Although this week marks the first anniversary of Puerto Rico’s debt restructuring under the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA (48 U.S.C. §§ 2161 et. seq.), the courts are still grappling with the question of whether the automatic stay applies to ordinary litigation against the commonwealth.
The opinion on April 30 by District Judge William G. Young of Boston, sitting in Puerto Rico by designation, involved several individuals seeking money damages for wrongful incarceration in violation of the U.S. Constitution and local law. The opinion shows Judge Young’s evolving view about the breadth of the automatic stay under PROMESA.
Aware that PROMESA would bar suit for damages against the commonwealth, the plaintiffs only sued individuals in their personal capacities. The defendants included prosecutors and law enforcement officials.
Initially, Judge Young ruled on March 6 that the automatic stay did not apply and directed that the suit proceed. Puerto Rico immediately filed a motion for reconsideration, prompting Judge Young to reverse his prior decision and stay the action.
Judge Young characterized the case as presenting “a difficult, though now recurrent, problem.” Either way he ruled, Judge Young said the result would be “unfair.”
Judge Young described how the automatic stay in Section 362 of the Bankruptcy Code is incorporated by Section 301(a) of PROMESA. For guidance, he alluded to the parallel provision in chapter 9 municipal bankruptcies, Section 922(a), which enjoins actions against a governmental “officer . . . that seeks to enforce a claim against the debtor.”
Synthesizing case law coming down both ways in the last year, Judge Young said, “It is now pretty clear that where a litigant may be entitled to equitable relief, the stay cannot frustrate the grant of that relief even though an award of monetary damages may be stayed and the Commonwealth has to expend funds litigating the issue.”
Chief District Judge Gustavo A. Gelpí had ruled the stay inapplicable to a petition for habeas corpus, and Judge Young himself allowed a suit to continue to the extent it sought injunctive and declaratory relief under the Disabilities Education Improvement Act. Similarly, Judge Young allowed a prisoner to sue a parole board seeking his release, even though the prisoner wanted $7 million in restitution.
In a case on “the precise point at issue here,” Judge Young described how Judge Gelpí refused to apply the automatic stay because the commonwealth’s attorney general has discretion to decide whether to defend and indemnify government officials. To read ABI’s discussion of that case, click here. Puerto Rico appealed but withdrew the appeal, Judge Young said.
Judge Young said he was most persuaded by several instances in which the First Circuit Court of Appeals invoked PROMESA to stay appeals from orders entered before May 3, 2017, when Puerto Rico initiated its debt restructuring.
Judge Young concluded that the case before him was among “the types of suits contemplated by PROMESA that require an automatic stay because the defense is funded” by the government of Puerto Rico. Whether or not the plaintiffs are suing the defendants in their individual capacities, he said that the government of Puerto Rico “may still bear the costs of litigation according to Puerto Rico law.”
The judge was decidedly unhappy with his decision to enjoin the suit pending completion of the commonwealth’s debt arrangement. Whichever way he rules, Judge Young said that “certain citizens of Puerto Rico are getting (and will get) less than full protection of the laws available to their fellow Americans in the fifty states.”
Judge Young said he was choosing “the better course.”
Judge Young has expressed similar sentiments before. In July 2017, he wrote touchingly about the prejudice being inflicted on some residents of Puerto Rico by operation of PROMESA. To read ABI’s report on that case, click here.