Voya Institutional Trust Company v. University of Puerto Rico et al
Filing
39
MEMORANDUM AND ORDER re 14 Motion to Dismiss; re 15 Motion to Dismiss as to Voya Institutional Trust Company; re 27 Motion in Compliance; re 28 Motion to Consolidate Cases; and re 30 Motion in Compliance as to 26 Order. The Court reserve s judgment regarding the motions to dismiss and motions concerning consolidation. The Court orders Voya to show cause as to why this case should not be summarily dismissed for lack of subject matter jurisdiction. (Docket Nos. 14, 15, 27, 28 & 30.) The parties must submit supplemental briefs addressing the issues raised in this memorandum and order no later than July 5, 2017. No extensions will be allowed. Signed by Judge Francisco A. Besosa on 06/21/2017. (brc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
VOYA
INSTITUTIONAL
COMPANY,
TRUST
Plaintiff,
Civil No. 16-2519 (FAB)
v.
UNIVERSITY OF PUERTO RICO, et
al.,
Defendants.
MEMORANDUM AND ORDER
BESOSA, District Judge.
Before the Court is the University of Puerto Rico (“UPR”),
Governor Alejandro García-Padilla (“García”), 1 and the President
of the University of Puerto Rico Celeste Freytes’ 2
(“Freytes”)
motions to dismiss pursuant to Federal Rule of Civil Procedure
Rule 12(b)(6).
(Docket Nos. 14 and 15.)
Additionally before the
Court are motions to consolidate with Universidad de Puerto Rico
v. Voya Institutional Trust Company, Civil No. 17-1040 (FAB).
1
Former Governor García left office on January 2, 2017. He was succeeded by
current Governor of Puerto Rico, Ricardo Antonio Rosselló-Nevares.
2 Celeste Freytes is no longer the president of the UPR.
Nivia FernándezHernández succeeded Freytes as interim president of the UPR on February 17,
2017. “Junta de Gobierno Elige Sucesora de Freytes,” El Vocero (February 17,
2017), http://elvocero.com/junta-de-gobierno-elige-sucesora-de-freytes. Dra.
Fernández resigned as interim president on May 24, 2017.
“Puerto Rico
University Chief Resigns Ahead of Arrest Order.”
NBC News (May 24, 2017),
http://www.nbcnews.com/news/latino/puerto-rico-university-chief-resigns-headarrest-order-n763976.
Currently, the UPR has no president, interim or
otherwise. The Court understands that the UPR has yet to name a president to
succeed Dra. Fernández.
Civil No. 16-2519 (FAB)
2
(Docket Nos. 27, 28 and 30.)
For the reasons set forth below, the
Court reserves judgment regarding the motions to dismiss and
motions
to
consolidate.
The
Court
orders
plaintiff
Voya
Institutional Trust Company (“Voya”) to show cause as to why this
case should not be summarily dismissed for lack of subject matter
jurisdiction.
I.
BACKGROUND
This case arises from a dispute regarding a voluntary deferred
compensation plan (“plan”) for eligible UPR personnel.
No. 1 at p. 1.)
(Docket
The plan consists of $100 million held in trust
for plan participants.
trustee for the plan.
(Docket No. 18 at p. 1.)
(Docket No. 1 at p. 3.)
Voya serves as
Assets belonging
the plan, identified as a “rabbi trust” or “top hat” deferred
compensation plan, 3 are exempt from taxation until distribution to
plan participants.
(Docket No. 18 at p. 1.)
Plan assets, however,
remain subject to the claims of the UPR’s general creditors in the
event of insolvency.
3
According to the plan agreement, if Voya
A top hat plan is “unfunded and is maintained by an employer primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees.” 29 U.S.C. § 1051(2). A rabbi trust is “an
irrevocable trust that lets an employee set aside funds for the benefit of an
employee in a top hat plan.” Ezenia! Inc. v. Nguyen, 536 B.R. 485, 512 (D.N.H.
2015). To qualify as a rabbi trust, the trust property must “remain property
of the employer and be subject to the claims of creditors in the event the
employer becomes insolvent—in other words, the employee has no right to the
trust res until disbursement in accordance with terms of the employer’s deferred
compensation plan.” Id. at 511. The Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. §§ 1001 et seq., is inapplicable to top hat plans. Cogan
v. Phoenix Life Ins. Co., 310 F.3d 238, 242 (1st Cir. 2002).
Civil No. 16-2519 (FAB)
3
determines that the UPR is insolvent, Voya must “discontinue
payments to Plan Participants or their beneficiaries and shall
hold the assets of the Trust for the benefit of [the UPR’s] general
creditors.” 4
Id. at p. 5.
Moreover, the trust agreement provides for early withdrawals
on an “unforeseeable emergency” basis, such as an unexpected
illness or death, but not for “foreseeable expenditures normally
budgetable.”
Id. at p. 8.
Voya has denied 140 requests for
withdrawals based on unforeseeable emergencies, rejecting attempts
to access $33 million of plan assets.
Id. at p. 9.
On May 31,
2016, Voya received a removal notice from UPR, requesting that
Voya transfer all plan property to the UPR’s board of trustees.
Id.
Shortly
thereafter,
the
UPR
mailed
a
letter
to
plan
participants informing them of the following: the UPR terminated
Voya as trustee, the UPR designated its board of trustees as
successor trustee, the UPR intended to dissolve the plan, and the
4
The plan agreement declares that the UPR is insolvent if “(i) [the UPR] is
unable to pay its debts as they become due, or (ii) [the UPR] is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.”
(Docket No. 1 at p. 6.) Voya cites the Commonwealth of Puerto Rico’s Audited
Financial Statements from June 30, 2016, which state that “[t]he UPR’s ability
to continue receiving similar operational support and financing from the
Commonwealth and GDB is uncertain.” Id. at p. 7. The UPR relies heavily on
contributions from the Commonwealth to cover $1.7 billion in operating expenses.
Id. Furthermore, Voya noted that the UPR is embroiled in bondholder litigation.
See U.S. Bank Trust Nat’l. Assn. v. Commonwealth of Puerto Rico, Civil No. 162510 (FAB).
Civil No. 16-2519 (FAB)
4
board of trustees would distribute the plan property accordingly.
Id. at pp. 9-10.
II.
DISCUSSION
Voya seeks a declaratory judgment pertaining to the transfer
of plan assets to the UPR board of trustees. (Docket No. 1 at
pp. 13-16.)
In particular, Voya requests that the Court determine
whether this transfer would violate the plan agreement, the Puerto
Rico
Emergency
Act”),
P.R.
Moratorium
Act
No.
and
21-2016,
Rehabilitation
and
the
Puerto
Act
(“Moratorium
Rico
Oversight,
Management, and Economic Stability Act (“PROMESA”), 48 U.S.C. §
2101 et seq.
On June 30, 2016, President Barack Obama signed PROMESA into
law.
PROMESA seeks to address the dire fiscal emergency in Puerto
Rico, and sets forth “[a] comprehensive approach to [Puerto Rico’s]
fiscal, management and structural problems and [. . .] a Federal
statutory
authority
for
debts
a
restructure
§ 405(m)(4).
in
the
fair
Government
and
orderly
of
Puerto
process.”
Rico
to
PROMESA
Among PROMESA’s provisions is an automatic stay of
all debt-related litigation against the Commonwealth and covered
instrumentalities, including the UPR, which was or could have been
commenced before the statute’s enactment.
PROMESA § 405(b).
This
component of PROMESA is “essential to stabilize the region for the
purposes of resolving” the Commonwealth’s financial crisis.
Id.
Civil No. 16-2519 (FAB)
§ 405(m)(5).
5
With the automatic stay, Congress “allow[ed] the
Government of Puerto Rico a limited period of time during which it
can focus its resources on negotiating a voluntary resolution with
its
creditors
lawsuits.”
instead
of
defending
numerous,
costly
creditor
Id. § 405(n)(2).
The automatic stay, however, is “limited in nature,” PROMESA
§
405(m)(5)(B),
and
remains
in
effect
until
the
earlier
of
(1) February 15, 2017, with a possible extension of sixty or
seventy-five days, or (2) the date on which the Oversight Board 5
files a petition on behalf of the Government of Puerto Rico or any
of its instrumentalities to commence debt-adjustment proceedings
pursuant to Title III of PROMESA.
Id. § 405(d).
The automatic stay expired on May 1, 2017.
Oversight
Board
filed
Title
III
petitions
Subsequently, the
on
behalf
of
the
Commonwealth of Puerto Rico, the Puerto Rico Sales Tax Financing
5
PROMESA establishes a seven-member Oversight Board for Puerto Rico. Id. §§
101(b)(1), (e)(1)(A).
“The purpose of the Oversight Board is to provide a
method for [Puerto Rico] to achieve fiscal responsibility and access to the
capital markets.”
Id. § 101(a). The Oversight Board operates as an entity
within the Government of Puerto Rico, id. § 101(c), and is given broad authority
over the Commonwealth and any of its instrumentalities that the Board designates
as “covered” instrumentalities, id. § 101(d)(1). For instance, the Oversight
Board has the authority to develop, review, and approve territorial and
instrumentality fiscal plans and budgets, id. §§ 201-202; to enforce budget and
fiscal plan compliance, id. §§ 203-204; to seek judicial enforcement of its
authority to carry out its responsibilities under PROMESA, id. § 104(k); and to
intervene in any litigation filed against the Commonwealth or its
instrumentalities, id. § 212.
The Oversight Board designated the UPR as a
covered instrumentality on October 30, 2016. “List of Initial Covered Entities
under the Law,” Financial Oversight and Management Board for Puerto Rico
(Oct. 30, 2016), https://juntasupervision.pr.gov/index.php/en/documents/.
Civil No. 16-2519 (FAB)
Corporation
(“COFINA”),
6
the
Puerto
Rico
Highways
and
Transportation Authority (“HTA”), and the Employees’ Retirement
System (“ERS”). 6
Because the Commonwealth of Puerto Rico, COFINA,
the HTA and ERS are seeking relief pursuant to Title III, the
automatic stay is once more applicable to these entities.
405(d)(1)(C).
Id. §
The Oversight Board, however, has not filed a Title
III petition on behalf the UPR.
Consequently, the UPR is no longer
protected by the automatic stay set forth in section 405 of
PROMESA. 7
Voya argues that transfer of plan assets implicates the
automatic stay of PROMESA.
For instance, the automatic stay bars
litigation to “obtain possession of property of the Government of
Puerto Rico or of property from the Government of Puerto Rico or
to exercise control over property of the Government of Puerto
Rico.”
Id. at § 405(b)(3).
Additionally, section 405 prohibits
claims for remedies “conditioned upon the financial condition of,
or the commencement of a restructuring, insolvency, bankruptcy, or
other proceeding” during the automatic stay.
Id. at § 405(j).
6
The Oversight Board commissioned Prime Clerk LLC to maintain filings and other
records pertaining to PROMESA litigation.
Dockets relating to litigation
commenced
pursuant
to
Title
III
are
available
at
https://cases.primeclerk.com/puertorico.
7
Voya seeks relief from the automatic stay pursuant to section 405(e). (Docket
No. 1 at p. 13.) The Court deems that this request is moot. As previously
stated, the automatic stay protecting the UPR from litigation is no longer in
effect. Consequently, there is no applicable stay upon which the Court may
grant relief.
Civil No. 16-2519 (FAB)
7
Voya notes that PROMESA imposes liability for the transfer of
property under specific circumstances.
Id. at § 407.
Voya’s basis for federal subject matter jurisdiction hinges
on a provision of PROMESA that is no longer in effect.
The Court
cannot declare whether the transfer of plan assets to the UPR’s
broad of trustees violates PROMESA because the initial automatic
stay expired, and the UPR is not subject to PROMESA’s Title III.
The remaining claims set forth by Voya are rooted in Commonwealth
law.
Namely, Voya seeks declaratory relief pursuant to the Puerto
Rico
Emergency
Moratorium
and
Rehabilitation
Act
Act”), P.R. Act No. 21-2016, and the plan agreement.
(“Moratorium
Neither the
Moratorium Act nor the plan agreement, a contract between Voya and
the UPR, establishes federal jurisdiction. 8
Because “[f]ederal
courts are courts of limited jurisdiction,” the Court must “begin
by ensuring that [it has] jurisdiction to reach the questions
presented.”
Hochendoner v. Genzyme Corp., 823 F.3d 724, 730 (1st
Cir. 2016).
The Court is not persuaded that, at this juncture,
there is federal subject matter jurisdiction to adjudicate the
disputes at issue in this case. Accordingly, Voya must demonstrate
that the Court has jurisdiction to adjudicate this case.
8
Voya does not allege diversity jurisdiction.
Civil No. 16-2519 (FAB)
8
III. Conclusion
For the reasons set forth above, the Court reserves judgment
regarding
the
motions
consolidation.
to
dismiss
and
motions
concerning
The Court orders Voya to show cause as to why this
case should not be summarily dismissed for lack of subject matter
jurisdiction.
(Docket Nos. 14, 15, 27, 28 & 30.) 9
The parties
must submit supplemental briefs addressing the issues raised in
this
memorandum
and
order
no
later
than
July
5,
2017.
No
extensions will be allowed.
IT IS SO ORDERED.
San Juan, Puerto Rico, June 21, 2017.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
United States District Judge
9
The Court emphasizes that “a case may only be removed from state court if a
federal court would have had subject matter-jurisdiction over the case if
Garib-Bazain v. Hosp. Español Auxilio
brought in federal court initially.”
Mutuo, Inc., 773 F.Supp. 2d 248, 252 (D.P.R. 2011) (Besosa, J.) (citation
omitted).
Because the motions to consolidate implicate removal from the
Superior Court of San Juan, the Court holds that it is inappropriate to address
the motions regarding consolidation before federal subject matter jurisdiction
is established.
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