Remember that First Circuit opinion from a few months back, which held - contrary to a prior 2-1 Ninth Circuit panel - that just compensation claims are not dischargeable in a governmental bankruptcy?
Well, the government recently filed a cert petition asking the Supreme Court to take the case and hold that there's nothing special about a just compensation judgment or claim, and that the govermnent's obligation to provide compensation for takings is just plain-old debt. And you know what happens to plain-old debt in bankruptcy: the creditor often gets bupkis.
And before we go further, a disclosure: we represent some of the property owners/Respondents in the case. So we're not going to comment in detail, but shall leave it to you to review the petition, and the Question Presented:
The decision below is the first by a circuit court in history to hold that the Constitution prohibits a category of unsecured claims from being discharged in bankruptcy. Specifically, the First Circuit held that unsecured claims for just compensation that arise under the Fifth Amendment’s Takings Clause before bankruptcy cannot be adjusted in a bankruptcy case, even though claims for money damages arising under other constitutional provisions can. The court believed the Takings Clause mandates a remedy and that unique feature renders the remedy non-dischargeable.
The First Circuit acknowledged it was creating a split with the Ninth Circuit, which, when faced with the identical question, held that pre-bankruptcy unsecured claims for just compensation are dischargeable. The First Circuit’s novel ruling frustrates both pillars of the Constitution’s bankruptcy power—fresh starts for debtors and equitable treatment of unsecured claimholders.
The Question Presented is: Are pre-bankruptcy unsecured claims for just compensation under the Takings Clause uniquely non-dischargeable, unlike every other type of unsecured claim?
Stay tuned. We're thinking there is something different and special about Just Compensation judgments and claims. After all, the Supreme Court has repeatedly told us that the obligation to provide compensation for takings is "self-executing," and we think that means something more than the soverign's solemn constitutional obligation can be wiped out with a wave of the bankruptcy wand.
Follow along on the Court's docket here.
Petition for a Writ of Certiorari, Financial Oversight & Mgmt Bd for Puerto Rico v. Cooperative de Ahorro y...
