484 F.3d 1 (1st Cir. 2007), 05-1430, Asociacion De Subscripcion Conjunta Del Seguro De Responsabilidad Obligatorio v. Flores Galarza

Docket Nº:05-1430.
Citation:484 F.3d 1
Case Date:March 01, 2007
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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484 F.3d 1 (1st Cir. 2007)



Juan A. FLORES GALARZA, in his personal and official capacity as the Secretary of the Treasury of the Commonwealth of Puerto Rico; and Annabelle Rodríguez, Secretary of Justice of the Commonwealth of Puerto Rico, Defendants, Appellants.

No. 05-1430.

United States Court of Appeals, First Circuit.

March 1, 2007

Heard Nov. 9, 2005.

Order on Rehearing and Rehearing En Banc April 18, 2007.

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Eduardo do Vera Ramírez, with whom Julio César Alejandro Serrano and Landrón & Vera, LLP were on brief, for appellants.

Veronica Ferraiuoli-Hornedo, with whom Rubén T. Nigaglioni, Rafael J. Martínez, and Nigaglioni & Ferraiuoli Law Offices, PSC were on brief, for appellee.

Before LIPEZ, Circuit Judge, GIBSON, [*] Senior Circuit Judge, HOWARD, Circuit Judge.

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LIPEZ, Circuit Judge.

The Compulsory Liability Joint Underwriting Association of Puerto Rico ("JUA"), a Commonwealth-created entity, filed a lawsuit against Juan A. Flores Galarza ("Flores Galarza" or "Secretary"), then the Secretary of the Treasury of the Commonwealth, in both his official and personal capacities, 1 claiming that he violated the Takings Clause of the United States Constitution by withholding from the JUA and appropriating insurance premiums generated by Puerto Rico's compulsory liability insurance law to alleviate the cash-flow problems of the Commonwealth. Flores Galarza moved for judgment on the pleadings, claiming that the forms of relief sought by the plaintiff (declaratory, injunctive, and damages) were barred by the Eleventh Amendment and the doctrine of qualified immunity. The district court denied that motion. We have before us an interlocutory appeal from that denial.

Among other complexities, this case tests the sometimes uncertain boundary between official and personal-capacity claims against a government official, and the applicability of the qualified immunity doctrine to an unusual takings claim. For the reasons set forth below, after concluding that the JUA has standing to sue Flores Galarza, we conclude that, consistent with the Eleventh Amendment, Flores Galarza is amenable to suit in his official capacity for injunctive and declaratory relief, but is protected from damages in his personal capacity by the doctrine of qualified immunity.


A. Law 253: The Compulsory Liability Insurance System

The following facts are drawn from the complaint and, where noted, from relevant statutory and case law. On December 27, 1995, in response to financial losses from uncompensated damages to motor vehicles in traffic accidents, the Commonwealth of Puerto Rico ("Commonwealth") enacted the Compulsory Motor Vehicle Liability Insurance Act, Act No. 253 ("Law 253"), codified at P.R. Laws Ann. tit. 26, §§ 8051-61. Under Law 253, liability insurance coverage is required for all motor vehicles that travel on public thoroughfares. Law 253 "provides each insured vehicle owner with $3000 of coverage for damages caused to third parties per accident in exchange for a uniform premium, initially set at $99 for each private passenger vehicle and $148 for each commercial vehicle." Arroyo-Melecio v. P.R. Am. Ins. Co., 398 F.3d 56, 60-61 (1st Cir.2005) (citing P.R. Laws Ann. tit. 26, §§ 8052(j), 8056(a)).

All "private insurers"--defined under Law 253 as those with more than 1% of the total volume of vehicle liability premiums in Puerto Rico, P.R. Laws Ann. tit. 26, § 8052(b)--

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are required to provide compulsory liability insurance in one of two ways. First, private insurers are "bound to provide the compulsory liability insurance to those motor vehicle owners that request it," id. § 8054(a), unless those owners meet certain statutory criteria, most of which "identify applicants who are bad drivers or otherwise of high risk," Arroyo-Melecio, 398 F.3d at 61. Second, private insurers are required to provide compulsory liability insurance as members of the JUA, to which they must belong. The JUA is an association of all private insurers in Puerto Rico, which "provides compulsory liability insurance to all drivers, including those high-risk drivers whom private insurers are not required to insure." Id. (footnote omitted). "Through the JUA, the risk of insuring these high-risk drivers is thus spread among all the private insurers." Id. at 62.

Every vehicle owner must either: (1) pay the premium for compulsory liability insurance to the Secretary of the Treasury at the time that the owner acquires or renews a vehicle license, effectively as part of the license payment; or (2) opt out of the compulsory liability insurance scheme by privately purchasing liability insurance with comparable or better coverage. Id. at 61 n. 2 (citing P.R. Laws Ann. tit. 26, § 8061). 2 In the case of those vehicle owners who pay the Secretary for compulsory liability insurance, "[t]he [JUA] shall receive from the Secretary of the Treasury the total amount of the compulsory liability insurance premiums received by said official, for its eventual distribution among the private insurers and the [JUA] itself, as the case may be." P.R. Laws Ann. tit. 26, § 8055(c). The JUA's administrative and operating expenses are "charged to the amount received from the corresponding premiums according to this distribution." Id.

If a vehicle owner does not present a Certificate of Compliance proving that he carries traditional liability insurance, he must pay the compulsory liability insurance premium on the date of issuance or renewal of the vehicle license, and may then seek reimbursement directly from the JUA or from his insurer, who will, in turn, seek reimbursement from the JUA. 3 Thus, the funds transferred from the Secretary to the JUA appear to consist of: (1) premium payments from individuals seeking to purchase insurance through the JUA who paid the Secretary, as required by the statute, when they obtained or renewed their vehicle licenses, (2) duplicate premium

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payments from individuals who are purchasing the compulsory insurance directly from a private insurer, but who paid the compulsory assessment to the Secretary along with their license fees (and who thus are eligible for a refund from the JUA), and (3) duplicate premium payments from individuals who have adequate traditional liability coverage, but who did not obtain the Certificate of Compliance that would have exempted them from the compulsory assessment (who also are eligible for a refund). The JUA is responsible for distributing the premiums it receives from the Secretary to its member insurers for the coverage they provide. Arroyo-Melecio, 398 F.3d at 61 n. 2. 4

The JUA is required to file an annual statement with the Insurance Commissioner detailing its financial condition, transactions, and affairs for the preceding calendar year. Because a portion of the total amount of premiums received by the JUA may be owed to third parties who seek refunds for duplicate payments--i.e., vehicle owners who bought insurance from a private insurer but also paid the compulsory liability premium when obtaining licenses, or private insurers who have reimbursed their insureds for payment of the compulsory premium--the JUA is required by regulation to set aside these premiums and accumulate them in a separate reserve account ("Reserve"). 5

B. The Secretary's Withholding of Funds

Since the effective date of the compulsory liability insurance system on January 1, 1998, 6 the JUA has been unable to determine exactly how many registered motor vehicles in Puerto Rico are covered by private liability insurance. The JUA initially estimated that 25% of all vehicles were covered by policies from private insurers, and, accordingly, set aside 25% of all premiums received and accumulated them in the Reserve. By 2001, experience and additional data revealed that the actual proportion of privately insured registered motor vehicles was closer to 17%. As a result, the Reserve as disclosed in the December 2001 annual statement--approximately $73 million--exceeded the actual amount owed to third parties by approximately $10 million ("Overstated Reserve Funds"). In other words, the JUA set aside and accumulated in the Reserve approximately $10 million more than was actually owed to privately insured vehicle owners and their insurers who would be seeking reimbursement for the purchase of duplicative compulsory liability insurance.

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In 2001, the JUA sought permission from the Insurance Commissioner to adjust the Reserve to the accumulated level that it would have been if only 17% of all premiums had been set aside, rather than 25%. The Insurance Commissioner agreed to allow the JUA to adjust the Reserve for the 2001 fiscal year, but did not allow any adjustments for the preceding fiscal years.

In 1998 and 1999, the Secretary collected the insurance premiums and transferred them to the JUA in accordance with Law 253. 7 The JUA then set aside a portion of these premiums in the Reserve. Beginning in 2000, however, the Secretary discontinued the transfer of compulsory liability insurance premiums to the JUA in an attempt to ease the Commonwealth's cash-flow problems. 8 On May 30, 2002, the JUA filed a petition for mandamus against the Secretary in the Puerto Rico Superior Court, requesting an order that the Secretary transfer to the JUA the withheld compulsory liability insurance premiums. By September 2002, the Secretary had withheld approximately $173 million in premiums from the JUA. Because of the Secretary's failure to transfer the insurance premiums, the JUA was forced to liquidate...

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