Municipality of Cabo Rojo v. Powersecure, Inc.

• Decision Date: 09 July 2019
• Docket Number: Civil No. 19-1073 (FAB),Civil No. 18-1797 (FAB)
• Parties: MUNICIPALITY OF CABO ROJO, Plaintiff, v. POWERSECURE, INC., Defendant. Municipality of Salinas, Plaintiffs, v. Powersecure, Inc., Defendant.
• Court: U.S. District Court — District of Puerto Rico

390 F.Supp.3d 327

MUNICIPALITY OF CABO ROJO, Plaintiff,

v.POWERSECURE, INC., Defendant.

Municipality of Salinas, Plaintiffs,

v.Powersecure, Inc., Defendant.

Civil No. 18-1797 (FAB)

Civil No. 19-1073 (FAB)

United States District Court, D. Puerto Rico.

Signed July 9, 2019

Jorge Martinez-Luciano, Emil J. Rodriguez-Escudero, M.L. & R.E. Law Firm, Jose J. Lamas-Rivera, Andreu & Sagardia Law Office, Luis A. Ortiz-Carrasquillo, Ramirez Lavandero, Landron & Vera, LLP, San Juan, PR, Ricardo M. Prieto-Garcia, Fajardo, PR, for Plaintiffs.

Viviana M. Berrios-Gonzalez, Alana M. Vizcarrondo-Santana, Gustavo Adolfo Pabon-Rico, Reichard & Escalera LLC, San Juan, PR, for Defendant.

OPINION AND ORDER

FRANCISCO A. BESOSA, United States District Judge

The Municipality of Salinas ("Salinas") and the Municipality of Cabo Rojo ("Cabo Rojo") (collectively, "municipalities"), commenced tax collection actions against Powersecure, Inc. ("Powersecure") pursuant to the Municipal License Tax Act and the Autonomous Municipalities Act. Powersecure moves to dismiss both actions pursuant to Federal Rule of Civil Procedure 12(b)(1). (Docket Nos. 12 and 40.) Powersecure also moves for summary judgment regarding the Municipal License Tax cause of action asserted by Salinas pursuant to Federal Rule of Civil Procedure 56. (Docket No. 63.) For the reasons set forth below, Powersecure's motions to dismiss are GRANTED IN PART and DENIED IN PART . (Docket Nos. 12 and 40). Powersecure's motion for summary judgment is GRANTED . (Docket No. 63.)

I. Background

Hurricane María "is by far the most destructive hurricane to hit Puerto Rico in modern times."¹ On September 20, 2017, the high-end Category 4 storm "crossed the island, roughly diagonally from southeast to northwest, for several hours and emerged into the Atlantic [ocean]." Id. at p. 7. Puerto Rico sustained severe damage to its electrical power grid.² The United States Army Corps of Engineers awarded Powersecure a contract to "[p]erform all aspects of restoration of electric power to the Territory and municipalities of Puerto Rico on the Puerto Rico Electric Authority (PREPA) power grid." (Docket No. 63, Ex. 3 at p. 11.)

Powersecure "focus[ed] primarily on getting transmission and distribution connected to power plants" in San Juan, Mayagüez, Ponce, Bayamón, Carolina and Arecibo. Id. To accomplish this objective, Powersecure established base camps in the municipalities of Cabo Rojo, Juana Díaz, Arecibo, Caguas and Aguadilla. (Docket No. 63, Ex. 2.) These base camps provided "housing for [Powersecure] workers, storage facilities for its equipment and parts, parking areas for its trucks, and offices from which it could direct its operations and distribution centers." Id. Powersecure repaired and replaced the electrical transmission system for Cabo Rojo and Salinas. (Case No. 18-1797, Docket No. 41 at p. 5; Case No. 19-1073, Docket No. 1, Ex. 5 at p. 4.)

A. The Cabo Rojo Action

On October 23, 2018, Cabo Rojo commenced a civil action against Powersecure in the United States District Court for the District of Puerto Rico ("Cabo Rojo action"). (Case No. 18-1797, Docket No. 1.) According to Cabo Rojo, Powersecure is subject to the Municipal License Tax Act, P.R. Laws Ann. tit. 21, sections 651 et seq. , and the Construction Excise Tax, P.R. Laws Ann. tit. 21, sections 4001(cc), 4057. (Docket No. 41 at pp. 4–7). Id. at p. 6.³ Cabo Rojo seeks to collect $625,000.00 from Powersecure in outstanding tax liability:

$125,000.00 for the Municipality License Tax and $500,000.00 for the Construction Excise Tax. Id. at pp. 5–6.

B. The Salinas Action

On October 30, 2018, Salinas commenced an action against Powersecure in the Court of First Instance, Guayama Superior Division, Civil No. SA2018CV00159 ("Salinas action"). (Case No. 19-1073, Docket No. 1, Ex. 3 at p. 2.)⁴ The causes of action asserted by Salinas parallel the claims raised by Cabo Rojo: that Powersecure failed to remit the Municipal License Tax and Construction Excise Tax. Id. Salinas contends that Powersecure is liable for $4,400,000.00 in outstanding tax liability: $400,000.00 for the Municipal License Tax and $4,000,000.00 for the Construction Excise Tax. Id. at pp. 6 and 8. Powersecure filed a notice of removal on January 24, 2019. (Docket No. 1.)⁵ The Court consolidated the Cabo Rojo and Salinas actions. (Docket No. 29.)

II. The Construction Excise Tax

Powersecure moves to dismiss the Municipal License and the Construction Excise causes of action asserted by both municipalities pursuant to Federal Rule of Civil Procedure 12(b)(1) (" Rule 12(b)(1)"). (Dockets. 12 and 40.)

A. Federal Rule of Civil Procedure 12(b)(1)

Federal courts are courts of limited jurisdiction. Destek Grp. v. State of N.H. Pub. Utils. Comm'n, 318 F.3d 32, 38 (1st Cir. 2003) ; Fina Air, Inc. v. United States, 555 F. Supp. 2d 321, 323 (D.P.R. 2008) (noting that the Court "ha[s] the duty to construe [its] jurisdictional grants narrowly") (Besosa, J.) (internal citations omitted). Pursuant to Federal Rule of Civil Procedure 12(b)(1), a defendant may move to dismiss an action for lack of subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Subject-matter jurisdiction is properly invoked when a plaintiff asserts a colorable claim "arising under" the United States Constitution or federal law. 28 U.S.C. § 1331 ; Arbaugh v. Y & H Corp., 546 U.S. 500, 513, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (internal citation omitted).

"Generally, a claim arises under federal law within the meaning of section 1331 if a federal cause of action emerges from the face of a well-pleaded complaint." Viqueira v. First Bank, 140 F.3d 12, 17 (1st Cir. 1998) (internal citations omitted). In considering a Rule 12(b)(1) motion, the Court "must credit the plaintiff's well-pled factual allegations and draw all reasonable inferences in the plaintiff's favor."

Merlonghi v. U.S., 620 F.3d 50, 54 (1st Cir. 2010) (internal citations omitted). Cabo Rojo and Salinas shoulder the burden of establishing the existence of federal jurisdiction. Viqueira, 140 F.3d at 16 (internal citations omitted).

C. Cabo Rojo and Salinas Are Precluded from Imposing the Construction Excise Tax on Powersecure

The Autonomous Municipalities Act empowers Cabo Rojo and Salinas to tax "the right to carry out a construction activity and/or construction work within the territorial limits of the municipality." Laws P.R. Ann. tit. 21, § 4001(cc); see Río Constr. Corp. v. Mun. of Carolina, 2001 TSPR 36, 2001 WL 292435, 2001 P.R. Supp. LEXIS 25 (Mar. 16, 2001) (holding that the Construction Excise Tax "requires private companies contracted by an agency or instrumentality of the central, federal or municipal government for the performance of construction work to pay municipal excise taxes").⁶ The entity or person responsible for the construction activity "shall submit, before the Finance Office of the municipality in question, a detailed itemized declaration of activity, describing the costs of the work to be performed." Law P.R. Ann. tit. 21, § 4057(a). The Construction Excise Tax is a function of the amount set forth in the declaration and the applicable tax-rate. Laws P.R. Ann. tit. 21, § 4057(b).⁷

Powersecure failed to submit Construction Excise Tax declarations to Cabo Rojo and Salinas, prompting the municipalities to seek judicial redress. (Case No. 18-1797. Docket No. 1 at p. 5; Case No. 19-1073, Docket No. 1, Ex. 5 at p. 5.) According to Powersecure, the causes of action premised on the Construction Excise Tax are premature because the municipalities failed to exhaust administrative remedies. (Docket Nos. 12 and 40.) The Court agrees.

Cabo Rojo contends that "the Municipality had no recourse but to seek relief before a court of law." (Docket No. 14 at p. 4.) This is a specious argument. Indeed, the Puerto Rico Legislature anticipated the possibility of noncompliance with the Autonomous Municipalities Act. Failure to submit the declaration may result in administrative or penal sanctions. Laws P.R. Ann. tit. 21, § 4057(g).⁸ When the Finance Director determines that the taxpayer has:

[failed] to comply with the presentation of any of the declarations and/or documents required to corroborate the information provided on behalf of the taxpayer ... after granting an administrative hearing to such effect and pursuant to the procedure established in the Uniform Administrative Procedures Act §§ 2101 et seq. of Title 3 , if the imputed conduct is established, the Finance Director shall proceed to collect the corresponding excise tax, and shall impose and administrative penalty on the taxpayer, equal to twice the amount of the imposed excise tax.

Id. (emphasis added). The Autonomous Municipalities Act provides for judicial intervention after the taxpayer remits the Construction Excise Tax. Id. The taxpayer may impugn the administrative penalty "once its correction is ratified by the Court of First Instance." Id.

The statutory language regarding failure to submit the declaration is unequivocal. Powersecure is entitled to an administrative hearing. Laws P.R. Ann. tit. 21, § 4057(g); see Mullane v. Chambers, 333 F.3d 322, 330 (1st Cir. 2003) ("When the statutory language is plain and unambiguous, judicial inquiry is complete, except in rare and exceptional circumstances") (internal citation and quotation omitted). The Puerto Rico Supreme Court has held that "court[s] will not have jurisdiction until the administrative remedies are exhausted." Rodríguez v. De Ferrer, 121 D.P.R. 347 (Official Translation) (May 16, 1988). The Autonomous Municipalities Act cites the Puerto Rico Uniform Administrative Procedures Act, a statute that encourages "the informal solution of administrative issues so that formal solution of the matter submitted to the agency will be unnecessary." P.R. Laws Ann. tit. 3, § 2101. The exhaustion of administrative remedies doctrine "strike[s] an adequate balance and distribution of power and tasks between the administrative agencies and the judicial power; to...