Background
LUMA Energy, LLC, and LUMA Energy ServCo, LLC agreed to operate and maintain Puerto Rico’s electric transmission and distribution system under an agreement with the Puerto Rico Public-Private Partnerships Authority and the Puerto Rico Electric Power Authority, which retained ownership of the system. The agreement contemplated regulatory approval of a waiver limiting LUMA’s liability to consumers and required PREPA to indemnify LUMA against certain claims.
After LUMA relied on the waiver to deny more than 1,800 consumer claims, the Puerto Rico Department of Consumer Affairs sued LUMA, PREPA, and the Puerto Rico Energy Bureau in Commonwealth court, seeking a declaration that the waiver and the regulator’s approval of it violated the Puerto Rico Constitution. LUMA alone asked the Title III court overseeing PREPA’s PROMESA restructuring to enforce the automatic stay. The Title III court denied relief under the police-and-regulatory-power exception, and LUMA appealed. While the appeal was pending, the Supreme Court of Puerto Rico unanimously held the waiver unconstitutional.
The Court’s Holding
The First Circuit dismissed LUMA’s appeal for lack of appellate jurisdiction because LUMA was not a “person aggrieved” by the Title III court’s order. Applying that stringent bankruptcy appellate-standing standard at the parties’ urging, the court held that LUMA had not shown that the order directly and adversely affected its pecuniary interests.
LUMA’s asserted status as a post-petition creditor did not establish standing. Its concern that it might need to seek indemnification from PREPA, a Title III debtor with limited resources, placed it on the same footing as PREPA’s other creditors rather than subjecting it to the unequal treatment the automatic stay protects creditors against.
The asserted loss of the liability waiver and resulting exposure to consumer claims also did not flow directly from the appealed order. That order merely allowed the Commonwealth litigation to proceed; the Puerto Rico Supreme Court’s later constitutional ruling invalidated the waiver. Because LUMA lacked appellate standing, the First Circuit did not decide whether the police-power exception applied or whether LUMA had standing to enforce the stay below.
Key Takeaways
- A bankruptcy appellant must show that the challenged order directly and adversely affects its pecuniary interests; but-for causation is insufficient.
- A creditor does not obtain appellate standing merely because it holds a claim against a Title III debtor with limited resources.
- The First Circuit left unresolved the merits of the automatic-stay dispute, including the applicability of the police-power exception.
Why It Matters
The decision underscores the narrow scope of appellate standing in PROMESA and bankruptcy-related proceedings. A private contractor cannot invoke potential contractual or litigation consequences when those consequences arise directly from another tribunal’s ruling rather than from the order under review.
The dismissal leaves the Puerto Rico Supreme Court’s decision invalidating LUMA’s consumer-liability waiver undisturbed by this appeal, while establishing no First Circuit precedent on whether DACO’s action fell within PROMESA’s automatic stay.