Autonomous Municipality of San Juan v. Fin. Oversight & Mgmt. Bd. for P.R.

• Decision Date: 05 December 2019
• Docket Number: Case No. 19-cv-1474
• Citation: 419 F.Supp.3d 293
• Parties: AUTONOMOUS MUNICIPALITY OF SAN JUAN, Plaintiff, v. The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, Defendant.
• Court: U.S. District Court — District of Puerto Rico

419 F.Supp.3d 293

AUTONOMOUS MUNICIPALITY OF SAN JUAN, Plaintiff,

v.The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, Defendant.

Case No. 19-cv-1474

United States District Court, D. Puerto Rico.

Signed December 5, 2019

CHARLIE HERNÁNDEZ LAW OFFICES By: Charlie M. Hernández, 206 Tetuán Street, Suite 701, Old San Juan, Puerto Rico 00901-1839, MARIANI FRANCO LAW, P.S.C. By: Raúl S. Mariani Franco, P.O. Box 9022864, San Juan, Puerto Rico 00902-2864, WINSTON & STRAWN LLP By: Julissa Reynoso, Aldo A. Badini, Marcelo M. Blackburn, Michael A. Fernández, 200 Park Avenue, New York, New York 10166, and Leo F. Delgado, 101 California Street, 35th Floor, San Francisco, California 94111, Attorneys for Plaintiff Autonomous Municipality of San Juan

O'NEILL & BORGES LLC By: Hermann D. Bauer, 250 Muñoz Rivera Avenue, Suite 800, San Juan, P.R. 00918-1813, PROSKAUER ROSE LLP By: Martin J. Bienenstock, Timothy W. Mungovan, Hadassa R. Waxman, Lucy C. Wolf, Eleven Times Square, New York, N.Y. 10036 and Guy Brenner, 1001 Pennsylvania Ave., NW Suite 600, South Washington, DC 20004, Attorneys for Defendant the Financial Oversight and Management Board for Puerto Rico

OPINION AND ORDER GRANTING THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO'S MOTION TO DISMISS

LAURA TAYLOR SWAIN, United States District Judge

Before the Court is The Financial Oversight and Management Board for Puerto Rico's Motion to Dismiss Counts I and II of the Complaint with Prejudice, and to Dismiss Without Prejudice or to Stay Count III (Docket Entry No. 46 in Civil Case No. 19-1474,¹ the "Motion"), filed by the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board"). In the Motion, the Oversight Board seeks dismissal of the Complaint for Declaratory Judgment and Injunctive Relief (Docket Entry No. 1, the "Complaint"), filed by the Autonomous Municipality of San Juan ("San Juan" or "Plaintiff").

In the Complaint, San Juan asserts that the Oversight Board's May 2019 designation of San Juan and other municipalities as "covered territorial instrumentalit[ies]" under the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"² ) violated federal common law concerning agency actions because PROMESA charges the Oversight Board with oversight of fiscal responsibility at only the island-wide level of the government of the Commonwealth of Puerto Rico (the "Commonwealth") and because the Oversight Board failed to provide a contemporaneous explanation of its specific rationale for the designation of San Juan and other municipalities. In the alternative, Plaintiff asserts that, if the Oversight Board did not violate federal common law and its designation of San Juan was authorized by PROMESA, PROMESA itself violates the non-delegation doctrine as a standardless delegation of authority by Congress. Plaintiff further contends that the Oversight Board's designation of San Juan as a covered territorial instrumentality is invalid because the current members of the Oversight Board were not appointed in conformity with the Appointments Clause of the Constitution of the United States. Plaintiff also asserts generally that the Oversight Board has exercised its authority pursuant to PROMESA in a way that has deprived inhabitants of the Commonwealth of their democratic right to representative government by imposing policy preferences on the Commonwealth over the objections of Puerto Rico's elected officials.

The Court has subject matter jurisdiction of this action pursuant to 48 U.S.C. § 2166 and has considered carefully all of the submissions made in connection with the Motion.³ For the following reasons, the Motion is granted.

I. BACKGROUND

The following recitation of facts is drawn from the Complaint, except where otherwise noted.

Plaintiff is an autonomous municipality organized by and existing under the laws of the Commonwealth. (Compl. ¶ 6.) San Juan is the capital and most populous municipality of Puerto Rico, with an estimated population of approximately 320,976 inhabitants and a daily number of visitors that brings the population up to approximately 1 million people per day. (Id. ) San Juan and its metropolitan area are the Commonwealth's "educational, medical, legal, cultural and tourism center" and the location of most of Puerto Rico's economic activity. (Id. ) San Juan is home to more than 10,000 businesses and provides employment for over 195,000 individuals residing in Puerto Rico. (Id. )

On June 30, 2016, in order to develop a method for the Commonwealth to achieve fiscal responsibility and access to the capital markets, Congress enacted PROMESA. (Id. ¶ 12.) PROMESA created the Oversight Board, stating that the "purpose of the Oversight Board is to provide a method for a covered territory to achieve fiscal responsibility and access to the capital markets." 48 U.S.C.A. § 2121(a) (West 2017). PROMESA defines "covered territory" as a territory for which an Oversight Board has been established under Section 101 of PROMESA, defines "territory" to include "Puerto Rico," and expressly establishes a "Financial Oversight and Management Board ... for Puerto Rico." Id. §§ 2104(7), 2104(20)(A); 2121(b)(1). Additionally, PROMESA defines "territorial instrumentality" as "any political subdivision, public agency, instrumentality ... or public corporation of a territory, and this term should be broadly construed to effectuate the purposes of [PROMESA]," and the term "territorial government" as "the government of a covered territory, including all covered territorial instrumentalities." Id. §§ 2104(19)(A), 2104(18). Section 101(d)(1)(A) of PROMESA provides that the "Oversight Board, in its sole discretion at such time as the Oversight Board determines to be appropriate, may designate any territorial instrumentality as a covered territorial instrumentality that is subject to the requirements of" PROMESA. Id. § 2121(d)(1)(A). The Oversight Board may require, in its sole discretion, that covered territorial instrumentalities be subject to budgets and fiscal plans approved and certified by the Oversight Board. See id. §§ 2121(d)(1)(C)-(E).

On September 30, 2016, the Oversight Board designated the Commonwealth and sixty-two other entities as covered territorial instrumentalities subject to oversight under PROMESA. (Compl. ¶ 16.) The Oversight Board commenced a debt adjustment proceeding on behalf of the Commonwealth by filing a petition in this Court under Title III of PROMESA on May 3, 2017.⁴ (See Docket Entry No. 1 in Case No. 17-3283.) The Oversight Board thereafter commenced debt adjustment proceedings on behalf of certain other entities that had previously been designated as covered territorial instrumentalities. (See Docket Entry No. 1 in Case No. 17-3284, Docket Entry No. 1 in Case No. 17-3566, Docket Entry No. 1 in Case No. 17-3567, and Docket Entry No. 1 in Case No. 17-4780.) On May 9, 2019, the Oversight Board designated all seventy-eight of the Commonwealth's municipalities, including San Juan, as covered territorial instrumentalities pursuant to Section 101(d)(1)(A) of PROMESA. (Compl. ¶ 20.)

Plaintiff filed the Complaint on May 19, 2019, in the United States District Court for the District of Puerto Rico.⁵ In the Complaint, Plaintiff generally asserts that the Oversight Board's designation of Puerto Rico's municipalities as covered territorial instrumentalities pursuant to Section 101 of PROMESA "dramatically expands the Oversight Board's asserted powers and guts the autonomous self-governing nature of San Juan and other municipalities." (Compl. ¶ 2.) Plaintiff contends that this designation "goes beyond the limitation that Congress placed on the Oversight Board, which is to ‘provide a method for the [Commonwealth] to achieve fiscal responsibility and access to the capital markets.’ " (Id. ¶ 21.) Although Plaintiff concedes that PROMESA empowers the Oversight Board to designate covered territorial instrumentalities, it asserts that, given the Oversight Board's pre-existing exercise of control over "the Commonwealth's budgetary and fiscal policies," there "is no apparent reason why the Oversight Board also would need to exercise control over all municipal finances to achieve fiscal responsibility for the Commonwealth's finances." (Id. ¶¶ 3-4, 21.) Plaintiff contends that the "mere designation" of San Juan as a covered territorial instrumentality has injured San Juan because the Oversight Board may now, at any time, elect to impose budgetary and fiscal approval processes, and the mayor and municipal legislature of San Juan are thus forced to "consider how the Oversight Board may react to their decisions or seek to impose their policy preferences, thereby depriving the people of San Juan of their right to have their elected Mayor and legislature devote their full attention to administering [San Juan] in the manner they consider best." (Id. ¶ 30.)

The Complaint pleads the following counts. In Count One, Plaintiff seeks "declaratory and injunctive relief because the Oversight Board's designation of San Juan as a covered territorial instrumentality is without a rational basis." (Id. ¶ 38.) In the alternative to Count One, and to the extent that the Oversight Board's designation of Plaintiff is not deemed a violation of PROMESA "for the reasons set forth in Count 1," Plaintiff seeks in Count Two "declaratory and injunctive relief because any purported grant of authority to the Oversight Board to designate San Juan ‘as a covered territorial instrumentality that is subject to the requirements of’ PROMESA under 48 U.S.C. § 2121(d)(1)(A), without regard to PROMESA's purpose, violates the non-delegation doctrine." (Id. ¶ 48.) In Count Three, Plaintiff seeks a declaration that the "Oversight Board's designation of San Juan as a covered territorial entity is invalid because the members of the Oversight Board were not appointed in accordance with the Appointments Clause of the U.S. Constitution." (Id. at 18.) Plaintiff's Prayer for...