UNITED AUTOMOBILE v. FORTUÑO

• Citation: 677 F. Supp.2d 530
• Decision Date: 14 December 2009
• Docket Number: Civil No. 09-1339 (JP).
• Parties: UNITED AUTOMOBILE, Aerospace, Agricultural Implement Workers of America International Union, et al., Plaintiffs v. Luis A. FORTUÑO, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

677 F.Supp.2d 530

UNITED AUTOMOBILE, Aerospace, Agricultural Implement Workers of America International Union, et al., Plaintiffs v. Luis A. FORTUÑO, et al., Defendants.

Civil No. 09-1339 (JP).

United States District Court, D. Puerto Rico.

December 14, 2009.

Manuel A. Rodriguez-Banchs, Rio Piedras, PR, Miguel Simonet-Sierra, Simonet Sierra Law Office, Guaynabo, PR, for Plaintiffs.

Lavinia Aparicio-Lopez, Commonwealth Department of Justice, Idza Diaz-Rivera, P.R. Department of Justice, San Juan, PR, for Defendant.

OPINION AND ORDER

JAIME PIERAS, Jr., Senior District Judge.

"It is the proud boast of our democracy that we have `a government of laws and not of men.'" Morrison v. Olson, 487 U.S. 654, 697, 108 S.Ct. 2597, 101 L.Ed.2d 569 (1988) (Scalia, J., dissenting). "Law alone saves a society from being rent by internecine strife or ruled by mere brute power however disguised." US v. United Mine Workers of America, 330 U.S. 258, 308, 67 S.Ct. 677, 91 L.Ed. 884 (1947) (Frankfurter, J., concurring). The case before the Court today brings to the forefront this principle which is central to our government.

Now before the Court is Defendants' motion to dismiss (No. 49) and Plaintiffs' opposition thereto (No. 56). Plaintiffs have filed the instant lawsuit pursuant to Article I, Section 10 (the "Contracts Clause"); 42 U.S.C. § 1983 ("Section 1983") based on violations of the Fifth, Ninth, Tenth, and Fourteenth Amendments to the United States Constitution; and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202; to enjoin Defendants from implementing phases one through three of Public Law No. 7 of March 9, 2009 ("Law 7"). For the reasons stated herein, Defendants' motion to dismiss is hereby GRANTED.

I. INTRODUCTION AND BACKGROUND

On February 25, 1998, the government of Puerto Rico enacted Public Law No. 45 ("Law 45"), P.R. Laws Ann. tit. 3, § 1451 et seq., authorizing public employees to organize into unions for the purpose of collective bargaining as to their salaries and other conditions of their employment. Law 45 requires employees to include in their collective bargaining agreements a provision to settle disputes through a grievance and arbitration procedure. Law 45 also created the Public Service Labor Relations Commission (the "PSLRC") and gave the PSLRC exclusive jurisdiction to adjudicate all labor disputes arising under the collective bargaining agreements. Section 5.1 of Law 45 created an obligation for government agencies to negotiate with the exclusive bargaining representative as to salaries and other conditions of employment for the public employees within the appropriate units.

Currently, more than fifty government agencies have in place collective bargaining agreements pursuant to Law 45. Plaintiffs allege that said agreements are contractual obligations that include economic and non-economic clauses, covering over fifty thousand government employees. Law 45 provides for a compulsory arbitration process in the case of an impasse in the negotiations between the exclusive bargaining representative and the government agency. Compulsory arbitration decisions involving economic issues are final and binding.

On March 9, 2009, Defendants signed Law 7, known as the "Law Declaring a Fiscal State of Emergency and Establishing Comprehensive Fiscal Stabilization Plan to Save Puerto Rico Credit." Law 7 states, inter alia, that Puerto Rico is in a fiscal state of emergency, and that the purpose of the law is to deal with the economic crisis through a three phase plan. The first phase, which was implemented upon the signing of Law 7, asked certain public employees to accept a permanent reduction of one day of work during every two-week period, and also asked for public employees to voluntarily resign from their employment.

The second phase, to be implemented if the first phase failed to achieve its objectives, involves the termination of public employees. Plaintiffs allege that up to 40,000 public employees could be laid off from their employment during this phase.

The third phase of Law 7, which was also effective the same day said law was enacted, temporarily repeals the government agencies' obligation to extend or negotiate expired contracts or contracts which expire within the next two years. Plaintiffs allege that by enacting Law 7, the government of Puerto Rico temporarily suspended any contractual obligations under valid and enforceable collective bargaining agreements.

Plaintiffs in this case are a number of labor unions, both at the national and local level, as well as public employees who are members of said unions. Plaintiffs allege that on its face, Law 7 deprives Plaintiffs of their rights under the Constitution of the United States and the Constitution of the Commonwealth of Puerto Rico, and also their statutory and contractual rights under Law 45. Specifically, Plaintiffs allege that it deprives public career employees of their property interest in their position as government employees.

II. LEGAL STANDARD FOR A MOTION TO DISMISS

According to the Supreme Court, "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1969, 167 L.Ed.2d 929 (2007). As such, in order to survive a motion to dismiss, a complaint must state a claim to relief that is plausible on its face, not merely conceivable. Id. at 1974. The United States Court of Appeal for the First Circuit has interpreted Twombly as sounding the death knell for the oft-quoted language of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Rodríguez-Ortiz v. Margo Caribe, Inc., 490 F.3d 92, 94-95 (1st Cir.2007) (quoting Twombly, 127 S.Ct. at 1969). Still, a court must "treat all allegations in the Complaint as true and draw all reasonable inferences therefrom in favor of the plaintiff." Rumford Pharmacy, Inc. v. City of East Providence, 970 F.2d 996, 997 (1st Cir.1992).

III. ANALYSIS

Defendants bring the instant motion to dismiss arguing that Plaintiffs have failed to state a cause of action for their Contracts Clause claims, Fifth Amendment and Fourteenth Amendment claims, Ninth Amendment claims, and Tenth Amendment claims. The Court will now consider Defendants' arguments.

A. Contracts Clause Claim

Plaintiffs set forth two principle arguments in support of their contention that Law 7 violates the Contracts Clause. First, Plaintiffs argue that Law 7 violated the statutory covenant rights created by Law 45. Second, they argue that Law 7 substantially impairs contracts by suspending large portions of the collective bargaining agreements ("CBA") and the ensuing layoffs.

The Contracts Clause protects individuals and other legal entities who have freely entered into contracts from retroactive litigation impairing the obligations under those contracts. See U.S. Const. Art. I, § 10; see also Redondo Constr. Corp. v. Izquierdo, 550 F.Supp.2d 257, 265 (D.P.R. 2008). Specifically, it provides that "no state shall . . . pass any . . . law impairing the obligation of contracts . . ." See U.S. Const. Art. I, § 10.

For a plaintiff to prevail on a Contracts Clause claim, a two part test applies. The first inquiry is "whether a change in state law has resulted in the substantial impairment of a contractual relationship." Parella v. Retirement Bd. of the Rhode Island Employees' Retirement System, 173 F.3d 46, 59 (1st Cir.1999) (internal quotation marks and citations omitted). This inquiry is broken down into three separate elements: (1) whether there is a contractual relationship, (2) whether a change in law impairs that contractual relationship, and (3) whether the impairment is substantial. Id. If these three elements are all answered affirmatively, the second inquiry is for the Court to determine "whether or not the impairment is nonetheless justified as reasonable and necessary to serve an important public purpose." Id. (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 25, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977)).

The First Circuit has held that the Contracts Clause is applicable to contracts entered into by the state, but typically "state statutory enactments do not of their own force create a contract with those whom the statute benefits." Hoffman v. Warwick, 909 F.2d 608, 614 (1st Cir.1990). As to the second inquiry stated above, this Court has held that "when a state itself is a party to a contract, a court must scrutinize the state's asserted purpose with an extra measure of vigilance." Mercado-Boneta v. Fernández, 950 F.Supp. 432, 433 (D.P.R.1996) (citing United States Trust Co. v. New Jersey, 431 U.S. 1, 25, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977)). The First Circuit stated that:

state must do more than mouth the vocabulary of the public weal in order to reach safe harbor; a vaguely worded or pretextual objective, or one that reasonably may be attained without substantially impairing the contract rights of private parties, will not serve to avoid the full impact of the Contracts Clause.

McGrath v. Rhode Island Retirement Board, 88 F.3d 12, 16 (1st Cir.1996). However, the First Circuit has held that "even a state law that creates a substantial impairment does not transgress the Contract Clause as long as it is appropriate for, and necessary to, the accomplishment of a legitimate public purpose." Houlton Citizens' Coalition v. Town of Houlton, 175 F.3d 178, 191 (1st Cir.1999) (citations omitted).

1. Statutory Covenant Created by Law 45

Plaintiffs argue, relying on U.S. Trust Company of N.Y. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977), that Defendants violated the Contracts Clause by breaching the statutory covenant created by Law 45. Plaintif...