Corporacion de Servicios v. Commonwealth of Puerto Rico ( 2020 )

United States Court of Appeals
For the First Circuit
No. 18-2228
IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO
RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THE
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATION
AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR
PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC
POWER AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO
SALES TAX FINANCING CORPORATION, A/K/A COFINA; THE FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE EMPLOYEES RETIREMENT SYSTEM OF THE
GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO,
Debtors.
ATLANTIC MEDICAL CENTER, INC.; CAMUY HEALTH SERVICES, INC.;
HOSPITAL GENERAL CASTAÑER, INC.; CIALES PRIMARY HEALTH CARE
SERVICES, INC.; COSTA SALUD, INC.; CORPORACIÓN DE SERV. MÉDICOS
PRIMARIOS Y PREVENCIÓN DE HATILLO, INC.; CENTRO DE SALUD DE
LARES, INC.; CENTRO DE SALUD FAMILIAR DR. JULIO PALMIERI FERRI,
INC.; CENTRO DE SERVICIOS PRIMARIOS DE SALUD DE PATILLAS, INC.;
RIO GRANDE COMMUNITY HEALTH CENTER, INC.,
Plaintiffs, Appellants,
CORPORACIÓN DE SERVICIOS INTEGRALES DE SALUD DEL AREA DE
BARRANQUITAS, COMERÍO, COROZAL, NARANJITO Y OROCOVIS,
Plaintiff,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO,
Defendant, Appellee.
No. 19-1202
IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO
RICO, AS REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO; THE
FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE PUERTO RICO HIGHWAYS AND TRANSPORTATION
AUTHORITY; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR
PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO ELECTRIC
POWER AUTHORITY (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT
BOARD FOR PUERTO RICO, AS REPRESENTATIVE FOR THE PUERTO RICO
SALES TAX FINANCING CORPORATION, A/K/A COFINA; THE FINANCIAL
OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE EMPLOYEES RETIREMENT SYSTEM OF THE
GOVERNMENT OF THE COMMONWEALTH OF PUERTO RICO,
Debtors.
ATLANTIC MEDICAL CENTER, INC.; CAMUY HEALTH SERVICES, INC.;
HOSPITAL GENERAL CASTAÑER, INC.; CIALES PRIMARY HEALTH CARE
SERVICES, INC.; COSTA SALUD, INC.; CORPORACIÓN DE SERV. MÉDICOS
PRIMARIOS Y PREVENCIÓN DE HATILLO, INC.; CENTRO DE SALUD DE
LARES, INC.; CENTRO DE SALUD FAMILIAR DR. JULIO PALMIERI FERRI,
INC.; CENTRO DE SERVICIOS PRIMARIOS DE SALUD DE PATILLAS, INC.;
RIO GRANDE COMMUNITY HEALTH CENTER, INC.,
Plaintiffs,
CORPORACIÓN DE SERVICIOS INTEGRALES DE SALUD DEL AREA DE
BARRANQUITAS, COMERÍO, COROZAL, NARANJITO Y OROCOVIS,
Plaintiff, Appellant,
v.
THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, AS
REPRESENTATIVE FOR THE COMMONWEALTH OF PUERTO RICO,
Defendant, Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Laura Taylor Swain,* U.S. District Judge]
Before
Torruella, Lipez, and Thompson,
Circuit Judges.
Nicole M. Bacon, with whom James L. Feldesman, Khatereh S.
Ghiladi, and Feldesman Tucker Leifer Fidell LLP were on brief, for
appellants Atlantic Medical Center, Inc.; Camuy Health Services,
Inc.; Hospital General Castañer, Inc.; Ciales Primary Health Care
Services, Inc.; Costa Salud, Inc.; Corporación de Serv. Médicos
Primarios y Prevención de Hatillo, Inc.; Centro de Salud de Lares,
Inc.; Centro de Salud Familiar Dr. Julio Palmieri Ferri, Inc.;
Centro de Servicios Primarios de Salud de Patillas, Inc.; Rio
Grande Community Health Center, Inc.
John E. Mudd, with whom Law Offices of John E. Mudd was on
brief, for appellant Corporación de Servicios Integrales de Salud
del Area de Barranquitas, Comerío, Corozal, Naranjito y Orocovis.
Julia D. Alonzo, with whom Timothy W. Mungovan, John E.
Roberts, Martin J. Bienenstock, Stephen L. Ratner, Mark D. Harris,
Jeffrey W. Levitan, and Proskauer Rose LLP were on brief, for
appellee The Financial Oversight and Management Board for Puerto
Rico, as Representative for the Commonwealth of Puerto Rico.
March 23, 2020
* Of the Southern District of New York, sitting by designation.
Per curiam. Appellants in these consolidated cases are
two groups of federally funded community health centers that have
been engaged in litigation for nearly two decades in an effort to
collect payments from the Commonwealth of Puerto Rico pursuant to
federal Medicaid law. Amidst that ongoing litigation, Congress
enacted PROMESA to address the Commonwealth's financial crisis,
creating a Financial Oversight and Management Board with the
authority to commence a debt restructuring case on behalf of the
Commonwealth under Title III of the statute. See 48 U.S.C.
§§ 2121, 2161-2177. On May 3, 2017, the Board commenced a Title
III case.
Appellants saw PROMESA and the Title III case as an
obstacle to their longstanding efforts to collect payments from
the Commonwealth. As a result, in late 2017, both groups of health
centers filed adversary complaints in the Title III case seeking
a declaration that their claims against the Commonwealth are "non-
dischargeable under PROMESA" (the "dischargeability claim") and
that "those claims may not otherwise be impaired in any manner"
(the "impairment claims").1 The district court later consolidated
their substantially similar complaints.
1 The claims at issue in this case are for retroactive
Medicaid-related payments. The health centers separately have
been engaged in litigation seeking what they refer to as
"prospective wraparound payments," but those prospective payments
are not implicated here. See Municipality of San Juan v. Puerto
Rico, 919 F.3d 565, 571 (1st Cir. 2019).
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The Board promptly moved to dismiss the complaints. A
magistrate judge heard the motion and recommended that the
complaints be dismissed without prejudice as unripe. See Fed. R.
Civ. P. 12(b)(1). As an initial matter, the magistrate judge found
that "the extent of the Commonwealth's obligation, if any, for the
reimbursements demanded . . . has not been finally determined,"
given that the litigation of the reimbursements remained ongoing
outside of the Title III case. The magistrate judge also concluded
that the claims were unripe because no proposed plan of adjustment
had been filed at the time and, without a proposed plan of
adjustment, there was no way to know whether the Commonwealth would
seek to impair or discharge any of appellants' claims.
Appellants filed various objections to the magistrate
judge's report and recommendation. As relevant here, they argued
that the report erroneously concluded that all of their claims for
payment were still being litigated when, in fact, certain judgments
against the Commonwealth were "final and firm" and other payments
were currently due under the federal Medicaid statute.
The district court overruled appellants' objections.
Regarding the dischargeability claim, the court explained:
Even if certain prepetition judgments held by
[appellants] are final, the dischargeability
question is still unfit for review because it
is entirely dependent on a future event that
may never occur. Absent the filing of a
proposed plan of adjustment, it is unknown
whether the Commonwealth will attempt to seek
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discharge of any of [appellants'] claims, and
it would be premature for this Court to issue
a ruling at this point in the Title III
proceedings regarding the dischargeability of
those claims.
As for the impairment claim, the court reasoned that even if
appellants were entitled to immediate payments under the Medicaid
statute,
their Complaints [did] not allege facts that,
even when read in the light most favorable to
Plaintiffs, support plausibly a conclusion
that PROMESA has caused any impairment of or
failure to pay the claims.
In other words, appellants' requests for declaratory relief were
not ripe for review because there was no evidence that the
Commonwealth would seek to discharge or impair their claims through
the Title III proceeding. Thus, the dispositive ground for the
district court's dismissal of appellants' complaints was the
absence of a proposed plan of adjustment.
After the health centers appealed the district court's
decision and the appeal was fully briefed, circumstances
materially changed. On September 27, 2019, the Commonwealth filed
a proposed plan of adjustment. See Title III Joint Plan of
Adjustment of the Commonwealth of Puerto Rico, Et Al., In re Fin.
Oversight & Mgmt. Bd. for Puerto Rico, No. 17-BK-3283-LTS (D.P.R.
Sep. 27, 2019), ECF No. 8765. Then, shortly before oral argument,
the Commonwealth filed an amended proposed plan of adjustment.
See Amended Title III Joint Plan of Adjustment of the Commonwealth
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of Puerto Rico, Et Al., In re Fin. Oversight & Mgmt. Bd. for Puerto
Rico, No. 17-BK-3283-LTS (D.P.R. Feb. 28, 2020), ECF No.
11946. Appellants report that the amended plan of adjustment and
its accompanying disclosure statement propose treating their
claims as those of general unsecured creditors, for which the Board
estimates a rate of return of approximately 3.9%.
We asked the parties to file supplemental briefs
addressing the impact of the proposed plan of adjustment on this
appeal. All of the parties seemed to agree that the premise for
the district court's decision was the absence of a proposed plan
of adjustment, but they disagreed about how the filing of the
proposed plan affects that premise. One group of health centers
asserted that the case is now ripe in light of the filing of the
proposed plan. The other group of health centers renewed their
insistence that their claims for declaratory relief were ripe when
they were first filed, even in the absence of a proposed plan of
adjustment. The Board argued that appellants' claims are still
unripe because the proposed plan of adjustment is subject to change
-- in other words, the district court was wrong, and appellants'
claims will only be ripe when there is a confirmed (as opposed to
proposed) plan of adjustment.
Given these conflicting arguments and the fundamental
change in the facts of the case since the appeal was first filed
and briefed, the appropriate course of action is to remand to the
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district court for reconsideration of its ripeness ruling in light
of the changed circumstances and any other matters it deems
relevant. In reaching this decision, we express no opinion on
whether the district court erred by dismissing the claims as unripe
when it did, nor do we decide whether the claims are ripe now. We
also decline to entertain the Board's argument that even if the
impairment claim is now ripe, it must be dismissed on the merits
in light of our decision in Municipality of San Juan v. Puerto
Rico, 919 F.3d 565 (1st Cir. 2019). That argument was never made
before the district court, nor could it have been, given that we
had not yet decided San Juan at the time of the district court's
ruling.
Accordingly, we remand to the district court for
reconsideration. No costs are awarded.
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