Opinion
No. 17 BK 3283-LTS (Jointly Administered) No. 17 BK 4780-LTS Adv. Proc. No. 20-115-LTS
2021-06-24
IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico et al., Debtors. In re: The Financial Oversight and Management Board for Puerto Rico, as representative of Puerto Rico Electric Power Authority, Debtor. Anne Catesby Jones and Jorge Valdes Llauger, Plaintiffs, v. Puerto Rico Electric Power Authority, Defendant.
A&S LEGAL STUDIO, PSC, By: Luis F. del Valle-Emmanuelli, 434 Avenida Hostos, San Juan, PR 00918, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Jeffrey W. Levitan, Ehud Barak, Paul V. Possinger, Eleven Times Square, New York, NY 10036 and Michael A. Firestein, Lary Alan Rappaport, 2029 Century Park East, Suite 2400, Los Angeles, CA 90067-3010, Attorneys for the Financial Oversight and Management Board for Puerto Rico as representative for Puerto Rico Electric Power Authority (PREPA). CASILLAS, SANTIAGO & TORRES LLC, By: Juan J. Casillas Ayala, Luis F. Llach Zúñiga, Israel Fernández Rodriguez, Juan C. Nieves González, Cristina B. Fernández Niggemann, El Caribe Office Building, 53 Palmeras Street, Ste. 1601, San Juan, Puerto Rico 00901-2419, Local Counsel to Official Committee of Unsecured Creditors for all Title III Debtors (other than COFINA and PBA). LAW OFFICES OF JANE BECKER WHITAKER, By: Jane A. Becker Whitaker, P.O. Box 9023914, San Juan, Puerto Rico 00902, FEGAN SCOTT LLC, By: Elizabeth A. Fegan, 150 S. Wacker Dr., 24th Floor, Chicago, IL 60606, HAGENS BERMAN SOBOL SHAPIRO LLP, By: Steve W. Berman, 1918 Eighth Avenue, Suite 3300, Seattle, WA 98101 and Mark T. Vazquez, 455 N. Cityfront Plaza Dr., Suite 2410, Chicago, IL 60611, SHINDLER, ANDERSON, GOPLERUD & WEESE PC, By: J. Barton Goplerud, 5015 Grand Ridge Drive, Suite 100, West Des Moines, IA 50265, KARON LLC, By: Daniel R. Karon, 700 W. St. Clair Ave., Suite 200, Cleveland, OH 44113, MORRIS JAMES LLP, By: Jeffrey R. Waxman, 500 Delaware Avenue, Suite 1500, Wilmington, DE 19801, Attorneys for Anne Catesby Jones & Jorge Valdes Llauger. GENOVESE JOBLOVE & BATTISTA, P.A., By: John Arrastia, John H. Genovese, Jesus M. Suarez, Angelo M. Castaldi, 100 SE 2nd Street, Suite 4400, Miami, Florida 33131, Special Litigation Counsel to the Official Committee of Unsecured Creditors for all Title III Debtors (other than COFINA and PBA).
A&S LEGAL STUDIO, PSC, By: Luis F. del Valle-Emmanuelli, 434 Avenida Hostos, San Juan, PR 00918, PROSKAUER ROSE LLP, By: Martin J. Bienenstock, Jeffrey W. Levitan, Ehud Barak, Paul V. Possinger, Eleven Times Square, New York, NY 10036 and Michael A. Firestein, Lary Alan Rappaport, 2029 Century Park East, Suite 2400, Los Angeles, CA 90067-3010, Attorneys for the Financial Oversight and Management Board for Puerto Rico as representative for Puerto Rico Electric Power Authority (PREPA).
CASILLAS, SANTIAGO & TORRES LLC, By: Juan J. Casillas Ayala, Luis F. Llach Zúñiga, Israel Fernández Rodriguez, Juan C. Nieves González, Cristina B. Fernández Niggemann, El Caribe Office Building, 53 Palmeras Street, Ste. 1601, San Juan, Puerto Rico 00901-2419, Local Counsel to Official Committee of Unsecured Creditors for all Title III Debtors (other than COFINA and PBA).
LAW OFFICES OF JANE BECKER WHITAKER, By: Jane A. Becker Whitaker, P.O. Box 9023914, San Juan, Puerto Rico 00902, FEGAN SCOTT LLC, By: Elizabeth A. Fegan, 150 S. Wacker Dr., 24th Floor, Chicago, IL 60606, HAGENS BERMAN SOBOL SHAPIRO LLP, By: Steve W. Berman, 1918 Eighth Avenue, Suite 3300, Seattle, WA 98101 and Mark T. Vazquez, 455 N. Cityfront Plaza Dr., Suite 2410, Chicago, IL 60611, SHINDLER, ANDERSON, GOPLERUD & WEESE PC, By: J. Barton Goplerud, 5015 Grand Ridge Drive, Suite 100, West Des Moines, IA 50265, KARON LLC, By: Daniel R. Karon, 700 W. St. Clair Ave., Suite 200, Cleveland, OH 44113, MORRIS JAMES LLP, By: Jeffrey R. Waxman, 500 Delaware Avenue, Suite 1500, Wilmington, DE 19801, Attorneys for Anne Catesby Jones & Jorge Valdes Llauger.
GENOVESE JOBLOVE & BATTISTA, P.A., By: John Arrastia, John H. Genovese, Jesus M. Suarez, Angelo M. Castaldi, 100 SE 2nd Street, Suite 4400, Miami, Florida 33131, Special Litigation Counsel to the Official Committee of Unsecured Creditors for all Title III Debtors (other than COFINA and PBA).
PROMESA
Title III
MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT PUERTO RICO ELECTRIC POWER AUTHORITY'S MOTION FOR ORDER DISMISSING COUNTS I AND II OF PLAINTIFFS’ SECOND AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12( B )(1) AND (6)
LAURA TAYLOR SWAIN, United States District Judge
Before the Court is Defendant Puerto Rico Electric Power Authority's Notice of Motion for Order Dismissing Counts I and II of Plaintiffs’ Second Amended Complaint Pursuant to Fed. R. Civ. P. 12(b)(1) and (6) (Docket Entry No. 42), filed by the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board" or "Board") on March 30, 2021, as well as the Joinder of Intervenor Committee in Motion of Oversight Board to Dismiss the Plaintiffs’ Second Amended Complaint (Docket Entry No. 43, the "UCC Motion Joinder"), filed by the Official Committee of Unsecured Creditors (the "UCC"), in their capacity as trustees (together with the Board, the "Trustees") of the Puerto Rico Electric Power Authority ("PREPA" or the "Debtor"). As explained in Defendant Puerto Rico Electric Power Authority's Memorandum of Law in Support of Motion to Dismiss Counts I and II of Plaintiffs’ Second Amended Complaint Pursuant to Fed. R. Civ. P. 12(b)(1) and (6) (Docket Entry No. 41, the "Motion") and the accompanying UCC Motion Joinder, the Trustees’ Motion seeks dismissal, under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, of Counts I and II of the Second Amended Complaint for (I) Declaratory Judgment and (II) Relief from the Automatic Stay (Docket Entry No. 36, the "Complaint") of Anne Catesby Jones and Jorge Valdes Llauger (together, the "Plaintiffs"), which cumulatively seek six declaratory judgments. Plaintiffs have been appointed as representatives of a class of PREPA customers (the "Ratepayers") in Ismael Marrero-Rolón, et al. v. Autoridad de Energía Eléctrica de P.R., et al., Case No. 15-cv-1167-JAG (D.P.R.) (the "Marrero Class Action"), a separate action pending in the United States District Court for the District of Puerto Rico.
Unless otherwise specified, all docket entry references in the remainder of this Memorandum Opinion and Order are to entries in Adv. Proc. No. 20-115.
Plaintiffs filed their Opposition to the Motion on April 27, 2021, and on May 25, 2021, the Board filed its Reply, accompanied by the UCC's Reply Joinder. The Court heard oral argument on the Motion on June 16, 2021 (the "Hearing"), and has considered carefully all the arguments and submissions made in connection with the Motion. For the reasons set forth below, the Motion is granted.
In addition to the Motion, the UCC Motion Joinder, and the Complaint, the Court has carefully reviewed the following pleadings: the Opposition to the Defendant's Motion to Dismiss Amended Complaint for (I) Declaratory Judgment and (II) Relief from the Automatic Stay (Docket Entry No. 44, the "Opposition"); the Reply in Support of Defendant Puerto Rico Electric Power Authority's Motion to Dismiss Counts I and II of Plaintiffs’ Second Amended Complaint Pursuant to Fed. R. Civ. P. 12(b)(1) and (6) (Docket Entry No. 48, the "Reply"); and the Joinder of Intervenor Committee in the Reply of the Oversight Board in Support of Motion to Dismiss (Docket Entry No. 49, the "UCC Reply Joinder").
I.
BACKGROUND
The following recitation of facts is drawn from Plaintiffs’ Complaint, unless otherwise specified.
A. PREPA's Consent Decree with the EPA
In March 1999, PREPA entered into a consent decree with the United States Environmental Protection Agency (the "EPA Consent Decree"), which required that PREPA burn fuel oil "no greater than 1.5% sulfur by weight." (Compl. ¶ 21.) After numerous violations by (and penalties assessed against) PREPA, the EPA Consent Decree was modified in 2004. Under the modified agreement, PREPA was gradually to reduce the sulfur content of its fuel oil so that it would only burn fuel with sulfur content of 0.5% or less. (Compl. ¶ 22.) From 2000 to 2017, as a condition for accepting fuel oil, PREPA hired certain laboratories (the "Labs") to test the fuel oil quality against contract specifications, the EPA Consent Decree, and the analysis in the origin certificate. (Compl. ¶¶ 24-29; Mot. ¶ 18.) If additional, more thorough tests revealed that the fuel oil did not meet specifications, PREPA would blend fuel at its own cost to meet specifications, without seeking reimbursement from the supplier. (Compl. ¶ 30.) Plaintiffs allege that PREPA passed the ultimate costs on to the Ratepayers within two billing cycles. (Id. ¶ 32.)
B. The Marrero Class Action
The Marrero Class Action was commenced on February 24, 2015. It has been stayed since September 30, 2018, in light of the pendency of the petition filed by PREPA under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA") on July 2, 2017. (Id. ¶¶ 1, 288.) The Marrero Class Action complaint alleges, inter alia, that PREPA, certain suppliers of fuel oil (the "Suppliers"), and the Labs that PREPA hired to test oil quality against contractual and regulatory specifications (collectively, the "Alleged Cartel"), violated the civil provisions of the federal Racketeering Influenced and Corrupt Organization Act ("RICO"). (See Third Amended Class Action Complaint , Docket Entry No. 367 in Ismael Marrero-Rolón, Case No. 15-cv-1167-JAG (D.P.R.).) Incorporating allegations from the Marrero Class Action complaint, Plaintiffs in the instant motion practice allege that, between 2002 and 2016 (the period for which the class was certified), PREPA charged Ratepayers a surcharge known as the compra de combustible (which means "fuel purchase" in English), reflecting the higher price of fuel oil that met requisite specifications (the "Compliant Oil"), even though it had agreed to accept false test results from the Labs to support the purchase of low grade fuel oil (the "Non-Compliant Oil") at rates charged for Compliant Oil. (Compl. ¶¶ 1-2, 33-44, 48, 68; Opp. at 5, 7.)
PROMESA is codified at 48 U.S.C. § 2101 et seq. References to "PROMESA" sections in this Memorandum Opinion and Order are to the uncodified version of the statute.
Plaintiffs allege that Puerto Rico's Office of the Comptroller uncovered the Alleged Cartel in 2002, but PREPA only pretended to "clean house," and continued to engage in the conspiratorial conduct between 2002 and 2016. (Compl. ¶¶ 49-175.) Plaintiffs also allege that "PREPA has never rejected a complete shipment of fuel oil." (Id. ¶ 73.) Indeed, Plaintiffs argue, testing was deliberately calibrated to obtain desired (rather than truthful) results. (Id. ¶¶ 176-260.) Plaintiffs also aver that PREPA ceded control of the Alleged Cartel (including the choice of laboratories) in 2014 to the Petrobras entities, which include Petrobras Brazil and Petrobras America (id. ¶¶ 261-80), and that the Puerto Rico Senate ultimately investigated and published findings on the scheme to defraud PREPA's Ratepayers in 2014 (id. ¶¶ 281-84).
In resolving sixteen motions to dismiss the Marrero Class Action, then-Magistrate Judge Carreño-Coll issued a Report and Recommendation (the "R&R") on September 29, 2015, concluding that the indirect purchaser rule articulated in Ill. Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), and Kansas v. UtiliCorp United, Inc., 497 U.S. 199, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990), did not bar Plaintiffs’ RICO claims because, if PREPA was a co-conspirator with responsibility for inflating the fuel's price, then "neither PREPA nor any other defendant is a victim of the conspiracy and, rather, [the Ratepayers], as the first payers of inflated fuel prices outside the conspiracy, are the scheme's most direct victims[.]" (Docket Entry No. 214 at 29 in Ismael Marrero-Rolón, Case No. 15-cv-1167-JAG (D.P.R.).) The Court adopted in part and rejected in part the R&R on May 31, 2017, and denied the motions to dismiss the RICO claims. (Memorandum & Order , Docket Entry No. 254 at 12-13 in Ismael Marrero-Rolón, Case No. 15-cv-1167-JAG (D.P.R.).)
C. PROMESA
On July 2, 2017, PREPA commenced its Title III proceeding (Compl. ¶ 287), but agreed with Plaintiffs to modify the automatic stay that arose upon the Title III filing "to the extent necessary to permit PREPA to participate in and complete class certification discovery and briefing on motion for class certification, and to permit the District Court to decide the motion for class certification." (Id. ¶ 5.) On June 22, 2018, Plaintiffs Anne Catesby Jones and Jorge Valdes Llauger, on behalf of themselves and all others similarly situated, filed their Proofs of Claim (Nos. 48925 and 48936, respectively) in PREPA's Title III case, characterizing themselves, based on claims asserted in the Marrero Class Action, as unsecured claimholders of PREPA. (See Mot. ¶ 23; UCC Mot. Joinder ¶ 32.) The District Court granted class certification (excluding PREPA from the class) on September 30, 2018, but otherwise stayed the Marrero Class Action. (Compl. ¶¶ 6, 286.) On February 8, 2019, Plaintiffs moved in the Title III proceedings for stay relief to propound discovery and to pursue their RICO claims in the Marrero Class Action, with any judgment rendered to be collected against the defendants other than PREPA; the motion was denied on May 9, 2019. (Id. ¶ 7.) The Court's order denying stay relief concluded that Plaintiffs’ "claims against PREPA are unsecured and should be liquidated and addressed in connection with the centralized Title III claims resolution process." (Docket Entry No. 1228 in Case No. 17-4780 at 6.) The Court further stated that "continuation of the Litigation would interfere with that centralized claims process and could result in a material diminution of recoveries to similarly-situated claimants," and "would not result in an expeditious and economical resolution of Movants’ claims against PREPA." (Id. )
See 11 U.S.C. § 362(a), made applicable to Title III of PROMESA by 48 U.S.C. § 2161(a).
D. The Avoidance Action
On June 30, 2019, while the Marrero Class Action remained stayed, PREPA's Trustees commenced The Special Claims Committee of the Financial Oversight and Management Board for Puerto Rico, et al. v. Inspectorate America Corporation, et al., Adv. Proc. No. 19-388 (D.P.R.) (the "Avoidance Action"), against the Suppliers and Labs, adopting Plaintiffs’ factual allegations in the Marrero Class Action (other than allegations of PREPA's culpability in the alleged scheme), pleading eighteen counts asserting liability of the Suppliers and Labs for fraudulent conveyance and/or for breach of contract, and taking no position on the legal theories asserted in the Marrero Class Action. (Adversary Complaint to Avoid Fraudulent Transfer by the Puerto Rico Electric Power Authority , Docket Entry No. 1 ¶¶ 40, 47-87, in Adv. Proc. No. 19-388. See also Compl. ¶¶ 8, 288-91; Mot. ¶ 29.) The Avoidance Action seeks to avoid and recover certain transfers within two-, four-, and ten-year periods, alleging in connection with the lattermost that the IRS is a creditor of PREPA and that PREPA's representatives may therefore utilize the extended IRS recovery period in connection with PREPA's transfer recovery claims. (Avoidance Action Complaint ¶¶ 72-231; Mot. ¶ 29.) Among other things, the Avoidance Action alleges that (i) transfers to Suppliers and Labs occurred while PREPA was insolvent, or that PREPA became insolvent as a result of those transfers; (ii) PREPA paid Suppliers for fuel oil that failed to meet the requisite specifications; and (iii) PREPA paid laboratories for fuel testing services that they failed to provide, or that the Labs otherwise provided in a manner that violated their contractual agreements. (Mot. ¶ 30. See generally Avoidance Action Complaint.)
The Avoidance Action Complaint was most recently amended on November 1, 2019. (See Amended Adversary Complaint , Docket Entry No. 33 in Adv. Proc. No. 19-388, the "Avoidance Action Complaint.")
On September 17, 2019, Plaintiffs filed The Marrero Plaintiffs’ Motion to Intervene (Docket Entry No. 9 in Adv. Proc. No. 19-388), seeking full intervention in the Avoidance Action, which motion was granted in part on December 14, 2020, permitting intervention for the limited purpose of propounding discovery (Order on Intervention and Staying Litigation , Docket Entry No. 85 in Adv. Proc. No. 19-388).
E. The Adversary Proceeding and Its Procedural History
On September 17, 2020, Plaintiffs filed their initial complaint (which was most recently amended on February 2, 2021) in the instant adversary proceeding, seeking (i) six declaratory judgments in Counts I and II and (ii) stay relief in Count III to continue to pursue their Marrero Class Action against PREPA, the Suppliers, and the Labs. The requested declarations are as follows:
• Count I, Declaration A : "PREPA suffered no injury as a result of the [Alleged] Cartel's scheme because the Ratepayers paid PREPA for the entirety of the inflated costs of Non-Compliant Fuel Oil" (Compl. ¶ 306(a));
• Count I, Declaration B : "[T]he Oversight Board is precluded by Section 550(d) of the Bankruptcy Code from asserting claims arising from the purchase of Non-Compliant Fuel Oil, the inflated costs of which it passed onto the Ratepayers" (id. ¶ 306(b));
• Count I, Declaration C : "[T]he Ratepayers are the only victims of the [Alleged] Cartel's scheme, and thus, the appropriate plaintiffs for such claims and are the only victims of the scheme alleged in [the Marrero Class Action], and [the Avoidance Action]" (id. ¶ 306(c));
• Count I, Declaration D : "[T]he claims asserted in [the Avoidance Action] are not assets of the Debtor's estate under Section 541(a) of the Bankruptcy Code" (id. ¶ 306(d));
• Count II, Declaration A : "[T]he claims asserted by the Class Plaintiffs in [the Marrero Class Action], are not assets of the Debtor's estate under Section 541(a) of the Bankruptcy Code" (id. ¶ 319(a)); and
• Count II, Declaration B : "[T]he claims asserted in [the Avoidance Action] do not preempt, and therefore, cannot extinguish the clams asserted by the Class Plaintiffs in [the Marrero Class Action], against third-parties." (Id. ¶ 319(b).)
To the extent the Marrero Class Action Plaintiffs’ claims arise under RICO and allege PREPA's involvement in the underlying scheme, Plaintiffs argue, such claims cannot be brought by the Debtor, let alone be subsumed by the Avoidance Action. (Id. ¶ 315.) Plaintiffs’ third and final count, which is not at issue in the instant Motion practice, seeks relief from the automatic stay to allow Plaintiffs to pursue their claims in the Marrero Class Action. (Id. ¶¶ 320-24.)
Plaintiffs further argue that, to the extent the Oversight Board's claims in the Avoidance Action materially differ from those in the Marrero Class Action, it is because section 548(a) of the Bankruptcy Code limits the Board to a two-year period (from July 2, 2015 to July 2, 2017), whereas Plaintiffs assert claims arising between January 1, 2002 and April 30, 2016, meaning that even a valid claim by the Trustees can in no way resolve or usurp Plaintiffs’ claims. (Compl. ¶ 302.)
II.
DISCUSSION
The Trustees move under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure to dismiss Plaintiffs’ Second Amended Complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. A court presented with motions to dismiss under both Rules 12(b)(1) and 12(b)(6) should ordinarily decide jurisdictional questions before addressing the merits. Deniz v. Municipality of Guaynabo, 285 F.3d 142, 149 (1st Cir. 2002). The party invoking the jurisdiction of a federal court carries the burden of proving the existence of proper grounds for the exercise of jurisdiction. Johansen v. United States, 506 F.3d 65, 68 (1st Cir. 2007). The Court also has an independent duty to assess whether it has subject matter jurisdiction of an action. See Fed. R. Civ. P. 12(h)(3) ; FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 107 L.Ed.2d 603 (1990).
Rules 12(b)(1) and 12(b)(6) are applicable to this adversary proceeding under Federal Rule of Bankruptcy Procedure 7012, which is incorporated by section 310 of PROMESA.
When the question of justiciability is raised under Rule 12(b)(1) in connection with a request for declaratory relief, a court must recognize that federal courts can only entertain actual cases and controversies, see U.S. Const. art. III, § 2, cl. 1, and that, while the Declaratory Judgment Act (the "DJA") allows district courts to grant declaratory relief, such authority is limited to cases of actual controversy. 28 U.S.C. § 2201(a). See also Aurelius Cap. Master, Ltd. v. Puerto Rico (In re Fin. Oversight & Mgmt. Bd. for P.R.), 919 F.3d 638, 645 (1st Cir. 2019). The DJA's "case of actual controversy" requirement refers to the cases and controversies that are justiciable under Article III of the Constitution. Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 239-41, 57 S.Ct. 461, 81 L.Ed. 617 (1937). In assessing whether declaratory relief is sought in connection with a case of actual controversy, the court must consider "whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Md. Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941).
Moreover, when considering whether it has jurisdiction, a federal court must also assess whether a plaintiff has demonstrated that it has standing to assert its claim. Standing has both constitutional and prudential dimensions. Article III requires that a plaintiff demonstrate three things to establish standing: (1) an "injury in fact" that is "concrete and particularized;" (2) a "causal connection between the injury and the conduct complained of;" and (3) the ability of a "favorable decision" by the court to redress the plaintiff's injury. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). In assessing the prudential aspects of standing, the court must consider whether the plaintiffs have demonstrated that their claims are "premised on [their] own legal rights (as opposed to those of a third party)[.]" Katz v. Pershing, LLC, 672 F.3d 64, 72 (1st Cir. 2012).
To the extent "prudential standing" is sometimes inaptly applied to questions of whether plaintiffs state a claim for which relief can be granted, see Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-28, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014) (excluding the statutory "zone of interests" test from the category of "prudential standing"), this Court regards a request for a declaration about the rights or injuries of a third party as a prudential extension of the constitutional "personal stake" requirement to establish subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure. See Bank of New York Mellon v. P.R. Sales Tax Fin. Corp. (COFINA) (In re Fin. Oversight & Mgmt. Bd. for P.R.), 301 F. Supp. 3d 306, 312 (D.P.R. 2017). See also Pagán v. Calderón, 448 F.3d 16, 27 (1st Cir. 2006) ("Standing involves a collocation of constitutional requirements and prudential concerns. The Constitution confines federal courts to the adjudication of actual cases and controversies. An actual case or controversy exists when the party seeking to invoke the court's jurisdiction (normally, the plaintiff) has a ‘personal stake in the outcome’ of the claim asserted." (internal citations omitted)); Warth v. Seldin, 422 U.S. 490, 509, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).
A. Count I, Declarations C and D
In their Opposition brief, Plaintiffs make concessions and admissions that reveal an absence of the requisite case or controversy as to Count I, Declaration D, and part of Count I, Declaration C. Count I, Declaration D, of the Complaint seeks a declaration that "the claims asserted in [the Avoidance Action], are not assets of the Debtor's estate under Section 541(a) of the Bankruptcy Code." (Compl. ¶ 306(d).) Relatedly, Count I, Declaration C, seeks a declaration that "the Ratepayers are the only victims of the [Alleged] Cartel's scheme, and thus, the appropriate plaintiffs for such claims and are the only victims of the scheme alleged in [the Marrero Class Action], and [the Avoidance Action]." (Id. ¶ 306(c).)
Plaintiffs have retreated from the requests pleaded in the Complaint, stating in their Opposition that "Plaintiffs do not contest that fraudulent conveyance claims in principle are property of the debtor." (Opp. at 14.) Moreover, they admit that "Plaintiffs do not contend that the claims for avoidance of a fraudulent conveyance and breach of a contract asserted in the Avoidance Action belong to [Plaintiffs]. Plaintiffs have not sought to (nor do they wish to) pursue such claims in a derivative capacity against the Fuel Oil Suppliers and the Laboratories. Rather, Plaintiffs only seek to prosecute their own direct claims for a civil RICO conspiracy against such third parties." (Opp. at 17. See also Hr'g Tr., Docket Entry No. 52 at 32:18-33:9.) Indeed, Plaintiffs make no attempt to show that they would have any right to pursue or legal interest in the specific counts that the Trustees have pleaded in the Avoidance Action for the avoidance of transfers or for breach of contract against the Suppliers and Labs. (See Avoidance Action Complaint.) Nor have Plaintiffs asserted that the Trustees’ Avoidance Action seeks to pursue claims for civil RICO violations. Plaintiffs’ concessions effectively abandon any contention that PREPA has no proprietary interest in the claims asserted in the Avoidance Action. Because the parties agree that Plaintiffs have no standing to pursue the breach of contract and avoidance of transfer claims that the Trustees assert in the Avoidance Action, and because the parties agree that the claims asserted in the Avoidance Action are the exclusive property of PREPA, there is no justiciable case or controversy as to Count I, Declaration D.
Furthermore, Plaintiffs lack standing to obtain a declaration concerning whether PREPA is an inappropriate plaintiff in the Avoidance Action, to which Plaintiffs are not parties. Count I, Declaration C, may be subdivided into requests for declarations concerning (a) the rights and status of PREPA in connection with the Avoidance Action; (b) the rights and status of Ratepayers in connection with claims asserted in the Avoidance Action; (c) the rights and status of PREPA in connection with the claims asserted in the Marrero Class Action; and (d) the rights and status of Ratepayers in connection with the claims asserted in the Marrero Class Action.
Regarding that portion of Count I, Declaration C, that seeks a declaration concerning PREPA's and the Ratepayers’ respective rights in connection with the Avoidance Action, Plaintiffs lack prudential standing to obtain a declaration concerning the rights of a third party (PREPA) for the reasons set forth above, Katz, 672 F.3d at 72, and they have relinquished their original request to obtain declarations as to their previously asserted interests in the Avoidance Action. (Opp. at 14, 17.) Plaintiffs’ lack of any personal stake in the Avoidance Action is further evidenced by the total absence of overlap of claims asserted in the Marrero Class Action and in the Avoidance Action. The Avoidance Action is not based on, asserting, or otherwise advancing the civil RICO claims that Plaintiffs allege they have an independent right to bring in their Marrero Class Action, and the Avoidance Action asserts breach of contract claims against the Suppliers and Labs (which Plaintiffs do not claim they are in sufficient privity with those defendants to assert), and avoidance of transfer claims (which Plaintiffs admit that the Trustees have the exclusive right to assert). Moreover, Plaintiffs’ concessions deprive them of prudential standing to seek any declaration as to whether PREPA was a victim in connection with the Avoidance Action claims. See Katz, 672 F.3d at 72. Accordingly, the Court lacks subject matter jurisdiction of the claim for relief concerning the Avoidance Action that is raised in Count I, Declaration C, and the Trustees’ Motion is granted under Rule 12(b)(1) of the Federal Rules of Civil Procedure to the extent that Count I, Declaration C, seeks declarations concerning the respective rights of PREPA and Ratepayers in the Avoidance Action. The Court addresses the remaining aspect of Count I, Declaration C, below.
B. Count I, Declaration A
Plaintiffs’ request for a declaration that "PREPA suffered no injury as a result of the [Alleged] Cartel's scheme because the Ratepayers paid PREPA for the entirety of the inflated costs of Non-Compliant Fuel Oil" (Compl. ¶ 306(a)), must likewise fail under Rule 12(b)(1) of the Federal Rules of Civil Procedure.
Plaintiffs lack prudential standing to seek a declaration concerning the rights of the Debtor, a third party, particularly given their concession that the Debtor (and not Ratepayers) has a property interest in the Avoidance Action, in which the Trustees assert that PREPA did, in fact, suffer injuries as a result of actions of the Suppliers and Labs. At the Hearing, Plaintiffs acknowledged that their requested declaration that PREPA was not injured by the Suppliers and Labs amounts to an attack on the Trustees’ right to assert the Avoidance Action claims against the Suppliers and Labs. When questioned, Plaintiffs’ counsel made it clear that Plaintiffs seek a declaration regarding PREPA's rights vis-à-vis the third-party Suppliers and Labs, and not any determination regarding the respective rights of the parties to this adversary proceeding:
THE COURT: So, in this action, which is as between PREPA and the class, you are seeking to have the Court make a determination as to the liability of the suppliers, those third parties, to PREPA?
MR. VAZQUEZ: No. No. We're not asking you to make a determination of the fuel oil suppliers as to PREPA. It's simply a matter of determining whether or not PREPA suffered any injury, and –
THE COURT: That's the same as saying whether PREPA can sue or whether PREPA has standing to sue third parties in its separate lawsuit?
MR. VAZQUEZ: Correct.
(Hr'g Tr. at 37:25-38:11.) This is precisely a request for a declaration concerning the rights of a third party, which Plaintiffs lack prudential standing to pursue. Accordingly, Count I, Declaration A, must be dismissed pursuant to Rule 12(b)(1).
Plaintiffs’ inability to seek a declaration concerning the rights of the Debtor in the Avoidance Action also precludes their arguments concerning the doctrine of in pari delicto for lack of prudential standing because, as Plaintiffs’ admit, their argument concerning Count I, Declaration A, boils down to a request that the Court declare the Trustees’ rights in the Avoidance Action. (Hr'g Tr. at 37:13-24.)
C. Count I, Declarations B and C
Having determined that Count I, Declaration A, must be dismissed, the Court now addresses Count I, Declaration B, and revisits the remainder of Count I, Declaration C, which seeks a declaration that Ratepayers are the "only victims" and are the appropriate plaintiffs in their own Marrero Class Action. (Compl. ¶ 306(c).) The parties do not disagree as to whether the Marrero Class Action Plaintiffs are the appropriate plaintiffs for the claims asserted in that separate litigation. (Reply ¶ 24 ("[T]here is no dispute regarding Plaintiffs’ status as a party in the [Marrero Class Action]; [Count I, Declaration C] would resolve nothing.").) Nor do the Trustees purport to bring the civil RICO claims that Plaintiffs assert in their Marrero Class Action. The non-justiciability of Plaintiffs’ claim that PREPA was not injured by the conduct of Suppliers and Labs, Plaintiffs’ concession that they are not the appropriate plaintiffs to assert the claims of fraudulent conveyance or breach of contract alleged in the Avoidance Action, and the absence of any controversy as to whether the Marrero Action Class Plaintiffs are the proper plaintiffs in that separate case, compel the conclusion that there is no justiciable case or controversy underlying Count I, Declaration C, at all. Accordingly, the Court grants the Motion as to Count I, Declaration C in its entirety under Rule 12(b)(1), as that element of Count I presents no claim as to which there is a case or controversy or as to which Plaintiffs have standing.
As for Plaintiffs request in Count I, Declaration B -- that "the Oversight Board is precluded by Section 550(d) of the Bankruptcy Code from asserting claims arising from the purchase of Non-Compliant Fuel Oil, the inflated costs of which it passed onto the Ratepayers" (Compl. ¶ 306(b)) -- such request must be dismissed for lack of prudential standing, because it, too, seeks a declaration of rights between third parties (PREPA, and the Suppliers and Labs). Katz, 672 F.3d at 72. There is no case or controversy between the Trustees and Plaintiffs in this regard: any declaration regarding the applicability of section 550(d) would have no bearing on Plaintiffs’ civil RICO claims and would relate only to the Avoidance Action, which Plaintiffs do not contest they lack standing to pursue. (See Opp. at 14, 17.) Indeed, Plaintiffs nowhere assert that they are in contractual privity with the Suppliers and Labs, and they admit that the Trustees have the exclusive right to assert claims against such third parties for the avoidance of fraudulent conveyances. (Id. ) Therefore, Count I, Declaration B, must be dismissed pursuant to Rule 12(b)(1) for lack of prudential standing.
D. Count II, Declarations A and B
Plaintiffs’ requests for declarations in Count II must also be dismissed for lack of subject matter jurisdiction. Count II, Declaration A, would have the Court declare that "the claims asserted by the Class Plaintiffs in [their Marrero Class Action], are not assets of the Debtor's estate under Section 541(a) of the Bankruptcy Code" (Compl. ¶ 319(a)), and Count II, Declaration B, would have the Court declare that "the claims asserted in [the Avoidance Action] do not preempt, and therefore, cannot extinguish the claims asserted by the Class Plaintiffs in [their Marrero Class Action], against third parties" (id. ¶ 319(b)). Central to both aspects of Count II is Plaintiffs’ request that this Court address Plaintiffs’ alleged rights with respect to claims they assert against third parties in their Marrero Class Action, and the extent to which the Avoidance Action may affect such rights.
Turning to the specifics of Count II, Declaration A, Plaintiffs’ request for a declaration that their Marrero Class Action claims are not property of the Debtor fails for lack of prudential standing. Plaintiffs lack prudential standing because they seek to recover directly the same (and no other) funds from the Suppliers and Labs that they admit PREPA seeks in the Avoidance Action. (Hr'g Tr. at 36:8-22; 39:1-25.) As previously noted, there is no overlap of claims asserted in the Marrero Class Action and in the Avoidance Action, but there is a total overlap in the damages sought against the Suppliers and Labs, and the parties agree that the Debtor's Avoidance Action claims are the sole property of the Debtor. Thus, to the extent Plaintiffs are arguing that their Marrero Class Action claims entitle them to recover directly monies from the Suppliers and Labs that they admit the Trustees have the right to pursue in the Avoidance Action, Plaintiffs essentially seek a declaration that they should be entitled to obtain repayment in PREPA's stead, which amounts to a declaration concerning the rights of a third party (the Debtor) in the Avoidance Action for the purpose of obtaining relief from injury to themselves. Plaintiffs lack prudential standing to obtain such a declaration. Warth v. Seldin, 422 U.S. 490, 509, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) ("the prudential standing rule ... normally bars litigants from asserting the rights or legal interests of others in order to obtain relief from injury to themselves."). As such, Count II, Declaration A is dismissed under Rule 12(b)(1) for lack of prudential standing. As to Count II, Declaration B, any attempt to determine the interplay of potential outcomes of the Avoidance Actions and the Marrero Class Action would be speculative and is not grounded in any current controversy that could be resolved by a ruling here. The requested declarations would constitute abstract, prospective, premature declarations of the rights and relationships of Plaintiffs, the Debtor, and other defendants in the Marrero Class Action, which is currently stayed and is unresolved. See, e.g., ACP Master, Ltd. v. Commonwealth of P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.), 300 F. Supp. 3d 328, 337-38 (D.P.R. 2018) (finding no justiciable case or controversy where a party "merely [sought] a determination of aspects of their legal rights rather than a conclusive determination of ultimate issues"), aff'd, 919 F.3d 638 (1st Cir. 2019). As the First Circuit held in affirming the denial of a requested declaration that claimants had (and the Debtor lacked) a property interest in certain revenues, so too here, "the declaration[ sought] would ‘reach far beyond the particular case’ ... [and] unleash ramifications to be resolved in future litigation[.]" Aurelius Capital Master, 919 F.3d at 646. This Court is not empowered to issue advisory opinions as to nonjusticiable matters such as the declaration requested under Count II, Declaration B. Thus, Count II, Declarations B must be dismissed for lack of subject matter jurisdiction pursuant to Rule 12(b)(1).
Any further analysis or declaration concerning ownership of the Marrero Class Action claims would be advisory and would merely serve to affect the Marrero Class Action parties’ future litigation or negotiation tactics. See, e.g., Fin. Oversight & Mgmt. Bd. for P.R. v. Vásquez Garced (In re Fin. Oversight & Mgmt. Bd. for P.R.), 403 F. Supp. 3d 1, 10 (D.P.R. 2019).
III.
CONCLUSION
For the foregoing reasons, the Motion, insofar as it is brought pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, is granted. This Memorandum Opinion and Order resolves Docket Entry Nos. 41 and 43 in Adversary Proceeding No. 20-115. This adversary proceeding remains referred to Magistrate Judge Dein for general pretrial management.
SO ORDERED.