Gomez - Cruz v. Fernandez - Pabellon et al

Filing 200

ORDER REGARDING AUTOMATIC STAY AND GRANTING MOTION FOR REIMBURSEMENT re: 192 MOTION requesting Order filed by Carlos Gomez-Cruz; 195 MOTION Submitting Third Amended Notice of Procedures re: 194 Notice (Other), filed by Laura Santa-Sanchez, Marta Elsa Fernandez-Pabellon, Tamara Luciano-Fernandez, Carmen Annette Beltran, Idalia Colon-Rondon, Wilda Ramos-Roman, Elsa R filed by Laura Santa-Sanchez, Marta Elsa Fernandez-Pabellon, Tamara Luciano-Fernandez, Carmen Annette Beltran, Idalia Colon-Rondon, Wilda Ramos-Roman, Elsa Rodriguez-Valentin, Vanessa Pintado-Rodriguez, 197 Response in Opposition to Motion, filed by Carlos Gomez-Cruz, 198 MOTION requesting Order reiterating relief requested in the motions at Dockets 191, 192 and 193 filed by Carlos Gomez-Cruz.Signed by Judge John Woodcock, Jr on 10/04/2018.(cs)

UNITED STATES DISTRICT COURT
DISTRICT OF PUERTO RICO
CARLOS GÓMEZ-CRUZ, et al.,
Plaintiffs,
v.
MARTA E. FERNÁNDEZ-PABELLÓN
et al.
Defendants.

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3:13-cv-01711-JAW

ORDER REGARDING AUTOMATIC STAY AND GRANTING MOTION FOR
REIMBURSEMENT
A party to a settlement agreement seeks an order directing the Commonwealth
of Puerto Rico to reimburse him for an overpayment in relation to the agreement.
The Court concludes that the PROMESA Title III stay does not apply to the
Government’s refund of an overpayment stemming from the disbursement of a
settlement agreement reached before the commencement of the Commonwealth’s
Title III case. The Court concludes that the stay does not bar the Plaintiff’s request
for reimbursement and the Court orders the Commonwealth to reimburse Mr.
Gómez-Cruz $901.32.
I.

BACKGROUND
A.

Procedural Background

On September 19, 2013, Carlos Gómez-Cruz filed a complaint against Marta
E. Fernández-Pabellón, et al, in the District of Puerto Rico, alleging political
discrimination and retaliation in violation of the First, Fifth, and Fourteenth
Amendments to the United States Constitution and in violation of the Constitution

and the laws of the Commonwealth of Puerto Rico, and seeking compensatory and
punitive damages as well as equitable relief. Compl. at 26-29 (ECF No. 1). All the
Defendants were sued in both their official and individual capacities.

Id.

On

December 28, 2016, the Court entered judgment incorporating and approving a
settlement agreement submitted by the parties. J. (ECF No. 180).
On February 24, 2017, the Defendants filed a motion for consignment of funds
and on the same day, the Plaintiffs filed a motion for disbursement of funds
requesting that the Defendants disburse the funds differently.

Defs.’ Mot. for

Consignment of Funds (ECF No. 182); Pl’s. Mot. for Disbursement of Funds (ECF No.
184). On March 14, 2017, the Plaintiff filed a motion reiterating its motion for
disbursement of funds. Mot. Reiterating Req. for Disbursement of Funds (ECF No.
186) (Reiterating Mot.). On March 16, 2017, the Court granted both motions. Order
(ECF No. 187).
On March 9, 2018, the Plaintiffs filed a motion requesting an order to
reimburse Mr. Gómez-Cruz for the amount overpaid to the Center for the Collection
of Municipal Revenues (CRIM). Mot. Requesting Order (ECF No. 192) (Pl’s. Mot.).
On March 15, 2018, the Department of Justice of the Commonwealth of Puerto Rico,
on behalf of the Defendants, filed a notice of the automatic stay in the Commonwealth
of Puerto Rico’s Title III case. Notice of Automatic Stay and Procedures for Filing
Mots. for Relief from Automatic Stay in the Commonwealth of Puerto Rico’s Title III
Case (ECF No. 194) (Notice of Stay). That same day, Mr. Gómez-Cruz filed a response
in opposition to the notice of stay. Resp. in Opp’n to Notice of Stay (ECF No. 197)

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(Pl’s. Resp.). On August 29, 2018, Mr. Gómez-Cruz filed a motion reiterating the
relief he requested in his previous motion. Mot. Requesting Order Reiterating Relief
Requested in the Mots. At Dockets 191, 192, and 193 (ECF No. 198).
B.

Factual Background 1

As part of the settlement agreement reached by the parties on December 28,
2016, the Plaintiffs were required to submit debt certifications from several Puerto
Rico government agencies, including from the CRIM. Pl’s. Mot. at 1. Once the
certifications were submitted, any outstanding debts owed these agencies would be
deducted from the amount payable to the Plaintiffs at settlement. Id. In the case of
Mr. Gómez-Cruz, a check was issued to the CRIM in the amount of $1086.79, which
was received by the CRIM on March 10, 2017. Id. The money was to be credited to
Mr. Gómez-Cruz’s account at the CRIM as of March 27, 2017. Id. at 2.
However, email communications between the CRIM and Mr. Gómez-Cruz’s
counsel revealed that Mr. Gómez-Cruz owed $185.47, not $1086.89, as the
Defendants originally calculated and deducted from his settlement award. Id. On
March 28, 2017, counsel for the CRIM suggested that the $901.32 difference could
either be applied to future debts, or Mr. Gómez-Cruz could provide a check in the
amount of $185.47 within thirty days, and the Treasury Department would substitute
it for the original check. Reiterating Mot. (ECF No. 192) Attach. 1 (Ex. 1) Email
String at 9 (Mar. 27, 2017 to Sept. 14, 2017) (Email String).

Ultimately,

arrangements were made for the Puerto Rico Treasury Department to issue another

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The facts are undisputed.
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check to the Plaintiff in the amount of $901.32. Pl’s. Mot. at 2. However, the Puerto
Rico Treasury Department never issued the check, and on June 19, 2017, an attorney
for the Department of Justice wrote that “it is highly probable that the payment will
not be made since this is a PROMESA pre-petition debt.” Email String at 3. The
Treasury Department never refunded Mr. Gómez-Cruz his overpayment, and on
March 15, 2018, the Defendants filed a notice of stay. Pl’s. Mot. at 3.
II.

POSITIONS OF THE PARTIES
A.

Plaintiff’s Motion

In his motion requesting reimbursement, Mr. Gómez-Cruz states that the
attorneys to both parties agreed that the Treasury Department would reimburse him
by check for the overpayment to the CRIM. Pl.’s Mot. at 1-2. According to Mr. GómezCruz, several communications were exchanged between March and September of
2017, but no check issued. Id. at 2. On September 20, 2017, Hurricane Maria hit the
Island and all communications on the issue ceased. Id. On February 14, 2018,
counsel to Mr. Gómez-Cruz emailed Attorney Diaz of the Department of Justice
inquiring into the status of payment. On February 20, 2018, Attorney Diaz replied,
stating that she would find out the status with the Department of the Family. Id. at
3. After that, according to Mr. Gómez-Cruz, no response was received. Id. Mr.
Gómez-Cruz maintains that he has “exhausted all extrajudicial avenues in order to
resolve this matter, all while taking into consideration the hiatus caused by the
impact of Hurricane Maria. But after nearly a calendar year, plaintiff Carlos GómezCruz is owed a significant sum of money.” Id. at 3.

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B.

Defendants’ Notice of Automatic Stay

The Department of Justice of the Commonwealth of Puerto Rico filed a notice
of the Title III automatic stay on behalf of the Defendants, stating that on May 3,
2017, the Commonwealth filed a petition with the United States District Court for
the District of Puerto Rico under Title III of PROMESA, commencing its Title III case.
Notice of Stay at 1. The Department of Justice states:
[T]he commencement of the Title III case operates as an automatic stay
of actions against the Commonwealth, including the . . . continuation of
a judicial . . . action . . . against the Commonwealth or against an officer
or inhabitant of the Commonwealth that was . . . commenced before the
commencement of the Title III case, or to recover a claim against the
Commonwealth or against an officer . . . that arose before the
commencement of the Title III case.
Id. at 2.
The Department of Justice included in its notice the applicable Case
Management Procedures for filing motions for relief from the Title III stay, as
governed by the Financial Oversight and Management Board for Puerto Rico (the
Oversight Board). Id. at 3. Paragraph III.Q of the Case Management Procedures
requires that a party give fifteen days’ notice to the Oversight Board before filing a
stay relief motion, during which time the party “shall meet and confer to attempt to
resolve . . . the request for relief.” Id. at 11. The Department of Justice further states
that “if a party does not comply with Paragraph III.Q of the Case Management
Procedures prior to filing a Stay Relief Motion, and cannot show exigent
circumstances, the court will deny the stay relief motion without prejudice until such
party has complied with the Case Management Procedures.” Id.

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C.

Plaintiff’s Response

Mr. Gómez-Cruz filed a response in opposition to the notice of stay, arguing
that the automatic stay under PROMESA should not apply here. Pl.’s Resp. at 5. Mr.
Gómez-Cruz contended that the Commonwealth is still refusing to issue a check for
the difference of a payment it already made, not for a new payment in resolution of a
pending claim. Id. The Plaintiff argues that he “is merely requesting that the
defendants correct an error of their own making in issuing a pre-petition payment to
plaintiff Gómez-Cruz, and re-issue a check for the correct amount.” Id. (emphasis in
original).
Mr. Gómez-Cruz also argues that the doctrine of laches and “other equitable
considerations” weigh in favor of not applying the automatic stay to the overpayment
owed to him. Id. He argues that ten months passed between the Commonwealth’s
Title III petition and the Defendants’ notice of stay during which time the Defendants
represented to him that they would resolve the matter. Id. According to Mr. GómezCruz, “it would be inequitable for the Commonwealth of Puerto Rico to avail itself of
the automatic stay under PROMESA under these circumstances,” especially because
the Commonwealth repeatedly indicated to Mr. Gómez-Cruz that it planned to reissue a check. Id at 5-6. Mr. Gómez-Cruz cites Job v. Calder, 907 F.2d 953, 956–57
(10th Cir.1990) and In re Smith, 876 F.2d 524 (6th Cir.1989) in support of his
argument that it would be inequitable to apply the automatic stay given the
unreasonable delay in the Commonwealth asserting its rights. Id. at 6.
III.

DISCUSSION

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The question before the Court is narrow: whether the Title III stay applies to
money the Commonwealth owed to reimburse an overpayment under a settlement
agreement executed before the start of the Title III case.

Mr. Gómez-Cruz argues

that the Title III stay does not apply because the payment is a reimbursement of a
past overpayment, not a new payment in settlement of a pending claim.

The

Defendants have not argued why the Title III stay applies in this case. Their notice
of stay only asks the Court to take notice that the Commonwealth filed a Title III
petition that operates as an automatic stay of actions against the Commonwealth,
and to take notice of the case management procedures governing those seeking relief
from the stay. See Notice of Stay at 1-2.
The Puerto Rico Oversight, Management, and Economic Stability Act, 48
U.S.C. §§ 2101–2241 ("PROMESA") established a Financial Oversight and
Management Board to help the Commonwealth “achieve fiscal responsibility and
access to the capital markets.” PROMESA § 101(a). To help achieve this goal,
PROMESA includes a temporary, automatic stay for liability claims against the
Commonwealth. Section 362(a) of the Bankruptcy Code is made applicable by §
301(a) of PROMESA, and provides
An automatic stay is applicable to the commencement or continuation of
a judicial, administrative, or other action or proceeding against the
debtor that was or could have been commenced before commencement
of the case under Title 11, or to recover a claim against the debtor that
arose before the commencement of the case under Title 11. Similarly,
subsection 362(a)(6) automatically stays any act to collect, assess, or
recover a claim against the debtor arising before the petition.

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Ruiz-Colon v. Rodriguez Elias, No. CV 17-02223-WGY, 2018 WL 2041964, at *2
(D.P.R. Apr. 30, 2018).
The Court “has the authority to determine whether the automatic stay is
applicable.”

Betancourt-Rivera v. Vazquez-Garced, No. 17-2040 (FAB), 2018 WL

2246671, 2018 U.S. Dist. LEXIS 84144, at *6 (D.P.R. May 16, 2018) (citing Chao v.
Hospital Staffing Services Inc., 270 F.3d 374, 384 (6th Cir. 2001)). “Although the
First Circuit Court of Appeals has not addressed this issue, bankruptcy courts within
this circuit concur that ‘[t]he court in which the litigation claim to be stayed is
pending has jurisdiction to determine not only its own jurisdiction but also the more
precise question whether the proceeding pending before it is subject to the automatic
stay.’” Id. (quoting In re Martinez, 227 B.R. 442, 444 (Bankr. D.N.H. 1998)).
Courts have grappled with the breadth of the stay under PROMESA as they
endeavor to ensure parties are “afforded judicial redress without frustrating the debtrestructuring scheme set forth in PROMESA”, interests that must be reconciled. Id.
at 370. PROMESA does not clearly define what constitutes “enforce a claim against
the debtor,” but “[t]he Court has previously held that some cases fall outside the scope
of the ‘enforce a claim’ language.” Guadalupe-Baez v. Pesquera, 269 F. Supp. 3d 1, 2
(D.P.R. 2017), appeal dismissed, No. 17-2117, 2018 WL 2328442 (1st Cir. Feb. 7,
2018).
In making this determination, courts have looked at factors such as whether
PROMESA contemplated the stay to apply to certain types of cases, whether the
plaintiff seeks monetary or injunctive relief, and whether the Commonwealth of

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Puerto Rico would be responsible for the cost of litigation and the payment of a
potential award. See id. at 370; Cano–Rodríguez v. De Jesús–Cardona, No. 16–1532
(1st Cir. Nov. 27, 2017); Guadalupe-Baez, 269 F. Supp. 3d at 2. For example, when
the First Circuit stayed the appeals in several § 1983 cases, it based its decision on
its view that a claim for monetary damages is a liability claim, recovery from which
is stayed under PROMESA. Betancourt-Rivera, 314 F. Supp. 3d at 370 (citing Cano–
Rodríguez v. De Jesús–Cardona, No. 16–1532 (1st Cir. Nov. 27, 2017); Besosa–Noceda
v. Miranda–Rodríguez, No. 16–2117 (1st Cir. Jan 23, 2018).
In contrast, in Colon-Colon v. Negron-Fernandez, the District Court for the
District of Puerto Rico held that the Title III stay does not apply to the enforcement
of an existing settlement agreement when a Commonwealth actor has been sued in
his individual capacity. 2 No. 14-1300 (GAG), 2018 WL 2208053, at *4 (D.P.R. May
14, 2018). In Colon-Colon, Judge Gelpi disagreed with Judge Young’s holding in RuizColon that PROMESA “contemplated the stay of suits against government officials
in their personal capacity, much less the enforcement of settlements against these
officials entered before Title III.” Id. at 4. Judge Gelpi reasoned that “[e]ven if the

Whether the stay applies to cases in which plaintiffs are suing defendants in their official and
personal capacity remains unsettled. In Guadalupe-Baez v. Pesquera, 269 F. Supp. 3d 1 (D.P.R. 2017),
Judge Gelpi held that the PROMESA stay does not block a plaintiff from suing a Commonwealth actor
under § 1983 in his personal capacity because the Attorney General has discretion to decide whether
to defend and indemnify the Commonwealth actor, and if the Attorney General were to decline
representation, the plaintiff’s claim would continue against the individual. Id. at 3. In Ruiz-Colon v.
Rodriguez Elias, No. 17-02223-WGY, 2018 WL 2041964 (D.P.R. Apr. 30, 2018), Judge Young disagreed,
concluding that “these are the types of suits contemplated by PROMESA that require an automatic
stay because the defense is funded by the Commonwealth of Puerto Rico and its treasury.” Id. Judge
Young reasoned that “[w]hether or not the Plaintiffs are suing the Defendants in their individual
capacities, the Commonwealth of Puerto Rico may still bear the costs of litigation . . . .” Id. 2018 WL
2041964, at *4. The Court does not need to resolve this decisional conflict.
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practical arrangement has been for the Commonwealth to pay the plaintiff directly
on the government official’s behalf, the practical arrangement does not change [that]
the party indebted to the plaintiff is the government official, not the Commonwealth
representing the government official.” Id.
This case more closely resembles Colon-Colon. In both Colon-Colon and here,
the settlement agreement was reached before the Title III case commenced. However,
unlike Colon-Colon, in which the court considered whether the Commonwealth or the
defendants in their individual capacities should bear the cost of paying the
settlement, in this case, the distinction is irrelevant. The Defendants have already
borne the cost of the settlement; the money Mr. Gómez-Cruz asks the Commonwealth
to return is his own property. As Mr. Gómez-Cruz states, he is “merely requesting
that the defendants correct an error of their own making in issuing a pre-petition
payment . . . and re-issu[ing] a check for the correct amount.” Pl.’s Mot. at 5.
Although no courts have held that it applies specifically to PROMESA, the
principle of recoupment—an exception to the automatic stay in bankruptcy cases
based on equitable principles—is illustrative.

Recoupment is defined as “the

satisfaction of an obligation by crediting against it of a reciprocal obligation arising
from the same transaction, typically the same contract.” In re Holyoke Nursing Home
Inc., 273 B.R. 305, 311 (Bankr. D. Mass. 2002) (emphasis in original), subsequently
aff'd sub nom., 372 F.3d 1 (1st Cir. 2004) (quoting In re Women’s Tech. Inst., Inc., 200
B.R. 77, 80 (Bankr. D. Mass. 1996)).

“[B]oth debts must arise out of a single

integrated transaction so that it would be inequitable for the debtor to enjoy the

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benefits of that transaction without also meeting its obligations.” Id. “Recoupment .
. . is intended to permit judgment to be rendered that does justice in view of the one
transaction as a whole.” United Structures of America, Inc. v. G.R.G. Engineering,
S.E., 9 F.3d 996, 999 (1st Cir.1993); see also 4 COLLIER ON BANKRUPTCY ¶ 553.03, at
553–17 (Lawrence P. King, ed., 15th ed. 1993) (the point of recoupment is to “arriv[e]
at a just and proper liability” on the plaintiff's claim).

It is well-settled that

recoupment is outside the scope of the automatic stay in a bankruptcy proceeding
pursuant to 11 U.S.C. § 362(a). Id. (citing United Structures, 9 F.3d at 999; Sims v.
United States Dep’t of Health and Human Servs. (In re TLC Hosp., Inc.), 224 F.3d
1008, 1011 (9th Cir. 2000); Holford v. Powers (In re Holford), 896 F.2d 176, 179 (5th
Cir. 1990); First Union Nat'l Bank of Florida v. Abbey Fin. Corp. (In re Abbey Fin.
Corp.), 193 B.R. 89, 94 (Bankr. D. Mass. 1996)).
Here, as in a recoupment, the overpayment arises from the same transaction
as the settlement agreement. Although the mechanics of recoupment differ slightly
from a reimbursement, 3 the equitable basis for the exception from the automatic stay
applies with equal force.

For the Commonwealth to enjoy the benefits of the

settlement agreement while retaining a portion of Mr. Gómez-Cruz’s own settlement
award it withheld in error would be unjust.
The Court concludes that the Defendants’ Notice of Automatic Stay and
Procedures for Filing Motions for Relief from Automatic Stay in the Commonwealth

In a recoupment, a debt is credited against a reciprocal obligation arising from the same
transaction. In re Holyoke Nursing Home Inc., 273 B.R. at 311. Here, the obligation is not reciprocal;
it is the responsibility of the Defendants.

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of Puerto Rico’s Title III Case (ECF No. 194) does not bar the Plaintiff’s Motion
Requesting Order (ECF No. 192) and the Court GRANTS the Plaintiff’s Motion
Requesting Order (ECF No. 192). The Court DISMISSES as moot Plaintiff’s Motion
Requesting Order Reiterating Relief Requested in the Motions at Dockets 191, 192,
and 193 (ECF No. 198).
The Court ORDERS the Commonwealth of Puerto Rico to reimburse Plaintiff
Carlos Gómez-Cruz in the amount of $901.32.
SO ORDERED.
/s/ John A. Woodcock, Jr.
JOHN A. WOODCOCK, JR.
UNITED STATES DISTRICT JUDGE
Dated this 4th day of October, 2018

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