Amicus Curiae Brief — Commonwealth v. Franklin Cal. Tax-Free Trust, 136 S. Ct. 582 (2015) (No. 15-233)

No. 15-233

IN THE

Supreme Court of the Hnited States

THE COMMONWEALTH OF PUERTO RICO,

ALEJANDRO GARCIA PADILLA, as Governor of the

Commonwealth of Puerto Rico, and CESAR MIRANDA

RODRIGUEZ, as of Justice of the

Commonwealth of Puerto Rico,

Petitioners,

v.

FRANKLIN CALIFORNIA TAX-FREE TRUST, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the First Circuit

BRIEF OF ACION ANGEL RABSOGINC:s

FUNDACION COMUNITARIA DE

RICO, INC.; MIRANDA FOUNDATION;

FOUNDATION, INC.;

INICIATIVA COMUNITARIA DE INVESTI-

GACION, INC.; PUERTO RICO DOWN

SYNDROME FOUNDATION, INC.; CORPO-

RACION DE LA FONDITA DE ; ASE-

SORES FINANCIEROS COMUNITARIOS, INC.;

INC.; ALIANZA LAURA APONTE

POR LA PAZ SOCIAL (ALAPAS), INC.;

FUNDACION CHANA GOLDSTEIN Y

Ne ae CO AMIGO, INC.;

ESPECIAL PARA EL

DESARROLLO INTEGRAL DEL INDIVIDUO,

LA FAMILIA Y LA COMUNIDAD, INC.; AND

PROYECTO NACER, INC., AS AMICI CURIAE,

IN SUPPORT OF PETITIONERS

JOSE L. NIETO-MINGO

Counsel of Record

NIETO LAW OFFICES

District View Plaza, Suite 301

644 Fernandez Juncos Avenue

San Juan, PR 00907-3122

(787) 520-6064

josel_nieto2000@yahoo.com

January 26, 2016

So ee a

WALSON-EPES PRINTING Co., INC. — (202) 788-0096 — WASHINGTON, D.C. 20002

QUESTION PRESENTED

Whether Chapter 9 of the federal Bankruptcy Code,

which does not apply to Puerto Rico, nonetheless

preempts a Puerto Rico statute creating a mechanism

for the Commonwealth’s public utilities to restructure

their debts.

(i)

TABLE OF CONTENTS

QUESTION PRESENTED....................2:c0ccceeeeeeees

TABLE OF AUTHORITIES .....................:0ccceee00s

INTEREST OF THE AMICI CURIAE................

STATEMENT OF THE CASE ......0.........00:cec00e

SUMMARY OF ARGUMENT 000000000... eeeeeeee

I. WITHOUT A MECHANISM TO

RESTRUCTURE THE DEBT OF ITS

PUBLIC CORPORATIONS LIKE THE

ONE CREATED BY THE RECOVERY

ACT, THE GOVERNMENT OF

PUERTO RICO WILL BE FORCED TO

REDUCE EVEN FURTHER ITS FINAN-

CIAL SUPPORT TO THIRD SECTOR

ORGANIZATIONS THAT PROVIDE

DIRECT ESSENTIAL SERVICES TO

THE PEOPLE OF PUERTO RICO..........

A. The General State of Puerto Rico’s

B. The Burden of Public Corporations to

the Local Economy ..................cccceeeeeees

C. Puerto Rico’s Economic and Fiscal

Outlook Continues to Worsen.............

D. An Overview of the Third Sector in

E. The Third Sector Plays a Crucial Role

in Providing Basic Services to the

People of Puerto Rico......................000

(iii)

onwn = SF.

iv

TABLE OF CONTENTS—Continued

F. The Impact of NPOs in Education.......

G. Services that NPOs Provide to the

H. The Role of the Third Sector in the

Economy of Puerto Rico.......................

I. Impact of the Economic and Fiscal

Crisis on NPOs ....... mennniidddhiseinabagmeenen

J. NPOs Need the Continued Financial

Support of the Government of Puerto

. PUERTO RICO’S INABILITY TO

RESTRUCTURE THE DEBT OF ITS

PUBLIC CORPORATIONS CURTAILS

ITS ABILITY TO GUARANTEE THE

HUMAN RIGHTS OF ITS CITIZENS......

A. Fair Debt Restructuring is Essential

for the Protection of Human Rights....

B. Although Puerto Rico is not a State of

The United States, it Should be Treated

as a State Under a Fair Constitutional

Interpretation of the Due Process and

Equal Protection Clauses, of The Fifth

And Fourteenth Amendments ............

. THE RECOVERY ACT IS NOT

PREEMPTED BY CHAPTER 9 OF THE

FEDERAL BANKRUPTCH CODE...........

18

19

19

21

Vv

TABLE OF CONTENTS—Continued

Page

A. The Preemption Analysis of the

Opinion Below is Erroneous and

Usurps the Right of the

Commonwealth of Puerto Rico to

Exercise its Police Power to Protect its

B. The Opinion Below Concedes that the

Legislative History of the 1984

Amendments to the Bankruptcy Code

is Silent as to the Reasons for the

Exclusion of Puerto Rico from

SII i iiincecsnencdntcnteninniiiaigunptaniniinanes 25

C. The Opinion Below Failed to Consider

the Most On-Point Precedent on the

Correct Application of Preemption

SEED iccduheisnninmencemnemmenmnnseneinieeennnn 26

GE IENIIEID consenseansceusssrisenmevesessscessenseensecen 27

vi

TABLE OF AUTHORITIES

CASES Page(s)

Alessi v. Raybestos-Manhattan, Inc.,

|| EATS Crea 25

Bolling v. Sharpe,

gk ener 22

Brown v. Board of Education,

a institerinsneniiemintemenintenanete 22

California Fed. Savings & Loan Assn. v.

Guerra,

ene 25

Calero-Toledo v. Pearson Yacht Leasing Co.,

a ccceneciaiiirtnnames 23

Examining Board of Engineers, Architects

and Surveyors v. Otero

I iinriiirniaipmrenmmemmniiameninies 23

Fidelity Federal Savings and Loan Assoc. v.

de la Cuesta,

I aT cssepntnepmmnnenmmninnsienieenes 26

Florida Lime and Avocado Growers, Inc. v.

Paul

373 U.S. 132, (1963) o.occcccccccccccccecccseessesseseen 24

Fort Halifax Packing Co. v. Coyne,

ETS a a a 25

Hillsborough County v. Automated Medical

Laboratories, Inc.,

GK 24

Hines v. Davidowitz,

8 24

vii

TABLE OF AUTHORITIES—Continued

Page(s)

International Paper Co. v. Ouellette,

ae ee iicnettntensnessnintesesineeennnes 24, 26

Jones v. Rath Packing Co.,

430 U.S. 519, 525 (1977) ...................eceeseeeeee 24, 25

Louisiana Public Service Commission v. FCC,

rs SIE ccientnnenenmnentnnsnrnnsvsmnnnmnnens 26

Maryland v. Louisiana,

451 U.S. 725, 746 (1981) ................ccccccceeeeee 26

Pacific Gas and Electric Co. v. State Energy

Resources Conservation and Development

Commission,

8 8) 24, 26

Puerto Rico Dept. of Consumer Affairs v. Isla

Petroleum Corp.,

ee HD crcccnrnssentenensetsniqunennnasiens 23, 26

Redondo-Borges v. United States Dep’t. of

Housing,

421 F.3d 1 (1st Cir. 2005)...............0.000...... 22

CONSTITUTION, STATUTES, AND RULES

ac MEE: WGI Cicicnsccisonnnpennsenennsienneions 23

ee aE Wh ciecsresensvosemensepmeniniaeninn 22

ee 22

0 Ee eeroee 27

4k I nena 3, 24, 25

BE CRE. BGO exreccccecnsssssessssevsscessscesnsseanence 3

TABLE OF AUTHORITIES—Continued

OTHER AUTHORITIES Page(s)

Civil Rights Act of 1964, 42 U.S.C. § 1983......

22

2014 P.R. Laws Act No. 71, § 115(b)....... 2, 3, 22, 24

> eee

P.R. Gen. Budget J. Res. for FY 15-16

SEED Uitte icenoninssnedinecndtiinneepummmeuniinnmenescensens

INTERNATIONAL INSTRUMENTS

Basic Principles on Sovereign Debt

ing Processes, U.N. GAOR, 69th

Sess., A/69/1.84 (Sept. 10, 2015)...................

European Convention for the Protection of

Human Rights and Fundamental

Freedoms, Nov. 4, 1950, 213 UNTS 222,

entered into Force Sept. 3, 1953..................

Report of the independent expert on the effects

of foreign debt and other related

international financial obligations of States

on the full enjoyment of all human rights,

particularly economic, social and cultural

rights, U.N. GAOR, 14th Sess.,

A/HRC/14/21 (20 April 29, 2010) .................

Report of the Independent Expert on the effects

of foreign debt and other related

international financial obligations of States

on the full enjoyment of all human rights

[. . J, U.N. GAOR, 20TH Sess.,

A/HRC/20/23 (April 10, 2012) ......................

19

21

ix

TABLE OF AUTHORITIES—Continued

Page(s)

U.N. Universal Declaration of Human Rights,

GA res. 217A (III), U.N. Doc A/810 (1948),

THER AUTHORITIES

2015 KIDS COUNT Data Book 43 (2015)

available at: http://www.aecf.org/m/resour

cedoc/aecf-2015kidscountdatabook-2015.

An update on the Competitiveness of Puerto

Rico’s Economy, Fed. Reserve Bank of N.Y.

EET UNE HIE ccecedcecenssebeneninetnesandeneemabetiieis

Avilés, Luis A., Electric Energy Access In

European Union Law: A Human Right?, 19

Colum. J. Eur. L. F. (2012) ..............cccecseeeeee

Commonwealth of Puerto Rico, Office of the

Governor, Planning Board: Economic

Report to the Governor for 2013 (December

Sate TTI ictiienntnincteniotinanbientaenninnsintebinidinbentatenen

Departamento del Trabajo y Recursos

Humanos, Tablas Estadisticas, available at

http://www.mercadolaboral.pr.gov/Tablas_

E { li ti 12 } jad TS ie Hi

21

12

5, 6

21

x

TABLE OF AUTHORITIES—Continued

Page(s)

El] Nuevo Dia, NPOs will protest tomorrow in

front of the Capitol, Francisco Rodriguez-

Burns (May 27, 2015), http://www.

elnuevodia.comnoticias/locales/nota/organi

zacionessinfinesdelucroprotestaranenelcap

ITT ccescintonsssctessesntetannncstsnenacseein

Financial Statements, Required Supple-

mentary information and Supplemental

Schedules. Puerto Rico Electric Power

Authority, Ernst and Young LLP (January

Ee Ua ieciceenicitpeesenennieiniaisneansinnnteantnnentudesiniaes

Helfeld, David J., How Much of the United

States Constitution and Statutes Are

Applicable to the Commonwealth of Puerto

Rico? 110 F.R.D. 452 (1985)..................ceeeee

Krueguer, Teja, and Wolfe, Puerto Rico, A

Way Forward (June 29, 2015)................c000

Primera Hora, Arduo el camino para la

aprobacién de la ‘"crudita", Rebecca

Banuchi (December 4, 2014), http://

www.primerahora.com/noticias/gobiernopo

litica/nota/arduoelcaminoparalaaprobacion

delacrudita-1051827/..................ccccccccceeeeeeees

Study of the Non Profit Sector in Puerto Rico,

Estudios Técnicos Inc. (2015), available at

http:/Awww.estudiostecnicos.com/projects/

orgssinlucro/pdf/Informe%20final®200SF

13

23

L,% 202015. pdf .......csccccsecsessescesssesseeseceseeseee passim

xi

TABLE OF AUTHORITIES—Continued

Page(s)

U.S. Census Bureau, American Community

Survey 1-Year Estimates (2014), available

at http://factfinder.census.gov/faces/table

services/jsf/pages/productview.xhtml?pid=

ACS_14 1YR_S1903&prodType=table........ 4

U.S. Census Bureau, 2009-2013 5-Year

American Community Survey, available at

http://www .factfinder.census.gov/faces/nav

/jsf/pages/index.xhtm! (last visited

gg eee 11

U.S. Dept. of Labor, Bureau of Labor

Statistics, Occupational Employment

Statistics: May 2014 State Occupational

Employment and Wage Estimates (last

modified on March 25, 2015), available

at http://www.bls.gov/oes/current/oes_ms.

U.S. Energy Information Administration,

State Electricity Profiles: Data for

2013 (July 8, 2015), available at

http://www.eia.gov/electricity/ state/ ........... 6

INTEREST OF THE AMICI CURIAE'

The amici curiae in this case are a group of entities

comprised by four Puerto Rico private foundations’

that fund, among others, the operations of ten non-

profit organizations® that provide services directly to

the people and communities in Puerto Rico.

As a result of Puerto Rico’s inability to restructure

the debts of its public corporations resulting from the

decision below, the amici and other foundations and

non-profit organizations in Puerto Rico will be directly

affected because the government of Puerto Rico will be

forced to reduce the financial support that it provides

to these entities.

Without the continued support from the government,

the amici and other foundations and non-profit organ-

izations will not be able to provide essential services

' Pursuant to Supreme Court Rule 37.3(a), the amici curiae

state that they have received written consent from all parties to

file this brief. The amici curiae further state that, no counsel for

any party authored this brief in whole or in part; and that no

person or entity, other than amici and their counsel, made a

monetary contribution intended to fund the preparation and

submission of this brief.

2 These foundations are: Fundacién Angel Ramos, Inc.; Fundacién

Comunitaria de Puerto Rico, Inc.; Miranda Foundation and Titin

Foundation, Inc.

3 These non-profit organizations are: Iniciativa Comunitaria de

Investigacién, Inc.; Puerto Rico Down Syndrome Foundation, Inc.;

Corporacién de la Fondita de Jestis; Asesores Financieros

Comunitarios, Inc.; Crearte, Inc.; Alianza Laura Aponte por la

Paz Social (ALAPAS), Inc.; Fundacién Chana Goldstein y Samuel

Levis, Inc.; Politécnico Amigé, Inc.; Instituto Especial para el

Desarrollo Integral del Individuo, la Familia y la Comunidad,

Inc.; and Proyecto Nacer, Inc.

2

to some of the poorest and most vulnerable people in

Puerto Rico.

STATEMENT OF THE CASE

This case involves the Commonwealth of Puerto

Rico’s attempt to exercise the most basic form of tradi-

tional state police power. Puerto Rico enacted the

Recovery Act in response to the reality that the public

corporations used by the Commonwealth to provide

essential services like electricity and water cannot pay

their debts and are cornered by their creditors. The

people of Puerto Rico literally cannot survive without

receiving these services, and the Commonwealth has

the obligation to exercise its police power to respond to

this crisis.

In addition, this case has important ramifications on

the interpretation of preemption principles that lie at

the very core of Federalism. In concluding that the

Recovery Act was preempted by § 903(1) of the Bank+

ruptcy Code, the opinion below disregarded the ana-

lytical framework set forth by this Court for the deter-

mination of the existence of preemption in a way that

is catastrophic for Puerto Rico.

SUMMARY OF ARGUMENT

The non-profit sector provides direct services that

are essential for the survival and well being of some of

the poorest and most vulnerable people in Puerto Rico.

This sector depends on the government. To the extent

that the Commonwealth of Puerto Rico is not allowed

to restructure the debt of its public corporations, it will

be forced to continue cutting the funding of these

organizations, which in turn, will not be able to

provide essential services to the people.

3

Puerto Rico needs a legal framework like the one

created by the Recovery Act in order to restructure the

debt of its public corporations. To the extent that

Congress expressly decided to leave Puerto Rico out of

the coverage of Chapter 9 of the Bankruptcy Code,

there is no basis to conclude that the Recovery Act is

preempted.

ARGUMENT

I. WITHOUT A MECHANISM TO

RESTRUCTURE THE DEBTS OF ITS

PUBLIC CORPORATIONS LIKE THE ONE

CREATED BY THE RECOVERY ACT, THE

GOVERNMENT OF PUERTO RICO WILL BE

FORCED TO REDUCE EVEN FURTHER ITS

FINANCIAL SUPPORT TO THIRD SECTOR

ORGANIZATIONS THAT PROVIDE DIRECT

ESSENTIAL SERVICES TO THE PEOPLE OF

PUERTO RICO

Puerto Rico’s inability to restructure the debt of its

public corporations as a result of the decision below

has a profound impact at all levels of Puerto Rican

society. Puerto Rico’s “Third Sector”, comprised mainly

of non-profit organizations (“NPOs”) that provide ser-

vices and social development structure to the Island’s

most vulnerable individuals and communities is par-

ticularly harmed by this decision. Its continued exist-

ence is now threatened by the effects of this decision

on the Island’s economy.

4

A. The General State of Puerto Rico’s Economy

Puerto Rico has experienced a prolonged economic

contraction since the year 2000. Just between 2006 and

2013, it has faced an average annual contraction of

1.7%. It is estimated that 200,000 jobs* have been lost,

and that 46.2% of the Island’s population lives below

the federal poverty line.© The unemployment rate in

Puerto Rico for 2014 was 14.4%.° Puerto Rico’s annual

mean wage is $27,510, well below that of Mississippi,

the poorest state in the United States.’

This precarious economic situation has been exacer-

bated by the largest migration of Puerto Ricans in

more than fifty years. Puerto Rico’s population has

shrunk by more than 82,000 between 2000 and 2010,

approximately 2.2% of the general population. From

2010 to 2014, it « estimated than an additional 150,000

Puerto Ricans have left the Island. Close to 60% of these

‘Puerto Rico’s Planning Board Economic Report to the

Governor of Puerto Rico of 2013 presented December 24, 2014.

5 See U.S. Census Bureau, American Community Survey

1-Year Estimates (2014) http: / / factfinder.census.gov / faces /table

services / jsf / pages / productview.xhtml?pid=ACS_14_1YR_S1903

&prodType=table.

® Departamento del Trabajo y Recursos Humanos, Tablas

Estadisticas, available at http-//www.mercadolaboral.pr.gov/

Tablas Estadisticas/F Trabajadora/T Serie Histor:

7 Mississippi's annual mean wage is $36,750, Bureau of Labor

Statistics of the US Labor Department (updated on March 25,

2015). (NOTE: The American Community Survey reported that

the median household income in Puerto Rico was $18,928 as of

2014. However, the US Census Bureau itself admitted that there

is a tendency for people to underrevort household income. The

amici decided to emphasize the latter in order to provide a more

accurate picture of the current situation in Puerto Rico.

5

migrants are between the ages of 18-54, and 29% be-

tween the ages of 0 and 17 years. This means that

Puerto Rico is losing both its current and future work-

force. By the year 2020, it is estimated that a substan-

tial part of the Island’s population will be 65 or older’.

The government of Puerto Rico also faces immense

fiscal challenges. According to a 2014 New York Federal

Reserve economic study, Puerto Rico’s total public debt

is approximately $72 billion. The debt of its public

corporations accounts for 36.4% of the total general

government debt.

B. The Burden of Public Corporations to the

Local Economy

Puerto Rico’s Electric Power Authority (“PREPA”)

is, for all practical purposes, the sole electric power

provider in the Island. The cost of electricity in Puerto

Rico in kilowatt/hours is the second most expensive in

the United States.® Its infrastructure is both outdated

and inefficient. PREPA’s inability to invest in more

efficient, cost effective and diversified infrastructure

has rendered it extremely dependent on imported oil,

as confirmed by economic reports from the New York

Federal Reserve and Anne Krueger, former Director of

the International Monetary Fund”.

® Estimates based on the 1990, 2000 and 2010 Censuses

carried out by P.R’s Planning Board in conjunction with US

Census Bureau.

* According to the U.S. Energy Information Administration

(http//www.eia.gov/electricity/state/).

See “An update on the Competitiveness of Puerto Rico's

Economy”, NY Fed. Reserve Bank, July 31, 2014 and Krueguer,

Teja, and Wolfe, “Puerto Rico, A Way Forward”, published June

29, 2015.

6

PREPA’s debt constitutes an impediment for making

crucial investments in Puerto Rico’s infrastructure.

According to its last audited report, PREPA only has

$16 million for capital improvements". In addition,

PREPA has also experienced consecutive operational

deficits ranging from $272 and $346 million between

2011 and 2013.

Other public corporations, namely the Puerto Rico’s

Transport Authority (“PRTA”) and the Aqueduct and

Sewers Authority (“PRASA”), place a similar burden

on the Island’s economy. Both operate as publicly

sanctioned state monopolies, have deficient and costly

infrastructure, and force a heavy burden on taxpayers.

Their respective fiscal situations are already impact-

ing the economy. For example, Puerto Rico’s Legisla-

ture has been forced to significantly raise taxes on

petroleum-based products twice during the past year

in an attempt to save PRTA’s finances’. To make

matters worse, Puerto Rico’s population is extremely

dependent on automobiles and PRTA has been unable

to develop a comprehensive and reliable public trans-

portation system. While these shortcomings have been

signaled out as yet another reason for Puerto Rico’s

economic hardships,’* elected officiais have been forced

to resort to extremely unpopular and costly impositions

| “Financial Statements, Required Supplementary information

and Supplemental Schedules. Puerto Rico Electric Power Authority”,

Ernst and Young LLP, January 16, 2014.

2 See Public Law #1 of 2015. Also, see following news article

that sufficiently illustrate how difficult it was to pass this law due

to intense popular opposition: http:/Awww.primerahora.com/

noticias/gobiernopolitica/nota/arduocelcaminoparalaaprobacionde

lacrudita-1051827/

“An Update on the Competitiveness of Puerto Rico’s

Economy”, Federal Reserve Bank of New York, July 31, 2014.

7

just to keep PRTA’s head above water. Similarly,

significant rate increases on water bills have also been

implemeated in order to protect PRASA.

C. Puerto Rico’s Economic and (Fiscal

Outlook Continues to Worsen

Since the presentation of our amici brief at the

petition stage on September 23, 2015, the fiscal

outlook for the government of Puerto Rico has

deteriorated even further. The Puerto Rico Financing

Infrastructure Authority (PRIFA) has joined the

Puerto Rico Public Finance Authority (PFC) in

defaulting on debt service payments". By January

2016, the two entities had failed to meet a total of $

100.8 million in debt payments: $ 64.9 million from

PFC (which first defaulted in August 2015 and has

failed to make monthly debt service payments since

then) and $ 35.9 from PRIFA (which first defaulted on

January 2016).

In November 2015, the Governor of Puerto Rico

ordered the Treasury Department to implement a

constitutional “clawback” provisions for $164 million

in revenues that supported debt obligations of PRIFA,

the Highway and Transportation Authority (HTA) and

the Convention Center District Authority (CCDA) in

order to honor the Commonwealth’s Constitutional

obligations”. As a result, Assured Guaranty and

Ambac Financial, insurers of Puerto Rico-issued debt,

have sued the Government of Puerto Rico in the

“ Giel, D., “Puerto Rico will default on portion of $1B in

bonds on Monday: Officials”, CNBC, December, 31, 2015,

http//www.cnbc.com/2015/12/30/puerto-rico-will-default-on-

small-portion-of-the- 1b-in-bonds-due-monday-officials htm]

'® Administrative Bulletin Num. OE-2015-046.

8

United States District Court for the District of Puerto

Rico, in what could be the first in a series of creditor

lawsuits that will move forward in the absence of a

statutory framework allowing for the restructuring of

this debt”*. HTA and CCDA are expected to fail to meet

their debt service payments in the coming months.

The Commonwealth paid the debt service on its

General Obligation debt (GO’s) in January 2016, after

taking extraordinary emergency liquidity measures

which, besides the “clawback”, included: borrowing

$ 400 million in emergency loans from its own state

insurance companies and workers compensation

funds; halting $93 million of monthly GO’s set asides;

deferring payment of tax refunds for the 2014 tax year;

and postponing payments to service suppliers,

including nonprofits. As of December 31, 2015, it is

estimated that the accounts payable of the govern-

ment have increased to $ 1.8 billion”.

In the meantime, the Puerto Rico Treasury

Department has revised downward its revenue

estimates for fiscal year 2016 from $ 9.46 billion to

$ 9.21 billion. The decrease in projected revenues, as

well as an expected one-year delay in the assumed

start of economic growth, has lead the GDB to increase

its estimated 5-year financing gap to $ 27.9 billion, an

%° “Comienzan demandas por el “clawback” y el impago’,

Noticel, Jan, 8 2016 http://www.noticel.com/noticia/18525 l/comi

enzan-las-demandas-por-el-clawback-y-el-impago-documento html]

Working Group for the Fiscal and Economic Recovery of

Puerto Rico, “Puerto Rico Fiscal and Economic Growth Plan:

Update Presentation” January 18, 2016

9

increase of $ 2.1 billion since the release of the original

Fiscal and Economic Growth Plan”.

D. An Overview of the Third Sector in Puerto

Rico

Puerto Rico’s Third Sector directly provides services

that are essential for the survival and well-being of

some of the poorest and most vulnerable people in

Puerto Rico. Without the Third Sector, most of these

individuals and their communities would lack access

to essential services. In addition, this sector provides

mechanisms for civic participation to ensure appropri-

ate public policies, government accountability and

transparency, and provide independent analysis to

inform the public debate.

Within the Third Sector, NPOs are involved in a

wide range of activities and interests, including health

promotion, education, arts and culture, social assistance,

economic development, environmental protection,

human rights, policy analysis, and civic engagement.

Third Sector organizations include foundations, com-

munity-based organizations, museums, cooperatives,

policy think tanks, and research enterprises. They

have emerged as a result of the initiative of several

concerned individuals who desired to improve the

quality of life in Puerto Rico. Unlike the private

sector, whose concern is the generation of profits, and

the governmental sector, which protects the general

welfare of all residents, the Third Sector harnesses

10

and creates private social capital to improve the

quality of life of the less fortunate.

The Third Sector serves as advocates and provides

services to a wide variety of groups representing the

most vulnerable portions of the Island’s population.

These groups include: high-risk and abused children,

the homeless, persons living with HIV, drug addicts

and alcoholics, single mothers, pregnant teenagers,

victims of domestic violence, children with special

needs, and the elderly’®. NPOs integrate the commu-

nity into their decision-making processes, and involve

volunteer support to increase the talent pool and

decrease the cost of the services they provide.

This NPO model of promoting both community involve-

ment and volunteer support has been extremely suc-

cessful and beneficial for Puerto Rico because it cre-

ates a more participative and committed community.

NPOs also collect valuable demographic information,

and examine the impact of their programs to encour-

age the adoption of these innovative practices in other

communities within the Island.

As a society that needs more socially centered and

empathic legislation, Puerto Rico cannot afford to lose

these essential and participatory mechanisms as a

part of the development of its public policies. NPOs

provide essential information to legislators and other

policy makers in Puerto Rico, collected on the basis of

their day-to-day work with the groups they serve.

Each of the NPOs that comprise the group of amici in

‘® Study of the Non Profit Sector in Puerto Rico, prepared

by the company Estudios Técnicos Inc. in 2015 (hereafter

the 2015 Non Profit Sector Study), available at

http//www.estudiostecnicos.com/projects/orgssinlucro/pdf/Infor

me%20final%200SFL%202015.pdf

11

this case, represents and caters to the specific needs of

the particular group and communities each serve,

which is something that no governmental agency in

Puerto Rico is able to do directly.

Puerto Rico’s acute economic crisis has underscored

the importance of the Third Sector. The amount of

resources spent by NPOs in providing assistance to the

underprivileged in Puerto Rico has almost doubled in

the past eight years. In 2007, there were around 6,300

NPOs in Puerto Rico. Today, there are more than

11,570 such organizations impacting the lives of one in

every five residents in Puerto Rico (which is close to

700,000 residents of Puerto Rico). This sector is also

responsible for 6.6% of the National Gross Income, and

generates over 150,400 jobs”. The Third Sector repre-

sents 16% of the employed citizenry, which is a larger

share of the employment than that of the financial,

construction and manufacturing sectors.

E. The Third Sector Plays a Crucial Role in

Providing Basic Services to the People of

Puerto Rico

The Third Sector in Puerto Rico is a varied commu-

nity that provides a broad range of assistance to disad-

vantaged individuals and communities that benefit

greatly from services that would not be otherwise

accessible to them and which satisfy specific needs

that would otherwise go unattended.

With an increasir 7 number of individuals and fami-

lies living below the poverty line, these services become

even more significant and crucial to Puerto Rico. NPOs

are having the greatest impact in the areas of education,

health, housing, environment, and social services. Some

*® 2015 Non Profit Sector Study 92.

12

NPOs are directly contracted by public agencies, while

others provide their services without intervention from

the government. The principal agencies of the govern-

ment of Puerto Rico that maintain contracts with NPOs

are the Family Department and the Department of

Education. Collaboration between the government

and the Third Sector is highly beneficial for Puerto

Rico and its economy. In light of the current economic

crisis in Puerto Rico and the resulting fiscal austerity

policies adopted by its government, these alliances

between the public and the Third Sector are essential

to the reduction of governmental costs.

F. The Impact of NPOs in Education

A study by “Kids Count Data Book” and the

Institute for the Development of the Youth in Puerto

Rico showed that 38% of adolescents in Puerto Rico fail

to timely graduate from high school, and that 44% of

its children fail to attend preschool.”' Some of the more

effective NPOs in Puerto Rico provide remedial

services for this population and help school dropouts

to finish high school. The 2015 Non Profit Sector Study

concluded that 44.8% of NPOs in Puerto Rico are

providing educational services. Out of the total

number of NPOs that provide educational services,

68.8% do so directly to students that are at risk of

abandoning school or have already done so. Some of

these programs include counseling, vocational courses

and alternative education. The impact these organi-

zations are having on this section of the Island’s

212015 KIDS COUNT Data Book 43 (2015) available at:

http//www.aecf.org/m/resourcedoc/aecf-2015kidscountdatabook-

2015.pdf

13

population is significant, and governmental support is

essential to secure their continued existence.

G. Services that NPOs Provide to the Elderly

According to the 2015 Non Profit Sector Study, the

elderly is one of the groups that benefits the most from

the services provided by the Third Sector.” The United

States Census Bureau (USCB) estimates that 17.4% of

the total population in Puerto Rico is 65 years or older.

39.7% of this population lives below the poverty line

along with an estimated 489,000 children under the

age of 18, which accounts for 57% of the population in

that age range.” The Island’s stagnant economy has

motivated many young families to leave. As a result,

the elderly population has been growing and is

expected to grow further as job creation, salaries and

benefit levels decline.

H. The Role of the Third Sector in the

Economy of Puerto Rico

According to the 2015 Non Profit Sector Study, the

Third Sector employs an estimated 150,410 people in

Puerto Rico. This accounts for 16% of the total

employment in Puerto Rico. This study also estimates

the sector’s employees’ total salary at $2,194 million”,

which is the equivalent to for 3.1% of Puerto Rico’s

Gross National Product (GNP). This estimate increases

to a 6.6% of the GNP when one adds the value of the

# 2015 Non Profit Sector Study 88, 90.

% See U.S. Census Bureau, 2009-2013 5-Year American

Community Survey available at http//factfinder.census.gov/

faces/nav/jsf/pages/index.xhtm!

* NPOs contribute $258,126,640 and $964,126,800 in the areas

of education and health, respectively. 2015 Non Profit Sector Study

121.

14

sector’s impact and the voluntary service provided”.

Voluntary service is an essential characteristic of NPOs

because it enables a reduction of costs in the services

they provide. The Third Sector benefits from around

400,000 volunteers. The estimate value of voluntary

service in the non-for-profit sector in Puerto Rico is

$356 million.” As a result, NPOs are able to provide

services comparable to those provided by the govern-

ment since they maximize every dollar they raise.

Many of the services provided by NPOs would be too

expensive for the government to provide. On the other

hand, the consequences of failing to provide such

services would surely be too damaging and difficult to

quantify. Through the work of NPOs, the government

is able to reduce expenses and make services more

accessible to the people who need them. Furthermore,

the 2015 Non Profit Sector Study concluded that the

government saves around $6.00 for every dollar it

gives to NPOs for health services, and $19.00 for every

dollar given to provide educational services. This

shows that NPOs’ services are more cost-effective,

not only because they are more efficient than the

government, but also because they benefit from an

operational structure that is different and more

flexible than that of the government.’

Although the Third Sector is an important strategic

partner to the government since it provides services

that the government simply cannot, this support could

disappear if Puerto Rico has no choice but to make

drastic budget cuts in order to service the debt. By

supporting and investing in the Third Sector, the

% 2015 Non Profit Sector Study 115,121-122.

% 2015 Non Profit Sector Study 121.

2’ 2015 Non Profit Sector Study 126-127.

15

government saves money and secures services for one

in every five individuals in Puerto Rico.

I. Impact of the Economic and Fiscal Crisis

on NPOs

NPOs have already been severely affected by the

economic and fiscal crisis. Private donations have dried

up and the fundraising capability of these entities has

diminished as a result of the economic downturn.

NPOs have been forced to invest time and effort

defending their public funding before a government

that is desperately trying to raise the resources

necessary to meet the demands of its creditors. It is

therefore unquestionable that the fiscal state of Puerto

Rico’s public corporations has and will continue to

have, a direct impact on the economy of the Island and

on its overall fiscal health.

According to the 2015 Non Profit Sector Study, the

fiscal condition of most NPOs is as dire as that of the

local economy. From 2006 to 2014, NPOs have reported

an annual contraction of 17.5%”. These numbers show

a direct correlation between the economic crisis and

the financial health of these NPOs. This is not sur-

prising since the majority of NPOs depend on private

donations, fundraisers and self-sustaining activities.

Admirably, Puerto Rico’s Legislature preserved

some public funding for NPOs in the 2015-16 budget,

after the NPOs mobilized to protest the cuts included

8 Based on an interview of 400 NPOs. Though there are more

than 11,500 NPOs in Puerto Rico, the ones that were interviewed

in this study are among the larger ones on the Island. Although

the study could not reach a larger number of NPOs, the fact is

that even the larger ones are experiencing such dramatic contrac-

tions, thus, one can safely assume that smaller, unknown NPOs

are experiencing similar or greater hardships.

16

in the original budget proposal”. During that process,

many NPOs emphasized that without this public fund-

ing, which is charged to the Island’s General Fund,”

they would not be able to survive the current economic

climate.

The austerity measures taken by the government

of Puerto Rico have already started to affect the non-

for profit sector. Due to reduced revenue projection,

as recently as January 13, 2016, the government’s

Office of Management and Budget (OMB) issued a

determination reducing the amount of “special

legislative grants” to various governmental entities

and important nonprofit institutions. The total

reduction was $254 million.”

The effect of this reduction has already affected the

services provided by these organizations, and some

have come so far as to indicate that they will

completely shut down their operations. An example of

an organization contemplating such drastic action is

the Boys and Girls Club of Puerto Rico (BGCPR). This

organization offers after-school programs to children

and teenagers in disadvantaged communities.”

* http//www.elnuevodia.com/noticias/locales/nota/organizacio

nessinfinesdelucroprotestaranenelcapitolio-2052557/ Translated

title of news article: “NPOs will protest tomorrow in front of the

Capitol”).

® See Joint Resolution for of the General Budget for the 2015-

16 Fiscal Year (RCC 747).

5! Cortés Rico, R. “OGP ajusta el gasto piiblico”, E] Nuevo Dia,

January 14, 2016 (printed version), pp. 4-5.

%2 Del Valle Hernandez, S., “Recorte de fondos dejarta sin

servicios a cientos de mencres del Boys and Girls Club”, Primera

Hora, Octubre 16, 2015, http:/Avww.primerahora.com/noticias/

17

In October 2015, the president of this organization

announced that three clubs within the San Juan area

had to close their doors due to lack of funds. An

agreement with the Administration for Public

Housing allowed them to extend their operations for

an additional 60 days. On December 12, 2015, the

Municipality of San Juan formalized an alliance with

the BGCPR whereby the Municipality of San Juan

allocated certain donations to these clubs in order

maintain their operation.

Unfortunately, even such an important contribution

is not sufficient to guarantee the continued existence

of the BGCPR, and the situation is even more

precarious for other the non-profit organizations that

have not been able to secure similar assistance. If

these three clubs effectively close, over 800 children

and teenagers in the capital city of San Juan would be

affected. More than 700 nonprofit organizations in

Puerto Rico are facing similar or even more serious

difficulties.

Other non-profit organizations affected by the $254

million reduction in the of special legislative grants

include: Iniciativa Comunitaria de Investigacién

(serving population with drug related problems and

the homeless); the Fondita de Jestis (helping the

homeless in the reintegration to their communities

and providing basic necessities); the Island’s three

main museums (Puerto Rico Museum of Art, Ponce Art

Museum and the Contemporary Museum); Instituto

Nueva Escuela (promoting academic excellence and

social change in disadvantage communities); and

Programa Alianza para Educacién Alternativa

puerto-rico/nota/recortedefondosdejariasinserviciosacientosdem

enoresdelboysandgirlsclub-1114853/

18

(focusing on alternative education through different

NGOs, including Centro Sor Isolina Ferré, ASPIRA,

PECES, Nuestra Escuela).

J. NPOs Need the Continued Financial

Support of the Government of Puerto Rico

In order to operate and provide services, NPOs are

highly dependent on donations from individuals,

private corporations and the government of Puerto

Rico. Within the Third Sector, private foundations

that do not provide direct services to the public are

also an essential source of funds for NPOs. These

foundations provide donations and grants to help

NPOs with operational and program expenses. But

while the economic support that these foundations

give to NPOs is essential, it cannot replace that of the

government.

According to the 2015 Non Profit Sector Study,

approximately 38.0% of NPOs receive funds from

municipalities, the Legislative Assembly or the central

government.* This makes the government of Puerto

Rico the third most frequent source of funding for

NPOs, following individual donors and fundraising

activities.

Puerto Rico’s economic decline has greatly affected

the Third Sector. The fiscal austerity programs

adopted by the government of Puerto Rico to face the

crisis have produced significant cuts in the funds

appropriated for NPOs in the 2015-2016 budget.

38 Cortés Rico, R. “OGP ajusta el gasto piiblico”, El Nuevo Dia,

January 14, 2016 (printed version), pp. 4-5.

* 2015 Non Profit Sector Study 92.

19

In light of the foregoing, it is undeniable that the

survival of the Third Sector is tied to Puerto Rico’s

ability to restructure the debt of its public corporations.

II. PUERTO RICO’S INABILITY TO RESTRUC-

TURE THE DEBT OF ITS PUBLIC

CORPORATIONS CURTAILS ITS ABILITY

TO GUARANTEE THE HUMAN RIGHTS OF

ITS CITIZENS

A. Fair Debt Restructuring is Essential for

the Protection of Human Rights

There has been ample recognition that the lack of

timely and fair debt restructuring processes can have

a negative impact that goes far beyond the financial

realm. Many times, over-burdened States are locked

in downward spirals that prevent them from investing

in their economy as a result of their debt obligations,

notwithstanding the fact that they need to improve

their economy in order to make their debt sustainable.

There has been an ever-growing international con-

sensus that such downward spirals have endangered

the human rights in those countries. The lack of access

to a sensible and fair debt restructuring mechanisms

results in the inability of the government to provide basic

services such as water, electricity, or food distribution.

These concerns have been reflected in various in-

depth studies submitted to the United Nation’s Human

Rights Council since the year 2010.* These studies

% See “Report of the independent expert on the effects of

foreign debt and other related international financial obligations

of States on the full enjoyment of all human rights, particularly

economic, social and cultural rights” United Nations, GAOR, 14th

Session, A/HRC/14/21. Also, “Report of the Independent Expert

on the effects of foreign debt and other related international

20

have shown that countries that cannot properly

restructure their substantial debts have difficulties

guaranteeing the human rights of its citizens. On the

other hand, countries that have been able to restruc-

ture their debt have experienced significant socioeco-

nomic benefits such as increased school enrollments

due to abolition of school access fees, and the provision

of healthcare subsidies.

Even the World Bank and the International

Monetary Funds have recognized the positive impact

of debt relief in “[. . .] creating the fiscal space

necessary for poverty- reducing expenditure and

economic developments [. . .]”.** Hence, there has been

a positive correlation between debt relief, economic

growth and promotion of human rights.

The United Nations recently adopted a resolution by

an overwhelming majority that established certain

basic principles that should guide all sovereign debt

restructuring processes.*’ These guiding principles

include concepts like sustainability and fairness in

order to assure that States can guarantee human rights

of its citizens while also protecting creditor’s rights.

The public corporations in Puerto Rico need a legal

framework that allows them to restructure their debt

precisely because they are responsible for providing

financial obligations of States on the full enjoyment of all human

rights [. . .!” United Nations, GAOR, 20TH Session, A/HRC/20/23.

% “Report of the independent expert on the effects of foreign

debt and other related international financial obligations [. . .]”

United Nations, GAOR, 14th Session, A/HRC/14/21, p.11.

57 “Basic Principles on Sovereign Debt Restructuring Processes”,

United Nations, GAOR, 69th Session, A/69/1.84. Voting was 136

in favor, 6 against and 41 abstentions.

21

vital utilities such as water and electricity to the peo-

ple of Puerto Rico. In fact, Puerto Rico’s inability to

restructure the debt of its public corporations, partic-

ularly the debt of PREPA, could force a significant por-

tion of the Island’s population to live without adequate

access to electric energy. Such deprivation would

certainly amount to a violation of the dignity and the

human rights of these Puerto Ricans, according to the

European Convention on Human Rights.”

Furthermore, the Third Sector also aids the govern-

ment of Puerto Rico in guaranteeing basic, internation-

ally recognized human rights. Article 25 of the United

Nations Universal Declaration of Human Rights rec-

ognizes that “[e]veryone has the right to a standard of

living adequate for the health and well-being of him-

self and of his family, including food, clothing, housing

and medical care and necessary social services, and

the right to security in the event of unemployment,

sickness, disability, widowhood, old age . . .”° In Puerto

Rico, more than half of the services provided by the

Third Sector fall within this category.

B. Although Puerto Rico is not a State of

The United States, it Should be Treated

as a State Under a Fair Constitutional

Interpretation of the Due Process and

Equal Protection Clauses, of The Fifth And

Fourteenth Amendments

The exclusion of Puerto Rico from the protection of

the bankruptcy laws or from a comparable legal remedy

% See Luis A. Avilés, Electric Energy Access In European Union

Law: A Human Right?, 19 Colum. J. Eur. L. F. (2012).

"The Universal Declaration of Human . Rights,

http//www.un.org/en/documents/udhr/

22

via a rigid and inequitable judicial interpretation of

the term “state” could be considered a violation of the

principle of equal protection under the Fifth and

Fourteenth Amendments.

Note that in Bolling v. Sharpe, 347 U.S. 497 (1954),

a companion case to Brown v. Board of Education, 347

U.S. 483 (1954), the schools of the District of Columbia

were desegregated even though Washington D.C. is not

a “state”. In that case, the court unanimously decided

that while the Equal Protection Clause of the

Fourteenth Amendment, cited in Brown to declare

segregation unconstitutional, did not apply in the .

District of Columbia because it was not a “state”, the

Fifth Amendment did apply.

The Court concluded that “the concepts of equal

protection and due process, both stemming from our

American ideal of fairness, are not mutually exclusive.”

Bolling v. Sharpe, 347 U.S. 499. While equal protection

is a more explicit safeguard against discrimination,

the Court stated that “discrimination may be so unjus-

tifiable as to be violative of due process.” Jd. Referring

to the technicalities raised by the case’s location in the

District of Columbia, the Court held that, in light of

their decision in Brown, it would be “unthinkable that

the same Constitution would impose a lesser duty on

the Federal Government.” Id.

Indeed, Puerto Rico is considered a state for purposes

of Section 1983 of the Civil Rights Act. See Redondo-

Borges v. United States Dep’t of Hous. & Urban Dev..,

421 F.3d 1, 7 (1st Cir. 2005). Likewise, it would also

be unthinkable to deny Puerto Rico the right to

restructure the debt of its public corporations while

the other “states” are permitted to do so.

23

Ill. THE RECOVERY ACT IS NOT PREEMPTED

BY CHAPTER 9 OF THE FEDERAL

BANKRUPTY CODE

A. The Preemption Analysis of the Opinion

Below is Erroneous and Usurps the Right

of the Commonwealth of Puerto Rico to

Exercise its Police Power to Protect its

Citizens

While it is undisputed that Puerto Rico is not a State

of the Union, it is by now settled that its laws enjoy

the same standing in the federal system as those of

any state. In Calero-Toledo v. Pearson Yacht Leasing

Co., 416 U.S. 663 (1974), this Court held that “Puerto

Rico is to be deemed ‘sovereign over matters not ruled by

the Constitution.” 416 U.S. at 673. See also Examining

Board of Engineers, Architects and Surveyors v. Otero,

426 U.S. 572, 594 (1976) (Congress accorded Puerto

Rico “the degree of autonomy and independence normally

associated with States of the Union.”).

As a result, it is unquestionable that Puerto Rico

may exercise traditional state police powers on behalf

of its citizens, and, when it exercises such powers, its

legislation is subject to the same preemption analysis

conducted regarding the laws of any state. Notwith-

standing its “unique position” within the federal

system Puerto Rico Dept. of Consumer Affairs v. Isla

Petroleum Corp., 485 U.S. 495, 499 (1988), the *. . . test

for federal pre-emption of the law of Puerto Rico [ ] is

the same as the test under the Supremacy Clause,

U.S. Const., Art. VI, cl. 2.” Id. at 499, (citing David J.

Helfeld, How Much of the United States Constitution

and Statutes Are Applicable to the Commonwealth of

Puerto Rico? 110 F.R.D. 452, 469 (1985)).

24

Consequently, Puerto Rico is entitled to the same

basic initial assumption that courts are required to

make under federal law: absent that clear and

manifest intent of Congress, a court must assume that

Congress has not intended to displace state law.

In analyzing preemption cases, the court must start

“with the assumption that the historic police powers of

the States were not to be superseded by the Federal

Act unless that was the clear and manifest purpose of

Congress.” International Paper Co. v. Ouellette, 479

U.S. 481, 491 n.11 (1987). The clearest evidence of

such intent to preempt is, of course, is an express

provision in the statute preempting state law. Jones

v. Rath Packing Co., 430 U.S. 519, 525 (1977).

But that is not the only way in which a state law

may be preempted. Preemption may also arise where

Congress has occupied the field, Pacific Gas and

Electric Co. v. State Energy Resources Conservation

and Development Commission, 461 U.S. 190, 204

(1983), or when state law effectively conflicts with

federal law. Hillsborough County v. Automated Medical

Laboratories, Inc., 471 U.S. 707, 713 (1985).

The conflict may exist because there is a “physical

impossibility” to comply with both state and federal

law, Florida Lime and Avocado Growers, Inc. v. Paul,

373 U.S. 132, 142-43 (1963), or where the state action

is found to be “an obstacle to the accomplishment

and execution of the full purposes and objectives of

Congress”. Hines v. Davidowitz, 312 U.S. 52, 67 (1941).

In this case, there is no question that Congress has

not occupied the field regarding Puerto Rico’s ability

to restructure the debts of its municipalities and public

corporations because Congress expressly decided in

1984 to exclude Puerto Rico from Chapter 9 of the

25

Bankruptcy Code. Moreover, as it pertains to the

restructuring of the debt of municipalities and public

corporations in Puerto Rico, Congress has in effect

withdrawn from the field. Consequently, and, a fortiori,

a “physical conflict” between the Recovery Act and

Chapter 9 of the Bankruptcy Code is not possible

because there is no federal legislation on this

particular matter that is applicable to Puerto Rico.

B. The Opinion Below Concedes that the

Legislative History of the 1984 Amendments

to the Bankruptcy Code is Silent as to the

Reasons for the Exclusion of Puerto Rico

from Chapter 9

Congress’ silence does not provide the “clear and man-

ifest” expression of congressional intent that is neces-

sary to overcome the presumption against preemption.

California Federal Savings and Loan Association v.

Guerra, 479 U.S. 272, 288 (1987).

The guiding principle in the application of the

Supremacy Clause must be the “respect for the sepa-

rate spheres of governmental authority preserved in

our federalist system.” Fort Halifax Packing Co. v. Coyne,

482 U.S. 1, 19 (1987) (quoting Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504, 522 (1981)).

A court can ascertain Congressional intent to preempt

state law by looking at various kinds of evidence of

such intent. The strongest evidence of this intent is, of

course, when Congress enacts a statute containing

specific language that explicitly preempts state law.

Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977).

On the other hand, Congress may also show its intent

to preempt state regulation by establishing a compre-

hensive federal regulatory scheme that at least osten-

sibly shows a congressional intent to occupy the field

26

of regulation in its entirety. See, e.g., Pacific Gas and

Electric Co. v. State Energy Resources Conservation

and Development Commission, 461 U.S. 190, 204

(1983); Fidelity Federal Savings and Loan Association

v. de la Cuesta, 458 U.S. 141, 153 (1982).

But regardless of the approach taken by the court in

determining the existence of preemption, “[t]he critical

question . . . is always whether Congress intended that

federal regulation supersede state law.” Louisiana Public

Service Commission v. FCC, 476 U.S. 355, 369 (1986)

(emphasis added). And, this Court has repeatedly

admonished that “courts should not lightly infer

preemption.” International Paper Co. v. Ouellette, 479

U.S. at 491, and have to start “with the basic assump-

tion that Congress did not intend to displace state

law.” Maryland v. Louisiana, 451 U.S. 725, 746 (1981).

In this case, there is simply no evidence of Congres-

sional intent to encroach upon the traditional exercise

of police powers by Puerto Rico.

C. The Opinion Below Failed to Consider the

Most On-Point Precedent on the Correct

Application of Preemption Analysis

The most on-point precedent for the determination

of the correct preemption analysis applicable to this

case is Puerto Rico Dept. of Consumer Affairs v. Isla

Petroleum Corp., 485 U.S. 495 (1988).

In this case, writing for a unanimous court, Justice

Scalia delivered a clear and concise framework to

conduct preemption analysis in cases involving Puerto

Rico. Much like the instant case, in Isla Petroleum,

supra, the District Court concluded that Congress had

preempted Puerto Rico from regulating profit margins

27

for gasoline, notwithstanding the fact that Congress

had decided to withdraw from the field.

Similarly, in this case, Congress decided to with-

draw from the field of regulatior of municipal bank-

ruptcy for Puerto Rico in 1984. As a result, and just

as in the Jsla Petroleum case, the opinion below

determined the existence of preemption on the basis of

“... pre-empting legislation [that] was no more.” Id.

at 247. The application of the ratio decidendi of the

Isla Petroleum case to the instant case should lead to

the same result.

CONCLUSION

If Congress wants to prevent Puerto Rico from

enacting legislation for the restructuring of the debt of

its public corporations, it may do so under the

Bankruptcy Clause. But courts, of course, cannot

preempt anything. Only Congress can do that, subject

to the limitations of the Tenth Amendment.

As a result, the enactment of the Recovery Act does

not constitute an usurpation of the Congressional

powers, but rather the exercise of traditional police

power on the part of the Commonwealth of Puerto Rico

in order to protect its citizens from the catastrophic

consequences that will result from leaving its public

corporations at the mercy of their creditors.

In the absence of any evidence of Congressional

intent to preempt, Puerto Rico should be allowed to

proceed with the implementation of the Recovery Act.

For the foregoing reasons, the amici curiae

respectfully request that this Honorable Court reverse

the decision of the United States Court of Appeals for

the First Circuit.

January 26, 2016

28

Respectfully submitted.

JOSE L. NIETO-MINGO

Counsel of Record

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