Gracia-Gracia v. Fin. Oversight & Mgmt. Bd. (In re Fin. Oversight & Mgmt. Bd. for Puerto Rico)

• Decision Date: 25 September 2019
• Docket Number: No. 18-1463,18-1463
• Parties: IN RE: the FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative of the Commonwealth of Puerto Rico; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina, Depository Trust Company; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority ; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors. Samuel Gracia-Gracia, individually and as representative of the certified class; Jorge Plard, individually and as representative of the certified class, Movants, Appellants, v. Financial Oversight and Management Board, as representative of the Commonwealth of Puerto Rico, Debtor, Appellee, Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; Puerto Rico Highways and Transportation Authority ; Puerto Rico Electric Power Authority (PREPA), Debtors.
• Court: U.S. Court of Appeals — First Circuit

939 F.3d 340

IN RE: the FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative of the Commonwealth of Puerto Rico; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina, Depository Trust Company; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority ; the Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors.

Samuel Gracia-Gracia, individually and as representative of the certified class; Jorge Plard, individually and as representative of the certified class, Movants, Appellants,

v.Financial Oversight and Management Board, as representative of the Commonwealth of Puerto Rico, Debtor, Appellee,Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; Puerto Rico Highways and Transportation Authority ; Puerto Rico Electric Power Authority (PREPA), Debtors.

No. 18-1463

United States Court of Appeals, First Circuit.

September 25, 2019

Antonio J. Amadeo Murga for appellants.

Ehud Barak, New York, NY, with whom Timothy W. Mungovan, John E. Roberts, Boston, MA, Martin J. Bienenstock, Stephen L. Ratner, Mark D. Harris, Jeffrey W. Levitan, New York, NY, and Proskauer Rose LLP, were on brief, for debtor-appellees.

Before Torruella, Lynch, and Kayatta, Circuit Judges.

KAYATTA, Circuit Judge.

The plaintiffs in this case are motor-vehicle owners and operators who paid duplicate premiums to the Commonwealth of Puerto Rico in accordance with the Commonwealth's compulsory automobile-insurance law, P.R. Laws Ann. tit. 26, § 8053. The plaintiffs have waged a decades-long campaign to retrieve the funds that they overpaid to the Commonwealth. After we issued several opinions favorable to the plaintiffs' claims, the parties eventually entered into a settlement agreement in which the Commonwealth agreed to establish a notice and claim-resolution process for motorists who paid duplicate premiums from 1998 to 2010. Shortly thereafter, the Financial Oversight and Management Board for Puerto Rico initiated Title III debt-adjustment proceedings on behalf of the Commonwealth pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. §§ 2101 – 2241, which triggered an automatic stay of collection actions against the Commonwealth. The Commonwealth, citing the automatic stay, then halted its implementation of the settlement agreement's notice and claim-resolution process. Never relenting, the plaintiffs petitioned the Title III court for relief from the automatic stay to allow them to bring an enforcement action against the Commonwealth in a separate proceeding. The Title III court largely denied that petition. We now affirm in part and vacate in part that decision.

I.

Approved in December 1995, Puerto Rico's Compulsory Motor Vehicle Liability Act ("Law 253") requires all motorists in Puerto Rico to obtain liability insurance either through the Commonwealth or through a private insurer. P.R. Laws Ann. tit. 26, § 8053. Though the Commonwealth adopted procedures to enable motorists who opted for private insurance to avoid paying the Commonwealth premiums, many of those motorists nevertheless paid annual premiums to the Commonwealth. García-Rubiera v. Fortuño (García-Rubiera II ), 665 F.3d 261, 264–65 (1st Cir. 2011). Pursuant to Law 253, the Puerto Rico Secretary of Treasury transfers those premiums (referred to here as "duplicate premiums") to the Compulsory Liability Joint Underwriting Association of Puerto Rico (JUA). See P.R. Laws Ann. tit. 26, § 8055(c). In accordance with the general scheme that Law 253 initially established, the JUA kept those duplicate premiums that it received from the Secretary in a separate "Reserve" account, where they were subject to reimbursement upon request by the motorists who had paid the duplicate premiums. P.R. Laws Ann. tit. 26, § 8055(j) ; García-Rubiera II, 665 F.3d at 266. And, pursuant to Puerto Rico's default general-insurance law, unclaimed duplicate premiums escheated to the Commonwealth after seven years. García-Rubiera v. Calderón (García-Rubiera I ), 570 F.3d 443, 449 (1st Cir. 2009).

In 2002, the Puerto Rico legislature passed Law 230, which modified this general scheme in a few notable ways. First, Law 230 directed the JUA to transfer accumulated duplicate premiums from the Reserve account to the Secretary of Treasury every two years. P.R. Laws Ann. tit. 26, § 8055(j). Second, Law 230 provided that the Secretary of Treasury will "retain the funds transferred by the [JUA] in its fiduciary capacity for a five (5)-year term." Id. Once that five-year term "elapse[s] without the consumer claiming the retained funds, said funds [will] become property of the Government of Puerto Rico and [will] be transferred to the General Fund of the State's Treasury." Id.

Following Law 230's passage, the JUA transferred $73 million from the Reserve account to the Secretary of Treasury. After the Commonwealth used a large portion of those funds to balance its budget, a class of motorists who had paid duplicate premiums filed suit in district court, asserting that the Commonwealth's transfer of funds from the Reserve account to the Secretary of Treasury amounted to a violation of the Takings Clause and was executed without the notice and process required by the Due Process Clause. García-Rubiera I, 570 F.3d at 450. In a series of opinions, this court held that those plaintiffs had a property interest in these duplicate premiums for purposes of their procedural Due Process Clause claim, id. at 457, and instructed the Commonwealth "to give individual notice to insureds owed reimbursement to the maximum extent feasible," García-Rubiera II, 665 F.3d at 276.

Not satisfied with the Commonwealth's initial efforts to notify potential claimants on remand, a subsequent panel of this court ordered in 2013 that the Commonwealth afford plaintiffs at least one year to file reimbursement claims. See García-Rubiera v. Fortuño (García-Rubiera III ), 727 F.3d 102, 105, 110 (1st Cir. 2013). "In the meantime," we added, "no duplicate premiums shall escheat to the Commonwealth until it has established and complied with a reimbursement procedure which meets the basic requirements of constitutional due process." Id. at 105. Important to the immediate appeal, this latter injunction on further escheatment to the Commonwealth effectively created two separate pools of duplicate premiums. Those funds that had not yet escheated to the Commonwealth, i.e., funds the JUA received during or after 2006 and transferred to the Secretary of Treasury after July 2008, remain in a segregated account.¹ These funds -- referred to here as the "segregated funds" -- amounted to roughly $76.1 million as of March 2018. All other funds, the "non-segregated funds," had previously escheated to the Commonwealth and had already been intermixed with the general Commonwealth coffers.

In 2016, the parties entered into a settlement agreement whereby the Commonwealth agreed to (1) establish a notice and claim-resolution process for motorists who paid duplicate premiums from 1998 to 2010, (2) refund claimants who demonstrate entitlement to reimbursement, and (3) pay, out of the funds due to the motorists, attorneys' fees amounting to twenty percent of the total reimbursement claims paid under the settlement. Later that year, Congress passed PROMESA and the Commonwealth made an initial installment payment to the class attorneys. And on May 3, 2017, the Financial Oversight and Management Board for Puerto Rico initiated Title III debt-adjustment proceedings on behalf of the Commonwealth, triggering an automatic stay of collection actions against the Commonwealth. See 11 U.S.C. § 362(a) ; 48 U.S.C. § 2161(a) (incorporating 11 U.S.C. § 362 into PROMESA). The Commonwealth subsequently halted its implementation of the reimbursement procedures set forth in the settlement agreement and stopped payments to the plaintiffs' attorneys.

In February 2018, the plaintiffs filed a motion in the Title III debt-adjustment proceeding, seeking relief from the automatic stay to allow them to enforce the terms of the settlement agreement in a separate action. The Title III court denied most of the plaintiffs' requested relief but lifted the stay "solely to the extent of permitting implementation of the notice and insurance premium claim submission and review process." Memorandum Order Granting in Part and Denying in Part Motion Requesting Relief from Stay at 8, No. 17 BK 3283-LTS (D.P.R. Apr. 6, 2018) [hereinafter Order Denying Stay Relief]. In other words, the relief ordered by the Title III court permits the plaintiffs' claims to be processed (and also presumably allows the plaintiffs to pursue a separate action to enforce the implementation and execution of that claims-resolution process), but it does not allow the plaintiffs to actually obtain reimbursement from the Commonwealth. This appeal followed.

II.

A.

As the law stands in seven circuits, there would be no question that we have appellate jurisdiction over an appeal like this one because denials of motions for relief from an automatic stay are categorically deemed final and appealable in those circuits. See Pinpoint IT Servs., LLC v. Rivera (In re Atlas IT Export Corp. ), 761 F.3d 177, 182 n.8 (1st Cir. 2014) (collecting cases). In this circuit though, we need do some more work because our decision in In re Atlas rejected that categorical approach, requiring us "to scout for finality indicators, like whether the disputed order conclusively decided a discrete, fully-developed issue -- an order that, at the time of appeal, will not be changed or be mooted and is not reviewable elsewhere." Id. at 184. We find plenty of such indicators. Unlike in In re Atlas, there is no suggestion here that "the bankruptcy court will get to decide...