Universal Ins. Co. v. Dep't of Justice

• Decision Date: 22 June 2012
• Docket Number: Civil No. 11–1968 (FAB).
• Citation: 866 F.Supp.2d 49
• Parties: UNIVERSAL INSURANCE COMPANY, et al., Plaintiffs, v. DEPARTMENT OF JUSTICE, et al., Defendant.
• Court: U.S. District Court — District of Puerto Rico

866 F.Supp.2d 49

UNIVERSAL INSURANCE COMPANY, et al., Plaintiffs,

v.DEPARTMENT OF JUSTICE, et al., Defendant.

Civil No. 11–1968 (FAB).

United States District Court, D. Puerto Rico.

Feb. 23, 2012.

Opinion on Reconsideration in Part June 22, 2012.

Osvaldo Carlo–Linares, Lydia M. Ramos–Cruz, Lausell & Carlo, PSC Penthouse, Roberto L. Prats–Palerm, RPP Law PSC, San Juan, PR, for Plaintiffs.

Christian E. Pagan–Cordoliani, Puerto Rico Department of Justice, Vanessa D. Bonano–Rodriguez, Department of Justice Commonwealth of Puerto Rico, San Juan, PR, for Defendant.

OPINION AND ORDER

BESOSA, District Judge.

Before the Court is the motion to dismiss filed by defendants Commonwealth of Puerto Rico, the Department of Justice of the Commonwealth of Puerto Rico, and, in his official capacity as Attorney General, Guillermo Somoza–Colombani (collectively, “defendants”). (Docket No. 48.) For the reasons set forth below, defendants' motion to dismiss is DENIED in part and GRANTED in part.

DISCUSSION

I. Background

On July 12, 2011, the Commonwealth of Puerto Rico Legislative Assembly (“the legislature”) passed Public Law No. 119, known as the Uniform Seizure and Forfeiture Act of 2011 (“Law 119”). Law 119 establishes the rules that govern all asset forfeiture procedures in Puerto Rico. (Docket No. 26–1 at p. 1.) Law 119 repealed Public Law No. 93 of 1988 (“Law 93”), which “granted certain Commonwealth instrumentalities the authority to seize assets used for illegal purposes.” Id. According to the Puerto Rico legislature, the main reason for enacting Law 119 is that “multiple amendments and judicial constructions ... have caused confusion in the implementation of [Law 93].” Id. Therefore, Law 119 was passed allegedly to “clarif[y] the requirements that each person must meet to challenge a seizure.” Id. Notably, Law 119 changes the requirements for who can challenge a forfeiture. Id. Specifically, Article 15 of Law 119 provides that “persons notified as provided in this Act and who demonstrate they are the owners of the property” may challenge the seizure (emphasis added). (Docket No. 26–1 at p. 7.) An owner is “the individual who exercised dominion and control over the property in question before it was seized.” Id. at p. 2. Article 16 then states that:

“the plaintiff [who challenges a seizure] shall have the right to furnish a guaranty in favor of the Commonwealth of Puerto Rico ... for the sum of the appraisal of the seized property within twenty (20) days after the complaint challenging the seizure is filed.” Id. at p. 7–8.

Law 119 also allows insurance companies to challenge automobile seizures, but only on behalf of the owners. Specifically, Article 16 states that:

“In the case of motor vehicles whose insurance policy includes a seizure endorsement, the insurance company may only file a complaint challenging the seizure on behalf of the owner of the vehicle, for which it shall have to furnish the guaranty provided in this article (emphasis added). Id. at p. 8.

Plaintiffs Universal Insurance Company, MAPFRE PRAICO Insurance Company,and Cooperativa de Seguros Multiples de Puerto Rico (collectively, “plaintiffs”) are licensed by the Office of the Insurance Commissioner to operate as insurance carriers in Puerto Rico. (Docket No. 53 at p. 1.) Plaintiffs provide insurance coverage to banks and other financial institutions that finance the purchase of automobiles. (Docket No. 10 at ¶ 14.) Most vehicles purchased in Puerto Rico are financed; some vehicles are leased. (Docket No. 53 at p. 1.) When a financial institution finances a vehicle, it may register its lien on the license and title of the vehicle with the Department of Transportation and Public Works. Id. Financial institutions may require an insurance policy to finance vehicles. Plaintiffs state that they issue those insurance policies to cover a number of risks, including asset forfeiture. (Docket No. 10 at ¶¶ 9–11, 15.) They also assert that when an insured vehicle is seized and then forfeited to the Puerto Rico government, plaintiffs will pay the financial institutions pursuant to their insurance contracts. Id. at ¶ 16. Then, plaintiffs allegedly have the right to subrogation where “the insurer is placed in the same legal position as the bank or financial institution that financed the vehicle and is entitled to recover the balance owed to the bank by the proprietor.” Id.

On September 30, 2011, plaintiffs filed a complaint for declaratory judgment and permanent injunction. (Docket No. 1.) On October 25, 2011, plaintiffs filed a verified amended complaint against all defendants. (Docket No. 10.) In their amended complaint, plaintiffs seek a declaratory judgment to declare Law 119 unconstitutional. Id. at ¶¶ 38 and 49. Plaintiffs argue that Law 119 prevents them from exercising their right to subrogation pursuant to their insurance policies with the financial institutions and thus, that Law 119 removes their right to challenge automobile seizures. Id. at ¶ 36. Plaintiffs request that defendants be permanently enjoined from enforcing Law 119 because Law 119 violates rights guaranteed by the United States Constitution. Id. at ¶ 66. They assert that Law 119 violates the Takings Clause and Due Process under the Fifth and Fourteenth Amendments, and the Ex Post Facto and the Contract Clauses under Article I Section 10 of the United States Constitution. Id. at ¶¶ 38 and 49.

On November 22, 2011, defendants filed a motion to dismiss, ( See Docket No. 48), alleging that under Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”) plaintiffs fail to state a claim upon which relief can be granted. Defendants argue that plaintiffs 1) have no property interest in the forfeited vehicles and no injury—economic or otherwise—and therefore, have no standing to challenge the constitutionality of the statute, 2) fail to state a claim under the Takings Clause, 3) fail to state a claim for a Due Process violation, 4) fail to state a claim under the Ex Post Facto Clause, and 5) fail to state a claim under the Contract Clause. Id. The Court will consider each argument in turn.

On November 25, 2011, plaintiffs filed an opposition to defendants' motion to dismiss. ( See Docket No. 52.) Plaintiffs argue that defendants “misinterpret” plaintiffs' arguments regarding the Takings Clause and Due Process, id. at p. 2 and 8, and re-assert that they have stated a claim for an Ex Post Facto Clause violation and for a Contract Clause violation, id. at p. 9.

II. Rule 12(b)(6) Motion to Dismiss Standard

Rule 12(b)(6) allows the Court to dismiss a complaint when it fails to state a claim upon which relief can be granted. When considering a motion under Rule 12(b)(6), a “court must view the facts contained in the pleadings in the light most favorable to the nonmovant and draw all reasonable inferences therefrom ...” R.G. Fin. Corp. v. Vergara–Nunez, 446 F.3d 178, 182 (1st Cir.2006). “[A]n adequate complaint must provide fair notice to the defendants and state a facially plausible legal claim.” Ocasio–Hernandez v. Fortuño–Burset, 640 F.3d 1, 11 (1st Cir.2011). When faced with a motion to dismiss, “[a] plaintiff is not entitled to ‘proceed perforce’ by virtue of allegations that merely parrot the elements of the cause of action.” Id. at 12 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009)). Any “[n]on-conclusory factual allegations in the complaint [,however,] must ... be treated as true, even if seemingly incredible.” Id. (citing Iqbal, 129 S.Ct. at 1951). Where those factual allegations “ ‘allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,’ the claim has facial plausibility.” Id. (quoting Iqbal, 129 S.Ct. at 1949). Furthermore, a court may not “attempt to forecast a plaintiff's likelihood of success on the merits; ‘a well-pleaded complaint may proceed even if ... a recovery is very remote and unlikely’.” Id. at 13 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The relevant inquiry, therefore, “focuses on the reasonableness of the inference of liability that the plaintiff is asking the court to draw from the facts alleged in the complaint.” Id. at 13.

According to Rule 12(b)(6), a court will base its determination solely on the material submitted as part of the complaint or central to it. Fudge v. Penthouse Int'l Ltd., 840 F.2d 1012, 1015 (1st Cir.1988). Generally, “a court may not consider documents that are outside of the complaint, or not expressly incorporated therein, unless the motion is converted into one for summary judgment.” Alternative Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001). “When ... a complaint's factual allegations are expressly linked to—and admittedly dependent upon—a document (the authenticity of which is not challenged), [however,] that document effectively merges into the pleadings and the trial court can review it in deciding a motion to dismiss under Rule 12(b)(6).” ¹Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 17 (1st Cir.1998) (internal citation omitted). This is especially true where the plaintiff has “actual notice ... and has relied upon these documents in framing the complaint.” Watterson v. Page, 987 F.2d 1, 4 (1st Cir.1993).

III. Standing

The Court must first address defendants' contention that plaintiffs lack standing to challenge the constitutionality of Law 119. “Article III of the United States Constitution limits the ‘judicial power’ of the United States to the resolution of ‘cases' and ‘controversies.’ ” Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, 454 U.S. 464, 471, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982). A crucial part of the case and controversy limitation on the power of federal courts is the requirement that a plaintiff must have standing to invoke federal jurisdiction. Id. at 471–73, 102 S.Ct. 752. “[S]tanding is a threshold...