Asociacion de Suscripcion Conjunta del Seguro de Responsabilidad Obligatorio v. Ortiz-Garcia

Filing 134

OPINION AND ORDER re 121 Motion for Contempt. The Court finds the Secretary in civil contempt. The Court must fashion sanctions that will ensure compliance with the Court's orders and at the same time correct some of the damage done by their violations. Counsel for the Secretary shall immediately deliver a copy of this Memorandum Opinion and Order to the actual Secretary of the Treasury. The incoming Secretary is granted until 2/28/2013 to straighten this situation and fully comply with the stipulated implementation terms. Signed by Judge Jose A Fuste on 01/9/2013. (dv)

UNITED STATES DISTRICT COURT
DISTRICT OF PUERTO RICO
ASOCIACIÓN DE SUSCRIPCIÓN
CONJUNTA DEL SEGURO DE
RESPONSABILIDAD OBLIGATORIO

Civil No. 08-1707 (JAF)

Plaintiff,
v.
SECRETARY OF THE TREASURY OF THE
COMMONWEALTH OF PUERTO RICO.
Defendant.

1

MEMORANDUM OPINION AND ORDER

2

Pending before the Court is the ASOCIACIÓN DE SUSCRIPCIÓN CONJUNTA DEL

3

SEGURO DE RESPONSABILIDAD OBLIGATORIO’S (“Plaintiff” or the “ASC”) Verified

4

Motion for Contempt against the Defendant SECRETARY OF THE TREASURY OF THE

5

COMMONWEALTH OF PUERTO RICO (the “Secretary”). [Dkt. 121]. A hearing was held on

6

December 20, 2012. The Court finds the Secretary in civil contempt.

7

FACTUAL BACKGROUND

8

On July 1, 2008, the ASC filed a complaint against the Defendant seeking

9

declaratory and injunctive relief for violation of the Takings Clause of the Fifth

10

Amendment to the United States Constitution. [Dkt. 1].

11

On July 9 and 10, 2008, the Court held a show-cause injunctive hearing, where the

12

parties had the opportunity to submit all relevant evidence. On August 15, 2008, this

Civil No. 08-1707 (JAF)

-2-

1

Court issued an Opinion and Order granting the injunctive relief requested by the

2

Association. Accordingly, the Court
enjoin[ed] Defendant, anyone acting pursuant to his orders,
and his successors in any representative capacity, from
depositing compulsory insurance premiums into the
Commonwealth General Fund, other than collection fees. The
Commonwealth must create a separate, interest-bearing fund
in which to deposit all compulsory insurance premiums
collected on Plaintiff’s behalf, without prejudice to
Defendant’s statutory right to retain a collection fee.

3
4
5
6
7
8
9
10
11

[Dkt. 38]. The Court also ordered the parties to meet and devise the specific mechanism

12

that, by stipulation, would be implemented to create the separate account in a private

13

banking institution to achieve the remedy ordered. Opinion and Order, at 12.1

14

Pursuant to this Order, the parties met and agreed, among other things, the

15

following:
a.

16

With regards to the premiums collected directly by the Treasury

17

Department at the “colecturías”2, the parties agreed that the

18

Treasury Department would transfer certain funds to the

19

Association’s bank every week;3

1

On May 8, 2009, Judgment was entered in favor of the Association and against the
Defendant, incorporating the aforementioned terms. [Dkt. 102]. The Judgment became
final and unappealable on June 7, 2011, when the Court of Appeals for the First Circuit
granted the Defendant’s voluntary dismissal of its appeal. [Dkt. 105].

2

Internal Revenue Service Offices.

3

The schedule upon which the funds were to be transferred was amended by the parties on
September 4, 2009, [Dkt. 103].

Civil No. 08-1707 (JAF)

b.

1

-3-

With regards to the premiums collected by third parties, the parties

2

agreed to establish regulation pursuant to which the Association

3

would directly receive the premiums collected by the third parties.

4

See, Informative Motion Regarding Terms of Stipulated Implementation (Partial),

5

Exhibit A, [Dkt. 98-1]. These terms were a concession by the ASC to the Treasury

6

Department in order to accommodate the alleged impossibility of strictly complying with

7

the terms of the injunction.

8

It appears that, after lengthy negotiations with ASC, the Treasury Department

9

enacted Regulation no. 7831 of March 29, 2010 and Regulation No. 7969 of December

10

29, 2010. Both of these regulations were enacted in order to comply with the stipulated

11

implementation terms and called for the direct payment to, or the direct debit by the

12

Association of the compulsory insurance premiums collected by third parties.

13

On December 1, 2012, the ASC filed a Verified Motion for Contempt alleging that

14

Defendant had disobeyed the injunction and had failed to abide by the stipulated terms

15

for the implementation of the injunction. ASC further requested that, after a hearing, the

16

Court hold the Secretary in contempt for disobeying the Court’s injunction, and that any

17

other appropriate relief as necessary be issued in order to enforce the Judgment. [Dkts.

18

123, 130].

19

On December 20, 2012, the Court held an evidentiary hearing to elucidate the

20

matters raised in the Verified Motion for Contempt. The Court heard the testimonies of

21

Jose Luis Blanco-Latorre (President and CEO of the ASC), Monica Rivera-Pico, and

22

Tomas Céspedes-Rodriguez (Sub director of Technology at the Treasury Department);

Civil No. 08-1707 (JAF)

-4-

1

Osvaldo Miranda (VP Finance and Planning of the ASC) testified as an expert on

2

financial analyses. The Court also received documentary evidence on the matter.

3

The evidence introduced at the hearing conclusively established the following:

4

Regulation no. 7831 of March 29, 2010:

5

a.

Regulation no. 7831, which came into effect on April 29, 2010, is

6

applicable to official inspection stations (i.e., gas stations) authorized

7

by the Treasury Department to collect the fees associated with the

8

renewal of a vehicle’s license) (“EOI”). Participating in the renewal

9

of motor vehicle licenses is wholly voluntary.

10

b.

compulsory insurance premiums from the EOIs bank accounts.

11
12

Regulation no. 7831 calls for the Association to directly debit the

c.

In order to accomplish this, Regulation no. 7831 requires the EOI to

13

authorize such debit as a requirement for obtaining authorization

14

from the Treasury Department for renewing vehicle license.

15

d.

Each day, the Department of Transportation and Public Works

16

(“DTOP”) provides both the Treasury Department and the ASC with

17

the electronic data required by the Regulation which identified all

18

motor vehicles which paid the compulsory insurance premiums at

19

EOIs during the previous day.

20
21

e.

The ASC uses this information to debit the accounts of the EOIs
which it has been authorized to debit.

Civil No. 08-1707 (JAF)
1

f.

-5-

Although the Treasury Department has stated to the ASC that all

2

EOIs must comply with Regulation no. 7831, it has only required

3

those EOIs that are newly authorized after April 29, 2010 to comply

4

with Regulation no. 7831, and to authorize the Association to debit

5

their bank accounts.

6

g.

To date, only 15 out of approximately 166 total EOIs currently

7

authorized to renew vehicle licenses have authorized the ASC to

8

directly debit their bank accounts. The ASC debits only these EOIs

9

bank accounts daily.

10

h.

The ASC has complained to the Treasury Department regarding this

11

situation in informal communications, in e-mails, in meetings, and in

12

formal communications from the ASC’s President however, the

13

Treasury Department has failed to correct this situation.

14

Regulation No. 7969 of December 29, 2010:

15

a.

Regulation no. 7969, which came into effect on January 28, 2011,

16

calls for all participating financial institutions to directly transfer the

17

compulsory insurance premiums they collect to the Association.

18

Participation by financial institutions in the renewal of motor vehicle

19

licenses is wholly voluntary.

20
21

b.

During the month of October 2011, the ASC was able to first obtain
compliance with Regulation no. 7969 from Banco Popular de Puerto

Civil No. 08-1707 (JAF)

-6-

1

Rico, which accounts for approximately 50% of the compulsory

2

insurance premiums collected by financial institutions.

3

c.

During the months of October 2011 through February 2012, Banco

4

Popular de Puerto Rico transferred daily to the ASC the compulsory

5

insurance premiums collected in its branches the previous day, along

6

with certain electronic data required by the Regulation which

7

identified the motor vehicles for which the premiums were paid.

8

d.

However, during the spring of 2012, the ASC became aware that the

9

Treasury Department, unilaterally and without ASC’s consent,

10

ordered all financial institutions to stop transferring the compulsory

11

insurance premiums to the ASC and to transfer the funds to the

12

Treasury Department instead. All financial institutions which had

13

been transferring to the ASC the compulsory insurance premiums

14

stopped doing so effective March 1, 2012, except for Doral Bank.

15

e.

Moreover, the Treasury Department, unilaterally, and in total

16

disregard of its obligations under the injunction, announced that it

17

would amend Regulation No. 7969 to eliminate the direct transfer to

18

the Association of the compulsory insurance premiums collected by

19

the financial institutions. A proposed regulation to that effect was

20

published.

21
22

f.

As a result of the aforementioned, currently, Doral Bank is the only
financial institution that directly remits to the Association the

Civil No. 08-1707 (JAF)

-7-

1

compulsory insurance premiums it collects. This accounts for less

2

than 0.01% of the compulsory insurance premiums that are collected

3

by the financial institutions.

4

g.

The ASC has complained to the Treasury Department multiple

5

times—in informal communications, in email, in meetings, and in

6

formal correspondence—regarding the lack of compliance with the

7

Regulation. However, the Treasury Department has ignored the

8

ASC’s complaints.

9

Lack of sufficient data to validate the transfer of funds

10

As part of the stipulated implementation terms, the Treasury Department

11

agreed to provide the ASC “with the disclosure requirements of 26 L.P.R.A.

12

§8055(n) so that the ASC can ascertain the accuracy of the amounts transferred by

13

the Treasury Department to the ASC in compliance with the previous schedule.”

14

See, Informative Motion Regarding Terms of Stipulated Implementation (Partial),

15

Exhibit A, ¶1(c), [Dkt. 98-1].

16

The evidence at the hearing conclusively established that, although the

17

Treasury Department provides the ASC with certain data every month purportedly

18

representing the motor vehicles which have renewed their vehicle permits during

19

said month, the data provided is inadequate and incomplete and does not appear to

20

present a true picture of the funds collected by the Treasury Department on behalf

21

of the ASC:

Civil No. 08-1707 (JAF)
1
2

a.

-8-

Data provided by the Treasury Department for the vehicle
permits issued or renewed at “colecturías”:

3

Osvaldo Miranda testified that, during the past 18 months, the

4

data provided by the Treasury Department disclosed that it

5

transferred to the ASC compulsory insurance premiums for less than

6

1,000 newly registered vehicles, which include new vehicles sold

7

and imported vehicles registered. During that same time period, the

8

automobile industry reported that approximately 150,000 new

9

vehicles were sold in the Puerto Rico market. This is consistent with

10

the approximately 35,000 requests for reimbursements received by

11

the ASC from other insurers for new vehicles covered by traditional

12

insurance. Accordingly, the numbers for newly registered vehicles

13

reported by the Treasury Department—and, thus, the premiums

14

transferred to the ASC for such item—are clearly incorrect. This

15

discrepancy

16

underpayments to the ASC.

amounts

to

approximately

$15,000,000

in

17

Mr. Miranda also testified that the data provided by the

18

Treasury Department does not disclose that it transfers to the ASC

19

any of the compulsory insurance premiums it charges for provisional

20

permits. This notwithstanding, the ASC has received claims for

21

compulsory insurance paid to the Treasury Department on such

22

permits.

Civil No. 08-1707 (JAF)

-9-

1

Furthermore, Mr. Miranda testified that it is not unusual for

2

the ASC to process claims on compulsory insurance paid to the

3

Treasury Department for which no information can be matched to

4

the data transferred from such Department, although the claimant

5

can provide documentary evidence of such payment.

6

b.

Data provided by the Treasury Department for the vehicle
permits renewed at EOIs:

7
8

The data provided by the Treasury Department for vehicle

9

permits renewed at EOI originates with DTOP; it is supposed to be

10

the same data which DTOP sends daily to the ASC. However, Mr.

11

Miranda testified that, in the last 18 months, there have been 6

12

instances in which the number of vehicle permits that have been

13

renewed at EOI informed by DTOP to the ASC in a certain month

14

significantly different from those informed by the Treasury

15

Department to ASC for that same month. He further stated that, in

16

half of those instances, the difference exceeds 20%. The witnesses

17

for the Treasury Department could not explain this difference.

18
19

c.

Data provided by the Treasury Department for the vehicle
permits renewed at financial institutions:

20

According to the testimony at the hearing, the Treasury

21

Department receives data for 100% of the vehicle permits renewed

Civil No. 08-1707 (JAF)

- 10 -

1

at financial institutions, except for those few permits renewed at

2

Doral Bank.

3

Despite this assertion, Mr. Miranda testified that the ASC had

4

obtained information for the vehicle permits renewed during a six-

5

month period by Popular Auto for vehicles leased through that

6

institution for which the compulsory insurance premium had been

7

paid. An audit of the vehicle permits informed by Popular Auto

8

revealed that the Treasury Department had failed to disclose any

9

data to the ASC on the aforementioned permits.

10

Mr. Miranda also testified that the number of total number of

11

motor vehicle permits renewed monthly at financial institutions, as

12

informed to the ASC by the Treasury Department, is slightly larger

13

than that informed by Banco Popular de Puerto Rico to the ASC

14

during those months in which that financial institution was reporting

15

its daily data directly to the ASC. Given the fact that Banco Popular

16

de Puerto Rico accounts for approximately 50% of all motor vehicle

17

permits renewed at financial institutions, the monthly number

18

reported by the Treasury Department—which purportedly includes

19

all financial institutions—is grossly insufficient.

20
21
22

d.

Reliable Data from Other Sources:
The premiums for the insurance underwritten by the
government

sponsored

Automobile

Accident

Compensation

Civil No. 08-1707 (JAF)

- 11 -

1

Administration (AACA) are collected using the same mechanism as

2

the compulsory insurance premiums: they must both be paid

3

annually, together with the vehicle license renewal fees. Therefore,

4

with the few adjustments to which Mr. Miranda testified, it is

5

possible to arrive at an approximate number of vehicles which

6

should have paid for the compulsory insurance premium at the time

7

of the renewal of their permit.

8

Mr. Miranda testified that, considering the AACA’s Audited

9

Financial Statements, it appears that the Treasury Department failed

10

to transfer to the ASC over $20million since this Court issued its

11

injunction.

12

e.

Previous Experiences with the Treasury Department:

13

Mr. Miranda also testified that past experiences with the

14

Treasury Department further supported the ASC’s conclusion that

15

the data provided by the Treasury Department did not accurately

16

represent the compulsory insurance premiums supposed to be

17

transferred to the ASC. For example, he testified that in February

18

2010—a year and a half after this Court issued its injunction—, the

19

Treasury Department transferred to the ASC approximately

20

$32.3million which the ASC, based on its actuarial studies and

21

historical data, had claimed had been underpaid.

22

Civil No. 08-1707 (JAF)

- 12 -

LEGAL STANDARD FOR CONTEMPT

1
2

The disregard of judicial authority constitutes contempt of court. The United

3

States district courts have the inherent authority and duty to protect and effectuate their

4

judgments and to punish disobedience of or resistance to their lawful orders and decrees.

5

Cooper v. Aaron, 358 U.S. 1 (1958).

6

The power of courts to punish for contempt is a necessary and integral part of the

7

independence of the judiciary, and it is absolutely essential to the performance of the

8

duties imposed on them by law. Gompers v. Bucks Stove & Range Co., 221 U.S. 418,

9

450 (1911).

10

Contempt of a federal court consists in 1) misbehavior by any person in the court's

11

presence or so near thereto as to obstruct the administration of justice; or 2) misbehavior

12

of any of its officers in their official transaction; or 3) disobedience or resistance to a

13

court's lawful writ, process, order, rule, decree or command. 18 U.S.C. § 401. An act or

14

omission in violation of an order of a court may subject a party either to criminal or civil

15

contempt, or both. United States v. United Mine Workers, 330 U.S. 258 (1947).

16

Contempt proceedings can be either civil or criminal in nature. The

17

characterization of a proceeding as civil or criminal depends primarily upon the purpose

18

for which a contempt finding is sought and issued. Gompers v. Buck Stove & Range Co.,

19

221 U.S. 418; Shillitani v. United States, 384 U.S. 364, 369 (1966). Civil contempt is

20

remedial in nature and generally designed either to coerce compliance with a court order

21

or to compensate the plaintiff for any losses sustained. See, United Mine Workers, 330

22

U.S. at 303–304.

Civil No. 08-1707 (JAF)

- 13 -

1

“Recognizing the contempt power's virility and damage potential, courts have

2

created a number of prudential principles designed to oversee its deployment.” Project

3

B.A.S.I.C. v. Kemp, 947 F.2d 11, 16 (1st Cir. 1991). The evidence must establish (1) that

4

the alleged contemnor had notice that he was “within the order's ambit,” id. at 17; (2) that

5

the order was “clear and unambiguous,” e.g., AccuSoft Corp. v. Palo, 237 F.3d 31, 47

6

(1st Cir.2001) (quoting Project B.A.S.I.C., 947 F.2d at 16); (3) that the alleged contemnor

7

had the ability to comply, see, United States v. Rylander, 460 U.S. 752, 757 (1983)

8

(stating that “where compliance is impossible, neither the moving party nor the court has

9

any reason to proceed with the civil contempt action”); and (4) that the order was indeed

10

violated, Project B.A.S.I.C., 947 F.2d at 16. The First Circuit has sometimes combined

11

the related “clear and unambiguous” and violation prongs, asking whether “the putative

12

contemnor has violated an order that is clear and unambiguous.” Id. When the question

13

turns on findings of fact, “a complainant must prove civil contempt by clear and

14

convincing evidence.” Id. (internal quotation marks omitted) (quoting Langton v.

15

Johnston, 928 F.2d 1206, 1220 (1st Cir.1991)).

16

After considering all the arguments and evidence, the Court determines that the

17

ASC has shown by clear and convincing evidence that a finding of civil contempt against

18

the Secretary is warranted. The Secretary had notice of the Court's Opinion and Order, he

19

negotiated himself the terms for implementation of the injunction with the ASC and even

20

participated in drafting of the regulations to purportedly comply with the stipulated

21

implementation terms.

Civil No. 08-1707 (JAF)

- 14 -

1

The Court's Opinion and Order and the implementation terms agreed upon by the

2

parties are “clear, definite, and unambiguous.” Because the Secretary alleged that

3

segregating the compulsory insurance premiums from the Commonwealth’s General

4

Fund, this Court allowed the parties to agree to a mutually acceptable means of

5

implementing the relief granted. It was the parties who agreed, in order for the Secretary

6

to be able to comply with the injunction, to have the Court implement its relief, partly,

7

through the direct transfer to the ASC of the compulsory insurance premiums collected

8

by third parties. The fact that the Treasury Department was to reduce the amount of

9

compulsory insurance premiums to be deposited in the General Fund is clear and

10

unambiguous. So is the importance of providing the ASC with an accurate accounting of

11

the compulsory insurance premiums that are, because of necessity, deposited into the

12

General Fund.

13

The Court also finds that the Secretary could have easily complied with the Court's

14

injunction. The evidence is clear that the Secretary was, in fact, complying with the terms

15

of the implantation or, at least, working towards that goal. The Secretary has not been

16

able to advance any logical reason for this about-face, nor why he refused to either

17

inform the ASC or attempt to work with the ASC to resolve any situation which may

18

have made compliance with the terms impossible. The Secretary has never appeared

19

before this Court to request a modification of the implementation terms.

20

In light of the aforementioned, the Court finds that there is clear and convincing

21

evidence on the record that the Secretary willingly failed to comply with the Court's

22

injunction, as well as the stipulated implementation terms agreed to by the parties and

Civil No. 08-1707 (JAF)

- 15 -

1

subsequently approved by the Court. Thus, the Court finds that the Secretary to be in civil

2

contempt.

3

Upon a finding of civil contempt, the Court has broad discretion in fashioning the

4

appropriate coercive remedy. See, Goya Foods, Inc. v. Wallack Mgmt. Co., 344 F.3d 16,

5

21 (1st Cir. 2003). Civil contempt can be “imposed to compel compliance with a court

6

order or to compensate a party harmed by non-compliance.” United States v. Saccoccia,

7

433 F.3d 19, 27 (1st Cir. 2005); see also Int'l Union, United Mine Workers of Am. v.

8

Bagwell, 512 U.S. 821, 827 (1994) (stating that the sanctions that may be imposed in a

9

civil contempt proceeding are those “designed to compel future compliance with a court

10

order, [which] are considered to be coercive and avoidable through obedience”).

11

The Court must fashion sanctions that will ensure compliance with the Court's

12

orders and at the same time correct some of the damage done by their violations.

13

Therefore, the Court provides as follows:

14

1.

On or before February 28, 2013, the Secretary shall provide a full and

15

accurate accounting of the compulsory insurance premiums collected by the Treasury

16

Department or by entities authorized by it to collect the compulsory insurance premiums

17

on its behalf, from August 15, 2008 to date;

18

2.

On or before February 28, 2013, the Secretary shall fully comply with

19

stipulated implementation terms by assuring that all entities authorized by the Treasury

20

Department to collect the compulsory insurance premiums on its behalf either directly

21

transfer to the ASC or authorize the ASC to debit from their accounts the collected

22

compulsory insurance premiums;

Civil No. 08-1707 (JAF)
1

3.

- 16 -

On or before February 28, 2013, the Secretary shall correct the manner in

2

which it informs the ASC of the compulsory insurance premiums collected by it, such

3

that the ASC can ascertain the accuracy of the amounts transferred by the Treasury

4

Department to the ASC.

5

4.

The Secretary will permit, cooperate and facilitate a complete audit of the

6

moneys related to this case. This audit may be carried out by independent auditors

7

appointed by ASC.

8

5.

If the Secretary fails to comply with the aforementioned terms in the time

9

period provided in this Order, he shall pay a monetary sanction in the amount of FIVE

10

THOUSAND DOLLARS ($5,000.00) for each day in which non-compliance continues.

11

The Court reserves the right to attach or garnish government funds without security bond,

12

based on audited accounts by ASC appointed independent auditors.

13
14
15

6.

Counsel for the Secretary shall immediately deliver a copy of this

Memorandum Opinion and Order to the actual Secretary of the Treasury.
CONCLUSION

16

It is undeniable that the Treasury Department collects, manages, and holds the

17

compulsory insurance premiums for the ASC in a fiduciary capacity. Four years ago, this

18

Court admonished the Secretary about the unacceptable manner in which the Treasury

19

Department was dealing with moneys that did not belong to the Commonwealth, in a

20

clear breach of the fiduciary duties owed to the owners of those moneys. Four years

21

later, the Treasury Department is still playing fast-and-loose with money that belongs to

22

someone else, in clear violation of this Court’s orders.

Civil No. 08-1707 (JAF)

- 17 -

1

In light of the recent change in the Commonwealth’s Administration, this Court

2

will grant the incoming Secretary until February 28, 2013 to straighten this situation and

3

fully comply with the stipulated implementation terms. The Secretary is advised that,

4

after this date, the Court will not tolerate any excuses or validate this type of illegal

5

governmental behavior. It is illegal for anyone, including the Department of Treasury, to

6

withhold third party funds, comingle them with general funds, use the moneys, or give

7

the impression that such illegal conduct is taking place. We will not allow this any

8

further.

9
10
11
12
13
14
15
16

IT IS SO ORDERED
San Juan, Puerto Rico, this 9th day of January, 2013.

S/ José Antonio Fusté
JOSE ANTONIO FUSTE
U.S. District Judge