Case Tests Limits On Puerto Ricans' Access To Benefits

By Carolina Bolado | July 28, 2019, 8:02 PM EDT

When Jose Vaello-Madero moved from New York to Puerto Rico, he assumed his disability benefits would follow him to the island. Instead, he was hit with a $28,081 lawsuit by the federal government for overpaid benefits.

He won the first battle in federal district court in Puerto Rico when a judge ruled that the government’s policy of denying Supplemental Security Income benefits to U.S. citizens in the territories impermissibly creates a group of second-class citizens and violates the equal protection component of the Fifth Amendment.

But now he faces an uphill climb at the First Circuit, where he’ll have to overcome long-standing precedent that allows for disparate treatment of U.S. citizens in territories. The eventual ruling could have a ripple effect on millions of Puerto Ricans on the island who are shut out from receiving certain benefits.

Congress has always treated territories differently, and a number of U.S. Supreme Court decisions have signed off on this treatment, according to Columbia Law School professor Christina Ponsa-Kraus, an expert in the constitutional issues of the American territories.

“These arguments do have a chance now in a way they haven’t before, but I think it’s a long shot,” she said. “There is a historic relationship between racism and a differential treatment of the territories that courts and all of us are more able to recognize these days, but I think the court will be hesitant to say Congress has less power over the territories than we thought.”

Vaello-Madero’s attorneys at Curtis Mallet-Prevost Colt & Mosle LLP, who took on the case pro bono, think they’ve got a shot too. Hermann Ferré, the lead attorney on the case, said his team has focused on the fact that when Congress enacts a national program like SSI, it’s acting under the general welfare clause of the U.S. Constitution and not the territorial clause.

“When it does so, it should do so even-handedly and treat all citizens the same,” Ferré said. “Our argument in this case is that Congress did not act under the territorial clause. It wasn’t providing rules and regulations for the territory when it enacted the SSI program.”

The Tax Question

The government maintains that Puerto Ricans are not treated the same with regard to SSI benefits because they don’t pay the federal income taxes that fund the program. SSI benefits are available to low-income disabled adults and children, and though they are administered by the Social Security Administration, the funds come from the U.S. Treasury’s general funds, not Social Security payroll taxes.

“It is not irrational to exclude a group of individuals from the benefits of a program they do not help fund,” the government said in its brief filed earlier this month with the First Circuit.

But Ferré said his client did help fund the program. Vaello-Madero moved to New York in 1985 and spent nearly three decades working there. After suffering strokes that left him with a limited ability to work, he signed up for SSI disability benefits in 2012.

“Does it make sense that an individual who may have lived in New York his entire life subsequently moves to Puerto Rico and can’t collect SSI benefits, but someone who lives in Puerto Rico and has never paid taxes moves to Florida and qualifies for the program?” Ferré said.

Vaello-Madero moved to Puerto Rico in July 2013 after his wife, who has her own health issues, moved there to be closer to extended family who could help her. Vaello-Madero continued to receive his disability benefit payments to his New York bank account until August 2016 and contends he was unaware that his move would affect his entitlement to the benefits.

In August 2017, the U.S. government sued him to collect $28,081 it said he had been overpaid.

By the time Ferré got to Vaello-Madero, he had no attorney and had already signed a stipulation and consent judgment that had been presented to him and that Ferré said he did not understand.

Ferré said his primary concern was that the judgment appeared to stipulate that Vaello-Madero had known that taking the money was unlawful, which meant potential criminal liability. Vaello-Madero also had agreed to pay back the money via a $100 per month deduction from his Social Security Title II benefits, which are meant for disabled individuals who have paid into Social Security via payroll taxes. Vaello-Madero’s Title II benefits are about $400 per month and now amount to the bulk of his income since the cancellation of his SSI benefits, according to Ferré.

The government’s request to enter that stipulation and consent judgment into the record prompted the judge to look for pro bono counsel for Vaello-Madero, according to Ferré.
“Once we couldn’t get an agreement with the U.S. attorney’s office in Puerto Rico to have the stipulation and consent judgment withdrawn, we then had no choice but to move to withdraw it, and at the same time we answered the complaint,” he said. “It set off a chain of events.”

The Impact on Puerto Rico

The case drew the attention of the government of Puerto Rico and Jenniffer González Colón, the territory’s non-voting member of the U.S. House of Representatives, who both filed amicus briefs to explain to the court that the case could make a difference for hundreds of thousands of people who are excluded from the program because of where they live.

Instead of SSI benefits, Puerto Rico and other territories receive supplemental assistance through the Aid to the Aged, Blind and Disabled Program, which is a capped grant from the U.S. Department of Health and Human Services, according to the filing by Colón.

The $26 million that Puerto Rico receives annually through that program allows the territorial government to make payments of, on average, $77 per month to just 11% of the disabled or elderly residents who would otherwise qualify for SSI.

In February, U.S. District Judge Gustavo Gelpí came down hard against the government, issuing summary judgment in favor of Vaello-Madero and ruling that the territorial clause “is not carte blanche for Congress to switch on and off at its convenience the fundamental constitutional rights to due process and equal protection.”

He rejected the government’s argument that the cost of including Puerto Ricans into the SSI program — estimated at $1.8 billion annually — would be too high. Judge Gelpí said that is not a valid justification for creating different classifications of U.S. citizens.

The judge leaned on the U.S. Supreme Court’s decision in U.S. v. Windsor, the 2012 ruling that declared the Defense of Marriage Act unconstitutional, and said that the discriminatory statute in question, like DOMA, fails to pass the rational basis test, which requires that a law be rationally related to a legitimate government interest.

“Allowing a United States citizen in Puerto Rico that is poor and disabled to be denied SSI disability payments creates an impermissible second-rate citizenship akin to that premised on race and amounts to Congress switching off the Constitution,” Judge Gelpí said in the decision.

Now hoping for a reversal on appeal, the government has accused the district court of trying to “make an end run around settled Supreme Court precedent.”

It’s relying on two cases from 1978 and 1980, Califano v. Torres and Harris v. Rosario, which affirmed that Congress may treat Puerto Rico differently from the states if it can point to a rational basis.

In those cases, the high court accepted the government’s reasons that Puerto Ricans should not get certain benefits because they do not pay federal income taxes and because introducing these benefits could disrupt the island’s economy.

The government declined to comment.

A Second Challenge

In another parallel suit brought by Sixta Peña-Martínez and others over their inability to receive SSI benefits, subsidies for Medicare Part D and certain food stamp benefits, a judge is forcing the government to justify its stance that those arguments still apply to a Puerto Rican economy that is much different now than when the Harris and Califano cases were litigated.

In an April decision refusing to dismiss the case, U.S. District Judge William G. Young rejected Judge Gelpí’s reasoning in his ruling for Vaello-Madero and said the government could have legitimate reasons for denying benefits to Puerto Ricans.

However, he ordered discovery of what residents of the island really pay in taxes, pointing out the plaintiffs' arguments that Puerto Ricans pay into the general treasury through import and export taxes and federal commodity taxes.

“If Puerto Rican payments to the general federal treasury relative to the size of the territory’s economy are very similar to those from the other states and territories, it may not be rational to deny Puerto Rico residents these benefits on the basis that Puerto Rico contributes less to the federal fisc,” the judge said.

Attorneys for the plaintiffs in that case declined to comment.

Ferré said many residents of Puerto Rico, including federal employees and anyone who receives income from sources outside  the island, do pay federal income tax. Many like his own client who spent their working lives in a state and then retired to Puerto Rico also have paid into the general treasury, he said.

At the very least, the cases are drawing attention to these issues that are unique to the territories, according to Ponsa-Kraus.

And if they by some chance do succeed, it might force lawmakers in Washington to consider statehood for Puerto Rico. If benefits flow out to the island while its residents don’t contribute equally to the federal treasury, lawmakers could be motivated to change the status quo, Ponsa-Kraus said.

“There would be pressure in Washington, not just in Puerto Rico,” she said.

--Editing by Brian Baresch.

Have a story idea for Access to Justice? Reach us at accesstojustice@law360.com.

Correction: An earlier version of this article misstated the basis for the plaintiff's equal protection arguments. The error has been corrected.