United States of America v. Vaello-Madero
Filing
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OPINION AND ORDER re 23 Notice of Voluntary Dismissal, filed by United States of America: DENIED. Signed by Judge Gustavo A. Gelpi on 5/14/18.(PJH) (Main Document 36 replaced on 5/14/2018 as per Chambers request) (gmm).
Case 3:17-cv-02133-GAG Document 36 Filed 05/14/18 Page 1 of 9
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
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UNITED STATES OF AMERICA,
Plaintiff,
v.
JOSE LUIS VAELLO-MADERO,
CASE NO. 17-2133 (GAG)
Defendant.
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OPINION AND ORDER
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The United States moves for voluntary dismissal of its claims against José Luis Vaello-
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Madero arising from erroneous and in excess payments under the Supplemental Security Income
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(SSI) program. (Docket No. 23). For the reasons discussed below, the United States’ motion is
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DENIED.
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I.
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Relevant Factual Background
The following facts are taken from the record and parties’ submissions, and are only
considered as true for purposes of this motion:
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Vaello-Madero lived in New York between 1985-2013. There, he received SSI disability
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benefits, which were deposited into his New York bank account. (Docket No. 25 ¶¶ 6-8). In July
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2013, he moved to Puerto Rico, and continued receiving SSI disability payments through his New
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York bank account until August 2016. Id. ¶¶ 9, 13. Throughout this time, he was unaware that his
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relocation would affect his ability to receive SSI disability benefits. Id. ¶ 12.
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Vaello-Madero learned he was ineligible for SSI payments in June 2016. Id. ¶ 11. Through
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two notices that summer, the Social Security Administration (SSA) stopped its SSI payments and
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retroactively reduced its payments from August 2013 through August 2016 to $0. (Docket Nos.
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32-1 at 2; 25 at 4). Those two notices did not inform Vaello-Madero that he was liable for any
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overpayments, but stated that the SSA could contact him in the future “about any payments we
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previously made.” (Docket Nos. 32-1 at 2; 25 at 4). More than a year later, the United States
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commenced an action against Vaello-Madero to collect $28,081.00 in overpaid SSI benefits after
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he moved to Puerto Rico. Jurisdiction was premised on 28 U.S.C. § 1345 and 42 U.S.C. §
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408(a)(4). (Docket No. 1 at 1-2).
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The United States and Vaello-Madero, unrepresented by counsel, signed a stipulation for
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consent judgment less than a week after this case was filed. (Docket No. 3). Nevertheless,
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represented by Court-appointed pro bono counsel, Vaello-Madero subsequently moved to
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withdraw the stipulation for consent judgment. (Docket Nos. 5; 19). Vaello-Madero then filed an
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answer challenging 42 U.S.C. § 408(a)(4), a criminal statute, as a basis for the civil action and
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attacking the constitutionality of denying SSI benefits to residents of Puerto Rico. (Docket No.
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17). In response, the United States moved for voluntary dismissal without prejudice,
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acknowledging its lack of jurisdiction under 42 U.S.C. § 408(a)(4) and alleging that the Social
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Security Act’s administrative requirements have not been met. (Docket No. 23).
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II.
Discussion
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The United States moves to dismiss without prejudice its claims against Vaello-Madero
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under Rule 41(a)(2) of the Federal Rules of Civil Procedure. This rule states that “an action may
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be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper.”
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FED. R. CIV. P. 41(a)(2). The United States argues that it made a mistake pleading jurisdiction, and
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the Court lacks jurisdiction over this case because Vaello-Madero did not exhaust administrative
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remedies under 42 U.S.C. § 405(g). Vaello-Madero counters that 28 U.S.C. § 1345 confers
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jurisdiction and that dismissal without prejudice would be unfair. The Court agrees with Vaello-
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Madero.
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A. Subject-Matter Jurisdiction under 28 U.S.C. § 1345
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Section 1345 grants the district courts “original jurisdiction of all civil actions, suits or
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proceedings commenced by the United States,” unless an act of Congress provides otherwise.
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28 U.S.C. § 1345 (emphasis added). It “grants broad jurisdictional power to the district courts over
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suits when the United States is plaintiff,” including actions to determine “the United States’ right
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to obtain restitution of monies wrongfully paid from the public fisc.” United States v. Lahey Clinic
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Hosp., Inc., 399 F.3d 1, 9, 12 (1st Cir. 2005), cert. denied, 546 U.S. 815 (2005). The Social Security
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Act’s administrative review scheme under 42 U.S.C. § 405(g)-(h) does not defeat jurisdiction
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under section 1345 when the United States appears as plaintiff. The First Circuit has held that
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“these statutes do not purport to limit the government’s ability to bring a claim . . . under a different
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grant of jurisdiction,” like section 1345. Id. at 14. Hence, “administrative remedies are not
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exclusive when the United States institutes suit.” Id. at 16.
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As in Lahey, here the United States sued Vaello-Madero for restitution. Thus, Vaello-
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Madero was not required to exhaust administrative remedies to bestow the Court with jurisdiction
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over this case and his affirmative defenses. As stated above, “administrative remedies are not
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exclusive when the United States institutes suit”; the United States can bring its claim “under a
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different grant of jurisdiction.” Id. at 14, 16. Although not explicitly stated in the complaint, this
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claim arises “under common law theories of unjust enrichment and payment under mistake of
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fact,” which provides a different grant of jurisdiction for purposes of section 1345. Id. at 3-4. In
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sum, all that matters here is that the United States brought suit, which “grants broad jurisdictional
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power” to the Court. Id. at 9. The Court has jurisdiction to address the merits of the United States’
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overpayment claim, and the constitutional challenge as an affirmative defense to Vaello-Madero’s
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liability.
B. Unfair Treatment under Rule 41(a)(2)
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Rule 41(a)(2) of the Federal Rules of Civil Procedure, governing voluntary dismissals,
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“protect[s] the nonmovant from unfair treatment . . . [which] can take numerous forms.” Colon-
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Cabrera v. Esso Standard Oil Co. (Puerto Rico), 723 F.3d 82, 88 (1st Cir. 2013). Among many
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factors, the Court may “consider whether ‘a party proposes to dismiss the case at a late stage of
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pretrial proceedings, or seeks to avoid an imminent adverse ruling.’” Id. (citing In re FEMA Trailer
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Formaldahyde Prods. Liab. Litig., 628 F.3d 157, 162 (5th Cir. 2010)). Moreover, “[a] plaintiff
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should not be permitted to force a defendant to incur substantial costs in litigating an action, and
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then simply dismiss his own case and compel the defendant to litigate a wholly new proceeding.”
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Id.
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Dismissing this suit without prejudice would unfairly harm Vaello-Madero. It could burden
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him with more legal proceedings under the SSA’s administrative scheme—potentially returning
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his case to where it is today, but months, maybe years, from now. Also, the case should not be
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dismissed considering the possibility that the United States merely “seeks to avoid an imminent
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adverse ruling” regarding the constitutional issue at stake. Id. (citing In re FEMA, 628 F.3d at
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162).
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The United States’ legal capacity to discriminate against residents of Puerto Rico in
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healthcare and other federal programs, including SSI, stems from a brief per curiam Supreme Court
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opinion that recently “celebrated” its fortieth anniversary. See Califano v. Torres, 435 U.S. 1
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(1978). This case and its sequel, Harris v. Rosario, permit Congress to discriminate in extending
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these benefits to Puerto Rico “so long as there is a rational basis for its actions.” Harris v. Rosario,
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446 U.S. 651 (1980). The rational basis for discrimination identified by the Court in Califano and
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Harris was that: “Puerto Rican residents do not contribute to the federal treasury; the cost of
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treating Puerto Rico as a State under the statute would be high; and greater benefits could disrupt
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the Puerto Rican economy.” Harris, 446 U.S. at 652.
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The Court does not need to dive deep into “the quagmire of Puerto Rican status litigation”
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to explain why an adverse ruling for the United States despite these precedents is possible. United
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States v. Lopez Andino, 831 F.2d 1164, 1172 (1st Cir. 1987) (Torruella, J., concurring). Such an
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adverse ruling, departing from precedent, would resemble how Plessy v. Ferguson was overturned
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in Brown v. Board of Education. 163 U.S. 537 (1896); 347 U.S. 483 (1954). Federal courts could
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find that the proposed “rational” reasons are actually “irrational,” or opt to apply a heightened
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standard of scrutiny. While, of course, only the Supreme Court can leave Califano and Harris
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without effect, constitutional litigation must commence at the district court level and work its way
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up.
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Recent developments concerning Puerto Rico, for example, increased awareness of its
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plight in the mainland after Hurricane María as well as national and local consensus against such
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disparate treatment, could further encourage the courts to revisit Califano and Harris. For starters,
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the proposition stated in Harris that “Puerto Rican residents do not contribute to the federal
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treasury” is erroneous. Harris, 446 U.S. at 652. True, “Puerto Rico residents generally are exempt
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from federal taxes on income from Puerto Rico sources.” U.S. Gov’t Accountability Off., GAO-
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14-31, Puerto Rico: Information on How Statehood Would Potentially Affect Selected Federal
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Programs and Revenue Sources 7 (2014). But as the Government Accountability Office states:
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“Puerto Rico’s residents have access to many federal programs and are subject to certain federal
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tax laws.” Id. at 2 (emphasis added). For example, residents of Puerto Rico pay federal payroll
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taxes to finance Social Security and Medicare, equally to their stateside brethren. See Consejo de
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Salud Playa de Ponce v. Rullán, 586 F. Supp. 2d 22, 38 (D.P.R. 2008). Regardless, “for some
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federal programs, Puerto Rico or its residents are subject to different requirements or funding rules
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than are the states or their residents.” U.S. Gov’t Accountability Off., Puerto Rico, supra, at 2.
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Such is the case with SSI.
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Scholar Arnold Leibowitz notes significant shortcomings in the Supreme Court’s rational-
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basis review. For example, although Puerto Rico does not contribute to the federal treasury exactly
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as a state, “Congress has discriminated against citizens in the territories regardless of income tax
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payments.” Arnold H. Leibowitz, Defining Status 30-31 (1989) (emphasis added). For example, in
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1916, the Federal Aid Highway Act did not extend a matching-funds benefit to the Territory of
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Alaska, which paid federal taxes, but did to Hawaii, which also paid, and Puerto Rico, which did
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not. Id. at 31. Another inconsistency concerns the cost of extending equal welfare benefits to Puerto
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Rico. According to Leibowitz, this is a consideration “which no State citizen would be subjected
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to.” Leibowitz, Defining Status, supra, at 31. Indeed, when has Congress considered the cost of a
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statute’s application in a single state, enacted the statute, and refused to apply it for the citizens of
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that particular state? If Puerto Rico had been treated equally for purposes of SSI in 2011, federal
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spending for the program would have ranged from $1.5 billion to $1.8 billion. U.S. Gov’t
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Accountability Off., Puerto Rico, supra, at 82. These are pennies in the bucket of a $3.8 trillion
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budget, especially when one considers that it would have improved the quality of life of up to
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354,000 individuals. Id.
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Hurricane María provides another reason why federal courts could revisit Harris and
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Califano. The hurricane blew away the mainland’s lack of awareness regarding the inequality that
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United States citizens suffer just for residing in Puerto Rico. As First Circuit Court of Appeals
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Judge Juan R. Torruella points out in the Harvard Law Review Forum, “[i]f there is a silver lining
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to be found within the catastrophic impact of Hurricane María on the Island of Puerto Rico, it is
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that the barrage of news generated by that unfortunate event has served to inform the rest of the
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nation that Puerto Rico is a ‘part of the United States’ and that its residents are ‘citizens of the
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United States.’” Juan R. Torruella, Why Puerto Rico Does Not Need Further Experimentation with
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Its Future: A Reply to the Notion of “Territorial Federalism,” 131 Harv. L. Rev. F. 65, 67 (2018).
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This newfound awareness could trigger juridical change as other American citizens learn of the
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limits imposed on their rights due to anachronistic historical and geographical quirks dating to
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precedents established by the same Supreme Court that decided Plessy.
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The belief that the discriminatory duo of Califano and Harris should be revisited transcends
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local politics—an unusual circumstance. For example, Puerto Rico former Governor Pedro J.
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Rosselló argues against excluding United States citizens residing in Puerto Rico from equal
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treatment in federal programs like SSI. “This exclusion results in major curtailment of civil and
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socioeconomic rights of a discrete group of citizens, based solely and artificially on geographic
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residence.” Pedro J. Rosselló, Foreword to Gustavo A. Gelpí, The Constitutional Evolution of
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Puerto Rico and Other U.S. Territories (1898 – Present) 24 (2017). As a result, this exclusion
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deprives these citizens from “equal protection under the law for multiple socioeconomic programs,
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such as Medicaid, Supplemental Security Income Program, Aid to Families with dependent
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children, among others.” Id.
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Rosselló’s predecessor, former Governor Rafael Hernández Colón, concurs. He criticizes
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Califano and Harris by stating that “one must understand that the rational criteria utilized by the
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U.S. Supreme Court—which allowed for discrimination in Califano and Harris—overlooked the
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racial premises permeating the Insular Cases.” Rafael Hernández Colón, The Evolution of
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Democratic Governance under the Territorial Clause of the U.S. Constitution, 50 Suffolk U. L.
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Rev. 587, 606 (2017). The controversial Insular Cases, decided in the early 1900s, created the
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framework of incorporated and unincorporated territories, where the former are destined for
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statehood and the latter are not necessarily. Whatever pros and cons may have evolved from such
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framework, the fact remains that they were grounded on outdated premises. As former U.S.
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Attorney General Richard Thornburgh explains, “the ‘alien race’ of the inhabitants in the far-flung
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territories acquired from Spain . . . was pivotal to the reasoning behind the bold imperialist doctrine
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formulated by the Court.” Richard Thornburgh, Puerto Rico’s Future 47 (2007). Hence, as Justice
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Marshall denounced in Harris, “the present validity of those decisions is questionable.” Harris, 446
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U.S. at 653 (Marshall, J., dissenting).
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Yet another former executive agrees that Puerto Rico’s unequal treatment is at least part of
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the equation behind Puerto Rico’s current fiscal and economic crisis. Former Governor Aníbal
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Acevedo Vilá denounces that, “Congress sometimes excludes Puerto Rico from laws that would
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benefit it, while also denying the same level of funding that the fifty states get to enjoy with regards
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to their specific financial situations or to fund federally-mandated programs.” Aníbal Acevedo
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Vilá, With Plenary Powers Comes Plenary Responsibility: Puerto Rico’s Economic and Fiscal
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Crisis and the United States, Rev. Jur. UPR 729, 742 (2016). Hence, three governors with different
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views regarding Puerto Rico’s ultimate political status all coincide as to the injustice sanctioned
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by Califano and Harris. Their collective experience of twenty-four years indeed carries significant
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weight.
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Califano and Harris, and the ensuing forty years of discrimination upheld under rational-
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basis review, may be ripe for reconsideration. “Bureaucratic inertia, combined with the
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powerlessness and distance of the territories” has given this discriminatory treatment a lifespan
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that approaches Plessy’s. Leibowitz, Defining Status, supra, at 31. But the reality is that these cases
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were decided “without benefit of briefing or argument,” as Justice Marshall warned, or worse,
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without even the benefit of the government of Puerto Rico participating in the case and being
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heard. Harris, 446 U.S. at 654 (Marshall, J., dissenting). Circumstances surrounding Puerto Rico
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have changed. There is increased national awareness of its existence and political consensus
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against its disparate treatment. As a result, federal courts could now conclude that heightened
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scrutiny is “a proposition [that] surely warrants [their] full attention,” potentially leading to an
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adverse result for the United States. Id.; see also Hernández-Colón, The Evolution, supra, at 606
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(“Elemental principles of fairness and equal protection demand that such distinctions drawn by
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Congress in the application of federal programs to Puerto Rico and other nonstate areas should be
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subject to strict scrutiny.”).
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Hence, the Court agrees with Vaello-Madero that the United States’ voluntary dismissal
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“raises the prospect that the United States might be trying to abandon its chosen forum in response
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to what it might perceive as a serious setback.” (Docket No. 25 at 12). The Court will not allow
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the United States to avoid judicial review of an unsympathetic topic using jurisdictional pretexts.
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Therefore, the United States’ motion for voluntary dismissal at Docket No. 23 is DENIED.
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SO ORDERED.
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In San Juan, Puerto Rico this 14th day of May, 2018.
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s/ Gustavo A. Gelpí
GUSTAVO A. GELPI
United States District Judge
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