Cooperativa de Ahorro y Crédito Abraham Rosa v. Commonwealth (In re Fin. Oversight & Mgmt. Bd. for P.R.)

• Citation: 578 F.Supp.3d 267
• Decision Date: 27 December 2021
• Docket Number: Case No. 17-BK-3283 (LTS) (Jointly Administered),Adv. Proc. No. 18-00028 (LTS)
• Parties: IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico, et al., Debtors. Cooperativa de Ahorro y Crédito Abraham Rosa, et al., Plaintiffs, v. The Commonwealth of Puerto Rico, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

578 F.Supp.3d 267

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico, et al., Debtors.¹Cooperativa de Ahorro y Crédito Abraham Rosa, et al., Plaintiffs,

v.The Commonwealth of Puerto Rico, et al., Defendants.

Case No. 17-BK-3283 (LTS) (Jointly Administered)

Adv. Proc. No. 18-00028 (LTS)

United States District Court, D. Puerto Rico.

Signed December 27, 2021

HARRY ANDUZE MONTANO LAW OFFICES, By: Harry Anduze, Diego R. Corral, Harry Anduze Montano Law Offices, 1454 Fernandez Juncos Ave., San Juan, PR 00909, DESPACHO JURIDICO RAMOS LUINA LLC, By: Guillermo J. Ramos Luiña, P.O. Box 22763, UPR Station, San Juan, PR 00931, Counsel for Cooperativa de Ahorro y Credito Abraham Rosa, Cooperativa de Ahorro y Credito Vega Alta, Cooperativa de Ahorro y Credito Dr. Manuel Zeno Gandia, Cooperativa de Ahorro y Credito de Ciales, Cooperativa de Ahorro y Credito de Juana Diaz, Cooperativa de Ahorro y Credito de Rincon.

O'NEILL & BORGES LLC, By: Hermann D. Bauer Alvarez, Carla García Benítez, 250 Muñoz Rivera Ave., Suite 800, San Juan, PR 00918-1813, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Timothy W. Mungovan, Stephen L. Ratner, Eleven Times Square, New York, NY 10036, Counsel for The Financial Oversight and Management Board for Puerto Rico, on its own behalf and as representative of the Debtors the Commonwealth of Puerto Rico, the Puerto Rico Sales Tax Financing Corporation, the Puerto Rico Highways and Transportation Authority, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, the Puerto Rico Electric Power Authority, and the Public Buildings Authority, and as attorneys for the Oversight Board's individual members, José B. Carrión III, Andrew G. Biggs, Carlos M. García, Arthur J. González, José R. González, Ana J. Matosantos, and David A. Skeel, Jr.

MARINI PIETRANTONI MUNIZ LLC, By: Luis C. Marini Biaggi, Carolina Vielaz Rivero, 250 Ponce de León Ave., Suite 900, San Juan, PR 00918, Counsel for Government Development Bank and Puerto Rico Fiscal Agency and Financial Advisory Authority.

O'MELVENY & MYERS LLP, By: Elizabeth L. Mckeen, 610 Newport Center Drive, 17th Floor, Newport Beach, CA 92600 and By: Suzzanne Uhland, Times Square Tower, 7 Times Square, New York, NY 10026, Counsel for Puerto Rico Fiscal Agency and Financial Advisory Authority.

CANCIO COVAS & SANTIAGO, LLP, By: Charles E. Vilaró Valderrábano, Ileana M. Oliver Falero, MCS Plaza, Suite A-267, 255 Ave. Ponce de León, San Juan, Puerto Rico 00917, KING & SPALDING LLP, By: Arthur Steinberg, Floyd C. Newton, Scott I. Davidson, 1185 Avenue of the Americas, New York, NY 10036, Counsel for GDB Debt Recovery Authority and Its Trustees Matthew Karp, Jorge L. Padilla, and David Pauker.

DELIZ LEGAL LLC, By: Juan Carlos Deliz, Plaza 650, Suite 502, 650 Munoz Rivera Ave., San Juan, PR 00918, CAPARRA HILLS2, By: Luz Celenia Molinelli Gonzalez, H 24 Calle Yagrumo, Guaynabo, PR 00968, Counsel for Corporacion Publica para la Supervision y Seguro de Cooperativas de Puerto Rico ("COSSEC").

CASILLAS, SANTIAGO & TORRES LLC, By: Juan J. Casillas Ayala, Esq., Israel Fernández Rodríguez, Esq., Juan C. Nieves González, Esq., Cristina B. Fernández Niggemann, Esq., PO Box 195075, San Juan, PR 00919-5075, PAUL HASTINGS LLP, By: Luc. A. Despins, Esq., G. Alexander Bongartz, Esq., 200 Park Avenue, New York, New York 10166 and By: Nicholas A. Bassett, Esq, 875 15th Street, N.W., Washington, D.C. 20005, Counsel for the Official Committee of Unsecured Creditors for all Title III Debtors (except for PBA and COFINA).

PROMESA

Title III

MEMORANDUM OPINION GRANTING DEFENDANTS’ MOTIONS TO DISMISS SECOND AMENDED COMPLAINT

LAURA TAYLOR SWAIN, United States District Judge

Plaintiffs are six state-chartered credit unions that are part of a financial cooperative system (the "Cooperatives") that provides banking and financial services to communities in Puerto Rico. Plaintiffs hold certain debt instruments issued by the Commonwealth of Puerto Rico (the "Commonwealth"), other Commonwealth instrumentalities, and the Government Development Bank ("GDB") (together, the "Government Bonds"). Plaintiffs have brought this adversary complaint against the Commonwealth, GDB, the Financial Oversight and Management Board for Puerto Rico (the "FOMB") and its individual members, Corporación para la Supervisión y Seguro de Cooperativas de Puerto Rico ("COSSEC"), GDB Debt Recovery Authority ("GDB DRA") and its trustees, the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF"), the Puerto Rico Sales Tax Financing Corporation ("COFINA"), the Puerto Rico Highways and Transportation Authority ("HTA"), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ("ERS"), the Puerto Rico Electric Power Authority ("PREPA"), and the Public Buildings Authority ("PBA"). Plaintiffs allege that Defendants engaged in a fraudulent scheme from 2009 to 2015 to coerce the Cooperatives into buying Government Bonds while Defendants knew that the bonds were unsustainable and would diminish in value.

Plaintiffs claim that this fraudulent scheme violated Puerto Rico contract and tort law, Puerto Rico's Act Against Organized Crime and Money Laundering, and provisions of the Commonwealth and United States constitutions, and, in the alternative, entitles Plaintiffs to a claim for unjust enrichment. Plaintiffs seek an order exempting their claims from discharge in certain Defendants’ debt adjustment proceedings under the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA")² as well as additional declaratory relief, injunctive relief, and compensatory damages.

This matter is currently before the Court on Defendants’ Motions to Dismiss³ Plaintiffs’ Second Amended Complaint. In the interests of judicial economy, the Court withdraws its reference of the instant motions to Magistrate Judge Dein. (Docket Entry No. 142.) This Court has jurisdiction of this adversary proceeding pursuant to 48 U.S.C. § 2166(a). After careful consideration of all of the parties’ and intervenors’ submissions with respect to Defendants’ Motions to Dismiss and Plaintiffs’ Oppositions,⁴ Defendants’ Motions to Dismiss are granted pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) for the following reasons.

PROCEDURAL HISTORY

Plaintiffs filed their original adversary complaint on March 22, 2018. (See Docket Entry No. 1.) On May 24, 2018, the Court allowed the Official Committee of Unsecured Creditors (the "UCC") to intervene in this matter under Bankruptcy Code section 1109(b). (See Docket Entry No. 14.) In August 2018, Defendants filed motions to dismiss and motions for joinder in support of dismissal of Plaintiffs’ adversary complaint. (See Docket Entry Nos. 29, 31, 32, 34, 40, 59.) Plaintiffs did not respond to the motions to dismiss, and instead requested leave to file an amended complaint. (See Docket Entry No. 73.) After briefing on the motion for leave to amend was concluded, the Court allowed Plaintiffs’ motion and dismissed Defendants’ previously filed motions to dismiss as moot. (See Docket Entry No. 78.)

On April 16, 2019, Plaintiffs filed their Amended Complaint (Docket Entry No. 79, the "Amended Complaint"). Defendants again filed motions to dismiss and motions for joinder in support of dismissal of the Amended Complaint. (See Docket Entry Nos. 88, 91, 92, 93, 94, 97.) Plaintiffs again did not respond to Defendants’ motions and filed a motion for leave to file a second amended complaint. (See Docket Entry No. 116.) On April 14, 2020, this Court allowed Plaintiffs’ motion for leave to amend, ordered Defendants to refile their pending motions to dismiss, and allowed Defendants to file supplemental briefs addressing any new allegations. (See Docket Entry No. 125.) On April 16, 2020, Plaintiffs filed their Second Amended Complaint (Docket Entry No. 126, the "SAC"). In May 2020, Defendants filed their supplemental memoranda in support of their motions to dismiss the SAC. (See Docket Entry Nos. 143, 145, 146, 147, 148, 151.)

BACKGROUND

In the SAC, Plaintiffs assert seven claims against Defendants. Counts One and Two request that this Court enter an order pursuant to the Bankruptcy Code and PROMESA excepting Plaintiffs’ claims from discharge in any plan of adjustment related to certain Defendants that are Title III debtors. SAC ¶¶ 186-208. Count Three asserts that Defendants violated Puerto Rico's Act Against Organized Crime and Money Laundering ("PR-RICO"). Id. ¶¶ 209-35. In Count Four, Plaintiffs allege Defendants breached the terms and conditions of their agreements with Plaintiffs and maintain that such actions violated various Puerto Rico statutes related to fraud and negligence. Id. ¶¶ 236-56. Count Five alleges Defendants are liable for violations of Puerto Rico tort statutes. Id. ¶¶ 257-70. Count Six asserts Defendants’ conduct violated the Takings Clause of the Puerto Rico and United States constitutions. Id. ¶¶ 271-81. Count Seven alleges, in the alternative, that Plaintiffs are entitled to relief under the doctrine of unjust enrichment. Id. ¶¶ 282-86. Defendants have now filed the Motions to Dismiss currently before the Court seeking dismissal of Plaintiffs’ SAC pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).⁵

The following factual summary is drawn from Plaintiffs’ SAC, the well-pleaded allegations of which are taken as true for purposes of this motion practice, documents attached to or incorporated in the SAC, and matters of which the Court can take judicial notice.⁶

Plaintiffs’ Investment in Government Bonds

While the SAC is unclear as to which Government Bonds each Plaintiff purchased and when, Plaintiffs allege that approximately 65% of the Cooperatives’ investment portfolio consists of Government Bonds. SAC ¶ 49, Ex. C at 11 (discussing investment of Cooperatives generally). These investments include the direct sale of bonds issued by specific Commonwealth entities...