Court of appeals: Peaje Investments has no lien on Puerto Rico toll revenue

SAN JUAN – The U.S. Court of Appeals for the First Circuit upheld a U.S. District Court ruling that Peaje Investments LLC does not hold a lien on certain toll revenues of the Puerto Rico Highways and Transportation Authority (HTA), but vacated a decision denying the entity relief and allowing it to start a case again with an updated record.

Peaje Investments is a hedge fund that has $65 million in uninsured HTA bonds.

Peaje alleged in court that its bonds are secured by a lien on certain toll revenues and that, in response to Puerto Rico’s financial crisis, the HTA and the commonwealth were diverting funds to which Peaje believes it is entitled under the lien and not using them to pay the bonds.

Because both the HTA and the commonwealth have commenced bankruptcy cases under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa), Peaje filed an adversary proceeding to challenge the diversion.

“Despite the novelty and complexity of the bankruptcies” from which the case arose, the court disposed of the appeal.

The Boston court ruled Wednesday that the district court did not abuse its discretion in limiting Peaje to its argument that it holds a statutory lien on certain toll revenues. Secondly, the court said Peaje does not hold such a lien. “And third, we vacate the district court’s alternative reasons for denying relief so that they may be reconsidered de novo on a comprehensive, updated record now that it is clear that Peaje has no statutory lien,” the justices said.

The case goes back to July 2016, when Peaje sued in district court to challenge the alleged diversion of funds, but Congress had just enacted Promesa, instituting a temporary stay on all legal proceedings against the commonwealth and its instrumentalities. Peaje, therefore, requested relief from the stay. After Promesa’s temporary stay expired, Peaje filed a second action in district court in May 2017 seeking similar relief, but soon afterward, the HTA filed for bankruptcy under Title III of Promesa.

The bankruptcy petition triggered an automatic stay. Peaje then filed an adversary proceeding seeking an injunction, which was denied by the district court.

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