IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR

PUERTO RICO,

as representative of

THE COMMONWEALTH OF PUERTO

RICO, et al.,

Debtors.1

PROMESA

Title III

No. 17 BK 03283-LTS

(Jointly Administered)

In re:

THE FINANCIAL OVERSIGHT AND

MANAGEMENT BOARD FOR

PUERTO RICO,

as representative of

THE EMPLOYEES RETIREMENT

SYSTEM OF THE COMMONWEALTH OF

PUERTO RICO (the “ERS”),

Debtor.

PROMESA

Title III

No. 17 BK 03566-LTS

UBS FINANCIAL SERVICES INCORPORATED OF PUERTO RICO’S

OPPOSITION TO MOTION FOR LEAVE TO FILE MEMORANDUM OF LAW IN

SUPPORT OF ERS INDIVIDUAL PLAINTIFF’S OPPOSITION TO UBS’ MOTION TO

ENFORCE THE PLAN OF ADJUSTMENT

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number and the last four

(4) digits of each Debtor’s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto

Rico (Bankruptcy Case No. 17 BK 3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico

Sales Tax Financing Corporation (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal Tax ID:

8474); (iii) Puerto Rico Highways and Transportation Authority (Bankruptcy Case No. 17 BK 3567-LTS) (Last

Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the Government of the

Commonwealth of Puerto Rico (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four Digits of Federal Tax ID:

9686); (v) Puerto Rico Electric Power Authority (Bankruptcy Case No. 17 BK 4780-LTS) (Last Four Digits of

Federal Tax ID: 3747); and (vi) Puerto Rico Public Buildings Authority (Bankruptcy Case No. 19 BK 5523-

LTS) (Last Four Digits of Federal Tax ID: 3801) (Title III case numbers are listed as Bankruptcy Case numbers

due to software limitations).

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UBS Financial Services Incorporated of Puerto Rico,2

by and through its undersigned

counsel, hereby submits this opposition to the October 4, 2022 Motion for Leave to File

Memorandum of Law in Support of ERS Individual Plaintiff’s Opposition to UBS’ Motion to

Enforce the Plan of Adjustment. (Dkt. 22500 (the “Motion for Leave”)) 3In support, UBS states

as follows:

1. The Court should deny the individual ERS Beneficiaries’4 motion for leave to file

a second sur-reply brief (a sur-sur-reply) in connection with UBS’s Motion to Enforce. This

latest memorandum of law – their sixth submission regarding UBS’s Motion to Enforce – not

only violates the Court’s Rules and case management procedures, but offers nothing new for the

Court’s consideration.

2. Plaintiffs’ attempt to file multiple sur-replies is not permitted by this Court’s

practices. The Court has already held oral argument on UBS’s Motion to Enforce and has

deemed the matter “under advisement.” (Dkt. 22408) The record was not held open for further

argument. Nothing in the Court’s Local Rules provides for post-argument briefing. Rule 7 of

2 On July 14, 2021, UBS Financial Services Inc. (“UBS”) and UBS Financial Services

Incorporated of Puerto Rico entered into a Merger Agreement (the “Merger”) pursuant to

Section 253 of the Delaware General Corporation Law and Section 3733 of the General

Corporations Act (2009) of Puerto Rico. As a result of the Merger, UBS Financial Services

Incorporated of Puerto Rico merged into UBS and ceased to exist, with UBS being the

surviving corporation. UBS recently filed a Motion to Substitute Party. (Dkt. 22222)

3 By opposing the Motion for Leave, UBS does not waive – and expressly reserves – the right

to address the substance of the arguments raised in the proposed memorandum of law should

the Court choose to consider them.

4 All undefined capitalized terms have the same meanings set forth in UBS’s Motion to

Enforce the Plan of Adjustment and for Related Injunctive Relief (Dkt. 21651).

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the United States District Court for the District of Puerto Rico (“Local Rule 7”),5 which governs

motion practice, provides for the submission of a motion and supporting memorandum of law, an

opposition, and a reply. See Local Rule 7(a)-(c). Sur-replies are specifically prohibited “unless

the reply raises new arguments not previously presented in the movant’s opening motion.” Local

Rule 7(d). “Any portion of the surreply which does not strictly comply with this limitation shall

be stricken from the record.” Id. Sur-replies also violate the Court’s Sixteenth Amended Notice,

Case Management and Administrative Procedures unless they are authorized by the Court. (See

Dkt. 20190-1, 22487)

3. There is also no need for further briefing here. The ERS Beneficiaries have

already filed an unauthorized sur-reply in violation of Rule 7(d) and the Court’s case

management procedures. (See Dkt. 22294) The Court should not allow them to further violate

its Rules and orders by filing a sur-sur-reply. (See Dkt. 13276 (granting motion to strike

unauthorized sur-reply because it addressed topics outside the scope of order permitting surreplies)) See also Horizon Unlimited, Inc. v. Richard Silva & SNA, Inc., 2001 WL 521761, at *2

(E.D. Pa. May 10, 2001) (striking post-argument brief where court left record open to allow

presentation of additional evidence but did not grant leave to submit further argument).

4. The ERS Beneficiaries portray their proposed sur-sur-reply as addressing a new

issues raised for the first time at oral argument, but this contention is refuted by a review of the

existing briefing. The argument they have presented – “that a personal, direct tort action is

exercisable by the retirees themselves against UBS, independently from the tort action the ERS

5 The Local Bankruptcy Rules for the United States Bankruptcy Court for the District of

Puerto Rico (“LBR”) incorporate the rules of the United States District Court for the District

of Puerto Rico to the extent that a procedural matter is not covered by the LBRs or the

Federal Rules of Bankruptcy Procedure. LBR 1001-1(b).

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is exercising on its own” (Motion for Leave ¶ 6) – was squarely raised in UBS’s original Motion

to Enforce filed months ago. Specifically, UBS argued that the Court should enjoin all of the

plaintiffs in the Commonwealth Action because the ERS Beneficiaries’ claims are solely

derivative and they do not have any direct, personal claims against UBS separate and apart from

the ERS’s claims. (Dkt. 21651 at 13-24) The ERS Beneficiaries had a fair opportunity to

address this point in the prior briefing and at oral argument.

5. Indeed, since UBS made that argument, the ERS Beneficiaries have submitted

five substantive writings to the Court addressing the Motion to Enforce: a Motion to Stay the

Motion to Enforce (Dkt. 21808), an opposition to the Motion to Enforce (Dkt. 22175), a reply to

the Official Committee of Unsecured Creditors’ Response in Support of the Motion to Enforce

(Dkt. 22199), a sur-reply in further opposition to the Motion to Enforce (Dkt. 22294), and an

informative motion regarding their opposition to the Motion to Enforce (Dkt. 22381). In at least

two of those writings, the ERS Beneficiaries argued that they have direct claims independent of

the ERS’s claims. (Dkt. 22175 ¶ 30-32; 22294 ¶ 9) They had another opportunity to address this

issue at oral argument. There is no reason for them to submit yet another writing to the Court

rehashing this point. (See Dkt. 22487 (striking filing as unauthorized sur-reply because it

“reiterates arguments thoroughly addressed in briefing”)) See also Puerto Rico Med. Emergency

Grp., Inc. v. Iglesia Episcopal Puertorriqueña, Inc., 321 F.R.D. 475, 481, n.12 (D.P.R. 2017)

(“The misnomer argument was not included in either PRMEG’s opposition to dismissal or its

surreply. Consequently, this argument is waived.”); SiOnyx, LLC v. Hamamatsu Photonics K.K.,

330 F. Supp. 3d 574, 614 (D. Mass. 2018) (deeming argument waived because it was not

addressed in either opposition or sur-reply); see also, e.g., Eldridge v. Gordon Bros. Grp., L.L.C.,

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863 F.3d 66, 84 (1st Cir. 2017) (waiver of an argument obviated the need for the district court to

address the merits).

6. The ERS Beneficiaries merely recycle their same arguments in their proposed sursur-reply, but they have included some new case law in their sur-sur-reply. While citing new

authorities in such a late filing is obviously unfair, it is also of no moment here because none of

the new cases address the distinction between direct and derivative claims in the context of

trusts, corporations or other business or government entities.6 The ERS Beneficiaries’ claims are

still premised on UBS, in its capacity as a purported advisor to the ERS, allegedly taking actions

that diminished the assets of the ERS, which then had a secondary impact on retirees because the

ERS supposedly had less funds from which to pay out benefits. As UBS has already explained,

when a beneficiary or shareholder alleges an injury predicated on a primary injury suffered by an

entity, courts view that claim as a derivative claim, not an independent direct claim. (Dkt. 21651

at 13-16; Dkt. 22274 at 10-11)

6

See Nieves Diaz v. Gonzalez Massas, 178 D.P.R. 820 (2010) (former spouse entitled to bring

negligence claims against party who obtained lien against her property, mistakenly believing

that it belonged to her former husband); Sagardia de Jesus v. Hosp. Aux. Mutuo, 177 D.P.R.

484, 2009 WL 4204462, P.R. Offic. Trans. (Nov. 12, 2009) (holding parents were entitled to

recover for injuries suffered by their son during medical procedures that resulted in his

death); Colon Santos v. Coop Seg Mult PR, 173 D.P.R. 170, 184-85 (2008) (reducing award

to minor injured in car accident to account for negligence of parent that contributed to

minor’s injuries); Hernandez Velez v. Televicentro, 168 D.P.R. 803 (2006) (holding employer

was not vicariously liable for sexual harassment perpetrated by its employee); Lopez v.

Porrata Doria, 169 D.P.R. 135 (2006) (recognizing cause of action against establishment

serving alcoholic beverages to visibly intoxicated individual who subsequently caused

damage while driving under influence of alcohol but refusing to apply ruling retroactively);

Pons v. Engebretson, 160 D.P.R. 347 (2003) (holding individual not vicariously liable for

negligent acts of independent contractor hired to cut down tree in front of his residence);

Valle v. E.L.A., 157 D.P.R. 1, 2002 WL 1067234, P.R. Offic. Trans. (May 14, 2002) (holding

individual and father were entitled to bring tort claims based on son’s illegal arrest); Ramos

v. Carlo, 85 D.P.R. 353 (1962) (holding pedestrian was entitled to bring claims against

owner of building for injuries suffered from fall in front of owner’s building where owner

had left debris).

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7. It is particularly important to enforce the distinction between derivative and direct

claims in the bankruptcy context because otherwise creditors could take assets belonging to the

bankruptcy estate for themselves and deprive the estate of those assets. See In re Bernard L.

Madoff Inv. Sec. LLC, 740 F.3d 81, 84, 92-93 (2d Cir. 2014) (affirming permanent injunction of

class action lawsuits asserting tort claims to protect assets of the bankruptcy estate where

“appellants’ alleged injuries are inseparable from, and predicated upon, a legal injury to the

estate”). The Court must exercise jurisdiction and enjoin the prosecution of tort claims “based

on derivative or duplicative liability or claims that could have been brought by the Trustee”

because “they undoubtedly have an effect on the bankruptcy estate.” Id. at 89.

8. The proposed sixth filing by the ERS Beneficiaries does not, because it cannot,

change the fact that the injuries allegedly suffered by the ERS Beneficiaries result solely from

damages to the ERS. (See Dkt. 22399-2 ¶ 4 (representing to Commonwealth Court that their

claims seek redress for “[d]amages to the Individual Plaintiffs and the other trustees/beneficiaries

of the System, as a result of the losses to the System”) (emphasis added))

9. For all of the foregoing reasons, the Court should deny the Motion for Leave to

file a post-argument brief.

Respectfully Submitted:

In San Juan, Puerto Rico, this 5th day of October, 2022.

OF COUNSEL:

SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLP

Paul J. Lockwood (admitted pro hac vice)

One Rodney Square

McCONNELL VALDÉS LLC

270 Muñoz Rivera Ave.

Hato Rey, Puerto Rico 00918

Tel.: (787) 250-2631

Fax: (787) 759-9225

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918947-WILSR01A - MSW

P.O. Box 636

Wilmington, Delaware 19899

Tel.: (302) 651-3000

Fax: (302) 651-3001

By: /s/ Roberto C. Quiñones-Rivera

Roberto C. Quiñones-Rivera, Esq.

USDC-PR Bar No. 211512

rcq@mcvpr.com

Counsel for UBS Financial Services Inc.

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