Vaca Brava Old San Juan, LLC v. Puerto Rico Treasury Dep't (In re Vaca Brava Old San Juan, LLC), CASE NO. 15–09787 (MCF)

• Decision Date: 27 October 2016
• Docket Number: CASE NO. 15–09787 (MCF),ADVERSARY CASE No. 15–00293
• Citation: 560 B.R. 376
• Parties: In re: Vaca Brava Old San Juan, LLC, Debtor Vaca Brava Old San Juan, LLC, Plaintiff v. Puerto Rico Treasury Department, Defendant
• Court: U.S. Bankruptcy Court — District of Puerto Rico

560 B.R. 376

In re: Vaca Brava Old San Juan, LLC, DebtorVaca Brava Old San Juan, LLC, Plaintiff

v.Puerto Rico Treasury Department, Defendant

CASE NO. 15–09787 (MCF)

ADVERSARY CASE No. 15–00293

United States Bankruptcy Court, D. Puerto Rico.

Signed October 27, 2016

Javier Vilarino, Vilarino & Associates LLC, San Juan, PR, for Plaintiff.

Migda L. Rodriguez Collazo, Department of Justice, San Juan, PR, for Defendant.

OPINION AND ORDER

MILDRED CABAN FLORES, U.S. Bankruptcy Judge

Before the Court is a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure from the Puerto Rico Treasury Department (hereafter "Defendant") seeking the dismissal of this adversary complaint filed by Vaca Brava Old San Juan LLC (hereafter "Plaintiff") for: (1) an alleged violation of the automatic stay under 11 U.S.C. § 362, (2) protection against discriminatory treatment under 11 U.S.C. § 525(a), (3) actual and monetary damages under 42 U.S.C. § 1983 and (4) punitive damages, attorney's fees and costs under 11 U.S.C § 362.¹ The Court adopts as true the factual allegations of the complaint for the sole purpose of the motion before us. For the reasons stated herein, the Court grants in part and denies in part Defendant's motion to dismiss and as a result, the adversary case shall continue.

FACTS AND PROCEDURAL HISTORY

1. On December 10, 2015, at 6:19 p.m., the Plaintiff filed a voluntary petition under Chapter 11.

2. On that same day, at 6:25 p.m. Defendant's agents arrived at the Plaintiff's premises to collect a purported debt of $208,368.58, of which $194,899.29 is alleged sales and use tax debt (hereafter "IVU" for its Spanish initials).

3. Plaintiff alleges that even though it notified the agents about the Chapter 11 petition filing, Defendant proceeded, at that moment, to cancel and collect Plaintiff's alcoholic beverage license for failing to pay the mentioned debt.

4. Subsequently, Plaintiff filed a Complaint and an Urgent Motion Seeking Temporary Restraining Order and Injunction asking for a declaratory and injunctive relief for violation of the automatic stay (§ 362 ) and discriminatory treatment (§ 525(a) ). Plaintiff also requested compensatory and punitive damages, attorney's fees, and costs pursuant to § 362(k).

5. On December 14, 2015, Plaintiff's temporary restraining order against Defendant was denied for failure to prove an irreparable injury.

6. On December 22, 2015, after a preliminary injunction hearing, the court ordered Defendant to (1) cease any action to withhold or revoke Debtor's license to sell alcoholic beverages and (2) restore possession of the license and any other document needed for said possession within 24 hours. The injunctive relief's duration was conditioned to Debtor's post-petition remittance of taxes withheld as fiduciary agent to the Treasury.

7. Plaintiff alleges that cancelation of alcoholic beverage license prevented the Plaintiff from generating substantial economic revenue during the holiday season.

8. On December 24, 2015, Plaintiff filed an amended complaint adding that on December 15, 2015, five days after the Chapter 11 petition was filed, Defendant levied the amounts of $1,462.26 and $1,639.46 from its Banco Popular accounts # 011–691098 and # 011–665378, respectively.

9. On April 8, 2016, Plaintiff filed a second amended complaint to add that the Puerto Rico Treasury Department Secretary had appeared in numerous public forums dissuading consumers from sponsoring Plaintiff's restaurant operations. Plaintiff contends that these expressions caused a direct negative impact of Plaintiff's income and public image. Plaintiff also added a cause of action for actual and monetary damages under 42 U.S.C. § 1983.

10. Plaintiff estimates its expenses, costs, and loss of income due to Defendant's actions in no less than $60,000.

11. On May 25, 2016, Defendant filed a Motion to Dismiss for Eleventh Amendment immunity, failure to state a claim, and unavailability of a 42 U.S.C. § 1983 remedy.

12. Plaintiff filed an Opposition to the Motion to Dismiss on July 1, 2016.

APPLICABLE LAW AND LEGAL ANALYSIS

I. MOTION TO DISSMISS FOR FAILURE TO STATE A CLAIM

When a court evaluates a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), its duty is to determine whether a complaint contains "sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atlantic v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Pursuant to Fed. R. Civ. P. 8(1), pleadings must contain: "(1) a short and plain statement of the grounds for the court's jurisdiction,...; (2) a short and plain statement of the claim showing that the pleader is entitled to relief; and (3) a demand for the relief sought, which may include relief in the alternative or different types of relief." A short and plain statement "needs only enough detail to provide a defendant with ‘fair notice of what the ... claim is and the grounds upon which it rests'." Ocasio – Hernandez v. Fortuno–Burset, 640 F.3d 1, 12 (1st Cir. 2011) (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ).

This rule does not require "detailed factual matter," just sufficient factual allegations that tend to make more plausible the plaintiff's claim to a remedy. Plausibility must not be confused with probability, but it does mean something more than a mere possibility. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Twombly, 550 U.S. at 557, 127 S.Ct. 1955.

Under a Rule 12(b)(6) test, the court must first distinguish factual from conclusory allegations. Cardigan Mt. Sch. v. N.H. Ins. Co., 787 F.3d 82, 84 (1st Cir. 2015). In other words, the court must disregard those that merely offer, "legal conclusions couched as fact or threadbare recitals of the elements of a cause of action." Ocasio – Hernandez, 640 F.3d at 12 ; Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Factual allegations that are plausible on their face, on the other hand, are those that "allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Sanchez v. Pereira–Castillo, 590 F.3d 31, 48 (1st Cir. 2009) ; Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

After disregarding those conclusory allegations, the court "must take all of the factual allegations in the complaint as true." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. "The sole inquiry under Rule 12(b)(6) is whether, construing the well-pleaded facts of the complaint in the light most favorable to the plaintiffs, the complaint states a claim for which relief can be granted. Ocasio – Hernandez, 640 F.3d at 7 (emphasis ours). During this stage of the review, "the issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) ; 2–12 James Wm. Moore et al., Moore's Federal Practice § 12.34 (3d. ed., 1997–date). Thus, dismissal will be proper if the complaint lacks an allegation regarding an element necessary to obtain relief. Moore's Federal Practice at § 12.34(4)(a). It is also appropriate "when a successful affirmative defense or other bar to relief on the claim is conclusively established on the face of the complaint. Id. at § 12.34(4)(b). Unlike a dismissal for lack of jurisdiction, a dismissal for failure to state a claim upon which relief can be granted is a "judgment on the merits, " banning the parties from relitigating the issues resolved. Federated Dep't Stores v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981).

II. ELEVENTH AMENDMENT IMMUNITY

We first examine Defendant's allegations that money damages claims against it are barred by Eleventh Amendment Immunity (Docket No. 46, at 6).

The Eleventh Amendment of the Constitution of the United States reads:

The Judicial power of the United States shall not be construed to extend to any suit in law or Equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

The Supreme Court has clarified that this immunity includes not only suits brought by citizens against another state, but also suits commenced by citizens against their own state. Hans v. Louisiana, 134 U.S. 1, 15, 10 S.Ct. 504, 33 L.Ed. 842 (1890). The Supreme Court has also stated that the Eleventh Amendment bars suits against a state's agencies or departments. Pen n hurst State School & Hosp. v. Halderman, 465 U.S. 89, 100, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984). In addition, many First Circuit cases have long held that Puerto Rico enjoys Eleventh Amendment immunity. SeeTorres–Alamo v. Puerto Rico, 502 F.3d 20, 24 (1st Cir. 2007) ; Acevedo Lopez v. Police Dept. of Com. o f Puerto Rico, 247 F.3d 26, 28 (1st Cir. 2001) ; Ramirez v. Puerto Rico Fire Service, 715 F.2d 694, 697 (1st Cir. 1983) ; Ezratty v. Puerto Rico, 648 F.2d 770, 776 (1st Cir. 1981).

However, sovereign immunity is not absolute and may be waived by the State or abrogated by Congress. In order to eliminate sovereign immunity under the Eleventh Amendment, Congress must "unequivocally express its intent to abrogate the immunity" and act "pursuant to a valid exercise of power." Tennessee v. Lane, 541 U.S. 509, 517, 124 S.Ct. 1978, 158 L.Ed.2d 820 (2004) ; Arecibo Community Health Care, Inc. v. Commonwealth of Puerto Rico, 270 F.3d 17, 24 (1st Cir. 2001).

Section 106(a)(1) of the Bankruptcy Code abrogates sovereign immunity with respect to the following sections of the Code:

(1) Sections 105, 106, 107, 108, 303, 346, 362 , 363, 364, 365, 366, 502, 503, 505, 506, 510, 522, 523, 524, 525 , 542, 543, 544, 545, 546, 547, 548, 549, 550, 551, 552, 553, 722, 724, 726, 744, 749, 764, 901, 922, 926, 928, 929, 944, 1107, 1141, 1142, 1143, 1146, 1201, 1203, 1205, 1206, 1227, 1231, 1301, 1303, 1305, and 1327 of this title.

11 U.S.C. § 106(a)(1) (emphasis ours).

Section 106 also provides that "[t]he ...