Romero v. Brady

Decision Date24 May 1991
Docket Number90-1117 (JAF) and 90-1173 (JAF).,Civ. No. 89-0412 (JAF)
Citation764 F. Supp. 227
PartiesPedro ROMERO, et al., Plaintiffs, v. Nicholas F. BRADY, et al., Defendants. AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, et al., Plaintiffs, v. Nicholas F. BRADY, et al., Defendants. AMERICAN POSTAL WORKERS UNION, AFL-CIO, et al., Plaintiffs, v. Nicholas F. BRADY, et al., Defendants.
CourtU.S. District Court — District of Puerto Rico

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert G. Mullendore, William C. Watt, Mullendore & Tawney, Missoula, Mont., for Pedro Romero, et al. and COLA Defense Committee of P.R.

Jossie Yunque López, Eddie Ramirez & Associates, Charles A. Hobbie, Deputy Gen. Counsel, Mark D. Roth, Gen. Counsel, American Federation of Government Employees, Washington, D.C., for American Federation of Government Employees.

Susan L. Catler, O'Donnell, Schwartz & Anderson, Washington, D.C., for American Postal Workers.

John J. McCarthy, Shirley D. Peterson, Edward J. Snyder, U.S. Dept. of Justice, Washington D.C., for Nicholas F. Brady, et al. and the U.S.

Engadí Charneco-Barreto, Atty., Antonio Fiol Matta, Director, Federal Litigation Div., Héctor Rivera Cruz, Secretary of Justice, Dept. of Justice, Com. of Puerto Rico, San Juan, Puerto Rico, for Com. of Puerto Rico.

OPINION AND ORDER

FUSTE, District Judge.

Plaintiffs are federal employees performing their duties in Puerto Rico.1 Plaintiffs are all recipients of a Cost-of-Living Adjustment (COLA), a benefit paid to federal government employees stationed at locations outside the continental United States. The COLA in Puerto Rico adds 10% to some categories of federal government salaries. The COLA is exempt from taxation under federal law, but is taxable under the laws of Puerto Rico. Pursuant to an agreement between the Commonwealth of Puerto Rico and the Treasury Department of the United States, federal agencies in Puerto Rico withhold Puerto Rico taxes from their employees' paychecks, and then turn the withholdings over to Puerto Rico. The agencies withhold from both the base government salary and the COLA. Plaintiffs challenge the authority of the withholding agreement, at times generally, and at times specifically with reference to the COLA. We reject all challenges.

Jurisdiction in the District of Puerto Rico

Our initial inquiry is whether we have jurisdiction over this matter. The Butler Act includes the following provision:

No suit for the purpose of restraining the assessment or collection of any tax imposed by the laws of Puerto Rico shall be maintained in the United States District Court for the District of Puerto Rico.

48 U.S.C. § 872. Parker v. Agosto-Alicea, 878 F.2d 557 (1st Cir.1989); Shepard v. First Federal Savings Bank of Puerto Rico, 625 F.Supp. 1359 (D.P.R.1985). In Parker, the Circuit faced a challenge to the right of the Commonwealth to tax COLA. The Circuit agreed with the District Court that the matter fell within the Butler Act jurisdictional exception, and affirmed the District Court's dismissal of the case.2

In the case before us, the defendant Secretary of the Treasury has brought the Commonwealth in as a third-party defendant, on the theory that if this court were to order the restitution of any sums already handed over by federal officials to Puerto Rico, it is Puerto Rico who should pay them. We see that any attempt to regain tax revenue already collected by Puerto Rico, whatever the procedural posture of the action in which it occurs, is barred by the Butler Act. Parker, supra. Like the court in Parker, we have no jurisdiction over the claim against the Commonwealth. All causes of action against Puerto Rico are dismissed.3

The case between the plaintiffs and the Secretary of the Treasury itself, however, is distinguishable. The primary suit before us is not directed at the right of the Commonwealth to tax COLA as it was in Parker. The suit before us concerns only the authority of the federal agencies to withhold the tax on behalf of Puerto Rico's government. We believe the phrase "assessment and collection" refers to the acts taken by the Commonwealth of Puerto Rico in the implementation of its tax laws. We do not see that the ministerial act of withholding amounts to a "collection" of tax. The withholding is merely an interim procedure. The ultimate "collection" occurs at the point that the Commonwealth deems itself entitled, on the basis on a filed tax return, to consider the money its own.

Having taken jurisdiction, we go to the merits. As will become clear in the course of the opinion, there are no material facts in dispute. The parties differ only on the conclusions to be drawn from the facts as they stand. We reiterate that we will not engage in a review of the legality of Puerto Rico's action in taxing the COLA, since that matter is not properly before us, and would in any event be barred by the Butler Act provisions referred to above.

The Statute

The relevant section of the applicable statute provides that:

Withholding State income taxes
(a) When a State Statute
(1) provides for the collection of a tax either by imposing on employers generally the duty of withholding sums from the pay of employees and making returns of the sums to the State, ... and
(2) imposes the duty or grants the authority to withhold generally with respect to the pay of employees who are residents of the State;
the Secretary of the Treasury, under regulations prescribed by the President, shall enter into an agreement with the State within 120 days of a request for agreement from the proper State official. The agreement shall provide that the head of each agency of the United States shall comply with the requirements of the State withholding statute in the case of employees of the agency who are subject to the tax and whose regular place of Federal employment is within the State with which the agreement is made.
. . . . .
(c) For the purpose of this section, "State" means a State or territory or possession of the United States.

5 U.S.C. § 5517.

Plaintiffs' first line of attack is to argue that Puerto Rico is not included within the definition of "State". In this statute "State" is defined to include states, territories, and possessions of the United States. While we are well aware that it is sometimes a question as to whether Puerto Rico should fit into the definition of "state" or "territory" in a given statutory or constitutional context, never has the Commonwealth been judicially defined in a way that would not be encompassed by the broad definition "State or territory or possession." Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 668-69, 94 S.Ct. 2080, 2084-85, 40 L.Ed.2d 452 (1974) (defining Puerto Rico for purposes of application of Due Process clauses); Tenoco Oil Co. v. Dept. of Consumer Affairs, 876 F.2d 1013 (1st Cir.1989) (same), except perhaps in the unique realm of maritime law, Fonseca v. Prann, 282 F.2d 153 (1st Cir.1960), cert. denied, 365 U.S. 860, 81 S.Ct. 826, 5 L.Ed.2d 822 (1961); Guerrido v. Alcoa Steamship Co., 234 F.2d 349 (1st Cir.1956), an exemption we find not applicable to the case at bar. See, J.R. Torruella, The Supreme Court and Puerto Rico: The Doctrine of Separate and Unequal (1985). The First Circuit has held that the definition of Puerto Rico can vary according to the purposes of the federal statute at issue, Córdova & Simonpietri Ins. Agency v. Chase Manhattan Bank, N.A., 649 F.2d 36 (1st Cir.1981), but has never suggested a definition of Puerto Rico which could not be covered by State, territory or possession.

Plaintiffs' only argument that Puerto Rico should not be included in the definition of State, territory, or possession for the purposes of the statute derives from their assertion that the Treasury Department rejected withholding agreement requests by Puerto Rico and/or Guam in 1953, 1972, and 1983. The basis for the Treasury Department's refusal to grant such agreements to Puerto Rico and Guam was supposedly on the basis of some legislative history which the Department interpreted to indicate that Congress had not meant to include "territory" in the statute, but that it had been left there by mistake. We think that statutory analysis begins with the plain meaning of the statute, and when the meaning is clear, it ends there. The statute says that "State" includes any State or territory or possession. We think that the Treasury Department's former reading of the statute was misguided. We think the Department's 1988 decision to reverse itself and include Puerto Rico within the statute was correct. Plaintiff urges us to hold the Department to their former, misguided interpretation of the statute, without offering any independent basis for arguing that Puerto Rico should be defined out of the statute in this particular case. We find that the statute applies to Puerto Rico. Since Puerto Rico has its own statute which imposes a withholding requirement generally on private employers, Title 13, Laws of Puerto Rico Annotated § 3141, we find that 5 U.S.C. § 5517 fully authorizes the Secretary of the Treasury to enter into an agreement with Puerto Rico under which federal agencies will withhold Commonwealth taxes, including Commonwealth taxes on COLA.4

The authorization is limited by the provision that the agreement shall be made "under regulations prescribed by the President." In Executive Order 11997 (June 22, 1977, 42 Fed.Reg. 31759), President Carter set out the specific directives regarding the agreements. Plaintiffs argue that since the President's Order uses the word "state" and does not include Puerto Rico, the President's Order does not authorize an agreement with Puerto Rico. We find no merit in that argument. The President's Order by its very terms derives from the authority of section 5517. Therefore, the definition of "state" must be the same as defined in section 5517, which includes Puerto Rico for the reasons discussed above. An agreement with Puerto Rico is...

To continue reading

Request your trial
2 cases
  • Romero v. U.S., AFL-CIO
    • United States
    • U.S. Court of Appeals — Federal Circuit
    • 19 d3 Outubro d3 1994
    ...class certification, declaratory and injunctive relief, and back pay for amounts alleged to have been withheld unlawfully. Romero v. Brady, 764 F.Supp. 227 (D.P.R.). The United States impleaded the Commonwealth of Puerto Rico by third-party complaint dated September 13, 1989, seeking indemn......
  • Cintron-Ortiz v. U.S., 96-2553 (DRD).
    • United States
    • U.S. District Court — District of Puerto Rico
    • 9 d2 Dezembro d2 1997
    ...Circuit. 5 U.S.C.A. §§ 7513(d), 7703; Diaz v. United States Postal Service, 853 F.2d 5, 8 (1st Cir.1988). See also Romero v. Brady, 764 F.Supp. 227, 237-38 (D.P.R. 1991) (stating that the "`appropriate authority' which must determine whether the personnel action was justified is the agency ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT