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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

In re:
THE FINANCIAL OVERSIGHT AND
MANAGEMENT BOARD FOR PUERTO
RICO,
as representative of
THE COMMONWEALTH OF PUERTO
RICO, et al.,
Debtors. 1

In re:
THE FINANCIAL OVERSIGHT AND
MANAGEMENT BOARD FOR PUERTO
RICO,
as representative of
THE EMPLOYEES RETIREMENT
SYSTEM OF THE GOVERNMENT OF
THE COMMONWEALTH OF PUERTO
RICO (ERS),
Debtor.

AMERICAN FEDERATION OF STATE,
COUNTY & MUNICIPAL EMPLOYEES,
AFL-CIO,
Plaintiff,
v.

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PROMESA
Title III
Case No. 17-bk-03283 (LTS)
(Jointly Administered)

PROMESA
Title III
Case No. 17-bk-03566 (LTS)

Adv. No. _______________

1

The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number listed as a
bankruptcy case number due to software limitations and the last four (4) digits of each Debtor’s federal tax
identification number, as applicable, are the (i) Commonwealth of Puerto Rico (Bankruptcy Case No. 17 BK 3283LTS) (Last Four Digits of Federal Tax ID: 3481); and (ii) Puerto Rico Sales Tax Financing Corporation
(“COFINA”) (Bankruptcy Case No. 17 BK 3284) (Last Four Digits of Federal Tax ID: 8474).

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THE FINANCIAL OVERSIGHT AND
MANAGEMENT BOARD FOR PUERTO
RICO; MEMBERS OF THE FINANCIAL
OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, including
members Jose B. Carrion III, Andrew G.
Biggs, Carlos M. Garcia, Arthur J.
Gonzalez, Jose R. Gonzalez, Ana J.
Matosantos, and David A. Skeel, in their
official capacity as the voting members of
the Financial Oversight and Management
Board for Puerto Rico; the
COMMONWEALTH OF PUERTO RICO;
HON. RICARDO ANTONIO ROSSELLO
NEVARES, in his official capacity as the
Governor of the Commonwealth of Puerto
Rico; PUERTO RICO FISCAL AND
FINANCIAL ADVISORY AUTHORITY
(AAFAF); GERARDO PORTELA
FRANCO, in his official capacity as
Executive Director of AAFAF; HON.
RAUL MALDONADO GAUTIER, in his
official capacity as the Secretary of the
Treasury of the Commonwealth; and John
Does 1-15,
Defendants.

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X

ADVERSARY COMPLAINT
Plaintiff American Federation of State, County and Municipal Employees (AFSCME), on
behalf of its affiliates Servidores Públicos Unidos (in English, “United Public Servants,”
hereafter “SPU”) and the Capítulo de Retirados de SPU (the independently-chartered AFSCME
chapter for retired employees of the Commonwealth of Puerto Rico, hereafter the “SPU Retiree
Chapter”), by and through counsel, submits this Adversary Complaint against defendants the
Financial Oversight and Management Board for Puerto Rico (“Oversight Board” or “Board”);
Commonwealth of Puerto Rico (“Commonwealth”); the Puerto Rico Fiscal Agency and

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Financial Advisory Authority (“AAFAF”); and the following individual defendants sued in their
official capacity: Oversight Board voting members Jose B. Carrion III, Andrew G. Biggs, Carlos
M. Garcia, Arthur J. Gonzalez, Jose R. Gonzalez, Ana J. Matosantos, and David A. Skeel;
Commonwealth Governor Honorable Ricardo Rosselló Nevares; Commonwealth Secretary of
the Treasury Raúl Maldonado Gautier; AAFAF Executive Director Gerardo Portela Franco; and
John Does 1-15, and allege as follows:
I.

NATURE OF THIS
ALLEGATIONS
1.

ADVERSARY

PROCEEDING

AND

GENERAL

AFSCME brings this action to enforce the rights of Puerto Rico public employees

under the United States Constitution, the Puerto Rico Constitution, the Puerto Rico Oversight,
Management, and Economic Stability Act (“PROMESA” or “the Act”), and common law. The
relief sought herein is further authorized by the Civil Rights Act of 1871, 42 U.S.C. § 1983.
2.

AFSCME, through SPU, serves as the exclusive collective bargaining

representative under Commonwealth law for approximately 12,000 active Commonwealth
employees ranging from social workers to corrections officers to nurses who care for juvenile
wards of the Commonwealth. Separately, AFSCME’s independently-chartered Retiree Chapter
in Puerto Rico represents thousands of retired employees who receive monthly payments from
the Commonwealth as currently administered via the Employees Retirement System (“ERS” or
the “System”).
3.

AFSCME brings this action to secure and protect the rights of its members, both

active and retired employees of the Commonwealth, for the purpose of obtaining declaratory and
injunctive relief to oppose the implementation of austerity measures on Commonwealth
employees and retirees through furloughs and cuts to retirement income.

The anticipated

furloughs and cuts are the product of an unauthorized and illegal policy adopted by an unelected
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oversight board, to be imposed by such Board over the objection of the Commonwealth’s
democratically-elected governor.

Putting aside matters of Puerto Rican sovereignty and

democratic principles, these actions of the Board are illegal as they violate the terms of
PROMESA and exceed the statutorily-conferred authority granted by PROMESA to the Board.
4.

AFSCME and its members are invested in the Commonwealth’s financial

recovery and desire, above all else, for it to thrive. Unlike some other of the Commonwealth’s
creditors, the result of these Title III proceedings will not be reflected merely by a line item
adjustment to a balance sheet, but will be endured by AFSCME members daily -- at home, work,
and in retirement -- through a multitude of daily lived experiences.
5.

AFSCME complains that the development, approval, amendment and then

certification of a Fiscal Plan, as defined by PROMESA, for Puerto Rico on March 13, 2017 (the
“Final Fiscal Plan”), violated PROMESA both procedurally and substantively when on the one
hand, the Board certified the plan proposed by the Governor, but then on the other hand adopted
“amendments,” among other things, to such Plan.

Further, the Oversight Board failed to

adequately fund pensions and contingently imposed furloughs and compensation cuts on public
workers who perform essential services.

AFSCME seeks a ruling that the Board’s

“amendments,” and subsequent acts implementing such “amendments,” exceed the limited
authority granted it by Congress under PROMESA.
6.

The Board’s amendments to the Governor’s Fiscal Plan also violated the U.S.

Constitution and Puerto Rico Constitution by requiring the Commonwealth to take employees’
property, namely their individual retirement savings account balances, which were funded solely
by the employees’ own wage deductions (and that contain no employer contribution). AFSCME
seeks a ruling that these retirement savings account balances cannot constitutionally be reduced

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in these Title III cases, as well as equitable relief including the imposition of a statutory or
constructive trust over retirement plan assets.
The Complained-of Austerity Measures: Cuts to Vested Retirement Income
7.

On August 4, 2017, the Board made concrete its unauthorized imposition of these

austerity measures on employees and retirees when, at a public meeting, it announced its plans to
(1) cut the retirement benefits of public servants receiving as little as $600 per month in the form
of pensions, annuitized individual retiree savings accounts, and other modest benefits including
retiree health care stipends, and (2) require furloughs of public employees which would both
undermine the provision of essential government services and impose a monthly wage reduction
of 10% (together, the “August 4 Decrees”).
8.

The Board’s cuts are explicitly designed to drive Puerto Rico retirees’ fixed

incomes down to the poverty line for an individual, which the Board pegs at $12,000 per year.
Many retirees, however, also support dependents.
9.

The Board’s cuts also explicitly include cuts to employees’ individual retirement

savings account balances—accounts which have been in existence since 2000 and have always
been exclusively funded by employee contributions.

It appears, however, that the

Commonwealth or ERS may have diverted employees’ funds, as the Board indicated in the
August 4 Decrees that “instead of depositing employee contributions to [these] accounts” the
employees’ money was “diverted” rather than “saved in defined contribution accounts to fund
their future retirement benefits (as they should have been all along).” The Board’s statement
corroborates the fact that employees have been robbed of their property and must receive full
restitution notwithstanding the passage of PROMESA and the powers granted the Court under
Title III.

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10.

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Exacerbating this unconstitutional taking, the Board on June 30, 2017, adopted a

budget resolution as part of the Commonwealth’s FY 2018 budget which proposes to sell all
assets held by Commonwealth pension systems and transfer them to the Commonwealth itself,
thereby further diverting funds over which the Commonwealth has no title and that must be held
in trust, as the funds are attributable to money employees and retirees have deposited from their
own wages.

Both houses of the Commonwealth legislature have since passed a statute

implementing this budget resolution, including the asset sale and transfer. AFSCME seeks a
ruling that this asset transfer must be halted and that the assets instead preserved for the
exclusive purpose of funding employees’ and retirees’ individual accounts.
The Board’s Overstep of Its Authority under PROMESA
11.

When providing for the creation of the Oversight Board to assist in managing the

financial affairs of Puerto Rico, Congress crafted PROMESA to strike a careful balance between
the popular will of the Puerto Rican people as expressed through their democratically-elected
representatives, and the territorial powers of Congress. Although Congress granted significant
authority to the Oversight Board, Congress purposefully constrained that authority through the
procedure by which Fiscal Plans are developed, the substance of Fiscal Plans, and the budgetary
process by which Fiscal Plans are carried out.

This balance was intended to protect all

stakeholders but primarily the people of Puerto Rico, who are entitled to a functioning
government that can provide essential services and safety and which includes thousands of
citizens who as employees of the government are tasked with this challenging and urgent
obligation. The Board’s actions, however, have violated this balance by exceeding the statutory
authority granted to the Board by Congress.
12.

The substance of the Oversight Board’s amendments to the Governor’s proposed

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Fiscal Plan are plainly unlawful under PROMESA. By requiring the Commonwealth to reduce
retirees’ and employees’ vested retirement income security by 10% in total, the Final Fiscal Plan,
through its second amendment and as amplified by the Board in its August 4 Decree, contravenes
Congress’ clearly-stated mandate that any Fiscal Plan must “provide adequate funding for public
pension systems” per section 201(b)(1)(C) of PROMESA.
13.

This obligation is also a function of both the Commonwealth and U.S.

Constitutions.
14.

Further, by requiring a furlough of Commonwealth employees across the board

without regard to the Commonwealth’s ability to provide essential public services, the Final
Fiscal Plan, through the Board’s amendment and as applied by the Board in promulgating its
furlough decree on August 4, 2017, contravenes the clearly-stated requirement that any Fiscal
Plan adopted under PROMESA must “ensure the funding of essential public services” per
section 201(b)(1)(B) of PROMESA.
15.

The Board’s amendments are also procedurally invalid under PROMESA.

Congress recognized Puerto Rico’s sovereignty by designing a specific and particular process for
settling on a financially-distressed territory’s Fiscal Plan. PROMESA provides the Oversight
Board with two, and only two, paths to attaining a Fiscal Plan: The Oversight Board must either
(a) exercise “its sole discretion” to approve as-is a Fiscal Plan developed by the democraticallyelected Governor, or (b) develop its own Fiscal Plan. Unfortunately, the Oversight Board took
neither lawful route in developing the Final Fiscal Plan.
16.

Instead, the Board charted an unauthorized and dangerously uncertain path for the

Commonwealth by departing from PROMESA’s procedural and substantive requirements when
the Board opted to declare it had certified the democratically-elected Governor’s Fiscal Plan with

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two “amendments,” even though PROMESA provides no authority to the Oversight Board to
certify a Governor’s plan subject to amendment.
17.

This technical discrepancy has real-world impact. It must be noted that the

Governor is accountable to the People of Puerto Rico, whereas the Oversight Board is not.
PROMESA’s procedures recognize this distinction, which the Board failed to acknowledge when
it declared that it was approving and certifying the Governor’s proposed Fiscal Plan pursuant to
PROMESA Section 201(e) but subject to its own amendments, and neglecting to specify, as
required by PROMESA, whether the approval and certification occurred pursuant to Section
201(e)(1) (entitled “Approval of Fiscal Plan Developed by the Governor”) or Section 201(e)(2)
(entitled “Deemed Approval of Fiscal Plan Developed by Oversight Board”). As a result, the
Governor and Oversight Board are currently embroiled in a dispute about whether the Board’s
amendments were part of the Governor’s own proposed fiscal plan as certified (as the Board
contends) or mere “recommendations” of the Board which the Governor is not obliged to follow
(as the Governor asserts).
The Complained-of Austerity Measures – Employee Furloughs
18.

It is under the guise of this procedurally improper Final Fiscal Plan that the

Oversight Board now seeks to require the Commonwealth, through AAFAF, to impose furloughs
on its employees—over the objections of the Governor—and to do so through a provision in the
FY 2018 budget that exceeds the authority provided to the Board with respect to its budget
oversight authority.
19.

Like its process for the development, approval, and certification of Fiscal Plans,

PROMESA’s process for the approval and implementation of Commonwealth budgets contains
provisions designed to protect the sovereignty of Puerto Rico. In particular, under PROMESA

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Section 203, once an annual territory budget is certified, the Oversight Board shall only assess
the sovereign territorial government’s compliance therewith following the end of each
subsequent fiscal quarter, and then, after so finding, must engage in a series of steps if it wishes
to make any budgetary adjustments. First, the Board must request “additional information” from
the territorial government (Section 203(b)(1)(A)). Second, if that “additional information” does
not satisfy the Board, the Board may “advise the territorial government to correct the
inconsistency by implementing remedial action” (Section 203(b)(1)(B)). Third, if the territorial
government fails to do so, the Board “shall certify to the President . . . that the territorial
government is inconsistent with the applicable certified Budget” (Section 203(c)(1)). Fourth, the
sovereign territorial government shall be given another chance to correct the inconsistency as it
sees fit, and if it does so, the Oversight Board “shall certify the correction to the President”
(Section 201(c)(2)).

It is only if this painstaking official process fails—i.e., if, following

certification of an inconsistency to the President of the United States, the sovereign territory
government fails to correct the inconsistency on its own terms—that the Oversight Board may
order a “budget reduction” under PROMESA Section 201(d).
20.

Flouting the above-described will of Congress, the Oversight Board illegally

ordered the furloughs, which are clearly a “budget reduction” within the meaning of PROMESA,
before the first fiscal quarter of FY 2018 had ended and without certifying a budget
inconsistency to the President as required by law. To accomplish this unlawful result, the
Oversight Board illegally included the furloughs in the FY 2018 budget (and Fiscal Plan) as a
contingency left entirely to the Board’s future discretion.
21.

In other words, the Oversight Board created for itself the opportunity to make

future direct and substantial budgetary decisions for the Commonwealth outside of the process

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mandated by PROMESA.
22.

This violation of PROMESA Section 203 is a violation of the Puerto Rico

government’s right to control its own operations, as embodied in PROMESA’s budgetary
process as well as other provisions. At its core, and as reflected by the specific “back-and-forth”
budgetary process violated by the Board here, PROMESA simply does not confer on the
Oversight Board authority over operational personnel decisions, such as whether to engage in
furloughs. This limitation is reflected in PROMESA. Indeed, under PROMESA Section 203(d),
the Oversight Board’s budget reductions are limited “with respect to the territorial government”
to ordering “appropriate reductions in nondebt expenditures to ensure that the actual quarterly
revenues and expenditures for the territorial government are in compliance with the applicable
certified Territory Budget”—i.e., edit financial line items and nothing else—whereas “with
respect to covered territorial instrumentalities” the Board is expressly permitted to go further and
institute “automatic hiring freezes.”
23.

In fact, the only place that PROMESA permits the Oversight Board to weigh in

on “placing controls on expenditures for personnel, reducing benefit costs” and “the
establishment of alternatives for meeting obligations to pay for the pensions of territorial
government employees” is under Section 205, which sets forth a process for the Board to make
nonbinding “recommendations” to the territorial government on these and other subjects. Yet
the Board’s August 4 Decrees purport to mandate Commonwealth personnel decisions, and the
Governor asserts that the furlough program may only be considered as nonbinding
“recommendations” under PROMESA Section 205. (See Defendant Governor Rossello’s August
4, 2017 letter to President Trump rejecting the Board’s furlough plan as a “recommendation”
made under Section 205.)

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The Relief Sought by AFSCME
24.

The relief sought by AFSCME through this adversary proceeding is narrow and

modest. First, AFSCME seeks a declaration that only the amendments to the Final Fiscal Plan
are unlawful or else not part of the Fiscal Plan as certified and injunctive relief preventing their
implementation. As to employees’ own contributions to their individual retirement savings
accounts, which must be paid in full and cannot be impaired in any Title III plan of adjustment or
order confirming a Title III plan of adjustment. AFSCME further seeks an order imposing a trust
over and enjoining the sale of pension fund assets attributable to employee contributions in order
to ensure the Commonwealth is not unjustly enriched by its admittedly improper diversion of
employees’ own funds.
25.

AFSCME does not seek to stall the Commonwealth’s economic recovery, and the

relief sought here would not prevent or prohibit the Governor or the Oversight Board from
developing a different Fiscal Plan or FY 2018 budget, or simply using or adopting the
Governor’s Fiscal Plan in its un-amended form.
26.

The Commonwealth’s current and future retirees are not rich and will not become

rich because of their pensions or public employment. To the contrary, many of them will suffer
grievous harm from the cuts promised by the Board’s Final Fiscal Plan and implemented by the
August 4 Decrees, which threaten to plunge retirees to the Federal Poverty Line and cut already
modest salaries to below livable wages.
27.

Accordingly, AFSCME seeks declaratory and injunctive relief that the Final

Fiscal Plan and August 4 Decrees, and subsequent legislative acts implementing them, constitute
a taking without due process or just compensation in violation of Amendment 5 of the United
States Constitution (“Fifth Amendment”); a taking of property without just compensation in

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violation of Article II, Section 9 of the Puerto Rico Constitution (“Puerto Rico Takings Clause”);
a derogation of the Oversight Board’s statutory duty to follow the requirement, set forth in
section 201 of PROMESA at 48 U.S.C. § 2141(b)(1)(C), that an approved Fiscal Plan “provide
adequate funding for public pension systems”; a derogation of the Board’s statutory duty to
follow the requirement, set forth in section 201 of PROMESA at 48 U.S.C. § 2141(b)(1)(B), that
an approved Fiscal Plan “ensure the funding of essential public services”; a derogation of the
Board’s statutory duty to follow the Fiscal Plan development, approval, and certification
procedures set forth in Section 201 of PROMESA at 48 U.S.C. § 2141(c-e); a violation of the
budget development, approval, certification, and correction procedures set forth in Sections 202
and 203; as well as common law unjust enrichment and breach of fiduciary duty which requires
imposition of a statutory or constructive trust over pension fund assets to prevent their unlawful
sale and transfer to the Commonwealth.
II.

THE PARTIES

28.

Plaintiff American Federation of State, County, and Municipal Employees, the

largest labor union in the AFL-CIO, has two affiliated local chapters in Puerto Rico: Servidores
Públicos Unidos, AFSCME Council 95 (in English, “United Public Servants,”), and Capítulo de
Retirados de SPU, the independently-chartered AFSCME chapter for retired employees of the
Commonwealth of Puerto Rico. SPU serves as the exclusive collective bargaining representative
under Commonwealth law for approximately 12,000 active Commonwealth employees ranging
from social workers to corrections officers to nurses who care for juvenile wards of the
Commonwealth. Separately, SPU Retiree Chapter represents thousands of retirees, all of whom
receive retirement benefits currently administered by the Commonwealth’s Employees
Retirement System. AFSCME brings this adversary proceeding on behalf of Commonwealth

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employees represented by SPU, who will be affected by the furloughs and retiree income cuts,
and retirees represented by SPU Retiree Chapter, who will also be affected by such cuts.
29.

Defendant the Financial Oversight and Management Board for Puerto Rico was

created under Section 101(b)(1) of PROMESA (48 U.S.C. § 2121(b)(1)) as an “entity within the
[Commonwealth] government.” 48 U.S.C. § 2121(c)(1).
30.

Defendant the Commonwealth of Puerto Rico is a territory of the United States.

31.

Defendant the Puerto Rico Fiscal Agency and Financial Advisory Authority is a

public corporation organized under the laws of the Commonwealth.
32.

Defendant Hon. Ricardo Rosselló Nevares (“Governor Rosselló”) is the Governor

of the Commonwealth. Plaintiffs sue Governor Rosselló in his official capacity.
33.

Defendant Gerardo Portela Franco (the “AAFAF Executive Director”) is the

Executive Director of AAFAF and in that capacity is empowered to implement the budget and
any furloughs ordered by the Board. Plaintiffs sue the AAFAF Executive Director in his official
capacity.
34.

Defendant Hon. Raúl Maldonado Gautier (the “Secretary of Treasury”) is the

Secretary of Treasury of the Commonwealth and in that capacity is empowered to implement the
budget and any furloughs ordered by the Board. Plaintiffs sue the Secretary of Treasury in his
official capacity.
35.

Defendant John Doe 1 is any successor to Governor Rosselló as Governor of the

Commonwealth. Plaintiffs sue John Doe 1 in his or her official capacity.
36.

Defendant John Doe 2 is any successor to Gerardo Portela Franco as Executive

Director of AAFAF and in that capacity is empowered to implement the Illegal HR 188 and any
furloughs ordered by the Board. Plaintiffs sue John Doe 2 in his or her official capacity.

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Defendant John Doe 3 is any successor to Hon. Raúl Maldonado Gautier as

Secretary of Treasury of the Commonwealth and in that capacity is empowered to implement the
Illegal HR 188 and any furloughs ordered by the Board. Plaintiffs sue John Doe 3 in his or her
official capacity.
38.

Defendant José B. Carrión III is the Chairman of the Oversight Board. Carrión

participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018 budget, and
August 4 Decrees. AFSCME sues Carrión in his official capacity.
39.

Defendant Andrew G. Biggs is a member of the Oversight Board.

Biggs

participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018 budget, and
August 4 Decrees. AFSCME sues Biggs in his official capacity.
40.

Defendant Carlos M. García is a member of the Oversight Board.

García

participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018 budget, and
August 4 Decrees. AFSCME sues Garcia in his official capacity.
41.

Defendant Arthur J. González is a member of the Oversight Board.

Arthur

González participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018
budget, and August 4 Decrees. AFSCME sues Gonzalez in his official capacity.
42.

Defendant José R. González is a member of the Oversight Board. José González

participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018 budget, and
August 4 Decrees. AFSCME sues Gonzalez in his official capacity.
43.

Defendant Ana J. Matosantos is a member of the Oversight Board. Matosantos

participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018 budget, and
August 4 Decrees. AFSCME sues Matosantos in her official capacity.
44.

Defendant David A. Skeel, Jr. is a member of the Oversight Board.

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participated in the Oversight Board’s development of the Final Fiscal Plan, FY 2018 budget, and
August 4 Decrees. AFSCME sues Skeel in his official capacity.
45.

Defendants John Does 4-15 are any successors to the voting members of the

Oversight Board. AFSCME sues John Does 4-15 in their official capacities.
III.

JURISDICTION AND VENUE

46.

This Court has federal question subject matter jurisdiction pursuant to 28 U.S.C. §

1331 and Section 106 of PROMESA, 48 U.S.C. § 2126, because this action arises under
PROMESA and the U.S. Constitution. In addition, this Court has jurisdiction under Section 306
of PROMESA, 48 U.S.C. § 2166, because the controversy between the parties arises in, or is
related to, a case under Title III. AFSCME also seeks relief pursuant to 42 U.S.C. § 1983, as to
the individual defendants who, acting under the color of law, have deprived public employees of
rights guaranteed by both the United States Constitution and by PROMESA.
47.

This Court has supplemental subject matter jurisdiction under 28 U.S.C. § 1367(a)

over AFSCME’s claims arising under the Puerto Rico Constitution, because those claims form
part of the same case and controversy and involve identical factual allegations as AFSCME’s
claims arising under the United States Constitution and PROMESA.
48.

This Court has personal jurisdiction over all of the Defendants pursuant to 48

U.S.C. § 2166(c).
49.

This is an adversary proceeding pursuant to Rule 7001 of the Federal Rules of

Bankruptcy Procedure and Section 310 of PROMESA, which provides “The Federal Rules of
Bankruptcy Procedure shall apply to a case under [Title III of PROMESA] and to all civil
proceedings arising in or related to cases under [Title III of PROMESA].” 48 U.S.C. § 2170;
Fed. R. Bankr. P. 7001.

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50.

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AFSCME seeks a declaration and related relief pursuant to 28 U.S.C. §§ 2201 and

2202, Fed R. Bankr. P. 7001, and Fed. R. Civ. P. 65 (applicable in Title III under Fed. R. Bankr.
P. 7065). Further, under the All Writs Act, 28 U.S.C. § 1651, the Court may issue any writ
necessary or appropriate in aid of its jurisdiction and aggregable to the usages and principles of
law.
51.

PROMESA Section 106(e) is not a bar to review of the Final Fiscal Plan’s two

purported amendments to the Fiscal Plan for at least four reasons. First, Section 106(e) does not
deprive the Court of jurisdiction over AFSCME’s challenge to the Oversight Board’s
certification of the Fiscal Plan to the extent that challenge arises under the U.S. Constitution.
See, e.g., Johnson v. Robinson, 415 U.S. 361 (1974). Second, Section 106(e) applies only to
“challenges to the Oversight Board’s certification determinations,” not to the predicate question
of whether a certification actually took place properly under the procedures of PROMESA.
Third, Section 106(e) does not deprive the Court of jurisdiction over AFSCME’s challenges to
the Oversight Board’s August 4 decree implementing furloughs, which was issued without a
certification of budgetary noncompliance as required by PROMESA Section 203, or to any
Commonwealth statute or action which is not a certification. Fourth, Section 106(e) does not
apply because the Oversight Board acted ultra vires, as it is well established that federal courts
have authority to review decisions of an agency that are made in excess of the agency’s authority
or that are contrary to a specific provision of the statute administered by the agency (even in the
face of an express Congressional denial of judicial review of the agency’s decisions). See
Leedom v. Kyne, 358 U.S. 184, 190 (1958); Dart v. United States, 848 F.2d 217 (D.C. Cir. 1988).
52.

An actual and justiciable controversy has arisen and exists between the parties

with respect to the issues and claims alleged herein.

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53.

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Venue is proper in this District under Section 307 of PROMESA, 48 U.S.C. §

2167, as well as 28 U.S.C. § 1391(b) because a substantial part of the events or omissions giving
rise to the claims occurred, and continue to occur, in this District.
IV.

FACTUAL ALLEGATIONS
A.

Retirement Benefits

The Commonwealth’s Defined Benefit Plan – Act 447 and Act 1
54.

At its inception, Puerto Rico Act 447 of 1951 covered all full-time employees of

the Commonwealth Government and its instrumentalities, making membership in ERS a
mandatory condition of employment. In addition to specific provisions governing disability and
occupational death annuities (Sections 9-12), Act 447 provided, inter alia, that as of January 1,
1955, a member of ERS “shall be entitled to receive” an annuity upon retirement based on a
multiplier of 1.5%, average salary, and years of service, with certain adjustments; retirement
benefits were available upon separation from and completion of 25 years of service and reaching
an age of at least 55 years, or 10 years of service with an age of at least 58 years (Section 6-7).
Payment of benefits became mandatory at age 65 for all employees (Id.). ERS was created as a
trust (Section 15) in which employees make mandatory contributions that are directly deducted
from their earned wages, at the rate of 6% for police and fire fighters and 5.5% for all other
members.
55.

Act 447 clearly recognized the vested contractual right to defined benefit

retirement annuities that employees accrued through their service to the Commonwealth. For
example, Act 447 states the retirement and disability annuities earned “shall be payable in equal
monthly installments as life annuities, and shall not be increased, decreased, revoked or
repealed” (Section 25) and “shall constitute obligations of the employer” (Section 26).

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56.

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Act 447 also required employer contributions to be “sufficient to provide” the

promised benefits (Section 21).
57.

Recognizing that employees have a property right in their own wage deductions,

Act 447 further provides that any member not eligible for a retirement annuity “shall be paid . . .
a refund equal to the amount of his contributions to the System, including regular interest” and
“shall thereby forfeit and waive all accrued rights in the System” (Section 14, emphasis added).
58.

Act 447 has been amended several times since 1951, each time preserving the

benefits theretofore earned by employees and retirees. For purposes of this Complaint, three
amendments are most pertinent: Act 1 of 1990 (“Act 1”), Act 305 of 1999 (“Act 305” or
“Reform 2000”), and Act 3 of 2013 (“Act 3”).
59.

Benefits provided under Act 447 applied to all Commonwealth employees until

the effective date of Act 1, which left in place the benefits for incumbent employees and retirees
under Act 447 but created a new (lower) “tier” of traditional defined pension benefits for
Commonwealth employees hired on or after Act 1’s effective date.
60.

ERS internally refers to members hired prior to April 1, 1990, the effective date of

Act 1, as “Act 447 members.” Likewise, ERS refers to members hired between April 1, 1990
and December 31, 1999, the effective date of Act 305, as “Act 1 members.”
61.

The benefits of both Act 447 members and Act 1 members were, until Act 3 took

effect in 2013, accrued as traditional defined benefit pensions (“DB Pensions”). Such a benefit
provides for a guaranteed retirement annuity benefit calculated by multiplying the retiree’s years
of service under the plan by his/her average annual compensation and by a fixed multiplier (and
then adjusting to account for certain other factors. e.g., mandatory minimum or maximum
pension amounts). The product of these factors is divided by twelve to reach the monthly

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defined pension benefit.
62.

Although Act 1 made significant changes to the traditional defined pension

benefit accrual formula for Act 1 members, i.e. new employees hired as of April 1, 1990, the
benefits earned and accrued by Act 1 members were still to be accrued as DB Pensions and
provided for a defined benefit upon retirement.
63.

As noted, Act 1 implemented a reduced benefit tier for new hires, but it also

increased both the employer’s and employee’s contributions into the pension system trust fund.
Act 1’s Statement of Motives noted that although Act 447 members would also see an increase in
their employee contributions “from 7% to 8.275% of [their] salary” going forward, their alreadyaccrued vested benefits would not be affected, as
“they will keep all their rights under the Retirement Act in force,
with the certainty that the System will have the necessary resources
for the payment thereof. Therefore, as of the date of the approval
of this Act, the employees shall have the same benefits to which
they are entitled now, upon their retirement that is, the benefits
they will receive will not be affected in the least.”
The Commonwealth’s “Reform 2000”
64.

Only ten years after Act 1, the Commonwealth enacted Act 305 of 1999, known

as Reform 2000, which adopted an entirely different (but still mandatory) type of retirement plan
for employees hired on or after its effective date of January 1, 2000. Under Reform 2000, the
Commonwealth established individual employee “retirement savings accounts” (“System 2000
RSAs”) in lieu of the DB Pensions described above. Thus, Chapter 2 of Act 305, which
preserves DB Pensions for pre-2000 hires, is entitled “Defined Retirement Benefits Program,”
while Chapter 3, which creates the System 2000 RSAs, is entitled “Retirement Savings Account
Program.”
65.

Employees hired since 2000 are referred to as “System 2000 members” by ERS.
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66.

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Upon information and belief, a small number of then-active employee Act 447

and Act 1 members elected to voluntarily transfer their DB Pension benefits into a System 2000
RSA under a program permitting such a voluntary transfer established by Reform 2000. Act 305
set forth the formula for converting such members’ accrued DB Pension entitlement under the
DB Pension Plan into an individual System 2000 RSA cash balance.
67.

The System 2000 RSA was and always has been employee property. Act 305

provided that each and every System 2000 participant “shall always have one hundred percent
(100%) vested rights” to the entire value of her RSA, which value consisted of the employee’s
own contributions from her wages to her RSA, plus the investment yield on the RSA account
balance for each semester of the fiscal year based on an investment alternative elected by the
participant (Section 30), plus any initial RSA transfer balance in the case of the few Act 447 and
Act 1 members who voluntarily transferred from the DB Pension plan.
68.

ERS provided for three investment options in which System 2000 participants

could choose to invest in increments of ten percent of their total account balance: (1) fixed
income (yield equal to the average monthly yield of the two-year constant maturity treasuries
during each semester of the fiscal year), (2) 75% of the net yield of the investment portfolio of
ERS during each semester of the fiscal year, or (3) other alternatives adopted by the ERS Board.
69.

In other words, System 2000 established a 401(k)-style plan funded purely by

employees who directly contributed to their System 2000 RSAs from their wages, and who
thereby had a 100% vested property right in their account balance at all times. Neither the
Commonwealth nor other ERS-participating employers (e.g., municipalities) contributed to fund
System 2000 RSA balances. Rather, employees’ account balances were funded solely by their
own individual contributions from earned wages.

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Act 3 Defined Contribution Accounts
70.

In 2013, the Commonwealth yet again amended the terms of its pension and

retirement plans, this time through Act 3 of 2013, the effect of which was to establish individual
defined contribution accounts for all existing and future Commonwealth employees.
71.

Under Act 3, all employees hired before System 2000 who had remained in the

DB Pension plans under the terms of Act 447 or Act 1 ceased earning additional service credits
under the DB Pension plans and were enrolled in a going-forward basis in an “individual
contribution account” (“DC Account”) similar to a System 2000 RSA—i.e., an individual
account funded solely by mandatory employee wage deductions—with the main difference being
that the payout of the account balance upon retirement would be annuitized. In pension parlance,
this means the DB Pension plans were “frozen” as of July 1, 2013, and members of such plans
were enrolled going-forward in a 401(k)-style DC account.
72.

ERS thus maintained two separate accounts for Act 447 members and Act 1

members, a DB Pension account (to track the frozen DB Pension benefit accrued pre-Act 3) and
a DC Account. Hence, this was known as the “Hybrid Program.” The ERS Administrator
recently explained precisely this dichotomy in comments supporting Commonwealth pension
legislation passed on August 11, 2017, in which it stated that ERS currently administers two
distinct types of plans: a defined benefit plan and a defined contribution plan.
73.

Act 3, in freezing DB Pensions but preserving the vested right to those DB

pensions already accrued through work already performed, provided that “[t]he right of every
participant who, as of June 30, 2013 was eligible to receive a deferred pension for meeting all the
requirements thereof, to receive such pension regardless of whether he/she has applied therefor,
is hereby preserved.”

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74.

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As to System 2000 members, Act 3 transferred each individual System 2000

participant’s RSA balance into a corresponding DC Account established for that purpose, into
which the employee would make all future contributions deducted from wages.
75.

Act 3 specifically provided, at Section 5-104, that the ERS “Administrator shall

establish and maintain in the System an account with the contributions of each participant in the
Hybrid Program, which shall be credited and debited in accordance with Sections 5-108 and 5109.”
76.

Act 3 provided at Section 5-108 that “participants shall always have one hundred

percent (100%) right over the initial balance transfer” from a System 2000 account, as well as to
“their contributions to the Hybrid Program accounts.”
77.

For all employees, Act 3 increased each employee’s contribution to the individual

DC Account to 10% of compensation while continuing to provide for no employer contribution
credit to that DC Account balance.
78.

One difference between a System 2000 RSA and an Act 3 DC Account was that

the DC Account offered only one investment option. Like System 2000, DC Accounts are
credited with a return on investment, but that return “shall be determined by the [ERS] Board
and shall never be less than eighty percent (80%) of the System’s portfolio net rate of return
during each semester of each fiscal year.”
Misuse of RSA and DC Account Property
79.

Subsequent to Act 3, the Commonwealth passed Act 244 of 2014, which

promised that in subsequent fiscal years, ERS would receive an Additional Uniform Contribution
in the amount certified by the external actuary of the System as necessary to avoid having the
projected gross assets of ERS, during any subsequent fiscal year, fall below $1 billion.

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80.

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However, the Commonwealth and Board have both stated in 2017 that ERS is out

of money to pay retirees because, inter alia, the individual System 2000 RSAs/DC Accounts of
participants were used by the Commonwealth for other purposes rather than being segregated.
81.

On May 21, 2017, ERS itself filed for Title III bankruptcy under PROMESA.

82.

On June 30, 2017, Puerto Rico Budget Resolution HR 188 was adopted by the

Oversight Board following its passage by the Puerto Rico legislature on June 25, 2017.
83.

HR 188 provides for the transfer to the Commonwealth, from ERS, of the

mechanism for paying the Commonwealth’s DB Pension and DC Account obligations. This new
system, in which the Commonwealth meets its own obligations under law as they come due, is
called the “pay as you go” system by HR 188.
84.

HR 188 orders ERS to sell its assets and to transfer the net cash proceeds, in

addition to any available funds, in the Puerto Rico Treasury Secretary’s account.
85.

No consideration was provided to System 2000 members in exchange for the trust

property transferred to the Commonwealth’s general fund under HR 188 or diverted for other
sources previously.
86.

In a July 27, 2017 press release calling a special session of the Puerto Rico

legislature to address the pension issue, the office of the Governor admitted that the contributions
of public servants were misused in the past.
87.

In the August 4 Decrees, the Oversight Board admitted that “instead of depositing

employee contributions to System 2000 accounts to fund future benefits, the plans have diverted
employee contributions” when instead “they should have been all along” depositing “employees’
contributions . . . in defined contribution accounts to fund their future retirement benefits.”
88.

Yet, as of August 10, 2017, an active employee of the Commonwealth could still

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register and access statements online which clearly state instruct the employee that “you possess”
a “contribution balance” of a given number. There is no indication that these balances do not
exist in reality, to the contrary, they are communicated to the reader as if they constitute real
account balances deposited and maintained as employee property.
89.

By August 11, 2017, both houses of the Commonwealth Legislature had signed

Senate Bill 603. Senate Bill 603 creates new individual defined contribution accounts for all
employee contributions made beginning in July 1, 2017, to be administered by an outside entity,
not commingled with other assets, and portable to private-sector employers upon separation of
service.
90.

However, while SB 603 purports to preserve all retiree benefit rights accrued

through July 1, 2017, it violates SPU members’ rights as it implements the ERS asset sale and
transfer to the Commonwealth as set forth in HR 188 and does not transfer in full the DC
Account balances of Commonwealth employees.
B.

PROMESA

The Statutory Framework for Fiscal Plans
91.

On May 18, 2016, United States Representative Sean Duffy (R-WI) introduced

the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in the United
States House of Representative as HR 5278. PROMESA was referred to the House Committee
on Natural Resources. The Committee on Natural Resources met in open session on Tuesday,
May 24, 2016 and Wednesday, May 25, 2016 to markup PROMESA.
92.

Following passage by Congress, on June 29, 2016, President Obama signed

PROMESA, as amended, into law as Public Law 114-187.
93.

Broadly speaking and as relevant here, PROMESA establishes an Oversight

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Board for Puerto Rico (Title I); sets forth a process for the Oversight Board to approve, or else
develop, a Fiscal Plan governing the territory’s future finances and budgets (Title II); and
provides a process for the territory to declare and emerge from bankruptcy if necessary and
consistent with the Fiscal Plan (Title III).
94.

Although it applies to all United States Territories, PROMESA was drafted with

Puerto Rico and its current fiscal condition specifically in mind, as reflected by the fact that its
passage established an Oversight Board for Puerto Rico.
95.

The premise of PROMESA is to provide federal territories, and especially Puerto

Rico, with the tools to address a financial crisis with the guidance of an “Oversight Board” and
subject to specific constraints and protections for territorial self-governance.
96.

The heart of PROMESA is the Fiscal Plan, which provides the territory with a

financial roadmap to govern territory finances, but not operations.
97.

Title I of PROMESA, 48 U.S.C. § 2121 et seq., establishes an Oversight Board

for Puerto Rico. The Oversight Board is defined as an entity within the territorial government,
although the President of the United States appoints its seven members. The Oversight Board is
given sole discretion to review and then approve or reject proposed Fiscal Plans offered by the
Governor on behalf of the Commonwealth. It also permits the Oversight Board to develop its
own Fiscal Plan if it rejects the Governor’s proposal – even following revisions made by the
Governor after consultation with the Oversight Board – in the event that the Board determines
the Governor’s plan does not meet the Fiscal Plan Requirements set forth by PROMESA.
Ultimately, the Oversight Board is given the responsibility to approve and certify a Fiscal Plan
that is proposed by the Governor, unless the Board develops its own Fiscal Plan following
rejection of the Governor’s, in which case the Board’s self-developed Fiscal Plan is “deemed

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approved” by the Governor.
98.

Although an Oversight Board established under Title I is given significant

authority, that authority is not unrestricted, as set forth in Title II of PROMESA, entitled
“RESPONSIBILITIES OF THE OVERSIGHT BOARD,” at 48 U.S.C. § 2141, et seq.
99.

Within Title II, PROMESA Section 201(b) sets forth a number of “requirements”

for any Fiscal Plan including, pertinent here, that it “provide adequate funding for public pension
systems” (the “Adequate Pension Funding Requirement”) and “ensure the funding of essential
public services” (the “Essential Services Requirement”).
100.

As alleged herein, the Oversight Board and its members failed to adhere to either

the Adequate Pension Funding Requirement or the Essential Services Requirement in purporting
to develop, review, approve and/or certify the Final Fiscal Plan.
101.

The meaning of the Adequate Pension Funding Requirement is clear on its face:

the retiree benefit obligations owed by a pension system must be adequately funded to be
satisfied in full under a Fiscal Plan.

Other provisions of PROMESA confirm PROMESA

requires maintenance and full funding of benefits. See, e.g., 48 U.S.C. 2144(a)(4) (relating to
Oversight Board providing non-binding recommendations to Commonwealth regarding “the
establishment of alternatives for meeting obligations to pay for the pensions of territorial
government employees”) (emphasis added).
102.

This is also apparent from PROMESA’s legislative history. At the Committee on

Natural Resources markup of PROMESA, Representative Fleming (R-AZ) offered Amendment
Number 92, which would have amended the Adequate Pension Funding Requirement to read as
follows: “provide adequate funding, or other reasonable alternatives, to satisfy contribution
liabilities to public pension systems, but solely to the extent that such contributions are due under

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the terms of the applicable pension plan (as may be restructured pursuant to this Act) in the
fiscal years covered by a Fiscal Plan” (emphasis added). Representative Fleming’s Amendment
Number 92 was rejected by a voice vote of the Committee, leaving the Adequate Pension
Funding Requirement in place as originally drafted.
103.

As detailed above, there are two methods by which PROMESA allows a Fiscal

Plan to be certified by the Oversight Board: (1) approval of the Governor’s proposed Fiscal Plan
as-is, or (2) development by the Board of its own Fiscal Plan following rejection of the
Governor’s.
104.

More specifically, Section 201(c) of PROMESA sets forth procedures for the

“Development, Review, Approval, and Certification of Fiscal Plans.” First, the Governor is
charged with developing a “proposed Fiscal Plan” (Section 201(c)(2)) which must be reviewed
by the Oversight Board. In reviewing a proposed Fiscal Plan, the Oversight Board must review
it “to determine whether it satisfies the requirements set forth in subsection (b) [of Section 201],”
which includes the Adequate Pension Funding Requirement and Essential Services Requirement.
Upon review, the Oversight Board is charged with either accepting or rejecting the Governor’s
proposed Fiscal Plan. Specifically, if the Oversight Board “determines in its sole discretion that
the Proposed Fiscal Plan . . . satisfies such requirements, the Oversight Board shall approve the
proposed Fiscal Plan,” but if the Oversight Board “determines in its sole discretion that the
proposed Fiscal Plan . . . does not satisfy such requirements, the Oversight Board shall provide to
the Governor . . . an opportunity to correct the violation.”
105.

In the event the initial Fiscal Plan proposed by the Governor is not certified under

Section 201(c), Section 201(d) sets forth procedures for submission by the Governor of a
proposed “Revised Fiscal Plan.” First, as set forth at Section 201(d)(1), the Governor is charged

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with submitting a Revised Fiscal Plan to the Oversight Board following receipt of a “notice of
violation” from the Oversight Board.
106.

As set forth at Section 201(d)(2), “[i]f the Governor fails to submit to the

Oversight Board a Fiscal Plan that the Oversight Board determines in its sole discretion satisfies
the requirements set forth in subsection (b) [of Section 201]. . . the Oversight Board shall
develop and submit to the Governor and the Legislature a Fiscal Plan that satisfies the
requirements set forth in subsection (b).”
107.

Notably, while PROMESA consistently refers to the Oversight Board’s decision

to reject or certify the democratically-elected Governor’s proposed Fiscal Plans under Sections
201(c)(3) and (d)(2) as within the Board’s “sole discretion,” PROMESA does not use this
terminology with respect to the Oversight Board developing and certifying its own Fiscal Plan.
108.

Instead, if the Oversight Board rejects a Revised Fiscal Plan, Section 201(d)(2) of

PROMESA instructs that the Oversight Board “shall develop and submit to the Governor and the
Legislature a Fiscal Plan that satisfies the requirements set forth in subsection (b) [of Section
201],” which includes the Adequate Pension Funding Requirement and Essential Services
Requirement.
109.

Likewise, a different statutory subsection governs “approval and certification” if

the Oversight Board has approved and certified a Fiscal Plan proposed by the Governor—in
which case Section 201(e), entitled “Approval of Fiscal Plan Developed by Governor,” applies—
versus if the Oversight Board has developed its own Fiscal Plan—in which case Section
201(e)(2), entitled “Deemed Approval of Fiscal Plan Developed by Oversight Board,” applies.

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The Governor’s Proposed and Revised Fiscal Plans
110.

On October 14, 2016, then-Governor of Puerto Rico Alejandro García Padilla

submitted to the Oversight Board the first proposed Fiscal Plan for the Commonwealth (the
“García Padilla Plan”).
111.

The García Padilla Plan provided adequate funding for public pension systems as

required by PROMESA. As the García Padilla Plan noted (page 8), it would “ensure the
payment of an already meager average benefit that is only 53 percent of the average U.S. State.”
It did not provide for any reductions to already-accrued vested retirement benefits, whether DB
Pensions or DC Account balances, and set forth an actuarially-determined schedule for employer
contributions to adequately fund the pension systems in order to provide the benefits that had
been earned thereunder, as required by PROMESA.
112.

The García Padilla Plan was rejected by the Oversight Board at its meeting on

November 18, 2016.

At that meeting, the Oversight Board adopted and communicated

publically a set of five principles for the Fiscal Plan.
113.

Following the inauguration of Governor Rossello on January 2, 2017, the

Oversight Board, on January 18, 2017, sent Governor Rossello a letter, pursuant to PROMESA
Section 201(c)(3), that provided “recommendations for revisions to the applicable Fiscal Plan”
and an opportunity to correct the García Padilla Plan through submission of a revised plan by
February 28, 2017. The Board’s letter stated, without any careful explanation as to precisely
why, that “a reduction of approximately 10% in pension costs and related expenses may be
necessary, for savings of $0.2 billion [per year] by fiscal year 2019.”
114.

Governor Rossello submitted his first Revised Fiscal Plan – a revision of the

García Padilla Plan – to the Oversight Board on February 28, 2017 (the “February 28 Plan”).

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The February 28 Plan proposed no funding for public pension systems per se, but instead
provided for a “pay-as-you-go model to cover remaining defined benefit obligations” from the
Commonwealth’s general budget.
115.

The February 28 Plan further provided that earned accrued pension benefits

would be reduced by $60 million per year beginning in 2018, for a cumulative reduction of 3%
($563 million in total by end of fiscal year 2026), by cutting 30% of all current and future
retirement benefits that exceed $2000 per month. For example, the February 28 Plan stated that
a vested and accrued monthly pension benefit of $3000 would be reduced to $2700 per month by
cutting 30% of the $1000 in monthly benefits earned above $2000, generating a net reduction of
10% to that hypothetical pensioner’s retirement income security.
116.

On March 9, 2017, the Oversight Board, sent the Governor a letter stating that the

February 28 Plan did not “comply with the requirements set forth in PROMESA.” Despite
noting that, in the Oversight Board’s view, the February 28 Plan was “heading in the right
direction” in many areas, the Board again insisted—as it had at its November 18, 2016 meeting
and its January 18, 2017 letter—on a firm, round and unexplained “10% benchmark” for pension
cuts. The Oversight Board also stated that it would approve a Fiscal Plan on March 13, 2017.
117.

The Governor, in response, submitted another Revised Fiscal Plan on March 13,

2017 (the “March 13 Plan”). The March 13 Plan provides for nearly identical pension cuts to the
February 28 Plan ($541M in total over the life of the fiscal plan, but with cuts beginning as of
2020 rather than 2018), but closed revenue and cost gaps in a number of other significant areas.
118.

At this point, pursuant to PROMESA, the Oversight Board had the option of

electing one of two options under Section 201: (1) exercise “its sole discretion” to approve the
democratically-elected Governor’s March 13 Plan pursuant to Section 201(c)(3); or (2) “develop

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and submit . . . a Fiscal Plan that satisfies the requirements set forth in subsection (b)” of Section
201 (which necessarily includes the Adequate Pension Funding Requirement applicable to all
Fiscal Plans) pursuant to Section 201(d)(2).
119.

Rather than pursue either of the options legally available to it under PROMESA,

the Oversight Board, at a public meeting it held later on March 13, 2017, instead steered a course
that PROMESA does not authorize: the Board issued a “Fiscal Plan Certification” which
purported to “approve[] and certify[y] the Governor’s latest proposed fiscal plan pursuant to
PROMESA § 201(e), as modified by” two amendments made by the Oversight Board (emphasis
added). Notably, the Board did not specify whether it was certifying the Final Fiscal Plan under
Section 201(e)(1) (applicable to a “Fiscal Plan developed by Governor”) or Section 201(e)(2)
(applicable to a “Fiscal Plan developed by Oversight Board”).
120.

The Governor and his representatives have since clarified his view that the

Board’s amendments were not part of the Governor’s proposed fiscal plan and therefore were
merely recommendations of the Board made under Section 205 of PROMESA. The Board
disagrees with the Governor and contends that the amendments are part of the Fiscal Plan as
certified.
121.

Despite lacking statutory authority to amend a Revised Fiscal Plan under Section

201, the Oversight Board purported to amend the March 13 Plan in two ways: (1) imposing a
furlough program for Commonwealth employees and removal of all Commonwealth employee
Christmas bonuses, contingent on certain indeterminate eventualities whose satisfaction (or not)
was to be determined at the Board’s discretion at a later date, and (2) requiring that the 3%
pension cuts already specified in the Governor’s proposed fiscal plan be “supplemented to
provide for progressively reduced total pension outlays by 10% by fiscal year 2020” subject only

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to the constraint “that no member is pushed below the federal poverty line as a result of the
reductions.”
122.

Notably, the federal government does not publish a “Federal Poverty Line” and

presumably the Oversight Board’s statement refers to the Department of Health and Human
Services’ Annual Update of the HHS Poverty Guidelines, most recently published in Vol. 82,
No. 19, p. 8831 of the Federal Register (January 31, 2017), which for an individual living in the
contiguous United States and District of Columbia is an annual income of $12,060. A guideline
is not published for Puerto Rico, and the cost of living in Puerto Rico is substantially higher than
in the contiguous United States.
123.

The Oversight Board’s purported “amendments” of the Governor’s Fiscal Plan

that it simultaneously purported to certify exceeded the Board’s statutory authority under
PROMESA for at least three reasons.

First, the Board was not authorized to make

“amendments” to the Governor’s March 13 Plan and then approve and certify pursuant to either
subsection of Section 201(e).

Second, the Board blatantly ignored the Adequate Pension

Funding Requirement by cutting retirement benefits owed by the Commonwealth. Third, the
Board gave no consideration to the Essential Services Requirement by ordering furloughs (which
in any case constitute an impermissible intrusion into sovereign Commonwealth operations) that
are tied to contingencies unrelated to the ability of the sovereign Puerto Rico government to
provide essential services.
Implementation of the Fiscal Plan
124.

Under PROMESA, once a Fiscal Plan is properly certified, it must be

implemented and adhered to by the Commonwealth government through the budgetary and
legislative process as reviewed and overseen by the Oversight Board with strict constraints on

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both Commonwealth and Board action.
125.

Specifically, Section 202 of PROMESA requires a territory’s budget to comply

with the Fiscal Plan and sets forth a process for Oversight Board review and approval and/or
revision of a budget for each fiscal year; Section 203 sets forth a process for the Oversight Board
to take specific action in the event of Commonwealth noncompliance with the budget, but only
after the end of each fiscal quarter; and Section 204 requires the territory’s legislative acts to
comply with the Fiscal Plan and sets up a process for Oversight Board review of legislation.
126.

Under Section 203, the Oversight Board does have the right to institute mid-year

“reductions in nondebt expenditures to ensure that the actual quarterly revenues and
expenditures for the territorial government are in compliance with the applicable certified
territory budget,” but only after—as the emphasis on quarterly revenues makes clear—a backand forth process with the Commonwealth that begins at the close of each fiscal quarter
subsequent to the certification of the annual budget.
127.

In contrast, Section 205 sets forth a process by which the Oversight Board can

make non-mandatory recommendations, and receive a response from the Commonwealth
thereon, as to operational, personnel, benefit, and other issues.
128.

The Section 203 process first requires the Oversight Board to determine that “the

actual quarterly revenues, expenditures, or cash flows of the territorial government are not
consistent with the projected revenues, expenditures, or cash flows set forth in the certified
Budget for such quarter.”
129.

The Board made no such determination before instituting the furloughs in the

August 4 Decrees—nor could it have, because the furloughs were announced almost two months
before the close of Q1 2018.

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130.

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In any case, if the Board does properly make a determination under Section

203(b) that actual quarterly revenues have fallen short, Section 203(b) next requires the
Oversight Board to request additional information from the Commonwealth regarding this
quarterly inconsistency.
131.

The Board made no such request before instituting the furloughs in the August 4

Decrees—nor could it have, because the furloughs were announced almost two months before
the close of Q1 2018.
132.

In any case, if the Board does make a determination under Section 203(b) that

actual quarterly revenues have fallen short, and if the Board has requested additional information
from the Commonwealth but is still not satisfied with the additional information provided,
Section 203(c) next requires the Oversight Board to “certify to the President” and other federal
and Commonwealth officials “that the territorial government is inconsistent with the applicable
certified Budget, and shall describe the nature and amount of the inconsistency.”
133.

The Board made no such certification before instituting its mandate to require

employee furloughs.
134.

Even through this quarterly budgetary oversight process the Board lacks statutory

authority to make personnel decisions for the Commonwealth. Thus, even if the Board were to
make a determination under Section 203(b) that quarterly revenues have fallen short, and
requested additional information from the Commonwealth, and has certified its resulting
determination of a budget inconsistency to the President, the Oversight Board has only the
authority provided by Section 203(d)(1) to “make appropriate reductions to nondebt
expenditures” of the Commonwealth (emphasis added). By its terms, PROMESA’s reference to
“nondebt expenditures” does not include personnel decisions with respect to the Commonwealth,

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a point made clear as PROMESA grants such authority to the Board only with respect to
“territorial instrumentalities”—not territories themselves—in the form of “automatic hiring
freezes.” Compare 48 U.S.C. § 2143(d)(1) with 48 U.S.C. § 2143(d)(2).
135.

On June 30, 2017, the Oversight Board purported to certify the Commonwealth’s

FY 2018 budget as amended by the Board.
136.

However, one of the Board’s amendments to the FY 2018 budget consisted of a

contingency that the Board reserved the right, at any time, to institute furloughs based on the
Board’s “determination that the measures to collect or reduce expenditures do not generate
sufficient cash and budgetary savings to meet the revenue and expense projections of the Fiscal
plan.” This furlough contingency contains no specific numbers and does not allocate, or not
allocate, money to any particular expense as would be proper for a budget provision. Plainly, the
Board’s reservation of authority to mandate furloughs on-the-fly -- and outside of the
PROMESA-required quarterly budgetary review process -- is contrary to PROMESA and an
exercise of authority that exceeds the limited authority conferred by PROMESA on the Board.
137.

On August 4, 2017, the Board sent a letter to the Governor ordering that furloughs

be implemented by September 1, 2017, to save at least $218M by the end of FY 2018 via “a twoday per month furlough for all Executive Branch government employees, with the exclusion of
front-line police, for fiscal year 2018.” The Oversight Board also states that the FY 2018 budget
will be “revised to reflect . . . the expenditure adjustments resulting from the furlough program.”
138.

The Board’s August 4 furlough decree asks that the Commonwealth attempt to

“[p]revent adverse effect on public safety or critical health services” yet provides no analysis as
to how this could be possible with such extensive furloughs. For example, only “front-line”
police are excluded—not even the thousands of correctional officers represented by AFSCME

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whose work is critical to public safety.
139.

Also on August 4, 2017, the Board issued a memorandum on pension reform.

Among other things, the memorandum confirms the Board seeks to require the Commonwealth
to “[r]educe total annual pension benefit payments by an average of ten percent.”
140.

The Board’s August 4 pension decree admits that “instead of depositing employee

contributions to System 2000 accounts to fund future benefits, the plans have diverted employee
contributions” instead of those contributions being “saved in defined contribution accounts to
fund their future retirement benefits (as they should have been all along).”
141.

Despite this admission of misconduct, the Board states categorically that a

“feature” of the 10% reduction is its application to DC Account balances “attributable to benefits
accrued as of the PROMESA effective date of June 30, 2016,” i.e., a direct taking of employees’
property. Thus, an employee who began service with the Commonwealth in 2000 stands to see
cuts to more than 15 years of their wage contributions to their DC Account Plans.
FIRST CAUSE OF ACTION
(for Declaratory and Injunctive Relief Pursuant to 28 U.S.C. §§ 2201 and 2202 for
Violations of U.S. Const. Am. V against All Defendants)
142.

AFSCME repeats and realleges the allegations contained in the foregoing

paragraphs, as if fully set forth herein.
143.

The development and approval of the Final Fiscal Plan and the passage and

implementation of HR 188, SB 603, and the August 4 Decrees have harmed active and retired
employees represented by AFSCME by taking or imminently threatening to take their property—
DC Account Plan balances—without any compensation, for no public use, and without due
process of law.
144.

An actual justiciable controversy exists between the parties.
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145.

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AFSCME is entitled to an order declaring as follows:
a.

Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree

concerning pensions, and the provisions of HR 188 and SB 603 ordering
liquidation of ERS assets are unconstitutional on the ground that each violates the
Fifth Amendment of the United States Constitution;
b.

Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree

concerning pensions, and the provisions of HR 188 and SB 603 ordering
liquidation of ERS assets are unlawful, invalid, null, and void; and
c.

Any award of just compensation or damages for violation of the Takings

Clause cannot be impaired by a PROMESA Plan or an Order confirming a
PROMESA Plan because doing so would violate the Fifth and Fourteenth
Amendments to the U.S. Constitution and Article II of the Puerto Rico
Constitution.
146.

If Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree concerning

pensions, and the provisions of HR 188 and SB 603 ordering liquidation of ERS assets are
enforced, then the illegal taking of property effected thereby will result in imminent and
irreparable harm to active and retired workers represented by AFSCME by allowing collateral to
be diverted and threatening the ability of active and retired employees to pay for basic necessities
such as housing and medication.
147.

In addition, enforcement of Amendment No. 2 of the Final Fiscal Plan, the August

4 Decree concerning pensions, and the provisions of HR 188 and SB 603 ordering liquidation of
ERS assets will cause immediate and irreparable harm by depriving active and retired workers
represented by AFSCME of their property rights in a manner that violates the Takings and Due

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Process Clauses of the U.S. Constitution.
148.

The individual defendants, as alleged above, have acted under color of statute,

ordinance, regulation or law of the Commonwealth and subjected AFSCME’s members to a
deprivation of rights and privileges under the U.S. constitution and PROMESA, as alleged
herein.
149.

AFSCME is entitled to injunctive relief invalidating Amendment No. 2 of the

Final Fiscal Plan, the August 4 Decree concerning pensions, and the provisions of HR 188 and
SB 603 ordering liquidation of ERS assets, and prohibiting Defendants from taking or causing to
be taken any action pursuant to Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree
concerning pensions, and the provisions of HR 188 and SB 603 ordering liquidation of ERS
assets, including any action relating to future legislation, rules, or budgets; or presenting,
continuing, soliciting votes on, or seeking modification or confirmation of any plan of
adjustment premised on the illegal Amendment No. 2 of the Final Fiscal Plan, the August 4
Decree concerning pensions, and the provisions of HR 188 and SB 603 ordering liquidation of
ERS assets.
SECOND CAUSE OF ACTION
(for Declaratory and Injunctive Relief Pursuant to 28 U.S.C. §§ 2201 and 2202 for taking of
property without just compensation in violation of Article II, Sections 7 & 9 of the Puerto
Rico Constitution (“Puerto Rico Takings and Due Process Clauses”))
150.

AFSCME repeats and realleges the allegations contained in the foregoing

paragraphs, as if fully set forth herein.
151.

The development of the Final Fiscal Plan and the passage and implementation of

HR 188, SB 603, and the August 4 Decrees have harmed active and retired employees
represented by AFSCME by taking or imminently threatening to take their property—DC

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Account Plan balances—without any compensation, for no public use, and without due process
of law.
152.

An actual justiciable controversy exists between the parties.

153.

AFSCME is entitled to an order declaring as follows:
a.

Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree

concerning pensions, and the provisions of HR 188 and SB 603 ordering
liquidation of ERS assets are unconstitutional on the ground that each violates the
Article II, Sections 7 and 9 of the Puerto Rico Constitution;
b.

Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree

concerning pensions, and the provisions of HR 188 and SB 603 ordering
liquidation of ERS assets are unlawful, invalid, null, and void; and
c.

Any award of just compensation or damages for violation of the Takings

Clause cannot be impaired by a PROMESA Plan or an Order confirming a
PROMESA Plan because doing so would violate the Fifth and Fourteenth
Amendments to the U.S. Constitution and Article II of the Puerto Rico
Constitution.
154.

If Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree concerning

pensions, and the provisions of HR 188 and SB 603 ordering liquidation of ERS assets are
enforced, then the illegal taking of property effected thereby will result in imminent and
irreparable harm to active and retired workers represented by AFSCME by allowing collateral to
be diverted and threatening the ability of active and retired employees to pay for basic necessities
such as housing and medication.
155.

In addition, enforcement of Amendment No. 2 of the Final Fiscal Plan, the August

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4 Decree concerning pensions, and the provisions of HR 188 and SB 603 ordering liquidation of
ERS assets will cause immediate and irreparable harm by depriving active and retired workers
represented by AFSCME of their property rights in a manner that violates the Takings and Due
Process Clauses of the Puerto Rico Constitution.
156.

The individual defendants, as alleged above, have acted under color of statute,

ordinance, regulation or law of the Commonwealth and subjected AFSCME’s members to a
deprivation of rights and privileges under the U.S. constitution and PROMESA, as alleged
herein.
157.

AFSCME is entitled to injunctive relief invalidating Amendment No. 2 of the

Final Fiscal Plan, the August 4 Decree concerning pensions, and the provisions of HR 188 and
SB 603 ordering liquidation of ERS assets, and prohibiting Defendants from taking or causing to
be taken any action pursuant to Amendment No. 2 of the Final Fiscal Plan, the August 4 Decree
concerning pensions, and the provisions of HR 188 and SB 603 ordering liquidation of ERS
assets, including any action relating to future legislation, rules, or budgets; or presenting,
continuing, soliciting votes on, or seeking modification or confirmation of any plan of
adjustment premised on the illegal Amendment No. 2 of the Final Fiscal Plan, the August 4
Decree concerning pensions, and the provisions of HR 188 and SB 603 ordering liquidation of
ERS assets.
THIRD CAUSE OF ACTION
(for Declaratory and Injunctive Relief Pursuant to 28 U.S.C. §§ 2201 and 2202 for
Violations of Section 201 of PROMESA)
158.

AFSCME repeats and realleges the allegations contained in the foregoing

paragraphs, as if fully set forth herein.
159.

The development of the Final Fiscal Plan and the passage and implementation of
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the August 4 Decrees enforcing it have harmed active and retired employees represented by
AFSCME by taking or imminently threatening their ability to support themselves in retirement at
even a basic standard of living, such as payment for housing and medication.
160.

An actual justiciable controversy exists between the parties.

161.

AFSCME is entitled to an order declaring as follows:
a.

Amendment No. 2 of the Final Fiscal Plan, and the August 4 Decree

concerning pensions enforcing it, violate the PROMESA Section 201(b)(1)(C)
requirement that public pensions be adequately funded;
b.

Amendment No. 1 of the Final Fiscal Plan, and the August 4 Decree

concerning furloughs enforcing it, violate the PROMESA Section 201(b)(1)(B)
requirement that funding of essential public services be ensured;
c.

Both Amendments in the Final Fiscal Plan, and the August 4 Decrees

enforcing them, violate the process for the development of a Fiscal Plan set forth
at PROMESA Section 201(c-e) and are not lawfully part of the Fiscal Plan as
certified; and
d.

Both Amendments to the Final Fiscal Plan, and the August 4 Decrees

enforcing them, are unlawful, invalid, null, and void.
162.

If the amendments of the Final Fiscal Plan and the August 4 Decrees are enforced,

then the violations of Section 201 of PROMESA effected thereby will result in imminent and
irreparable harm to active and retired workers represented by AFSCME by threatening the ability
of active and retired employees to pay for basic necessities such as housing and medication.
163.

The individual defendants, as alleged above, have acted under color of statute,

ordinance, regulation or law of the Commonwealth and subjected AFSCME’s members to a

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deprivation of rights and privileges under the U.S. constitution and PROMESA, as alleged
herein.
164.

AFSCME is entitled to injunctive relief invalidating the Amendments to the Final

Fiscal Plan, and the August 4 Decrees enforcing them, and prohibiting Defendants from taking or
causing to be taken any action pursuant to the Amendments to the Final Fiscal Plan or the
August 4 Decrees, including any action relating to future legislation, rules, or budgets; or
presenting, continuing, soliciting votes on, or seeking modification or confirmation of any plan
of adjustment premised on the Amendments to the Final Fiscal Plan or the August 4 Decrees.
FOURTH CAUSE OF ACTION
(for Declaratory and Injunctive Relief Pursuant to 28 U.S.C. §§ 2201 and 2202 for
Violations of Section 203 of PROMESA)
165.

AFSCME repeats and realleges the allegations contained in the foregoing

paragraphs, as if fully set forth herein.
166.

The development of Amendment No. 1 of the Final Fiscal Plan, and the passage

and implementation of the Commonwealth’s FY 2018 budget and the August 4 Decree on
furloughs, has harmed active employees represented by AFSCME by taking or imminently
threatening their ability to support themselves at even a basic standard of living, such as payment
for housing and medication.
167.

The individual defendants, as alleged above, have acted under color of statute,

ordinance, regulation or law of the Commonwealth and subjected AFSCME’s members to a
deprivation of rights and privileges under the U.S. constitution and PROMESA, as alleged
herein.
168.

An actual justiciable controversy exists between the parties.

169.

AFSCME is entitled to an order declaring as follows:
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a.

Desc: Main

Amendment No. 1 of the Final Fiscal Plan, and the enactment and

implementation of the Commonwealth’s FY 2018 budget and the August 4
Decree on furloughs, violates the PROMESA Section 203 requirement that the
Board only order a budget reduction following the close of a fiscal quarter and
after a strict process including, but not limited to, certifying a budget
inconsistency to the President of the United States;
b.

Amendment No. 1 of the Final Fiscal Plan, and the enactment and

implementation of the Commonwealth’s FY 2018 budget and the August 4
Decree on furloughs, violates the PROMESA Section 203 requirement that the
Board only “make reductions in nondebt expenditures to ensure that quarterly
revenues and expenses . . . are in compliance with the applicable certified
budget,” not make operational decisions about how allocated expenses for
personnel are used in practice; and
c.

Amendment No. 1 of the Final Fiscal Plan, and the enactment and

implementation of the Commonwealth’s FY 2018 budget and the August 4
Decree on furloughs, are unlawful, invalid, null, and void.
170.

If Amendment No. 1 of the Final Fiscal Plan, and the enactment and

implementation of the Commonwealth’s FY 2018 budget and the August 4 Decree on furloughs,
are enforced, then the violations of Section 203 of PROMESA effected thereby will result in
imminent and irreparable harm to active employees represented by AFSCME by threatening
their ability to pay for basic necessities such as housing and medication.
171.

AFSCME is entitled to injunctive relief invalidating Amendment No. 1 of the

Final Fiscal Plan, and the enactment and implementation of the Commonwealth’s FY 2018

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budget and the August 4 Decree on furloughs, and prohibiting Defendants from taking or causing
to be taken any action pursuant to Amendment No. 1 of the Final Fiscal Plan, and the enactment
and implementation of the Commonwealth’s FY 2018 budget and the August 4 Decree on
furloughs, including any action relating to future legislation, rules, or budgets; or presenting,
continuing, soliciting votes on, or seeking modification or confirmation of any plan of
adjustment premised on Amendment No. 1 of the Final Fiscal Plan, and the enactment and
implementation of the Commonwealth’s FY 2018 budget and the August 4 Decree on furloughs,.
FOURTH CAUSE OF ACTION
(for Declaratory and Injunctive Relief Pursuant to 28 U.S.C. §§ 2201 and 2202 for
Breach of Fiduciary Duty and Unjust Enrichment)
172.

AFSCME repeats and realleges the allegations contained in paragraphs 1 through

136 hereof, as if fully set forth herein.
173.

ERS is, by statute, a trust that holds assets in trust for participants and

beneficiaries, including AFSCME-represented active employees and retirees.
174.

The Oversight Board and Commonwealth have revealed that ERS and the

Commonwealth misused employee contributions to RSAs and DC Accounts since 2000 by
diverting them in bad faith to pay other debts instead of funding the individual employees’
accounts as they should have. This was accomplished without justification, without notice or
knowledge, and in breach of fiduciary duty, and has enriched ERS and the Commonwealth at the
expense of the trust participants and beneficiaries.
175.

Moreover, to the extent that the Commonwealth obtains or has obtained property

from the ERS trust attributable to employee contributions to DC Accounts, the Commonwealth is
or will be intentionally and wrongfully holding property of active and retired employees without
their consent, in violation of United States and Puerto Rico law.
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176.

Desc: Main

AFSCME is entitled to a declaration that any transfer of property from ERS to the

Commonwealth or any other third party that took place in the past or takes place in the future has
resulted or will result in an unjust enrichment of the Commonwealth at the expense of those
AFSCME represents, and the enforcement of the statutory trust—or, in the alternative,
imposition of a constructive trust under Puerto Rico law—preserving and protecting those funds,
and any other funds of ERS or the Commonwealth with any nexus to employee contributions
whatsoever, for the employees and retirees who contributed to their System 2000 and DC
Accounts but have not yet received 100% payment of those account balances.
PRAYER FOR RELIEF
Wherefore Plaintiff prays for the following relief:
1.

A Declaratory Judgment that the amendments to the Fiscal Plan adopted and

imposed by the Defendant Oversight Board and its members, as alleged herein, are
unlawful, improper and constitute ultra vires acts and are null and void;
2.

Injunctive relief prohibiting all defendants from implementing or otherwise giving

force to the terms of the amendments to the Fiscal plan, including but not limited to cuts
to retirement income and employee furloughs;
3.

A Declaratory Judgment that the furlough provisions of the FY 2018

Commonwealth budget adopted by the Oversight Board and its members, as alleged
herein, are unlawful, improper and constitute ultra vires acts and are null and void;
4.

Injunctive relief prohibiting all defendants from implementing or otherwise giving

force to the terms of the furlough provisions of the FY 2018 Commonwealth budget;
5.

A Declaratory Judgment that the Oversight Board’s August 4 Decrees, as alleged

herein, are unlawful, improper and constitute ultra vires acts and are null and void;

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6.

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Injunctive relief prohibiting all defendants from implementing or otherwise giving

force to the Oversight Board’s August 4 Decrees;
7.

A Declaratory Judgment that any reduction or elimination to Commonwealth

retirees’ and employees’ DC Account Plan balances constitutes an unconstitutional taking
with no just compensation or due process of law;
8.

Injunctive relief prohibiting all defendants from requiring the, or implementing a,

reduction, elimination or diminution of Commonwealth retirees’ and employees’ DC
Account Plan balances;
9.

The imposition or enforcement of a statutory or constructive trust over ERS assets

and any other appropriate equitable relief to preserve and ensure the preservation of
Commonwealth retirees’ and employees’ DC Account Plan balances;
10.

Attorneys’ fees and costs of suit as authorized by statute; and

11.

Such other relief as the Court may deem just and proper.

Dated: August 22, 2017

SAUL EWING LLP
By:

/s/ Sharon L. Levine
Sharon L. Levine (pro hac vice)
Dipesh Patel (pro hac vice)
1037 Raymond Blvd.
Suite 1520
Newark, NJ 07102
(973) 286-6713 (Telephone)
(973) 286-6821 (Facsimile)
slevine@saul.com; dpatel@saul.com
-and/s/ Judith S. Rivlin
AMERICAN FEDERATION OF STATE,
COUNTY AND MUNICIPAL EMPLOYEES
Judith S. Rivlin (pro hac vice)
Teague P. Paterson (pro hac vice)
Matthew S. Blumin (pro hac vice)
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1101 17th Street NW, Suite 900
Washington, DC 20011
(202) 775-5900 (Telephone)
(202) 452-0556 (Facsimile)
tpaterson@afscme.org; mblumin@afscme.org
-and/s/ Manuel A. Rodriguez Banchs
Manuel A. Rodriguez Banchs
P.O. Box 368006
San Juan, Puerto Rico 00936-8006
(787) 764-8896 (Telephone)
(787) 721-0975 (Facsimile)
manuel@rodriguezbanchs.com
Attorneys for the American Federation of State,
County and Municipal Employees

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PROMESA Cover Case Page 1 of 6

Desc:

DPR MODIFIED PROMESA B1040 (FORM 1040) (05/17)

PROMESA COVER SHEET
(Instructions on Reverse)

CASE NUMBER
(Court Use Only)

PLAINTIFFS (DEBTOR, if Title III Petition; DEFENDANTS

ISSUER, if Title VI Application)
American Federation of State, County
and Municipal Employees, AFL-CIO

ATTORNEYS (Firm Name, Address, and Telephone

The Financial Oversight and Management Board for
Puerto Rico, et al.
See Addendum for Additional Defendants
ATTORNEYS (If Known)

See Addendum for Plaintiff's Attorneys

See Addendum for Defendants' Attorneys

PARTY (Check One Box Only)

PARTY (Check One Box Only)

No.)

 Debtor
✔ Creditor

 Trustee
 U.S. Trustee/Bankruptcy Admin
 Other

✔ Debtor

 Creditor
 Trustee
 U.S. Trustee/Bankruptcy Admin
 Other

CAUSE OF ACTION (WRITE A BRIEF STATEMENT OF CAUSE OF ACTION, INCLUDING ALL U.S. STATUTES INVOLVED)
See Addendum

NATURE OF SUIT
 PROMESA Title III Petition  PROMESA Title VI Application for Approval of Modifications
✔
 Other Federal Question 
Adversary Proceeding  Demand $ __________
If Adversary Proceeding is checked, number up to five (5) boxes starting with lead cause of action as 1, first
alternative cause as 2, second alternative cause as 3, etc., below:
FRBP 7001(1) – Recovery of Money/Property
FRBP 7001(7) – Injunctive Relief
 11-Recovery of money/property - §542 turnover of
 71-Injunctive relief - imposition of stay
✔ 72-Injunctive relief - other
property

 12-Recovery of money/property - §547 preference
FRBP 7001(8) Subordination of Claim or Interest
 13-Recovery of money/property - §548 fraudulent
transfer
 81-Subordination of claim or interest
 14-Recovery of money/property – other
FRBP 7001(9) Declaratory Judgment
✔
FRBP 7001(2) - Validity, Priority or Extent of Lien

91-Declaratory judgment
 21-Validity, priority or extent of lien or other interest
FRBP 7001(10) Determination of Removed Action
in property
 01-Determination of removed claim or cause
FRBP 7001(5) – Revocation of Confirmation
Other
 51-Revocation of confirmation
 02-Other (e.g. other actions that would have been
brought in state court if unrelated to bankruptcy case)

TITLE III CASE IN WHICH THIS ADVERSARY PROCEEDING ARISES

NAME OF DEBTOR : The Commonwealth of Puerto Rico and CASE NO.

Employees Retirement System of the Commonwealth of Puerto Rico

DISTRICT IN WHICH CASE IS PENDING

District of Puerto Rico

17-03283-LTS and 17-03566-LTS
DIVISION OFFICE

NAME OF JUDGE

Laura Taylor Swain

 Case:17-03283-LTS Doc#:1122-1 Filed:08/22/17 Entered:08/22/17 05:06:13
PROMESA Cover Case Page 2 of 6

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DPR MODIFIED PROMESA B1040 (FORM 1040) (05/17)

PLAINTIFF

RELATED ADVERSARY PROCEEDING (IF ANY)
DEFENDANT

DISTRICT IN WHICH CASE IS PENDING

ADVERSARY
PROCEEDING NO.

DIVISION OFFICE

NAME OF JUDGE

SIGNATURE OF ATTORNEY (OR PLAINTIFF) /s/Sharon L. Levine (Admitted Pro Hac Vice)
DATE
PRINT NAME OF ATTORNEY (OR PLAINTIFF)

August 22, 2017

Sharon L. Levine

THIS FORM IS TO BE USED EXCLUSIVELY FOR FILINGS RELATING TO THE PUERTO RICO OVERSIGHT MANAGEMENT AND ECONOMIC STABILITY
ACT (PROMESA). FOR ADMINISTRATION PURPOSES ONLY, THE PUBLIC DOCKETS FOR PROMESA PROCEEDINGS UNDER TITLE III AND
ADVERSARY PROCEEDINGS WILL BE MAINTAINED ON THE CASE MANAGEMENT/ELECTRONIC CASE FILING (CM/ECF) SYSTEM OF THE UNITED
STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO. THESE CASES ARE UNDER THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO.

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ADDENDUM TO COVER SHEET
CAUSE OF ACTION:
Plaintiff seeks declaratory and injunctive relief that the Commonwealth’s March 2017 Fiscal
Plan and August 4, 2017 decrees, and subsequent legislative acts implementing them, constitute
a taking without due process or just compensation in violation of Amendment 5 of the United
States Constitution; a taking of property without just compensation in violation of Article II,
Section 9 of the Puerto Rico Constitution; a derogation of the Oversight Board’s statutory duty to
follow the requirement, set forth in section 201 of PROMESA at 48 U.S.C. § 2141(b)(1)(C), that
an approved Fiscal Plan “provide adequate funding for public pension systems”; a derogation of
the Board’s statutory duty to follow the requirement, set forth in section 201 of PROMESA at 48
U.S.C. § 2141(b)(1)(B), that an approved Fiscal Plan “ensure the funding of essential public
services”; a derogation of the Board’s statutory duty to follow the Fiscal Plan development,
approval, and certification procedures set forth in Section 201 of PROMESA at 48 U.S.C. §
2141(c-e); a violation of the budget development, approval, certification, and correction
procedures set forth in Sections 202 and 203; as well as common law unjust enrichment and
breach of fiduciary duty which requires imposition of a statutory or constructive trust over
pension fund assets to prevent their unlawful sale and transfer to the Commonwealth.
Plaintiff
American Federation of State, County &
Municipal Employees, AFL-CIO

Counsel to Plaintiff
SAUL EWING LLP
Sharon L. Levine (pro hac vice)
Dipesh Patel (pro hac vice)
1037 Raymond Blvd.
Suite 1520
Newark, NJ 07102
(973) 286-6713 (Telephone)
(973) 286-6821 (Facsimile)
slevine@saul.com; dpatel@saul.com
AMERICAN FEDERATION OF STATE,
COUNTY AND MUNICIPAL
EMPLOYEES
Judith Rivlin (pro hac vice)
Teague P. Paterson (pro hac vice)
Matthew S. Blumin (pro hac vice)
1101 17th Street NW, Suite 900
Washington, DC 20011
(202) 775-5900 (Telephone)
(202) 452-0556 (Facsimile)
jrivlin@afscme.org; tpaterson@afscme.org;
mblumin@afscme.org

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PROMESA Cover Case Page 4 of 6

Plaintiff

Counsel to Plaintiff
MANUEL A. RODRIGUEZ BANCHS
Manuel A. Rodriguez Banchs
P.O. Box 368006
San Juan, Puerto Rico 00936-8006
(787) 764-8896 (Telephone)
(787) 721-0975 (Facsimile)
manuel@rodriguezbanchs.com

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 Case:17-03283-LTS Doc#:1122-1 Filed:08/22/17 Entered:08/22/17 05:06:13
PROMESA Cover Case Page 5 of 6

Defendants:
THE FINANCIAL OVERSIGHT AND
MANAGEMENT BOARD FOR PUERTO
RICO;

Counsel to Defendants:
O'NEILL & BORGES LLC
Hermann D. Bauer Alvarez
O'Neill & Borges LLC
American International Plaza, Suite 800
250 Munoz Rivera Avenue
San Juan, PR 00918
Tel: 787-282-5723
Fax: 787-753-8944
herman@oneillborges.com

MEMBERS OF THE FINANCIAL
OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, including
members Jose B. Carrion III, Andrew G.
Biggs, Carlos M. Garcia, Arthur J. Gonzalez,
Jose R. Gonzalez, Ana J. Matosantos, and
David A. Skeel, in their official capacity as the
voting members of the Financial Oversight and
Management Board for Puerto Rico;

PROSKAUER ROSE LLP
Martin J. Bienenstock
Ehud Barak
Chantel L. Febus
Stephen L. Ratner
Maja Zerval
11 Times Square
New York, NY 10036
Tel: 212-969-4530
Fax: 212-969-2900
mbienenstock@proskauer.com;
ebarak@proskauer.com;
cfebus@proskauer.com;
sratner@proskauer.com;
mzerjal@proskauer.com

the COMMONWEALTH OF PUERTO RICO;
HON. RICARDO ANTONIO ROSSELLO
NEVARES, in his official capacity as the
Governor of the Commonwealth of Puerto
Rico;
PUERTO RICO FISCAL AND FINANCIAL
ADVISORY AUTHORITY (AAFAF);
GERARDO PORTELA FRANCO, in his
official capacity as Executive Director of
AAFAF; and

PROSKAUER ROSE LLP
Timothy W. Mungovan
Proskauer Rose LLP
One International Place
Boston, MA 02110
Tel: 617-526-9412
Fax: 617-526-9899
tmungovan@proskauer.com

HON. RAUL MALDONADO GAUTIER, in
his official capacity as the Secretary of the
Treasury of the Commonwealth

PROSKAUER ROSE LLP
Steven O. Weise
Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067-3206
Tel: 310-284-4515
Fax: 310-557-2193
sweise@proskauer.com

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Defendants:

Counsel to Defendants:
THE LAW OFFICES OF ANDRES W.
LOPEZ, P.S.C.
Andres W. Lopez
P.O. Box 13909
San Juan, PR 00908
Tel: 787-294-9508
andres@awllaw.com
O'MELVENY & MYERS LLP
Peter Friedman
1625 Eye Street NW
Washington, DC 20006
Tel: 202-383-5300
Fax: 202-383-5414
pfriedman@omm.com
O'MELVENY & MYERS LLP
Elizabeth L. Mckeen
610 Newport Center Drive
17th Floor
Newport Beach, CA 92600
Tel: 949-823-7150
Fax: 949-823-6994
emckeen@omm.com
O'MELVENY & MYERS LLP
John J. Rapisardi
Suzzanne Uhland
Diana M. Perez
Times Square Tower
7 Times Square
New York, NY 10026
Tel: 212-326-2063
Fax: 212-326-2061
jrapisardi@omm.com;
suhland@omm.com;
dperez@omm.com;
Mohammad S. Yassin, AAFAF
P.O. BOX 42001
SAN JUAN, PR 00940-2001
Tel: 787-722-2525
Fax: 787-721-1443
mohammad.yassin@aafaf.pr.gov

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