valid claims are made on any contingent and unliquidated claim specified in Schedule 2, the Holders of such claims will receive a pro rata distribution of the New Bonds.
(Emphasis added.) The parties refer to this condition as the Valid
Claim Requirement, and it forms the flash point in this appeal.
Although many of the Term Sheet's provisions were later
reflected in the GDB Qualifying Modification, the Term Sheet made
clear that it did "not constitute a commitment by any party" and
that it was subject "without limitation" to "requisite approvals
under Title VI of PROMESA," as well as "execution and delivery of
definitive agreements (the 'Definitive Documents')." (Emphasis
added.) Once the Definitive Documents were executed and delivered,
the RSA would "automatically be deemed amended to replace the . . .
Term Sheet with the Definitive Documents."
Around August 9, 2018, GDB began to solicit consent for
its Qualifying Modification from all GDB creditors, including
those who had not already agreed to the RSA. It did so through an
5 As set out in the Term Sheet and the Solicitation Statement, which we examine in greater detail below, the Closing Date is the date on which GDB's creditors would exchange their existing bonds for new DRA bonds to consummate the GDB Qualifying Modification.
- 8 - extensive Solicitation Statement. This document outlined an array
of information one would expect in a debt restructuring, including
the nature of the bond transaction, the exchange ratio for swapping
existing bonds for new bonds, and the collateral property. It
also contained background information about GDB's financial stress
and risk factors associated with the transaction. The Solicitation
Statement valued the PFC Creditors' claim at $86.7 million (before
the discount of fifty-five cents on the dollar) and, like the Term
Sheet, described the Valid Claim Requirement.
The Solicitation Statement also warned that it was
merely provisional. It cautioned that all new bonds would "be
issued pursuant to the terms and conditions of the Bond Indenture,
to be agreed upon by the Indenture Trustee [Wilmington Trust] and
the Issuer [DRA], subject to approval by the" supermajority of
bondholders required under PROMESA (the "Requisite Bondholders").
Thus, even though the Solicitation Statement "describe[d] certain
expected terms and conditions of the New Bonds and the Bond
Indenture," it did "not purport to be complete" and was "subject
to, and . . . qualified in its entirety by reference to, all the
provisions of the New Bonds and the Bond Indenture." In fact, the
Solicitation Statement expressly warned that the information it
contained was accurate only as of the date it was issued. It also
indicated that GDB would update it to avoid misstatements or
material omissions only through September 12, 2018 -- the deadline
- 9 - by which the prospective Requisite Bondholders needed to provide
initial consent to the RSA's terms if they wanted to proceed to
negotiate a final GDB Qualifying Modification.
Around the same time, GDB and AAFAF initiated
proceedings in the U.S. District Court for the District of Puerto
Rico to secure approval of the proposed GDB Qualifying
Modification.6 On November 3, 2018, AAFAF filed in the district
court draft versions of a Bond Indenture and Master Transfer
Agreement (the "MTA") that did not include a Valid Claim
Requirement.
The district court approved the GDB Qualifying
Modification on November 7, 2018 (the "Approval Order"). The court
approved the "Exchange Terms," which it described as the terms
"particularly set forth in the RSA and described in the
Solicitation Statement" to which the "parties to the Qualifying
Modification have agreed" in order "to effectuate the foregoing
exchange." But it also noted that "the Qualifying Modification
[was] expressly conditioned upon" the "Exchange Conditions," which
included "the execution and delivery of all definitive
documents . . . in form and substance satisfactory to GDB and
the . . . Requisite Bondholders." The court further explained
GDB also sought approval from FOMB, which granted the 6
required certification on November 2, 2018.
- 10 - that "the Exchange Terms and Conditions are essential means of
implementing the Qualifying Modification."
Following the Approval Order, the participants in the
transaction executed the final Bond Indenture and MTA on November
29, 2018.7 The Bond Indenture primarily governed the issuance of
new bonds, and the MTA provided for the transfer of collateral
property from GDB to DRA.
Importantly, Section 2.13 of the Bond Indenture stated
that DRA could be required to issue "Additional Bonds" after the
GDB Qualifying Modification was completed. In particular, the
Bond Indenture detailed that Additional Bonds could be issued to
the PFC Creditors to satisfy their contingent claims "without the
consent of the [DRA] [b]ondholders and upon instructions from GDB
or AAFAF." The Bond Indenture did not specify that valid claims
had to be made before these Additional Bonds could issue.
The MTA also provided for the issuance of bonds without
an explicit Valid Claim Requirement. The MTA stated that "upon
the [DRA's] receipt of written instructions from GDB or AAFAF, the
[DRA] shall, pursuant to the terms of the [GDB] Qualifying
Modification and in accordance with the Bond Indenture,
authorize . . . the issuance of Additional Bonds under the Bond
7 The Bond Indenture is governed by New York law, and the MTA is governed by Puerto Rico law.
- 11 - Indenture in respect of" the PFC Creditors. Notably, the MTA
contained a merger clause indicating that the MTA, the Bond
Indenture, and other specified "Transaction Documents" constituted
the "full and entire understanding and agreement of the Parties."8
The Requisite Bondholders had numerous meaningful
opportunities to weigh in on or object to the terms of the Bond
Indenture, the MTA, and the other documents that would form the
GDB Qualifying Modification. Indeed, they had veto power over the
Bond Indenture. The Solicitation Statement explained that the
Bond Indenture was "to be agreed upon by the Indenture Trustee and
the Issuer, subject to approval by the Requisite Bondholders."
Similarly, the RSA provided that the Definitive Documents,
including the Bond Indenture and the MTA, would be "in form and
substance reasonably satisfactory to . . . the Requisite
Bondholders" and would become part of the GDB Qualifying
Modification only "[u]pon written confirmation of an
agreement . . . among the GDB Parties and the Requisite
Bondholders." Thus, these documents were extensively negotiated
with the Requisite Bondholders, who had approval rights over them.
8 The term "Transaction Documents" is defined as the "Indenture, the Bonds, the Transfer Agreement, the Servicing Agreement, the Keepwell Agreement, the Disclosure Agreement, the Collateral Monitor Agreement, and the Collateral Monitor Fee Letter." In re P.R. Pub. Fin. Corp., 686 F. Supp. 3d 73, 78 n.4 (D.P.R. 2023).
- 12 - The parties also filed draft versions of the Bond
Indenture and the MTA in the 2018 district court proceedings, and
the Requisite Bondholders did not object to the absence of a Valid
Claim Requirement in those documents before the court issued its
Approval Order. The Requisite Bondholders had sophisticated
separate counsel during the 2018 proceedings and throughout the
negotiation of the Transaction Documents.
B. Procedural History
The proceeding at the center of this appeal began about
four years later. In late 2022, PFC proposed the PFC Qualifying
Modification to restructure its own debts, including the 2011 and
2012 bonds guaranteed by the PFC Letters of Credit. See In re
P.R. Pub. Fin. Corp., 686 F. Supp. 3d 73, 78-79 (D.P.R. 2023). On
October 28, 2022, FOMB initiated a proceeding in the U.S. District
Court for the District of Puerto Rico (before the same district
court judge who approved GDB's restructuring) to seek approval of
the PFC Qualifying Modification. See id. Under the proposed
modification, DRA would be directed to issue new bonds worth
approximately $47.7 million to satisfy all the outstanding
contingent claims under the PFC Letters of Credit.
AmeriNational Community Services, Inc., and Cantor-Katz
Collateral Monitor LLC, the appellants in this case (collectively,
- 13 - the "DRA Parties"), objected to the proposed bond issuance by DRA.9
They maintained that the Valid Claim Requirement was an operative
term of the GDB Qualifying Modification and that none of the PFC
Creditors seeking new bonds had ever demonstrated a valid claim
against GDB.10 See id. at 82-83. With the assent of the parties,
the district court bifurcated the proceedings, separating the DRA
Parties' objection to the new bond issuance from the court's
consideration of the broader PFC Qualifying Modification, which it
approved on December 30, 2022.
The district court heard arguments on the DRA Parties'
objection on May 10, 2023. Approximately three months later, on
9 AmeriNational and Cantor-Katz are, respectively, the designated Servicing Agent and Collateral Monitor under the GDB Qualifying Modification. In the simplest terms, as Servicing Agent, AmeriNational acts as DRA's day-to-day asset manager to maximize DRA's returns on GDB's transferred assets. The Servicing Agreement authorizes AmeriNational to enforce the DRA bondholders' rights in the collateral property through litigation in the name of DRA. And as the Collateral Monitor, Cantor-Katz is tasked with protecting the interests of the DRA bondholders, including by supervising AmeriNational's performance. DRA did not enter an appearance in this appeal, but it advised the district court below that it supported the DRA Parties' objection. See In re P.R. Pub. Fin. Corp., 686 F. Supp. 3d at 81 n.7. 10The DRA Parties asserted before the district court that the Valid Claim Requirement had not been met because the PFC Creditors had not demonstrated that they had satisfied the conditions necessary to draw funds from the PFC Letters of Credit. Moreover, the DRA Parties argued that even if those conditions had been satisfied, the amount the PFC Creditors would have been entitled to draw was vastly smaller than their $86.7 million claim. All parties agree that the question of whether the Valid Claim Requirement has been satisfied -- assuming it exists at all -- is outside the scope of this appeal.
- 14 - August 14, 2023, the court overruled the objection. See id. at
85. It held that "the definitive terms of the GDB's qualifying
modification ultimately are those set forth in . . . the
definitive documents governing the transaction, rather than the
terms described in the [preliminary] Solicitation Statement and
the Term Sheet." Id. at 83. Based on the language contained in
the RSA, the court reasoned that the Term Sheet's reference to the
Valid Claim Requirement fell out of the RSA once the parties
finalized the Definitive Documents, given that the Term Sheet was
explicitly subject to final documentation. See id. at 83-84. The
court reached a similar conclusion about the Solicitation
Statement, which contained express language rendering it
subordinate to the Bond Indenture and indicating that it would
reflect the proposed terms of the GDB Qualifying Modification only
through September 2018. See id. at 84.
The district court also noted that its 2018 Approval
Order anticipated that the parties would "negotiate the definitive
terms of the transaction." Id. at 85. That order entered after
the court had reviewed draft versions of the Bond Indenture and
the MTA that did not contain the Valid Claim Requirement. See id.
at 84-85. As the court explained, "[n]o party objected" to the
absence of the Valid Claim Requirement in those drafts, even though
the Requisite Bondholders "had approval rights over the definitive
documents." Id. at 85.
- 15 - The DRA Parties timely appealed. The district court
denied their request for a stay of the latest DRA bond issuance
pending appeal, as did we. In December 2023, DRA issued additional
bonds worth $47.7 million to the PFC Creditors.
II. STANDARD OF REVIEW
The district court construed the parties' filings below
as cross-motions for summary judgment. We review PROMESA appeals
arising from this posture de novo, considering each party's cross-
motion separately. Andalusian Glob. Designated Activity Co. v.
Fin. Oversight & Mgmt. Bd. for P.R., 948 F.3d 457, 466 (1st Cir.
2020). Because the district court granted summary judgment to
FOMB, in evaluating whether there was any dispute of material fact
and if FOMB was entitled to judgment as a matter of law, we construe
the facts in the light most favorable to the DRA Parties and draw
all reasonable inferences in their favor, consistent with record
support. See id. As the parties agree, the meaning of the various
documents that form the GDB Qualifying Modification presents a
purely legal question, which we also review de novo. See Dukes
Bridge LLC v. Beinhocker, 856 F.3d 186, 189 (1st Cir. 2017).
III. DISCUSSION
With the complex facts of this case in view, the legal
principles that lead us to affirm become much more straightforward.
- 16 - A. The Scope of the GDB Qualifying Modification
Our analysis begins with the Bond Indenture and the MTA,
the two final Transaction Documents that allowed DRA to issue new
bonds. Our interpretation of these documents is governed by the
contract principles of New York and Puerto Rico law, respectively.
Under New York law, an agreement between contracting parties that
is reflected "in a clear, complete document" should "be enforced
according to its terms." J. D'Addario & Co. v. Embassy Indus.,
Inc., 980 N.E.2d 940, 943 (N.Y. 2012) (citation omitted). Puerto
Rico law is similar to New York law on this point. It provides
that so long as "the terms of a contract are clear and leave no
doubt as to the intentions of the contracting parties, the literal
sense of its stipulations shall be observed." Borschow Hosp. &
Med. Supplies, Inc. v. Cesar Castillo Inc., 96 F.3d 10, 15 (1st
Cir. 1996) (applying Puerto Rico law and quoting P.R. Laws Ann.
tit. 31, § 3471). "[A]n agreement is 'clear'" under Puerto Rico
law "when it can 'be understood in one sense alone, without leaving
any room for doubt, controversies[,] or difference of
interpretation.'" Id. (quoting Exec. Leasing Corp. v. Banco
Popular de P.R., 48 F.3d 66, 69 (1st Cir. 1995)).
The Bond Indenture and the MTA plainly permit the
issuance of new DRA bonds on account of the PFC Letters of Credit
at the sole direction of GDB and AAFAF, without any reference to
a Valid Claim Requirement. Section 2.13 of the Bond Indenture,
- 17 - which is governed by New York law, specifically provides for the
issuance of new bonds to the PFC Creditors, so long as they do not
exceed about $62 million11:
Additional Bonds. The Issuer [DRA] shall, without the consent of the Bondholders and upon instructions from GDB or AAFAF, . . . authorize from time to time the issuance of Additional Bonds in respect of the Contingent Claims set forth in Exhibit C[12] in the principal amount(s) specified by GDB or AAFAF, as applicable, in accordance with the instructions from GDB of AAFAF, as applicable; provided that the Additional Bonds (whether issued together or in multiple instances) shall in no event exceed $61,990,562 in aggregate original principal amount.
The maximum amount of the bond issuance is the only textual
limitation on the creation of new bonds to satisfy the PFC Letters
of Credit.
Similarly, Section 2(b) of the MTA, which is governed by
Puerto Rico law, explains that GDB or AAFAF may instruct DRA to
issue "Additional Bonds under the Bond Indenture" to satisfy the
PFC Letters of Credit, up to about $62 million. No other language
11In addition to the $86.7 million claim in favor of the PFC Creditors, GDB also owed an outstanding contingent claim for $26 million in connection with a debt-service deposit agreement with a financial institution. The $62 million cap reflects the discounted value (at a discount of fifty-five cents on the dollar) of GDB's $112.7 million in total contingent claims as of 2018. 12 Exhibit C refers to the PFC Letters of Credit.
- 18 - in this section limits GDB or AAFAF's authority to direct the
issuance of new bonds. Section 2(b) reads:
[A]fter the Closing Date, upon the Issuer's [DRA's] receipt of written instructions from GDB or AAFAF, the Issuer shall, pursuant to the terms of the Qualifying Modification and in accordance with the Bond Indenture, authorize from time to time the issuance of Additional Bonds under the Bond Indenture in respect of certain contingent claims against GDB set forth in Exhibit C to the Bond Indenture. The Issuer shall issue such Additional Bonds in the principal amount(s) specified by GDB or AAFAF, as applicable, in accordance with the instructions from GDB or AAFAF, as applicable; provided that the Additional Bonds (whether issued together or in multiple instances) shall in no event exceed $61,990,562 in aggregate original principal amount.
It is clear to us from the face of these two documents
that they do not include the Valid Claim Requirement. Rather,
that requirement appears only in the preliminary documents -- the
Term Sheet and the Solicitation Statement. Neither of those
documents was referenced in the MTA's merger clause. Critically,
that merger clause provided that the Bond Indenture and the MTA
were part of a discrete set of Transaction Documents that
"constitute[d] the full and entire understanding and agreement of
the Parties" and that superseded "[a]ll prior negotiations,
agreements, representations, warranties, statements and
- 19 - undertakings concerning the subject matter hereof."13 (Emphasis
added.)
Nevertheless, the DRA Parties offer a variety of
arguments urging us to read the Valid Claim Requirement into the
Definitive Documents based on the preliminary documents (the Term
Sheet and the Solicitation Statement). As a threshold matter,
looking to the preliminary documents to contradict the language of
the Bond Indenture and the MTA runs against New York and Puerto
Rico law, which bar the consideration of extrinsic evidence to
contradict the meaning of an unambiguous agreement. See W.W.W.
Assocs. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) ("[B]efore
looking to evidence of what was in the parties' minds, a court
must give due weight to what was in their contract."); Borschow
Hosp. & Med. Supplies, 96 F.3d at 15-16 (same, under Puerto Rico
law). Indeed, "to consider . . . extrinsic evidence at all, the
court must first find the relevant terms of the agreement unclear."
Exec. Leasing Corp., 48 F.3d at 69. Particularly when an agreement
13 The DRA Parties insist that because the Requisite Bondholders were not subject to these documents, their interests cannot be impaired by the Bond Indenture or the MTA, including the MTA's merger clause. It is true that only GDB, the Indenture Trustee, and DRA are parties to the Bond Indenture and the MTA. But the Requisite Bondholders had approval rights over the Bond Indenture and the MTA, with the knowledge that those documents would govern the issuance of future bonds. Thus, the technical fact that they are not parties to those agreements does not let them off the hook for failing to require the inclusion of the Valid Claim Requirement in the final documents.
- 20 - contains a merger clause, we may not "vary the express, clear, and
unambiguous terms" contained in the agreement itself. Borschow
Hosp. & Med. Supplies, 96 F.3d at 15. Thus, we are "bound to look
no further than" the text of the final documents to ascertain
whether any of those documents contains a Valid Claim
Requirement.14 Mercado-Garcia v. Ponce Fed. Bank, 979 F.2d 890,
894 (1st Cir. 1992).
Even if there were ambiguity in the final documents and
we considered the Term Sheet and Solicitation Statement as
extrinsic evidence, the DRA Parties have not pointed us to a
convincing reason to conclude that the parties intended to be bound
by the Valid Claim Requirement. The DRA Parties' principal
contention is that the term "Definitive Documents" in the RSA
includes the Term Sheet (or at least incorporates its reference to
the Valid Claim Requirement), as well as the Solicitation
Statement. In support, they point to the definition of "Definitive
Documents" in the RSA, which encompassed:
the documents (including any related agreements, instruments, schedules, or exhibits) that are necessary or desirable to implement, or otherwise relate to, the Restructuring, including this RSA, the Plan (including any supplements thereto), any disclosure statement, any order approving such disclosure statement, any information
Because the documents are not ambiguous, the DRA Parties 14
are incorrect when they argue that the district court should have permitted discovery into the negotiation process.
- 21 - materials required pursuant to section 601(f) of PROMESA, and the Confirmation Order, in each case on terms and conditions consistent with the . . . Term Sheet, PROMESA, and otherwise in form and substance reasonably satisfactory to the GDB and the Requisite Bondholders.
(Emphasis added.) Although this definition, read in isolation,
could sweep broadly, we disagree with the DRA Parties' contention
that the definition draws in either of the documents that refer to
the Valid Claim Requirement.
Instead, both the Term Sheet and the Solicitation
Statement acknowledge that the Transaction Documents govern. We
begin with the Term Sheet. As we have already noted, the RSA
expressly cautioned that the Term Sheet would "automatically" be
"replace[d] . . . with the Definitive Documents" following the
"written confirmation of an agreement . . . on, and finalization
of" those documents. This sets up a conditional relationship
between the Term Sheet and the Definitive Documents: once GDB and
the Requisite Bondholders confirmed a final agreement in writing,
the Definitive Documents replaced the Term Sheet.15 So unless the
Valid Claim Requirement was reflected in the Definitive Documents,
it could not govern the issuance of new DRA bonds.
15The Restructuring Act contemplated the possibility that the RSA would be amended, including to reflect the terms of a final restructuring transaction. See P.R. Laws Ann. tit. 7, § 3163(ii) (providing that the RSA may "be amended from time to time in accordance with its terms").
- 22 - The DRA Parties attempt to circumvent this problem. They
point to the fact that the RSA states that the Definitive Documents
must contain "terms and conditions consistent with the . . . Term
Sheet." Therefore, they suggest that "in the event of any
conflict . . . between the Definitive Documents and the enumerated
terms of the Term Sheet, . . . the Definitive Documents are those
with 'terms and conditions consistent with the . . . Term Sheet.'"
We disagree. As FOMB explains, this argument flies in
the face of standard contract practice, where contracting parties
regularly commit to the proposals outlined in a term sheet subject
to final documentation. Under New York law (which governs the
RSA), a preliminary agreement, such as a term sheet, can be binding
when it does not "contemplate[] the negotiation of later agreements
and if the consummation of those agreements [is not] a precondition
to a party's performance." IDT Corp. v. Tyco Grp., 918 N.E.2d
913, 915 n.2 (N.Y. 2009) (holding preliminary agreement expressly
subject to later "definitive agreements" was not enforceable); see
Raghavendra v. Trs. of Columbia Univ., 686 F. Supp. 2d 332, 340-41
(S.D.N.Y. 2010) (holding term sheet that stated it was "final and
binding upon the parties" was enforceable under New York law
because it reflected a mutual intent to be bound), rev'd in part
on other grounds, 434 F. App'x 31 (2d Cir. 2011). But the language
of the RSA lends itself to just the opposite interpretation. See
Adjustrite Sys. v. GAB Bus. Servs., 145 F.3d 543, 549 (2d Cir.
- 23 - 1998) (explaining that under New York law, "the language of [a
preliminary] agreement" is "the most important" factor in
determining whether it is binding (citation omitted)); see also
IDT Corp., 918 N.E.2d at 916. The RSA explained that the Term
Sheet did "not constitute a commitment by any party and in any
event [was] subject to the terms and conditions hereof, including,
without limitation, requisite approvals under Title VI of PROMESA
and execution and delivery of . . . []the 'Definitive
Documents'[]." (Emphases added.) Thus, it was the Requisite
Bondholders' veto over the Definitive Documents that should have
compelled the inclusion of a Valid Claim Requirement in the final
documentation. They failed to exercise that veto, and that is why
the final documents lacked a Valid Claim Requirement.
The Solicitation Statement does not fare any better.
The DRA Parties contend that the Solicitation Statement falls
within the RSA's definition of Definitive Documents because it is
a "disclosure statement" and "otherwise relate[s] to[] the
Restructuring." But we agree with the district court that "the
definitive terms of the GDB's qualifying modification ultimately
are those set forth in the definitive documents governing the
transaction, rather than the terms described in the Solicitation
Statement." In re P.R. Pub. Fin. Corp., 686 F. Supp. 3d at 83.
The Solicitation Statement made clear that, like the Term Sheet,
it was preliminary, not definitive. It indicated that it was
- 24 - "subject to, and . . . qualified in its entirety by reference to,
all the provisions of the New Bonds and the Bond Indenture."16 The
Solicitation Statement also cautioned that it did "not, under any
circumstances, create any implication that the information
contained in [it was] current as of any time subsequent to" its
distribution.17 Rather, the Solicitation Statement advised that
GDB would update it only until September 12, 2018, months before
the parties closed on the Definitive Documents on November 29,
2018. We cannot agree that the Solicitation Statement -- which
was subject to later documentation and was not required to be
updated to reflect further developments -- can be construed as
final or "definitive," as the DRA Parties insist.
The DRA Parties respond by contending that the district
court's Approval Order emphasized the importance of the terms "set
forth in the RSA and described in the Solicitation Statement,"
16Without citing any legal authority, the DRA Parties insist that this provision did not adequately "warn that the Valid Claim Requirement would be excised later." But the Requisite Bondholders had approval rights over the final, executed versions of the Definitive Documents, including the Bond Indenture. And as they conceded during oral argument before us, they approved the Bond Indenture. 17FOMB contends that the Solicitation Statement's reference to "information contained in [it]" includes the contractual terms of the proposed transaction, such as the Valid Claim Requirement. The DRA Parties insist that the term "information" refers only to factual information about GDB. Our analysis is the same either way: The Solicitation Statement contained ample warning that it was a non-final document.
- 25 - which it called the "Exchange Terms." To be sure, the Approval
Order directed the parties to draft the implementing documentation
"consistent with the Exchange Terms." But as the district court
explained in its decision rejecting the DRA Parties' objection,
the DRA Parties have assumed (mistakenly) that the Approval Order
foreclosed further changes to the Exchange Terms before execution
of the final documents. See In re P.R. Pub. Fin. Corp., 686
F. Supp. 3d at 83; see also United States ex rel. Nargol v. DePuy
Orthopaedics, Inc., 69 F.4th 1, 12 (1st Cir. 2023) ("[A]ppellate
deference is appropriate when a district court is interpreting its
own order."). Instead, as the court noted, the Approval Order
recognized that the GDB Qualifying Modification was "subject to
and conditioned upon the consummation of the other components of
the global restructuring of GDB's outstanding liabilities . . .
including, among others, the execution and delivery of all
definitive documents . . . in form and substance satisfactory to
GDB and the . . . Requisite Bondholders." (Emphases added.) Put
another way, the Approval Order contemplated not only that the
Definitive Documents might deviate from the Solicitation Statement
but also that it was up to the Requisite Bondholders to ensure
that the final documents were "satisfactory" to them.
In our view, this last point proves decisive. The RSA
made clear that the Bond Indenture was "subject to approval by the
Requisite Bondholders," and the Requisite Bondholders never
- 26 - objected to the relevant documents, either before or after the
district court entered the Approval Order. Thus, as FOMB contends,
the omission of a Valid Claim Requirement in the final
documentation was a consequence of the Requisite Bondholders'
failure to exercise their right to object. We conclude, therefore,
that the GDB Qualifying Modification did not contain the Valid
Claim Requirement.
B. Standing and Equitable Mootness
Because we agree with FOMB's arguments on the scope of
the GDB Qualifying Modification, we decline to reach the
alternative arguments raised by the PFC Creditors and their bond
trustee (collectively, the "PFC Creditor Parties") for affirming
the district court's ruling. The PFC Creditor Parties contend
that the DRA Parties lack standing to object on behalf of the DRA
bondholders to the issuance of Additional Bonds or, alternatively,
that their claims should be deemed moot on equitable grounds
because the GDB Qualifying Modification already has taken effect
and "could not feasibly be unwound."
DRA and the DRA bondholders clearly would have Article
III standing to object to the issuance of Additional Bonds, and
the PFC Creditor Parties do not assert otherwise. Instead, they
contend that the district court was wrong as a matter of contract
interpretation when it concluded that the Transaction Documents
gave AmeriNational and Cantor-Katz, the DRA Parties, the authority
- 27 - to object on behalf of DRA and the DRA bondholders. However, the
"determination of who may maintain an otherwise cognizable claim
turns on a question of prudential standing, not one of Article III
standing." Nisselson v. Lernout, 469 F.3d 143, 151 (1st Cir. 2006)
(holding that whether trustee had assigned authority to sue on
behalf of former corporation's shareholders, as opposed to on
behalf of corporation itself, raised only prudential concerns
(citing Baena v. KPMG LLP, 453 F.3d 1, 5 (1st Cir. 2006))). Thus,
we do not have to resolve whether the DRA Parties in fact had
contractual authority to object to the issuance of Additional Bonds
on behalf of DRA and the DRA bondholders before reaching the merits
here. Id. (citing Steel Co. v. Citizens for a Better Env't, 523
U.S. 83, 97-98 & n.2 (1998)). Accordingly, given that the PFC
Creditor Parties' arguments do not trigger any Article III concerns
and the DRA Parties' objections fail on the merits, we elect to
"bypass" these non-jurisdictional disputes. Id.
The PFC Creditors' argument concerning equitable
mootness also presents only non-jurisdictional considerations that
we need not reach. The equitable mootness doctrine allows, but
does not require, courts to dismiss a pending appeal on equitable
grounds in order to avoid upsetting an implemented plan of
adjustment. See Pinto-Lugo v. Fin. Oversight & Mgmt. Bd. for P.R.,
987 F.3d 173, 180 (1st Cir. 2021) (applying equitable mootness in
a Title III proceeding). The PFC Creditor Parties pursue it only
- 28 - as an alternative ground for affirming, and reaching the argument
would require us to decide an issue of first impression: whether
equitable mootness applies in Title VI proceedings. We see no
need to address that question here.
IV. CONCLUSION
For all these reasons, we affirm the district court's
ruling.
- 29 -