The First Circuit won’t countenance any erosion in PROMESA’s jurisdictional preclusion of attacks on fiscal plans promulgated for instrumentalities of the Commonwealth of Puerto Rico by the Oversight Board.
Consequently, federal courts have no jurisdiction to prevent the Oversight Board from requiring the reduction in pensions owing to professors at the University of Puerto Rico.
The University’s Retirement System
Beginning in 2017, Puerto Rico and some of its instrumentalities filed debt-adjustment proceedings under the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et seq.). PROMESA adopts large swaths of chapter 9, governing municipal bankruptcy.
The federally appointed Financial Oversight and Management Board was charged under PROMESA with developing fiscal plans for Puerto Rico and its instrumentalities.
The Oversight Board determined that the retirement system for professors at the University of Puerto Rico was facing insolvency. The Board eventually certified a fiscal plan saying that the university should freeze the defined benefit plan and adopt a defined contribution plan. The university’s governing board approved the plan.
An association of university professors filed suit in the PROMESA proceedings against the Oversight Board and the university, contending that the Board had no authority over the retirement system. The professors also argued that the Board overstepped its authority in telling the university how to rectify the retirement plan’s financial problems.
The Oversight Board moved to dismiss. Adopted by the district court, the magistrate judge granted the dismissal motion, ruling that the professors had no standing because they had not identified any injury-in-fact. The magistrate judge also said there was no jurisdiction under Section 106(e) of PROMESA.
The professors appealed to the circuit.
The Lack of Jurisdiction
Circuit Judge William J. Kayatta, Jr. upheld the district court in an opinion on February 14. He ruled on jurisdiction without reaching the question of standing.
The professors conceded that the university’s retirement system was “covered” by PROMESA, thus allowing the Oversight Board to promulgate a fiscal plan. However, they argued that their objection was not to the Board’s certification of the fiscal plan but to the scope of the Board’s authority.
The outcome turned on Section 106(e) of PROMESA, 48 U.S.C. § 2126(e). It provides that “[t]here shall be no jurisdiction in any United States district court to review challenges to the Oversight Board’s certification determinations under this Act.”
Judge Kayatta began from the proposition that “PROMESA clearly authorized the Oversight Board to issue a fiscal plan for any covered Commonwealth instrumentality” and that the university is a “covered instrumentality.”
Given the deprivation of jurisdiction in Section 106(e), he said that “the question [of] whether plaintiffs could challenge an unauthorized plan is irrelevant to the disposition of this appeal.” He dismissed the professor’s suit against the Oversight Board by quickly concluding that “section 106(e) precludes the district court from exercising jurisdiction over those claims.”
Having dismissed claims against the Board, Judge Kayatta ended his opinion by discussing dismissal of claims against the university.
The professors admitted that supplemental jurisdiction was “the only basis for jurisdiction” over claims against the university. Judge Kayatta found “no argument that maintaining supplemental jurisdiction would be appropriate following the dismissal of the claims against the Oversight Board.”
Without reaching the question of whether the plaintiffs had constitutional standing, Judge Kayatta upheld dismissal of the suit against both the Oversight Board and the university.
Updates on Related Puerto Rico Cases
One appeal involving PROMESA was argued in the Supreme Court on January 11, and certiorari was denied in another on February 21.
In Financial Oversight & Management Board for Puerto Rico v. Centro de Periodismo Investigativo Inc., 35 F.4th 1 (1st Cir. May 17, 2022), the First Circuit held over a vigorous dissent that Section 106 of PROMESA waived sovereign immunity as to the Oversight Board. To read ABI’s report, click here.
The appeal was argued on January 11. The case will allow the Supreme Court to decide whether a general grant of jurisdiction is sufficient to waive sovereign immunity. The case in the Supreme Court is Financial Oversight & Management Board for Puerto Rico v. Centro de Periodismo Investigativo Inc., 22-96 (Sup. Ct.).
In Financial Oversight and Management Board for Puerto Rico v. Cooperativa de Ahorro y Credito Abraham Rosa (In re Financial Oversight and Management Board for Puerto Rico), 41 F.4th 29 (1st Cir. June 18, 2022), the First Circuit split with the Ninth Circuit by holding that just compensation for a government’s taking of private property must be paid in full under the Fifth Amendment in the PROMESA proceedings and not at the discount afforded to holders of unsecured claims in a municipal bankruptcy.
The Supreme Court denied certiorari on February 21. The case in the Supreme Court was Financial Oversight and Management Board for Puerto Rico v. Cooperativa de Ahorro y Credito Abraham Rosa, 22-367 (Sup. Ct.)
The opinion is Asociacion Puertorriquena de Profesores Universitarios v. University of Puerto Rico (In Financial Oversight & Management Board for Puerto Rico), 21-1690 (1st Cir. Feb. 14, 2023).
The First Circuit won’t countenance any erosion in PROMESA’s jurisdictional preclusion of attacks on fiscal plans promulgated for instrumentalities of the Commonwealth of Puerto Rico by the Oversight Board.
Consequently, federal courts have no jurisdiction to prevent the Oversight Board from requiring the reduction in pensions owing to professors at the University of Puerto Rico.