Court Opinion

ID: 9370896
Source: CourtListenerOpinion
Date Created: 2023-02-14 22:01:00.281606+00
Date Added: 2024-06-11T17:16:24.590865
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 21-1690

 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 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; 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 of the Puerto Rico Public Buildings
                           Authority,

                            Debtors,

    ASOCIACION PUERTORRIQUENA DE PROFESORES UNIVERSITARIOS;
  ANGEL RODRIGUEZ-RIVERA; JAVIER CORDOVA-ITURREGUI; HERIBERTO
  MARIN-CENTENO; YOHANA DE-JESUS-BERRIOS; ANNABELL C. SEGARRA;
    NYDIA E. CHEVEREZ-RODRIGUEZ; FRANCES BOTHWELL-DEL TORO;
              IVETTE BONET-RIVERA; LIDA ORTA-ANES,

                     Plaintiffs, Appellants,

                  MARIA DEL MAR ROSA RODRIGUEZ,

                       Movant, Appellant,

                               v.

 UNIVERSITY OF PUERTO RICO; GOVERNING BOARD OF THE UNIVERSITY OF
 PUERTO RICO; MAYDA VELASCO-BONILLA, in her official capacity as
  President of the Governing Board of the University of Puerto
 Rico; WALTER ALOMAR-JIMENEZ, in his personal capacity; RICARDO
  DALMAU-SANTANA, in his official capacity as Vice-President of
 the Governing Board of the University of Puerto Rico; ZORAIDA
  BUXO-SANTIAGO, in her personal capacity; MANUEL GONZALEZ-DEL
  TORO, in his official capacity as a member of the Governing
 Board of the University of Puerto Rico; ERIC PEREZ-TORRES, in
   his personal capacity; ALEJANDRO CAMPORREALE-MUNDO, in his
  official capacity as a member of the Governing Board of the
 University of Puerto Rico and in his personal capacity; HERMAN
  CESTERO-AGUILAR, in his official capacity as a member of the
   Governing Board of the University of Puerto Rico; ANTONIO
MONROIG-MALATRASSI, in his official capacity as a member of the
  Governing Board of the University of Puerto Rico and in his
 personal capacity; MARGARITA VILLAMIL-TORRES, in her official
 capacity as Secretary of the Governing Board of the University
of Puerto Rico; NEFTALI SOTO-SANTIAGO, in his personal capacity;
ELIEZER RAMOS-PARES, in his official capacity as a member of the
Governing Board of the University of Puerto Rico; EMILIO COLON-
 BELTRAN, in his official capacity as a member of the Governing
   Board of the University of Puerto Rico and in his personal
capacity; JORGE VALENTIN-ASENCIO, in his official capacity as a
member of the Governing Board of the University of Puerto Rico;
LEONARDO VALENTIN-GONZALEZ, in his official capacity as a member
of the Governing Board of the University of Puerto Rico; LOURDES
  SOTO DE LAURIDO, in her official capacity as a member of the
 Governing Board of the University of Puerto Rico; ELIUD RIVAS-
HERNANDEZ, in his official capacity as a member of the Governing
Board of the University of Puerto Rico; MAYRA OLAVARRIA-CRUZ, in
 her personal capacity and in her official capacity as Interim
   President of the University of Puerto Rico; JORGE HADDOCK-
 ACEVEDO, in his personal capacity; THE FINANCIAL OVERSIGHT AND
 MANAGEMENT BOARD FOR PUERTO RICO; ALAN RODRIGUEZ-PEREZ, in his
personal capacity; UNIVERSITY OF PUERTO RICO RETIREMENT SYSTEM;
NAOMY RIVERA, in her personal capacity; JORGE RIVERA-VELAZQUEZ,
 in his official capacity as a member of the Governing Board of
  the University of Puerto Rico and in his personal capacity,

                     Defendants, Appellees,

        MARYSEL PAGAN-SANTANA; EFRAIN RODRIGUEZ-OCASIO,

                          Defendants.

         APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF PUERTO RICO
         [Hon. Laura Taylor Swain,* U.S. District Judge]

                              Before

                 Kayatta, Howard, and Thompson,
                         Circuit Judges.

     Tanaira Padilla Rodríguez, with whom Guillermo Ramos Luiña
was on brief, for appellants.
     Mark D. Harris, with whom Timothy W. Mungovan, John E.
Roberts, Martin J. Bienenstock, Dietrich L. Snell, Michael T.
Mervis, Lucas Kowalczyk, and Proskauer Rose LLP were on brief, for
appellee Financial Oversight and Management Board for Puerto Rico.
     Francisco J. González-Magaz, with whom Juan M. Casellas-
Rodríguez, Ocasio Law Firm, LLC, and Nolla, Palou & Casellas, LLC
were on brief, for appellees Governing Board of the University of
Puerto Rico and University of Puerto Rico.

                        February 14, 2023

     *  Of the   Southern   District   of   New   York,   sitting   by
designation.
              KAYATTA, Circuit Judge.      The University of Puerto Rico

(UPR)    is    a   "covered    territorial      instrumentality"   of   the

Commonwealth's government within the meaning of section 5 of the

Puerto Rico Oversight, Management, and Economic Stability Act

(PROMESA), 48 U.S.C. § 2104.1         As such, it is subject to the

oversight of the Financial Oversight and Management Board for

Puerto Rico (the "FOMB" or the "Oversight Board").           See 48 U.S.C.

§ 2121(d)(1)(A).       In exercising that oversight, the Oversight

Board determined that the UPR Retirement System -- the entity that

administers UPR's pension plan -- was headed towards insolvency.

The Oversight Board therefore issued fiscal plans for UPR that,

among other things,       identified the options that UPR had for

adjusting (or not) its continuing accrual of obligations to the

Retirement System.

              Understandably   opposed     to    any   reduction   in   the

Retirement System's benefit payments that would occur should UPR

not increase (much less reduce) its accrual of obligations to the

Retirement System, the Asociación Puertorriqueña de Profesores

Universitarios (APPU) -- an association of active and retired UPR

professors -- and nine of its individual members filed this

     1  All uses of "section" refer to PROMESA, Pub. L. No. 114-
187, 130 Stat. 549 (2016), unless otherwise specified.

                                   - 4 -
adversary proceeding in the Title III court.2              Plaintiffs seek to

block any pension changes by, among other things, enjoining the

Oversight Board from having any "involvement" with the operation

and benefits of the Retirement System.              Named as defendants are

the Oversight Board, UPR, the UPR Governing Board, and the UPR

Retirement      System     (the    latter     three,     together,    the     "UPR

defendants").         For the following reasons, we affirm the judgment

of the Title III court dismissing the complaint for lack of

jurisdiction.

                                       I.

                                       A.

              Congress enacted PROMESA in 2016 "to address Puerto

Rico's 'fiscal emergency.'"          Fin. Oversight & Mgmt. Bd. for P.R.

v. Pierluisi (In re Fin. Oversight & Mgmt. Bd. for P.R.), 634 B.R.

187, 193      (D.P.R. 2021)       (quoting 48 U.S.C. § 2194(m)).              "The

[Oversight]      Board,     established       'as   an    entity     within    the

territorial government' of Puerto Rico, was empowered by PROMESA

to, among other things, develop, approve, and certify Fiscal Plans

and       Territory     Budgets     [for    the     Commonwealth       and    its

instrumentalities], negotiate with the Commonwealth's creditors,

and, under Title III, to commence a bankruptcy-type proceeding on

behalf of the Commonwealth [or its instrumentalities]."                  Méndez-

      2 "Title III court" refers to the district court overseeing
the bankruptcy proceedings under Title III of PROMESA.

                                      - 5 -
Núñez v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight

& Mgmt. Bd. for P.R.), 916 F.3d 98, 104 (1st Cir. 2019) (citations

omitted).    "The purpose of the Oversight Board is to provide a

method for [Puerto Rico] to achieve fiscal responsibility and

access to the capital markets."            48 U.S.C. § 2121(a).          Under

section 204, the Oversight Board "may take such actions as it

considers    necessary   to    ensure      that     [Commonwealth    laws],

contract[s], rule[s], executive order[s] or regulation[s] will not

adversely affect the territorial government's compliance with the

Fiscal Plan, including by preventing the execution or enforcement

of [such law], contract, rule, executive order or regulation."             48

U.S.C. § 2144(a)(5), (b)(5); see Pierluisi, 634 B.R. at 200–01.

                                     B.

            On June 5, 2019, the Oversight Board certified a fiscal

plan for UPR that addressed, in relevant part, "the challenges

facing the UPR Retirement System."            The Oversight Board had

concluded, "if UPR continues its current funding policy its pension

plan will be insolvent by 2031."      The 2019 plan described "[t]hree

policy options . . . available to UPR":             (1) "[c]ontinue UPR's

current   defined   benefit   plan   and   return    to   making   the   full

actuarially required contribution of roughly $160 million per

year"; (2) "[f]reeze UPR's current defined benefit plan and move

to a defined contribution (DC) plan[,] [and] [m]ake no other

changes to the pension plan (e.g., do not cut accrued benefits)";

                                 - 6 -
and (3) "[f]reeze UPR's current defined benefit plan and move to

a defined contribution (DC) plan[,] [and] [p]rogressively reduce

accrued benefits."     The Oversight Board stated that it "strongly

believes that Option 3 is the most responsible course of action

for UPR."

            On June 12, 2020, the Oversight Board certified a new

fiscal plan for UPR.    The new Plan reiterated the finding that the

pension plan would be insolvent by 2031, but presented only the

second and third policy options from 2019 as viable paths forward,

eliminating the first option of fully funding the pension plan as

is.   The Oversight Board echoed its recommendation that Option 3

from the 2019 plan -- freezing the defined benefit plan, moving to

a defined contribution plan, and reducing accrued benefits -- was

the "most responsible" option.

            On March 25, 2021, the UPR Governing Board approved a

plan to close the defined benefit program to all non-vested

participants and new employees after December 31, 2021.      In the

2021 fiscal plan for UPR, certified on May 27, 2021,3 the Oversight

Board acknowledged that this policy change was "a step in the right

direction."   Fin. Oversight & Mgmt. Bd. for P.R., Fiscal Plan for

      3 Plaintiffs discuss the 2021 fiscal plan in their opening
brief on appeal and in their supplemental complaint tendered in
the district court, but never submitted the plan itself. We take
judicial notice of the plan as filed on the Oversight Board's
public website. See Gent v. CUNA Mut. Ins. Soc'y, 611 F.3d 79, 84
n.5 (1st Cir. 2010).

                                - 7 -
the   University         of    Puerto        Rico     51    (May 27,       2021),

https://drive.google.com/file/d/1vFwFRjmG5rBlUt83vGYUJBF0EPH8odh

D/view. However, the Oversight Board also stated that "the funding

of the [pension] plan remains a risk in the long-term" and then

provided the same options as presented in the 2020 fiscal plan,

stating that only the option that would reduce accrued benefits

(Option 3 from the 2019 plan) "meets UPR's risk objectives."                  Id.

at 51–52.

                                        C.

            In   April    2019,   plaintiffs        commenced    this   adversary

proceeding    in   Puerto     Rico's    ongoing      Title III    case.      They

subsequently amended their complaint to include details from the

2019 fiscal plan.        As summarized in their appellate brief, "[t]he

central allegations of the Amended Complaint were that": "the FOMB

lacked any authority over the Retirement System and was thus

precluded from including in the [2019 fiscal plan] reforms to the

Retirement System"; "UPR and its Governing Board had failed to

comply with their fiduciary duties towards the Retirement System,

its participants and beneficiaries"; UPR breached its fiduciary

duty and violated the Contracts Clause; and "the FOMB's continuous

and illegal pressure to the Governing Board to secure a reform of

the Retirement System . . . constituted a tortious interference

with the Governing Board's contractual obligations and fiduciary

duties."     Plaintiffs sought, among other things, an injunction

                                    - 8 -
"staying any involvement of the Oversight Board with the operation

and benefits of the Retirement System," an injunction "staying

further compliance of the Governing Board with the instructions of

the Oversight Board," and compensation for damages.

            Defendants     moved      to   dismiss       under   Fed.    R.     Civ.

P. (12)(b)(1) and 12(b)(6).           The magistrate judge to which the

case was referred recommended dismissal of the claims against both

the Oversight Board and the UPR defendants.                 With respect to the

claims against the Oversight Board, the judge concluded that

(i) plaintiffs had failed to identify an injury-in-fact necessary

for Article III standing because there had "been no reduction in

pension     benefits,     and   UPR    ha[d]      not    selected,      much    less

implemented,    any     modifications      to    the    Retirement   System     that

reduce [benefits owed to plaintiffs]," and (ii) the district court

lacked subject matter jurisdiction over the challenge pursuant to

section 106(e), which provides, "[t]here 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).              The magistrate judge further

recommended that, given the dismissal of the claims against the

Oversight Board, the district court should decline to exercise

supplemental    jurisdiction       over     the    claims     against     the    UPR

defendants, which are all matters of Puerto Rico law.

                                      - 9 -
            Following the issuance of the magistrate judge's report

and recommendation, plaintiffs filed with the district court an

objection to the magistrate report and moved for leave to amend

their complaint to incorporate the updates in the 2020 fiscal plan.

The   district     court     adopted      the     magistrate's      report     "in   its

entirety"    and    denied    plaintiffs'          motion    to   amend   as    futile,

concluding that the added details still failed to "establish

standing,    jurisdiction,           or     allow      the    Court    to      exercise

supplemental jurisdiction."

            Plaintiffs then moved for reconsideration.                       They also

moved to file a supplemental complaint that discussed the 2021

fiscal plan and the UPR Governing Board's decision to close the

defined benefit program to all non-vested participants and new

employees.     The district court denied both motions, finding that

the   additional      facts     would       not     affect    the     court's     legal

conclusions.       Plaintiffs timely appealed.

                                           II.

            Plaintiffs       argue     that      the   district     court    erred   in

granting dismissal pursuant to Rule 12(b)(1).                     They contend that

section 106(e) does not bar their claims, and that they otherwise

have Article III standing.           Lastly, they contend that the district

court erred in denying their motions for reconsideration and

supplementation because the Oversight Board's and UPR Governing

Board's 2021 actions -- as described in plaintiffs' post-judgment

                                          - 10 -
proposed supplemental brief -- "directly affect the conclusion

that plaintiffs lack constitutional standing."

                                          A.

            We   begin   with      the    question       whether    section 106(e)

precludes subject matter jurisdiction over plaintiffs'                            claims

against the Oversight Board.         "The issue is a critical one, for if

the   District       Court      correctly          understood           and     applied

[section 106(e)], we do not reach the question whether the minimum

requirements of Art. III have been satisfied.                   If [plaintiffs are]

correct, however, then the constitutional question is squarely

presented."      Gladstone Realtors v. Village of Bellwood, 441 U.S.

91, 101 (1979) (addressing statutory standing under section 812 of

the Fair Housing Act of 1968); see Block v. Cmty. Nutrition Inst.,

467 U.S. 340, 353 n.4 (1984) ("Since congressional preclusion of

judicial review is in effect jurisdictional, we need not address

the standing issues decided by the Court of Appeals in this

case.").    Our review is de novo.              See Lyman v. Baker, 954 F.3d

351, 359 (1st Cir. 2020); Aurelius Cap. Master, Ltd. v. Puerto

Rico (In re Fin. Oversight & Mgmt. Bd. for P.R.), 919 F.3d 638,

644 (1st Cir. 2019).       "In so doing, we 'construe the [c]omplaint

liberally   and    treat     all   well-pleaded          facts     as    true,'     with

[plaintiffs]      receiving        'the        benefit     of      all        reasonable

inferences.'"     Aurelius, 919 F.3d at 644 (alterations in original)

                                     - 11 -
(quoting Town of Barnstable v. O'Connor, 786 F.3d 130, 138 (1st

Cir. 2015)).

            Section 106        addresses    court        actions     arising       from

PROMESA.     With a few exceptions, section 106(a) confers general

jurisdiction on the District of Puerto Rico over claims brought

against the Oversight Board.           One of those exceptions is contained

in   section 106(e),          which    provides,       "[t]here     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).

            Plaintiffs contend that their challenge is not to the

"Oversight Board's certification determinations," id., but rather

to "the scope of the FOMB's authority."                Because section 201(b)(1)

only empowers the Oversight Board to develop and certify fiscal

plans    "with    respect     to the   territorial       government      or   covered

territorial        instrumentalit[ies],"          48     U.S.C.      § 2141(b)(1),

plaintiffs       argue,   "[a]   Fiscal    Plan    not    with     respect    to    the

territorial government or covered territorial instrumentality, is

outside the authority of the FOMB."                They assert the Retirement

System is an "an independent legal trust that is not a covered

territorial entity"4 and thus cannot be "include[d] in a fiscal

     4  While the Oversight Board argues that the Retirement System
is a covered entity, we need not resolve this issue to determine
whether we have jurisdiction. For purposes of this analysis, we

                                       - 12 -
plan."     Plaintiffs further argue that because the UPR Governing

Board's role as trustee of the Retirement System is "separate from

its role as governing body of" UPR, the FOMB "cannot exercise . . .

power over the Governing Board as a trustee of the Retirement

System" even if it "can exercise oversight power over" UPR.

            We need not reach or opine on plaintiffs' premise that

section 106(e) would not preclude federal court adjudication of a

challenge to a fiscal plan if the plan were not authorized by

PROMESA.    PROMESA clearly authorized the Oversight Board to issue

a fiscal plan for any covered Commonwealth instrumentality.             See

48 U.S.C §§ 2121(d)(1)(A), (E), 2141(b)(1).           The fiscal plans at

issue here, which plaintiffs make clear form the basis of their

claims against the Oversight Board, are for UPR.           And plaintiffs

concede that UPR is a "covered instrumentality."                Plaintiffs

nevertheless complain that the plans impermissibly affect the

Retirement System, and them, through pension policy changes.            But

that is a complaint about the fiscal plans themselves, not a

plausible contention that the plans are not authorized. A debtor's

compliance with a certified plan is almost always going to affect

others, most notably creditors and counterparties.              Here, for

example, if UPR reduces payments to the Retirement System, or

otherwise    adjusts   its   obligations   to   the   system,   that   will

assume the Retirement System is simply a third-party creditor of
UPR, as plaintiffs describe.

                                 - 13 -
undoubtedly affect the Retirement System.       But that fact does not

make the plan an "unauthorized" plan for the Retirement System,

any more than a plan of reorganization for a debtor would be a

plan of reorganization for the debtor's affected creditors or

counterparties.

           Nor does it add anything to plaintiffs' case to argue

that UPR's Governing Board acts on some matters as a fiduciary for

the Retirement System.      Plaintiffs develop no argument that the

fiscal plans dictate actions by the Governing Board as trustee (as

opposed to, for example, actions by UPR as settlor). In any event,

Commonwealth instrumentalities may well have many roles and types

of obligations and duties.    Nothing in PROMESA limits the scope of

fiscal plans so as to exclude attention to any and all of those

obligations as they bear on the entities' fiscal health.

           In sum, PROMESA authorized the issuance of the fiscal

plans that plaintiffs seek to challenge, so the question whether

plaintiffs could challenge an unauthorized plan is irrelevant to

the disposition of this appeal.          And plaintiffs here "have the

burden of demonstrating the existence of federal jurisdiction,"

Acosta-Ramirez v. Banco Popular de P.R., 712 F.3d 14, 20 (1st Cir.

2013).   Because they make no other arguments for jurisdiction over

their claims against the Oversight Board -- all of which, in one

way or the other, rest on challenges to the Oversight Board's

certifications    and   reasoning   --   section 106(e)   precludes   the

                                - 14 -
district court from exercising jurisdiction over those claims.

Cf.    Méndez-Núñez,         916    F.3d    at     112–13   ("[Section] 106(e)            bars

district      courts     from      reviewing       the   reasons     for    certification

determinations          as   much     as     the     certification         determinations

themselves.").

                                              B.

                  Plaintiffs finally argue that the district court erred

in dismissing, sua sponte, the sixth, seventh, and eighth claims

for relief, all of which are against only the UPR defendants.

Those claims requested the court to: (6th) order UPR to pay damages

for "any loss or depreciation of trust property and any profit

made by trustee resulting from the breach of fiduciary duties of

the Governing Board"; (7th) "remove the Governing Board as trustee

of    the    Retirement      System";       and     (8th) "appoint         the    Retirement

System Board as successor trustee of the Retirement System."                              But

plaintiffs concede that supplemental jurisdiction is the only

basis       for    jurisdiction      over    all     the    claims    against       the   UPR

defendants (including these claims) and make no argument that

maintaining          supplemental      jurisdiction          would     be        appropriate

following the dismissal of the claims against the Oversight Board.

See 28 U.S.C. § 1367(c)(3); Wilber v. Curtis, 872 F.3d 15, 23 (1st

Cir. 2017) ("[W]e have held that, when all federal claims have

been dismissed, it is an abuse of discretion for a district court

to retain jurisdiction over the remaining pendent state law claims

                                            - 15 -
unless doing so would serve 'the interests of fairness, judicial

economy,    convenience,       and    comity.'"    (quoting     Desjardins     v.

Willard, 777 F.3d 43, 45 (1st Cir. 2015))).

                                        C.

            Having concluded that section 106(e) precludes review of

plaintiffs' claims against the Oversight Board, and having agreed

that all claims under Commonwealth law against the UPR defendants

must also be dismissed under 28 U.S.C. § 1367(c)(3), we need not

consider the question of constitutional standing.                See Gladstone

Realtors, 441 U.S. at 101; Block, 467 U.S. at 353 n.4.              Because we

do not address standing, we need not address whether the events of

2021, as described in plaintiffs' proposed supplemental complaint,

would have any effect on the district court's constitutional

analysis.      Instead,       since   plaintiffs    make   no   argument     that

supplementation       would    affect   the    section 106(e)    analysis,     we

easily     conclude     that    the     district   court    properly    denied

plaintiffs' motion for reconsideration and supplementation.

                                        III.

            For the foregoing reasons, the judgment of the district

court is affirmed.

                                      - 16 -