Bautista Cayman Asset Company v. AMPPR ( 2021 )

United States Court of Appeals
For the First Circuit
No. 20-1445
BAUTISTA CAYMAN ASSET COMPANY,
Plaintiff, Appellee,
v.
ASOCIACION DE MIEMBROS DE LA POLICIA DE PUERTO RICO, a/k/a La
Asociación de Miembros de la Policía de Puerto Rico,
Defendant, Appellant,
UNITED STATES,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, Jr., U.S. District Judge]
Before
Kayatta, Lipez, and Barron,
Circuit Judges.
Mauricio O. Muñiz-Luciano, with whom Karena Montes-Berríos,
Ignacio J. Labarca-Morales, and Marini Pietrantoni Muñiz LLC were
on brief, for appellee.
Iván Díaz López, with whom Lex Services PSC was on brief, for
appellant.
October 29, 2021
BARRON, Circuit Judge. This appeal stems from
litigation concerning a loan agreement in the District of Puerto
Rico in which the District Court granted summary judgment to the
plaintiff on its Puerto Rico law claims and dismissed the
defendant's Puerto Rico law counterclaims for failure to state a
claim. The appeal presents issues relating both to the federal
courts' subject matter jurisdiction and to matters of Puerto Rico
law. We affirm.
I.
The following facts are undisputed on appeal. The
plaintiff-appellee, Bautista Cayman Asset Company ("Bautista"), is
incorporated in the Cayman Islands and wholly owned by Bautista
Cayman Holding Company. The defendant-appellant, Asociación de
Miembros de la Policía de Puerto Rico ("AMPPR"), is a private,
non-profit Puerto Rico corporation that provides services for
members of the Puerto Rico Police Department.
In May of 2007, AMPPR executed a loan agreement with a
third party, Doral Bank, for the principal amount of $3,000,000.
AMPPR pledged as collateral for the loan a parcel of land on which
its headquarters are located.
Nearly a decade later, in February 2015, the Puerto Rico
Office of the Commissioner of Financial Institutions named the
Federal Deposit Insurance Corporation ("FDIC") the receiver for
- 3 -
Doral Bank. About two years after that, AMPPR defaulted on its
obligations under the loan agreement.
Following the default, Bautista brought this suit on
February 6, 2017, against AMPPR in the United States District Court
for the District of Puerto Rico. Bautista alleged in its complaint
that it was the successor-in-interest to the loan agreement between
AMPPR and Doral Bank and that AMPPR breached that agreement by
"failing to pay principal and interest due under" it.
Bautista's complaint asserted two claims against AMPPR
under Puerto Rico law: collection of monies (Count I) and
foreclosure of collateral (Count II). Bautista requested that
AMPPR pay "the full amounts owed" under the loan agreement, and,
"in the absence of payment in full," it sought to foreclose upon
the property that AMPPR had used as collateral for the loan.
Bautista's complaint also named the United States as a
defendant pursuant to 28 U.S.C. § 2410.1 The complaint did so
because it alleged that the United States "has recorded junior
liens" in the amounts of $23,105.19 and $5,527.73 "affecting the
real property object of this mortgage foreclosure [action]."
1 This statute provides that "the United States may be named
a party in any civil action or suit in any district court, or in
any State court having jurisdiction of the subject matter . . . to
quiet title to [or] . . . to foreclose a mortgage or other lien
upon . . . real or personal property on which the United States
has or claims a mortgage or other lien." 28 U.S.C. § 2410(a).
- 4 -
The complaint alleged that the District Court had
subject matter jurisdiction under 28 U.S.C. § 1332(a). The
complaint alleged that this was so "because there is complete
diversity of citizenship between" Bautista, "a Cayman Islands
corporation," and AMPPR, "a non-profit corporation organized under
the laws of the Commonwealth of Puerto Rico."
On May 28, 2017, AMPPR moved to dismiss Bautista's claims
for lack of subject matter jurisdiction pursuant to Federal Rule
of Civil Procedure 12(b)(1). The accompanying memorandum of law
contended that the District Court lacked diversity jurisdiction
under § 1332(a) because AMPPR is a citizen of Puerto Rico and
Bautista's "principal place of business is in Puerto Rico," such
that both AMPPR and Bautista "have the same citizenship." AMPPR
also moved at that time for jurisdictional discovery so that it
could "further substantiate [its] motion" to dismiss for lack of
subject matter jurisdiction by probing the allegation in
Bautista's complaint that its "principal place of business is Fort
Worth, Texas" and not Puerto Rico.
The District Court denied both motions in a July 18,
2018 order. The District Court explained that Bautista, in
opposing AMPPR's motions, had submitted an uncontradicted
affidavit and other evidence that "established that there is
complete diversity between the parties."
- 5 -
Thereafter, on August 2, 2018, AMPPR filed an answer to
Bautista's complaint that also asserted three counterclaims for
which AMPPR sought various forms of equitable relief as well as
damages against Bautista. Bautista moved to dismiss AMPPR's
counterclaims on September 24, 2018, and had previously moved on
January 19, 2018, for summary judgment in its favor as to the
collection of monies and foreclosure of collateral claims set forth
in its complaint.
The District Court granted Bautista's motion to dismiss
AMPPR's counterclaims on January 9, 2020. See Bautista Cayman
Asset Co. v. Asociacion de Miembros de la Policia de P.R., Civ.
No. 17-1167CCC, 2020 WL 119688, at *3 (D.P.R. Jan. 9, 2020). The
District Court also granted Bautista's motion for summary judgment
on February 5, 2020, to the extent that Bautista sought judgment
in its favor on its collection of monies and foreclosure of
collateral claims against AMPPR. However, the District Court
explained, it was denying Bautista's motion for summary judgment
to the limited extent that the motion also sought "to extinguish
the United States' junior liens on the mortgaged property" because,
in its view, Bautista's motion was "not the correct procedural
vehicle to extinguish said liens."
The District Court entered judgment against AMPPR and in
favor of Bautista on February 5, 2020, and AMPPR timely appealed.
- 6 -
II.
We begin with two jurisdictional questions that,
following oral argument, we asked the parties to address in
supplemental briefing. Having now reviewed their submissions, we
conclude that there is no jurisdictional problem on either front.
The first question concerns our appellate jurisdiction,
which is limited to review of "final decisions of the district
courts." 28 U.S.C. § 1291; see DeCambre v. Brookline Hous. Auth.,
826 F.3d 1, 6-7 (1st Cir. 2016) ("Although neither party contests
this court's jurisdiction, 'an appellate court has an unflagging
obligation to inquire sua sponte into its own jurisdiction,'
including its appellate jurisdiction." (quoting Watchtower Bible
& Tract Soc'y of N.Y., Inc. v. Colombani, 712 F.3d 6, 10 (1st Cir.
2013)). This question arose because, at the time of AMPPR's filing
of a notice of appeal, the District Court had declined to resolve
Bautista's claim regarding the United States' junior liens on the
mortgaged property at issue. See Fed. R. Civ. P. 54(b) ("[A]ny
order or other decision, however designated, that adjudicates
fewer than all the claims or the rights and liabilities of fewer
than all of the parties does not end the action as to any of the
claims or parties and may be revised at any time before the entry
of judgment adjudicating all the claims and all the parties' rights
and liabilities."). But, after we requested supplemental
briefing, Bautista moved before the District Court to voluntarily
- 7 -
dismiss the United States due to the Internal Revenue Service's
cancellation of its junior liens on the mortgaged property.2 The
District Court granted that motion and dismissed the United States
with prejudice. See Bautista Cayman Asset Co. v. AMPPR, No. 3:17-
cv-01167 (D.P.R. Aug. 20, 2021), ECF No. 94. Thus, in accord with
Ramos-Santiago v. WHM Carib, LLC, 919 F.3d 66, 70 (1st Cir. 2019)
(quoting Clausen v. Sea-3, Inc., 21 F.3d 1181, 1185 (1st Cir.
1994)), we understand the AMPPR's prematurely-filed notice of
appeal to have "relate[d] forward" to the date of the district
court's dismissal of the United States. Accordingly, we have
appellate jurisdiction to hear this case under 28 U.S.C. § 1291.
The second question concerns the District Court's
subject matter jurisdiction at the time that it granted summary
judgment against AMPPR. Bautista had pled diversity as the
jurisdictional basis for suit, see 28 U.S.C. § 1332. As a general
matter, the presence of the United States as a party destroys
diversity jurisdiction, because the United States is not a citizen
of any State under 28 U.S.C. § 1332. See Strawbridge v. Curtiss,
7 U.S. (3 Cranch) 267, 267-68, 2 L.Ed 435 (1806); In re Olympic
Mills Corp., 477 F.3d 1, 6 (1st Cir. 2007) ("In cases involving
2 See Pl.'s Mot. for Voluntary Dismissal, No. 3:17-cv-
01167(D.P.R. Aug. 13, 2021), ECF No. 91, at 2 ("Recently, Bautista
obtained a revised title study of the Property subject to
foreclosure in this case. Through it, Bautista learned that the
U.S. Liens were released by the Internal Revenue Service, on July
11, 2018, and October 19, 2016, respectively.").
- 8 -
multiple plaintiffs or defendants, the presence of but one
nondiverse party divests the court of original jurisdiction over
the entire action."); see also Am. Nat'l Bank & Tr. Co. of Chi. v.
Sec'y of Hous. & Urb. Dev., 946 F.2d 1286, 1291 (7th Cir. 1991)
(noting that diversity jurisdiction is undermined by the presence
of the United States, because "the United States is not a citizen
of a state for diversity purposes").
But, even if we assume that the United States was still
a party in more than name at the time that the District Court
entered summary judgment against Bautista, notwithstanding that
the Internal Revenue Service had by then cancelled both of the
liens at issue in this case, but cf. Navarro Sav. Ass'n v. Lee,
446 U.S. 458, 461, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), we are
confident that the District Court still had subject matter
jurisdiction over the case at the time for the reasons well
explained in Pacific Mutual Life Insurance Co. v. American National
Bank & Trust Co. of Chicago, 642 F. Supp. 163, 166-68 (N.D. Ill.
1986). See also Koppers Co., Inc. v. Garling & Langlois, 594 F.2d
1094, 1097 n.1 (6th Cir. 1979). We thus proceed to AMPPR's
contentions on appeal.
III.
AMPPR first contends that the District Court "committed
an abuse of discretion" when it denied AMPPR's motion for
- 9 -
jurisdictional discovery because the District Court "ignor[ed]"
one of the arguments that AMPPR says it pressed in support of that
motion.3 In particular, AMPPR contends that its motion for
jurisdictional discovery asserted that Bautista was not "the true
owner of the credit object of collection" (i.e., the loan agreement
that AMPPR had initially executed with Doral Bank) and that the
District Court failed to recognize that AMPPR "had a right to
conduct discovery . . . to ascertain whether or not [Bautista] was
indeed the true owner of the credit object . . . or was merely
posing as the owner."
AMPPR based its motion for jurisdictional discovery,
however, solely on the contention that there was a "'colorable
case' or 'prima facie case' that diversity jurisdiction does not
exist." It thus asked the District Court only "to allow[]
jurisdictional discovery in order to further contest[]
[Bautista's] claim for diversity." As Bautista rightly argues,
AMPPR made no reference in that filing to the argument that it now
asserts that the District Court overlooked in denying that motion.
Nor did AMPPR assert that argument in its motion to dismiss, beyond
an unadorned, stray reference to Bautista's standing." Because we
can hardly say that it was "plainly wrong," Me. Med. Ctr. v. United
3 AMPPR develops no argument to the effect that its motion to
dismiss for lack of subject matter jurisdiction should have been
granted even if its motion for jurisdictional discovery was
properly denied.
- 10 -
States, 675 F.3d 110, 119 (1st Cir. 2012) (quoting Blair v. City
of Worcester, 522 F.3d 105, 111 (1st Cir. 2008)), and "an abuse of
the district court's broad discretion," id., for the District Court
not to have considered an argument that Bautista did not make, see
United States v. Laureano-Salgado, 933 F.3d 20, 26 n.10 (1st Cir.
2019) (noting "the baseline rule 'that theories not raised squarely
in the district court cannot be surfaced for the first time on
appeal'" (quoting McCoy v. Mass. Inst. of Tech., 950 F.2d 13, 22
(1st Cir. 1991))), we reject this aspect of AMPPR's challenge.
To the extent that AMPPR means also to contend that
Bautista lacks standing to sue because it is not the "true owner
of the credit object," see Hochendoner v. Genzyme Corp., 823 F.3d
724, 732 (1st Cir. 2016) (discussing "[t]he requirement that a
plaintiff must adduce facts demonstrating that he himself is
adversely affected" by the defendant's conduct), that attempt
likewise fails. Bautista alleged in its complaint that it was the
successor-in-interest to the loan agreement between AMPPR and
Doral Bank. Bautista also appended to its complaint versions of
FDIC-stamped and signed documents that indicated that AMPPR's
obligations under the loan agreement were to be "[p]a[id] to the
order of Bautista Cayman Asset Company." AMPPR did not challenge
below in moving for jurisdictional discovery or in its motion to
dismiss either Bautista's allegation that it was the successor-
in-interest to Doral Bank or the authenticity of the appended
- 11 -
documents. The District Court then supportably found at summary
judgment that "[t]he relevant loan agreement[] . . . [was] . . .
acquired by Bautista," after Bautista's statement of material
facts likewise went unchallenged by AMPPR, and after AMPPR in
opposing Bautista's motion for summary judgment appears to have
conceded that Bautista "acquired the mortgage loan over
defendant's property." See CMI Cap. Mkt. Inv., LLC v. González-
Toro, 520 F.3d 58, 61, 63 (1st Cir. 2008) (explaining that when a
defendant "fail[s] to challenge [the] plaintiff['s] statement of
material facts in support of a motion for summary judgment," the
"district court . . . [i]s within its discretion to deem the facts
in the statement of material facts admitted").
IV.
AMPPR's remaining contentions on appeal pertain to the
District Court's dismissal of one of its counterclaims -- namely,
the one that AMPPR referred to in its answer as, simply, "remedy
at equity." AMPPR alleged in support of that counterclaim that
Doral Bank had contributed to precipitating the economic crisis of
2008 and that the crisis, in turn, significantly diminished the
value of AMPPR's collateral property. AMPPR further alleged in
support of that same counterclaim that Bautista had purchased the
loan agreement from the FDIC (which the FDIC had acquired from
Doral Bank) "for a substantial discount" of somewhere "between 7%
to 20% of the . . . face value and/or [the] outstanding balance
- 12 -
due." AMPPR sought relief on this counterclaim in the form of an
order limiting the amount that Bautista could recover from AMPPR
under the loan agreement.
The District Court characterized AMPPR's "remedy at
equity" counterclaim as a "request[] that the Court exercise its
equitable powers to limit Bautista's recovery under the
doctrine[s] of unjust enrichment and/or rebus sic stantibus."
Bautista Cayman, 2020 WL 119688, at *2. The District Court
dismissed the counterclaim based in part on Puerto Rico Telephone
Co. v. SprintCom, Inc., 662 F.3d 74 (1st Cir. 2011).
AMPPR contends that the District Court erred in doing so
because SprintCom "wrongfully interpreted the extent of the civil-
law-equity powers under Puerto Rico law" by ruling that such powers
do not allow "a court [to] modify the terms of a contract." We
disagree that the District Court erred.
AMPPR fails to make any argument as to why we are not
bound by the law-of-the-circuit doctrine to adhere to SprintCom.
See United States v. Lewko, 269 F.3d 64, 66 (1st Cir. 2001)
("According to the 'law of the circuit' doctrine, a prior panel
decision [generally] shall not be disturbed . . . ."). Moreover,
SprintCom expressly recognized that "the Puerto Rico Supreme Court
[has] exercised [equitable] power to revise an agreement," 662
F.3d at 98 (citing Util. Consulting Servs., Inc. v. Municipality
of San Juan, 15 P.R. Offic. Trans. 120 (1984)), and the District
- 13 -
Court relied on SprintCom only for the specific proposition that
"the doctrine of unjust enrichment does not apply where . . . there
is a contract that governs the dispute at issue," Bautista Cayman,
2020 WL 119688, at *2 (omission in original) (quoting SprintCom,
662 F.3d at 97). AMPPR does not develop any argument as to why
that proposition specifically covering unjust enrichment is
incorrect.
AMPPR does also contend that the District Court erred in
denying AMPPR the relief it sought on this counterclaim pursuant
to the doctrine of rebus sic stantibus. The rebus sic stantibus
doctrine, as the District Court explained, permits the judicial
modification of a contract under Puerto Rico law "as an exceptional
remedy to extraordinary circumstances," which "is conditioned on
the presence of [several] elements." Bautista Cayman, 2020 WL
119688, at *2; see Banco Popular v. Sucesión Talavera, 174 P.R.
Dec. 686, 707 n.14 (2008) (certified translation at 15 n.14).4 The
Supreme Court of Puerto Rico has described those elements as:
1. The basic one of [un]foreseeability [of an
event] which implies a question of fact
depending on the conditions which concur in
each case.
2. An extraordinary difficulty must be
produced, a worsening of the conditions of
performance, in such a manner that
[performance] becomes much more onerous to the
debtor . . . .
The citations to Sucesión Talavera are to the certified
4
translation filed by AMPPR at Docket No. 16, Addendum Exhibit 6.
- 14 -
3. That risk has not been the determining
motive of the contract, as would happen in the
case of an aleatory contract.
4. That there is no fraud by either of the
parties . . . .
5. That it is a successive contract or it is
referred to a moment in the future, in such a
way that it has some duration, because the
problem does not exist in contracts of
instantaneous performance or those that have
already been performed.
6. That the alteration of the circumstances is
subsequent to the execution of the contract
(because that is what the nature of the
unforeseen event demands) and [that] it has a
certain permanence (an element that is also
demanded by the extraordinary character
required of the alteration).
7. That there is a petition from an interested
party.
Sucesión Talavera, 174 P.R. Dec. at 707 n.14 (certified translation
at 15 n.14) (quoting Casera Foods, Inc. v. E.L.A., 8 P.R. Offic.
Trans. 914, 920-21 (1979)).
AMPPR contends that the District Court in finding no
"extraordinary circumstances" failed to account for the following
facts: 1) Bautista is "not the original creditor" to the loan
agreement but "rather [is] a third party who bought the loan
[agreement] for pennies on the dollar"; 2) "the value of AMPPR's
collateral was . . . battered by the effects of two category 5
hurricanes, Irma and María,"; and 3) "a third force majeure event,
the economic crisis brought on by the COVID-19 pandemic . . . has
further depressed the value of AMPPR's collateral, making it
- 15 -
impossible for [AMPPR] to refinance its loan so as to pay"
Bautista.
But, we agree with Bautista that AMPPR did not set forth
below these allegations regarding the impact of hurricanes Irma
and María and the COVID-19 pandemic on the value of its collateral
property. Because AMPPR does not attempt to explain why we may
nevertheless consider these allegations in the first instance on
appeal, we decline to do so.5 See Laureano-Salgado, 933 F.3d at
26 n.10.
AMPPR did allege below that Bautista bought the loan
agreement "for a substantial discount." But, AMPPR fails to
explain how that circumstance standing alone supports the
application of the rebus sic stantibus doctrine. See Sucesión
Talavera, 174 P.R. Dec. at 707 n.14 (certified translation at 15
n.14) (explaining that all seven elements are generally "needed
for a revision of [a] contract by . . . courts applying the rebus
sic stantibus" doctrine); United States v. Zannino, 895 F.2d 1, 17
(1st Cir. 1990).
Finally, AMPPR appears to contend, in a portion of its
briefing that is not easy to decipher, that the District Court's
decision to dismiss its "remedy at equity" counterclaim conflicts
5 Even if we were inclined to excuse the absence of allegations
as to the COVID-19 pandemic, which largely arose after the District
Court entered judgment, AMPPR does not explain how the pandemic,
standing alone, justifies the relief it seeks.
- 16 -
with the Supreme Court of Puerto Rico's decision in Sucesión
Talavera insofar as the District Court decided that it would
dismiss AMPPR's counterclaim after concluding that AMPPR was not
entitled to relief under either the unjust enrichment or rebus sic
stantibus doctrines. Here, AMPPR appears to be arguing either (1)
that there may be an equitable doctrine other than the ones
analyzed by the District Court under which the circumstances that
it alleged in support of its counterclaim would be sufficient to
warrant affording it the relief that it requests, or (2) that there
is a basis under the rebus sic stantibus doctrine itself for
relaxing the elements that traditionally must obtain under it
before a court may undertake to modify the terms of a contract.
Neither argument is convincing.
Insofar as AMPPR's argument regarding Sucesión Talavera
is premised on the allegations that it did not raise below in
support of its counterclaim, it cannot succeed for the same reasons
set forth above. To the extent that its argument is premised on
the allegations that it did raise, AMPPR fails to explain how those
circumstances, standing alone, warrant affording it relief under
some other, unnamed doctrine of equity or under a relaxed rebus
sic stantibus doctrine. See Zannino, 895 F.2d at 17. Nor does
Sucesión Talavera itself indicate otherwise, given that the
circumstances of the present case are "materially different." In
- 17 -
re Chase Monarch Int'l Inc., 433 F. Supp. 3d 255, 261 (D.P.R.
2019).6
V.
We affirm the District Court's denial of AMPPR's motion
for jurisdictional discovery and affirm the District Court's grant
of Bautista's motion to dismiss AMPPR's counterclaims.
6 Seeing no merit to AMPPR's arguments regarding the District
Court's dismissal of its counterclaim, we likewise reject AMPPR's
request that we certify this issue to the Supreme Court of Puerto
Rico. See Fernandez v. Chardon, 681 F.2d 42, 54-55 (1st Cir. 1982)
(discussing certification standards).
- 18 -