U.S. Supreme Court Holds that Federal Bankruptcy Law Preempts Puerto Rico’s Recovery Act
Whether Chapter 9 of the federal Bankruptcy Code, which does not apply to Puerto Rico, nonetheless preempts a Puerto Rico statute creating a mechanism for the Commonwealth's public utilities to restructure their debts.
In its brief, the U.S. Chamber urged the Supreme Court to affirm that Puerto Rico’s Debt Enforcement and Recovery Act (“Recovery Act”), designed to provide special protection to Puerto Rico’s financially troubled public utilities, is preempted by federal bankruptcy law. The brief argues that Section 903(1) of the Bankruptcy Code preempts Puerto Rico’s Recovery Act and explains that such state laws jeopardize bankruptcy uniformity and disrupt the national economy by deterring investment in infrastructure.
The Supreme Court held that the federal Bankruptcy Code expressly preempts Puerto Rico’s Recovery Act. The opinion relied on the Court’s previous decision in Chamber of Commerce of United States of America v. Whiting to conclude that the express preemption provision in Section 903 of the Bankruptcy Code prohibits Puerto Rico from taking matters into its own hands by implementing the Recovery Act.