de Puerto Rico v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.)

110 F.4th 295

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Commonwealth of Puerto Rico; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative of the Puerto Rico Public Buildings Authority, Debtors.

La Liga de Ciudades de Puerto Rico, Plaintiff, Appellant, v. The Financial Oversight and Management Board for Puerto Rico; Autoridade De Asesoria Financiera Y Agencia Fiscal (AAFAF); Centro De Recaudacion De Ingresos Municipales (CRIM); Administracion de Seguros de Salud de Puerto Rico (ASES); Luis M. Collazo Rodriguez, in his Official Capacity as Administrator of the Sistemas de Retiro de los Empleados del Gobierno y la Judicatura del Estado Libre Asociado de Puerto Rico, Defendants, Appellees.

No. 22-1062

United States Court of Appeals, First Circuit

July 25, 2024

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO. [Hon. Laura Taylor Swain^*, U.S. District Judge]

Guillermo J. Ramos Luiña, with whom Tanaira Padilla Rodríguez was on brief, for appellant.

Lucas Kowalczyk, with whom Timothy W. Mungovan, John E. Roberts, Martin J. Bienenstock, Mark D. Harris, Guy Brenner, and Proskauer Rose LLP were on brief, for the Financial Oversight and Management Board for Puerto Rico, appellee.

Ashley M. Pavel, with whom John J. Rapisardi, Maria J. DiConza, Peter Friedman, and O'Melveny & Myers LLP were on brief, for AAFAF, ASES, and Luis M. Collazo Rodriguez, in his official capacity as administrator of the Sistemas de Retiro de los Empleados del Gobierno y la Judicatura del Estado Libre Asociado de Puerto Rico, appellees.

Fernando Van Derdys for CRIM, appellee.

Edwin Quiñones and Quiñones, Arbona & Candelario on brief for the Senate of the Commonwealth of Puerto Rico, amicus curiae.

Jaime L. Sanabria Montañez and ECIJA SBGB on brief for United States Representatives Nydia M. Velázquez, Alexandria Ocasio Cortez, and Ritchie Torres, amici curiae.

Before Barron, Chief Judge, Lipez and Montecalvo, Circuit Judges.

Lipez, Circuit Judge.

This case follows an unsuccessful effort by Puerto Rico to enact legislation — known as "Law 29" — to eliminate the burden on Puerto Rico's municipalities of complying with the Commonwealth's reformed public pension funding scheme. In previous litigation, the Title III court overseeing Puerto Rico's debt restructuring issued an Order and Opinion (the "O&O") declaring Law 29 "a nullity" and "of no effect." The correctness of that determination, which was never appealed, is not directly at issue.

Instead, plaintiff-appellant La Liga de Ciudades de Puerto Rico ("La Liga") insists that the O&O did not authorize the Financial Oversight and Management Board for Puerto Rico ("the Board") to recover the funds the municipalities had retained under the auspices of Law 29 for approximately one year, before the O&O took effect. Interpreting its own prior order to reach a contrary conclusion, the district court¹ granted defendant-appellees' assorted motions to dismiss, some on the merits and another for lack of standing. In the end, we affirm on the merits. Before doing so, however, because of an issue noted at oral argument by the panel and advanced by our colleague in a dissent, we must explain at some length why La Liga has standing to pursue the claims now before us.

I.

To resolve this matter, we must recount the facts underlying the proceeding directly at issue on appeal and those of the prior Law 29 litigation. Because we are reviewing a decision granting motions to dismiss, we "accept as true all well-pleaded facts alleged in the complaint and draw all reasonable inferences therefrom in the pleader's favor." Lee v. Conagra Brands, Inc., 958 F.3d 70, 74 (1st Cir. 2020) (quoting Lanza v. Fin. Indus. Regul. Auth., 953 F.3d 159, 162 (1st Cir. 2020)).

A. The Law 29 Litigation

1. PROMESA

In 2016, Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), Pub. L. No. 114-187, 130 Stat. 549 (2016) (codified at 48 U.S.C. §§ 2101-2241). The law addressed an unprecedented "fiscal emergency" in the Commonwealth, caused by "[a] combination of severe economic decline,... accumulated operating deficits, lack of financial transparency, management inefficiencies, and excessive borrowing." 48 U.S.C. § 2194(m). These conditions left "the Government of Puerto Rico ... unable to provide its citizens with effective services" and "affected the long-term economic stability of Puerto Rico by contributing to the accelerated outmigration of residents and businesses." Id. In enacting PROMESA, Congress sought to "provide the Government of Puerto Rico with the resources and the tools it needs to address" this "crisis" by "provid[ing] an oversight mechanism to assist the Government of Puerto Rico in reforming its fiscal governance," with the ultimate goal of "encouraging the Government of Puerto Rico to resolve its longstanding fiscal governance issues and return to economic growth." Id. § 2194(n).

PROMESA created the Financial Oversight and Management Board, an entity with "wide-ranging authority to oversee and direct many aspects of Puerto Rico's financial recovery efforts." Pierluisi v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 37 F.4th 746, 750 (1st Cir. 2022). The Board exercises "primarily local power[ ]" to "supervis[e] aspects of Puerto Rico's fiscal and budgetary policies." Fin. Oversight & Mgmt. Bd. for P.R. v. Aurelius Inv., LLC, 590 U.S. 448, 453, 471, 140 S. Ct. 1649, 1655, 1665, 207 L.Ed.2d 18 (2020).

PROMESA requires the governor of Puerto Rico, under the Board's oversight, to annually promulgate "Fiscal Plans," see 48 U.S.C. § 2141, which are "roadmaps for Puerto Rico 'to achieve fiscal responsibility and access to the capital markets,'" Méndez-Núñez v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 916 F.3d 98, 104-05 (1st Cir. 2019) (quoting 48 U.S.C. § 2141(b)(1)). The Fiscal Plan must "provide for estimates of revenues and expenditures" and "adequate funding for public pension systems," among other things, 48 U.S.C. § 2141(b)(1), and must be approved by the Board before it can take effect, seeid. § 2141(c)(3).

PROMESA requires the Board to review "any law" enacted by Puerto Rico "to ensure that the enactment or enforcement of the law will not adversely affect the territorial government's compliance with the Fiscal Plan." Id. § 2144. This "multi-step, back-and-forth" review process begins with the governor submitting to the Board a certification containing a formal estimate of the law's fiscal impact and attesting to whether it complies with the Fiscal Plan. Pierluisi, 37 F.4th at 751 (analyzing 48 U.S.C. § 2144(a)(1)-(5)). The Board "may take such actions as it considers necessary, consistent with [PROMESA]," to enforce Puerto Rico's compliance with the certification requirement and the Fiscal Plan, "including preventing the enforcement or application of the law." 48 U.S.C. § 2144(a)(5). PROMESA also prohibits Puerto Rico from "enact[ing], implement[ing], or enforc[ing] any statute, resolution, policy, or rule that would impair or defeat the purposes of [PROMESA], as determined by the Oversight Board," id. § 2128(a)(2), and it prohibits the Commonwealth from "reprogramming" any budgeted funds unless the Board "certifies such reprogramming will not be inconsistent with the Fiscal Plan and Budget," id. § 2144(c)(1)-(2). The Board may "seek judicial enforcement" of these requirements. Id. § 2124(k).

Title III of PROMESA creates a debt restructuring process "akin to municipal debt restructuring under Chapter 9 of the bankruptcy code." Fin. Oversight & Mgmt. Bd. for P.R. v. Ad Hoc Grp. of PREPA Bondholders (In re Fin. Oversight & Mgmt. Bd. for P.R.), 899 F.3d 13, 18 (1st Cir. 2018); see also 48 U.S.C. §§ 2161-2177. We refer to the district court overseeing those proceedings as the "Title III court." In 2017, the Board commenced a Title III debt adjustment proceeding on behalf of the Commonwealth and several of its instrumentalities, under which the original Law 29 litigation and the present case arose as adversary proceedings.

2. Transition to the "PayGo" System and Law 29

The Board approved a Fiscal Plan for the 2017 fiscal year in March 2017. See Fin. Oversight & Mgmt. Bd. for P.R. v. Vázquez Garced (In re Fin. Oversight & Mgmt. Bd. for P.R.), 616 B.R. 238, 242 (D.P.R. 2020). Among numerous reforms, the 2017 Fiscal Plan called for Puerto Rico's public employee pension system to transition to a "Pay-as-you-Go" or "PayGo" model. Later that year, Puerto Rico enacted legislation, known as "Act 106," that implemented this transition. Act 106 directed the Commonwealth to deliver all pension disbursements to Puerto Rico's retired public employees directly from its general fund as those payments came due. Puerto Rico's public employers — including municipalities — would finance those disbursements by reimbursing the Commonwealth each month for benefits payments to retirees associated with that employer. See id. at 242-43.

The PayGo system was a key component of subsequent Fiscal Plans, including the 2019 Fiscal Plan. See id. at 242. However, shortly after that Plan's certification, lawmakers in Puerto Rico passed Law 29, formally titled the "Act for Reductions of the Administrative Burdens of the Municipalities." Id. Law 29 expressly...