Two district judges in Puerto Rico starkly disagree about the applicability of the automatic stay to “ordinary course” litigation against commonwealth officials.
On April 30, District Judge William G. Young of Boston, sitting in Puerto Rico by designation, held that the automatic stay under the Puerto Rico Oversight, Management, and Economic Stability Act barred a suit against a commonwealth governmental official in his individual capacity, even though Puerto Rico itself was not named as a defendant.
Saying he “disagrees” with Judge Young, Chief District Judge Gustavo A. Gelpí ruled on May 14 that the automatic stay does not apply. He allowed a plaintiff to recover a judgment against a government official in his individual capacity.
Although the two cases are procedurally distinguishable, the First Circuit may be tasked with deciding whether Puerto Rico can hide behind PROMESA to halt lawsuits having nothing to do with the island’s insolvency.
The Newest Case
In Judge Gelpí’s case, a prisoner sued non-governmental third parties for inadequate medical care. The defendants included Puerto Rico governmental officials in their official and individual capacities. Much later, the plaintiff accepted a $50,000 settlement without specifying how the settlement would be apportioned among the defendants. Two weeks before Puerto Rico initiated its financial restructuring under PROMESA (48 U.S.C. §§ 2161 et. seq.), Judge Gelpí directed the defendants to pay the $50,000 within 90 days.
When Puerto Rico began its restructuring on May 3, 2017, PROMESA imposed an automatic stay by incorporating Section 922(a) of the Bankruptcy Code. That section automatically enjoins a suit against a government “officer” that “seeks to enforce a claim against” the government.
In the process of paying $40,000 after commencement of the PROMESA proceedings, the non-governmental defendants said that Puerto Rico had agreed the pay the remaining $10,000. Puerto Rico did not object to the statement but filed a notice regarding the automatic stay.
Months later, the plaintiff filed a motion seeking to compel Puerto Rico to pay the remaining $10,000.
Judge Young’s Earlier Case
Judge Young ruled on a suit by several individuals seeking money damages for wrongful incarceration in violation of the U.S. Constitution and local law. Knowing that PROMESA would bar suit for damages against the commonwealth, the plaintiffs only sued individuals in their personal capacities.
Admitting that a decision either way would be “unfair,” Judge Young decided to apply the stay, saying the complaint 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.
Judge Gelpí’s Analysis
The statute underlying both cases was a commonwealth law giving Puerto Rico the right but not the obligation to defend and indemnify governmental officials sued in their individual capacities. In Judge Gelpí’s case, Puerto Rico had agreed long before bankruptcy to defend and indemnify the one official who was still liable on the judgment in his individual capacity.
Puerto Rico argued that PROMESA’s automatic stay applied because the commonwealth had indemnified the official for a judgment against him in his individual capacity. Judge Gelpí disagreed, holding that the stay “does not apply to individual capacity claims,” even when Puerto Rico has agreed to defend and indemnify.
Judge Gelpí followed his decision from August 2017, where he held that PROMESA’s automatic stay did not apply to a $2 million lawsuit against Puerto Rico’s superintendent of police for a police shooting that was claimed to be “a reckless and grossly negligent use of excessive force.” Guadalupe-Baez v. Pesquera, 269 F. Supp. 3d 1 (D.P.R. 2017).
Judge Gelpí bolstered his decision by reference to Puerto Rico’s sovereign immunity under the Eleventh Amendment and First Circuit authority holding that defense of a suit is not a waiver of immunity. If Puerto Rico is not being sued when it defends an official, he theorized that “it is not liable for any awards or settlements.” Since the government is not liable, the stay does not apply because the plaintiff is not collecting a claim against the commonwealth.
Judge Gelpí disagreed with Judge Young on two counts. First, he disagreed with the notion that PROMESA contemplates an automatic stay covering officials in their individual capacities. Second, he was not persuaded by the argument that recruiting government workers would be harmed by permitting individual-capacity suits to proceed. He said that the effect on recruitment “is a matter for the Commonwealth to consider when agreeing to represent officials . . . and [settle] on their behalf.” It is not a matter for the court to consider, he said.
Judge Gelpí therefore held that he had power to compel the individual to pay the judgment in his personal capacity because the indemnification agreement was between the official and the government, not between the government and the plaintiff. However, the judge conceded that he did not have power to compel the government to pay the settlement.
To read ABI’s report on Judge Young’s case, click here. For Judge Gelpí’s decision from last year, click here.