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

Filing 198

OPINION AND ORDER granting 169 motion for partial reconsideration; denying 171 motion for partial reconsideration; denying 185 motion for hearing. Signed by US Magistrate Judge Bruce J. McGiverin on April 28, 2017.(McGiverin, Bruce)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
ASOCIACION DE SUSCRIPCION
CONJUNTA DEL SEGURO DE
RESPONSABILIDAD OBLIGATORIO,
Plaintiff,
v.

Civil No. 08-1707 (BJM)

SECRETARY OF THE TREASURY OF
THE COMMONWEALTH OF PUERTO
RICO,
Defendant.
OPINION AND ORDER
This case involves a long-running dispute between the Compulsory Liability Joint
Underwriting Association (the “JUA”)1 and the Secretary of the Treasury (the “Secretary”
or the “PRTD”) over the collection of compulsory vehicle liability insurance (“CVLI”)
premiums. The JUA sought declaratory and injunctive relief in 2008, alleging that the
Secretary, in his official capacity, was misappropriating CVLI premiums in violation of the
Fifth Amendment’s Takings Clause. Docket Nos. 1, 38. The JUA obtained injunctive relief
in August 2008, judgment was entered in May 2009, and the Secretary was subsequently
adjudged in civil contempt. Docket Nos. 38, 102, 134. In December 2016, the court issued
an ancillary court order meant to enforce the Secretary’s compliance with the August 2008
injunction. Docket No. 168. The Secretary and the JUA each moved for reconsideration of
the portions of the ancillary court order unfavorable to their respective positions. Docket
Nos. 169, 171. This case is before me on consent of the parties. Docket No. 164.
For the reasons set forth below, the Secretary’s motion for partial reconsideration
is GRANTED, and the JUA’s motion for partial reconsideration is DENIED.

1

The Asociacion de Suscripcion Conjunta del Seguro de Responsabilidad Obligatorio
(“ASC”), a Commonwealth-created entity, is also known as the Compulsory Liability Joint
Underwriting Association of Puerto Rico (the “JUA”). See P.R. Laws Ann. tit. 26, §§ 8051–61.

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DISCUSSION2
The JUA seeks reconsideration of the portion of the ancillary court order denying
attachment of $43,791,736.32 (the “$43 million”) of the Commonwealth’s funds, and the
part requiring a double audit. Docket Nos. 168 at 20, 171, 176, 185. The Secretary seeks
reconsideration of the portion of the ancillary court order requiring attachment and
disbursement of $436,114.32, plus interest. Docket Nos. 168 at 22 ¶ C, 169, 181-1, 188.
The JUA contends that, even though it is “highly unlikely that the parties will ever
be able to carry out a proper audit of” the CVLI premiums that should have been transferred
from the PRTD to the JUA, the court should attach $43 million of the Commonwealth’s
funds anyway and require the Secretary to “bear the risk of loss if it is unable to prove that
it fully complied with” the court’s orders. Docket No. 171 ¶¶ 12, 13. The JUA underscores
that the Secretary has been adjudged in civil contempt, and asserts that the Secretary’s
“lack of diligence” is enough to attach the Commonwealth’s funds. Id.
Where “a defendant has failed to comply with a prior injunction,” ancillary
injunctive relief “is common.” Aristud-Gonzalez v. Gov't Dev. Bank for P.R., 501 F.3d 24,
27 (1st Cir. 2007) (citing Nat'l Law Ctr. on Homelessness & Poverty v. U.S. Veterans
Admin., 765 F. Supp. 1, 6 (D.D.C. 1991) (“A court has the authority to issue further orders
to enforce its prior injunction”)). And when deciding whether to issue an ancillary order, a
“court may take into account the compliance with the court’s previous orders and the need
for a further order to prevent ‘inadequate compliance’ in the future.” Nat'l Law Ctr. on
Homelessness & Poverty, 765 F. Supp. at 6. But––importantly––“[a]s with the initial
injunction, . . . an order granting further injunctive relief must also be ‘narrowly tailored to
remedy the specific harm shown.’” Nat'l Law Ctr. on Homelessness & Poverty, 765 F. Supp.
at 6 (emphasis added) (quoting Aviation Consumer Action Project v. Washburn, 535 F.2d
101, 108 (D.C. Cir. 1976)).
This case’s background was set forth in the December 2016 ancillary court order, and
familiarity with that background is assumed. Docket No. 168 at 2–6.
2

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In this case, because the JUA has not “shown” at this particular juncture that the
PRTD has failed to transfer the $43 million, there is insufficient evidence of a constitutional
deprivation relating to these particular funds that may be remedied––at this stage of the
proceedings––by an ancillary court order. See, e.g., Nat'l Law Ctr. on Homelessness &
Poverty, 765 F. Supp. at 6. Indeed, the evidence proffered by the JUA––the report prepared
by RSM Roc & Company (“RSM”)––shows that there is only a “potential” underpayment
of these CVLI premiums. Docket No. 140-2 at 11. And the JUA has acknowledged that it
is seeking attachment of the $43 million on the basis of “the possible underpayment
detected by RSM.” Docket No. 140 at 9. This evidence is insufficient to grant even a
request for preliminary injunctive relief. See Winter v. Nat. Res. Def. Council, Inc., 555
U.S. 7, 22 (2008) (“Issuing a preliminary injunction based only on a possibility of
irreparable harm is inconsistent with our characterization of injunctive relief as an
extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is
entitled to such relief.”); Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 19
(1st Cir. 1996) (“the plaintiff’s showing must possess some substance; a preliminary
injunction is not warranted by a tenuous or overly speculative forecast of anticipated
harm”).
Moreover, while it is true that a civil contemnor bears the burden of showing
compliance with the court’s orders, this court has never issued an ancillary court order
finding that the PRTD in fact failed to transfer the $43 million to the JUA. See Fortin v.
Comm'r of Mass. Dep't of Pub. Welfare, 692 F.2d 790, 796 (1st Cir. 1982). Accordingly, to
the extent the JUA contends that the court may attach these particular funds as a sanction
for the Secretary’s civil contempt, that argument is misplaced because it rests on the
unfounded premise that the Secretary has violated an ancillary court order with respect to
the $43 million at issue. See Project B.A.S.I.C. v. Kemp, 947 F.2d 11, 16 (1st Cir. 1991)
(“civil contempt will lie only if the putative contemnor has violated an order that is clear

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and unambiguous,” and “any ambiguities or uncertainties in such a court order must be
read in a light favorable to the person charged with contempt”).
Notwithstanding the JUA’s present inability to proffer sufficient evidence
supporting the issuance of an ancillary court order attaching the $43 million, this court did
not foreclose relief to the JUA. Rather, the JUA asked the court to require the Secretary to
show “in the term[s] to be determined by the court” that the possible underpayment of the
$43 million “did not, in fact, occur.” Docket No. 140 at 9 (emphasis added). The court did
so in the December 2016 order after taking “into account the” Secretary’s prior noncompliance with some of the court’s orders, the court’s prior finding that the Secretary
unconstitutional took some of the JUA’s property, and the current state of the evidentiary
record. See Nat'l Law Ctr. on Homelessness & Poverty, 765 F. Supp. at 6.
The December 2016 order calls for a double audit whereby each party is required
to appoint an independent auditor to assess whether the alleged $43 million underpayment
in fact occurred. Docket No. 168 at 20, 22 ¶ D. This ancillary remedy––which the JUA
resists and the Secretary extols––was issued against a backdrop of issues with transparency,
accuracy, and accountability in the PRTD’s records. See Docket Nos. 134 at 7, 168 at 21.
The intent behind the double audit is two-fold. As an initial matter, the double audit may
increase the reliability of a finding by this court as to the funds in dispute by potentially
ameliorating issues with transparency, accuracy, and accountability in the PRTD’s records.
See generally Bruce D. Fisher & Francois Lenglart, A Comparative Study of French and
U.S. Public Company Governance, 13 New Eng. J. Int'l & Comp. L. 241, 283 (2007) (the
“redundancy” engendered by double audits “helps reduce any propensity for misstatements
in . . . financial reports,” and a double audit permits one to “compare the two reports for
inconsistencies”).
Contending that any further audits will be an exercise in futility, the JUA has
proffered a letter by RSM’s representative stating that it is “impossible” to examine
accurately the PRTD’s records. Docket No. 185-1. The JUA has also moved for a hearing

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to present the testimony of an RSM representative who will testify as much. Docket No.
185 ¶ 5. But, as the Secretary correctly suggests, another auditor may not necessarily agree
with RSM, or another auditor may make findings with respect to the precise amounts of
CVLI premiums owed that are not entirely congruous with RSM’s findings. See Docket
No. 188 ¶¶ 3–6; see also Diverges v. His Creditors, 17 La. Ann. 112, 112 (1865) (“Two
auditors were appointed in the court below, whose reports are in the record, and in which
they agree, except as to one item against, and two in favor, of the insolvent.”). Thus, the
requested hearing, which will likely add little to move the proceedings forward, is denied.
Indeed, even if the proffered testimony is assumed true, the JUA would face a steep uphill
climb attempting to convince the court that the $43 million should be attached merely
because the Secretary’s accounting records are in a state of disarray.
The other reason for the double audit is that it will give the Secretary an opportunity
to appoint an auditor that will independently examine the PRTD’s records. The JUA
expressly asked this court to fashion a remedy that would allow the Secretary to do so, and
the JUA effectively backpedals on that request in its request for reconsideration. Compare
Docket No. 140 at 9 ¶ b (court should order Secretary to show, in the manner decided by
the court, that the alleged underpayment did not in fact occur), with Docket No. 171 (“no
one will ever be sure if all” CVLI premiums were “actually accounted for,” and so the
double audit is useless), and Docket No. 185 (double audit, like the “agreed-upon
procedures” conducted by RSM, “would be an exercise in futility”).
Moreover, because the Secretary has challenged the findings of the auditor
appointed by the JUA, and because the Secretary is entitled––as a matter of due process––
to bring the findings of an independent auditor before the court may issue any civil
contempt sanctions, the double audit will put this court in a position to make appropriate
findings after allowing each party an opportunity to be heard with the help of an expert
witness conversant in auditing financial records. See, e.g., Mercer v. Mitchell, 908 F.2d
763, 766–67 (11th Cir. 1990) (“When the purportedly contumacious conduct occurs outside

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the presence of the court, due process requires, with very few exceptions, that the defendant
(1) be informed, through a show-cause order, of his purportedly contumacious conduct,
and (2) be given a hearing at which he can be represented by counsel, call witnesses, and
testify in order to show cause why he should not be held in contempt.”).
The JUA also complains that it expended a large amount of resources to pay for the
audit conducted by RSM, and suggests that the double audit ordered by the court would
require the JUA to expend additional resources. Docket No. 171 ¶ 11. But the December
2016 order expressly states that the JUA “may continue to” use RSM for the court-ordered
double audit. Docket No. 168 at 22 ¶ D(a). To the extent this portion of the order was
unclear, the JUA may continue to rely on the report prepared by RSM in seeking to prove
the factual assertions the JUA has raised with respect to the amounts the PRTD has
allegedly failed to transfer to the JUA. See McComb v. Jacksonville Paper Co., 336 U.S.
187, 192 (1949) (district court may provide a “clarification or construction of the order”).
Or, if the JUA wishes, the JUA may appoint an independent auditor other than RSM, or the
JUA may employ RSM to conduct an additional audit. See Docket No. 168 at 22 ¶ D(a).
Therefore, the JUA’s motion for partial reconsideration is DENIED.
The Secretary has also moved for reconsideration, arguing that the court factually
erred in finding that the PRTD failed to transfer $436,114.32 (the “$436,000”) to the JUA.
Docket No. 169 ¶ C. “A motion for reconsideration should be granted only when the
defendant identifies ‘an intervening change of controlling law, the availability of new
evidence, or the need to correct a clear error or prevent manifest injustice.’” Kolel Beth
Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 104 (2d Cir. 2013)
(quoting Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.
1992) (internal quotation marks omitted)); see also Bucantis v. Midland-Ross Corp., 81
F.R.D. 623, 625 (E.D. Pa. 1979) (“Despite the omission by counsel, . . . the Court has a
duty to prevent manifest injustice”).

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The $436,000 corresponds to a “shortage” RSM found when the PRTD made a
special payment to the JUA. According to RSM’s report, the PRTD “self-detected” an
omission in CVLI premiums corresponding to the time period between November 2008
and May 2009. Docket No. 140-2 at 8. To correct the omission, the PRTD made a special
payment of $32,293,414.60 to the JUA. Id. However, RSM found that the total gross
omission was higher than the amount detected by the PRTD. Per the findings in RSM’s
report, the omission totaled $34,452,135.70 without the 5% fee collected by the PRTD, and
$32,729,528.92 after factoring in that fee. RSM arrived at the $436,114.32 figure by
finding the difference between $32,729,528.92 (the total omission, minus the 5% fee) and
$32,293,414.60 (the special payment the PRTD made to the JUA).
As noted in the December 2016 order, the Secretary resisted the attachment of the
$436,000 by arguing that this finding was inaccurate because the special payment did not
include the month of May 2009. Docket Nos. 146 at 6, 168 at 19–20. As was also noted,
the Secretary’s motions at that stage of the proceedings stated that this circumstance was
disclosed in the “[d]ocumentation [that] was provided to [the JUA’s] appointed
independent auditors for their examination,” specifically, a document titled “Comprobante
de Jornal.” Id. But, because the “Secretary proffered no evidentiary support for this
assertion,” and because the JUA proffered RSM’s report in support of its position, the court
found that the attachment of $436,114.32, plus interest, was warranted. See Docket No.
168 at 20; see also Jupiter v. Ashcroft, 396 F.3d 487, 491 (1st Cir. 2005) (“Counsel’s factual
assertions in pleadings or legal memoranda are not evidence and do not establish material
facts”).
The Secretary’s motion for reconsideration attaches an evidentiary proffer not
included in the record while the court was evaluating the JUA’s motion to enforce
remedies. Docket No. 179-2. Specifically, the Secretary proffers the “Comprobante de
Jornal” that was not previously adduced, and the Secretary underscores that this document
shows that the month of May 2009 was not included in the special payment the PRTD made

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to the JUA. Docket No. 169-1, 179-2. While it would be within the court’s discretion not
to consider a document that was available but not proffered during prior proceedings, the
court will exercise its discretion to “prevent manifest injustice.’” See Kolel Beth Yechiel
Mechil of Tartikov, Inc., 729 F.3d at 104; see also Rivera-Garcia v. Sistema Universitario
Ana G. Mendez, 442 F.3d 3, 6 n.3 (1st Cir. 2006) (“there was no abuse of discretion in the
district court's rejection of the letter and of plaintiffs’ motion to alter judgment on account
of a belated evidentiary proffer, especially where that evidence was previously available
and should have been submitted to the court for timely consideration”).
Faced with the Comprobante de Jornal, the JUA does not dispute the authenticity
of this document or the document’s contents. Rather, the JUA contends that the court
should order the Secretary to produce “the complete set of documents presented to” RSM’s
representatives, as the Secretary did not allow RSM’s representatives to make copies of
those documents. Docket No. 176 at ¶ 8. With the “supporting documentation,” the JUA
contends, RSM’s representatives will be able to establish that the $436,000 underpayment
in fact occurred. In light of this evidentiary quagmire, and because the parties are already
ordered to conduct a double audit, the court, in the interest of judicial economy and
avoiding piecemeal litigation, will resolve the disputed $436,000 when it resolves the other
amounts at issue. See D.P. Apparel Corp. v. Roadway Exp., Inc., 736 F.2d 1, 5 (1st Cir.
1984) (district court has the “power to manage its own affairs and to serve the interests of
judicial economy,” and may exercise those powers at its discretion). Accordingly, the
December 2016 order is modified as follows: the double audit shall encompass the
transactions and period of time that allegedly gave rise to the $436,000 underpayment.
To be sure, the JUA also contends that the Secretary should be equitably estopped
from disputing the $436,000 underpayment. Under federal equitable estoppel principles,
“one may be ‘estopped from denying the consequences of his conduct where that conduct
has been such as to induce another to change his position in good faith or such that a
reasonable man would rely upon the representations made.’” Clauson v. Smith, 823 F.2d

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660, 662 (1st Cir. 1987) (quoting Bergeron v. Mansour, 152 F.2d 27, 30 (1st Cir. 1945)).
Equitable estoppel has four elements: “(1) The party to be estopped must know the facts;
(2) he must intend that his conduct shall be acted on or must so act that the party asserting
the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the
true facts; and (4) he must rely on the former’s conduct to his injury.” Benitez-Pons v. Com.
of P.R., 136 F.3d 54, 63 (1st Cir. 1998) (quoting Clauson, 823 F.2d at 661). The burden of
proving equitable estoppel lies with the party asserting entitlement to relief under that
doctrine. See, e.g., Albright v. FDIC, 21 F.3d 419, *4 (1st Cir. 1994).
Here, the JUA points to e-mail communications between RSM and the Secretary’s
counsel which show that the Secretary’s counsel was involved in reviewing preliminary
drafts of the report prepared by RSM and agreed that the final report issued by RSM
included the Secretary’s “observations.” Docket No. 183-1 at 1–7. On the other hand, the
Secretary points to portions of those e-mail communications in which the Secretary’s
counsel objected to the “procedures” RSM used when preparing the findings in the report,
as well as to the “reliability” of that report. Docket Nos. 179-1 at 1–2, 183 at 6–7. Because
the Secretary objected generally to the procedures RSM used to generate the report, as well
as to the “reliability” of the findings with respect to the CVLI premiums that should have
been transferred, there is insufficient evidence to find that the JUA reasonably concluded
from the e-mail communications that the Secretary was on board with every finding in
RSM’s report, including the $436,000 underpayment. See Clauson, 823 F.2d at 663 (for
equitable estoppel to apply, “[s]ome definite, unequivocal behavior must be shown—
conduct fairly calculated to mask the truth or to lull an unsuspecting person into a false
sense of security”). Thus, the Secretary’s motion for partial reconsideration is GRANTED.
CONCLUSION
For the foregoing reasons, the Secretary’s motion for partial reconsideration is
GRANTED, and the JUA’s motion for partial reconsideration is DENIED. The December
2016 ancillary court order is modified––and the court now orders––as follows:

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A. The Secretary shall inform the court and the JUA: (1) when the litigation
against Susan Gas Station in the Puerto Rico state court has concluded, and
(2) whether the PRTD has collected any payments from the Gas Station.
B. The JUA shall inform the court if it finds evidence that the PRTD received
the disputed CVLI premiums ($1,138,687) from Susan Gas Station.
C. The parties are ordered to continue working together to ensure that the
PRTD has not underpaid the JUA in the amount of $43,791,736.32, as well
as in the amount of $436,114.32. To effectuate this portion of the order:
1. The Secretary shall appoint an independent auditor to determine
whether the underpayment in fact occurred. The JUA shall also
appoint an independent auditor, which may continue to be RSM, to
determine whether the underpayment in fact occurred.
2. The parties are further ordered to meet for the purposes of
establishing the procedures that will govern each audit.
3. If the parties can agree to the procedures that will govern each audit,
the audits will be conducted in accordance with those procedures. If
the parties cannot agree, they shall inform the court and the court
will proceed accordingly.
4. When the independent double audit is complete, the parties shall
inform the court.
D. The parties shall meet to discuss the “Prospective Recommendations” in
RSM’s report. Docket No. 140-2 at 12–13 ¶ V. The parties shall inform the
court whether they are willing to stipulate to any of the recommendations
in RSM’s report. The parties may also inform the court if they can agree to
additional procedures that will allow for greater transparency, accuracy, and
accountability in the CVLI premiums that should have been transferred
from the PRTD to the JUA. The parties shall inform the court what

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additional procedures, if any, are jointly approved by the parties. If the
parties cannot agree, the court will determine which additional procedures,
if any, are warranted to enforce the injunction.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 28th day of April 2017.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge