UNITED STATES DISTRICT COURT

DISTRICT OF PUERTO RICO 

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of

THE COMMONWEALTH OF PUERTO RICO, et al., 

Debtors.

1

PROMESA 

Title III 

No. 17 BK 3283-LTS 

Re: ECF Nos. 3019, 3023

(Jointly Administered) 

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of

THE COMMONWEALTH OF PUERTO RICO, 

Debtor.

PROMESA 

Title III 

No. 17 BK 3283-LTS 

This Objection relates to the 

Commonwealth, HTA, and PREPA, and 

shall be in Case Nos. 17 BK 3283-LTS, 17 

BK 3567-LTS, and 17 BK 4780-LTS.

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of

PUERTO RICO HIGHWAYS AND 

TRANSPORTATION AUTHORITY (“HTA”), 

PROMESA 

Title III 

No. 17 BK 3567-LTS 

 

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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Debtor.

In re: 

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO RICO, 

as representative of

PUERTO RICO ELECTRIC POWER AUTHORITY, 

Debtor.

PROMESA 

Title III 

No. 17 BK 4780-LTS 

OBJECTION OF THE COMMONWEALTH TO MOTION FOR 

PARTIAL LIFT OF STAY FILED BY AUTONOMOUS MUNICIPALITY OF PONCE

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TABLE OF CONTENTS

Preliminary Statement.......................................................................................1

Objection.......................................................................................................2

Conclusion....................................................................................................13

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TABLE OF AUTHORITIES

Page(s)

CASES

Assoc. of St. Croix Condo Owners v. St. Croix Hotel Corp., 

682 F.2D 446, 448 (3d Cir. 1982)...............................................................................4

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

217 F. Supp. 3d 508, 518 (D.P.R. 2016)....................................................................5,8,12

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

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

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).................................................................10

Delpit v. Commissioner,

18 F.3D 768 (9th Cir. 1994)........................................................................................4

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

2006 U.S. Dist. LEXIS 55284, at *33 (S.D.N.Y. Aug 4, 2006)................................9

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

214 B.R. 751, 757 (Bankr. S.D.N.Y. 1997)...............................................................4

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

2017 WL 1379363, at *4 (Bankr. S.D.N.Y. Apr. 14, 2017)......................................6

In re City of Stockton, 4

84 B.R. 372, 378 (Bankr. E.D. Cal. 2012).................................................................8,11

In re Cuba Electric & Furniture Corp., 

430 F. Supp. 689 (D.P.R. 1977).................................................................................6

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)...............................................................8

In re Jefferson Cty.,

491 B.R. 277, 285 (Bankr. N.D. Ala. 2013) ...............................................................3

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

2010 WL 4630327, at *4 (S.D.N.Y. 2010)................................................................11

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In re Mu’min, 374 B.R. 149, 

162 (Bankr. E.D. Pa. 2007)........................................................................................6

In re Murrin, 

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

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

2006 WL 694727, at *2 (Bankr. S.D.N.Y. Mar. 13, 2006) .......................................8

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

2012 WL 3860586, at *6 (Bankr. S.D.N.Y. Aug. 8, 2012) .......................................8,9,11

In re Taub, 

413 B.R. 55, 62 (Bankr. E.D.N.Y. 2009)...................................................................6

In re Unanue-Casal, 

159 B.R. 90, 95–96 (D.P.R. 1993), aff’d 23 F.3d 395 (1st Cir. 1994) ......................4,5 

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

362 B.R. 49, 56 (B.A.P. 1st Cir. 2007) .......................................................................4

Matter of Garofalo’s Finer Foods, Inc., 

186 B.R. 414, 435 (Bankr. N.D. Ill. 1995) ................................................................11

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

474 U.S. 494, 503 (1986)...........................................................................................3

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

537 B.R. 128, 140 (Bankr. D.P.R. 2015)...................................................................3

Peaje Invs. LLC v. Garcia-Padilla, 

2016 U.S. Dist. LEXIS 153711, at *13 (D.P.R. Nov. 2, 2016) .................................5

Soares v. Brockton Credit Union (In re Soares)

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

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

907 F.2d 1280, 1286 (2d Cir. 1990)...........................................................................4,5-13

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

848 F.2D 311, 313 (1st Cir. 1988)...............................................................................3

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STATUTES

11 U.S.C. § 105(a) .................................................................................................................3

11 U.S.C. § 362(a)..................................................................................................................2,3

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

11 U.S.C. § 365 ......................................................................................................................3

11 U.S.C. § 922......................................................................................................................3

PROMESA § 301(a) ..............................................................................................................2,3,4

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

OTHER AUTHORITIES

H.R. REP. NO. 95-595 AT 340 (1977) .....................................................................................4

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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 Partial Lift of Stay [ECF No. 3019] (the “Motion”) 

filed by the Autonomous Municipality of Ponce (“Movant”), the plaintiff in the case captioned 

Municipio de Ponce vs. ACT, et al, Case No. JAC1993-0485 (the “Prepetition Action”), before the 

Puerto Rico First Instance Court (the “Commonwealth Court”). The Commonwealth respectfully 

requests that the Court deny the Motion for the reasons set forth below.2

PRELIMINARY STATEMENT

1. On May 4, 2018, Movant filed the Motion seeking relief from the automatic stay to 

allow the Prepetition Action to proceed, except for any evidentiary hearing on damages, and for 

the judgment entered on June 24, 1996 in the Prepetition Action before the Commonwealth Court

(the “Prepetition Judgment”) to be enforced, except for any judgment or settlement for damages. 

Motion ¶¶ 9, 15. The Prepetition Judgment requires the Commonwealth, as well as other parties, 

including the Puerto Rico Electric Power Authority (“PREPA”) and the Puerto Rico Highways 

and Transportation Authority (“HTA” and together with PREPA and the Commonwealth, the 

“Debtors”), to complete all construction projects detailed in a prepetition Agreement for the 

Development of Programed Projects between the Central Government and the Municipality of 

Ponce, dated October 28, 1992 (the “Development Agreement”). To fulfill their obligations under 

the Development Agreement pursuant to the Prepetition Judgment, the Commonwealth would

have to expend over $100 million; HTA would have to spend tens of thousands of dollars annually

to fund the costs of the Commonwealth Court-appointed monitor to audit the completion of the 

 

2 The Financial Oversight and Management Board for Puerto Rico, as the Debtors’ 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. 

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projects under the Development Agreement;

3

and PREPA would have to incur costs of 

approximately $16 million.

4

2. At its core, the claims arising from the Prepetition Judgment are claims of a 

prepetition, unsecured creditor seeking preferential treatment to enforce a prepetition judgment 

against the Commonwealth, HTA, and PREPA, without any determination as to whether such 

claims should be allowed in the Title III case.

3. As further explained below, the Motion should be denied as Movant has failed to 

show “cause” exists to lift or modify the automatic stay under section 362(d) of title 11 of the 

United States Code (the “Bankruptcy Code”). Lifting the automatic stay would result in the 

Commonwealth having to expend valuable resources and pay out significant amounts of money 

from its General Fund to comply with the Prepetition Judgment, before it has been determined 

whether Movant’s claim should be allowed. This would result in valuable resources being diverted 

from its recovery and reorganization efforts, and potentially result in Movant receiving an 

unjustifiable windfall compared to other creditors. Moreover, Movant has failed to show any harm 

it would suffer from maintaining the automatic stay, while the Commonwealth would be forced to 

divert critical resources to the satisfaction of prepetition, unsecured claims, which is at best 

premature. Therefore, it is respectfully submitted that the Motion be denied.

 

3 See Urgent Motion for Extension of Deadlines, filed by HTA concurrently with this Objection, requesting seven 

(7) days to respond to the Motion filed by Movant and, in the alternative if such extension of time is not granted, 

joining the Objection to the extent that a modification of the stay would require HTA to spend tens of thousands 

of dollars annually to fund the costs of the Commonwealth Court-appointed monitor to audit the completion of the 

projects.

4 See Joinder of the Puerto Rico Fiscal Agency and Financial Advisory Authority on Behalf of the Puerto Rico 

Electric Power Authority to Objection of the Commonwealth to Motion for Partial Lift of Stay Filed by 

Autonomous Municipality of Ponce, filed concurrently with this Objection.

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OBJECTION

I. MOVANT HAS FAILED TO ESTABLISH CAUSE EXISTS TO LIFT THE STAY

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

applicable by PROMESA section 301(a), provides for a stay of certain actions by non-debtor third 

parties including, among other things, the enforcement against the debtor “of a judgment obtained 

before the commencement of the case” and “any act to collect, assess, or recover a claim against 

the debtor that arose before the commencement of the case.” 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”).

5. “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 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 

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 

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of diligence by creditors for the debtor’s assets.’” (citation omitted)); In re Jefferson Cty., 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.’”); Assoc. 

of St. Croix Condo Owners v. St. Croix Hotel Corp., 682 F.2d 446, 448 (3d Cir. 1982) (“[The 

automatic stay] permits the debtor to attempt a repayment or reorganization plan or simply to be 

relieved from the financial pressures that drove him into bankruptcy.”); Delpit v. Commissioner, 

18 F.3d 768 (9th Cir. 1994) (“Congress intended to give debtors a breathing spell from their 

creditors and to stop all collection efforts, all harassment, and all foreclosure actions.”) (internal 

quotes and citations omitted) (emphasis added).

6. 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):

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

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(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 movant’s 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.

7. 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). 

8. 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 

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

3d at 529 n.12. Movant bears the burden of establishing cause, id., and when the movant is 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).

9. Movant has not established that cause exists to lift the Title III Stay. Instead, 

Movant is merely seeking to enforce the Prepetition Judgment that requires different agencies of 

the Commonwealth and public corporations, including HTA and PREPA, to proceed with various 

costly and time-consuming construction projects, which would directly contradict the very purpose 

of the stay, that is “to prevent interference with, or diminution of, the debtor’s property.” In re 

Cuba Electric & Furniture Corp., 430 F. Supp. 689 (D.P.R. 1977); see also In re Mu’min, 374 

B.R. 149, 162 (Bankr. E.D. Pa. 2007) (allowing creditors to get a “head start on collection [is] 

precisely what the Bankruptcy Code was designed to prevent so that creditors could share equally 

in the distribution of available assets.”) The Sonnax factors point squarely toward maintaining the 

automatic stay and against awarding the remedy Movant seeks. 

10. Sonnax Factor 1: The first Sonnax factor—whether relief would result in 

complete or partial resolution of the issues—militates against the lifting of 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 

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the Debtor in pursuing the confirmation of a [] plan”). Accordingly, many courts characterize this 

factor as whether the non-bankruptcy proceeding would result in “the resolution of preliminary 

bankruptcy issues.” See, e.g., In re Murrin, 477 B.R. 99, 109 (D. Minn. 2012); In re Cummings, 

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

11. Here, Movant does not identify any bankruptcy issue related to the Title III cases

that would be resolved by allowing Movant to enforce the Prepetition Judgment. See Motion ¶ 15. 

Indeed, that is because lifting of the stay would not resolve any issues relevant to the Debtors’

Title III cases—rather, it would create additional issues by affording certain creditors the 

unjustified opportunity to be paid before others. Movant merely makes the conclusory assertion 

that the automatic stay should be modified to allow for the enforcement of the Prepetition 

Judgment. See id. Therefore, the first Sonnax factor does not support granting the Motion. 

12. 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. The 

Commonwealth would be required to disburse over $100 million to fulfill its obligations under the 

Development Agreement in compliance with the Prepetition Judgment, which would interfere with 

its Title III case and overall restructuring by diverting critical funds from its recovery efforts.5 

Additionally, lifting the automatic stay to allow enforcement of the Prepetition Judgment would 

divert the attention of the Commonwealth’s personnel to oversee compliance of the construction 

projects with the Prepetition Judgment, review and to follow up with any compliance issues 

 

5 To fulfill their obligations under the Development Agreement pursuant to the Prepetition Judgment, HTA would 

have to spend tens of thousands of dollars annually to fund the costs of the Commonwealth Court-appointed 

monitor to audit the completion of the projects under the Development Agreement, See Urgent Motion for 

Extension of Deadlines; and PREPA would have to incur costs of approximately $16 million, see Joinder of the 

Puerto Rico Fiscal Agency and Financial Advisory Authority on Behalf of the Puerto Rico Electric Power 

Authority to Objection of the Commonwealth to Motion for Partial Lift of Stay Filed by Autonomous Municipality 

of Ponce, filed concurrently with this Objection.

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identified by the Commonwealth Court-appointed monitor or the Commonwealth Court, and to

appear before the Commonwealth Court with respect any matters relating to enforcement of the 

Prepetition Judgment. 

13. Thus, Sonnax factor 2 weighs in favor of denying the Motion, and Movant’s 

conclusory statement that “lifting or modifying the stay to proceed with the fulfilment of the 

judgment in the ‘Ponce en Marcha’ case will not interfere with the Title III case and will not 

diverting the Commonwealth’s attention and resources” (Motion ¶ 16) fails to satisfy Movant’s 

heavy burden to establish cause. See 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)).

Accordingly, the second Sonnax factor supports denial of the Motion. 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.”); In re City of Stockton, 484 

B.R. 372, 378 (Bankr. E.D. Cal. 2012) (denying lift-stay motion where it would consume the time 

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and attention of the debtor’s officers).

14. 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. 

Contrary to Movant’s assertions, no specialized tribunal has been established to hear the

Prepetition Action as it was before the Puerto Rico Court of First Instance. The remaining 

proceedings regarding compliance with the Prepetition Judgment will be heard before the 

Commonwealth Court. Although the Commonwealth Court has appointed monitors to audit 

compliance with the Prepetition Judgment, such monitors are not “established to hear the cause of 

action at issue” according to Sonnax factor 4. In re Sonnax Indus., 907 F.2d at 1286. Indeed, 

Movant notes that such monitors were appointed to “supervise and inform the court of the 

developments and issues of all the construction[] projects . . . .” Motion ¶ 17. Thus, Sonnax factor 

4 does not support granting the Motion. 

15. 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. As Movant notes, no insurer of the Commonwealth has assumed full financial 

responsibility for defending the Prepetition Action nor compliance with the Prepetition Judgment. 

Motion ¶ 18. Thus, Sonnax factor 5 does not support granting the Motion.

16. 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 prepetition action primarily 

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

LEXIS 3641, 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. 

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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)).

17. Here, Movant fails to show how any non-debtor parties in the Prepetition Action 

are the primary parties to the action. Whether the budgets of the various entities involved in the 

Prepetition Action are separate is not relevant to the central question of Sonnax factor 6—whether 

the Prepetition Action primarily involves third parties. In fact, the Commonwealth will be required 

to expend over $100 million of its own funds to comply with the Prepetition Judgment. 

Furthermore, the Commonwealth must devote personnel and additional resources to supervise and 

ensure compliance with the Prepetition Judgment.6 Accordingly, the Commonwealth would be

significantly impacted by the enforcement of the Prepetition Judgment. 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].”).

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

prejudice the interest of other creditors—weighs in favor of denying the Motion. First, lifting the 

automatic stay would give Movant an unfair and undue advantage over other creditors. There is 

nothing about this case that warrants immediate satisfaction of the Prepetition Judgment rather 

than addressing the Prepetition Judgment through the inevitable claims administration phase 

during which all other claims will be addressed. Allowing Movant to proceed now would be in 

sharp contrast to Bankruptcy Code section 362’s purpose to provide the debtor temporary relief 

 

6 See also supra note 5 for the costs to HTA and PREPA of compliance with the Prepetition Judgment.

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while it conducts an orderly adjustment of its debts. See Matter of Garofalo’s Finer Foods, Inc., 

186 B.R. 414, 435 (Bankr. N.D. Ill. 1995) (“[The automatic stay] protects all creditors by ensuring 

that the estate will be preserved against attempts by other creditors to gain an unfair advantage 

with respect to the payment of claims.”). Movant proffers no adequate reason that it should be 

prioritized over other creditors and granted such an unfair advantage, nor why the purpose of the 

automatic stay should be ignored in their case.

19. Second, any time and money expended by the Commonwealth to comply with the 

Prepetition Judgment is time and money diverted from the overall recovery and reorganization of 

the Commonwealth and from the ultimate distribution to other creditors, a factor that numerous 

courts have recognized counsels against the lifting of a bankruptcy stay. This is especially true 

since additional proceedings before the Commonwealth Court may be necessary to determine 

compliance with the Prepetition Judgment. See, e.g., In re Residential Capital, 2012 WL 3860586, 

at *6 (holding that “[o]ther creditors are further prejudiced by litigation of the California Actions 

because such litigation will diminish the estate’s assets, resulting in a smaller distribution under a 

chapter 11 plan of reorganization” and denying lift-stay motion); In re Motors Liquidation Co., 

No. 09- 50026, 2010 WL 4630327, at *4 (S.D.N.Y. 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”); see also In re City of Stockton, 484 B.R. at 379 

(declining to lift stay in part because it “will deplete the coffers of the City treasury”). Accordingly, 

Sonnax factor 7 does not support granting the Motion.

20. Sonnax Factor 10: The tenth Sonnax factor— the interest of judicial economy and 

the expeditious and economical determination of litigation for the parties—weighs against granting 

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the Motion. Because judgment has already been entered in the Prepetition Action, the 

“determination of litigation for the parties” has already occurred, and the only thing that lifting the 

stay would expedite is Movant’s own recovery. Movant has not met its burden of showing how 

lifting the automatic stay would advance the interest of judicial economy, but rather, merely makes 

the conclusory statement that lifting the stay will “promote[] the judicial economy and expeditious 

and economical resolution of the litigation.” Motion ¶ 24. Thus, Sonnax factor 10 weighs in favor 

of denying the Motion. 

21. Sonnax Factor 11: The eleventh Sonnax factor requires an inquiry into whether 

the foreign proceedings have progressed to the point where parties are prepared for trial. While

judgment has been entered in the Prepetition Action, there remains pending proceedings before 

the Commonwealth Court to determine compliance with the Prepetition Judgment, which would 

require the Commonwealth to divert time and resources away from their recovery efforts.7 Even 

if this factor weighed in favor of lifting the stay, on balance, the other Sonnax factors counsel 

against lifting the automatic stay. As previously noted, 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. 

22. 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 

Movant would suffer if the automatic stay remains in place. As previously noted, the 

Commonwealth would be required to disburse a substantial amount of funds to comply with the 

Prepetition Judgment. In addition, the attention of the Commonwealth’s personnel would be 

 

7 See also supra note 5 for the costs to HTA and PREPA of compliance with the Prepetition Judgment.

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diverted to ensure compliance with the Prepetition Judgment, and tend to any proceedings in the 

Commonwealth Court with respect to the same.8 The diversion of the Commonwealth’s resources 

would in turn prejudice the interests of other similarly situated creditors. On the other hand, 

Movant has not stated how denial of the Motion would cause it any harm. Maintaining the 

automatic stay would simply preserve the status quo pending the Commonwealth’s restructuring 

and recovery efforts under Title III. Indeed, the fact that Movant has waited decades for the various 

projects to be completed under the Development Agreement suggests that any harm Movant may 

suffer if the automatic stay remains in place would be minimal. Thus, Sonnax factor 12 weighs in 

favor of denying the Motion.9

CONCLUSION

23. Movant has failed to establish cause to justify the lifting of the automatic stay in 

the Commonwealth’s Title III case. Accordingly, for the foregoing reasons, the Court should 

deny the Motion.

[Remainder of Page Left Intentionally Blank]

 

8 See also supra note 5 for the costs to HTA and PREPA of compliance with the Prepetition Judgment.

9 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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Dated: July 5, 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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