UNITED STATES DISTRICT COURT

DISTRICT OF PUERTO RICO 

-------------------------------------------------------------x

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of 

THE COMMONWEALTH OF PUERTO RICO, et al.,

Debtors.1

-------------------------------------------------------------x

PROMESA

Title III

No. 17 BK 3283-LTS

Re: ECF No. 3476, 3478

(Jointly Administered)

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO,

as representative of 

THE COMMONWEALTH OF PUERTO RICO

Debtor.

-------------------------------------------------------------x

PROMESA

Title III

No. 17 BK 3283-LTS

This Objection relates only to 

the Commonwealth and shall 

only be filed in the lead Case No. 

17 BK 3283-LTS.

OBJECTION OF THE COMMONWEALTH TO MOTION FOR RELIEF FROM STAY

IN ARES ET AL V. SECRETARY OF LABOR AFTER COMPLETION OF

CONFERRAL PROCESS FILED BY GILBERTO ARES CANDELARIA, ET AL. 

 

1 The Debtors in these Title III Cases, along with each Debtor’s respective Title III case number and the last four 

(4) digits of each Debtor’s federal tax identification number, as applicable, are the (i) Commonwealth of Puerto 

Rico (Bankruptcy Case No. 17 BK 3283-LTS) (Last Four Digits of Federal Tax ID: 3481); (ii) Puerto Rico Sales 

Tax Financing Corporation (“COFINA”) (Bankruptcy Case No. 17 BK 3284-LTS) (Last Four Digits of Federal 

Tax ID: 8474); (iii) Puerto Rico Highways and Transportation Authority (“HTA”) (Bankruptcy Case No. 17 BK 

3567-LTS) (Last Four Digits of Federal Tax ID: 3808); (iv) Employees Retirement System of the Government of 

the Commonwealth of Puerto Rico (“ERS”) (Bankruptcy Case No. 17 BK 3566-LTS) (Last Four Digits of Federal 

Tax ID: 9686); and (v) Puerto Rico Electric Power Authority (“PREPA”) (Bankruptcy Case No. 17 BK 4780-LTS) 

(Last Four Digits of Federal Tax ID: 3747). (Title III case numbers are listed as Bankruptcy Case numbers due to 

software limitations).

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TABLE OF CONTENTS

Page

i

PRELIMINARY STATEMENT ................................................................................................... 1

OBJECTION.................................................................................................................................. 4

I. MOVANTS HAVE FAILED TO ESTABLISH THAT CAUSE EXISTS 

TO LIFT THE STAY............................................................................................. 4

CONCLUSION............................................................................................................................ 15

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TABLE OF AUTHORITIES

Page(s)

ii

CASES

Brigade Leveraged Capital Structures Fund Ltd. v. Garcia-Padilla, 

217 F. Supp. 3d 508, 518, 529 (D.P.R. 2016).............................................................6,7, 11

C & A, S.E. v. P.R. Solid Waste Mgmt. Auth., 

369 B.R. 87, 94-5 (D.P.R. 2007) .........................................................................................6

City Ins. Co. v. Mego Int’l, Inc. (In re Mego Int’l, Inc.), 

28 B.R. 324, 326 (Bankr. S.D.N.Y. 1983).........................................................................12

FCC v. NextWave Pers. Commc’ns Inc., 

537 U.S. 293, 302 (2003).....................................................................................................8

Goya Foods v. Ulpiano Unanue-Casal, et al, 

159 B.R. 90, at 95-96 (D.P.R. 1993).................................................................................4,6

Grayson v. WorldCom, Inc. (In re WorldCom, Inc.), 

2006 U.S. Dist. LEXIS 55284, at *33 (S.D.N.Y. Aug 4, 2006)........................................12

In re 234-6 West 22nd St. Corp., 

214 B.R. 751, 757 (Bankr. S.D.N.Y. 1997).........................................................................5

In re BFW Liquidation, LLC, No. 09-00634-BGC-11, 

2009 WL 8003536, at *3 (Bankr. N.D. Ala. Sept. 14, 2009) ..............................................9

In re Breitburn Energy Partners LP, No. 16-10992, 

2017 WL 1379363, at *4 (Bankr. S.D.N.Y. Apr. 14, 2017)................................................7

In re City of Stockton, 

484 B.R. 372, 374, 378 (Bankr. E.D. Cal. 2012)...............................................................10

In re Cummings, 

221 B.R. 814, 818 (Bankr. N.D. Ala. 1998) ........................................................................7

In re Gatke Corp.,

117 B.R. 406, 410 (Bankr. N.D. Ind. 1989).......................................................................11

In re Jefferson Cty., 

491 B.R. 277, 285 (Bankr. N.D. Ala. 2013) ........................................................................5

In re Motors Liquidation Co., No. 09- 50026, 

2010 WL 4630327, at *4 (S.D.N.Y. 2010).................................................................. 12-13

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TABLE OF AUTHORITIES

(continued)

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iii

In re Murrin, 

477 B.R. 99, 109 (D. Minn. 2012).......................................................................................7

In re Northwest Airlines Corp., No. 05-17930 (ALG), 2

006 WL 694727, at *2 (Bankr. S.D.N.Y. Mar. 13, 2006) .................................................11

In re Plumberex Specialty Prod., Inc., 

311 B.R. 551, 563-64 (Bankr. C.D. Cal. 2004) .................................................................12

In re Residential Capital, LLC, No. 12-12020, 

2012 WL 3860586, at *6 (Bankr. S.D.N.Y. Aug. 8, 2012) ................................... 10-12, 13

In re Taub, 

413 B.R. 55, 62 (Bankr. E.D.N.Y. 2009).............................................................................7

In re Unanue-Casal, 

159 B.R. 90, 95–96 (D.P.R. 1993), aff’d 23 F.3d 395 (1st Cir. 1994) ................................5 

Mass. Dep’t of Revenue v. Crocker (In re Crocker), 

362 B.R. 49, 56 (B.A.P. 1st Cir. 2007)................................................................................5

Midlantic Nat’l Bank v. New Jersey Dep’t of Envtl. Protection, 

474 U.S. 494, 503 (1986).....................................................................................................4

Montalvo v. Autoridad de Acueductos y Alcantarillados (In re Montalvo), 

537 B.R. 128, 140 (Bankr. D.P.R. 2015).............................................................................5

Peaje Invs. LLC v. Garcia-Padilla, 

2016 U.S. Dist. LEXIS 153711, at *13 (D.P.R. Nov. 2, 2016.............................................6

Publicker Indus. Inc. v. United States (In re Cuyahoga Equip. Corp.), 

980 F.2d 110, 117 (2d Cir. 1992).........................................................................................9

Soares v. Brockton Credit Union (In re Soares)

107 F. 3d 969, 975 (1st Cir. 1997).......................................................................................4

Sonnax Indus. v. TriComponent Prods. Corp. (In re Sonnax Indus.), 

907 F.2d 1280, 1286, 1287 (2d Cir. 1990)............................................................3-8, 10-14

Unisys Corp. v. Dataware Prods., Inc., 

848 F.2d 311, 313 (1st Cir. 1988)........................................................................................5

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STATUTES

11 U.S.C. § 362(a) ...................................................................................................................1, 2, 4

11 U.S.C. § 362(d) and (d)(1)....................................................................................................2,3,5

11 U.S.C. § 922 and 922(a)................................................................................................... 2, 4, 10

11 U.S.C. § 105(a) .......................................................................................................................... 4

11 U.S.C. §101.................................................................................................................................8

11 U.S.C. § 365............................................................................................................................... 4

48 U.S.C. § 2101..............................................................................................................................8

PROMESA § 301(a) ................................................................................................................ 1-4, 5

PROMESA § 315(b)........................................................................................................................1

Law 211of 2015, of December 8, 2015, (Act No. 211-2015 (H.B. 2717))

known as the Voluntary Pre-Retirement Program Act ................................................ 1-3, 9

OTHER AUTHORITIES

H.R. Rep. No. 95-595 at 309, 340 (1977).....................................................................................5,8

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To the Honorable United States District Court Judge Laura Taylor Swain:

The Commonwealth of Puerto Rico (the “Commonwealth”) respectfully submits this 

objection (the “Objection”) to the Motion For Relief From Stay In Ares Et Al v. Secretary Of Labor 

After Completion Of Conferral Process [ECF No. 3476] (the “Motion”) filed by seventeen (17) 

employees (collectively, “Movants”) of the Department of Labor of the Commonwealth of Puerto 

Rico (the “Department of Labor”), all petitioners in the case captioned Ares v. Secretary of Labor,

Case No. SJ2017CV02199 (the “Lawsuit”), pending before the Puerto Rico Court of First Instance

(the “State Court”). The Commonwealth respectfully requests that the Court deny the Motion for 

the reasons set forth below.2

PRELIMINARY STATEMENT

1. On October 31, 2017, Movants commenced the Lawsuit against the

Commonwealth and the Secretary of the Department of Labor (the “Secretary of Labor”)3alleging

they were denied participation in a “voluntary pre-retirement” program pursuant Act 211-2015 of 

December 8, 2015, known as the “Voluntary Pre-Retirement Program Act” (the “Pre-Retirement 

Program”). Movants requested that the State Court order the Secretary of Labor to allow their 

retirement from government service in “compliance with Act 211.” In the Lawsuit, Movants 

alleged that they qualified to participate in the Pre-Retirement Program and had the right to retire

and receive benefits under such program. 

2. However, the Department of Labor denied Movants’ participation in the PreRetirement Program for economic reasons. Movants allege that the Department of Labor cannot 

 

2 The Financial Oversight and Management Board for Puerto Rico, as the Commonwealth’s representative pursuant 

to section 315(b) of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), has 

authorized the Department of Justice to file this Objection on behalf of the Commonwealth. 

3 The Department of Labor is an agency of the Commonwealth protected under Bankruptcy Code section 362(a), 

made applicable to this Title III case by PROMESA section 301(a).

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deny them participation in the Pre-Retirement Program and, thus, request the State Court to order 

the Secretary of Labor to “perform his ministerial duties” and allow them to leave government 

service through the Pre-Retirement Program.

3. The summons was served on the Department of Labor on November 3, 2017. On 

April 20, 2018, the Commonwealth filed in the Lawsuit a Notice of Automatic Stay and of 

Procedures for Filing Motions for Relief from the Automatic Stay in the Commonwealth of Puerto 

Rico’s Title III Case requesting that the State Court take notice of, among other things, the 

automatic stay applicable to the Lawsuit. The same day, the State Court issued an order granting 

the Commonwealth’s petition for a stay due to the commencement of the Title III case. 

4. On July 10, 2018, Movants filed the Motion seeking to lift the Title III Stay to 

proceed with the Lawsuit against the Commonwealth and the Secretary of Labor. Movants argue 

that the stay under Bankruptcy Code sections 362(a) and 922(a), made applicable to the 

Commonwealth’s Title III case by PROMESA section 301(a) (the “Title III Stay”) must be lifted 

because the Lawsuit “is not a damage action” (Motion at 8) and as a result, the Commonwealth

will suffer no harm from lifting the Title III Stay.

5. This Court should deny the Motion because Movants have failed to establish that

“cause” exists to lift or modify the Title III Stay under section 362(d) of title 11 of the United 

States Code (the “Bankruptcy Code”). In the Lawsuit, Movants seek an order directing the 

Secretary of Labor to implement Law 211 (a law that has been repealed) and to allow Movants to 

retire from government service through the Pre-Retirement Program. The Department of Labor

did not allow Movants to participate in the program because it could not afford to pre-retire all the 

employees that applied to participate in the Pre-Retirement Program. Contrary to Movants’ 

assertion that the implementation of the requested remedies will not imply a greater expenditure 

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of public funds, Motion at 10, the implementation of the Pre-Retirement Program with respect to 

Movants would entail substantial costs for the Department of Labor.

4 As a result, the relief

Movants request in the Lawsuit involves the enforcement of a right to payment that the 

Commonwealth cannot afford.

6. Movants have failed to demonstrate “cause” as to why the Title III Stay should be 

lifted. Bankruptcy Code section 362(d)(1), made applicable by PROMESA section 301(a), 

provides that a court may grant relief from the automatic stay “for cause.” See 11 U.S.C. § 

362(d)(1). To determine whether “cause” exists to grant relief from the automatic stay, courts 

examine numerous different factors, including those set forth in Sonnax Indus. v. TriComponent 

Prods. Corp. (In re Sonnax Indus.), 907 F.2d 1280 (2d Cir. 1990). As a potential, prepetition, 

unsecured creditors, Movants have failed to demonstrate the extraordinary circumstances 

necessary to show why their claims should not be resolved through the claims resolution process 

to be undertaken in the Title III cases. 

7. The case is in a very preliminary stage, having been commenced after the 

Commonwealth filed its Title III petition. The Lawsuit is not ready for trial, as no answer has been 

filed, nor has the evidentiary process, pretrial hearing, the preparation and filing of the pretrial 

report, and all other ensuing hearings and filings necessary for the underlying action to proceed to 

adjudication been completed. Further, Movants rely on conclusory statements to assert that cause 

exists to lift the automatic stay, while vaguely purporting to apply various Sonnax factors to the 

 

4 The Pre-Retirement Program requires an employer to provide incentives, for a term of two years, that include 

compensation equal to sixty percent (60%) of the employees’ average compensation as of December 31, 2015, 

payout of unused vacation and sick leave, payment of employer contributions on account of Social Security and 

Medicare, and payment of health insurance coverage or continued employer’s contribution for health insurance 

under the same terms and conditions as if the retiree under the Pre-Retirement Program were an employee. 

Moreover, the Pre-Retirement Program requires the employer to continue making both individual and employer 

contributions to the Retirement System for Employees of the Government of the Commonwealth of Puerto Rico. 

See Act 211-2015.

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facts of the underlying action.

5

 

8. Considering the procedural stage of the Lawsuit, the majority of the Sonnax factors 

weigh in favor of maintaining the automatic stay and denying the Motion. 

OBJECTION

I. MOVANTS HAVE FAILED TO ESTABLISH CAUSE EXISTS TO LIFT THE 

STAY

9. Upon commencement of a Title III case, Bankruptcy Code section 362(a), made 

applicable by section 301(a) of PROMESA, provides for an automatic stay of certain actions by 

non-debtor third parties including, among other things, “the commencement or continuation, 

including the issuance or employment of process, of a judicial, administrative, or other action or 

proceeding against the debtor that was or could have been commenced before the commencement 

of the case under this title.” 11 U.S.C. § 362(a). The application of Bankruptcy Code section 

362(a) to the Commonwealth’s Title III case was specifically confirmed by this Court pursuant to 

the Order Pursuant to PROMESA Section 301(a) and Bankruptcy Code Sections 105(a), 362(a), 

365 and 922 Confirming (I) Application of the Automatic Stay to Government Officers, Agents, 

and Representatives, (II) Stay of Prepetition Lawsuits, and (III) Application of Contract 

Protections [ECF No. 543] (the “Title III Stay Order”).

10. “The automatic stay is among the most basic of debtor protections under 

bankruptcy law.” Soares v. Brockton Credit Union (In re Soares) 107 F. 3d 969, 975 (1st Cir. 

1997) (citing Midlantic Nat’l Bank v. New Jersey Dep’t of Envtl. Protection, 474 U.S. 494, 503 

(1986). The stay “is extremely broad in scope and, ‘aside from the limited exceptions of subsection 

(b), applies to almost any type of formal or informal action taken against the debtor or the property 

 

5 Movants referred to the factors considered by the court in Goya Foods v. Ulpiano Unanue-Casal, 159 B.R. 90, 95-

96 (D.P.R. 1993). The factors are the same twelve recognized in Sonnax. 

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of the estate.” Montalvo v. Autoridad de Acueductos y Alcantarillados (In re Montalvo), 537 B.R. 

128, 140 (Bankr. D.P.R. 2015). The broad scope of the automatic stay serves one of the cardinal 

purposes of bankruptcy and provides the debtor with a “breathing spell” essential to (a) the 

preservation of the debtor’s property for the collective benefit of the creditors and (b) the debtor’s 

ability to administer its case and engage in restructuring efforts without undue distraction or 

interference. See Unisys Corp. v. Dataware Prods., Inc., 848 F.2d 311, 313 (1st Cir. 1988) (“[T]he 

automatic stay gives the debtor a ‘breathing spell from his creditors’ and forestalls a ‘race of 

diligence by creditors for the debtor’s assets.’” (citation omitted)); In re Jefferson Cnty., 491 B.R. 

277, 285 (Bankr. N.D. Ala. 2013) (explaining that a key purpose of municipal bankruptcy is “the 

breathing spell provided by the automatic stay” and stating “[i]f the automatic stay is to be lifted 

routinely to allow claimants to assert their claims in state court, a municipality will not have the 

time, opportunity or ability to confirm a plan”); Mass. Dep’t of Revenue v. Crocker (In re Crocker), 

362 B.R. 49, 56 (B.A.P. 1st Cir. 2007) (quoting H.R. Rep. No. 95-595 at 340 (1977)) (“[O]ne of 

the fundamental purposes of the automatic stay is to give the debtor ‘a breathing spell from his 

creditors’ and ‘to be relieved of the financial pressures that drove him into bankruptcy.’”).

11. An order lifting the automatic stay is an “extraordinary remedy.” In re 234-6 West 

22nd St. Corp., 214 B.R. 751, 757 (Bankr. S.D.N.Y. 1997). Bankruptcy Code section 362(d)(1), 

made applicable by PROMESA section 301(a), provides that a court may grant relief from the 

automatic stay “for cause.” See 11 U.S.C. § 362(d)(1). “Cause” is not defined in the Bankruptcy 

Code. In re Unanue-Casal, 159 B.R. 90, 95–96 (D.P.R. 1993), aff’d 23 F.3d 395 (1st Cir. 1994). 

To determine whether “cause” exists to grant relief from the stay, courts examine numerous 

different factors, including those set forth in Sonnax Indus., Inc. v. TriComponent Prods. Corp. (In 

re Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990): 

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(1) whether relief would result in complete or partial resolution of the issues; 

(2) the lack of any connection with or interference with the bankruptcy case; 

(3) whether the foreign proceeding involves the debtor as fiduciary; 

(4) whether a specialized tribunal has been established to hear the cause of action at 

issue; 

(5) whether the debtor’s insurance carrier has assumed full financial responsibility for 

defending the litigation; 

(6) whether the action essentially involves third parties rather than the debtor; 

(7) whether the litigation could prejudice the interest of other creditors; 

(8) whether a judgment in the foreign action is subject to equitable subordination; 

(9) whether Movants’ success in the foreign proceeding would result in a judicial lien 

avoidable by the debtor; 

(10) the interest of judicial economy and the expeditious and economical determination

of litigation for the parties; 

(11) whether the foreign proceedings have progressed to the point where the parties are 

prepared for trial; and 

(12) the impact of the stay on the parties and the “balance of hurt.” 

In re Sonnax Indus., 907 F.2d at 1286.

12. Courts in this Circuit have adopted these “Sonnax factors.” See Brigade Leveraged 

Capital Structures Fund Ltd. v. Garcia-Padilla, 217 F. Supp. 3d 508, 518 (D.P.R. 2016) (“To help 

guide their analysis of whether to enforce or vacate the stay, some courts, including those in this 

district, have relied upon a laundry list of assorted factors.” (citing Sonnax, at 1286; C & A, S.E. 

v. P.R. Solid Waste Mgmt. Auth., 369 B.R. 87, 94-5 (D.P.R. 2007)); In re Unanue-Casal, 159 B.R. 

at 95–96; Peaje Invs. LLC v. Garcia-Padilla, 2016 U.S. Dist. LEXIS 153711, at *13 (D.P.R. Nov. 

2, 2016). 

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13. No one factor is dispositive; instead, courts “engage in an equitable, case-by-case 

balancing of the various harms at stake” and will lift the stay only if the harm engendered by 

allowing the stay to remain in place outstrips the harm caused by lifting it. Brigade, 217 F. Supp. 

3d at 529 n.12. Movants bear the burden of establishing cause, id., and when the movants are not 

a secured claimholder asserting a lack of adequate protection, that burden is a high one. See In re 

Breitburn Energy Partners LP, No. 16-10992, 2017 WL 1379363, at *4 (Bankr. S.D.N.Y. Apr. 

14, 2017). Here, the Sonnax factors point squarely toward maintaining the automatic stay and 

against awarding the remedy Movants seek.

14. Sonnax Factor 1: The first Sonnax factor, “whether relief will result in a partial 

or complete resolution of the issues,” weighs against lifting the automatic stay. The first Sonnax

factor does not focus on the issues in the stayed litigation. If it did, the first Sonnax factor would 

always favor lifting the stay because every lawsuit eventually resolves the issues in that particular 

proceeding. Instead, the first Sonnax factor primarily focuses on whether the separate litigation 

would expeditiously resolve issues relevant to the bankruptcy case. See, e.g., In re Taub, 413 B.R. 

55, 62 (Bankr. E.D.N.Y. 2009) (lifting the stay because non-bankruptcy litigation “would resolve 

significant open issues in the Debtor’s bankruptcy case, and would assist the Debtor in pursuing 

the confirmation of a [] plan”); In re Murrin, 477 B.R. 99, 109 (D. Minn. 2012); In re Cummings, 

221 B.R. 814, 818 (Bankr. N.D. Ala. 1998) (characterizing this factor as whether the nonbankruptcy proceeding would result in “the resolution of preliminary bankruptcy issues”). 

15. Here, Movants have failed to show how allowing the Lawsuit to proceed would 

resolve any issues relevant to the Commonwealth’s Title III case. Indeed, that is because lifting 

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the automatic stay would not resolve any issues relevant to the Commonwealth’s Title III case.6

Movants’ assertion that “[t]he Litigation would completely resolve the question of whether the 

Secretary of the Department of Labor violated his ministerial duties” (Motion at 10) is mistaken 

because the first Sonnax factor focuses on whether the separate litigation would expeditiously 

resolve issues relevant to the bankruptcy case, not issues in the stayed litigation.

16. Notably, Movants state in the Motion that “[t]here is in essence no relationship 

between the Title III filing and the Litigation . . . .” Motion at 10. Movants’ claims, if any, can be 

resolved through the claims resolution process to be undertaken in the Title III cases. Therefore, 

the first Sonnax factor supports denying the Motion. 

17. Sonnax Factor 2: The second Sonnax factor—the lack of any connection with or 

interference with the bankruptcy case—does not support lifting or modifying the stay. First, lifting 

or modifying the stay to allow the resolution of Movants’ claim in a separate proceeding and forum 

would interfere with the centralized claims resolution process contemplated under Title III. The 

claims adjustment process under Title III applies with respect to all debts, claims, and liens asserted 

against the Commonwealth (as such terms are defined in Bankruptcy Code section 101). See 48 

U.S.C. § 2101. The definition of “claim” in the Bankruptcy Code “contemplates that all legal 

obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the 

bankruptcy case . . . [and] permits the broadest possible relief in the bankruptcy court.” H.R. 

Rep. No. 95–595, at 309 (1977). Recognizing this principle, the Supreme Court has held that a 

“claim” has “the broadest available definition.” FCC v. NextWave Pers. Commc’ns Inc., 537 U.S. 

293, 302 (2003). 

 

6 For the avoidance of doubt, the Commonwealth and the Oversight Board reserve all rights and defenses relating 

to Movant’s claims, including, without limitation, any rights to challenge any set-offs or to assert any set-offs and

to impair and discharge Movants’ claims.

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18. Movants seek in the Lawsuit to enforce a right to payment under the Pre-Retirement 

Program, specifically, compensation equal to sixty percent (60%) of the employees’ average 

compensation as of December 31, 2015, payout of unused vacation and sick leave, payment of 

employer contributions on account of Social Security and Medicare, payment of health insurance 

coverage or continued employer’s contribution for health insurance under the same terms and 

conditions as if the retiree under the Pre-Retirement Program were an employee, and continued 

individual and employer contributions to the Retirement System for Employees of the Government 

of the Commonwealth of Puerto Rico. See Act 211-2015. As potential, prepetition, unsecured 

creditors of the Commonwealth, Movants’ claims are subject to the claim resolution process that 

will be undertaken in the Title III case.

19. Requiring the Commonwealth to defend Movants’ claims separately would 

undermine that process and upend the “strong bankruptcy code policy that favors centralized and 

efficient administration of all claims in the bankruptcy court . . . .” See Publicker Indus. Inc. v. 

United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 117 (2d Cir. 1992) (citations omitted); 

see also In re BFW Liquidation, LLC, No. 09-00634-BGC-11, 2009 WL 8003536, at *3 (Bankr. 

N.D. Ala. Sept. 14, 2009) (“[T]he effect of lifting the stay for all such claimants and requiring 

debtors to defend lawsuits in diverse forums merely to establish what share, if any, the claimants 

filing those suits will have in whatever is left of bankruptcy estates would hinder the goals of the 

automatic stay and the summary process for adjudicating and liquidating claims.”). 

20. Second, lifting or modifying the stay to proceed with the Lawsuit will interfere with 

the Title III case by diverting the Commonwealth’s attention and resources to defending Movants’ 

claims in another forum and will encourage other creditors to seek similar relief. Should every 

plaintiff with an asserted prepetition claim be given carte blanche to litigate their claims, the 

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combined result would have a substantial and negative impact on the Commonwealth’s fiscal plan 

and budget. This would impede the restructuring process, and should be avoided. See, e.g., In re 

Residential Capital, LLC, No. 12-12020, 2012 WL 3860586, at *6 (Bankr. S.D.N.Y. Aug. 8, 2012)

(denying lift-stay motion in part because “[t]he new litigation in non-bankruptcy courts would 

hinder the Debtors’ attempts to reorganize by forcing the Debtors to utilize time and resources that 

would otherwise be spent in resolution of the Debtors’ chapter 11 cases.”).

21. In this regard, In re City of Stockton is instructive. 484 B.R. 372 (Bankr. E.D. Cal. 

2012). There, the plaintiff brought a wrongful termination suit against the City Manager and 

Deputy City Manager of the City of Stockton, which was then in bankruptcy. Id. at 374. The case 

was stayed under 11 U.S.C. § 922. 484 B.R. at 374. The plaintiff then moved to lift the stay and 

argued that allowing the suit to go forward would not interfere with the Chapter 9 case. Id. at 378. 

The court disagreed, holding that the plaintiff’s suit “necessarily would consume the time and 

attention of those two officers during the period in which there is intense focus on the basic 

substantive issues in this chapter 9 case.” Id. “It is apparent to the court that their undivided time 

and attention will continue to be required at least for a number of months.” Id.

22. Here, there are processes pending that are necessary for the Lawsuit to move 

forward, such as responding to the complaint, conducting discovery, attending the pretrial hearing, 

the preparation and filing of the pretrial report, and the ensuing trial, all of which will require the 

Commonwealth to expend considerable time and expense. 

23. Thus, Sonnax factor 2 weighs in favor of denying the Motion, and Movants’ 

conclusory statement that “[t]here is in essence no relationship between the Title III filing and the 

Litigation, nor will the implementation of the remedies requested imply a greater expenditure of 

public funds” (Motion at 10) fails to satisfy Movants’ heavy burden to establish cause. See 

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Brigade, 217 F. Supp. 3d at 529 n.12 (holding that movant bears the burden of establishing cause);

In re Gatke Corp., 117 B.R. 406, 410 (Bankr. N.D. Ind. 1989) (denying motion to lift stay to allow 

state court suit to proceed against debtor, even though stay of litigation would cause hardship to 

defendant, because granting relief from stay would, among other things, encourage the filing of 

“similar requests for relief by plaintiffs of pending lawsuits”); In re Northwest Airlines Corp., No. 

05-17930 (ALG), 2006 WL 694727, at *2 (Bankr. S.D.N.Y. Mar. 13, 2006) (“To allow the 

automatic stay to be lifted with respect to this action at this time would prompt similar motions 

and require the Debtors to spend an inordinate amount of time and money on litigation and detract 

from the Debtors’ attempts to restructure . . . interfere[ing] with judicial economy and the Debtors’ 

process of reorganization.” (citations omitted)).

24. Sonnax Factor 4: The fourth Sonnax factor—whether a specialized tribunal has 

been established to hear the cause of action at issue—does not support granting the Motion. No 

specialized tribunal has been established to hear the Lawsuit. Thus, Sonnax factor 4 weighs in 

favor of denying the Motion.

25. Sonnax Factor 5: The fifth Sonnax factor—whether the debtor’s insurance carrier 

has assumed full financial responsibility for defending the litigation—does not support granting 

the Motion. No insurer of the Commonwealth has assumed full financial responsibility for 

defending the Lawsuit, and Movants do not allege any facts to the contrary. Thus, Sonnax factor 

5 weighs in favor of denying the Motion.

26. Sonnax Factor 6: The sixth Sonnax factor—whether the action essentially 

involves third parties rather than the debtor—does not support granting the Motion. This factor is 

not based on whether third parties are involved, but rather whether the Lawsuit primarily involves 

third parties rather than the debtor. See In re Residential Capital, LLC, 2012 Bankr. LEXIS 3641, 

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at *20 (Bankr. S.D.N.Y. Aug 8, 2012) (“The court should not grant relief from the stay under the 

sixth Sonnax factor if the debtor is the main party to the litigation.”); Grayson v. WorldCom, Inc. 

(In re WorldCom, Inc.), 2006 U.S. Dist. LEXIS 55284, at *33 (S.D.N.Y. Aug 4, 2006) (“Grayson 

offers no argument or claim to show how the Bankruptcy Court abused its discretion in 

determining that Grayson’s claim in this action did not primarily involve third parties.” (emphasis 

in original)).

27. Here, the Commonwealth and the Secretary of Labor, an official of an agency of 

the Commonwealth, are the only defendants in the Lawsuit. Accordingly, the Lawsuit does not 

involve third parties at all. 

28. Therefore, Sonnax factor 6 weighs in favor of denying the Motion. See City Ins. 

Co. v. Mego Int’l, Inc. (In re Mego Int’l, Inc.), 28 B.R. 324, 326 (Bankr. S.D.N.Y. 1983) (denying 

motion to lift the stay where debtor was more than a mere conduit for the flow of proceeds and the 

action impacted the “property and administration of [the debtor’s estate].”).

29. Sonnax Factor 7: The seventh Sonnax factor—whether the litigation could 

prejudice the interest of other creditors—does not support granting the Motion. The 

Commonwealth would have to expend considerable time and expense to litigate the Lawsuit by 

responding to the complaint, conducting and finalizing discovery, attending pretrial hearings, 

preparing and filing the pretrial report, and litigating the ensuing trial. Courts have denied requests 

to lift the automatic stay where the debtor would be required to expend its limited resources to 

defend against litigation. See, e.g., In re Plumberex Specialty Prod., Inc., 311 B.R. 551, 563-64 

(Bankr. C.D. Cal. 2004) (rejecting effort to lift stay in part because “the cost of protracted litigation 

of a separate proceeding in a non-bankruptcy forum would prejudice the interests of other creditors 

of the estate”); In re Motors Liquidation Co., No. 09- 50026, 2010 WL 4630327, at *4 (S.D.N.Y. 

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2010) (finding no abuse of discretion where bankruptcy court concluded in denying lift-stay 

motion that “allowing Appellant to proceed with the ERISA suit would force [debtor] to expend 

estate resources to defend that” and thus “would prejudice the interests of other creditors”). Here, 

the depletion of the Commonwealth’s resources to defend against the Lawsuit and the diversion of 

the Commonwealth’s attention to proceed expeditiously through its Title III case would inure to 

the detriment of the Commonwealth’s other creditors. 

30. Accordingly, Sonnax factor 7 does not support granting the Motion and Movants’ 

conclusory statement that “[a]llowing the Litigation to proceed will cause no prejudice the interests 

of other creditors” (Motion at 10) fails to satisfy Movants’ heavy burden to establish cause.

31. Sonnax Factors 10 and 11: As discussed above, the Lawsuit is still at a preliminary 

stage, having been filed after the commencement of the Commonwealth’s Title III case. There are 

processes pending that are necessary for the Lawsuit to move forward, such as responding to the 

complaint, conducting and finalizing discovery, attending the pretrial hearing, the preparation and 

filing of the pretrial report, and the ensuing trial, all of which will require the Commonwealth to 

expend considerable time and expense. As such, the parties are not ready for trial in the Lawsuit 

and granting the Motion will neither promote judicial economy nor result in the timely resolution 

of the issues. Thus, Sonnax factors 10 and 11 weigh in favor of denying the Motion. See In re 

Sonnax Indus., Inc., 907 F.2d at 1287 (denying motion to lift the stay where, among other things, 

“the litigation in state court has not progressed even to the discovery stage [and] the bankruptcy 

proceeding provides a single, expeditious forum for resolution of the disputed issues.”); In re 

Residential Capital, LLC, 2012 WL 3860586 at *6 (denying motion to lift the stay where, among 

other things, “there has been no motion practice addressing the sufficiency of the pleadings or of 

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the evidence supporting the claims or defenses [and] [d]iscovery, trial preparation and, absent a 

settlement, trial all remain to be done”).

32. Sonnax Factor 12: Balancing of the harms clearly favors denial of the Motion. The 

impact on the Commonwealth if the Motion were to be granted would outweigh any harm that 

Movants would suffer if the automatic stay remains in place. The procedural status of the Lawsuit, 

the large number of pending lawsuits against the Debtors, the diversion of the Commonwealth’s 

resources to defend Movants’ claims, and the prejudice to the interests of other similarly situated 

creditors all weigh in favor of continuing the automatic stay at this early juncture of the Title III 

case. Expedition of the claims will not save the Commonwealth any time or money. Rather, it will 

force the Commonwealth to spend time and money now to liquidate claims that may only be paid, 

if at all, under a confirmed plan of adjustment. 

33. On the other hand, postponing liquidation of Movants’ claims is a hardship that is 

shared with other creditors in order for the Commonwealth to focus on its restructuring and 

recovery efforts for the benefit of all creditors and would promote judicial economy. Any claim 

Movants may have will be dealt with during the plan of adjustment process, as with any other 

creditor’s claims. And, given the early stage of the Lawsuit, a final resolution of the Lawsuit 

would likely take a significant amount of time. Thus, on balance, Sonnax factor 12 weighs in favor 

of denying the Motion.7

 

7 The remaining Sonnax factors ((3) whether the foreign proceeding involves the debtor as fiduciary; (8) whether a 

judgment in the foreign action is subject to equitable subordination; and (9) whether movant’s success in the 

foreign proceeding would result in a judicial lien avoidable by the debtor) are not addressed as they are inapplicable 

here.

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CONCLUSION

34. Movants have failed to establish cause to justify lifting the automatic stay in the 

Commonwealth’s Title III case to allow the Lawsuit to proceed. Accordingly, and for the 

foregoing reasons, the Court should deny the Motion. 

Dated: July 24, 2018

San Juan, Puerto Rico 

Respectfully submitted, 

WANDA VÁZQUEZ GARCED 

Secretary of Justice 

/s/ Wandymar Burgos Vargas

WANDYMAR BURGOS VARGAS 

USDC 223502 

Deputy Secretary in Litigation 

Department of Justice 

P.O. Box 9020192 

San Juan, Puerto Rico 00902-0192 

Phone: 787-721-2940 Ext. 2500, 2501

wburgos@justicia.pr.gov 

Attorneys for the Commonwealth of Puerto Rico 

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