United Automobile, Aerospace, Agricultural Implement Workers v. Fortuño

United States Court of Appeals
For the First Circuit

No. 10-1069

UNITED AUTOMOBILE, AEROSPACE, AGRICULTURAL IMPLEMENT WORKERS
OF AMERICA INTERNATIONAL UNION, ET AL.,

Plaintiffs, Appellants,

v.

LUIS FORTUÑO, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Jaime Pieras, Jr., Senior U.S. District Judge]

Before

Boudin, Stahl, and Howard, Circuit Judges.

Miguel Simonet Sierra with whom Manuel A. Rodriguez Banchs was
on brief for appellants.
Paul R. Q. Wolfson with whom Irene S. Soroeta-Kodesh,
Solicitor General, Leticia Casalduc-Rabell, Acting Deputy Solicitor
General, Zaira Z. Girón-Anadón, Acting Deputy Solicitor General,
and Susana I. Peñagaricano-Brown, Assistant Solicitor General, were
on brief for appellees.

January 27, 2011
 STAHL, Circuit Judge. The plaintiffs, a collection of

labor organizations and public employees, sued Governor Luis A.

Fortuño and a number of other Puerto Rico government officials

(collectively "defendants") in the United States District Court for

the District of Puerto Rico. The plaintiffs alleged, among other

claims, that Puerto Rico's Act No. 7 violates the Contract Clause

in Article I, Section 10 of the United States Constitution. The

district court, pursuant to Federal Rule of Civil Procedure

12(b)(6), dismissed the plaintiffs' claims. Because we find that

the plaintiffs' third amended complaint ("complaint") failed to

state a claim for a violation of the Contract Clause, we affirm.

I. Facts and Background

When reviewing a Rule 12(b)(6) dismissal, "we must assume

the truth of all well-pleaded facts and give the plaintiff the

benefit of all reasonable inferences therefrom." Thomas v. Rhode

Island, 542 F.3d 944, 948 (1st Cir. 2008). "Under Rule 12(b)(6),

the district court may consider only facts and documents that are

part of or incorporated into the complaint . . . ." Trans-Spec

Truck Serv., Inc. v. Caterpillar Inc., 524 F.3d 315, 320 (1st Cir.

2008). That said, "when a complaint's factual allegations are

expressly linked to — and admittedly dependent upon — a document

(the authenticity of which is not challenged), that document

effectively merges into the pleadings and the trial court can

review it . . . ." Id. (internal marks and citation omitted).

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 In 1998, Puerto Rico enacted Act No. 45, which gave

employees "the right to negotiate a collective bargaining agreement

[('CBA')] with the agency through its exclusive representative . .

. ." P.R. Laws Ann. tit. 3, § 1451j. Act No. 45 also established

procedures for resolving impasses in collective bargaining

negotiations, and for addressing disputes arising under the CBAs.

See id. et seq. By the time the plaintiffs filed this suit, fifty

Puerto Rico government agencies had negotiated CBAs covering over

50,000 public employees.

On March 9, 2009, Governor Fortuño signed Act No. 7 —

entitled the "Law Declaring a Fiscal State of Emergency and

Establishing a Comprehensive Fiscal Stabilization Plan to Save

Puerto Rico Credit" — into law.1 See 2009 P.R. Laws Act No. 7.

According to the "Public Policy Statement of Purpose" included in

the bill, Act No. 7 was intended to eliminate Puerto Rico's $3.2

billion structural deficit. Id. ch. I, § 2.

As a cost-saving measure purportedly aimed at addressing

this deficit, Act No. 7 laid out a three-phase plan to reduce the

government payroll. See id. ch. III, § 35. Phase I established a

voluntary "permanent workday reduction program" for certain senior

1
In analyzing Act No. 7, we use the certified English
translation filed in the district court by the plaintiffs. The
defendants note that Act No. 7 was later amended, after the
plaintiffs filed the translated version with the district court,
but neither party asserts that those amendments are material to the
analysis here.

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employees, and it provided financial incentives for all employees

to resign voluntarily. Id. ch. III, § 36. Phase II authorized

involuntary, seniority-based layoffs upon a determination that

Phase I had failed to create the necessary savings on its own. Id.

ch. III, § 37. Although various categories of employees were

exempted, if Phase II was to be implemented it could result in as

many as 40,000 layoffs. Finally, Phase III temporarily suspended,

for a period of two years, a plethora of statutory, contractual,

and other provisions governing the conditions of employment for the

remaining affected public employees. Id. ch. III, § 38. This

phase effectively froze salaries and suspended other benefits and

protections within the CBAs.

The complaint characterized Act No. 7's impact as

substantially impair[ing] all statutory
covenants and contractual obligations included
in the extant [CBAs] between the exclusive
bargaining representatives and the government
agencies related to, inter alia, promotions,
demotions, transfers; retention and lay-offs;
reduction in work force and any requirement
prior to order a reduction in force;
reinstatement and registry of illegibility;
any cross utilization, prohibition to use
employees from another appropriate units; any
prohibition to consolidate job duties and job
classifications; any limitation to management
rights; any disposition that the agency has to
comply with contract obligations in conflict
with Act No. 7; seniority, if in conflict with
Act No. 7; dispute resolution process, reviews
and appeals if in conflict with Act No. 7.

Act No. 7 did not, however, rely solely on cost-cutting

measures to address Puerto Rico's deficit, but also included

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revenue increases. To name just a few examples, Act No. 7

eliminated various tax credits and exemptions; increased the excise

tax on cigarettes and certain alcoholic beverages; levied new taxes

on certain banks and insurers; and added a residential property

tax. 2009 P.R. Laws Act No. 7, pmbl.

Although the complaint acknowledged that Puerto Rico's

purported reason for enacting Act No. 7 was "an alleged fiscal

crisis and the potential degradation of government bonds," it

contended that "the averred purpose is neither significant nor

legitimate" and "some or all the obligations of contracts impaired

by [Act No. 7] are not character appropriate to the declared

purpose . . . ." Similarly, the complaint stated that "there were

other available alternatives with lesser impact to the paramount

constitutional rights affected by this legislation." It did not,

however, attach or describe in detail the contracts allegedly

impaired, or specify any "other available alternatives." The

complaint did aver that "[t]he suspension of rights and impairment

of contractual obligations for two (2) years, is unreasonable,

particularly considering the life of all [CBAs] can only extend to

three (3) years."

On December 14, 2009, the district court granted the

defendants' Rule 12(b)(6) motion, dismissing all of the plaintiffs'

federal claims and declining to exercise supplemental jurisdiction

over the plaintiffs' Puerto Rico law claims. With respect to the

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Contract Clause claim on appeal, the district court held that the

plaintiffs failed to sufficiently allege that Act No. 7's

impairments of the CBAs were unreasonable or unnecessary to an

important government interest, and it therefore rejected the claim

that those impairments ran afoul of the Contract Clause.2

II. Discussion

This court reviews de novo a district court's Rule

12(b)(6) dismissal. Thomas, 542 F.3d at 948.

"To survive a motion to dismiss, a complaint must contain

sufficient factual matter, accepted as true, to 'state a claim to

relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.

Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.

544, 570 (2007)). Facial plausibility is shown "when the plaintiff

pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged."

Id. Plausibility "is not akin to a probability requirement, but it

asks for more than a sheer possibility that a defendant has acted

unlawfully." Id. (internal quotation marks omitted). Under this

standard, "A pleading that offers 'labels and conclusions' or 'a

formulaic recitation of the elements of a cause of action will not

do.'" Id. (quoting Twombly, 550 U.S. at 555).

2
The plaintiffs do not appeal the dismissal of their other
federal claims, including their alternative Contract Clause claim,
which was grounded in the theory that Act No. 7 impaired certain
statutory covenants.

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 The Contract Clause provides that "No State shall . . .

pass any . . . Law impairing the Obligation of Contracts . . . ."3

U.S. Const. art. I, § 10, cl. 1. Despite its unequivocal language,

this constitutional provision "does not make unlawful every state

law that conflicts with any contract . . . ." Local Div. 589,

Amalgamated Transit Union v. Massachusetts, 666 F.2d 618, 638 (1st

Cir. 1981). Rather, "A court's task is 'to reconcile the

strictures of the Contract Clause with the essential attributes of

sovereign power necessarily reserved by the States to safeguard the

welfare of their citizens.'" Mercado-Boneta v. Administracion del

Fondo de Compensacion al Paciente, 125 F.3d 9, 14 (1st Cir. 1997)

(quoting U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 20

(1977)); accord Energy Reserves Grp., Inc. v. Kan. Power & Light

Co., 459 U.S. 400, 410 (1983).

To that end, Contract Clause claims are analyzed under a

two-pronged test. Parella v. Ret. Bd. of R.I. Emps.' Ret. Sys.,

173 F.3d 46, 59 (1st Cir. 1999). The first question "is 'whether

the state law has . . . operated as a substantial impairment of a

contractual relationship.'" Energy Reserves Grp., 459 U.S. at 411

(quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244

(1978)); accord Parella, 173 F.3d at 59. If the contract was

substantially impaired, the court next turns to the second question

3
The defendants do not contest the Contract Clause's
applicability to Puerto Rico, even though it is not a state.

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and asks whether the impairment was "reasonable and necessary to

serve an important government purpose."4 See U.S. Trust, 431 U.S.

at 25; accord Parella, 173 F.3d at 59. Where the state is alleged

to have impaired a public contract to which it is a party, "less

deference to a legislative determination of reasonableness and

necessity is required, because the State's self-interest is at

stake." Parella, 173 F.3d at 59 (internal quotation marks and

citation omitted).

Assuming arguendo that the plaintiffs pled sufficient

facts to satisfy the substantial impairment inquiry, we turn to the

second prong of this analysis: whether the impairment was

reasonable and necessary to effectuate an important governmental

4
This two-pronged test is often framed as a three-part
analysis: "(1) whether the contractual impairment is in fact
substantial; if so, (2) whether the law serves a significant public
purpose, . . . (3) whether the means chosen to accomplish this
purpose are reasonable and appropriate." Sal Tinnerello & Sons,
Inc. v. Town of Stonington, 141 F.3d 46, 52 (2d Cir. 1998)
(internal quotation marks and citation omitted); see also Houlton
Citizens' Coal. v. Town of Houlton, 175 F.3d 178, 191 (1st Cir.
1999) (dividing the second inquiry into two subparts: whether there
is a legitimate public purpose for the state action and whether the
adjustment of contractual obligations is reasonable and necessary
to accomplishing that purpose). We find no substantive difference
between these differing characterizations of the Contract Clause
analysis.

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purpose.5 We find that the plaintiffs did not plead sufficient

facts regarding this question to survive a Rule (12)(b)(6) motion.

A. The Plaintiffs' Burden of Establishing that the
Impairment Was Unreasonable or Unnecessary

We first address which party bears the burden of

establishing the second prong. Although neither party must prove

anything at this stage of the litigation, determining who bears the

burden of proof informs the inquiry into whether the plaintiffs'

complaint was appropriately dismissed under Rule 12(b)(6). See

Iqbal, 129 S. Ct. at 1949 ("[A] complaint must contain sufficient

factual matter, accepted as true, to state a claim to relief that

is plausible on its face." (internal quotation marks omitted)).

At the outset, we note that there is a real question as

to whether the plaintiffs waived their argument that the defendants

bear this burden by failing to raise that argument to the district

court. However, it is not necessary to resolve this question

5
In addition to their arguments on the merits of the
plaintiffs' claims, the defendants advance three immunity defenses.
Specifically, they assert that the defendants "sued in their
individual capacities . . . are entitled to qualified immunity";
the defendants sued in their official capacities for damages are
entitled to Eleventh Amendment immunity; and "Governor Fortuño is
entitled to legislative immunity . . . ." Because we find that the
plaintiffs have not alleged a plausible Contract Clause claim, see
infra, we need not reach these arguments. Cf. Parella, 173 F.3d at
56-57 (concluding that, unlike with Article III jurisdiction
issues, Eleventh Amendment immunity questions may be avoided where
the case can be decided on other grounds).

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because we are able to decide the burden issue on the merits.6

That is, we hold that where plaintiffs sue a state — or in this

case the Commonwealth of Puerto Rico — challenging the state's

impairment of a contract to which it is a party, the plaintiffs

bear the burden on the reasonable/necessary prong of the Contract

Clause analysis.7

To begin with, the Supreme Court's formulation of the

contours of a Contract Clause claim supports allocating this burden

to the plaintiff. Specifically, we read U.S. Trust as holding

that, even in the self-interested public contract context, a

substantial impairment does not, on its own, amount to a Contract

Clause violation. See 431 U.S. at 17-32 (discussing and analyzing

whether the impairment at issue was substantial and whether it was

reasonable and necessary to further a government purpose). Rather,

6
The plaintiffs claim that the defendants rely on their waiver
theory and do not alternatively argue on the merits that this
burden should be allocated to the plaintiffs. We are not, however,
bound by the appellee's arguments, as we may affirm a district
court's decision on any ground supported by the record. See
Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir.
2007); Webber v. Int'l Paper Co., 417 F.3d 229, 234 (1st Cir.
2005).
7
Litigants may invoke the Contract Clause in a variety of
contexts. One circuit has suggested that the context and posture
in which the Contract Clause is invoked will dictate who bears the
burden of showing reasonableness and necessity, or a lack thereof.
See Seltzer v. Cochrane, 104 F.3d 234, 236 (9th Cir. 1996) ("The
burden is placed on the party asserting the benefit of the statute
only when that party is the state." (emphasis added)); Univ. of
Haw. Prof'l Assembly v. Cayetano, 183 F.3d 1096, 1106 (9th Cir.
1999) (same). We only address which party bears this burden in the
specific context and procedural posture presented in this appeal.

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the state action must also lack an important governmental purpose,

or be unnecessary to or an unreasonable means of effectuating such

a purpose. In other words, there are two essential elements of a

Contract Clause claim: (1) substantial impairment and (2) lack of

reasonableness or necessity to an important governmental purpose.

It therefore stands to reason that both must be pled by plaintiffs

seeking to invalidate a state action.

The fact that the Contract Clause has traditionally been

interpreted to avoid limiting a state's ability to govern

effectively also weighs in favor of assigning this burden to the

plaintiffs.8 To demand that the state prove reasonableness and

necessity would force governments to endure costly discovery each

time a plaintiff advances a plausible allegation of a substantial

impairment, even where that plaintiff cannot allege a single fact

to question the reasonableness or necessity of the impairment.

This would not only financially burden states, it would likely

discourage legislative action impacting public contracts. Such a

8
For example, this court has explained that

courts have interpreted the clause so as to
harmonize the state's need to legislate in the
interests of its citizens with the need to
protect investors and other contracting
parties against repudiation of a debt or
obligation. In doing so, at least since the
early 1930's, they have struck down state laws
only infrequently.

Local Div. 589, 666 F.2d at 639.

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result is particularly undesirable in today's fiscal environment,

where many states face daunting budget deficits that may

necessitate decisive and dramatic action. Cf. Home Bldg. & Loan

Ass'n v. Blaisdell, 290 U.S. 398, 443-44 (1934) ("[T]he court has

sought to prevent the perversion of the clause through its use as

an instrument to throttle the capacity of the states to protect

their fundamental interests. This development is a growth from the

seeds which the fathers planted.").

To be sure, "because 'the State's self-interest is at

stake[,]'" U.S. Trust, 431 U.S. at 26, less deference is afforded

to a state's decision to alter its own contractual obligations.

See, e.g., Parella, 173 F.3d at 59; Parker v. Wakelin, 123 F.3d 1,

5 (1st Cir. 1997). Saddling a plaintiff with the burden of proving

a lack of reasonableness or necessity is in some tension with the

Supreme Court's instruction that "complete deference to a

legislative assessment of reasonableness and necessity is not

appropriate . . . ." See U.S. Trust, 431 U.S. at 26; see also

McGrath v. R.I. Ret. Bd., 88 F.3d 12, 16 (1st Cir. 1996) ("[A]

state must do more than mouth the vocabulary of the public weal in

order to reach safe harbor . . . ."). Not surprisingly, many

courts have concluded that this burden rests with the state,9 and

9
See, e.g., S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d
885, 894 (9th Cir. 2003) (adopting the district court's opinion,
which allocated the burden to the city-defendant); Toledo Area AFL-
CIO Council v. Pizza, 154 F.3d 307, 323 (6th Cir. 1998); Mass.
Cmty. Coll. Council v. Commonwealth of Mass., 649 N.E.2d 708, 712-

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others, including this court and the Supreme Court, have used

language that arguably supports such a conclusion.10

However, neither this court nor the Supreme Court has

ever held that this burden rests with the state, and none of the

courts that have placed this imposition onto the state have

analyzed the issue in detail. Furthermore, at least one circuit,

albeit also with cursory reasoning, appears to agree with us. In

Buffalo Teachers Federation v. Tobe, the Second Circuit concluded

that:

[T]he state will not be held liable for
violating the Contracts Clause . . . unless
plaintiffs produce evidence that the state's
self-interest rather than the general welfare
of the public motivated the state's conduct.
On this issue, plaintiffs have the burden of
proof because the record of what and why the
state has acted is laid out in committee
hearings, public reports, and legislation,
making what motivated the state not difficult
to discern.

13 (Mass. 1995); State of Nev. Emps. Ass'n, Inc. v. Keating, 903
F.2d 1223, 1228 (9th Cir. 1990).
10
U.S. Trust, 431 U.S. at 31 ("In the instant case the State
has failed to demonstrate that repeal of the 1962 covenant was
similarly necessary. We also cannot conclude that repeal of the
covenant was reasonable . . . ." (emphasis added)); see, e.g.,
Mercado-Boneta, 125 F.3d at 15 ("And the reasonableness inquiry
requires a determination that the law is reasonable in light of the
surrounding circumstances." (emphasis added) (internal marks and
citation omitted)); Horwitz-Matthews, Inc. v. City of Chicago, 78
F.3d 1248, 1250 (7th Cir. 1996) ("We are speaking of the prima
facie impairment, and not the issue of justification, on which most
impairment of contracts cases in the modern era have foundered.").

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464 F.3d 362, 365 (2d Cir. 2006);11 cf. Sal Tinnerello & Sons, 141

F.3d at 55 (private contract context; "Tinnerello must prove that

there is no rational relationship between the Town's ends and its

means. . . . Tinnerello has not carried its burden").

To the extent the plaintiffs argue that the more limited

deference afforded to state decision-making in the public contract

context demands allocating this burden to the state, we are

unpersuaded. Although a state action impairing its own contracts

is viewed less deferentially compared to a state action impairing

private contracts, "less deference does not imply no deference."

Buffalo Teachers Fed'n, 464 F.3d at 370; see also U.S. Trust, 431

U.S. at 26 ("[C]omplete deference to a legislative assessment of

11
Buffalo Teachers Federation articulated the Contract Clause
analysis as having three parts: (1) substantial impairment, (2)
legitimate public purpose, and (3) impairment reasonable and
necessary to serve that public purpose. The plaintiffs assert that
Buffalo Teachers Federation only held that plaintiffs bear the
burden on the second question of whether the action had a
legitimate purpose. As suggested above, however, see supra note 4,
the legitimate public purpose question is folded into the
reasonable and necessary inquiry in the two-pronged analysis.
Moreover, requiring plaintiffs to prove that "the state's
self-interest rather than the general welfare . . . motivated the
state's conduct" is logically irreconcilable with requiring the
state to prove that its action was reasonable and necessary to
effectuate an important governmental purpose.

The plaintiffs further attempt to distinguish the case at hand
from Buffalo Teachers Federation by noting that in Buffalo Teachers
Federation the state impaired a municipality's contractual
obligations, not its own. Although Buffalo Teachers Federation did
pertain to the impairment of a municipal contract, the court, "for
the purposes of this appeal," afforded the challenged impairment
the same level of deference it would have afforded an impairment of
a contract to which the state was a party. 464 F.3d at 370.

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reasonableness and necessity is not appropriate . . . ." (emphasis

added)). This maxim is particularly true in the Contract Clause

context because the heightened deference afforded to private

contractual impairments is quite substantial.12 It therefore comes

as no surprise that, even when the state impairs its own

contractual obligations, the state's judgment that the impairment

was justified is afforded meaningful deference. See Local Div.

589, 666 F.2d at 643 ("[W]here economic or social legislation is at

issue, some deference to the legislature's judgment is surely

called for."); Buffalo Teachers Fed'n, 464 F.3d at 370-71

(describing the deference owed to legislative judgments even where

they impair public contractual obligations); Baltimore Teachers

Union, Am. Fed'n of Teachers Local 340, AFL-CIO v. Mayor and City

Council of Baltimore, 6 F.3d 1012, 1019 (4th Cir. 1993)

("[A]lthough the Court has never specified what it intends by the

requirement of a more searching examination, it appears to mean by

this only that the legislature's asserted justifications for the

impairment shall not be given the complete deference that they

otherwise would enjoy." (citing Energy Reserves Grp., 459 U.S. at

12
See, e.g., Houlton Citizens Coal., 175 F.3d at 191 ("Upon
finding a legitimate public purpose, the next step ordinarily
involves ascertaining the reasonableness and necessity of the
adjustment of contract obligations . . . . Withal, an exception to
this rule exists when the contracts at issue are private and no
appreciable danger exists that the governmental entity is using its
regulatory power to profiteer or otherwise serve its own pecuniary
interests. In such instances, a court properly may defer to the
legislature's judgment. . . ." (internal citation omitted)).

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413 n.14)). Accordingly, the fact that public contract impairment

is subject to a more searching inquiry hardly demands allocating

the burden of proof to the defendants.

Nor would allocating this burden to plaintiffs

substantially inhibit meritorious Contract Clause claims.

"[B]ecause the record of what and why the state has acted is laid

out in committee hearings, public reports, and legislation," it is

not difficult to discern the state's motivation. Buffalo Teachers

Fed'n, 464 F.3d at 365; see also Mercado-Boneta, 125 F.3d at 15 (in

explaining the public purpose in affirming a Rule 12(b)(6)

dismissal, noting that "[t]he Commonwealth's interests are revealed

by the statutory scheme"). Consequently, a plaintiff with reason

to believe that a state action was unreasonable or unnecessary can,

in the complaint, list the state's articulated motive(s), and then

plead facts that undermine the credibility of the those stated

motives or plead facts that question the reasonableness or

necessity of the action in advancing the stated goals. For

example, if a state purports to impair a contract to address a

budgetary crisis, a plaintiff could allege facts showing that the

impairment did not save the state much money, the budget issues

were not as severe as alleged by the state, or that other cost-

cutting or revenue-increasing measures were reasonable alternatives

to the contractual impairment at issue.

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B. The Plaintiffs' Failure to Plead Sufficient Facts to
Support a Reasonable Inference that Act No. 7 Was
Unreasonable or Unnecessary

Having resolved that a lack of reasonableness or

necessity is an element of a Contract Clause claim for which the

plaintiffs bear the burden of establishing, we turn to whether the

plaintiffs pled sufficient facts to allow a court to draw a

reasonable inference that Act No. 7 was unreasonable or unnecessary

to effectuate an important governmental purpose.13 See Iqbal, 129

S. Ct. at 1949.

As this court has explained, the reasonableness inquiry

asks whether "the law is 'reasonable in light of the surrounding

circumstances,'" and the necessity inquiry focuses on "whether

[Puerto Rico] 'impose[d] a drastic impairment when an evident and

more moderate course would serve its purposes equally well.'"

Mercado-Boneta, 125 F.3d at 15 (quoting U.S. Trust, 431 U.S. at

31.). Some factors to consider in analyzing these questions

13
The plaintiffs argue that the district court improperly
"relied extensively on the bare assertions contained in the
defendants' Rule 12(b)(6) motion to make factual findings regarding
the extent of Puerto Rico's structural deficit and the
appropriateness of Law 7 to address that deficit . . . ." We are
not persuaded that this is an accurate characterization of the
district court's opinion. Regardless, we need not address this
argument because we affirm the district court by looking only to
the complaint and the assertions and provisions included in Act No.
7 itself. See Trans-Spec Truck Serv., 524 F.3d at 320 (noting that
a court may consider documents incorporated in the complaint, as
well as those which the complaint is dependent upon); Ruiz, 496
F.3d at 5 ("[W]e are not bound by the district court's decisional
calculus but, rather, may affirm the decision below on any ground
made manifest by the record.").

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include: "whether the act (1) was an emergency measure; (2) was one

to protect a basic societal interest, rather than particular

individuals; (3) was tailored appropriately to its purpose; (4)

imposed reasonable conditions; and (5) was limited to the duration

of the emergency." See Energy Reserves Grp., 459 U.S. at 410 n.11

(citing Blaisdell, 290 U.S. at 444-47); see also Spannaus, 438 U.S.

at 242-50.

The reliance interests of the party whose contractual

rights are impaired are of course also a relevant consideration.

See Baltimore Teachers Union, 6 F.3d at 1021. Because public

employees "by definition serve the public and their expectations

are necessarily defined, at least in part, by the public

interest[,]" they, like private parties in a highly regulated

industry, have a diminished expectation that their contracts will

not be impaired by the government. Id. ("It should not be wholly

unexpected, therefore, that these public servants might well be

called upon to sacrifice first when the public interest demands

sacrifice.").

The plaintiffs failed to plead sufficient facts from

which a court could reasonably infer that Act No. 7 was unnecessary

or unreasonable. To begin with, the plaintiffs failed to

sufficiently describe the contractual provisions allegedly impaired

by Act No. 7, and they therefore failed to demonstrate the extent

of those impairments. The most specific description of Act No. 7's

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alterations of the plaintiffs' contractual rights was the

allegation that it:

substantially impaired all statutory covenants
and contractual obligations included in the
extant [CBAs] between the exclusive bargaining
representatives and the government agencies
related to, inter alia, promotions, demotions,
transfers; retention and lay-offs; reduction
in work force and any requirement prior to
order a reduction in force; reinstatement and
registry of illegibility; any cross
utilization, prohibition to use employees from
another appropriate units; any prohibition to
consolidate job duties and job
classifications; any limitation to management
rights; any disposition that the agency has to
comply with contract obligations in conflict
with Act No. 7; seniority . . . dispute
resolution process, reviews and appeals . . .
.

Merely listing the subject matter covered by the contractual

provisions at issue is of little help. Rather, determining the

extent to which Act No. 7 undermined the plaintiffs' contractual

expectations requires knowing what precisely the CBAs promised

concerning promotions, demotions, transfers, layoffs, etc. Even

though we assume arguendo that there was an impairment, and that

the impairment was substantial, ascertaining the severity of the

impairment is still a critical inquiry in determining whether a

state action is a reasonable means of advancing a public purpose.

See Energy Reserves Grp., 459 U.S. at 411 ("The severity of the

impairment is said to increase the level of scrutiny to which the

legislation will be subjected.").

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 The plaintiffs also failed to plead any factual content

to undermine the credibility of Act No. 7's statement that it was

enacted to remedy a $3.2 billion deficit. The complaint alleges

nothing, other than the conclusory statement that "the averred

purpose is neither significant nor legitimate," to question the

existence of the deficit or the "basic societal interest" in

eliminating it.

Nor does the complaint aver facts demonstrating that Act

No. 7 was an excessively drastic means of tackling the deficit. In

fact, almost everything in the complaint challenging Act No. 7's

reasonableness and necessity is a conclusory statement. For

instance, the complaint averred that "there were other available

alternatives with lesser impact to the paramount constitutional

rights affected," but failed to specify any such alternatives or

plead any factual content suggesting such alternatives might exist.

The plaintiffs did not, for example, claim that the legislature

refused to consider alternative approaches.14 See U.S. Trust, 431

U.S. at 30-31 ("[A] State is not completely free to consider

impairing the obligations of its own contracts on a par with other

policy alternatives."). To be sure, the plaintiffs assert that

Puerto Rico should have used federal aid to help offset the

14
In fact, the legislature actually included non-contract-
impairing provisions in Act No. 7, such as the numerous new taxes,
which the complaint does not suggest were superficial or otherwise
insignificant to the overall legislative effort.

-20-
deficit. They did not, however, allege anything about this federal

support in their complaint, let alone explain how such assistance

would alleviate a $3.2 billion deficit to such an extent as to

render Act No. 7's contractual impairments unnecessary.

Admittedly, the complaint includes the non-conclusory

observation that the two-year suspension of contractual rights is

particularly substantial "considering the life of all [CBAs] can

only extend to three years." Although this allegation is probative

of an insufficiently tailored remedy, it is not, on its own, enough

to create a plausible argument that Act No. 7 was unreasonable or

unnecessary.

Finally, no facts have been pled to suggest that Act No.

7 was enacted to benefit a special interest at the expense of

Puerto Rico's public employees. To the contrary, Act No. 7, on its

face, appears to spread the burden of restoring Puerto Rico's

fiscal health across various sectors of society by enacting

numerous new tax measures impacting a range of people and entities.

In sum, the complaint did not show how Act No. 7 was

"'[un]reasonable in light of the surrounding circumstances'" or

"'impose[d] a drastic impairment when an evident and more moderate

course would serve its purposes equally well.'" See Mercado-

Boneta, 125 F.3d at 15 (quoting U.S. Trust, 431 U.S. at 31).

Consequently, the plaintiffs failed to plead facts sufficient to

"allow[] the court to draw the reasonable inference that the

-21-
defendant[s] [are] liable" for violating the Contract Clause.

Because the plaintiffs' appeal of the district court's refusal to

exercise supplemental jurisdiction over their Puerto Rico law

claims relies on the reinstatement of the federal Contract Clause

claim, we also affirm the district court on the supplemental

jurisdiction issue.

III. Conclusion

For the foregoing reasons, the judgment of the district

court is affirmed.

- Concurring Opinion Follows -

-22-
 BOUDIN and HOWARD, Circuit Judges, concurring. Good

arguments exist for placing the burden of proof as to whether the

measure is justified on the plaintiff, even in a case where a self-

interested government entity is the beneficiary as well as the

impairer of the contract. This is the customary rule in cases

where the government impairs a private contract but does not itself

benefit, e.g., Seltzer v. Cochrane, 104 F.3d 234, 236 (9th Cir.

1996); the unreasonableness of the impairment, like the

substantiality of the impairment, can be said to be an element of

the claim, see U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1,

25-26 (1977); and the substantive test of justification vel non is

already adjusted in the plaintiff's favor, see McGrath v. R.I. Ret.

Bd., 88 F.3d 12, 16 (1st Cir. 1996).

Further, in a proof-shifting role, the burden is unlikely

to matter very much in most Contract Clause cases,15 so the

allocation of the burden to a plaintiff serves primarily as a

pleading device to make the plaintiff focus its claim. In

practice, the government's rationale for the impairment is usually

obvious (and the government usually prevails); the mystery at the

complaint stage is likely to be the peculiar claim of

15
Arguments about justification and unreasonableness are often
going to turn on a combination of legislative history and
legislative fact based on available material. See Buffalo Teachers
Fed'n v. Tobe, 464 F.3d 362, 365 (2d Cir. 2006). In practice, when
the issue is joined, the government will tend to assert facts that
show reasonableness, and the plaintiff will tend to assert those
that point in the opposite direction.

-23-
unreasonableness that the plaintiff plans to invoke. Knowing this

(and the facts claimed to support it) at the outset means that a

judgment can be made early on as to whether to go beyond the

complaint stage.

Indeed, since 1934, the Supreme Court has only once--in

U.S. Trust Co.--struck down a state law that interfered with a

government contract on Contract Clause grounds. E. Chemerinsky,

Constitutional Law 630, 639 (3d ed. 2006). As then-Judge Breyer

wrote for this court:

The Contract Clause does not make unlawful
every state law that conflicts with any
contract that contains terms contrary to its
provisions. Any such interpretation would
make of the clause an insuperable barrier to
necessary state legislation. It would
threaten to make the Constitution
unworkable. . . . Thus, the courts have
interpreted the clause so as to harmonize the
state's need to legislate in the interests of
its citizens with the need to protect
investors and other contracting parties
against repudiation of a debt or obligation.
In doing so, at least since the early 1930's,
they have struck down state laws only
infrequently.

Local Div. 589, Amalgamated Transit Union v. Massachusetts, 666

F.2d 618, 638-39 (1st Cir. 1981).

One reason why plaintiff victories are rare is that

courts are not in a good position to determine the unreasonableness

of the impairment unless it is particularly severe. See id. at 643

("Answering these sorts of questions, and thereby determining the

'reasonableness and necessity' of a particular statute is a task

-24-
far better suited to legislators than to judges."). Thus, before

burdensome discovery is imposed and further court time consumed, as

a prudential matter it is quite desirable that the complaint plead

with some specificity facts showing why the ordinary outcome is not

appropriate.

Still, the issue is unsettled. Some language in U.S.

Trust Co. blurs the issue, see 431 U.S. at 31 ("In the instant case

the State has failed to demonstrate that repeal of the 1962

covenant was similarly necessary."), and some case law in other

circuits assists the plaintiffs.16 No one short of the Supreme

Court is capable of definitively resolving a problem that may well

have considerable importance in light of the current financial

difficulties confronting state governments. So we write to

emphasize that the outcome of this case need not turn on definitive

resolution of the burden issue.

This is so because the plaintiffs told the district court

in writing that the burden of proof as to justification lay on

them; specifically, they wrote:

[T]he Plaintiffs have to show that the
contractual impairments were not "both
reasonable and necessary to fulfill an
important public purpose." Seltzer v.

16
Compare Univ. of Haw. Prof'l Assembly v. Cayetano, 183 F.3d
1096, 1106 (9th Cir. 1999), Toledo Area AFL-CIO Council v. Pizza,
154 F.3d 307, 323 (6th Cir. 1998), and Horwitz-Matthews, Inc. v.
City of Chicago, 78 F.3d 1248, 1250 (7th Cir. 1996), with Buffalo
Teachers Fed'n, 464 F.3d at 365.

-25-
 Cochrane, 104 F.3d 234, 236 (9th Cir.
1996) . . . .

But they made no effort in their complaint to offer facts to show

lack of justification--save for a few boilerplate conclusory

phrases (remedy is "not character appropriate"; "other available

alternatives [exist] with lesser impact") that carry no weight

under governing precedent. See Ashcroft v. Iqbal, 129 S. Ct. 1937,

1949-50 (2009).

Although the plaintiffs say that placing the burden on

themselves was the result of a typographical error--the inadvertent

substitution of the word "plaintiffs" for the word "defendants" and

addition of the word "not"--and that the cited case looked in the

opposite direction, a busy district judge is entitled to accept an

express concession, see Berner v. Delahanty, 129 F.3d 20, 29 n.8

(1st Cir. 1997). Because the plaintiffs conceded away their

argument on the burden of proof issue, we would (even if we agreed

with their new position) review the district court's decision only

for plain error, see Danco, Inc. v. Wal-Mart Stores, Inc., 178 F.3d

8, 15 (1st Cir. 1999).

In civil cases, it is very difficult to show, as is

required by Supreme Court precedent on plain error review, United

States v. Olano, 507 U.S. 725, 736 (1993), a miscarriage of justice

or something close to it. Chestnut v. City of Lowell, 305 F.3d 18,

20 (1st Cir. 2002) (en banc) (per curiam). Certainly, the

plaintiffs have not made that showing here. Puerto Rico has been

-26-
suffering from one of the worst financial crises in its history,

its government has been running a large structural deficit, and its

credit has been in jeopardy.17

Conversely, the plaintiffs do not deny Puerto Rico's

financial plight, that employee compensation is a principal

expenditure,18 or that revenue raising as well as cost cutting was

part of the package. True, the plaintiffs have offered criticisms,

saying, for example, that some of the positions being eliminated

were federally funded; but, given federal budget problems, how long

this might continue could hardly be certain. Whether or not the

statute could have been fine tuned, it is hard to see a miscarriage

of justice that would invite plain error review.

Accordingly, the outcome of this case would be the same

even if, contrary to the panel decision, the government bore the

burden of proof on the justification issue. The plaintiffs assumed

that burden themselves, did not in the complaint allege facts to

satisfy it, and cannot satisfy the requirements for plain error

review.

17
2009 P.R. Laws Act No. 7 (Statement of Motives), available
at http://www.oslpr.org/download/en/2009/A-0007-2009.pdf.
18
See P.R. Office of Mgmt. & Budget, Government of Puerto Rico,
FY 2009-2010 Budget: Executive Summary 8 (2009), available at
http://www.bgf.gobierno.pr/investors_resources/documents/2009-04-
29-ProposedBudget2009-2010-FINAL.pdf (listing "Payroll and Related
Costs" as largest consolidated expense item in total consolidated
budget).

-27-