Rivera-Schatz v. FOMB ( 2019 )

United States Court of Appeals
For the First Circuit
No. 18-1773
IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO
RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THE
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATION
AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR
PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC
POWER AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO
SALES TAX FINANCING CORPORATION, a/k/a Cofina; THE FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE EMPLOYEES RETIREMENT SYSTEM OF THE
GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO,
Debtors.
CARLOS MÉNDEZ-NÚÑEZ, in his official capacity and on behalf of
the House of Representatives of Puerto Rico,
Plaintiff, Appellant,
THOMAS RIVERA-SCHATZ, in his official capacity and on behalf of
the Senate of Puerto Rico,
Plaintiff,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO;
JOSE B. CARRION, III; ANDREW G. BIGGS; CARLOS M. GARCIA; ARTHUR
J. GONZALEZ; JOSE R. GONZALEZ; ANA J. MATOSANTOS; DAVID A.
SKEEL, JR.; NATALIE A. JARESKO,
Defendants, Appellees,
COMMONWEALTH OF PUERTO RICO; PUERTO RICO SALES TAX FINANCING
CORPORATION, a/k/a Cofina; PUERTO RICO HIGHWAYS AND
TRANSPORTATION AUTHORITY; EMPLOYEES RETIREMENT SYSTEM OF THE
GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO; PUERTO RICO
ELECTRIC POWER AUTHORITY (PREPA),
Debtors, Appellees.
No. 18-1777
IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO
RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THE
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATION
AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR
PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC
POWER AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO
SALES TAX FINANCING CORPORATION, a/k/a Cofina; THE FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE EMPLOYEES RETIREMENT SYSTEM OF THE
GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO,
Debtors.
THOMAS RIVERA-SCHATZ, in his official capacity and on behalf of
the Senate of Puerto Rico,
Plaintiff, Appellant,
CARLOS MÉNDEZ-NÚÑEZ, in his official capacity and on behalf of
the House of Representatives of Puerto Rico,
Plaintiff,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO;
JOSE B. CARRION, III; ANDREW G. BIGGS; CARLOS M. GARCIA; ARTHUR
J. GONZALEZ; JOSE R. GONZALEZ; ANA J. MATOSANTOS; DAVID A.
SKEEL, JR.; NATALIE A. JARESKO,
Defendants, Appellees,
COMMONWEALTH OF PUERTO RICO; PUERTO RICO SALES TAX FINANCING
CORPORATION, a/k/a Cofina; PUERTO RICO HIGHWAYS AND
TRANSPORTATION AUTHORITY; EMPLOYEES RETIREMENT SYSTEM OF THE
GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO; PUERTO RICO
ELECTRIC POWER AUTHORITY (PREPA),
Debtors, Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Laura Taylor Swain,* U.S. District Judge]
Before
Lynch, Circuit Judge,
Souter,** Associate Justice,
and Stahl, Circuit Judge.
Israel Roldán-González for Carlos Méndez-Núñez.
Claudio Aliff-Ortiz, with whom Eliezer Aldarondo-Ortiz,
Sheila Torres-Delgado, David Rodríguez-Burns, and Aldarondo &
López Bras ALB, were on brief for Thomas Rivera-Schatz.
Timothy W. Mungovan, with whom John E. Roberts, Guy Brenner,
Martin J. Bienenstock, Steven L. Ratner, Mark D. Harris, Kevin J.
Perra, and Proskauer Rose LLP, were on brief, for the Financial
Oversight and Management Board for Puerto Rico; Jose B. Carrion,
III; Andrew G. Biggs; Carlos M. Garcia; Arthur J. Gonzalez; Jose
R. Gonzalez; Ana J. Matosantos; David A. Skeel, Jr.; Natalie A.
Jaresko.
February 22, 2019
* Of the Southern District of New York, sitting by
designation.
** Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
LYNCH, Circuit Judge. These appeals raise several
questions about the authority, under the Puerto Rico Oversight,
Management and Economic Stability Act (PROMESA), of the Financial
Oversight and Management Board for Puerto Rico to develop and
certify Fiscal Plans and Territory Budgets for the Commonwealth.
48 U.S.C. §§ 2141-2142. In particular, this case is about the
2019 Fiscal Plan and Territory Budget.
The plaintiffs, the Speaker of Puerto Rico's House of
Representatives, Carlos Méndez-Núñez, and the President of its
Senate, Thomas Rivera-Schatz, in their official capacities and on
behalf of the Legislative Assembly, sued the Board, its members,
and its executive director after the Board developed and certified
a Fiscal Plan and a Territory Budget for Fiscal Year 2019. The
complaint alleged that the Board had made several erroneous
certification decisions and had exceeded its power under PROMESA
during the Fiscal Plan and Territory Budget development and
certification processes. It sought declaratory and injunctive
relief. The district court dismissed the complaint, in part for
lack of subject matter jurisdiction and in part for failure to
state a claim. See Rivera-Schatz v. Fin. Oversight & Mgmt. Bd.
for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 327 F. Supp.
3d 364 (D.P.R. 2018). We affirm the dismissal on the same grounds.
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I.
We describe the statutory context and the relevant
events surrounding the 2019 Fiscal Plan and Territory Budget.1
A. PROMESA's Basic Structure
Finding Puerto Rico to be amid a "fiscal emergency,"
Congress enacted PROMESA in 2016. See Pub. L. No. 114-187
§ 405(m)(1), 130 Stat. 549, 591 (2016); see also Aurelius Inv.,
LLC v. Commonwealth of P.R., Nos. 18-1671, 18-1746, 18-1787, 2019
WL 642328, at *1-2 (1st Cir. Feb. 15, 2019) (recounting the origins
of the emergency and the responses before PROMESA). PROMESA
created mechanisms for restructuring the debts of U.S. territories
and for overseeing reforms of their fiscal and economic policies.
See 48 U.S.C. § 2121(a) (stating this purpose). The Board,
established "as an entity within the territorial government" of
Puerto Rico, id. § 2121(c)(1), was empowered by PROMESA to, among
other things, develop, approve, and certify Fiscal Plans and
Territory Budgets, id. §§ 2141-2142, negotiate with the
Commonwealth's creditors, id. § 2146, and, under Title III, to
commence a bankruptcy-type proceeding on behalf of the
Commonwealth, id. § 2175; see generally Aurelius Inv., 2019 WL
1 Because the complaint was disposed of at the motion to
dismiss stage, we take the facts from the complaint, its
attachments, and the motion to dismiss and its attachments. See,
e.g., In re Colonial Mortg. Bankers Corp., 324 F.3d 12, 14-15 (1st
Cir. 2003). There are no material disputes about this record.
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642328, at *2-3, *11-12 (outlining key powers granted to the
Board).
Congress enacted PROMESA under its Article IV "Power to
dispose of and make all needful Rules and Regulations respecting
the Territory . . . belonging to the United States." U.S. Const.
art. IV § 3, cl. 2; see 48 U.S.C. § 2121(b)(2). Puerto Rico became
a U.S. territory in 1898, see Treaty of Paris, art. 9, Dec. 10,
1898, 30 Stat. 1759, and is governed by a popularly elected
Governor and Legislative Assembly under a constitution adopted by
Puerto Rico and approved by Congress under the Territorial Clause,
see Act of July 3, 1952, Pub. L. No. 447, ch. 567, 66 Stat. 327;
see also Puerto Rico v. Sanchez Valle, 136 S. Ct. 1863, 1875 (2016)
(recognizing the congressional role in authorizing Puerto Rico's
"constitution-making process" and in approving the resulting
Constitution).
PROMESA explicitly reserves "the power of [Puerto Rico]
to control, by legislation or otherwise, the territory," except as
that power is limited by Titles I and II of PROMESA. 48 U.S.C.
§ 2163. In addition to that exception, PROMESA's provisions
preempt any inconsistent "general or specific provisions of
territory law," including provisions of Puerto Rico's
Constitution. See id. § 2103; see also United States v. Maldonado-
Burgos, 844 F.3d 339, 346 (1st Cir. 2016) (citing United States v.
Quinones, 758 F.2d 40 (1st Cir. 1985) and then citing United States
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v. Acosta-Martinez, 252 F.3d 13, 18 (1st Cir. 2001)) ("[A]
provision of the Puerto Rico Constitution cannot prevail where it
conflicts with applicable federal law.").
We have previously had occasion to interpret aspects of
PROMESA's Title III. See Fin. Oversight & Mgmt. Bd. for P.R. v.
Ad Hoc Grp. of PREPA Bondholders (In re Fin. Oversight & Mgmt. Bd.
for P.R.), 899 F.3d 13, 18 (1st Cir. 2018); Peaje Invs. LLC v.
García-Padilla, 845 F.3d 505, 511 (1st Cir. 2017); Lex Claims, LLC
v. Fin. Oversight & Mgmt. Bd., 853 F.3d 548, 552 (1st Cir. 2017);
see also Altair Glob. Credit Opportunities Fund, LLC v. The Emps.
Ret. Sys. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 914 F.3d
694, 707 (1st Cir. 2019) (noting PROMESA's enactment). Recently,
in Aurelius Investment, LLC v. Commonwealth of Puerto Rico, 2019
WL 642328, at *1, this court considered the constitutionality of
PROMESA's procedure for appointing Board members, see 48 U.S.C.
§ 2121(e). Aurelius' holding that this procedure violates the
Appointments Clause, U.S. Const. art. II, § 2, cl. 2, has no effect
on the "otherwise valid actions of the Board prior to the issuance
of [Aurelius'] mandate," and so does not impact the outcome of
these appeals, Aurelius Inv., 2019 WL 642328, at *17.
At issue here are events that occurred in 2018 and
questions of first impression about Title II's provisions related
to Fiscal Plans and Territory Budgets. 48 U.S.C. §§ 2141-2142.
We explain those provisions in greater detail below.
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B. 2019 Fiscal Plan
Congress intended for Fiscal Plans to provide roadmaps
for Puerto Rico "to achieve fiscal responsibility and access to
the capital markets." Id. § 2141(b)(1). PROMESA § 201 grants the
Board exclusive authority to review, approve, and certify these
Plans.2 See id. § 2141(c)-(e); cf. Aurelius Inv., 2019 WL 642328,
at *12 (describing these and related powers and characterizing
them as "significant"). That section also outlines a yearly
process, involving only the Governor and the Board, for development
of Fiscal Plans. See generally 48 U.S.C. § 2141. The Legislative
Assembly has a formal role in economic planning and budgeting under
PROMESA, but that role is limited to the Territory Budget
development process. See id. § 2142(d).
2 PROMESA does provide one path for the Governor and the
Board to jointly develop and certify Fiscal Plans "that meet[] the
requirements under [§ 201]." 48 U.S.C. § 2141(f). The full
provision reads:
(f) Joint development of Fiscal Plan
Notwithstanding any other provision of this
section, if the Governor and the Oversight
Board jointly develop a Fiscal Plan for the
fiscal year that meets the requirements under
this section, and that the Governor and the
Oversight Board certify that the fiscal plan
reflects a consensus between the Governor and
the Oversight Board, then such Fiscal Plan
shall serve as the Fiscal Plan for the
territory or territorial instrumentality for
that fiscal year.
Id.
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1. Initial Development
PROMESA's prescribed process for "[d]evelopment, review,
approval, and certification of Fiscal Plans" occurs on a schedule
set by the Board, id. § 2141(c); see id. § 2141(a), and begins
with the submission of a proposed Fiscal Plan by the Governor, see
id. § 2141(c) ("The Governor shall submit to the Oversight Board
any proposed Fiscal Plan . . . ."). For 2019, the Governor sent
several versions of his proposed Fiscal Plan to the Board between
January and April 2018.
The Board reviewed each of these proposals, as required
by § 201(c)(3), which states that "[t]he Oversight Board shall
review any proposed Fiscal Plan to determine whether it satisfies
the requirements set forth in subsection (b)." Id. § 2141(c)(3).
Contained in subsection (b) are over a dozen specific requirements.
Those include "provid[ing] for the elimination of structural
deficits" and "for the investments necessary to promote economic
growth." Id. § 2141(b)(1)(A)–(N).3
3 The requirements "set forth in" § 201(b) are:
(A) provide for estimates of revenues and
expenditures in conformance with agreed
accounting standards and be based on --
(i) applicable laws; or
(ii) specific bills that require
enactment in order to reasonably achieve
the projections of the Fiscal Plan;
(B) ensure the funding of essential public
services;
(C) provide adequate funding for public
pension systems;
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Here, the Board rejected each of the Governor's proposed
2019 Fiscal Plans as not satisfying § 201(b)'s requirements.4 The
(D) provide for the elimination of structural
deficits;
(E) for fiscal years covered by a Fiscal Plan
in which a stay under subchapters III or IV is
not effective, provide for a debt burden that
is sustainable;
(F) improve fiscal governance,
accountability, and internal controls;
(G) enable the achievement of fiscal targets;
(H) create independent forecasts of revenue
for the period covered by the Fiscal Plan;
(I) include a debt sustainability analysis;
(J) provide for capital expenditures and
investments necessary to promote economic
growth;
(K) adopt appropriate recommendations
submitted by the Oversight Board under section
2145(a) of this title;
(L) include such additional information as the
Oversight Board deems necessary;
(M) ensure that assets, funds, or resources of
a territorial instrumentality are not loaned
to, transferred to, or otherwise used for the
benefit of a covered territory or another
covered territorial instrumentality of a
covered territory, unless permitted by the
constitution of the territory, an approved
plan of adjustment under subchapter III, or a
Qualifying Modification approved under
subchapter VI; and
(N) respect the relative lawful priorities or
lawful liens, as may be applicable, in the
constitution, other laws, or agreements of a
covered territory or covered territorial
instrumentality in effect prior to June 30,
2016.
48 U.S.C. § 2141(b)(1).
4 If the Board had determined that one of the Fiscal Plans
proposed by the Governor did "satisf[y] such requirements, the
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Board returned two of the Governor's proposals to him, as required
by § 201(c)(3)(B), with "a notice of violation that includes
recommendations for revisions to the applicable Fiscal Plan;
and . . . an opportunity to correct the violation." Id.
§ 2141(c)(3)(B). At the time the Board rejected the Governor's
final, April 2018, proposal, the deadline for certifying a 2019
Fiscal Plan had passed. Under such circumstances (that is, when
"the Governor fails to submit to the Oversight Board a Fiscal Plan
that the Oversight Board determines in its sole discretion
satisfies the requirements . . . by the time specified"), PROMESA
§ 201(d)(2) provides that "the Oversight Board shall develop and
submit to the Governor and the Legislature a Fiscal Plan that
satisfies the requirements." Id. § 2141(d)(2).
2. April 19, 2018 Fiscal Plan
On April 19, 2018, the Board accordingly certified a
2019 Fiscal Plan that it had developed. That Fiscal Plan was
automatically "deemed approved by the Governor" under § 201(e)(2).
See id. § 2141(e)(2) ("If the Oversight Board develops a Fiscal
Plan under subsection (d)(2), such Fiscal Plan shall be deemed
approved by the Governor . . . .").
The April Fiscal Plan incorporated many aspects of the
Governor's proposed Fiscal Plan. It also included a labor reform
Oversight Board" would have been required to "approve" and certify
that proposed Fiscal Plan. Id. § 2141(c)(3)(A), (e)(1).
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package not proposed by the Governor. This was one among a set of
"comprehensive structural reforms to the economy of Puerto Rico"
set forth in the Plan. These comprehensive reforms, to Puerto
Rico's labor laws, business regulations, and infrastructure (among
other areas), were designed by the Board to "revers[e] the negative
trend [of economic] growth over the last 10 years and enabl[e] the
Island to become a vibrant and productive economy going forward."
"[I]ncreasing labor force participation may be the
single most important reform for long-term economic well-being in
Puerto Rico," the April Plan stated. It identified three "labor
market reforms" intended "[t]o reduce the cost to hire and
encourage job creation, including movement of informal jobs to the
formal economy." The three "initiatives to change labor
conditions" were: a shift to at-will employment; a "[r]eduction of
mandated paid leave, including sick leave and vacation pay;" and
an end to "mandated Christmas bonuses." The called-for adoption
of at-will employment required the repeal of Puerto Rico's Law No.
80 of May 30, 1976, P.R. Laws Ann. tit 29 §§ 185a-185m, which bars
termination of many private-sector employees without cause.
As to this first reform, the Plan noted that "49 out of
50 U.S. states are employment at-will jurisdictions, giving
employers the flexibility to dismiss an employee without having to
first prove just cause." It acknowledged that "some employees
benefit from Puerto Rico's lack of at-will employment" but credited
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evidence that for-cause employment "makes it more costly and risky
not only to dismiss, but also to hire, an employee." "For
example," the Plan summarized, "studies have found that laws
preventing unfair dismissal caused reductions in employment,
particularly in labor-intensive industries." It concluded that
switching to at-will employment "will lower the cost and risk of
hiring in Puerto Rico."
The Plan quantified the impact of the labor reform
package on the Commonwealth's annual budget surplus over thirty
years. It projected that, with the adoption of at-will employment,
Puerto Rico would have a $39 billion cumulative surplus over that
period, compared with a $2 billion cumulative surplus without the
enactment of at-will employment.
The April Fiscal Plan also cut the operating budget of
the Puerto Rican Legislative Assembly. These "reductions for the
Legislative Assembly" were "informed by benchmarking against other
full-time legislatures" in the United States, the Plan explained.
The Puerto Rican Legislative Assembly's expenditure in Fiscal Year
2018 was about 300% greater than the (population-weighted)
national average of full-time U.S. legislatures, according to an
analysis by the Board of publicly available data.5 The Plan stated
5 This analysis appeared in the Board's motion to dismiss.
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that these reductions would achieve "reinvestment savings" of
between $23.6 and $25 million per year for the next five years.
3. May 30, 2018 Fiscal Plan
The Governor and the Board continued negotiating about
the labor reform package and other matters after the April Fiscal
Plan had been certified. Eventually, the Board agreed to certify
a revised Fiscal Plan that it had developed. It did so on May 30,
2018. Two aspects of the Board's May Fiscal Plan are relevant to
these appeals.
First, the May Fiscal Plan provided for a shift to
at-will employment. Specifically:
The Legislature shall introduce and the
Governor shall sign a bill that repeals Act
No. 80 . . . on or before June 27, 2018, which
shall become effective on or before January 1,
2019. . . . The Bill shall state that, for
the avoidance of doubt, an employee hired for
an indefinite period of time does not have a
cause of action against their employer merely
for the employer's termination of the
employment relation.
That is, the government of Puerto Rico would repeal Law 80 and
clarify that employment is at will.
Second, the cut to the Legislative Assembly's budget was
removed from the May version of the Fiscal Plan. In addition,
cuts to the budget of the judiciary included in the April Fiscal
Plan were "reduced by half each year" in the May version, a change
that increased the court system's budget by up to $23 million per
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year over what had been budgeted in the April version. According
to a statement of understanding between the Governor and the Board,
these operating budgets were to "be revisited annually," and these
funding levels were made contingent on Puerto Rico's "compliance
with the then-applicable fiscal plan." That is, the May Fiscal
Plan stated that the allocations for the Legislative Assembly and
the judiciary
are pursuant to Puerto Rico becoming an
employment at-will jurisdiction by repealing
Law 80 of May 30, 1976 on or before June 27,
2018 . . . . If the repeal does not occur,
none of these changes and alterations [to the
Legislative Assembly's and the judiciary's
budgets] shall be implemented.
The Legislative Assembly did not repeal Law 80. Instead,
the day the Board certified the May Fiscal Plan, May 30, Puerto
Rico's Senate passed Senate Bill 1011, which made at-will
employment the rule for employees hired after the date of the
bill's enactment, while retaining Law 80's for-cause rule for those
already employed.6
The House of Representatives immediately began
considering Senate Bill 1011. Recognizing that the bill did not
6 The Senate also studied a labor reform bill that the
Board had drafted based on the April Fiscal Plan. Based on
testimony from experts and a review of studies, a Senate committee
penned a report in July 2018 rejecting the proposed bill and
stating that the bill's reforms, including at-will employment,
"have not had a positive or significant impact in [other] economies
where similar . . . reforms have been implemented."
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fully repeal Law 80, the President of the House Government Affairs
Committee sent a letter to the Board asking about the "effect on
the Fiscal Plan and the budget to be certified by the Financial
Oversight Board" were the House to pass Senate Bill 1011. The
Board responded that same day, June 4, that, if the Legislative
Assembly "fails to comply exactly with the understanding reached
with the Oversight Board concerning the repeal of Law 80, the
Oversight Board will amend the Fiscal Plan and Budget to," among
other things, "[m]aintain the cuts to the budgets of the
Legislature and Judiciary as outlined in the April 19 Fiscal Plan."
Ten days later, on June 14, the House passed Senate Bill 1011.
The parties agree that Senate Bill 1011 never became law; the
record does not explain why.
4. June 29, 2018 Fiscal Plan
On June 29, 2018, the Board informed the Governor and
the Legislative Assembly by letter that it was certifying a new
Fiscal Plan. As had been promised in the May Fiscal Plan and in
the Board's June 4 letter, the Board's June Fiscal Plan funded the
judiciary and the Legislative Assembly at the levels stated in the
April Plan. The letter explained, "Unfortunately, we now know
that the Government of Puerto Rico will not implement the [May]
Fiscal Plan in full because the Legislature . . . failed to pass
the most important component of the Labor Reform Package -- the
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repeal of Law 80 and turning Puerto Rico into an at-will employment
jurisdiction."
The labor reform package was absent from the Board's
June Fiscal Plan, certified June 29, 2018. On that subject, the
June Plan stated the following:
[W]hile successful human capital and welfare
reforms would have been projected to generate
approximately $39 billion in additional
revenues by FY2048 and over ~$320 million from
FY2018-FY2023, the Legislature's demonstrated
noncompliance with the comprehensive labor
reform requirements of previous fiscal plans
has forced the removal of these projected
revenues from the New Fiscal Plan.
C. 2019 Territory Budget
PROMESA § 202 grants the Board exclusive authority to
review, approve, and certify Territory Budgets. See 48 U.S.C.
§ 2142; see also Aurelius Inv., 2019 WL 642328, at *12 (recognizing
the Board's "significant" power to approve and reject Commonwealth
budgets). The Legislative Assembly's only responsibility under
§ 202 is to "submit to the Oversight Board the Territory Budget
adopted by the Legislature." 48 U.S.C. § 2142(d)(1).
For 2019, the Legislative Assembly did this on June 30,
2018, the day before the start of the Fiscal Year. Earlier that
day, the Legislature had approved an $8,708,623,000 Commonwealth
budget (which the Governor later signed).
Also on June 30, the Board determined that the
Legislative Assembly's Budget was non-compliant with the
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Board-certified June Fiscal Plan.7 The Legislative Assembly's
$84,275,000 combined allocation for Puerto Rico's House of
Representatives ($45,470,000) and Senate ($38,805,000) matched the
budget for the Legislative Assembly under the Board's May Fiscal
Plan but exceeded the reduced allocation in the June Plan.
The Board then immediately certified a Territory Budget
it had developed totaling $8,757,524,000. Of this, and consistent
with the June Fiscal Plan, $65,292,000 was allocated to the
Legislative Assembly ($35,228,000 to the House and $30,064,000 to
the Senate). In developing and certifying this Budget, the Board
relied on its authority under § 202(e)(3). That provision
provides:
If the Governor and the Legislature fail to
develop and approve a Territory Budget that is
a compliant budget by the day before the first
day of the fiscal year for which the Territory
Budget is being developed, the Oversight Board
shall submit a Budget to the Governor and the
Legislature . . . and such Budget shall be --
(A) deemed to be approved by the Governor
and the Legislature; . . .
(C) in full force and effect beginning on
the first day of the applicable fiscal
year.
7 If the Board had deemed this "adopted Territory Budget"
to be compliant with the Fiscal Plan, then the Oversight Board
would have been required to "issue a compliance certification for
such compliant budget." 48 U.S.C. § 2142(d)(1)(A).
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Id. § 2142(e)(3).8 By operation of law, then, the Board's 2019
Territory Budget went into effect.
D. Procedural History
On July 9, plaintiffs filed their complaint against the
Board seeking the following relief:9 (1) a declaration "that the
rejected policy recommendations in the Fiscal Plan are non-binding
recommendations, and that the Legislative Assembly cannot be
compelled to implement any of those policies, and the [Board] may
not take any actions to force compliance with such
recommendations;" (2) a declaration that the Territory Budget
certified by the Board "is null and void;" and (3) an injunction
"prohibiting the defendants from implementing and enforcing" the
Board-developed and certified Budget and "reinstat[ing]" the
Budget adopted by the Legislative Assembly. We describe the pled
theories for relief in the analysis.
Defendants moved to dismiss the complaint for lack of
subject matter jurisdiction and for failure to state a claim to
relief, and the district court granted the motion. Rivera-Schatz,
8 Had these events occurred before "the day before the
first day of the fiscal year" and had the Board determined that
the submitted Budget was not compliant, then PROMESA says that
"the Oversight Board shall provide to the Legislature -- (i) a
notice of violation that includes a description of any necessary
corrective action; and (ii) an opportunity to correct the
violation." 48 U.S.C. § 2142(d)(1)(B).
9 The complaint was filed in the District of Puerto Rico
in the Commonwealth's ongoing case under Title III of PROMESA.
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327 F. Supp. 3d at 369-71. The court first held that the request
for a declaration about Fiscal Plan recommendations did not rest
on a proper Article III case or controversy, and it dismissed that
request, which appeared in Paragraph 79 of the complaint, for lack
of subject matter jurisdiction. Id. at 370-71. Next, in
dismissing the remaining declaratory- and injunctive-relief
claims, the district court gave two reasons. To the extent those
claims directly challenged the Board's budget certification
decisions, the district court dismissed them for lack of subject
matter jurisdiction, relying on PROMESA § 106(e). Id. at 371.
That provision states that "[t]here shall be no jurisdiction in
any United States district court to review challenges to the
Oversight Board's certification determinations under [PROMESA]."
48 U.S.C. § 2126(e); see Rivera-Schatz, 327 F. Supp. 3d at 371.
To the extent that the remaining claims challenged the Board's
actions as exceeding its authority under PROMESA or as encroaching
on the Legislative Assembly's power under Puerto Rico's
Constitution, the district court dismissed them for failure to
state a claim. Rivera-Schatz, 327 F. Supp. 3d at 372-73.
II.
We review the district court's grant of the motion to
dismiss de novo. See, e.g., Flores v. OneWest Bank, F.S.B., 886
F.3d 160, 162 (1st Cir. 2018). In doing so, we analyze the issues
within the basic three-part framework outlined by the district
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court, considering first the request for a declaration about Fiscal
Plan recommendations, and then the declaratory- and injunctive-
relief claims about the 2019 Budget.
We affirm the district court's grounds for dismissal.
First, the federal courts lack Article III jurisdiction over the
complaint's request for a declaration about Fiscal Plan
recommendations. Second, the district court correctly concluded
that, under § 106(e), it lacked jurisdiction to review alleged
errors in the Board's certification determinations. Third, the
complaint fails to state a claim to relief on the theory that the
Board exceeded its authority under PROMESA during the 2019 Fiscal
Plan and Territorial Budget processes.
The Board defends these grounds. It does not challenge
the district court's reading of § 106(e), and we do not engage
that topic.
A. Article III Jurisdiction
Count I of the complaint alleges that "PROMESA does not
allow the [Board] to bypass or usurp the Legislative Assembly's
legislative power" by "set[ting] forth the Commonwealth's public
policy" as to "the rights of employees in Puerto Rico." The Board
did just that, the complaint asserts, "when it tried to force the
Legislative Assembly to pass a bill retroactively repealing Law 80
as a condition to approve the Commonwealth's budget." And when
the Legislative Assembly declined to repeal Law 80, the complaint
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says, the Board "punished it by imposing severe cuts in its
operational budget." Based on those allegations, Paragraph 79 of
the complaint says:
Plaintiffs are therefore entitled to a
judicial declaration under [the Declaratory
Judgment Act] . . . that the rejected policy
recommendations in the Fiscal Plan are
non-binding recommendations, and that the
Legislative Assembly cannot be compelled to
implement any of those policies, and the
[Board] may not take any actions to force
compliance with such recommendations.
The federal courts lack Article III jurisdiction over Paragraph
79's request.
The Declaratory Judgment Act allows "any court of the
United States" to "declare the rights and other legal relations of
any interested party seeking such declaration, whether or not
further relief is or could be sought," but only "[i]n a case of
actual controversy within [that court's] jurisdiction." 28 U.S.C.
§ 2201(a). As the Supreme Court has explained, "the phrase 'case
of actual controversy' in the Act refers to the type of 'Cases'
and 'Controversies' that are justiciable under Article III."
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)
(citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937)).
Although there is not "the brightest of lines between those
declaratory-judgment actions that satisfy the case-or-controversy
requirement and those that do not," id., "[b]asically, the question
in each case is whether the facts alleged, under all the
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circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory
judgment," Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270,
273 (1941).
This standard cannot be satisfied if Paragraph 79 is
read to request a declaration about the rights of the Board and
the Legislative Assembly whenever there is disagreement about
whether to implement a Fiscal Plan policy included by the Board.10
That would be a request for an advisory opinion about the import
of Fiscal Plans under PROMESA.
Appellants' attempts to read into Paragraph 79 a
justiciable dispute with definite legal and factual dimensions
fare no better under Article III's standard. The request cannot
be made justiciable by defining the "rejected policy
recommendations" as the labor reform package introduced in the
10 The district court observed that "recommendations" could
refer to "the concept of 'recommendations' under Section 205 of
PROMESA." Rivera-Schatz, 327 F. Supp. 3d at 370. Section 205
allows the Board to make policy recommendations to the Governor or
the Legislative Assembly "at any time" and provides a procedure
for "the territorial government" to adopt or reject the
recommendations. 48 U.S.C. § 2145. In his brief, Méndez-Núñez,
the House Speaker, alludes to this reading. We agree with the
district court that, if Paragraph 79 refers to § 205
recommendations in the abstract, that paragraph requests an
advisory opinion about the "meaning and effect of a section of the
statute," and we lack Article III jurisdiction. Rivera-Schatz,
327 F. Supp. 3d at 371.
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April Fiscal Plan, as Rivera-Schatz, the Senate President, does in
his brief. Under this reading of Paragraph 79, the dispute lacks
the requisite reality: The currently certified Fiscal Plan does
not include the objected-to labor reforms, which were removed
before the June version. To provide the declarations, then, would
require a court to imagine a set of labor reforms into the Fiscal
Plan and to predict the Board and the Legislative Assembly's
reactive moves and counter-moves. The resulting declaration would
be an impermissible "opinion advising what the law would be upon
a hypothetical state of facts." Aetna, 300 U.S. at 241.
Appellants cannot get around this by reading Paragraph
79 to request a declaration about the April or May Fiscal Plans
and the ensuing actions of the Legislative Assembly and the Board.
Such a request would still be one for an advisory opinion, as past
differences are not amenable to the type of relief that Article
III allows courts to give -- "decree[s] of a conclusive character"
adjudicating adverse parties' actual rights and interests. Aetna,
300 U.S. at 241; cf. Hall v. Beals, 396 U.S. 45, 48 (1969) (holding
that an amendment to the challenged statute eliminated any
"controversy of the kind that must exist if we are to avoid
advisory opinions").
Nor can the request be made justiciable by reading
Paragraph 79 to request a declaration on disputes that the
appellants say are likely to arise under future Fiscal Plans. In
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Declaratory Judgment Act cases where jurisdiction is exercised
based on a threat of future injury, the potential injury is
typically legal liability on a set of already defined facts,11 so
that the Act merely "defin[es] procedure" to enable judicial
resolution of a case or controversy that might otherwise be
adjudicated at a different time or in a slightly different form.
See Aetna, 300 U.S. at 240. That is not this request. Whatever
future disputes may arise have not yet been and may never be
adequately framed by their factual dimensions. See Texas v. United
States, 523 U.S. 296, 300 (1998) (stating that a dispute is not
justiciable "if it rests upon 'contingent future events that may
not occur as anticipated, or indeed may not occur at all'" (quoting
Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580-81
(1985))). Declaratory claims based on abstractions are not
justiciable under Article III. See Int'l Longshoremen's &
Warehousemen's Union, Local 37 v. Boyd, 347 U.S. 222, 224 (1954)
("Determination of the scope . . . of legislation" on fictional
facts "involves too remote and abstract an inquiry for the proper
exercise of the judicial function.").
11 See, e.g., Steffel v. Thompson, 415 U.S. 452, 475 (1974)
(exercising jurisdiction over pre-prosecution challenge to
criminal statute); MedImmune, 549 U.S. at 137 (recognizing Article
III jurisdiction over declaratory claims based on threatened
private enforcement action).
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B. Statutory Subject Matter Jurisdiction
The complaint also seeks a declaration that the June
Budget certified by the Board "is null and void" and an injunction
"prohibiting the defendants from implementing and enforcing" the
Board-developed and certified Budget and "reinstat[ing]" the
Legislative Assembly's Budget. In support of this, Count II of
the complaint outlines a theory that the Board erred in determining
that Senate Bill 1011 did not conform with the May Fiscal Plan.
This error, Count II asserts, led the Board to a second erroneous
determination that the June Fiscal Plan should be certified, then
to a third erroneous determination that the Legislative Assembly's
Budget should not be certified because it did not comply with the
June Fiscal Plan, and finally to a fourth erroneous determination
that the Board-developed Budget should be certified. The district
court held that it lacked jurisdiction under § 106(e) over the
claims that rested on Count II's allegations. See Rivera-Schatz,
327 F. Supp. 3d at 371.
We agree. PROMESA grants the Board exclusive authority
to certify Fiscal Plans and Territory Budgets for Puerto Rico. It
then insulates those certification decisions from judicial review
in § 106(e): "There shall be no jurisdiction in any United States
district court to review challenges to the Oversight Board's
certification determinations under this chapter." 48 U.S.C.
§ 2126(e). Section 106(e) is an exception to PROMESA's general
- 26 -
grant of jurisdiction at § 106(a), which provides that "any action
against the Oversight Board, and any action otherwise arising out
of this chapter, in whole or in part, shall be brought in a United
States district court for the covered territory." Id. § 2126(a).
Count II of the complaint alleges four unreviewable
Board errors in "certification determinations under this chapter."
Id. § 2126(e). The district court was correct that it lacked
jurisdiction to review the Board's determination that the passage
of Senate Bill 1011 was inconsistent with the May Fiscal Plan's
requirement to repeal Law 80. That determination was the basis
for the Board's decision to certify, under § 201(e)(2), the June
Fiscal Plan. And § 106(e) bars district courts from reviewing the
reasons for certification determinations as much as the
certification determinations themselves. Nor did the district
court have jurisdiction to review whether the Board erred in
deeming the Legislative Assembly's Budget non-compliant with the
applicable Fiscal Plan and in certifying instead a Board-developed
Territory Budget. These decisions, which § 202 expressly empowers
the Board to make, see id. § 2142(d)-(e), are prototypical
"certification determinations under this chapter," id. § 2126(e).
Rivera-Schatz's argument that the Board's determinations
about Territory Budgets adopted by the Legislative Assembly are
reviewable runs headlong into the text of § 106(e). His argument
rests on the following attempted contrast of §§ 201 and 202: § 201
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states that the Board has "sole discretion" to determine whether
to certify a Fiscal Plan or a Budget proposed by the Governor, see
id. § 2141(c)(3), (c)(1), while § 202 does not use the phrase "sole
discretion" in granting the Board authority to "determine whether
the [Legislature-]adopted Territory Budget is a compliant budget,"
id. § 2142(d)(1). From this, Rivera-Schatz asks us to infer first
that the Board's authority to make determinations about
Legislature-adopted Budgets is non-exclusive. Rivera-Schatz urges
that a second inference -- that such determinations are subject to
judicial review -- follows. Section 106(e)'s text forecloses
these inferences. It plainly bars judicial review of "challenges
to the Oversight Board's certification determinations." Id.
§ 2126(e). It does not distinguish among the various certification
determinations that PROMESA commits to the Board.
Appellants next argue, by analogy to a doctrine of
administrative law, that the challenged certification
determinations are reviewable, despite § 106(e)'s jurisdictional
prohibition, because the Board's actions violated clear statutory
directives in §§ 201 and 202. This court has never recognized
such an exception to any statutory provision explicitly precluding
judicial review. Cf. Paluca v. Sec'y of Labor, 813 F.2d 524, 528
(1st Cir. 1987) (declining the invitation). Nor do we here. That
is because (among other reasons) PROMESA's instructions to the
Board about certification are not comparable to the types of
- 28 -
congressional commands that can prompt "judicial review
independent of [statutory] review provisions." Kirby Corp. v.
Peña, 109 F.3d 258, 269 (5th Cir. 1997) (defining the "clear
statutory mandate" exception as limited to administrative agency
actions "so contrary to the terms of the relevant statute that
[they] necessitate[] judicial review independent of [statutory]
review provisions"). To see this, compare the statutory rule
violated in Leedom v. Kyne, 358 U.S. 184 (1958), with the standards
laid out in PROMESA §§ 201 and 202. Kyne reviewed (without a
statute authorizing judicial review) a National Labor Relations
Board order certifying a collective bargaining unit mixing two
types of employees, despite an unambiguous statutory bar on units
mixing those employees. Id. at 185. In contrast, under § 201,
the Board has "sole discretion" to determine whether Fiscal Plans
comply with statutory requirements such as "provide for the
elimination of structural deficits." 48 U.S.C. § 2141(b)(1)(D);
see id. § 2141(b)-(c). Similarly, § 202 gives the Board
"discretion" to decide whether a Territory Budget comports with a
multifaceted Fiscal Plan. See id. § 2142.
Nor, finally, are appellants helped by their citations
to McNary v. Haitian Refugee Center, Inc., 498 U.S. 479 (1991).
That case allowed jurisdiction, despite a statutory bar on judicial
review, over a challenge to an agency's procedures under the Due
- 29 -
Process Clause. Id. at 481-84. But no federal constitutional
claims have been brought here.
The district court properly dismissed the challenges to
the Board's certification decisions in Count II for lack of
statutory subject matter jurisdiction.
C. Failure to State a Claim
The complaint could arguably be read to allege three
remaining theories for relief.12 First, we read it to assert that
the Board exceeded its authority under PROMESA §§ 204 and 205,
which grant the Board powers related to legislation. See 48 U.S.C.
§§ 2144-2145; see also Aurelius Inv., 2019 WL 642328, at *12
(noting the Board's legislation-related powers). Second, we read
the complaint as alleging that the Board's decision to certify a
12 Also remaining are two arguments made by appellants on
appeal but not to the district court: (1) The Board exceeded its
authority under § 201 when it certified its June Fiscal Plan
without allowing the Governor another opportunity to submit a
compliant Fiscal Plan. (2) The Board deliberately delayed
certifying its June Fiscal Plan so that the Legislative Assembly
would not have time before the start of Fiscal Year 2019 to approve
and submit to the Board under § 202(d)(1) a Territory Budget
compliant with the Board's June Fiscal Plan. Neither argument was
developed in the pleadings, see Rivera-Schatz, 327 F. Supp. 3d at
371 (cataloging other theories pled), and so we consider both
waived, see, e.g., French v. Bank of N.Y. Mellon, 729 F.3d 17, 19
n.1 (1st Cir. 2013) ("[B]elated allegations" are waived.). In any
event, both arguments are also inconsistent with the events of the
winter, spring, and summer of 2018. The arguments overlook the
lineage of the Board's June Fiscal Plan: That Fiscal Plan was the
culmination of the formal development process and the informal
negotiation process between the Governor and the Board between
January and May. And the June Fiscal Plan was also identical, in
all respects relevant to this case, to the April Fiscal Plan.
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Board-developed Budget that cut the Legislative Assembly's funds
was punitive and therefore "contraven[ed] . . . the limited powers
delegated by Congress to the [Board]." Third, we read the
complaint to allege that the Board's decision to certify its Budget
over the Legislative Assembly's impinged on the Legislative
Assembly's power under Puerto Rico's Constitution.
The district court chose to exercise jurisdiction over
these claims that the Board exceeded its authority under PROMESA,
a choice we do not evaluate,13 and to dismiss them for failure to
state a claim to relief. We affirm the dismissal, taking the three
remaining arguments in turn.
First, the complaint's assertions that the Board
violated §§ 204 and 205 rest on an inaccurate factual premise:
that the Board forced the Legislative Assembly to repeal or that
the Board otherwise nullified Law 80. The Board did nothing of
the sort; Law 80 remains on the books and the applicable Fiscal
Plan does not call for its repeal.
13 The issue of whether § 106(e) also precludes
jurisdiction over these claims is not free from doubt, but we
bypass it here and assume statutory subject matter jurisdiction
because the merits of the remaining claims are quite easily
resolved against the party invoking our jurisdiction. See, e.g.,
Moriarty v. Colvin, 806 F.3d 664, 668 (1st Cir. 2015) (using
hypothetical jurisdiction where the sidestepped jurisdictional
question is statutory); Umstead v. Umstead, 446 F.3d 17, 20 n.2
(1st Cir. 2006) (citing Restoration Pres. Masonry, Inc. v. Grove
Eur. Ltd., 325 F.3d 54, 59-60 (1st Cir. 2003)) (same).
- 31 -
As to § 204, the complaint alleges that the Board
"invalidate[d]" Law 80 and, in doing so, exceeded its authority
under § 204(a) to review laws that were enacted "after, rather
than before the [Board] became operational."14 That provision
authorizes the Board to review, for consistency with the governing
Fiscal Plan, legislation that "a territorial government duly
enacts . . . during any fiscal year in which the Oversight Board
is in operation." 48 U.S.C. § 2144(a)(1). It also empowers the
Board to "direct the territorial government to . . . correct the
law to eliminate" any "significant[] inconsisten[cy]" with the
Fiscal Plan. Id. § 2144(a)(4)(B). And if "the territorial
government fails to comply with" such a directive, the Board may
"take such actions as it considers necessary . . . to ensure that
the enactment or enforcement of the law will not adversely affect
the territorial government's compliance with the Fiscal Plan,
including preventing enforcement or application of the law." Id.
§ 2144(a)(5). But the Board did not "prevent[] enforcement or
application" of Law 80. Id. The complaint fails to state a claim
to relief based on § 204.
14 In his brief on appeal, Rivera-Schatz argues instead
that the Board unlawfully bypassed the § 204 process in deeming
Senate Bill 1011 to be inconsistent with the Fiscal Plan. This
theory was not raised in the complaint or otherwise before the
district court and is therefore waived. See, e.g., French, 729
F.3d at 19 n.1.
- 32 -
The complaint also fails to state a claim to relief based
on § 205. That provision allows the Board to "at any time submit
recommendations to the Governor or the Legislature on actions the
territorial government may take to ensure compliance with the
Fiscal Plan." Id. § 2145(a). The Governor and the Legislative
Assembly may then decide "whether the territorial government will
adopt the recommendations." Id. § 2145(b)(1). The complaint
alleges that the labor reform package was a § 205 recommendation
and that, because § 205 empowers the Legislative Assembly to reject
such recommendations, the Board violated that provision in making
the reforms mandatory. But the Board did not impose any reforms.
Instead, it removed the labor package from the Fiscal Plan after
the Legislative Assembly chose not to repeal Law 80.
Next, the sequence of events leading to the
certification of the 2019 Budget refutes the second alleged theory.
On that theory, the complaint specifically says that, although the
Board lacks "the power to impose penalties on Commonwealth officers
or employees,"15 the Board certified a 2019 Budget with a cut to
the Legislative Assembly's budget, a cut which the complaint
alleges was a punitive response to the Legislative Assembly's
15 The complaint cites § 104(l), which subjects
Commonwealth officials to discipline by the Governor, not by the
Board, for violation of "any valid order of the Oversight Board."
48 U.S.C. § 2124(l). We take no position on the meaning or effect
of this provision.
- 33 -
decision not to repeal Law 80. Yet, the recommendation that the
Legislative Assembly's budget should be reduced, along with the
budgets of other government entities, originated in the April
Fiscal Plan, and preceded by months the Legislative Assembly's
actions on Law 80. Further, after the Legislative Assembly
declined to repeal Law 80, the Board acted within its authority
when it certified a June Fiscal Plan and 2019 Territory Budget
that included the previously proposed cuts to the Legislative
Assembly's operating budget. PROMESA authorizes the Board to adopt
Fiscal Plans and Budgets incentivizing the Legislative Assembly to
enact the Board's recommended policies and accounting for the
Legislative Assembly's responses to those recommended policies.
See id. §§ 2141-2151. Indeed, it is difficult to see how, without
such powers, the Board could be effective in achieving Congress's
"purpose" of "provid[ing] a method for [Puerto Rico] to achieve
fiscal responsibility and access to the capital markets." Id.
§ 2121(a) (stating Board's purpose).
Finally, the complaint alleges that the Board's decision
to certify its Budget over the Legislative Assembly's was an
"unlawful[] encroach[ment] upon the Legislative Assembly's
exclusive legislative power under the Puerto Rico Constitution."
But PROMESA accounts for the Legislative Assembly's power under
the Constitution: Under PROMESA's preemption provision, the grants
of authority to the Board at §§ 201 and 202 to approve Fiscal Plans
- 34 -
and Budgets "prevail over any general or specific provisions of
territory law," including provisions of Puerto Rico's Constitution
that are "inconsistent with [PROMESA]." Id. § 2103; see also
Maldonado-Burgos, 844 F.3d at 346. PROMESA does generally reserve
"the power of [Puerto Rico] to control, by legislation or
otherwise, the territory." 48 U.S.C. § 2163. But this reservation
of power is expressly "[s]ubject to the limitations set forth in
[Titles] I and II of [PROMESA]," where §§ 201 and 202 appear. Id.
When the Board certified the 2019 Fiscal Plan and Budget, then, it
exercised authority granted to it under PROMESA.
III.
The judgment of the district court is affirmed. No costs
are awarded.
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