Altair Global Credit Opportunities Fund (A), LLC v. United States

Decision Date13 July 2018
Docket NumberNo. 17-970C,17-970C
PartiesALTAIR GLOBAL CREDIT OPPORTUNITIES FUND (A), LLC, ANDALUSIAN GLOBAL DESIGNATED ACTIVITY COMPANY, GLENDON OPPORTUNITIES FUND, L.P., MASON CAPITAL MASTER FUND LP, NOKOTA CAPITAL MASTER FUND, L.P., OAKTREE-FORREST MULTI-STRATEGY, LLC (SERIES B), OAKTREE OPPORTUNITIES FUND IX, L.P., OAKTREE OPPORTUNITIES FUND IX (PARALLEL 2), L.P., OAKTREE VALUE OPPORTUNITIES FUND, L.P., OCHER ROSE, L.L.C., and SV CREDIT, L.P., Plaintiffs, v. THE UNITED STATES, Defendant.
CourtU.S. Claims Court

U.S. CONST. art. IV, § 3; amend. V, Takings Clause; 28 U.S.C. § 1491 (Tucker Act); 48 U.S.C. §§ 2101-2241 (2012 & Supp. IV 2017) (Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA")); Jones-Shafroth Act, Pub. L. No. 64-368, 39 Stat. 951 (1917), codified as amended at 48 U.S.C. §§ 731-751; Small Business Job Protection Act, Pub. L. No. 104-188, 110 Stat. 1755 (1996); H.R.J. 124, Pub. L. No. 87-121, 75 Stat. 245 (1961) (imposing a debt limit on Puerto Rico); P.R. CONST. art. VI, §§ 2, 8; Employees Retirement System Enabling Act, P.R. LAWS ANN. tit. 3, §§ 761-788 ("Act 447"); Urgent Interest Fund Act, 2006 P.R. Laws 91; Joint Resolution For Other Allocations For Fiscal Year 2017-2018 ("Joint Resolution 188"); Law To Guarantee Payment To Our Pensioners And Establish A New Plan For Defined Contributions For Public Servants ("Act 106-2017"); Rule of the United States Court of Federal Claims ("RCFC") 12(b)(1) (Subject Matter Jurisdiction).

Christopher John DiPompeo, Jones Day, Washington, D.C., Counsel for Plaintiffs.

Christopher James Carney, United States Department of Justice, Civil Division, Commercial Litigation Branch, Washington, D.C., Counsel for the Government.

MEMORANDUM OPINION AND ORDER DENYING THE GOVERNMENT'S MOTION TO DISMISS, PURSUANT TO RULE 12(b)(1) OF THE UNITED STATES COURT OF FEDERAL CLAIMS AND STAYING THIS CASE

BRADEN, Chief Judge.

To facilitate review of this Memorandum Opinion And Order, the court has provided the following outline.

I. RELEVANT FACTUAL BACKGROUND.
A. Historical Background - 1917 To June 30, 2016.
B. On June 30, 2016, Congress Enacted The Puerto Rico Oversight, Management, And Economic Stability Act.
C. On June 25, 2017, The Legislature Of The Commonwealth Of Puerto Rico Enacted Joint Resolution 188.
D. On August 23, 2017, The Legislature Of The Commonwealth Of Puerto Rico Enacted Act 106-2017.
II. PROCEDURAL HISTORY.
III. DISCUSSION.
A. Jurisdiction.
B. Standing.
C. The United States Court Of Federal Claims Has Jurisdiction To Adjudicate The Takings Clause Claim Alleged In The October 31, 2017 Amended Complaint, Pursuant To RCFC 12(b)(1).
1. The Puerto Rico Oversight, Management, And Economic Stability Act Does Not Evidence Congress' "Unambiguous Intention" To Withdraw Tucker Act Jurisdiction.
2. The Puerto Rico Oversight, Management, And Economic Stability Act Does Not Preempt The Tucker Act.
3. The Oversight Board Is An Entity Of The Federal Government.
IV. CONCLUSION.
I. RELEVANT FACTUAL BACKGROUND.
A. Historical Background - 1917 To June 30, 2016.1

On March 2, 1917, on the eve of the United States' entry into World War I, President Woodrow Wilson signed the Jones-Shafroth Act, designating Puerto Rico as an unincorporated territory of the United States subject to federal statutes. See Pub. L. No. 64-368, 39 Stat. 951 § 9 (1917). An unique feature of the Jones-Shafroth Act was that interest payments on bonds issued by Puerto Rico and its subdivisions were exempt from federal income, state, and local taxes, whether the purchasers resided in Puerto Rico or not. See id. § 3.

On May 15, 1951, the territorial government of Puerto Rico enacted the Employees Retirement System ("ERS") Enabling Act, Act No. 447 ("Act No. 447"), to provide pensions and other benefits to certain governmental officers and employees of so-called public corporations and municipalities. See P.R. LAWS ANN. tit. 3, §§ 761, 763 (1951). The primary funding for these benefits were employer contributions that statutorily were designated as ERS's "legal assets." See P.R. LAWS ANN. tit. 3, § 762. Puerto Rico, however, did not hold or own any interest in employer contributions paid to the ERS. See id. Any employer that failed to make timely contributions, however, faced a misdemeanor charge and, if payments were in arrears for more than 30 days, the ERS could assert a claim to and priority over any other entities holding outstanding debt. Id. §§ 781a(e), (f), (g). In the event of non-payment, the ERS was authorized to garnish property tax revenues, if the delinquent party was a municipality or issue a certificate of debt for immediate payment, if the party was an agency, public corporation, or instrumentality of Puerto Rico. Id. §§ 781a(g), (h). Employer contributions, however, were not sufficient to meet even the benefit costs "for many years." Am. Compl. ¶ 29.

In 1952, the United States Congress ("Congress") designated Puerto Rico as a Commonwealth ("Puerto Rico" or the "Commonwealth") and required that the Legislature of Puerto Rico ("Legislature") authorize a Constitution, subject to ratification by Congress. See, e.g., 48 U.S.C. § 731c (authorizing the Legislature to call a constitutional convention); 48 U.S.C. § 731d (requiring Congress to ratify Puerto Rico's Constitution).

In 1961, Congress removed the Commonwealth's federally-mandated debt limit, on the condition that the Legislature amend Puerto Rico's Constitution and placed a limit on any future debt incurred. See Pub. L. No. 87-121, 75 Stat. 245 (1961). That same year, the Commonwealth's Constitution was amended. See P.R. CONST. art. VI § 8. Subsequently, however, a substantial amount of additional debt was incurred by Commonwealth municipalities that were permitted "to borrow between 5 percent and 10 percent of assessed value on their own, without including [C]ommonwealth debt in the calculation." MARC D. JOFFE & JESSE MARTINEZ, ORIGINS OF THE PUERTO RICO FISCAL CRISIS 12 (2016).

In 1984, Congress enacted a law to prohibit the Commonwealth from declaring bankruptcy under Chapter 9, Title 11, United States Code. See Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, 98 Stat. 333 (1984). The Commonwealth'sConstitution, however, provided that "[t]he Secretary of the Treasury may be required to apply the available revenues[,] including surplus[,] to the payment of interest on the public debt and the amortization thereof in any case provided by Section 8 of this Article VI at the suit of any holder of bonds or notes issued in evidence thereof." P.R. CONST. art. VI, § 2.

In 1996, Congress enacted a law to phase out the tax-exempt status of corporate income earned in Puerto Rico over a ten-year period. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, 110 Stat. 1755 (1996) (codified as amended at 26 U.S.C. § 936). At the end of that period, the Commonwealth was faced with debt that was significantly downgraded and placed on the "Credit Watch List." See Press Release, Government Development Bank For Puerto Rico, Moody's Downgrades Puerto Rico's Credit And Keeps It On Its Watchlist (May 8, 2006), http://gdb.pr.gov/communications/PressReleases/cpMoodysdowngradesPRcreditMay8-06.pdf. To raise revenues, the Commonwealth issued Sales Tax Revenue Bonds, the proceeds of which were deposited into an "Urgent Interest Fund," instead of the "General Fund." See Urgent Interest Fund Act, 2006 P.R. Laws 91.2

On January 31, 2008, pursuant to Act No. 447, as amended, the ERS Board of Trustees issued a Resolution ("January 31, 2008 ERS Bond Resolution") authorizing the ERS to issue one or more series of new bonds as "special obligations of the System payable solely from Pledged Property without recourse against other assets of [ERS]." Am. Compl. Ex. A. (January 31, 2008 ERS Bond Resolution) at VI-1. "Pledged Property" was defined therein as:

1. All ERS revenues, including employer contributions paid from the date the bond resolution came into effect "and any assets in lieu thereof or derived thereunder which are payable [to the ERS] pursuant to [the ERS Enabling Act]."
2. The "right, title, and interest" of the ERS regarding the revenues, including the right to receive them.
3. "Funds, accounts, and subaccounts held for the benefit of bondholders."
4. "Any and all other rights and personal property of every kind pledged and assigned by the ERS for additional security."
5. "Cash and non-cash proceeds, products, offspring, rents and profits from any of the Pledged Property [including], without limitation, those from the sale, exchange, transfer, collection, loss, damage, disposition, substitution or replacement of [Pledged Property]."

Am. Compl. Ex. A at VI-36 (January 31, 2008 ERS Bond Resolution).

To ensure that adequate collateral existed to support the January 31, 2008 bonds, the January 31, 2008 ERS Bond Resolution required that the security interests in or liens on "Pledged Property" were considered as "valid and binding as against all parties having claims . . . against the [ERS], irrespective of whether such parties have notice thereof." Am. Compl. Ex. A at VI-8. "Pledged Property" also was to be "free and clear of any pledge, lien, charge, or encumbrance[.]" Am. Compl. Ex. A at VI-15. In addition, the ERS was required to pursue "all available legal remedies" to collect unpaid employer contributions. Am. Compl. Ex. A at VI-14, VI-16. But, the ERS also was required to continue to "make timely principal and interest payments" on bonds purchased, pursuant to the January 31, 2008 ERS Bond Resolution, before any ERS funds were used for any other purpose. Am. Compl. Ex. A at VI-8, VI-14, VI-36.

The January 31, 2008 ERS Bond Resolution also provided that any bonds issued thereunder were not obligations of the Commonwealth, its agencies, or its instrumentalities. Am. Compl. Ex. A at VI-1. On the last business day of each month, the ERS was required to transfer "[e]mployer [c]ontributions" to a designated Fiscal Agent, i....

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