UBS Financial Services Inc. v. Estate of Jose Nazario Serrano, No. 23-1216 (1st Cir. 2024)

UBS Financial Services Inc. v. Estate of Jose Nazario Serrano, No. 23-1216 (1st Cir. 2024)

The Employees Retirement System of the Government of the Commonwealth of Puerto Rico (ERS), established in 1951 as the pension program for public employees, is at the center of this case. Seven individual beneficiaries of ERS pensions had been pursuing claims against UBS Financial Services Inc. (UBS) in the Commonwealth Court of First Instance, related to UBS’s involvement in issuing ERS pension funding bonds in 2008. Concurrently, in January 2022, the district court, exercising its authority under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), confirmed the Modified Eighth Amended Title III Joint Plan of Adjustment (the Plan).

The Plan, which had been confirmed earlier by the district court, introduced several changes to ERS and its pension payments to retired Commonwealth employees. It replaced the Committee with the Avoidance Action Trustee as the exclusive plaintiff to prosecute the Underwriter Action and recover damages for ERS. Additionally, the Plan mandated the immediate dissolution of ERS.

UBS filed a motion to enforce the Plan, seeking to prevent the ERS Beneficiaries from continuing their Commonwealth Action. The district court granted UBS’s motion, concluding that the ERS Beneficiaries’ claims were based on a generalized injury and were derivative of ERS’s right to recover damages. The court also dismissed the ERS Beneficiaries’ argument that they could recover non-derivative general tort claims against UBS under various Commonwealth statutes.

The United States Court of Appeals for the First Circuit upheld the district court’s decision, stating that the ERS Beneficiaries’ claims were derivative and exclusively belonged to the Trustee or the Commonwealth. The court affirmed that continuing the litigation of these claims would violate the terms of the Plan and PROMESA.

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