Governments in the United States and its territories have the power to exercise eminent domain so long as they provide property owners with the constitutionally guaranteed “just compensation.” The Fifth Amendment’s Takings Clause specifically prescribes this remedy for parties whose property has been subject to a government taking. “Just compensation” has proven to be an issue in the context of bankruptcy, as bankruptcy law inherently allows debtors to alter their obligations to their creditors.
In response to Puerto Rico’s financial crisis, Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), which created a modified version of municipal bankruptcy code. Under PROMESA, the Financial Oversight and Management Board of Puerto Rico (“the Board”) filed a plan of adjustment with respect to Puerto Rico’s debts. A group of creditors (the “Takings Claimants”) objected to the plan, arguing it was unconfirmable because the Board was unable to demonstrate that “the debtor [wa]s not prohibited by law from taking any action necessary to carry out the plan.” Specifically, the Takings Claimants argued the plan violated the Fifth Amendment’s Takings Clause.
This article addresses whether a plan of adjustment can satisfy section 2174(b)(3) of PROMESA if it gives takings claimants less than “just compensation” for their prepetition takings claims. Part I describes how claims arising from takings statutes are classified in bankruptcy. Part II discusses the relationship between the Fifth Amendment and bankruptcy law and compares the two diverging views on this issue resulting from the First and Ninth Circuits’ split.