Asociación de Salud Primaria de P.R., Inc. v. Commonwealth (In re Fin. Oversight & Mgmt. Bd. for P.R.)

• Decision Date: 10 July 2018
• Docket Number: No. 17-AP-00227-LTS,No. 17 BK 3283-LTS (Jointly Administered),17 BK 3283-LTS (Jointly Administered),17-AP-00227-LTS
• Citation: 330 F.Supp.3d 667
• Parties: IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of the Commonwealth of Puerto Rico, Debtors. Asociación de Salud Primaria de Puerto Rico, Inc., et al., Plaintiffs, v. Commonwealth of Puerto Rico, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

330 F.Supp.3d 667

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of the Commonwealth of Puerto Rico, Debtors.¹

Asociación de Salud Primaria de Puerto Rico, Inc., et al., Plaintiffs,

v.Commonwealth of Puerto Rico, et al., Defendants.

No. 17 BK 3283-LTS (Jointly Administered)

No. 17-AP-00227-LTS

United States District Court, D. Puerto Rico.

Signed July 10, 2018

Maria Celeste Colberg Guerra, Miguel J. Rodriguez Marxuach, Rodriguez Marxuach Law Offices, PSC, John Edward Mudd, Law Offices John E. Mudd, San Juan, PR, James L. Feldesman, Feldesman Tucker Leifer Fidell, Washington, DC, William Santiago Sastre, Carolina, PR, for Plaintiffs.

James L. Feldesman, Feldesman Tucker Leifer Fidell, Washington, DC, John Edward Mudd, Law Offices John E. Mudd, Susana I. Penagaricano-Brown, Puerto Rico Department of Justice, Miguel J. Rodriguez Marxuach, Rodriguez Marxuach Law Offices, PSC, San Juan, PR, William Santiago Sastre, Carolina, PR, for Defendants.

Asociacion de Salud Primaria de Puerto Rico, pro se.

Concilio de Salud Integral de Loiza, Inc., pro se.

Migrant Health Center, Inc., pro se.

Morovis Community Health Center, Inc., pro se.

Consejo de Salud de la Comunidad de la Playa de Ponce, Inc., pro se.

Junta del Centro de Salud Comunal Dr. Jose S. Belaval, Inc., pro se.

COSSMA, pro se.

Rio Grande Community Health Center, Inc., pro se.

Johnny Rullan, pro se.

William Gonzalez, pro se.

Health Insurance Administration of Puerto Rico, pro se.

Municipality of San Juan, pro se.

PROMESA Title III

MEMORANDUM ORDER OVERRULING OBJECTIONS AND ADOPTING REPORT AND RECOMMENDATION

LAURA TAYLOR SWAIN, United States District JudgeOn April 2, 2018, Magistrate Judge Judith Gail Dein issued a Report and Recommendation (Docket Entry No. 55,² the "Report") recommending that the Court grant the Commonwealth of Puerto Rico's Motion for Abstention (Docket Entry No. 29, the "Abstention Motion") and remand the above-captioned adversary proceeding to the Puerto Rico Court of First Instance, San Juan Part (the "State Court"). Additionally, the Report recommends that the Court lift the automatic stay to allow the State Court Action (as defined below) to proceed to judgment, but that the stay be maintained with respect to the execution or enforcement of any such judgment. The Court has received two objections to Judge Dein's Report. (See Docket Entry Nos. 58 and 60.) Specifically, on April 15, 2018, the Corporación de Servicios Intergrales de Salud del Area de Barranquitas, Comerío, Corozal, Naranjito y Orocovis (the "Corporación") filed its Objection to Magistrate's Report and Recommendation (Docket Entry No. 58, the "Corporación Objection"). On April 30, 2018, certain Plaintiffs in the above-captioned adversary proceeding (the "Additional Objectors" and, together with the Corporación, the "Objectors") filed their Objections to Magistrate's Report and Recommendation on the Commonwealth of Puerto Rico's Motion for Abstention (Docket Entry No. 60, the "Omnibus Objection" and, together with the Corporación Objection, the "Objections"). The Commonwealth filed an omnibus reply submission on May 30, 2018. (Docket Entry No. 62.) The Court has reviewed all of the submissions of the parties carefully and, for the following reasons, adopts the Report. The Objections are overruled in their entirety.

BACKGROUND

In 2002, Plaintiffs commenced a suit against the Commonwealth of Puerto Rico (the "Commonwealth") for retroactive unpaid "wraparound payments" or "WAPs" in the State Court in an action captioned Asociación de Salud Primaria de Puerto Rico, Inc., et al. v. Estado Libre Asociado de Puerto Rico, et al., Civil No. KPEO2-1037 (the "State Court Action"). As explained in the Report, the WAPs are amounts payable to certain federally qualified health care providers that receive Medicaid funds. On August 2, 2017, Plaintiffs commenced the instant adversary proceeding by removing substantially all of the State Court Action to this Court under 48 U.S.C. § 2166(d)(1) (the "Removed Claims"). There is no dispute that, in light of the Commonwealth's filing of a debt adjustment petition under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"), this Court has jurisdiction of the Removed Claims.³

On November 14, 2018, the Commonwealth filed its Abstention Motion, requesting that the Court abstain from hearing this adversary proceeding and remand the Removed Claims to the State Court. (Docket Entry No. 29). The Commonwealth proffered that it would agree to a limited modification of the automatic stay to permit the State Court proceedings to continue through the entry, but not the execution or enforcement, of judgment. Plaintiffs oppose the Abstention Motion and argue that the Court lacks authority to abstain and should entertain the adversary proceeding. On April 2, 2018, Judge Dein issued the Report, recommending that the Court (i) grant the Abstention Motion and remand the above-captioned adversary proceeding to the State Court, and (ii) lift the automatic stay to allow the State Court Action to proceed to judgment, but that the stay be maintained with respect to the execution or enforcement of any such judgment in the State Court.

DISCUSSION

Standard of Review

In reviewing a report and recommendation, a district court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C.A. § 636(b)(1)(C) (West 2018). The court must make a de novo determination insofar as a party makes specific objections to portions of the magistrate judge's report or specified proposed findings or recommendations to which objection is made. Id.; see also Vega-Feliciano v. Doctors' Center Hosp., Inc., 100 F.Supp.3d 113, 116 (D.P.R. 2015) ("A party that files a timely objection is entitled to a de novo determination of those portions of the report or specified proposed findings or recommendations to which specific objection is made.") (citations omitted).

However, a district court need not consider "frivolous, conclusive, or general objections." Id. at 116 (citations omitted). To the extent that objections to a magistrate judge's report and recommendation are general or conclusory, a de novo review is unwarranted, and the district judge will instead review the report and recommendation for clear error. Id. Objections that do not specify the analytical aspects of the report and recommendation to which the party is objecting are considered "general or conclusory," as are objections that are repetitive of arguments already presented to the magistrate judge. Id. While many of the objections raised here by Plaintiffs reiterate arguments that were presented in their original motion papers, Plaintiffs have also tendered specific objections and the Court has reviewed de novo the Report's analysis and recommended conclusions.

Overview of Objections

In its Objection, the Corporación argues that Sections 306 and 309 of PROMESA are not applicable to the Removed Claims because this Court has exclusive jurisdiction of the Removed Claims, and that the return of the Removed Claims to the State Court would violate Section 7 of PROMESA by impairing Plaintiffs' federal claims. Section 7 reads in its entirety as follows:

Except as otherwise provided in [PROMESA], nothing in this chapter shall be construed as impairing or in any manner relieving a territorial government, or any territorial instrumentality thereof, from compliance with Federal laws or requirements or territorial laws and requirements implementing a federally authorized or federally delegated program protecting the health, safety, and environment of persons in such territory.

48 U.S.C.A. § 2106 (West 2017). The Corporación also argues, among other things, that abstention will impede the efficient administration of the Commonwealth's bankruptcy estate and that Plaintiffs would be prejudiced by the resulting delays and expenses. The Corporación incorporates by reference its arguments on the original motion, and identifies pages eight to eighteen of the Report, which comprise the entire "Discussion" section of the Report, as the portion of the Report to which the Corporación objects.

In the Omnibus Objection, the Additional Objectors also argue that this Court has exclusive jurisdiction over the Removed Claims under Title III of PROMESA. They further contend that this Court's abstention from hearing the Removed Claims would render PROMESA Section 7 a "nullity," asserting that the Report's construction of PROMESA Sections 306 and 309 "eviscerates the prohibition against impairment or relieving the Commonwealth from its compliance obligations." (Omnibus Objection at II.A., II.C.) The Additional Objectors also take issue with the Report's characterization of their removal of the claims from the State Court as "forum shopping," arguing that the Eleventh Amendment permits them to seek only prospective injunctive relief in the pending federal district court action and that the State Court lacks the authority to enforce a monetary judgment in favor of Plaintiffs under Puerto Rico law. The Objectors also argue that the Report errs both in its selection of factors for analysis in connection with the propriety of abstention and in its application of those factors.

Power to Remand and Abstain Under PROMESA Sections 306 and 309

Judge Dein concluded in the Report that this Court has the authority under PROMESA Sections 306(d)(2) and 309 to abstain from hearing the Removed Claims and to remand them. The Court has reviewed de novo the analysis of these issues as set forth in the Report and adopts section III.A. thereof in full. As the Report explains, this Court has non-exclusive jurisdiction of proceedings such as the Removed Claims, and Section 309 authorizes the Court to abstain from entertaining such proceedings, including such proceedings involving issues of federal law.

The Objectors' invocation of Section 7 of PROMESA as a barrier to...