Welcome to a special edition of the Monday update on the two oral arguments today before the First Circuit.

Today, two different decisions by Judge Swain were argued on appeal before Judges Torruella, Howard and Thompson of the First Circuit. In the first case, Aurelius appealed the dismissal of its request for a declaratory judgment that it had a lien. Right at the start of the GO group’s oral argument, Judge Torruella asked whether this issue was not better left for the Plan of Adjustment. Judge Thompson then joined Torruella in her question. Mr. Robbins, arguing for GO’s, said it was not and that Bankruptcy Rule 7001 allowed it to be done that way. Later, Judge Torruella asked whether the Judge was in the best position to determine when to litigate this issue. Robbins tried to wiggle out of the discretionary function of the question by pointing out that Judge Swain had ruled she was constrained by Article III of the Constitution requirement of a case or controversy and had not even discussed discretion. Judge Thompson followed up by asking whether Judge Swain had said discretion and Robbins had to say yes—but that if that were the issue, appellants would detail why the discretion would require a declaratory judgment. Judge Howard then asked whether the declaration would affect the behavior of the parties. He was told yes since the declaration would not force the Commonwealth to act but would tell it what the law was. Judge Torruella then said a declaratory judgment could change behavior. Robbins quoted the PREPA case to which Judge Howard, who sat in that panel, distinguished the case. When the Board came to argue, the Judges only asked one question and it was at the end. When the Retirees Committee argued, there were no questions.

Based solely on the questions posed by the panel, it is unlikely Judge Swain will be reversed on the merits. She could be reversed by a decision in which the Circuit states that the declaratory judgment was not barred by Article III but with instructions to determine in her discretion whether to grant said declaratory judgment. Given Judge Swain’s inclinations, it is likely she will decline to decide at this juncture.

The second case was Assured Guarantee v. Commonwealth, a case involving sections 922 and 928 of the Bankruptcy Code. Judge Swain decided that section 922 did not require payment of a revenue bond but simply allowed the debtor to pay if it felt like it. This ruling has put fear into the muni world and from the start, I thought Assured had a good argument. A few minutes into Mr. Allenberg’s argument for Assured, Judge Howard asked whether 922 was not an option. After Mr. Allenberg explained his point, Judge Howard said, “You have not said anything to the contrary.” OUCH!!!

Mark Harris argued for the Board and the only question was from Judge Howard who asked to be provided with citations to some cases. Luc Despin argued for the UCC and got no questions.

Again, the questions were quite hostile to appellants but I think they have a good argument. If appellants lose, it is conceivable that due to the importance of the ruling, they may try for a certiorari from the SCOTUS. Let’s see what happens.

This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.