Nevares v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.)

• Decision Date: 27 August 2018
• Docket Number: Adv. Proc. No. 18-080-LTS in 17 BK 3283-LTS,Case No. 17-3283 (LTS) (Jointly Administered)
• Citation: 330 F.Supp.3d 685
• Parties: IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico, Debtors. Hon. Ricardo Antonio Rosselló Nevares (in his official capacity), and The Puerto Rico Fiscal Agency and Financial Advisory Authority, Plaintiffs, v. The Financial Oversight and Management Board for Puerto Rico, José B. Carrión III, Andrew G. Biggs, Carlos M. García, Arthur J. González, José R. González, Ana J. Matosantos, David A. Skeel, Jr., and Natalie A. Jaresko (in their official capacities), Defendants.
• Court: U.S. District Court — District of Puerto Rico

330 F.Supp.3d 685

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico, Debtors.¹Hon. Ricardo Antonio Rosselló Nevares (in his official capacity), and The Puerto Rico Fiscal Agency and Financial Advisory Authority, Plaintiffs,

v.The Financial Oversight and Management Board for Puerto Rico, José B. Carrión III, Andrew G. Biggs, Carlos M. García, Arthur J. González, José R. González, Ana J. Matosantos, David A. Skeel, Jr., and Natalie A. Jaresko (in their official capacities), Defendants.

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

Adv. Proc. No. 18-080-LTS in 17 BK 3283-LTS

United States District Court, D. Puerto Rico.

Signed August 27, 2018

MARINI PIETRANTONI MUÑIZ LLC By: Luis C. Marini-Biaggi, Carolina Velaz-Rivero, MCS Plaza, Suite 500, 255 Ponce de León Ave., San Juan, Puerto Rico 00917, O'MELVENY & MYERS LLP By: John J. Rapisardi, William J. Sushon, 7 Times Square, New York, New York 10036 and Peter Friedman, 1625 Eye Street, NW, Washington, D.C. 20006 and Elizabeth L. McKeen, 610 Newport Center Drive, 17th Floor, Newport Beach, California 92660, Attorneys for Plaintiffs Governor Rosselló Nevares and the Puerto Rico Fiscal Agency and Financial Advisory Authority

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, Stephen L. Ratner, Mark D. Harris, Timothy W. Mungovan, Kevin J. Perra, Eleven Times Square, New York, N.Y. 10036 and Guy Brenner, 1001 Pennsylvania Ave., NW, Suite 600 South, Washington, DC 20004, Attorneys for Defendants the Financial Oversight and Management Board for Puerto Rico, José B. Carrión III, Andrew G. Biggs, Carlos M. García, Arthur J. González, José R. González, Ana J. Matosantos, David A. Skeel, Jr., and Natalie A. Jaresko (in their official capacities)

PROMESA

Title III

CORRECTED OPINION AND ORDER GRANTING IN PART DEFENDANTS' MOTION TO DISMISS THE COMPLAINT ^*

LAURA TAYLOR SWAIN, United States District Judge

Before the Court is the Defendants' Motion Pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6) to Dismiss Plaintiffs' Complaint Dated July 5, 2018 (Docket Entry No. 16 in Adversary Proceeding No. 18-00080, the "Motion"),² filed by the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board"), José B. Carrión III, Andrew G. Biggs, Carlos M. García, Arthur J. González, José R. González, Ana J. Matosantos, David A. Skeel, Jr., and Natalie A. Jaresko (collectively, and together with the Oversight Board, the "Defendants"). The Court heard argument on the Motion on July 25, 2018 (the "Hearing"), and has considered carefully all of the arguments and submissions made in connection with the Motion.³ Except as explained below, the Court has subject matter jurisdiction of this action pursuant to 48 U.S.C. § 2166. For the following reasons, the Motion is granted in part and denied in part.⁴

I. BACKGROUND

The following recitation of facts is drawn from the Adversary Complaint for Declaratory and Injunctive Relief (Docket Entry No. 1, the "Complaint"), filed on July 5, 2018, by the Honorable Ricardo Antonio Rosselló Nevares (the "Governor") in his official capacity as the Governor of the Commonwealth of Puerto Rico (the "Commonwealth" or "Puerto Rico") and the Puerto Rico Fiscal Agency and Financial Advisory Authority ("AAFAF" and, together with the Governor, "Plaintiffs"), except where otherwise noted.

A. Certification of the Fiscal Plan and Budget

On June 30, 2016, the United States Congress ("Congress") enacted the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA") to "stabilize Puerto Rico's economy by establishing oversight of the Government's budget and fiscal policies and by providing a mechanism for the Commonwealth to restructure its debts." (Compl. ¶ 21.)⁵ PROMESA created the Oversight Board as "an entity within the territorial government" of Puerto Rico and tasked the Oversight Board with developing "a method [for Puerto Rico] to achieve fiscal responsibility and access to the capital markets." 48 U.S.C.A. §§ 2121(a), (c)(1) (West 2017). In aid of that purpose, PROMESA empowers the Oversight Board to, among other things, certify the fiscal plans and budgets of the Commonwealth and its instrumentalities, override Commonwealth executive and legislative actions that are inconsistent with certified fiscal plans and budgets, and commence a bankruptcy-type proceeding in federal court on behalf of the Commonwealth or its instrumentalities. Id. §§ 2141–2152; 2175(a).

On May 3, 2017, 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.⁶ (See Docket Entry No. 1 in Case No. 17-03283). Shortly thereafter, the Oversight Board commenced Title III proceedings on behalf of certain Puerto Rican government instrumentalities.

Between January 24, 2018, and April 5, 2018, the Governor submitted four versions of a proposed Commonwealth fiscal plan for fiscal year 2019 to the Oversight Board for its approval. (Compl. ¶¶ 46, 47, 48, 50 (detailing fiscal plans submitted by the Governor to the Oversight Board on January 24, 2018, February 12, 2018, March 23, 2018, and April 5, 2018).) The Oversight Board rejected each proposed fiscal plan. (Id. ¶¶ 46-51.) On April 19, 2018, in connection with the Oversight Board's rejection of the Governor's fourth proposed Commonwealth fiscal plan (the "Governor's April 2018 Fiscal Plan"), the Oversight Board certified its own fiscal plan for the Commonwealth (the "April 2018 Board Fiscal Plan") pursuant to Sections 202(d)(2) and 202(e)(2) of PROMESA. (Id. ¶ 51.) The April 2018 Board Fiscal Plan was substantially similar to the Governor's April 2018 Fiscal Plan, but included certain policy initiatives that had previously been rejected by the Governor and that accounted for an additional 1.7 percent of the incremental savings contemplated by the April 2018 Board Fiscal Plan. (Id. )

On April 26, 2018, the Oversight Board sent the Governor a letter dated April 24, 2018, setting forth a proposed schedule for developing and certifying the Commonwealth's fiscal year 2019 budget and a revenue forecast for fiscal year 2019. (Id. ¶ 56.) On May 2, 2018, the Oversight Board sent a letter to AAFAF (i) describing detailed expense reductions and right-sizing measures aimed at achieving savings of $345 million in fiscal year 2019, (ii) including a draft budget resolution for adoption by the Legislative Assembly of the Commonwealth of Puerto Rico (the "Legislature"), and (iii) proposing detailed expense measures that set forth line-by-line amounts for expense items, including right-sizing measures, healthcare measures, subsidy reductions, and specific personnel and non-personnel expenditure amounts for each Commonwealth agency or instrumentality covered by the Commonwealth budget. (Id. ¶ 57.) On May 4, 2018, the Governor submitted a proposed Commonwealth budget for fiscal year 2019 (the "Governor's Proposed Budget") to the Oversight Board. (Id. ¶ 58.)

On May 6, 2018, the Governor submitted a written statement, pursuant to Section 205(b)(3) of PROMESA, to the Oversight Board, the President of the United States, and leaders of Congress. (Id. ¶ 59.) In this written statement, the Governor explained that certain "policy initiatives" outlined by the Oversight Board in connection with the April 2018 Board Fiscal Plan were, in fact, "recommendations" under Section 205 of PROMESA that could not be imposed by the Oversight Board on the elected government of Puerto Rico. (Id. ) Specifically, the Governor identified five measures included in the April 2018 Board Fiscal Plan that he had rejected: (i) private-sector human-capital and labor reforms, (ii) pension reforms, (iii) government agency consolidations, (iv) compensation related initiatives, and (v) reductions in appropriations to the University of Puerto Rico ("UPR"). (Id. ) The Governor asserted that the Oversight Board lacks power to impose these measures on the Government.⁷ (Id. )

On May 10, 2018, the Oversight Board issued a notice of violation under PROMESA Section 202(c)(1)(B)(i) to the Governor, stating that the Governor's Proposed Budget was not compliant with the April 2018 Board Fiscal Plan and requesting that the Governor submit a revised budget. (Id. ¶ 60.) The notice identified several inconsistencies between the April 2018 Board Fiscal Plan and the Governor's Proposed Budget, including (i) the Governor's failure to include UPR and workforce development reinvestments generated from comprehensive labor reform, (ii) the Governor's inclusion of Christmas bonuses for government employees, and (iii) a number of informational deficiencies in the Governor's Proposed Budget. (Id. )

After a period of negotiations, on May 20, 2018, the Governor and the Oversight Board agreed that the Oversight Board would amend and recertify the April 2018 Board Fiscal Plan to include a $101 million reduction of the projected annual surplus for fiscal year 2019 and to exclude the Oversight Board's prior measures reducing the minimum number of vacation and sick days for private sector employees and eliminating Christmas bonuses. (Id. ¶ 63.) In exchange, the Governor agreed to present a bill to repeal Puerto Rico's Wrongful Termination Act, Law No. 80 of May 30, 1976 (as amended, "Law 80"), for approval by the Legislature by June 27, 2018. (Id. ) On May 28, 2018, the Governor submitted to the Legislature a standalone bill to repeal Law 80. (Id. ¶ 64.) On May 30, 2018, the Oversight Board certified an amended version of the April 2018 Board Fiscal Plan, which contained the agreed-upon revisions. (Id. ¶ 65.) The Oversight Board delivered a compliance certification letter and a copy of the May 30, 2018, fiscal plan to the Governor, the President of the Senate of Puerto Rico, and the Speaker of the House of Representatives of Puerto Rico as required by PROMESA...