Acosta-Febo v. Franklin California Tax-Free Trust

Whether the Puerto Rico Public Corporation Debt Enforcement Recovery Act is preempted by 11 U.S.C. §903(1)?

Respondent’s are a group of investors who are in possession of bonds for a Puerto Rican utility company. Currently, Puerto Rico is facing the most serious fiscal crisis in the history of its existence. To resolve financial issues with utility companies the Puerto Rico Public Corporation Debt Enforcement Recovery Act was passed. This Act creates different rights and protections for creditors than would be afforded federally under Chapter 9. The issue is whether the Act is preempted by 11 U.S.C. §903(1), and whether Puerto Rico is considered a state in that act. The district court found in favor of Respondents holding that the Act is preempted by §903(1). The First Circuit affirmed the decision. Petitioner argues that the recovery act is not preempted by §903(1) and that the First Circuit interpreted §903(1) more narrowly than they should have and failed to take into consideration the statutory construction and history of the section when coming to their decision. Further, Petitioner argues that even though Puerto Rico is not a state, it is afforded the same protections of preemption that a state would have. Traditionally, there is no presumption that federal statutes preempt state law. Petitioners argue that the First Circuit Court erred when considering this standard.