R&D Master Enters., Inc. v. Fin. Oversight & Mgmt. Bd. for P.R.
| Docket Number | 22-1342 |
| Decision Date | 25 July 2023 |
| Parties | 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. |
| Court | U.S. Court of Appeals — First Circuit |
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Raúl M. Arias-Marxuach, U.S. District Judge]
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.
Before Barron, Chief Judge, Thompson, Circuit Judge, and Burroughs,** District 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.
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.
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., — U.S. —, 143 S. Ct. 1070, 215 L.Ed.2d 290 (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 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).
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, 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
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 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.
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, we assess whether Appellants' complaint has plausibly alleged that they have standing to sue -- spoiler alert, it has not.4
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, — U.S. —, 141 S. Ct. 2104, 2113, 210 L.Ed.2d 230 (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, — U.S. —, 141 S. Ct. 493, 498, 208 L.Ed.2d 305 (2020)), cert. granted, — U.S. —, 143 S. Ct. 1053, 215 L.Ed.2d 278 (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. See Virginia House of Delegates v. Bethune-Hill, — U.S. —, 139 S. Ct. 1945, 1951, 204 L.Ed.2d 305 (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, 136 S.Ct. 1540, 194 L.Ed.2d 635 (2016) (quoting Warth v. Seldin, 422 U.S. 490, 518, 95 S.Ct. 2197, 45 L.Ed.2d 343 (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, 112 S.Ct. 2130, 119 L.Ed.2d 351 (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 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, 129 S.Ct. 1142, 173 L.Ed.2d 1 (2009). Here, Appellants...
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