{"attribution":{"source":"legal.exploreworldai.com","canonical":"https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:ca1-25-1749-2026-09-23","cite_as":"NovaCopilot, legal.exploreworldai.com (https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:ca1-25-1749-2026-09-23)","license":"https://legal.exploreworldai.com/revision","version":"legal-2026-10-18","fingerprint":"ewai:us:efda2f","proof":"sha256:b1de7438cb08a6553c73e387402a932bf51a53f7c7f99298423cb0ab96746746","jurisdiction":"us","lang":"en","publisher":"NovaCopilot by ExploreWorld Legal","terms":"https://legal.exploreworldai.com/om"},"brand_source":"Source: NovaCopilot","item":{"schema_version":"1.0.0","id":"us:ca1-25-1749-2026-09-23","jurisdiction":"us","lang":"en","brand_source":"Source: NovaCopilot","brand":{"product":"NovaCopilot","platform":"ExploreWorldAI","infrastructure":"ExploreWorld Legal","infrastructure_url":"legal.exploreworldai.com","legal_entity":"Valkiv Ventures AB","permanent_url":"https://legal.exploreworldai.com/novacopilot","source":"Source: NovaCopilot","powered_by":"Powered by NovaCopilot","license":"https://legal.exploreworldai.com/licensvillkor"},"sections":[{"title":"United States Court of Appeals","paragraphs":[]},{"title":"For the First Circuit","paragraphs":[]},{"title":"Nos. 25-1745, 25-1748, 25-1749, 25-1750, 25-1751","paragraphs":[]},{"title":"IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO","paragraphs":[]},{"title":"RICO, as representative for the Commonwealth of Puerto Rico; THE","paragraphs":[]},{"title":"FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as","paragraphs":["para_7"]},{"title":"Government of the Commonwealth of Puerto Rico; THE FINANCIAL","paragraphs":[]},{"title":"OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as","paragraphs":["para_10"]},{"title":"Authority; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR","paragraphs":[]},{"title":"PUERTO RICO, as representative for the Puerto Rico Electric","paragraphs":[]},{"title":"Power Authority (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT","paragraphs":[]},{"title":"BOARD FOR PUERTO RICO, as representative of the Puerto Rico","paragraphs":["para_15","para_16"]},{"title":"THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as","paragraphs":["para_18","para_19"]},{"title":"CAROL FLATON, in the capacity of Claims Reconciliation Monitor;","paragraphs":["para_21","para_22","para_23"]},{"title":"SIG STRUCTURED PRODUCTS, LLC; ALLIANCE BERNSTEIN LP; ARISTEIA","paragraphs":[]},{"title":"CAPITAL, LLC; BNY MELLON INVESTMENT ADVISER, INC.; CAPITAL","paragraphs":[]},{"title":"RESEARCH AND MANAGEMENT COMPANY; COLUMBIA MANAGEMENT INVESTMENT","paragraphs":[]},{"title":"ADVISERS, LLC; DELAWARE MANAGEMENT COMPANY, a series of","paragraphs":[]},{"title":"Macquarie Investment Management Business Trust; ELLINGTON","paragraphs":[]},{"title":"MANAGEMENT GROUP, LLC.; GOLDMAN SACHS ASSET MANAGEMENT LP;","paragraphs":[]},{"title":"INVESCO ADVISERS, INC.; MACKAY SHIELDS LLC; MFS INVESTMENT","paragraphs":[]},{"title":"MANAGEMENT; OLD ORCHARD CAPITAL MANAGEMENT LP; ONE WILLIAM","paragraphs":["para_32"]},{"title":"ROWE PRICE; TOWER BAY ASSET MANAGEMENT; ASSURED GUARANTY INC.;","paragraphs":["para_34"]},{"title":"U.S. BANK NATIONAL ASSOCIATION, in the capacity as PREPA Bond","paragraphs":[]},{"title":"Trustee; NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION;","paragraphs":["para_37","para_38"]},{"title":"APPEALS FROM THE UNITED STATES DISTRICT COURT","paragraphs":[]},{"title":"FOR THE DISTRICT OF PUERTO RICO","paragraphs":["para_41"]},{"title":"Before","paragraphs":["para_43","para_44","para_45"]},{"title":"Herman, and Dechert LLP were on brief, for appellants SIG","paragraphs":["para_47"]},{"title":"LLC; BNY Mellon Investment Adviser, Inc.; Capital Research and","paragraphs":[]},{"title":"Management Company; Columbia Management Investment Advisers, LLC;","paragraphs":[]},{"title":"Delaware Management Company, a series of Macquarie Investment","paragraphs":[]},{"title":"Management Business Trust; Ellington Management Group, LLC.;","paragraphs":[]},{"title":"Goldman Sachs Asset Management LP; Invesco Advisers, Inc.; Mackay","paragraphs":[]},{"title":"Shields LLC; MFS Investment Management; Old Orchard Capital","paragraphs":[]},{"title":"Management LP; One William Street Capital Management LP; Russell","paragraphs":["para_55"]},{"title":"Michael C. McCarthy, Clark T. Whitmore, John T. Duffey, and","paragraphs":["para_57"]},{"title":"John K. Cunningham, with whom Glenn M. Kurtz, Claudine","paragraphs":["para_59","para_60"]},{"title":"Ramos Cruz, Ramos Cruz Legal, Susheel Kirpalani, Eric Kay, Quinn","paragraphs":["para_62"]},{"title":"Rivera-Ortiz, and Reichard & Escalera were on brief, for appellants","paragraphs":["para_64"]},{"title":"Miguel A. Estrada, with whom Lochlan F. Shelfer, Gibson, Dunn","paragraphs":["para_66"]},{"title":"J. Natbony, Thomas J. Curtin, and Cadwalader, Wickersham & Taft","paragraphs":["para_68","para_69","para_70","para_71","para_72","para_73"]},{"title":"Adam L. Deming, and Proskauer Rose LLP were on brief, for appellee","paragraphs":["para_75","para_76","para_77","para_78"]},{"title":"September 23, 2026","paragraphs":["para_80"]},{"title":"RIKELMAN, Circuit Judge. This appeal requires us to","paragraphs":["para_82","para_83","para_84","para_85"]},{"title":"Puerto Rico's bankruptcy-type restructuring proceedings asserting","paragraphs":["para_87","para_88","para_89","para_90"]},{"title":"I. BACKGROUND","paragraphs":[]},{"title":"A. Statutory Background","paragraphs":[]},{"title":"In 1941, Puerto Rico enacted the Puerto Rico Electric","paragraphs":["para_94","para_95"]},{"title":"Rico Electric Power Authority (PREPA), a public utility","paragraphs":["para_97","para_98","para_99","para_100","para_101","para_102","para_103","para_104","para_105","para_106","para_107","para_108"]},{"title":"The Authority Act did grant bondholders several","paragraphs":["para_110","para_111","para_112","para_113","para_114","para_115","para_116"]},{"title":"Id. § 215. The Authority Act also permitted the appointment of a","paragraphs":["para_118","para_119","para_120"]},{"title":"In 1974, PREPA executed a trust agreement with the","paragraphs":["para_122","para_123"]},{"title":"Under that agreement, and as permitted by § 196 of the Authority","paragraphs":[]},{"title":"Act, PREPA issued several series of bonds and pledged its present","paragraphs":["para_126"]},{"title":"1 Appellant U.S. Bank National Association is the current","paragraphs":["para_128","para_129","para_130","para_131","para_132","para_133","para_134"]},{"title":"B. The Commonwealth's Title III Proceedings","paragraphs":["para_136"]},{"title":"Congress enacted the Puerto Rico Oversight, Management, and","paragraphs":[]},{"title":"Economic Stability Act (PROMESA), which created a restructuring","paragraphs":["para_139"]},{"title":"See 48 U.S.C. §§ 2101-2241; id. § 2161(a) (incorporating","paragraphs":["para_141","para_142"]},{"title":"Management Board (the \"Board\") and \"empowered [it] to place","paragraphs":[]},{"title":"Commonwealth entities into bankruptcy-type restructuring","paragraphs":["para_145","para_146"]},{"title":"The next year, the Board filed a restructuring petition","paragraphs":["para_148"]},{"title":"Title III case. Two months later, PREPA defaulted on its","paragraphs":["para_150"]},{"title":"2 Our court recently held that the Trust Agreement grants","paragraphs":["para_152","para_153"]},{"title":"This appeal does not directly concern PREPA's liability to repay","paragraphs":["para_155","para_156","para_157","para_158"]},{"title":"899 F.3d 13, 18 (1st Cir. 2018). Although PREPA is a public","paragraphs":["para_160","para_161"]},{"title":"On behalf of PREPA's bondholders, the Trustee filed a","paragraphs":["para_163"]},{"title":"Commonwealth's Title III case. Separately, the Trustee filed a","paragraphs":["para_165","para_166","para_167"]},{"title":"In its proof of claim in the Commonwealth case, the","paragraphs":[]},{"title":"Trustee alleged that the Commonwealth interfered in multiple ways","paragraphs":["para_170"]},{"title":"Trustee pointed out that the Commonwealth enacted a statute","paragraphs":["para_172","para_173","para_174"]},{"title":"See P.R. Laws Ann. tit. 22, § 196(l) (2026) (as amended by Act","paragraphs":["para_176"]},{"title":"Based on those allegations, the Trustee asserted","paragraphs":["para_178","para_179"]},{"title":"Covenant and violated the Takings and Contracts Clauses of the","paragraphs":["para_181","para_182","para_183"]},{"title":"Critically, the Trustee also asserted that the Commonwealth","paragraphs":["para_185","para_186","para_187"]},{"title":"Commonwealth's alleged impairment of those statutory and","paragraphs":["para_189"]},{"title":"In 2022, the district court3 confirmed the Commonwealth's","paragraphs":[]},{"title":"Plan of Adjustment (\"the Commonwealth Plan\"), which restructured","paragraphs":["para_192","para_193"]},{"title":"The Commonwealth Plan divides claims against the","paragraphs":[]},{"title":"Commonwealth into multiple classes entitled to different","paragraphs":["para_196"]},{"title":"Class 64 is composed of \"Section 510(b) Subordinated Claims,\"","paragraphs":["para_198"]},{"title":"Any Claim . . . against the Debtors' [sic] or","paragraphs":["para_200"]},{"title":"(a) rescission of a purchase or sale of an","paragraphs":["para_202","para_203","para_204","para_205"]},{"title":"3 In Title III proceedings, the lower court is commonly","paragraphs":["para_207"]},{"title":"Mgmt. Bd. for P.R., 121 F.4th at 292. For simplicity, we refer to","paragraphs":["para_209","para_210","para_211","para_212"]},{"title":"The parties agree that this definition substantially incorporates","paragraphs":["para_214","para_215","para_216","para_217","para_218","para_219","para_220","para_221","para_222"]},{"title":"Separately, Class 58 of the Commonwealth Plan covers","paragraphs":["para_224","para_225"]},{"title":"Class 64 Section 510(b) Subordinated Claims are excluded from","paragraphs":[]},{"title":"Class 58. General Unsecured Claimants stand to recover roughly","paragraphs":["para_228"]},{"title":"Plan if the Trustee's claim on behalf of the bondholders is","paragraphs":["para_230","para_231"]},{"title":"The Board filed a timely objection to the Trustee's","paragraphs":["para_233"]},{"title":"Title III case. In response, the Trustee maintained that the","paragraphs":["para_235"]},{"title":"Commonwealth violated its statutory promise not to impair PREPA's","paragraphs":["para_237","para_238","para_239","para_240"]},{"title":"Agreement and Authority Act.\" The district court then stayed any","paragraphs":["para_242"]},{"title":"In 2025, the Board moved to enforce the Commonwealth","paragraphs":[]},{"title":"Plan by seeking a determination that the Trustee's proof of claim","paragraphs":["para_245"]},{"title":"Plan.4 To support its motion, the Board asserted that the Trustee's","paragraphs":["para_247","para_248"]},{"title":"Trustee should not be classified as a Class 58 General Unsecured","paragraphs":[]},{"title":"Claimant, and, as a result, was not entitled to any recovery on","paragraphs":["para_251","para_252"]},{"title":"The district court granted the Board's motion to","paragraphs":["para_254","para_255","para_256"]},{"title":"Class 64 Section 510(b) Subordinated Claim, not a Class 58 General","paragraphs":[]},{"title":"4 The district court lifted the litigation stay to permit the","paragraphs":["para_259","para_260"]},{"title":"Unsecured Claim.5 Rejecting the Trustee's argument that the phrase","paragraphs":["para_262","para_263","para_264","para_265","para_266","para_267","para_268","para_269","para_270"]},{"title":"In reaching its ruling, the district court specifically","paragraphs":["para_272","para_273","para_274","para_275","para_276"]},{"title":"Thus, the court classified the proof of claim as a Class 64 Section","paragraphs":[]},{"title":"510(b) Subordinated Claim that would receive no distribution under","paragraphs":["para_279"]},{"title":"5 The Trustee and the bondholders involved in this case","paragraphs":["para_281"]},{"title":"Trustee's claim should be classified in Class 58, not Class 64, of","paragraphs":["para_283","para_284","para_285","para_286"]},{"title":"The Trustee and multiple bondholder groups timely","paragraphs":["para_288"]},{"title":"II. DISCUSSION","paragraphs":[]},{"title":"On appeal, the Bondholders challenge the district","paragraphs":["para_291","para_292","para_293","para_294"]},{"title":"A. Timeliness of the Motion to Enforce","paragraphs":[]},{"title":"To begin, the Bondholders maintain that the district","paragraphs":["para_297"]},{"title":"Trustee's proof of claim met the definition of a Section 510(b)","paragraphs":[]},{"title":"Subordinated Claim. In their view, the Board's request that the","paragraphs":["para_300","para_301"]},{"title":"The district court rejected the Bondholders' position","paragraphs":["para_303","para_304","para_305","para_306"]},{"title":"6 The appellants filed five separate notices of appeal, which","paragraphs":["para_308","para_309","para_310"]},{"title":"Board and two claims reconciliation monitors, simply as the","paragraphs":["para_312","para_313","para_314","para_315","para_316"]},{"title":"We affirm the district court's ruling based on its","paragraphs":["para_318","para_319","para_320","para_321"]},{"title":"Civil Procedure 15(a) governs the court's decision to permit","paragraphs":["para_323","para_324","para_325","para_326"]},{"title":"Rule 15(a)(2) provides that \"court[s] should freely give","paragraphs":["para_328"]},{"title":"P. (15)(a)(2); see also Fed. R. Bankr. P. 7015 (applying Rule 15","paragraphs":["para_330","para_331","para_332","para_333","para_334"]},{"title":"7 As a result, we need not decide whether the Board correctly","paragraphs":["para_336","para_337","para_338"]},{"title":"We are unpersuaded by the Bondholders' undue delay and","paragraphs":["para_340","para_341","para_342"]},{"title":"(without any support) that filing an objection a year after a","paragraphs":["para_344","para_345","para_346"]},{"title":"Amyndas Pharms., S.A. v. Zealand Pharma A/S, 48 F.4th 18, 37 (1st","paragraphs":[]},{"title":"Cir. 2022). And given that the district court stayed all","paragraphs":["para_349","para_350"]},{"title":"Board's timely initial objection), we see no basis to overturn the","paragraphs":["para_352"]},{"title":"As to prejudice, the Bondholders contend that the","paragraphs":["para_354","para_355","para_356"]},{"title":"Virtually any amendment would lead to more litigation, and the","paragraphs":[]},{"title":"Bondholders have not cited any case law to suggest that a court","paragraphs":["para_359","para_360","para_361","para_362","para_363","para_364","para_365"]},{"title":"B. Section 510(b)","paragraphs":[]},{"title":"Turning to the merits, the Bondholders press three main","paragraphs":["para_368","para_369","para_370","para_371","para_372","para_373","para_374","para_375","para_376","para_377","para_378"]},{"title":"Because this dispute centers on a purely legal question","paragraphs":["para_380","para_381"]},{"title":"See In re Savage, 169 F.4th 45, 53 (1st Cir. 2026) (\"The","paragraphs":["para_383","para_384"]},{"title":"F.4th 747, 753 (1st Cir. 2026) (\"We . . . review[] the Title III","paragraphs":["para_386","para_387","para_388"]},{"title":"1. Section 510(b)'s Reach","paragraphs":[]},{"title":"Section 510(b) provides, in relevant part:","paragraphs":["para_391","para_392","para_393","para_394","para_395","para_396","para_397","para_398","para_399","para_400"]},{"title":"11 U.S.C. § 510(b) (emphasis added). The parties agree that the","paragraphs":[]},{"title":"PREPA revenue bonds constitute \"securities\" within the meaning of","paragraphs":["para_403","para_404"]},{"title":"(49)(A)(iv); 48 U.S.C. § 2161(c)(1). Thus, the key inquiry on","paragraphs":["para_406","para_407","para_408","para_409","para_410"]},{"title":"HUD, 171 F.4th 473, 490 (1st Cir. 2026) (quoting Teles de Menezes","paragraphs":["para_412","para_413"]},{"title":"8 The Bondholders initially argued to the district court that","paragraphs":["para_415","para_416","para_417","para_418","para_419","para_420","para_421","para_422","para_423","para_424"]},{"title":"2020); see also Gundy v. United States, 588 U.S. 128, 141 (2019)","paragraphs":[]},{"title":"(\"It is a fundamental canon of statutory construction that the","paragraphs":["para_427","para_428"]},{"title":"Ass'n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 666","paragraphs":["para_430"]},{"title":"When \"interpreting a statute,\" courts aim \"to determine","paragraphs":["para_432","para_433","para_434","para_435","para_436","para_437","para_438","para_439","para_440"]},{"title":"The Bondholders insist that our previous decisions","paragraphs":["para_442","para_443","para_444"]},{"title":"510 F.3d 1, 10 (1st Cir. 2007) (analyzing \"arising from\" in the","paragraphs":["para_446","para_447","para_448","para_449","para_450"]},{"title":"With these principles in mind, we reject the","paragraphs":[]},{"title":"Bondholders' front-line position that the \"plain text\" of § 510(b)","paragraphs":["para_453","para_454","para_455","para_456","para_457","para_458","para_459","para_460","para_461"]},{"title":"(4th ed. 1968). Thus, those definitions support reading the phrase","paragraphs":["para_463","para_464","para_465","para_466","para_467","para_468"]},{"title":"F.3d at 10 (declining to read \"arising from\" to \"sweep within its","paragraphs":["para_470","para_471"]},{"title":"Other circuit courts to consider the issue have rejected","paragraphs":["para_473","para_474","para_475","para_476","para_477","para_478"]},{"title":"Cir. 2002). Similarly, in In re Telegroup, the U.S. Court of","paragraphs":[]},{"title":"Appeals for the Third Circuit rejected the argument that a debtor's","paragraphs":["para_481","para_482"]},{"title":"141 (finding no \"meaningful basis as a matter of Congressional","paragraphs":["para_484","para_485"]},{"title":"9 The Bondholders invoke the Supreme Court's decision in","paragraphs":["para_487"]},{"title":"547 U.S. 651, 655, 667 (2006), for the proposition that statutory","paragraphs":["para_489","para_490","para_491","para_492","para_493","para_494","para_495","para_496"]},{"title":"F.3d 251, 255-56 (2d Cir. 2006); cf. In re Betacom of Phx., 240","paragraphs":[]},{"title":"F.3d 823, 829-31 (9th Cir. 2001) (subordinating a claim alleging","paragraphs":["para_499","para_500"]},{"title":"411, 420-22 (5th Cir. 2009) (\"[T]he rescission category [of","paragraphs":["para_502","para_503"]},{"title":"Like our sister circuits, we hold that § 510(b) does not","paragraphs":["para_505"]},{"title":"See 4 Collier on Bankruptcy ¶ 510.04[3] (16th ed. 2026) (observing","paragraphs":["para_507","para_508","para_509","para_510"]},{"title":"10 We acknowledge that many of our sister circuits have found","paragraphs":["para_512","para_513","para_514","para_515","para_516"]},{"title":"11 The Bondholders suggest that courts are more divided on","paragraphs":["para_518"]},{"title":"Amarex, Inc., 78 B.R. 605, 610 (W.D. Okla. 1987), and In re","paragraphs":[]},{"title":"Angeles, 177 B.R. 920, 927 (Bankr. C.D. Cal. 1995), for the","paragraphs":["para_521","para_522"]},{"title":"Thus, we reject the Bondholders' front-line position that § 510(b)","paragraphs":["para_524","para_525"]},{"title":"We now move to the Bondholders' back-up arguments for","paragraphs":["para_527","para_528","para_529","para_530","para_531","para_532","para_533","para_534","para_535","para_536"]},{"title":"We see nothing in the text of § 510(b) to support the","paragraphs":[]},{"title":"Bondholders' position that it is restricted to certain causes of","paragraphs":["para_539","para_540","para_541","para_542","para_543","para_544","para_545","para_546"]},{"title":"Geneva Steel, 281 F.3d at 1179, 1181-82 & n.5; 4 Collier on","paragraphs":["para_548","para_549","para_550","para_551","para_552"]},{"title":"F.3d 459, 478-80 & n.29 (2d Cir. 2017) (subordinating breach of","paragraphs":["para_554","para_555","para_556","para_557","para_558","para_559","para_560","para_561"]},{"title":"Second, the Bondholders contend that § 510(b) is","paragraphs":["para_563","para_564","para_565","para_566","para_567"]},{"title":"That may be a common application of § 510(b), but the provision","paragraphs":["para_569","para_570"]},{"title":"12 The Bondholders suggest that the \"affiliate\" language in","paragraphs":["para_572","para_573","para_574","para_575","para_576","para_577","para_578","para_579"]},{"title":"And third, the Bondholders argue that the Trustee does","paragraphs":["para_581","para_582","para_583","para_584","para_585","para_586","para_587","para_588","para_589","para_590"]},{"title":"But the Trustee's claim against the Commonwealth is not","paragraphs":["para_592","para_593","para_594"]},{"title":"And the Authority Act and Trust Agreement expressly disclaim any","paragraphs":["para_596"]},{"title":"13 For that reason, we also reject the Bondholders' contention","paragraphs":["para_598","para_599","para_600"]},{"title":"P.R. Laws Ann. tit. 22, § 210 (2026). Instead, in its proof of","paragraphs":["para_602","para_603"]},{"title":"Bondholders allege induced them to purchase the bonds. That the","paragraphs":[]},{"title":"Trustee measures the alleged loss to the Bondholders by reference","paragraphs":["para_606","para_607"]},{"title":"To be sure, although we reject the Bondholders' cramped","paragraphs":["para_609","para_610","para_611","para_612","para_613","para_614","para_615","para_616"]},{"title":"See P.R. Laws Ann. tit. 22, § 210. Nor does the Trustee's proof","paragraphs":["para_618","para_619","para_620"]},{"title":"14 To the extent that the Bondholders suggest that § 510(b)","paragraphs":["para_622","para_623","para_624","para_625","para_626"]},{"title":"15 For this reason, to the extent the district court understood","paragraphs":["para_628","para_629","para_630","para_631"]},{"title":"In re Telegroup, 281 F.3d at 144 n.2 (\"Congress did not intend to","paragraphs":["para_633","para_634"]},{"title":"Cir. 2017) (reasoning that § 510(b) cannot extend to \"every","paragraphs":["para_636"]},{"title":"Section 510(b)'s text does not specify the minimum","paragraphs":["para_638"]},{"title":"Telegroup, 281 F.3d at 138 (\"[Section] 510(b)'s language alone","paragraphs":["para_640","para_641","para_642","para_643"]},{"title":"Even if § 510(b) is \"ambiguous as applied to some","paragraphs":["para_645","para_646","para_647","para_648"]},{"title":"2000)). The claim alleges that (1) the Commonwealth granted the","paragraphs":[]},{"title":"Statutory Covenant and related protections specifically \"to induce","paragraphs":["para_651","para_652","para_653","para_654","para_655","para_656","para_657","para_658","para_659","para_660","para_661","para_662"]},{"title":"157 (5th Cir. 2015) (concluding that there was a \"nexus or causal","paragraphs":["para_664","para_665","para_666","para_667","para_668"]},{"title":"The Bondholders resist this conclusion by asserting that","paragraphs":["para_670","para_671"]},{"title":"Bondholders lean heavily on the Ninth Circuit's decision in In re","paragraphs":[]},{"title":"Khan. In that case, the claimant had acquired stock, but then","paragraphs":["para_674","para_675"]},{"title":"Khan, 846 F.3d at 1065. The court concluded that the claimant's","paragraphs":["para_677","para_678","para_679","para_680"]},{"title":"Critically, however, In re Khan did not establish that","paragraphs":["para_682","para_683","para_684","para_685","para_686","para_687","para_688","para_689","para_690"]},{"title":"Trustee's own proof of claim alleges that the Commonwealth impaired","paragraphs":["para_692","para_693","para_694"]},{"title":"Khan. It is instead central to the Trustee's asserted claim for","paragraphs":["para_696","para_697"]},{"title":"In sum, because the proof of claim here alleges that the","paragraphs":[]},{"title":"Commonwealth impaired rights that induced the Bondholders to","paragraphs":["para_700","para_701","para_702","para_703"]},{"title":"2. Canon of Constitutional Avoidance","paragraphs":[]},{"title":"The Bondholders alternatively contend that, even if","paragraphs":["para_706","para_707","para_708","para_709","para_710","para_711","para_712","para_713"]},{"title":"Subordinated Claims receive no distribution under the confirmed","paragraphs":[]},{"title":"Commonwealth Plan, the Bondholders argue that construing § 510(b)","paragraphs":["para_716","para_717"]},{"title":"The canon of constitutional avoidance is \"a tool for","paragraphs":["para_719","para_720","para_721"]},{"title":"16 Because we affirm on the basis of § 510(b) itself, we do","paragraphs":["para_723"]},{"title":"Plan's definition of Section 510(b) Subordinated Claims -- which","paragraphs":["para_725","para_726","para_727","para_728"]},{"title":"U.S. 371, 381 (2005). \"It 'has no application in the absence of","paragraphs":["para_730","para_731","para_732"]},{"title":"Importantly, \"[s]potting a constitutional issue does not","paragraphs":["para_734","para_735"]},{"title":"Rodriguez, 583 U.S. 281, 298 (2018). Instead, courts must first","paragraphs":["para_737"]},{"title":"296. Only if those tools leave the statute genuinely susceptible","paragraphs":["para_739","para_740"]},{"title":"The canon of constitutional avoidance does not alter our","paragraphs":["para_742","para_743"]},{"title":"Trustee's proof of claim fits comfortably within the provision's","paragraphs":["para_745","para_746"]},{"title":"Bondholders' proposed construction as applied to the facts of this","paragraphs":["para_748"]},{"title":"17 We assume, without deciding, that the Trustee's proof of","paragraphs":["para_750","para_751","para_752","para_753"]},{"title":"Section 510(b) does not establish any carve-out for","paragraphs":["para_755","para_756"]},{"title":"U.S. at 298. Rather, § 510(b)'s application turns on whether the","paragraphs":["para_758","para_759","para_760","para_761","para_762","para_763","para_764","para_765"]},{"title":"The parties dispute whether the Bondholders waived their","paragraphs":["para_767","para_768"]},{"title":"Class 58 General Unsecured Claim only.18 The district court","paragraphs":["para_770"]},{"title":"18 Despite the district court's repeated inquiries, the","paragraphs":[]},{"title":"Bondholders did not seek any alternative classification for their","paragraphs":["para_773"]},{"title":"Unsecured Claims), even though the Commonwealth Plan provided a","paragraphs":["para_775","para_776","para_777","para_778","para_779","para_780","para_781","para_782"]},{"title":"General Unsecured Claimants under the Commonwealth Plan, they","paragraphs":["para_784","para_785","para_786","para_787","para_788","para_789"]},{"title":"In any event, the constitutional avoidance canon does","paragraphs":["para_791","para_792"]},{"title":"U.S. at 50. And because our review is limited to the narrow","paragraphs":["para_794","para_795","para_796","para_797","para_798","para_799","para_800"]},{"title":"3. Level of Subordination","paragraphs":[]},{"title":"Finally, the Bondholders maintain that even if § 510(b)","paragraphs":["para_803","para_804","para_805","para_806","para_807","para_808","para_809","para_810","para_811","para_812","para_813","para_814"]},{"title":"The Board contends that the Bondholders have forfeited","paragraphs":["para_816","para_817","para_818"]},{"title":"(\"A party's failure to raise an issue in the bankruptcy court","paragraphs":["para_820","para_821","para_822","para_823","para_824","para_825"]},{"title":"Oversight & Mgmt. Bd. for P.R., 7 F.4th 31, 40 (1st Cir. 2021)","paragraphs":[]},{"title":"(declining to consider appellants' nondelegation doctrine argument","paragraphs":["para_828","para_829","para_830","para_831"]},{"title":"In response, the Bondholders make two points -- neither","paragraphs":["para_833","para_834","para_835","para_836","para_837"]},{"title":"As the Bondholders implicitly acknowledge, the question of whether","paragraphs":["para_839","para_840"]},{"title":"The first inquiry focuses on whether damages \"aris[e] from\" a","paragraphs":["para_842","para_843"]},{"title":"U.S.C. § 510(b). That second inquiry implicates different","paragraphs":["para_845","para_846"]},{"title":"Next, the Bondholders assert that because the Board","paragraphs":["para_848","para_849","para_850"]},{"title":"(1st Cir. 1999) (\"Reply briefs are to counter the appellee's","paragraphs":["para_852","para_853","para_854","para_855","para_856"]},{"title":"7 F.4th at 40. And in any event, as we have explained, our holding","paragraphs":["para_858","para_859"]},{"title":"Thus, we conclude that the Bondholders have waived any","paragraphs":["para_861","para_862"]},{"title":"III. CONCLUSION","paragraphs":[]},{"title":"For all these reasons, we affirm the district court's","paragraphs":["para_865"]}],"paragraphs":[{"text":"United States Court of Appeals","paragraph_id":"para_1"},{"text":"For the First Circuit","paragraph_id":"para_2"},{"text":"Nos. 25-1745, 25-1748, 25-1749, 25-1750, 25-1751","paragraph_id":"para_3"},{"text":"IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO","paragraph_id":"para_4"},{"text":"RICO, as representative for the Commonwealth of Puerto Rico; THE","paragraph_id":"para_5"},{"text":"FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as","paragraph_id":"para_6"},{"text":"representative for the Employees Retirement System of the","paragraph_id":"para_7"},{"text":"Government of the Commonwealth of Puerto Rico; THE FINANCIAL","paragraph_id":"para_8"},{"text":"OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as","paragraph_id":"para_9"},{"text":"representative for the Puerto Rico Highways and Transportation","paragraph_id":"para_10"},{"text":"Authority; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR","paragraph_id":"para_11"},{"text":"PUERTO RICO, as representative for the Puerto Rico Electric","paragraph_id":"para_12"},{"text":"Power Authority (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT","paragraph_id":"para_13"},{"text":"BOARD FOR PUERTO RICO, as representative of the Puerto Rico","paragraph_id":"para_14"},{"text":"Public Buildings Authority,","paragraph_id":"para_15"},{"text":"Debtors,","paragraph_id":"para_16"},{"text":"THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as","paragraph_id":"para_17"},{"text":"representative for the Commonwealth of Puerto Rico,","paragraph_id":"para_18"},{"text":"Debtor, Appellee,","paragraph_id":"para_19"},{"text":"CAROL FLATON, in the capacity of Claims Reconciliation Monitor;","paragraph_id":"para_20"},{"text":"RAMON ORTIZ, in the capacity of Claims Reconciliation Monitor,","paragraph_id":"para_21"},{"text":"Interested Parties, Appellees,","paragraph_id":"para_22"},{"text":"v.","paragraph_id":"para_23"},{"text":"SIG STRUCTURED PRODUCTS, LLC; ALLIANCE BERNSTEIN LP; ARISTEIA","paragraph_id":"para_24"},{"text":"CAPITAL, LLC; BNY MELLON INVESTMENT ADVISER, INC.; CAPITAL","paragraph_id":"para_25"},{"text":"RESEARCH AND MANAGEMENT COMPANY; COLUMBIA MANAGEMENT INVESTMENT","paragraph_id":"para_26"},{"text":"ADVISERS, LLC; DELAWARE MANAGEMENT COMPANY, a series of","paragraph_id":"para_27"},{"text":"Macquarie Investment Management Business Trust; ELLINGTON","paragraph_id":"para_28"},{"text":"MANAGEMENT GROUP, LLC.; GOLDMAN SACHS ASSET MANAGEMENT LP;","paragraph_id":"para_29"},{"text":"INVESCO ADVISERS, INC.; MACKAY SHIELDS LLC; MFS INVESTMENT","paragraph_id":"para_30"},{"text":"MANAGEMENT; OLD ORCHARD CAPITAL MANAGEMENT LP; ONE WILLIAM","paragraph_id":"para_31"},{"text":"STREET CAPITAL MANAGEMENT LP; RUSSELL INVESTMENT COMPANY; T.","paragraph_id":"para_32"},{"text":"ROWE PRICE; TOWER BAY ASSET MANAGEMENT; ASSURED GUARANTY INC.;","paragraph_id":"para_33"},{"text":"- 2 -","paragraph_id":"para_34"},{"text":"U.S. BANK NATIONAL ASSOCIATION, in the capacity as PREPA Bond","paragraph_id":"para_35"},{"text":"Trustee; NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION;","paragraph_id":"para_36"},{"text":"GOLDENTREE ASSET MANAGEMENT LP; SYNCORA GUARANTEE, INC.,","paragraph_id":"para_37"},{"text":"Respondents, Appellants.","paragraph_id":"para_38"},{"text":"APPEALS FROM THE UNITED STATES DISTRICT COURT","paragraph_id":"para_39"},{"text":"FOR THE DISTRICT OF PUERTO RICO","paragraph_id":"para_40"},{"text":"[Hon. Laura Taylor Swain,* U.S. District Judge]","paragraph_id":"para_41"},{"text":"Before","paragraph_id":"para_42"},{"text":"Rikelman, Howard, and Dunlap,","paragraph_id":"para_43"},{"text":"Circuit Judges.","paragraph_id":"para_44"},{"text":"G. Eric Brunstad, Jr., with whom Stephen D. Zide, David A.","paragraph_id":"para_45"},{"text":"Herman, and Dechert LLP were on brief, for appellants SIG","paragraph_id":"para_46"},{"text":"Structured Products, LLC; Alliance Bernstein LP; Aristeia Capital,","paragraph_id":"para_47"},{"text":"LLC; BNY Mellon Investment Adviser, Inc.; Capital Research and","paragraph_id":"para_48"},{"text":"Management Company; Columbia Management Investment Advisers, LLC;","paragraph_id":"para_49"},{"text":"Delaware Management Company, a series of Macquarie Investment","paragraph_id":"para_50"},{"text":"Management Business Trust; Ellington Management Group, LLC.;","paragraph_id":"para_51"},{"text":"Goldman Sachs Asset Management LP; Invesco Advisers, Inc.; Mackay","paragraph_id":"para_52"},{"text":"Shields LLC; MFS Investment Management; Old Orchard Capital","paragraph_id":"para_53"},{"text":"Management LP; One William Street Capital Management LP; Russell","paragraph_id":"para_54"},{"text":"Investment Company; T. Rowe Price; and Tower Bay Asset Management.","paragraph_id":"para_55"},{"text":"Michael C. McCarthy, Clark T. Whitmore, John T. Duffey, and","paragraph_id":"para_56"},{"text":"Maslon LLP on brief for appellant U.S. Bank National Association.","paragraph_id":"para_57"},{"text":"John K. Cunningham, with whom Glenn M. Kurtz, Claudine","paragraph_id":"para_58"},{"text":"Columbres, Isaac Glassman, Thomas E. MacWright, Thomas E. Lauria,","paragraph_id":"para_59"},{"text":"Michael C. Shepherd, Jesse L. Green, White & Case LLP, Lydia M.","paragraph_id":"para_60"},{"text":"Ramos Cruz, Ramos Cruz Legal, Susheel Kirpalani, Eric Kay, Quinn","paragraph_id":"para_61"},{"text":"Emanuel Urquhart & Sullivan, LLP, Rafael Escalera, Carlos R.","paragraph_id":"para_62"},{"text":"Rivera-Ortiz, and Reichard & Escalera were on brief, for appellants","paragraph_id":"para_63"},{"text":"GoldenTree Asset Management LP and Syncora Guarantee, Inc.","paragraph_id":"para_64"},{"text":"Miguel A. Estrada, with whom Lochlan F. Shelfer, Gibson, Dunn","paragraph_id":"para_65"},{"text":"& Crutcher LLP, Howard R. Hawkins, Jr., Casey J. Servais, William","paragraph_id":"para_66"},{"text":"J. Natbony, Thomas J. Curtin, and Cadwalader, Wickersham & Taft","paragraph_id":"para_67"},{"text":"LLP were on brief, for appellant Assured Guaranty Inc.","paragraph_id":"para_68"},{"text":"* Of the Southern District of New York, sitting by","paragraph_id":"para_69"},{"text":"designation.","paragraph_id":"para_70"},{"text":"- 3 -","paragraph_id":"para_71"},{"text":"Mark D. Harris, with whom Martin J. Bienenstock, Brian S.","paragraph_id":"para_72"},{"text":"Rosen, Elliot R. Stevens, Timothy W. Mungovan, John E. Roberts,","paragraph_id":"para_73"},{"text":"Adam L. Deming, and Proskauer Rose LLP were on brief, for appellee","paragraph_id":"para_74"},{"text":"Financial Oversight and Management Board for Puerto Rico.","paragraph_id":"para_75"},{"text":"Georg Alexander Bongartz, with whom Eric D. Stolze, Luc A.","paragraph_id":"para_76"},{"text":"Despins, Pedro A. Jimenez, and Paul Hastings LLP were on brief,","paragraph_id":"para_77"},{"text":"for appellees Carol Flaton and Ramon Ortiz.","paragraph_id":"para_78"},{"text":"September 23, 2026","paragraph_id":"para_79"},{"text":"- 4 -","paragraph_id":"para_80"},{"text":"RIKELMAN, Circuit Judge. This appeal requires us to","paragraph_id":"para_81"},{"text":"interpret § 510(b) of the Bankruptcy Code, which mandates the","paragraph_id":"para_82"},{"text":"subordination of any claim \"for damages arising from the purchase","paragraph_id":"para_83"},{"text":"or sale\" of a security of a debtor or its affiliate. 11 U.S.C.","paragraph_id":"para_84"},{"text":"§ 510(b). A trustee filed a proof of claim for $8.5 billion in","paragraph_id":"para_85"},{"text":"Puerto Rico's bankruptcy-type restructuring proceedings asserting","paragraph_id":"para_86"},{"text":"that the Commonwealth violated bondholders' statutory and","paragraph_id":"para_87"},{"text":"constitutional rights. The district court concluded that § 510(b)","paragraph_id":"para_88"},{"text":"applied to the trustee's claim and thus classified it as a","paragraph_id":"para_89"},{"text":"subordinated claim. We affirm.","paragraph_id":"para_90"},{"text":"I. BACKGROUND","paragraph_id":"para_91"},{"text":"A. Statutory Background","paragraph_id":"para_92"},{"text":"In 1941, Puerto Rico enacted the Puerto Rico Electric","paragraph_id":"para_93"},{"text":"Power Authority Act (the \"Authority Act\"). See P.R. Laws Ann.","paragraph_id":"para_94"},{"text":"tit. 22, § 191 (2026). The Authority Act established the Puerto","paragraph_id":"para_95"},{"text":"Rico Electric Power Authority (PREPA), a public utility","paragraph_id":"para_96"},{"text":"corporation charged with managing the Commonwealth's energy","paragraph_id":"para_97"},{"text":"resources. See id. § 193(a). It also authorized PREPA to finance","paragraph_id":"para_98"},{"text":"its operations by issuing revenue bonds and pledging its \"entire","paragraph_id":"para_99"},{"text":"gross or net revenues and present or future income\" to secure","paragraph_id":"para_100"},{"text":"repayment of those obligations. Id. § 206(e)(1); see also id.","paragraph_id":"para_101"},{"text":"§ 196(o). At the same time, the statute expressly provided that","paragraph_id":"para_102"},{"text":"the Commonwealth was not liable for payment of the principal or","paragraph_id":"para_103"},{"text":"interest on PREPA's revenue bonds. See id. § 210 (stating that","paragraph_id":"para_104"},{"text":"- 5 -","paragraph_id":"para_105"},{"text":"the \"bonds and other obligations issued by [PREPA] shall not be a","paragraph_id":"para_106"},{"text":"debt of the Commonwealth\" nor \"shall [the Commonwealth] be liable","paragraph_id":"para_107"},{"text":"thereon\").","paragraph_id":"para_108"},{"text":"The Authority Act did grant bondholders several","paragraph_id":"para_109"},{"text":"statutory protections, however, to facilitate PREPA's access to","paragraph_id":"para_110"},{"text":"the capital markets. Most importantly for our purposes, it","paragraph_id":"para_111"},{"text":"memorialized a promise by the Commonwealth not to impair PREPA's","paragraph_id":"para_112"},{"text":"ability to repay the bonds. Specifically, the Authority Act","paragraph_id":"para_113"},{"text":"included a covenant by the Commonwealth not to \"limit or alter the","paragraph_id":"para_114"},{"text":"rights or powers\" vested in PREPA until it repaid its outstanding","paragraph_id":"para_115"},{"text":"bonds, including any accrued interest (the \"Statutory Covenant\").","paragraph_id":"para_116"},{"text":"Id. § 215. The Authority Act also permitted the appointment of a","paragraph_id":"para_117"},{"text":"trustee to enforce \"any covenants made to secure, to pay, or in","paragraph_id":"para_118"},{"text":"relation to the bonds\" for the benefit of PREPA's bondholders.","paragraph_id":"para_119"},{"text":"Id. § 206(e)(12).","paragraph_id":"para_120"},{"text":"In 1974, PREPA executed a trust agreement with the","paragraph_id":"para_121"},{"text":"trustee at the time (the \"Trust Agreement\").1 See In re Fin.","paragraph_id":"para_122"},{"text":"Oversight & Mgmt. Bd. for P.R., 121 F.4th 280, 290 (1st Cir. 2024).","paragraph_id":"para_123"},{"text":"Under that agreement, and as permitted by § 196 of the Authority","paragraph_id":"para_124"},{"text":"Act, PREPA issued several series of bonds and pledged its present","paragraph_id":"para_125"},{"text":"and future net revenues as security to the bondholders. It also","paragraph_id":"para_126"},{"text":"1 Appellant U.S. Bank National Association is the current","paragraph_id":"para_127"},{"text":"trustee, and we refer to it, acting in its capacity under the Trust","paragraph_id":"para_128"},{"text":"Agreement, as the \"Trustee\" throughout this opinion.","paragraph_id":"para_129"},{"text":"- 6 -","paragraph_id":"para_130"},{"text":"agreed to maintain rates sufficient to satisfy operating expenses","paragraph_id":"para_131"},{"text":"and debt-service obligations.2 Notably, the Trust Agreement","paragraph_id":"para_132"},{"text":"specified that the revenue bonds were payable solely from PREPA's","paragraph_id":"para_133"},{"text":"net revenues and that the Commonwealth was not liable on the bonds.","paragraph_id":"para_134"},{"text":"B. The Commonwealth's Title III Proceedings","paragraph_id":"para_135"},{"text":"In 2016, to address the Commonwealth's fiscal crisis,","paragraph_id":"para_136"},{"text":"Congress enacted the Puerto Rico Oversight, Management, and","paragraph_id":"para_137"},{"text":"Economic Stability Act (PROMESA), which created a restructuring","paragraph_id":"para_138"},{"text":"framework modeled on relevant aspects of federal bankruptcy law.","paragraph_id":"para_139"},{"text":"See 48 U.S.C. §§ 2101-2241; id. § 2161(a) (incorporating","paragraph_id":"para_140"},{"text":"substantial portions of the Bankruptcy Code into PROMESA). Among","paragraph_id":"para_141"},{"text":"other things, PROMESA established the Financial Oversight and","paragraph_id":"para_142"},{"text":"Management Board (the \"Board\") and \"empowered [it] to place","paragraph_id":"para_143"},{"text":"Commonwealth entities into bankruptcy-type restructuring","paragraph_id":"para_144"},{"text":"proceedings,\" known as \"Title III proceedings.\" In re Fin.","paragraph_id":"para_145"},{"text":"Oversight & Mgmt. Bd. for P.R., 121 F.4th at 292.","paragraph_id":"para_146"},{"text":"The next year, the Board filed a restructuring petition","paragraph_id":"para_147"},{"text":"on behalf of the Commonwealth, initiating the Commonwealth's","paragraph_id":"para_148"},{"text":"Title III case. Two months later, PREPA defaulted on its","paragraph_id":"para_149"},{"text":"obligation to pay the bondholders under the Trust Agreement, and","paragraph_id":"para_150"},{"text":"2 Our court recently held that the Trust Agreement grants","paragraph_id":"para_151"},{"text":"bondholders a lien on PREPA's present and future net revenues.","paragraph_id":"para_152"},{"text":"See In re Fin. Oversight & Mgmt. Bd. for P.R., 121 F.4th at 301.","paragraph_id":"para_153"},{"text":"This appeal does not directly concern PREPA's liability to repay","paragraph_id":"para_154"},{"text":"those bonds.","paragraph_id":"para_155"},{"text":"- 7 -","paragraph_id":"para_156"},{"text":"the Board filed a separate Title III restructuring petition on","paragraph_id":"para_157"},{"text":"PREPA's behalf. See In re Fin. Oversight & Mgmt. Bd. for P.R.,","paragraph_id":"para_158"},{"text":"899 F.3d 13, 18 (1st Cir. 2018). Although PREPA is a public","paragraph_id":"para_159"},{"text":"corporation of the Commonwealth, the two entities have proceeded","paragraph_id":"para_160"},{"text":"in separate Title III cases.","paragraph_id":"para_161"},{"text":"On behalf of PREPA's bondholders, the Trustee filed a","paragraph_id":"para_162"},{"text":"general unsecured proof of claim for $8.5 billion in the","paragraph_id":"para_163"},{"text":"Commonwealth's Title III case. Separately, the Trustee filed a","paragraph_id":"para_164"},{"text":"proof of claim for the same amount in PREPA's Title III case,","paragraph_id":"para_165"},{"text":"reflecting the face value (that is, the principal and interest) of","paragraph_id":"para_166"},{"text":"the then-outstanding revenue bonds.","paragraph_id":"para_167"},{"text":"In its proof of claim in the Commonwealth case, the","paragraph_id":"para_168"},{"text":"Trustee alleged that the Commonwealth interfered in multiple ways","paragraph_id":"para_169"},{"text":"with PREPA's ability to repay the revenue bonds. For example, the","paragraph_id":"para_170"},{"text":"Trustee pointed out that the Commonwealth enacted a statute","paragraph_id":"para_171"},{"text":"limiting PREPA's independent ability to set rates for its services","paragraph_id":"para_172"},{"text":"to satisfy its bond obligations and requiring it to receive","paragraph_id":"para_173"},{"text":"approval for any rate changes from a separate Energy Commission.","paragraph_id":"para_174"},{"text":"See P.R. Laws Ann. tit. 22, § 196(l) (2026) (as amended by Act","paragraph_id":"para_175"},{"text":"57-2014 and Act 4-2016).","paragraph_id":"para_176"},{"text":"Based on those allegations, the Trustee asserted","paragraph_id":"para_177"},{"text":"multiple discrete causes of action within its proof of claim,","paragraph_id":"para_178"},{"text":"including claims that the Commonwealth breached the Statutory","paragraph_id":"para_179"},{"text":"Covenant and violated the Takings and Contracts Clauses of the","paragraph_id":"para_180"},{"text":"- 8 -","paragraph_id":"para_181"},{"text":"U.S. and Puerto Rico Constitutions. See id. § 215; U.S. Const.","paragraph_id":"para_182"},{"text":"amend. V; id. art. 1, § 10, cl. 1; P.R. Const., art. II, §§ 7, 9.","paragraph_id":"para_183"},{"text":"Critically, the Trustee also asserted that the Commonwealth","paragraph_id":"para_184"},{"text":"granted the Statutory Covenant and related protections as a","paragraph_id":"para_185"},{"text":"\"material inducement for investors to purchase\" PREPA's revenue","paragraph_id":"para_186"},{"text":"bonds. Thus, the Trustee sought $8.5 billion for the","paragraph_id":"para_187"},{"text":"Commonwealth's alleged impairment of those statutory and","paragraph_id":"para_188"},{"text":"constitutional rights.","paragraph_id":"para_189"},{"text":"In 2022, the district court3 confirmed the Commonwealth's","paragraph_id":"para_190"},{"text":"Plan of Adjustment (\"the Commonwealth Plan\"), which restructured","paragraph_id":"para_191"},{"text":"the Commonwealth's debt and specified the recoveries for its","paragraph_id":"para_192"},{"text":"various creditors. The Trustee did not file an objection.","paragraph_id":"para_193"},{"text":"The Commonwealth Plan divides claims against the","paragraph_id":"para_194"},{"text":"Commonwealth into multiple classes entitled to different","paragraph_id":"para_195"},{"text":"distributions. Classes 64 and 58 are central to this appeal.","paragraph_id":"para_196"},{"text":"Class 64 is composed of \"Section 510(b) Subordinated Claims,\"","paragraph_id":"para_197"},{"text":"defined as:","paragraph_id":"para_198"},{"text":"Any Claim . . . against the Debtors' [sic] or","paragraph_id":"para_199"},{"text":"their Assets arising from or relating to","paragraph_id":"para_200"},{"text":"(a) rescission of a purchase or sale of an","paragraph_id":"para_201"},{"text":"existing security of a Debtor or an Affiliate","paragraph_id":"para_202"},{"text":"of a Debtor, (b) purchase, sale or retention","paragraph_id":"para_203"},{"text":"of such a security, or (c) reimbursement,","paragraph_id":"para_204"},{"text":"indemnification or contribution allowed under","paragraph_id":"para_205"},{"text":"3 In Title III proceedings, the lower court is commonly","paragraph_id":"para_206"},{"text":"referred to as the \"Title III court.\" See In re Fin. Oversight &","paragraph_id":"para_207"},{"text":"Mgmt. Bd. for P.R., 121 F.4th at 292. For simplicity, we refer to","paragraph_id":"para_208"},{"text":"it as the \"district court\" in this opinion.","paragraph_id":"para_209"},{"text":"- 9 -","paragraph_id":"para_210"},{"text":"section 502 of the Bankruptcy Code on account","paragraph_id":"para_211"},{"text":"of such Claim.","paragraph_id":"para_212"},{"text":"The parties agree that this definition substantially incorporates","paragraph_id":"para_213"},{"text":"§ 510(b) of the Bankruptcy Code, such that any claim that falls","paragraph_id":"para_214"},{"text":"within the scope of § 510(b) of the Code is properly categorized","paragraph_id":"para_215"},{"text":"as a Class 64 claim. The Commonwealth Plan does not provide for","paragraph_id":"para_216"},{"text":"any distribution to holders of Class 64 claims, so the bondholders","paragraph_id":"para_217"},{"text":"would recover nothing under that Plan if the district court","paragraph_id":"para_218"},{"text":"correctly concluded that the Trustee's proof of claim falls under","paragraph_id":"para_219"},{"text":"§ 510(b) (although the bondholders would still have potential","paragraph_id":"para_220"},{"text":"claims against PREPA under PREPA's plan set out in its Title III","paragraph_id":"para_221"},{"text":"case).","paragraph_id":"para_222"},{"text":"Separately, Class 58 of the Commonwealth Plan covers","paragraph_id":"para_223"},{"text":"\"General Unsecured Claims,\" which are defined as those claims not","paragraph_id":"para_224"},{"text":"falling into other classes; by definition, claims categorized as","paragraph_id":"para_225"},{"text":"Class 64 Section 510(b) Subordinated Claims are excluded from","paragraph_id":"para_226"},{"text":"Class 58. General Unsecured Claimants stand to recover roughly","paragraph_id":"para_227"},{"text":"twenty percent of their asserted damages under the Commonwealth","paragraph_id":"para_228"},{"text":"Plan if the Trustee's claim on behalf of the bondholders is","paragraph_id":"para_229"},{"text":"excluded; if the Trustee's claim is included, however, they would","paragraph_id":"para_230"},{"text":"recover about five percent.","paragraph_id":"para_231"},{"text":"The Board filed a timely objection to the Trustee's","paragraph_id":"para_232"},{"text":"$8.5 billion general unsecured claim in the Commonwealth's","paragraph_id":"para_233"},{"text":"Title III case. In response, the Trustee maintained that the","paragraph_id":"para_234"},{"text":"- 10 -","paragraph_id":"para_235"},{"text":"Commonwealth violated its statutory promise not to impair PREPA's","paragraph_id":"para_236"},{"text":"ability to repay the bonds -- a promise that it again described as","paragraph_id":"para_237"},{"text":"\"induc[ing] the purchase of PREPA's bonds.\" And the Trustee","paragraph_id":"para_238"},{"text":"repeated its assertions that the Commonwealth \"negatively impacted","paragraph_id":"para_239"},{"text":"the Trustee's and [PREPA] Bondholders' rights under the Trust","paragraph_id":"para_240"},{"text":"Agreement and Authority Act.\" The district court then stayed any","paragraph_id":"para_241"},{"text":"litigation related to the Trustee's proof of claim.","paragraph_id":"para_242"},{"text":"In 2025, the Board moved to enforce the Commonwealth","paragraph_id":"para_243"},{"text":"Plan by seeking a determination that the Trustee's proof of claim","paragraph_id":"para_244"},{"text":"constituted a Class 64 Section 510(b) Subordinated Claim under the","paragraph_id":"para_245"},{"text":"Plan.4 To support its motion, the Board asserted that the Trustee's","paragraph_id":"para_246"},{"text":"claim sought damages that arose from the bondholders' purchase of","paragraph_id":"para_247"},{"text":"the PREPA revenue bonds. Thus, the Board maintained that the","paragraph_id":"para_248"},{"text":"Trustee should not be classified as a Class 58 General Unsecured","paragraph_id":"para_249"},{"text":"Claimant, and, as a result, was not entitled to any recovery on","paragraph_id":"para_250"},{"text":"its $8.5 billion claim from the Commonwealth's bankruptcy","paragraph_id":"para_251"},{"text":"distribution.","paragraph_id":"para_252"},{"text":"The district court granted the Board's motion to","paragraph_id":"para_253"},{"text":"enforce. After concluding that the motion was not time-barred,","paragraph_id":"para_254"},{"text":"the court turned to the merits and held that the Trustee's proof","paragraph_id":"para_255"},{"text":"of claim was properly classified under the Commonwealth Plan as a","paragraph_id":"para_256"},{"text":"Class 64 Section 510(b) Subordinated Claim, not a Class 58 General","paragraph_id":"para_257"},{"text":"4 The district court lifted the litigation stay to permit the","paragraph_id":"para_258"},{"text":"Board to file the motion to enforce.","paragraph_id":"para_259"},{"text":"- 11 -","paragraph_id":"para_260"},{"text":"Unsecured Claim.5 Rejecting the Trustee's argument that the phrase","paragraph_id":"para_261"},{"text":"\"arising from\" in § 510(b) should be read narrowly, the court noted","paragraph_id":"para_262"},{"text":"that other federal circuit courts had interpreted § 510(b) to cover","paragraph_id":"para_263"},{"text":"claims that share a \"causal link\" with the purchase or sale of the","paragraph_id":"para_264"},{"text":"relevant security. The court then emphasized the allegation in","paragraph_id":"para_265"},{"text":"the Trustee's proof of claim that the Commonwealth breached","paragraph_id":"para_266"},{"text":"promises made to \"induc[e]\" the bondholders to purchase those","paragraph_id":"para_267"},{"text":"bonds. As a result, the court concluded that § 510(b) applied to","paragraph_id":"para_268"},{"text":"the Trustee's claim because it sought damages that \"ultimately","paragraph_id":"para_269"},{"text":"relate[d]\" to those initial purchases.","paragraph_id":"para_270"},{"text":"In reaching its ruling, the district court specifically","paragraph_id":"para_271"},{"text":"addressed the bondholders' constitutional causes of action. It","paragraph_id":"para_272"},{"text":"concluded that there was no basis for treating those alleged claims","paragraph_id":"para_273"},{"text":"differently because § 510(b) \"unambiguous[ly]\" applied to the","paragraph_id":"para_274"},{"text":"proof of claim as a whole and the Trustee waived any argument that","paragraph_id":"para_275"},{"text":"the bondholders' constitutional claims could not be impaired.","paragraph_id":"para_276"},{"text":"Thus, the court classified the proof of claim as a Class 64 Section","paragraph_id":"para_277"},{"text":"510(b) Subordinated Claim that would receive no distribution under","paragraph_id":"para_278"},{"text":"the Commonwealth Plan.","paragraph_id":"para_279"},{"text":"5 The Trustee and the bondholders involved in this case","paragraph_id":"para_280"},{"text":"pursued a narrow argument before the district court: that the","paragraph_id":"para_281"},{"text":"Trustee's claim should be classified in Class 58, not Class 64, of","paragraph_id":"para_282"},{"text":"the Commonwealth Plan. Thus, the district court's review was","paragraph_id":"para_283"},{"text":"limited to the question of which of those two classes was the","paragraph_id":"para_284"},{"text":"better fit for the Trustee's claim.","paragraph_id":"para_285"},{"text":"- 12 -","paragraph_id":"para_286"},{"text":"The Trustee and multiple bondholder groups timely","paragraph_id":"para_287"},{"text":"appealed.6","paragraph_id":"para_288"},{"text":"II. DISCUSSION","paragraph_id":"para_289"},{"text":"On appeal, the Bondholders challenge the district","paragraph_id":"para_290"},{"text":"court's ruling on procedural grounds, arguing that the Board's","paragraph_id":"para_291"},{"text":"motion to enforce was filed too late, and on substantive grounds,","paragraph_id":"para_292"},{"text":"contending that the court misinterpreted § 510(b). We ultimately","paragraph_id":"para_293"},{"text":"reject both arguments.","paragraph_id":"para_294"},{"text":"A. Timeliness of the Motion to Enforce","paragraph_id":"para_295"},{"text":"To begin, the Bondholders maintain that the district","paragraph_id":"para_296"},{"text":"court should not have considered the Board's argument that the","paragraph_id":"para_297"},{"text":"Trustee's proof of claim met the definition of a Section 510(b)","paragraph_id":"para_298"},{"text":"Subordinated Claim. In their view, the Board's request that the","paragraph_id":"para_299"},{"text":"court treat the proof of claim as a Class 64 claim was untimely","paragraph_id":"para_300"},{"text":"because the deadline for objecting had passed.","paragraph_id":"para_301"},{"text":"The district court rejected the Bondholders' position","paragraph_id":"para_302"},{"text":"and concluded that the Board properly raised the classification","paragraph_id":"para_303"},{"text":"issue via a motion to enforce the Commonwealth Plan, which could","paragraph_id":"para_304"},{"text":"be filed at any time. But the court also held that, even if it","paragraph_id":"para_305"},{"text":"were to view the Board's motion to enforce as a formal objection,","paragraph_id":"para_306"},{"text":"6 The appellants filed five separate notices of appeal, which","paragraph_id":"para_307"},{"text":"we consolidated at their request. We refer to the appellants","paragraph_id":"para_308"},{"text":"collectively as the \"Bondholders\" throughout the remainder of this","paragraph_id":"para_309"},{"text":"opinion. Meanwhile, we refer to the appellees, which include the","paragraph_id":"para_310"},{"text":"Board and two claims reconciliation monitors, simply as the","paragraph_id":"para_311"},{"text":"\"Board.\"","paragraph_id":"para_312"},{"text":"- 13 -","paragraph_id":"para_313"},{"text":"it would construe the motion to include a request for leave to","paragraph_id":"para_314"},{"text":"amend the Board's earlier, timely objection under Federal Rule of","paragraph_id":"para_315"},{"text":"Civil Procedure 15(a) and grant leave to amend on that basis.","paragraph_id":"para_316"},{"text":"We affirm the district court's ruling based on its","paragraph_id":"para_317"},{"text":"alternative holding granting the Board leave to amend its previous","paragraph_id":"para_318"},{"text":"objection.7 The Bondholders do not dispute that the court was","paragraph_id":"para_319"},{"text":"authorized to treat the Board's filing as a motion to amend that","paragraph_id":"para_320"},{"text":"earlier objection. They also do not contest that Federal Rule of","paragraph_id":"para_321"},{"text":"Civil Procedure 15(a) governs the court's decision to permit","paragraph_id":"para_322"},{"text":"amendment of the Board's objection or that we review that decision","paragraph_id":"para_323"},{"text":"for abuse of discretion. Instead, the Bondholders insist that the","paragraph_id":"para_324"},{"text":"court should have rejected the Board's filing because it was unduly","paragraph_id":"para_325"},{"text":"delayed and prejudicial.","paragraph_id":"para_326"},{"text":"Rule 15(a)(2) provides that \"court[s] should freely give","paragraph_id":"para_327"},{"text":"leave [to amend] when justice so requires.\" Fed. R. Civ.","paragraph_id":"para_328"},{"text":"P. (15)(a)(2); see also Fed. R. Bankr. P. 7015 (applying Rule 15","paragraph_id":"para_329"},{"text":"to adversary bankruptcy proceedings). Nevertheless, \"[i]n","paragraph_id":"para_330"},{"text":"appropriate circumstances,\" courts may deny leave to amend -- for","paragraph_id":"para_331"},{"text":"example, if there is \"undue delay, bad faith, futility, [or] the","paragraph_id":"para_332"},{"text":"absence of due diligence on the movant's part.\" Palmer v. Champion","paragraph_id":"para_333"},{"text":"Mortg., 465 F.3d 24, 30 (1st Cir. 2006).","paragraph_id":"para_334"},{"text":"7 As a result, we need not decide whether the Board correctly","paragraph_id":"para_335"},{"text":"raised its request through a motion to enforce the Commonwealth","paragraph_id":"para_336"},{"text":"Plan.","paragraph_id":"para_337"},{"text":"- 14 -","paragraph_id":"para_338"},{"text":"We are unpersuaded by the Bondholders' undue delay and","paragraph_id":"para_339"},{"text":"prejudice arguments. The district court found that the Board","paragraph_id":"para_340"},{"text":"sought to resolve the classification issue as soon as it could,","paragraph_id":"para_341"},{"text":"and the Bondholders' only challenge to that finding is to assert","paragraph_id":"para_342"},{"text":"(without any support) that filing an objection a year after a","paragraph_id":"para_343"},{"text":"deadline constitutes \"quintessential[] undue delay.\" But we have","paragraph_id":"para_344"},{"text":"rejected such an approach to evaluating undue delay, emphasizing","paragraph_id":"para_345"},{"text":"that the inquiry \"is not simply a matter of counting days.\"","paragraph_id":"para_346"},{"text":"Amyndas Pharms., S.A. v. Zealand Pharma A/S, 48 F.4th 18, 37 (1st","paragraph_id":"para_347"},{"text":"Cir. 2022). And given that the district court stayed all","paragraph_id":"para_348"},{"text":"litigation related to the Bondholders' classification argument","paragraph_id":"para_349"},{"text":"almost immediately after they raised it (in their response to the","paragraph_id":"para_350"},{"text":"Board's timely initial objection), we see no basis to overturn the","paragraph_id":"para_351"},{"text":"court's conclusion that the Board did not unduly delay.","paragraph_id":"para_352"},{"text":"As to prejudice, the Bondholders contend that the","paragraph_id":"para_353"},{"text":"district court's ruling permitting the Board to amend its previous","paragraph_id":"para_354"},{"text":"objection led to increased litigation costs, but that contention","paragraph_id":"para_355"},{"text":"does not establish prejudice sufficient to warrant reversal.","paragraph_id":"para_356"},{"text":"Virtually any amendment would lead to more litigation, and the","paragraph_id":"para_357"},{"text":"Bondholders have not cited any case law to suggest that a court","paragraph_id":"para_358"},{"text":"abuses its discretion when it permits amendment simply because","paragraph_id":"para_359"},{"text":"additional litigation would ensue.","paragraph_id":"para_360"},{"text":"Thus, on this record and given the arguments before us,","paragraph_id":"para_361"},{"text":"we cannot conclude that the district court abused its discretion","paragraph_id":"para_362"},{"text":"- 15 -","paragraph_id":"para_363"},{"text":"in considering the Board's request to treat the Trustee's proof of","paragraph_id":"para_364"},{"text":"claim as a Section 510(b) Subordinated Claim.","paragraph_id":"para_365"},{"text":"B. Section 510(b)","paragraph_id":"para_366"},{"text":"Turning to the merits, the Bondholders press three main","paragraph_id":"para_367"},{"text":"arguments concerning § 510(b)'s application to the Trustee's proof","paragraph_id":"para_368"},{"text":"of claim. First, they argue that the proof of claim does not seek","paragraph_id":"para_369"},{"text":"damages \"arising from the purchase or sale\" of a security within","paragraph_id":"para_370"},{"text":"the meaning of § 510(b) because, in their view, the claim targets","paragraph_id":"para_371"},{"text":"\"post-sale malfeasance.\" Second, the Bondholders maintain that","paragraph_id":"para_372"},{"text":"even if § 510(b) could be read to encompass the Trustee's claim,","paragraph_id":"para_373"},{"text":"the canon of constitutional avoidance requires adoption of their","paragraph_id":"para_374"},{"text":"narrower construction of the provision. And third, they argue","paragraph_id":"para_375"},{"text":"that even if the Trustee's claim is subject to subordination under","paragraph_id":"para_376"},{"text":"§ 510(b), the district court erred in classifying the claim as","paragraph_id":"para_377"},{"text":"falling below Class 58 General Unsecured Claims.","paragraph_id":"para_378"},{"text":"Because this dispute centers on a purely legal question","paragraph_id":"para_379"},{"text":"concerning the proper interpretation and application of 11 U.S.C.","paragraph_id":"para_380"},{"text":"§ 510(b) to the Trustee's proof of claim, our review is de novo.","paragraph_id":"para_381"},{"text":"See In re Savage, 169 F.4th 45, 53 (1st Cir. 2026) (\"The","paragraph_id":"para_382"},{"text":"interpretation of the Bankruptcy Code is a legal question that we","paragraph_id":"para_383"},{"text":"review de novo.\"); In re Fin. Oversight & Mgmt. Bd. for P.R., 178","paragraph_id":"para_384"},{"text":"F.4th 747, 753 (1st Cir. 2026) (\"We . . . review[] the Title III","paragraph_id":"para_385"},{"text":"court's factual findings for clear error and its legal conclusions","paragraph_id":"para_386"},{"text":"de novo.\").","paragraph_id":"para_387"},{"text":"- 16 -","paragraph_id":"para_388"},{"text":"1. Section 510(b)'s Reach","paragraph_id":"para_389"},{"text":"Section 510(b) provides, in relevant part:","paragraph_id":"para_390"},{"text":"[A] claim arising from rescission of a","paragraph_id":"para_391"},{"text":"purchase or sale of a security of the debtor","paragraph_id":"para_392"},{"text":"or of an affiliate of the debtor, for damages","paragraph_id":"para_393"},{"text":"arising from the purchase or sale of such a","paragraph_id":"para_394"},{"text":"security, or for reimbursement or contribution","paragraph_id":"para_395"},{"text":"allowed under section 502 on account of such","paragraph_id":"para_396"},{"text":"a claim, shall be subordinated to all claims","paragraph_id":"para_397"},{"text":"or interests that are senior to or equal the","paragraph_id":"para_398"},{"text":"claim or interest represented by such","paragraph_id":"para_399"},{"text":"security . . . .","paragraph_id":"para_400"},{"text":"11 U.S.C. § 510(b) (emphasis added). The parties agree that the","paragraph_id":"para_401"},{"text":"PREPA revenue bonds constitute \"securities\" within the meaning of","paragraph_id":"para_402"},{"text":"the Bankruptcy Code and that PREPA is an \"affiliate\" of the","paragraph_id":"para_403"},{"text":"Commonwealth for purposes of § 510(b).8 See id. § 101(2),","paragraph_id":"para_404"},{"text":"(49)(A)(iv); 48 U.S.C. § 2161(c)(1). Thus, the key inquiry on","paragraph_id":"para_405"},{"text":"appeal turns on a single statutory question: whether the Trustee's","paragraph_id":"para_406"},{"text":"proof of claim seeks \"damages arising from the purchase or sale\"","paragraph_id":"para_407"},{"text":"of the PREPA revenue bonds. 11 U.S.C. § 510(b).","paragraph_id":"para_408"},{"text":"\"As usual,\" when tasked with construing a statute, \"we","paragraph_id":"para_409"},{"text":"must start with the text of the statute itself.\" Washington v.","paragraph_id":"para_410"},{"text":"HUD, 171 F.4th 473, 490 (1st Cir. 2026) (quoting Teles de Menezes","paragraph_id":"para_411"},{"text":"v. Rubio, 156 F.4th 1, 12 (1st Cir. 2025)). Generally, we construe","paragraph_id":"para_412"},{"text":"the words in a federal statute based on their plain and ordinary","paragraph_id":"para_413"},{"text":"8 The Bondholders initially argued to the district court that","paragraph_id":"para_414"},{"text":"the PREPA revenue bonds were not securities subject to § 510(b),","paragraph_id":"para_415"},{"text":"but they abandoned that position below and did not press that","paragraph_id":"para_416"},{"text":"argument on appeal. It is thus waived. See Shash v. Biogen, Inc.,","paragraph_id":"para_417"},{"text":"84 F.4th 1, 10 n.9 (1st Cir. 2023).","paragraph_id":"para_418"},{"text":"- 17 -","paragraph_id":"para_419"},{"text":"meaning at the time that Congress enacted the statute. See Watson","paragraph_id":"para_420"},{"text":"v. Republican Nat'l Comm., 146 S. Ct. 2165, 2172 (2026). But in","paragraph_id":"para_421"},{"text":"doing so, we must read those words in the context of the particular","paragraph_id":"para_422"},{"text":"provision, surrounding provisions, and the statutory scheme as a","paragraph_id":"para_423"},{"text":"whole. See City of Providence v. Barr, 954 F.3d 23, 31 (1st Cir.","paragraph_id":"para_424"},{"text":"2020); see also Gundy v. United States, 588 U.S. 128, 141 (2019)","paragraph_id":"para_425"},{"text":"(\"It is a fundamental canon of statutory construction that the","paragraph_id":"para_426"},{"text":"words of a statute must be read in their context and with a view","paragraph_id":"para_427"},{"text":"to their place in the overall statutory scheme.\" (quoting Nat'l","paragraph_id":"para_428"},{"text":"Ass'n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 666","paragraph_id":"para_429"},{"text":"(2007))).","paragraph_id":"para_430"},{"text":"When \"interpreting a statute,\" courts aim \"to determine","paragraph_id":"para_431"},{"text":"whether the language at issue has a plain and unambiguous meaning","paragraph_id":"para_432"},{"text":"with regard to the particular dispute in the case.\" Robinson v.","paragraph_id":"para_433"},{"text":"Shell Oil Co., 519 U.S. 337, 340 (1997) (emphasis added). Thus,","paragraph_id":"para_434"},{"text":"as long as it is \"plain to anyone reading [the statute] that it","paragraph_id":"para_435"},{"text":"encompasses the conduct at issue,\" we need not resolve if the","paragraph_id":"para_436"},{"text":"statutory provision would be unambiguous in all potential","paragraph_id":"para_437"},{"text":"situations. United States v. Sargent, 103 F.4th 820, 826 (D.C.","paragraph_id":"para_438"},{"text":"Cir. 2024) (citation modified) (quoting Salinas v. United States,","paragraph_id":"para_439"},{"text":"522 U.S. 52, 60 (1997)).","paragraph_id":"para_440"},{"text":"The Bondholders insist that our previous decisions","paragraph_id":"para_441"},{"text":"construing the phrase \"arising from\" in other statutes weigh in","paragraph_id":"para_442"},{"text":"their favor. See, e.g., Aguilar v. U.S. Immigr. & Customs Enf't,","paragraph_id":"para_443"},{"text":"- 18 -","paragraph_id":"para_444"},{"text":"510 F.3d 1, 10 (1st Cir. 2007) (analyzing \"arising from\" in the","paragraph_id":"para_445"},{"text":"immigration law context). Those cases \"recognized that the term","paragraph_id":"para_446"},{"text":"'arising from' requires more than a weak or tenuous connection to","paragraph_id":"para_447"},{"text":"a triggering event.\" Id. We consider their analysis as we","paragraph_id":"para_448"},{"text":"interpret the meaning of § 510(b) in light of its unique statutory","paragraph_id":"para_449"},{"text":"context.","paragraph_id":"para_450"},{"text":"With these principles in mind, we reject the","paragraph_id":"para_451"},{"text":"Bondholders' front-line position that the \"plain text\" of § 510(b)","paragraph_id":"para_452"},{"text":"encompasses only those claims alleging misconduct at the time of","paragraph_id":"para_453"},{"text":"the security transaction itself and does not extend to claims","paragraph_id":"para_454"},{"text":"concerning \"subsequent intervening wrongdoing.\" To start, nothing","paragraph_id":"para_455"},{"text":"in § 510(b)'s text limits its application to claims alleging","paragraph_id":"para_456"},{"text":"misconduct at the moment a security is issued. Nor do legal","paragraph_id":"para_457"},{"text":"dictionaries published at the time that Congress enacted § 510(b)","paragraph_id":"para_458"},{"text":"suggest that the phrase \"arising from\" carries any such temporal","paragraph_id":"para_459"},{"text":"limit; rather, they define \"arise\" to mean \"to originate,\" \"to","paragraph_id":"para_460"},{"text":"spring up,\" or \"to come into being.\" Arise, Black's Law Dictionary","paragraph_id":"para_461"},{"text":"(4th ed. 1968). Thus, those definitions support reading the phrase","paragraph_id":"para_462"},{"text":"to require a causal relationship between the securities","paragraph_id":"para_463"},{"text":"transaction and the asserted damages but do not indicate that the","paragraph_id":"para_464"},{"text":"misconduct leading to the alleged damages must have occurred at","paragraph_id":"para_465"},{"text":"- 19 -","paragraph_id":"para_466"},{"text":"the time of the transaction.9 And our case law, although not","paragraph_id":"para_467"},{"text":"exactly on point, does not suggest otherwise. Cf. Aguilar, 510","paragraph_id":"para_468"},{"text":"F.3d at 10 (declining to read \"arising from\" to \"sweep within its","paragraph_id":"para_469"},{"text":"scope claims with only a remote or attenuated connection to the","paragraph_id":"para_470"},{"text":"removal of an alien\").","paragraph_id":"para_471"},{"text":"Other circuit courts to consider the issue have rejected","paragraph_id":"para_472"},{"text":"the temporal limit that the Bondholders urge us to read into the","paragraph_id":"para_473"},{"text":"statute. For example, in In re Geneva Steel Co., the U.S. Court","paragraph_id":"para_474"},{"text":"of Appeals for the Tenth Circuit applied § 510(b) to bondholders'","paragraph_id":"para_475"},{"text":"fraud-in-the-retention claims, even though the claims arose from","paragraph_id":"para_476"},{"text":"the debtor's post-transaction conduct rather than from fraud","paragraph_id":"para_477"},{"text":"inducing the purchase itself. See 281 F.3d 1173, 1178-80 (10th","paragraph_id":"para_478"},{"text":"Cir. 2002). Similarly, in In re Telegroup, the U.S. Court of","paragraph_id":"para_479"},{"text":"Appeals for the Third Circuit rejected the argument that a debtor's","paragraph_id":"para_480"},{"text":"post-transaction breach of contract occurred too late to fall","paragraph_id":"para_481"},{"text":"within § 510(b). See 281 F.3d 133, 141-43 (3d Cir. 2002); id. at","paragraph_id":"para_482"},{"text":"141 (finding no \"meaningful basis as a matter of Congressional","paragraph_id":"para_483"},{"text":"policy\" to distinguish \"between actionable conduct that occurred","paragraph_id":"para_484"},{"text":"at the time of the purchase of the security and actionable conduct","paragraph_id":"para_485"},{"text":"9 The Bondholders invoke the Supreme Court's decision in","paragraph_id":"para_486"},{"text":"Howard Delivery Service, Inc. v. Zurich American Insurance Co.,","paragraph_id":"para_487"},{"text":"547 U.S. 651, 655, 667 (2006), for the proposition that statutory","paragraph_id":"para_488"},{"text":"departures from the Bankruptcy Code's baseline goal of equal","paragraph_id":"para_489"},{"text":"distribution should be construed narrowly. That principle,","paragraph_id":"para_490"},{"text":"however, does not provide support for inserting a temporal limit","paragraph_id":"para_491"},{"text":"into § 510(b) that does not appear in its text.","paragraph_id":"para_492"},{"text":"- 20 -","paragraph_id":"para_493"},{"text":"that occurred after the purchase\"). The U.S. Courts of Appeals","paragraph_id":"para_494"},{"text":"for the Second, Ninth, and Fifth Circuits have adopted similar","paragraph_id":"para_495"},{"text":"understandings of § 510(b).10 See In re Med Diversified, Inc., 461","paragraph_id":"para_496"},{"text":"F.3d 251, 255-56 (2d Cir. 2006); cf. In re Betacom of Phx., 240","paragraph_id":"para_497"},{"text":"F.3d 823, 829-31 (9th Cir. 2001) (subordinating a claim alleging","paragraph_id":"para_498"},{"text":"misconduct that \"surround[ed]\" a securities sale but did not occur","paragraph_id":"para_499"},{"text":"at the time of such a sale); In re SeaQuest Diving, LP, 579 F.3d","paragraph_id":"para_500"},{"text":"411, 420-22 (5th Cir. 2009) (\"[T]he rescission category [of","paragraph_id":"para_501"},{"text":"§ 510(b)] also extends to claims arising from post-issuance","paragraph_id":"para_502"},{"text":"conduct.\").","paragraph_id":"para_503"},{"text":"Like our sister circuits, we hold that § 510(b) does not","paragraph_id":"para_504"},{"text":"categorically exclude claims based on post-purchase misconduct.","paragraph_id":"para_505"},{"text":"See 4 Collier on Bankruptcy ¶ 510.04[3] (16th ed. 2026) (observing","paragraph_id":"para_506"},{"text":"that courts \"generally interpret[] the provision broadly\" such","paragraph_id":"para_507"},{"text":"that a claim subject to mandatory subordination \"need not flow","paragraph_id":"para_508"},{"text":"directly from the securities transaction or arise","paragraph_id":"para_509"},{"text":"contemporaneously with the purchase or sale of a security\").11","paragraph_id":"para_510"},{"text":"10 We acknowledge that many of our sister circuits have found","paragraph_id":"para_511"},{"text":"Section 510(b) to be ambiguous. For the reasons we explain,","paragraph_id":"para_512"},{"text":"however, we conclude that the Trustee's proof of claim fits","paragraph_id":"para_513"},{"text":"comfortably within Section 510(b)'s scope even if there may be","paragraph_id":"para_514"},{"text":"some ambiguity as to the outer limits of the provision's reach.","paragraph_id":"para_515"},{"text":"See Robinson, 519 U.S. at 340.","paragraph_id":"para_516"},{"text":"11 The Bondholders suggest that courts are more divided on","paragraph_id":"para_517"},{"text":"this issue than they actually are. For example, they cite In re","paragraph_id":"para_518"},{"text":"Amarex, Inc., 78 B.R. 605, 610 (W.D. Okla. 1987), and In re","paragraph_id":"para_519"},{"text":"Angeles, 177 B.R. 920, 927 (Bankr. C.D. Cal. 1995), for the","paragraph_id":"para_520"},{"text":"proposition that \"claims . . . based on malfeasance occurring","paragraph_id":"para_521"},{"text":"- 21 -","paragraph_id":"para_522"},{"text":"Thus, we reject the Bondholders' front-line position that § 510(b)","paragraph_id":"para_523"},{"text":"applies only to claims alleging misconduct at the time of the","paragraph_id":"para_524"},{"text":"securities transaction.","paragraph_id":"para_525"},{"text":"We now move to the Bondholders' back-up arguments for","paragraph_id":"para_526"},{"text":"why we should adopt a narrow interpretation of § 510(b), which we","paragraph_id":"para_527"},{"text":"also find unpersuasive. First, the Bondholders suggest that the","paragraph_id":"para_528"},{"text":"statute targets specific causes of action not at issue here, such","paragraph_id":"para_529"},{"text":"as \"violat[ions of] securities laws in connection with the","paragraph_id":"para_530"},{"text":"[security] issuance,\" \"market[ing]\" fraud, and \"fraudulent","paragraph_id":"para_531"},{"text":"inducement in the purchase or sale\" of a security. Because, in","paragraph_id":"para_532"},{"text":"their view, the Trustee's proof of claim alleges statutory and","paragraph_id":"para_533"},{"text":"constitutional violations distinct from the typical causes of","paragraph_id":"para_534"},{"text":"action subject to subordination, the Bondholders contend that","paragraph_id":"para_535"},{"text":"§ 510(b) does not apply here.","paragraph_id":"para_536"},{"text":"We see nothing in the text of § 510(b) to support the","paragraph_id":"para_537"},{"text":"Bondholders' position that it is restricted to certain causes of","paragraph_id":"para_538"},{"text":"action. See 4 Collier on Bankruptcy ¶ 510.04[3] (noting that","paragraph_id":"para_539"},{"text":"§ 510(b) encompasses \"a wide variety of causes of actions arising","paragraph_id":"para_540"},{"text":"out of securities transactions\"). And other federal circuit court","paragraph_id":"para_541"},{"text":"after the actual securities transaction has taken place are not","paragraph_id":"para_542"},{"text":"subordinated under Section 510(b).\" But the Tenth Circuit squarely","paragraph_id":"para_543"},{"text":"rejected the holding of both cases, instead concluding that","paragraph_id":"para_544"},{"text":"§ 510(b) applied to claims alleging fraud after the security","paragraph_id":"para_545"},{"text":"issuance, and other circuit courts have followed suit. See In re","paragraph_id":"para_546"},{"text":"Geneva Steel, 281 F.3d at 1179, 1181-82 & n.5; 4 Collier on","paragraph_id":"para_547"},{"text":"Bankruptcy ¶ 510.04[3].","paragraph_id":"para_548"},{"text":"- 22 -","paragraph_id":"para_549"},{"text":"decisions confirm that a claimant cannot avoid subordination under","paragraph_id":"para_550"},{"text":"§ 510(b) simply by pleading a different legal theory or redefining","paragraph_id":"para_551"},{"text":"the claim's character. See In re Lehman Bros. Holdings Inc., 855","paragraph_id":"para_552"},{"text":"F.3d 459, 478-80 & n.29 (2d Cir. 2017) (subordinating breach of","paragraph_id":"para_553"},{"text":"contract and restitution claims asserted by debtor's former","paragraph_id":"para_554"},{"text":"employees where the employee stock plan formed \"part of the causal","paragraph_id":"para_555"},{"text":"link leading to the alleged injury,\" and the employees' various","paragraph_id":"para_556"},{"text":"legal theories were \"functionally equivalent\" to damages claims","paragraph_id":"para_557"},{"text":"covered by § 510(b)). Thus, we see no reason to categorically","paragraph_id":"para_558"},{"text":"exclude the Trustee's proof of claim from § 510(b)'s reach simply","paragraph_id":"para_559"},{"text":"because the Trustee alleges statutory and constitutional","paragraph_id":"para_560"},{"text":"violations.","paragraph_id":"para_561"},{"text":"Second, the Bondholders contend that § 510(b) is","paragraph_id":"para_562"},{"text":"intended primarily to address the risk of double recovery or","paragraph_id":"para_563"},{"text":"priority skipping by preventing investors from lodging","paragraph_id":"para_564"},{"text":"\"duplicative\" claims -- one claim for repayment of the security","paragraph_id":"para_565"},{"text":"itself and another claim for acquisition-related","paragraph_id":"para_566"},{"text":"damages -- against the \"same debtor,\" which is not the case here.","paragraph_id":"para_567"},{"text":"That may be a common application of § 510(b), but the provision","paragraph_id":"para_568"},{"text":"expressly extends to securities issued by \"an affiliate of the","paragraph_id":"para_569"},{"text":"debtor\" as well.12 11 U.S.C. § 510(b). And the Bondholders concede","paragraph_id":"para_570"},{"text":"12 The Bondholders suggest that the \"affiliate\" language in","paragraph_id":"para_571"},{"text":"§ 510(b) applies only to situations in which a creditor brings","paragraph_id":"para_572"},{"text":"\"the very same . . . claim\" against a debtor and its affiliate.","paragraph_id":"para_573"},{"text":"But again, nothing in the statute's text establishes such a limit.","paragraph_id":"para_574"},{"text":"- 23 -","paragraph_id":"para_575"},{"text":"that PREPA is an affiliate of the Commonwealth. Thus, we see no","paragraph_id":"para_576"},{"text":"textual basis to support that restrictive interpretation either,","paragraph_id":"para_577"},{"text":"which would treat the existence of two claims against the same","paragraph_id":"para_578"},{"text":"debtor as a prerequisite to subordination.","paragraph_id":"para_579"},{"text":"And third, the Bondholders argue that the Trustee does","paragraph_id":"para_580"},{"text":"not seek \"damages\" within the meaning of § 510(b) because the","paragraph_id":"para_581"},{"text":"amount claimed corresponds to the unpaid principal and interest on","paragraph_id":"para_582"},{"text":"the PREPA bonds. As the district court noted, § 510(b) does not","paragraph_id":"para_583"},{"text":"subordinate ordinary bond-repayment claims -- that is, claims for","paragraph_id":"para_584"},{"text":"payment of the bond's principal and interest -- because such","paragraph_id":"para_585"},{"text":"claims seek payment for the securities themselves, not \"damages","paragraph_id":"para_586"},{"text":"arising from\" their purchase. See 4 Collier on Bankruptcy","paragraph_id":"para_587"},{"text":"¶ 510.04[6] (\"[C]laims of noteholders for payments required by the","paragraph_id":"para_588"},{"text":"note, based upon the instrument itself, are not","paragraph_id":"para_589"},{"text":"claims . . . subject to subordination under section 510(b).\").","paragraph_id":"para_590"},{"text":"But the Trustee's claim against the Commonwealth is not","paragraph_id":"para_591"},{"text":"an ordinary bond repayment claim; only PREPA is obligated to repay","paragraph_id":"para_592"},{"text":"the bonds (and indeed, the Trustee lodged a proof of claim for","paragraph_id":"para_593"},{"text":"repayment of the bonds in PREPA's separate Title III proceeding).","paragraph_id":"para_594"},{"text":"And the Authority Act and Trust Agreement expressly disclaim any","paragraph_id":"para_595"},{"text":"liability on the Commonwealth's part to repay those bonds.13 See","paragraph_id":"para_596"},{"text":"13 For that reason, we also reject the Bondholders' contention","paragraph_id":"para_597"},{"text":"that our holding would require subordination of every claim against","paragraph_id":"para_598"},{"text":"a guarantor of an affiliate's bonds. Although we need not decide","paragraph_id":"para_599"},{"text":"- 24 -","paragraph_id":"para_600"},{"text":"P.R. Laws Ann. tit. 22, § 210 (2026). Instead, in its proof of","paragraph_id":"para_601"},{"text":"claim, the Trustee seeks compensation for the Commonwealth's","paragraph_id":"para_602"},{"text":"alleged impairment of separate statutory protections that the","paragraph_id":"para_603"},{"text":"Bondholders allege induced them to purchase the bonds. That the","paragraph_id":"para_604"},{"text":"Trustee measures the alleged loss to the Bondholders by reference","paragraph_id":"para_605"},{"text":"to unpaid principal and interest does not render § 510(b)","paragraph_id":"para_606"},{"text":"inapplicable to the claim.14","paragraph_id":"para_607"},{"text":"To be sure, although we reject the Bondholders' cramped","paragraph_id":"para_608"},{"text":"reading of § 510(b), we recognize that the statute's scope is not","paragraph_id":"para_609"},{"text":"limitless. Section 510(b) does not subordinate all claims raised","paragraph_id":"para_610"},{"text":"by purchasers or owners of securities, nor do we understand","paragraph_id":"para_611"},{"text":"\"arising from\" to encompass every possible claim that bears any","paragraph_id":"para_612"},{"text":"incidental connection to an earlier securities transaction.15 See","paragraph_id":"para_613"},{"text":"whether § 510(b) could ever apply to a guaranty claim, we can","paragraph_id":"para_614"},{"text":"easily distinguish this case because the Commonwealth expressly","paragraph_id":"para_615"},{"text":"did not accept any obligation to repay the PREPA revenue bonds.","paragraph_id":"para_616"},{"text":"See P.R. Laws Ann. tit. 22, § 210. Nor does the Trustee's proof","paragraph_id":"para_617"},{"text":"of claim even seek payment on a Commonwealth guarantee; it alleges","paragraph_id":"para_618"},{"text":"impairment of separate protections that accompanied the bond","paragraph_id":"para_619"},{"text":"purchase.","paragraph_id":"para_620"},{"text":"14 To the extent that the Bondholders suggest that § 510(b)","paragraph_id":"para_621"},{"text":"does not apply to any claims that are based on a \"fixed debt,\" we","paragraph_id":"para_622"},{"text":"reject that assertion. As the Bondholders conceded in the district","paragraph_id":"para_623"},{"text":"court, the text of § 510(b) plainly applies to damages arising","paragraph_id":"para_624"},{"text":"from the sale of any \"security,\" including fixed-debt instruments","paragraph_id":"para_625"},{"text":"like the PREPA bonds. 11 U.S.C. §§ 510(b), 101(49)(A)(iv).","paragraph_id":"para_626"},{"text":"15 For this reason, to the extent the district court understood","paragraph_id":"para_627"},{"text":"§ 510(b) to encompass any claim whenever it \"ultimately relate[s]\"","paragraph_id":"para_628"},{"text":"to a securities transaction, regardless of the nature of the claim","paragraph_id":"para_629"},{"text":"or degree of causal relation, we do not agree.","paragraph_id":"para_630"},{"text":"- 25 -","paragraph_id":"para_631"},{"text":"In re Telegroup, 281 F.3d at 144 n.2 (\"Congress did not intend to","paragraph_id":"para_632"},{"text":"subordinate every claim brought by a shareholder, regardless of","paragraph_id":"para_633"},{"text":"the nature of the claim.\"); In re Khan, 846 F.3d 1058, 1064 (9th","paragraph_id":"para_634"},{"text":"Cir. 2017) (reasoning that § 510(b) cannot extend to \"every","paragraph_id":"para_635"},{"text":"transaction that touches on or involves stock in a corporation\").","paragraph_id":"para_636"},{"text":"Section 510(b)'s text does not specify the minimum","paragraph_id":"para_637"},{"text":"connective tissue necessary for subordination. See, e.g., In re","paragraph_id":"para_638"},{"text":"Telegroup, 281 F.3d at 138 (\"[Section] 510(b)'s language alone","paragraph_id":"para_639"},{"text":"provides little guidance in delineating the precise scope of the","paragraph_id":"para_640"},{"text":"required nexus.\"). And as the Board acknowledges, ambiguity exists","paragraph_id":"para_641"},{"text":"at the \"outer reaches\" of § 510(b). But we need not define those","paragraph_id":"para_642"},{"text":"\"outer reaches\" in this case.","paragraph_id":"para_643"},{"text":"Even if § 510(b) is \"ambiguous as applied to some","paragraph_id":"para_644"},{"text":"situations,\" we conclude that the Trustee's proof of","paragraph_id":"para_645"},{"text":"claim -- based on its own allegations -- fits comfortably within","paragraph_id":"para_646"},{"text":"the provision's scope. Sargent, 103 F.4th at 826 (quoting Ass'n","paragraph_id":"para_647"},{"text":"of Battery Recyclers, Inc. v. EPA, 208 F.3d 1047, 1056 (D.C. Cir.","paragraph_id":"para_648"},{"text":"2000)). The claim alleges that (1) the Commonwealth granted the","paragraph_id":"para_649"},{"text":"Statutory Covenant and related protections specifically \"to induce","paragraph_id":"para_650"},{"text":"investment in\" the PREPA revenue bonds, (2) the Bondholders were","paragraph_id":"para_651"},{"text":"in fact \"material[ly] induce[d] . . . to purchase\" the bonds based","paragraph_id":"para_652"},{"text":"on those protections, and (3) the Commonwealth subsequently","paragraph_id":"para_653"},{"text":"impaired those same protections. According to the proof of claim,","paragraph_id":"para_654"},{"text":"then, the Statutory Covenant and the other provisions in the","paragraph_id":"para_655"},{"text":"- 26 -","paragraph_id":"para_656"},{"text":"Authority Act induced the Bondholders to purchase the bonds. Thus,","paragraph_id":"para_657"},{"text":"we cannot accept the Bondholders' assertion that the Trustee's","paragraph_id":"para_658"},{"text":"claimed damages bear only a tenuous relationship to the securities","paragraph_id":"para_659"},{"text":"transaction. Instead, the Trustee's own allegations support a","paragraph_id":"para_660"},{"text":"finding of a sufficient causal nexus to bring the claim within","paragraph_id":"para_661"},{"text":"§ 510(b)'s ambit. See In re Am. Hous. Found., 785 F.3d 143, 155,","paragraph_id":"para_662"},{"text":"157 (5th Cir. 2015) (concluding that there was a \"nexus or causal","paragraph_id":"para_663"},{"text":"relationship\" between the investor's claim and the transaction","paragraph_id":"para_664"},{"text":"because it was \"clear from the record that the guaranties, at least","paragraph_id":"para_665"},{"text":"in part, induced [the investor] to make th[o]se investments,\" and","paragraph_id":"para_666"},{"text":"the claims were therefore properly subordinated under","paragraph_id":"para_667"},{"text":"Section 510(b)).","paragraph_id":"para_668"},{"text":"The Bondholders resist this conclusion by asserting that","paragraph_id":"para_669"},{"text":"even under a \"broad\" reading of § 510(b), independent acts of","paragraph_id":"para_670"},{"text":"\"malfeasance\" fall outside of its reach. As support, the","paragraph_id":"para_671"},{"text":"Bondholders lean heavily on the Ninth Circuit's decision in In re","paragraph_id":"para_672"},{"text":"Khan. In that case, the claimant had acquired stock, but then","paragraph_id":"para_673"},{"text":"\"many years later,\" the debtor converted and fraudulently","paragraph_id":"para_674"},{"text":"transferred those shares (in essence, it stole the stock). In re","paragraph_id":"para_675"},{"text":"Khan, 846 F.3d at 1065. The court concluded that the claimant's","paragraph_id":"para_676"},{"text":"injury arose from the debtor's subsequent conversion -- not from","paragraph_id":"para_677"},{"text":"the earlier purchase of the securities -- and thus held that","paragraph_id":"para_678"},{"text":"§ 510(b) did not apply. See id.","paragraph_id":"para_679"},{"text":"- 27 -","paragraph_id":"para_680"},{"text":"Critically, however, In re Khan did not establish that","paragraph_id":"para_681"},{"text":"any intervening misconduct by a debtor severs the connection","paragraph_id":"para_682"},{"text":"required by § 510(b). Rather, In re Khan recognized that § 510(b)","paragraph_id":"para_683"},{"text":"ceases to apply when a later and independent wrong displaces the","paragraph_id":"para_684"},{"text":"securities transaction as the source of the claimed damages. In","paragraph_id":"para_685"},{"text":"that case, the claimant's purchase and ownership of the stock","paragraph_id":"para_686"},{"text":"explained merely how he came into possession of the property that","paragraph_id":"para_687"},{"text":"the debtor later stole. But nothing about the later conversion","paragraph_id":"para_688"},{"text":"claim depended on a right or protection that allegedly induced the","paragraph_id":"para_689"},{"text":"claimant to buy the securities. See id. Conversely, here, the","paragraph_id":"para_690"},{"text":"Trustee's own proof of claim alleges that the Commonwealth impaired","paragraph_id":"para_691"},{"text":"rights that it had granted to \"induce[]\" the Bondholders to","paragraph_id":"para_692"},{"text":"purchase the PREPA bonds. Thus, the purchase of the securities is","paragraph_id":"para_693"},{"text":"not merely part of the historical background, as it was in In re","paragraph_id":"para_694"},{"text":"Khan. It is instead central to the Trustee's asserted claim for","paragraph_id":"para_695"},{"text":"damages because the very protections the Commonwealth allegedly","paragraph_id":"para_696"},{"text":"impaired induced that purchase.","paragraph_id":"para_697"},{"text":"In sum, because the proof of claim here alleges that the","paragraph_id":"para_698"},{"text":"Commonwealth impaired rights that induced the Bondholders to","paragraph_id":"para_699"},{"text":"purchase the PREPA revenue bonds, we conclude that the Trustee's","paragraph_id":"para_700"},{"text":"- 28 -","paragraph_id":"para_701"},{"text":"claim seeks \"damages arising from the purchase or sale\" of","paragraph_id":"para_702"},{"text":"securities within the meaning of § 510(b).16","paragraph_id":"para_703"},{"text":"2. Canon of Constitutional Avoidance","paragraph_id":"para_704"},{"text":"The Bondholders alternatively contend that, even if","paragraph_id":"para_705"},{"text":"§ 510(b) could be read to permit subordination of their proof of","paragraph_id":"para_706"},{"text":"claim, we should reject that reading of the provision based on the","paragraph_id":"para_707"},{"text":"canon of constitutional avoidance. According to the Bondholders,","paragraph_id":"para_708"},{"text":"interpreting § 510(b) to permit subordination of a claim that","paragraph_id":"para_709"},{"text":"alleges violations of the Takings Clause and Contracts Clause would","paragraph_id":"para_710"},{"text":"permit the Commonwealth to use PROMESA and the Bankruptcy Code to","paragraph_id":"para_711"},{"text":"avoid paying constitutionally required compensation or some other","paragraph_id":"para_712"},{"text":"constitutionally required remedy. Because Class 64 Section 510(b)","paragraph_id":"para_713"},{"text":"Subordinated Claims receive no distribution under the confirmed","paragraph_id":"para_714"},{"text":"Commonwealth Plan, the Bondholders argue that construing § 510(b)","paragraph_id":"para_715"},{"text":"to apply here would effectively extinguish otherwise valid","paragraph_id":"para_716"},{"text":"constitutional causes of action.","paragraph_id":"para_717"},{"text":"The canon of constitutional avoidance is \"a tool for","paragraph_id":"para_718"},{"text":"choosing between competing plausible interpretations of a","paragraph_id":"para_719"},{"text":"statutory text\" to avoid constructions that raise serious doubts","paragraph_id":"para_720"},{"text":"about the statute's constitutionality. Clark v. Martinez, 543","paragraph_id":"para_721"},{"text":"16 Because we affirm on the basis of § 510(b) itself, we do","paragraph_id":"para_722"},{"text":"not reach the Board's alternative contention that the Commonwealth","paragraph_id":"para_723"},{"text":"Plan's definition of Section 510(b) Subordinated Claims -- which","paragraph_id":"para_724"},{"text":"includes not only claims that \"arise from\" but also those that","paragraph_id":"para_725"},{"text":"\"relate to\" the securities transaction -- independently requires","paragraph_id":"para_726"},{"text":"Class 64 treatment of the Trustee's proof of claim.","paragraph_id":"para_727"},{"text":"- 29 -","paragraph_id":"para_728"},{"text":"U.S. 371, 381 (2005). \"It 'has no application in the absence of","paragraph_id":"para_729"},{"text":"[statutory] ambiguity.'\" Warger v. Shauers, 574 U.S. 40, 50 (2014)","paragraph_id":"para_730"},{"text":"(quoting United States v. Oakland Cannabis Buyers' Coop., 532 U.S.","paragraph_id":"para_731"},{"text":"483, 494 (2001)).","paragraph_id":"para_732"},{"text":"Importantly, \"[s]potting a constitutional issue does not","paragraph_id":"para_733"},{"text":"give a court the authority\" to leverage the constitutional","paragraph_id":"para_734"},{"text":"avoidance canon to \"rewrite a statute as it pleases.\" Jennings v.","paragraph_id":"para_735"},{"text":"Rodriguez, 583 U.S. 281, 298 (2018). Instead, courts must first","paragraph_id":"para_736"},{"text":"employ the ordinary tools of statutory interpretation. See id. at","paragraph_id":"para_737"},{"text":"296. Only if those tools leave the statute genuinely susceptible","paragraph_id":"para_738"},{"text":"to multiple reasonable constructions does the canon of","paragraph_id":"para_739"},{"text":"constitutional avoidance become relevant. See id.","paragraph_id":"para_740"},{"text":"The canon of constitutional avoidance does not alter our","paragraph_id":"para_741"},{"text":"analysis here.17 Although we recognize that the outer limits of","paragraph_id":"para_742"},{"text":"§ 510(b) may be susceptible to ambiguity, as we explained, the","paragraph_id":"para_743"},{"text":"Trustee's proof of claim fits comfortably within the provision's","paragraph_id":"para_744"},{"text":"scope. The text of § 510(b), coupled with the consensus view of","paragraph_id":"para_745"},{"text":"our sister circuits construing that provision, forecloses the","paragraph_id":"para_746"},{"text":"Bondholders' proposed construction as applied to the facts of this","paragraph_id":"para_747"},{"text":"case.","paragraph_id":"para_748"},{"text":"17 We assume, without deciding, that the Trustee's proof of","paragraph_id":"para_749"},{"text":"claim raises constitutional questions that could justify invoking","paragraph_id":"para_750"},{"text":"the constitutional avoidance canon, if the statute were","paragraph_id":"para_751"},{"text":"sufficiently ambiguous as applied to the proof of claim.","paragraph_id":"para_752"},{"text":"- 30 -","paragraph_id":"para_753"},{"text":"Section 510(b) does not establish any carve-out for","paragraph_id":"para_754"},{"text":"claims asserting constitutional causes of action, nor can we","paragraph_id":"para_755"},{"text":"\"rewrite [the] statute\" to create such a carve-out. Jennings, 583","paragraph_id":"para_756"},{"text":"U.S. at 298. Rather, § 510(b)'s application turns on whether the","paragraph_id":"para_757"},{"text":"claimed damages bear the requisite causal relationship to the","paragraph_id":"para_758"},{"text":"purchase or sale of the security; it does not depend on the","paragraph_id":"para_759"},{"text":"particular legal theory pleaded or the timing of the alleged","paragraph_id":"para_760"},{"text":"misconduct. See 11 U.S.C. § 510(b). Because the Trustee's proof","paragraph_id":"para_761"},{"text":"of claim seeks to recover damages for injuries to the very rights","paragraph_id":"para_762"},{"text":"that induced the Bondholders' purchase of PREPA revenue bonds, it","paragraph_id":"para_763"},{"text":"sits squarely within § 510(b)'s scope, despite the constitutional","paragraph_id":"para_764"},{"text":"nature of the asserted causes of action.","paragraph_id":"para_765"},{"text":"The parties dispute whether the Bondholders waived their","paragraph_id":"para_766"},{"text":"constitutional objection altogether by conceding in the district","paragraph_id":"para_767"},{"text":"court that the Trustee's proof of claim should be treated as a","paragraph_id":"para_768"},{"text":"Class 58 General Unsecured Claim only.18 The district court","paragraph_id":"para_769"},{"text":"concluded that because the Bondholders consented to treatment as","paragraph_id":"para_770"},{"text":"18 Despite the district court's repeated inquiries, the","paragraph_id":"para_771"},{"text":"Bondholders did not seek any alternative classification for their","paragraph_id":"para_772"},{"text":"constitutional causes of action outside of Class 58 (General","paragraph_id":"para_773"},{"text":"Unsecured Claims), even though the Commonwealth Plan provided a","paragraph_id":"para_774"},{"text":"separate class for other claims with a \"constitutional character\"","paragraph_id":"para_775"},{"text":"to receive \"full payment.\" Thus, the sole merits question before","paragraph_id":"para_776"},{"text":"the district court was whether to treat the Trustee's proof of","paragraph_id":"para_777"},{"text":"claim as falling under Class 64 or Class 58. And our review is","paragraph_id":"para_778"},{"text":"even narrower, asking only whether the Trustee's proof of claim","paragraph_id":"para_779"},{"text":"seeks \"damages arising from\" the PREPA bond purchase within the","paragraph_id":"para_780"},{"text":"meaning of § 510(b).","paragraph_id":"para_781"},{"text":"- 31 -","paragraph_id":"para_782"},{"text":"General Unsecured Claimants under the Commonwealth Plan, they","paragraph_id":"para_783"},{"text":"accepted impairment of their constitutional causes of action. But","paragraph_id":"para_784"},{"text":"agreeing to substantial impairment does not necessarily amount to","paragraph_id":"para_785"},{"text":"waiving an objection to complete nonpayment. And the Bondholders","paragraph_id":"para_786"},{"text":"vigorously opposed Class 64 classification in the district court","paragraph_id":"para_787"},{"text":"precisely because it would yield zero distribution under the","paragraph_id":"para_788"},{"text":"Commonwealth Plan.","paragraph_id":"para_789"},{"text":"In any event, the constitutional avoidance canon does","paragraph_id":"para_790"},{"text":"not alter our holding because § 510(b)'s text does not permit the","paragraph_id":"para_791"},{"text":"statutory construction that the Bondholders seek. See Warger, 574","paragraph_id":"para_792"},{"text":"U.S. at 50. And because our review is limited to the narrow","paragraph_id":"para_793"},{"text":"question of interpreting § 510(b)'s text, we do not reach the","paragraph_id":"para_794"},{"text":"merits of the Bondholders' constitutional claims, including","paragraph_id":"para_795"},{"text":"whether the Commonwealth effected a taking and, if so, what","paragraph_id":"para_796"},{"text":"compensation the Constitution would require. Those questions are","paragraph_id":"para_797"},{"text":"not before us. Instead, we conclude only that the constitutional","paragraph_id":"para_798"},{"text":"nature of the Trustee's asserted causes of action does not place","paragraph_id":"para_799"},{"text":"its proof of claim outside of § 510(b)'s scope.","paragraph_id":"para_800"},{"text":"3. Level of Subordination","paragraph_id":"para_801"},{"text":"Finally, the Bondholders maintain that even if § 510(b)","paragraph_id":"para_802"},{"text":"were to apply to the Trustee's proof of claim, the claim must not","paragraph_id":"para_803"},{"text":"be \"demoted\" to less than General Unsecured Claimant priority. As","paragraph_id":"para_804"},{"text":"support, they point to § 510(b)'s text, which subordinates those","paragraph_id":"para_805"},{"text":"claims defined in the subsection \"to all [other] claims or","paragraph_id":"para_806"},{"text":"- 32 -","paragraph_id":"para_807"},{"text":"interests that are senior to or equal the claim or interest","paragraph_id":"para_808"},{"text":"represented by [the] security\" at issue. 11 U.S.C. § 510(b). In","paragraph_id":"para_809"},{"text":"the Bondholders' view, even though the Trustee filed a general","paragraph_id":"para_810"},{"text":"unsecured creditor claim in the Commonwealth's bankruptcy,","paragraph_id":"para_811"},{"text":"§ 510(b) mandates subordination only to claims \"senior\" or \"equal\"","paragraph_id":"para_812"},{"text":"to their secured interest in the PREPA bonds -- resulting in its","paragraph_id":"para_813"},{"text":"classification as a General Unsecured Claim.","paragraph_id":"para_814"},{"text":"The Board contends that the Bondholders have forfeited","paragraph_id":"para_815"},{"text":"and waived this argument. According to the Board, the Bondholders","paragraph_id":"para_816"},{"text":"forfeited this argument because they failed to raise it to the","paragraph_id":"para_817"},{"text":"district court. See In re Watson, 403 F.3d 1, 7 (1st Cir. 2005)","paragraph_id":"para_818"},{"text":"(\"A party's failure to raise an issue in the bankruptcy court","paragraph_id":"para_819"},{"text":"forfeits its right to raise that issue for the first time on appeal","paragraph_id":"para_820"},{"text":"in this Court.\"). Normally, a forfeited argument is subject to","paragraph_id":"para_821"},{"text":"plain error review, but because the Bondholders did \"not attempt","paragraph_id":"para_822"},{"text":"to satisfy\" the plain error standard in their opening briefs, the","paragraph_id":"para_823"},{"text":"Board contends this argument is waived altogether. Mullane v.","paragraph_id":"para_824"},{"text":"DOJ, 113 F.4th 123, 137 (1st Cir. 2024); see also In re Fin.","paragraph_id":"para_825"},{"text":"Oversight & Mgmt. Bd. for P.R., 7 F.4th 31, 40 (1st Cir. 2021)","paragraph_id":"para_826"},{"text":"(declining to consider appellants' nondelegation doctrine argument","paragraph_id":"para_827"},{"text":"\"because they never raised the issue before the Title III court\"","paragraph_id":"para_828"},{"text":"and \"no exceptional circumstances warrant[ed] consideration of","paragraph_id":"para_829"},{"text":"th[e] argument for the first time on appeal\").","paragraph_id":"para_830"},{"text":"- 33 -","paragraph_id":"para_831"},{"text":"In response, the Bondholders make two points -- neither","paragraph_id":"para_832"},{"text":"of which persuade us that they did in fact raise this \"level of","paragraph_id":"para_833"},{"text":"subordination\" argument to the district court. For starters, they","paragraph_id":"para_834"},{"text":"maintain that this argument \"is merely subsidiary to\" -- and not","paragraph_id":"para_835"},{"text":"separate from -- their assertion that § 510(b) would not mandate","paragraph_id":"para_836"},{"text":"subordination of the Trustee's proof of claim at all. We disagree.","paragraph_id":"para_837"},{"text":"As the Bondholders implicitly acknowledge, the question of whether","paragraph_id":"para_838"},{"text":"§ 510(b) mandates subordination is analytically distinct from any","paragraph_id":"para_839"},{"text":"question about the level of subordination that § 510(b) requires.","paragraph_id":"para_840"},{"text":"The first inquiry focuses on whether damages \"aris[e] from\" a","paragraph_id":"para_841"},{"text":"securities transaction, whereas the second inquiry focuses on what","paragraph_id":"para_842"},{"text":"\"the claim or interest represented by such security\" means. 11","paragraph_id":"para_843"},{"text":"U.S.C. § 510(b). That second inquiry implicates different","paragraph_id":"para_844"},{"text":"considerations and arguments that the Bondholders never presented","paragraph_id":"para_845"},{"text":"to the district court.","paragraph_id":"para_846"},{"text":"Next, the Bondholders assert that because the Board","paragraph_id":"para_847"},{"text":"offered an alternative argument in its brief on appeal for treating","paragraph_id":"para_848"},{"text":"the Trustee's proof of claim as falling under Class 64, they \"are","paragraph_id":"para_849"},{"text":"entitled to respond.\" See Wills v. Brown Univ., 184 F.3d 20, 27","paragraph_id":"para_850"},{"text":"(1st Cir. 1999) (\"Reply briefs are to counter the appellee's","paragraph_id":"para_851"},{"text":"arguments . . . .\"). But here, the Bondholders debuted their","paragraph_id":"para_852"},{"text":"\"level of subordination\" argument in their opening briefs, not in","paragraph_id":"para_853"},{"text":"response to the Board's brief, despite failing to present it to","paragraph_id":"para_854"},{"text":"the district court. See In re Fin. Oversight & Mgmt. Bd. for P.R.,","paragraph_id":"para_855"},{"text":"- 34 -","paragraph_id":"para_856"},{"text":"7 F.4th at 40. And in any event, as we have explained, our holding","paragraph_id":"para_857"},{"text":"does not rest on (or even address) the Board's alternative argument","paragraph_id":"para_858"},{"text":"to which the Bondholders purport to respond. See supra note 17.","paragraph_id":"para_859"},{"text":"Thus, we conclude that the Bondholders have waived any","paragraph_id":"para_860"},{"text":"challenge to the district court's ruling as to the level of","paragraph_id":"para_861"},{"text":"subordination that applies to the Trustee's proof of claim.","paragraph_id":"para_862"},{"text":"III. 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