W Holding Company, Inc. et al v. Chartis Insurance Company-Puerto Rico

Filing 362

OPINION & ORDER: Denying 343 Motion for Reconsideration. Signed by Judge Gustavo A. Gelpi on 12/12/12. (CL)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF PUERTO RICO

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W HOLDING CO., INC., et al,

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Plaintiffs,

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v.

Civil No. 11-2271 (GAG)

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CHARTIS INSUR. CO.-PUERTO RICO,
et al,

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Defendants.

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OPINION AND ORDER

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In their motion for reconsideration (Docket No. 343), the Directors and Officers (“D&O’s”)

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ask the court to reconsider its opinion and order denying all motions to dismiss (Docket No. 304).

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The D&O’s claim the court erred by: a) finding that a three-year limitations period applies to the

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transgressions alleged in the FDIC’s complaint, and; b) tolling the relevant statute. For the following

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reasons, the court DENIES the D&O’s motion for reconsideration (Docket No. 343).

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I.

Standard of Review

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A motion for reconsideration may not serve as a vehicle to relitigate matters previously

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litigated and decided by the court. Villanueva-Mendez v. Vazquez, 360 F. Supp. 2d 320, 322

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(D.P.R. 2005). Courts entertain motions for reconsideration that seek to correct manifest errors of

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law or fact, present newly discovered evidence, or arise due to intervening changes in law. See

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Rivera Surillo & Co. v. Falconer Glass. Indus. Inc., 37 F.3d 25, 29 (1st Cir. 1994) (citing FDIC v.

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World University, Inc., 978 F.2d 10, 16 (1st Cir. 1992)); Cherena v. Coors Brewing Co., 20 F. Supp.

Civil No. 11-2271 (GAG)
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2d 282, 286 (D.P.R. 1998)). A losing party may not “repeat old arguments previously considered

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and rejected, or . . . raise new legal theories that should have been raised earlier.” Nat’l Metal

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Finishing Co. v. BarclaysAmerican/Commercial, Inc., 899 F.2d 119, 123 (1st Cir. 1990).

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II.

Discussion

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The D&O’s claim the court erroneously applied a three-year limitations period to the

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allegations levied against them and incorrectly tolled the limitations period. The court rejects these

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assertions and considers them in turn.

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A.

The Three-Year Limitations Period Applies

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The D&O’s take issue with the court classifying gross negligence in Puerto Rico’s Business

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Judgment Rule, codified at P.R. LAWS ANN. tit. 14 § 3563, as a liability created by law because it

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originated as a common law principle. (See Docket No. 343 at 3.) The court previously addressed

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why it found the term “created by law” does not proscribe consideration of codified common law

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principles. (See Docket No. 304 at 12.) To elaborate, “If the language of a statute . . . has a plain

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and ordinary meaning, we need look no further and should apply [the statute] as it is written.”

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United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241-42 (1989). P.R. LAWS ANN. tit. 32 § 261

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gives rise to a three-year limitations period for director liability “created by law.” The definition of

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“create” includes “to bring about” by a course of action or behavior. WEBSTER’S NEW WORLD

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COLLEGE DICTIONARY 340 (4th ed. 2001). To “create,” therefore, does not require uniqueness in

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the creation; rather, it simply requires the creator to “bring about” something -the liability, in this

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instance. The Puerto Rico legislature brought about liability for gross negligence by codifying the

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Business Judgment Rule. While courts have distinguished liabilities arising under “statutory law”

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and “common law,” the statute here reads “at law.” Puerto Rico has embraced liability for gross

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negligence and the three-year limitations period at both common law and in its statutes, thereby

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making the Business Judgment Rule applicable to this case.

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Secondly, the D&O’s assert that California state court decisions bind this court’s

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interpretation of whether a liability “created by law” arises from codification of a common law

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Civil No. 11-2271 (GAG)
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principle. (Docket No. 343 at 3.) California courts have held that codified common law does not

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necessarily constitute a liability “created by law,” and the D&O’s claim that Johnson Chemical Co.

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v. Condado Ctr., Inc. 329 F. Supp. 98, 99 (D.P.R. 1971), dictates adherence to these cases. (Id.) The

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court disagrees with the D&O’s interpretation of Johnson Chemical. The Johnson Chemical court

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conducted its analysis by “following the precedents set in California from” which the Puerto Rico

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law “was literally taken.” 329 F. Supp. at 99. The opinion implies that California’s precedent

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comprises the most persuasive authority on the issue, perhaps to assist Puerto Rico with developing

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its jurisprudence on the subject; however, classifying this language as implying that California

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precedent “must be followed as a matter of commonwealth law” is an unreasonable extrapolation.

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B.

Tolling is Appropriate

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The D&O’s claim the court adopts the principle of adverse domination – federally created

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common law – as stated in FDIC v. Bird. See generally 516 F. Supp. 647 (D.P.R. 1981). The court

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does not do this. The opinion clearly states that federal common law governing the standard of care

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used to measure the legal propriety of the conduct of directors is impermissible according to

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Supreme Court precedent, and that adverse domination principles are sufficiently similar to delayed

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discovery rules adopted by the Puerto Rico Supreme Court and the First Circuit. (See Docket No.

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304 at 13-14.) The court states that Bird created federal common law, offending O’Melveny &

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Myers when it was subsequently decided, implying that the court cannot adopt this principle

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outright. (Id.) Instead, the court merely draws a comparison between adverse domination and the

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delayed discovery rule, concluding that under either principle the statute of limitations is tolled until

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an aggrieved party knows or reasonably should have known about the alleged harm. The court does

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not create federal common law in denying the various motions to dismiss and reiterates that Puerto

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Rico and First Circuit precedent bind this court to apply specific tolling principles throughout this

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litigation. (Id. at 14.) To the extent that Hildenbrand and Wylie provided sufficient notice,

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furthermore, neither party squarely addressed this issue in their motions to dismiss and replies

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Civil No. 11-2271 (GAG)
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thereto. (See Docket 343 at 3, 6.)1 Rather, the D&O’s claimed that preclusion necessitated halting

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this litigation. As previously stated, following discovery, the parties may fully address whether

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sufficient notice occurred to prohibit tolling in these cases. The court will dismiss any time-barred

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claims accordingly.

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Relatedly, the D&O’s discuss a tolling limitation principle sounding in contract and statute.

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The D&O’s claim, “The three-year prescriptive period of section 261 is a statute of repose

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(caducity), which . . . is not subject to tolling, period.” (Docket No. 343 at 5.) Section 261’s

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California counterpart, according to California jurisprudence, begins its three-year period from the

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time the liability is created, “rather than from the time when the cause of action accrues. Moreover

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. . . the time when the plaintiff actually discovered the injury/wrongful act is not dispositive.” Briano

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v. Rubio, 46 Cal. App. 4th 1167, 1175 (Cal. Ct. App. 1996). The court, to reiterate, is not bound by

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California precedent and need not rehash its explanation for tolling the statute of limitations

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discussed in the original opinion and order denying the various motions to dismiss. (Docket No.

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304.) The doctrine of caducity, furthermore, does not apply here. Caducity concerns expiration

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dates in contracts or statutes. For example, in Rivera-Flores v. Puerto Rico Tel. Co., the First Circuit

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discussed caducity in the context of Puerto Rico’s workers’ compensation statute: “Where employers

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need hold a disabled worker’s position open for only twelve months, after which they are not

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obligated to reinstate the worker, caducity applies to prohibit tolling past the twelve-month period.”

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64 F.3d 742, 750 (1st Cir. 1995). The D&O’s fail to cite any case or law directly tying section 261

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to the doctrine of caducity.

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C. First Circuit and Puerto Rico Supreme Court Certification Denied

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Lastly, the D&O’s seek certification of the following issues: 1) the proper limitations period

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for a claim against corporate directors for alleged gross negligence; 2) whether caducity applies to

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section 261 and whether it may be tolled, and; 3) whether Puerto Rico recognizes adverse

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The court cited Wylie as a 2012 Puerto Rico District Court case in Docket No. 304;
however, it is a 2011 case.

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Civil No. 11-2271 (GAG)
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domination. First, section 261 clearly states that actions against directors must be brought within

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three years after discovery of the facts upon which the liability was created. Director liability for

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gross negligence arises under P.R. LAWS ANN. tit. 14 § 3563. The court engaged in a lengthy

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discussion in finding that the FDIC sufficiently pleaded gross negligence, comparing several very

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similar cases to the facts at bar. Because this is an action against D&O’s, it must be brought within

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three years. The court finds this line of thinking unexceptional to the extent that it does not merit

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certification. Second, caducity bears no relevance here, and the D&O’s legal argument fails to

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convince the court otherwise. Third, the court sufficiently addresses adverse domination above. The

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court therefore finds no issues of first impression or exceptional circumstances present to justify

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certification.

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III.

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Conclusion
For the abovementioned reasons, the court DENIES the D&O’s motion to reconsider.

(Docket No. 343.)

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SO ORDERED.

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In San Juan, Puerto Rico this 12th day of December 2012.

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/S/ Gustavo A. Gelpí

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GUSTAVO A. GELPI

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United States District Judge

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