R&D Master Enterprises, Inc. v. FOMB ( 2023 )

United States Court of Appeals
For the First Circuit
No. 22-1342
R&D MASTER ENTERPRISES, INC.; PRO PAVE CORP.; MATRIX
TRANSPORT, INC.; JOSÉ A. ROVIRA GONZÁLEZ; MARÍA MAGDALENA DÍAZ
VILA; CONJUGAL PARTNERSHIP ROVIRA-DÍAZ,
Plaintiffs, Appellants,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO;
ROBERT F. MUJICA JR., in his official capacity as Executive
Director of the Financial Oversight and Management Board for
Puerto Rico,*
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raúl M. Arias-Marxuach, U.S. District Judge]
Before
Barron, Chief Judge,
Thompson, Circuit Judge,
and Burroughs,** District Judge.
* Pursuant to Fed. R. App. P. 43(c)(2), FOMB Executive
Director Robert F. Mujica Jr. has been substituted for former FOMB
Executive Director Natalie A. Jaresko.
** Of the District of Massachusetts, sitting by designation.
Carlos M. Lamoutte Navas, with whom Humberto Guzmán-Rodríguez
and Guzmán & Rodríguez-López Law Office were on brief, for
appellants.
Guy Brenner, with whom Timothy W. Mungovan, John E. Roberts,
Adam L. Deming, Martin J. Bienenstock, Mark D. Harris, and
Proskauer Rose LLP were on brief, for appellees.
July 25, 2023
THOMPSON, Circuit Judge. Several Puerto Rico
corporations and individuals -- R&D Master Enterprises, Inc., Pro
Pave Corp., Matrix Transport, Inc., José Rovira González, and María
Magdalena Díaz Vila (together, Appellants) -- challenge the
dismissal of their lawsuit against the Financial Oversight and
Management Board for Puerto Rico (FOMB) and its executive director.
In that suit, Appellants claimed that the FOMB's alleged failure
to review a $384 million loan sale agreement between the Economic
Development Bank for Puerto Rico (BDE, by its Spanish acronym) and
a private investment company, violated their constitutional and
statutory rights, and sought to have the court compel such review.
The district court dismissed the suit on timeliness grounds,
reasoning that a one-year statute of limitations applied to
Appellants' claims, all of which were brought outside of that one-
year window. Before us, Appellants assert that their lawsuit was
timely. We must take a different course, however, since we
conclude that Appellants lack Article III standing. So we affirm
the district court's dismissal, albeit on standing grounds. Our
reasoning follows.
Background
This dispute concerns the FOMB's alleged failure to
review a loan sale agreement prior to its execution. So, before
jumping in to describe that transaction, we'd better explain the
law and some of the players.
- 3 -
PROMESA, FOMB, and the Contract Review Policy
In 2016, Congress enacted the Puerto Rico Oversight,
Management, and Economic Stability Act (PROMESA), which sought to
address Puerto Rico's fiscal crisis. See In re Fin. Oversight &
Mgmt. Bd. for P.R., 37 F.4th 746, 750 (1st Cir. 2022), cert. denied
sub nom. Pierluisi v. Fin. Oversight & Mgmt. Bd. for P.R., 143 S.
Ct. 1070 (2023). PROMESA created the FOMB, a presidentially
appointed board "with wide-ranging authority to oversee and direct
many aspects of Puerto Rico's financial recovery efforts,"
including the certification of fiscal plans and Puerto Rico's
annual budget. Id.; see 48 U.S.C. §§ 2121, 2141-2147. Relevant
here, PROMESA granted the FOMB authority to "establish policies to
require prior [FOMB] approval of certain contracts . . . to ensure
such proposed contracts promote market competition and are not
inconsistent with the [FOMB] approved Fiscal Plan." 48 U.S.C.
§ 2144(b)(2).
Pursuant to that authority, the FOMB crafted a contract
review policy (after this, just Policy) covering any contract
"proposed to be entered into by the Commonwealth . . . or any
covered instrumentality."1 The Policy requires the FOMB to review
and approve all contracts with an aggregate expected value of $10
million or more prior to its execution. If a contract subject to
1 The BDE is a covered instrumentality under PROMESA.
- 4 -
the Policy "fails to comply" with the same -- that is, the FOMB's
review determines that it does not promote market competition and
is inconsistent with the applicable fiscal plan -- the FOMB "may
take such actions as it considers necessary to ensure that such
contract . . . will not adversely affect [Puerto Rico's] compliance
with the Fiscal Plan, including by preventing the execution or
enforcement of the contract . . . ." Id. § 2144(b)(5).
The Loan Sale
Next, we sketch out the basics of the transaction at
issue. In September 2018, the BDE agreed to sell off a portfolio
of loans to PR Recovery and Development JV, LLC (PR Recovery), a
Delaware-incorporated investment company. The loan portfolio was
valued at over $384 million, and the BDE agreed to sell it at a
91% liquidation discount. The BDE did not submit the loan sale
agreement to the FOMB for approval before executing it, so the
FOMB did not review it for compliance with the Policy.
Soon after the sale, PR Recovery "initiated aggressive
collection and foreclosure actions" in Puerto Rico courts against
hundreds of borrowers, including Appellants. Appellants assert
that PR Recovery should not have been able to purchase their loans
because their individual loan-level contracts contained
restrictions prohibiting the BDE from transferring these loans to
any entity that is not a bank, trust, or financial institution.
PR Recovery, Appellants charge, is none of these. As a result,
- 5 -
Appellants claim to have been forced to pay up on their loans
despite the "sham transaction" that the FOMB had an obligation to
scrutinize.2
How We Got Here
In July 2021, Appellants filed suit in the District of
Puerto Rico charging constitutional violations under the
Fourteenth Amendment's Due Process and Equal Protection Clauses,
and a statutory violation under PROMESA, all against the FOMB and
its executive director. (Appellants did not name the BDE and PR
Recovery, though.) For relief, Appellants asked the court to order
the FOMB to review the loan sale agreement and either approve or
reject it.
Fast-forward a couple months. The FOMB moved to dismiss,
arguing primarily that Appellants lacked Article III standing to
bring the suit, and that the complaint otherwise failed to state
a claim for relief, interposed with a brief argument that the
claims were time-barred. The district court picked up the FOMB's
three-paragraph timeliness argument and ran with it. It ruled
that Appellants' claims were time-barred, applying a one-year
statute of limitations to all of Appellants' claims, which fell
outside of that timeframe. Despite the FOMB's challenge to the
2 In July 2019, the BDE sued PR Recovery and several related
entities in Puerto Rico's Commonwealth court for fraud and breach
of contract, among other claims, seeking to nullify the loan sale
agreement. We're told that lawsuit remains pending.
- 6 -
court's subject-matter jurisdiction, the court's opinion and order
made no mention of it.
This appeal followed and now we enter the mix.
Discussion
We review the district court's dismissal of Appellants'
claims de novo and may affirm the dismissal on any basis made
evident by the record. In re Fin. Oversight & Mgmt. Bd. for P.R.,
54 F.4th 42, 52 (1st Cir. 2022); Katz v. Pershing, LLC, 672 F.3d
64, 70–71 (1st Cir. 2012).
Before us, Appellants assert that their claims are
timely, contending that the continuing violation doctrine applies
to keep their claims alive, and (in the alternative, we gather)
recharacterizing their complaint as one seeking only mandamus
relief, which they say insulates them from any statute of
limitations hurdle.
Rather than wade through Appellants' two arguments and
the FOMB's counter to the same, we must begin and end with Article
III standing.3 After laying out some basic standing principles,
3 The FOMB posits that the district court's resolution of its
motion to dismiss "was a permissible exercise of hypothetical
jurisdiction." It cites our well-established rule that
"resolution of a complex jurisdictional issue may be avoided when
the merits can easily be resolved in favor of the party challenging
jurisdiction," Cozza v. Network Assocs., Inc., 362 F.3d 12, 15
(1st Cir. 2004). That's not exactly right, so we pause to clarify.
We cannot bypass any jurisdictional issues if those issues, like
the ones we've encountered here, implicate Article III's "case" or
"controversy" requirement. See Restoration Pres. Masonry, Inc. v.
- 7 -
we assess whether Appellants' complaint has plausibly alleged that
they have standing to sue -- spoiler alert, it has not.4
Standing
Article III of the Constitution gives federal courts the
power to hear only "Cases" and "Controversies." U.S. Const. art.
III, § 2. "That power includes the requirement that litigants
have standing." California v. Texas, 141 S. Ct. 2104, 2113 (2021).
Standing doctrine seeks to ensure that courts only rule on
"genuine, live dispute[s] between adverse parties." Laufer v.
Acheson Hotels, LLC, 50 F.4th 259, 266 (1st Cir. 2022) (alteration
in original) (quoting Carney v. Adams, 141 S. Ct. 493, 498 (2020)),
cert. granted, 143 S. Ct. 1053 (2023). The party seeking relief
from a federal court (that's Appellants here) bears the burden,
from beginning-to-end of the lawsuit, to show that it has standing.
Grove Eur. Ltd., 325 F.3d 54, 59 (1st Cir. 2003). "Article III
jurisdiction is always an antecedent question" to resolving a case
on the merits. Id. (quoting Steel Co. v. Citizens for a Better
Env't, 523 U.S. 83, 101 (1998)).
4 Despite the FOMB challenging Appellants' standing at each
stage of this litigation, our review of Appellants' briefing --
here and below -- reveals that Appellants have not devoted a single
keystroke to explaining how they have standing. Appellants'
failure to respond to this dispositive hurdle is ultimately at
their peril. See In re Fin. Oversight & Mgmt. Bd. for P.R., 52
F.4th 465, 477 n.10 (1st Cir. 2022). Regardless, we have "an
independent obligation to assure that standing exists," Summers v.
Earth Island Inst., 555 U.S. 488, 499 (2009), so we proceed to
assess Appellants' allegations and briefly explain why they have
no standing without the benefit of their attempt to convince us
otherwise.
- 8 -
See Virginia House of Delegates v. Bethune-Hill, 139 S. Ct. 1945,
1951 (2019).
At the pleading stage (meaning post-complaint but pre-
discovery), we take all well-pled facts in the complaint as true
and indulge all reasonable inferences in Appellants' favor.
Dantzler, Inc. v. Empresas Berríos Inventory & Operations, Inc.,
958 F.3d 38, 46–47 (1st Cir. 2020). Still, Appellants must
"clearly . . . allege facts demonstrating" three elements: first,
that they've "suffered an injury in fact," second, that the injury
is "fairly traceable to the challenged conduct of the defendant,"
and third, that the injury "is likely to be redressed by a
favorable judicial decision." Spokeo, Inc. v. Robins, 578 U.S.
330, 338 (2016) (quoting Warth v. Seldin, 422 U.S. 490, 518
(1975)).
Within this multi-part assessment are yet more factors.
To satisfy the injury-in-fact requirement, Appellants must allege
the "invasion of a legally protected interest which is (a) concrete
and particularized; and (b) actual or imminent, not conjectural or
hypothetical." Katz, 672 F.3d at 71 (quoting Lujan v. Defs. of
Wildlife, 504 U.S. 555, 560 (1992)). To pass traceability (also
called "causation") Appellants need to allege a "sufficiently
direct causal connection between the challenged action and the
identified harm." Id. Finally, redressability requires
Appellants to allege "that a favorable resolution of [their] claim
- 9 -
would likely redress the professed injury." Id. at 72. One more
dimension -- Appellants need to successfully get through all the
above for each type of relief they seek. See Summers v. Earth
Island Inst., 555 U.S. 488, 493 (2009). Here, Appellants only
seek equitable relief compelling the FOMB's review.5
With these principles in tow, we turn to Appellants'
standing deficiencies.
Our Take
Recall the basics of Appellants' lawsuit. Appellants
took out loans from the BDE, which sold the loans off to PR Recovery
at a discount. PR Recovery then started swiftly collecting on the
loans. Appellants say the transaction was a sham. But in this
lawsuit, Appellants didn't sue the BDE for how they sold off the
loans or PR Recovery for how they collected on them. Instead,
they sued the FOMB. They claim that the FOMB violated their rights
under the Constitution and PROMESA. How so? By failing to follow
its own Policy requiring it to review the allegedly troubled loan
sale agreement. Remember, the FOMB enacted a Policy requiring its
review of any proposed contract over $10 million with a government
entity as a party, like the contract here for over $384 million
5 As part of their timeliness arguments, Appellants tried to
characterize their complaint as only seeking mandamus relief,
though their briefing fails to explain how their complaint does
so. In any event, we read the face of their complaint,
particularly its prayer for relief, to clearly seek injunctive
relief.
- 10 -
between the BDE and PR Recovery, before that contract gets a
signature. If the FOMB's review flunks the contract, the FOMB
can, at its discretion, axe the transaction. But that review never
happened here. Now, years later, Appellants want a federal court
to order the FOMB's review of the loan sale agreement.
In standing terms, we first consider whether Appellants
have claimed a legally cognizable interest. We take Appellants to
allege either that the FOMB's failure to review the bogus loan
sale agreement was a procedural injury in and of itself, or
indirectly caused PR Recovery's collection efforts against
Appellants, so now Appellants must pay loans that never should
have been sold off. Presumably, Appellants want the transaction
nullified, but for redress, they've only asked the court to compel
the FOMB to follow its review process and scrutinize the loan sale
agreement. Even if we assume that Appellants' supposed injury is
the denial of a "procedural right" created by PROMESA and the
Policy, they have failed to allege, nor (we reiterate) did they
develop an argument, that such a right exists to protect their
"concrete interests." See Lujan, 504 U.S. 555 at 573 nn. 7-8 ("The
person who has been accorded a procedural right to protect his
concrete interests can assert that right without meeting all the
normal standards for redressability and immediacy[,] . . . so long
as the procedures in question are designed to protect some
threatened concrete interest of his that is the ultimate basis of
- 11 -
his standing."). And if we take Appellants' complaint to instead
allege a traditional "pocketbook injury," see California v. Texas,
141 S. Ct. at 2114, that theory likewise fails to provide a basis
for standing because, as we'll explain next, the alleged injury is
neither traceable nor redressable here. Thus, Appellants lack
standing even assuming (without deciding) that their alleged
injury is legally cognizable.
The FOMB's failure to review the contract is not
traceable to Appellants' claimed injury because it is "indirect"
at best and relies on the actions of third parties, PR Recovery,
and the BDE. See Dantzler, Inc., 958 F.3d at 48. Here's why.
Appellants took out loans from the BDE that the BDE then sold off
to PR Recovery, and, with or without the FOMB review process, PR
Recovery decided to collect on them. So, Appellants' injury was
directly caused by PR Recovery's collection efforts, and
Appellants do not allege that the FOMB directly caused any
collection to take place, nor do Appellants allege that the FOMB's
inaction bears any relationship to PR Recovery's collection
efforts beyond a "bare hypothesis" that it did. See id. at 48-49
(quoting Katz, 672 F.3d at 77).
Similarly problematic for Appellants is redressability
because Appellants' allegations on this track are too speculative.
The only relief Appellants seek is for the court to compel the
FOMB to follow its Policy and review the loan sale agreement. What
- 12 -
then? For a few reasons, we can't say. First, Appellants have
not alleged facts to suggest that an initial rejection is likely.
See Lujan, 504 U.S. at 561, 570-71; Dantzler, Inc., 958 F.3d at
49. The FOMB's scope of review, per the Policy, is compliance
with the fiscal plan, but Appellants allege nothing to that effect,
rather only malfeasance with the underlying transaction between
the BDE and PR Recovery. Second, even if the FOMB rejects a
contract, PROMESA grants it full discretion to take any action it
decides to. See 48 U.S.C. § 2144(b)(5) ("If a contract . . . fails
to comply with [the Policy], the [FOMB] may take such actions as
it considers necessary to ensure that such contract, . . . will
not adversely affect the territorial government's compliance with
the Fiscal Plan, including by preventing the execution or
enforcement of the contract . . . .") (emphases ours). Here,
Appellants make no allegations, beyond mere conjecture, that the
FOMB would likely rescind the contract. See ASARCO Inc. v. Kadish,
490 U.S. 605, 615 (1989) (finding no redressability where that
redress depended upon the discretion of independent policymakers).
And we fail to see how, save for full nullification of the
contract, Appellants would not have to keep paying on their loans,
- 13 -
adding yet more uncertainty to the impact of Appellants' requested
relief.6
The upshot is that Appellants' complaint has failed to
allege that the FOMB's inaction caused their claimed injury, but
even if it did, a court order compelling the FOMB to review the
loan sale agreement might do nothing at all to redress Appellants'
injury.
Conclusion
For these reasons, we conclude that Appellants lack
standing to bring this lawsuit and affirm its dismissal, which
operates without prejudice. See Hochendoner v. Genzyme Corp., 823
F.3d 724, 736 (1st Cir. 2016).
6 To the extent Appellants might have some defense to a
collection action, say fraud or statute of limitations, they can
raise it in a direct proceeding between themselves and PR Recovery.
- 14 -