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. 2803

(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 REQUESTING ORDER, 

AND RELIEF OF PARTIAL STAY FILED BY JAVIER PÉREZ-RIVERA

 

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

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

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

I. MOVANT HAS FAILED TO ESTABLISH CAUSE EXISTS TO LIFT 

THE STAY FOR THE EXECUTION OF JUDGMENT AND AS TO 

THE LAWSUIT IN ITS ENTIRETY..........................................................4

CONCLUSION..................................................................................................................14

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TABLE OF AUTHORITIES

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ii

FEDERAL CASES

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

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

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

28 B.R. 324 (Bankr. S.D.N.Y. 1983)...............................................................11

Departamento del Trabajo y Recursos Humanos v. Javier Pérez- Rivera,

Civil Number SJ2017CV0512 .......................................................................1, 2

FCC v. NextWave Pers. Commc’ns Inc.,

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

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

2006 U.S. Dist. LEXIS 55284 (S.D.N.Y. Aug 4, 2006)..................................11

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

214 B.R. 751 (Bankr. S.D.N.Y. 1997). Bankruptcy ..........................................6

In re BFW Liquidation, LLC,

No. 09-00634-BGC-11, 2009 WL 8003536 (Bankr. N.D. Ala. Sept. 14, 

2009) ..................................................................................................................9

In re Breitburn Energy Partners LP,

No. 16-10992, 2017 WL 1379363 (Bankr. S.D.N.Y. Apr. 14, 2017)................7

In re City of Stockton, 

484 B.R. 372 (Bankr. E.D. Cal. 2012).........................................................9, 10

In re Cummings,

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

In re Jefferson Cty.,

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

In re Motors Liquidation Co.,

No. 09- 50026, 2010 WL 4630327 (S.D.N.Y. 2010).......................................12

In re Murrin,

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

In re Plumberex Specialty Prod., Inc.,

311 B.R. 551 (Bankr. C.D. Cal. 2004).............................................................11

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In re Residential Capital, LLC,

2012 Bankr. LEXIS 3641 (Bankr. S.D.N.Y. Aug 8, 2012) .............................11

In re Residential Capital, LLC,

No. 12-12020, 2012 WL 3860586 (Bankr. S.D.N.Y. Aug. 8, 2012)...........9, 13

In re Taub,

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

In re Unanue-Casal,

159 B.R. .............................................................................................................7

In re Unanue-Casal,

159 B.R. 90 (D.P.R. 1993), aff’d 23 F.3d 395 (1st Cir. 1994)...........................6

Javier Pérez Rivera v. ELA, 

CDP2016-0070 ..................................................................................................1

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

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

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

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

Peaje Invs. LLC v. Garcia-Padilla,

2016 U.S. Dist. LEXIS 153711 (D.P.R. Nov. 2, 2016).....................................7

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

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

Soares v. Brockton Credit Union (In re Soares)

107 F. 3d 969 (1st Cir. 1997).............................................................................5

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

907 F.2d 1280 (2d Cir. 1990)................................................................... passim

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

848 F.2d 311 (1st Cir. 1988)..........................................................................5, 9

FEDERAL STATUTES

11 U.S.C. § 362(a) ...................................................................................................4

11 U.S.C. § 362(d)(1) ..............................................................................................6

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11 U.S.C. § 922......................................................................................................10

11 U.S.C. § 944........................................................................................................4

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

Bankruptcy Code

§ 101...................................................................................................................8

§ 105(a)......................................................................................................1, 4, 6

§ 362(a)..............................................................................................................1

§ 362(a)..............................................................................................................4

§ 362(a)..............................................................................................................4

§ 365...................................................................................................................4

§ 922...................................................................................................................4

STATE STATUTES

Puerto Rico Oversight, Management, and Economic Stability Act 

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

REGULATIONS

PROMESA

§ 301(a)..............................................................................................................4

§ 303...................................................................................................................2

§ 305...................................................................................................................2

§ 312...................................................................................................................4

§ 314...................................................................................................................4

OTHER AUTHORITIES

H.R. Rep. No. 95–595 (1977)..................................................................................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 Requesting Order, and Relief of Partial Stay [ECF No. 

2803] (the “Motion”) filed by Javier Pérez-Rivera (“Movant”), a party in the cases captioned 

Javier Pérez Rivera v. ELA, CDP2016-0070, pending before the Puerto Rico Court of First 

Instance, Superior Court of Arecibo (the “Lawsuit”), and Departamento del Trabajo y Recursos 

Humanos v. Javier Pérez- Rivera, case number AQ-16-0740 / L-17-118, before the Appellate 

Commission for Public Service (the “Arbitration,” and together with the Lawsuit, the “Prepetition 

Actions”).2

PRELIMINARY STATEMENT

1. On June 19, 2017, Movant filed the Motion Requesting Relief of Stay [ECF No. 

383] (the “First Lift Stay Motion”) seeking an order lifting the automatic stay to allow Movant to 

pursue the Prepetition Actions. The Prepetition Actions consist of (a) the Lawsuit, where Movant 

asserts a prepetition employment discrimination claim against the Commonwealth, the Puerto Rico 

Department of Labor and Human Resources (the “DLHR”),3the Secretary of Labor and other 

employees in their official capacity; and (b) the Arbitration, an arbitration proceeding arising from 

the same underlying employment discrimination claim that challenges an administrative 

determination of termination of employment for insubordination where Movant seeks 

reinstatement and back pay.

 

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. 

3 The DLHR 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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2. On July 12, 2017, this Court entered an order lifting the automatic stay to permit 

the rendering, but not the enforcement, of an award in the Arbitration. Memorandum Order 

Granting Motion of Javier Perez-Rivera For Relief From The Automatic Stay [ECF No. 620] (the 

“Lift Stay Order”). The Lift Stay Order further provided, however, that “[t]he stay continues to 

apply in all other respects, including as to entry and execution of judgment and as to the Lawsuit 

in its entirety, but this decision is without prejudice to Movant’s right to seek further relief from 

the automatic stay in the future.” Lift Stay Order at 5.

3. On August 31, 2017, an award was rendered in the Arbitration in Movant’s favor 

(the “Award”), which became final on March 17, 2018.4 The Award modified the Movant’s 

termination from his job to a suspension without pay for thirty (30) days and provides for equitable 

relief, including reinstatement and back pay, within (30) days after the Award becomes final.

4. On March 26, 2018, Movant filed the Motion seeking an order modifying the 

automatic stay to allow Movant to (a) seek reinstatement to his job under the Award,5and (b) 

pursue and enforce his claim for back pay and damages, including pursuing such claims in the 

Lawsuit. Motion at 2–3.

5. In an effort to avoid further litigation costs and expenses, the Commonwealth, with 

the consent of the Oversight Board, engaged with Movant to clarify the manner in which the issues 

 

4 The DLHR filed a complaint before the Puerto Rico Court of First Instance in the case captioned Departamento 

del Trabajo y Recursos Humanos v. Javier Pérez- Rivera, Civil Number SJ2017CV0512, challenging the Award. 

On February 15, 2018, the Puerto Rico Court of First Instance issued a judgment dismissing the DLHR’s 

complaint. The DLHR chose not to appeal the dismissal of the complaint. As consequence, the Award became 

final on March 17, 2018. 

5 Movant requests in the Motion that the Court “[o]rder the Department of Labor and Human Resources to, without 

delay, reinstall [Movant] to his Job.” Motion at 2. The Commonwealth interprets this request as a request for an 

order to lift the automatic stay to allow Movant to enforce the Award providing for reinstatement of Movant to his 

job. To the extent Movant seeks an order compelling the Commonwealth to reinstate Movant to his job, the 

Commonwealth objects as such relief would be barred by PROMESA sections 303 and 305.

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would be addressed and, if possible, resolve the Motion consensually. However, the parties were 

unable to reach an agreement. 

6. The Commonwealth does not object to modifying the automatic stay solely to allow 

for the reinstatement of Movant consistent with the Award; however, the Commonwealth does not 

consent to any waiver or modification of the automatic stay so as to permit the prosecution against 

the Commonwealth or any other Title III debtor of any claim or claims, including, but not limited 

to, (i) the Lawsuit and (ii) the execution and enforcement of any judgment for monetary claims, 

damages, and provisional remedies. 

7. Movant has failed to demonstrate that cause exists to lift the automatic stay to allow 

Movant to pursue the Lawsuit or seek enforcement of any back pay or damages under the Award. 

Indeed, this Court denied Movant’s request in the First Lift Stay Motion to modify the automatic 

stay to allow him to pursue the Lawsuit, holding that Movant has not “tendered evidence that any

significant proceedings have yet taken place in the Puerto Rico Superior Court [the Lawsuit], and 

thus no cause has been shown for relief from the stay of the Lawsuit.” Lift Stay Order at 3. Movant 

has provided no such evidence in the Motion to establish why there is now cause to modify the 

stay with respect to the Lawsuit. The Sonnax factors, as they did with respect to the First Lift Stay 

Motion, weigh in favor of maintaining the automatic stay. Notably, the Lawsuit is not trial ready 

as the parties were conducting discovery, and a motion to dismiss Movant’s complaint filed by the 

Commonwealth on August 16, 2016 was still pending before the Commonwealth commenced this 

Title III case.

8. Furthermore, Movant has failed to meet his burden to establish cause to modify the 

stay to allow him to enforce or execute any award for back pay or damages under the Award. 

Allowing Movant to enforce any back pay or damages would be inconsistent with the orderly debt 

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adjustment contemplated under Title III and would allow Movant to circumvent the Title III 

process and the confirmation of a plan of adjustment. At its core, the Motion is a claim by a 

prepetition, unsecured creditor seeking preferential treatment to collect on a claim against the 

Commonwealth, without any determination as to whether such claim should be allowed, impaired 

or discharged in the Title III proceeding. The treatment and payment of the Award will be 

determined in the Title III Case pursuant to a confirmed plan of adjustment, which will bind all 

creditors of the Commonwealth, including Movant. PROMESA §§ 312, 314; 11 U.S.C. § 944 

(made applicable to the Title III Case pursuant to PROMESA § 301(a)). 

9. Accordingly, as further explained below, the Motion should be denied as Movant 

has failed to show “cause” exists to lift or modify the automatic stay. However, the 

Commonwealth does not object to modifying the automatic stay solely to allow Movant to be 

reinstated to his job pursuant to the Award.

OBJECTION

I. MOVANT HAS FAILED TO ESTABLISH CAUSE EXISTS TO FURTHER 

MODIFY THE AUTOMATIC STAY 

10. 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”, 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 

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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”).

11. “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 

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 

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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.’”).

12. 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; 

(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 

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

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

13. 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). 

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

against awarding the remedy Movant seeks.

15. Sonnax Factor 1: 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 

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

issues”). 

16. Movant has 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 the automatic 

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

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 the Lawsuit 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). 

18. As a prepetition, unsecured creditor of the Commonwealth, Movant’s claims are 

subject to the claim resolution process that will be undertaken in the Title III Case. Requiring the 

 

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 Movant’s claims.

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Commonwealth to defend Movant’s claims separately in the Lawsuit 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.”). Furthermore, allowing 

Movant to enforce the back pay and damages portion of the Award would undercut the 

fundamental purpose of the automatic stay to provide a debtor a “breathing spell” and to forestall 

a “race of diligence by creditors for the debtor’s assets.” Unisys Corp., 848 F.2d at 313.

19. 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 Movant’s 

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

plaintiff with an asserted prepetition employment claim be given carte blanche to litigate their 

claims, the combined result would potentially 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.”).

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20. 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. 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.

21. Here, the Lawsuit is in the preliminary stages with significant steps remaining 

before resolution of the action, such as conducting and finalizing discovery, 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. Thus, Sonnax factor 2 weighs in favor 

of denying the Motion.

22. 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.

23. 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 Prepetition Actions. Thus, Sonnax factor 5 weighs in favor of denying the Motion.

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

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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 Actions 

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. 

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)).

25. Here, the Commonwealth, the Secretary of Labor, the employees in their official 

capacity and DLHR, an agency of the Commonwealth, are the defendants in the Lawsuit. 

Accordingly, the Lawsuit does not primarily involve third parties rather than the Commonwealth. 

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].”).

26. 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 in 

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 nonCase:17-03283-LTS Doc#:2862 Filed:04/09/18 Entered:04/09/18 14:04:54 Desc: Main

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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. 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”). 

27. Here, the depletion of the Commonwealth’s resources from defending 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. In addition, 

the enforcement of any back pay under the Award would prejudice other creditors of the 

Commonwealth by allowing Movant to jump ahead in line of over other unsecured creditors, and 

threaten the orderly claims resolution and treatment of claims under Title III and the confirmation 

of a plan of adjustment. Accordingly, Sonnax factor 7 does not support granting the Motion.

28. Sonnax Factors 10 and 11: Contrary to Movant’s assertion, although an award 

has been rendered in the Arbitration, the Lawsuit—an entirely separate proceeding—remains 

stayed in the preliminary stages. As this Court noted in the Lift Stay Order, “[Movant] has not . . . 

tendered evidence that any significant proceedings have yet taken place in the Puerto Rico Superior 

Court, and thus no cause has been shown for relief from the stay of the Lawsuit.” Lift Stay Order 

at 3. Movant has tendered no such evidence in the Motion. 

29. Indeed, a myriad of proceedings necessary for the Lawsuit to even be trial ready 

remain pending, such as conducting and finalizing discovery, pretrial hearing, and the preparation 

and filing of the pretrial report, all of which will require the Commonwealth to expend considerable 

time and expense. Movant commenced the Lawsuit on May 12, 2016 asserting a claim for 

disability discrimination based on certain disciplinary actions and alleged retaliation against 

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Movant for pursuing claims against the Commonwealth and related parties pending before the 

Appellate Commission for Public Service. Movant amended his complaint on September 16, 2016 

to add a claim based on his termination from his job. Prior to the commencement of the 

Commonwealth’s Title III Case, the parties were conducting discovery, and a motion to dismiss 

Movant’s complaint filed by the Commonwealth on August 16, 2016 was still pending.

30. 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 the evidence supporting 

the claims or defenses [and] [d]iscovery, trial preparation and, absent a settlement, trial all remain 

to be done”).

31. 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. The procedural status of the Lawsuit, 

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

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

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

On the other hand, postponing liquidation of Movant’s claims will neither adversely affect Movant 

nor promote judicial economy. Expedition of the claims will not save the Commonwealth any time 

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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. Thus, Sonnax factor 

12 weighs in favor of denying the Motion.7

CONCLUSION

32. As previously noted, good faith efforts were made to reach an agreement with 

Movant to submit a joint motion seeking the modification of the stay to the limited extent as noted 

above. However, the parties have been unable to reach an agreement. 

33. For the foregoing reasons, the Commonwealth requests that the Court modify the 

Title III Stay solely to permit Movant to seek reinstatement pursuant to the Award; provided, 

however, that the Title III Stay shall continue to apply in all other respects to the Prepetition 

Actions, including, but not limited to, the execution and enforcement of any judgment for monetary 

claims, damages, and provisional remedies against the Commonwealth or any other Title III 

Debtor. 

34. It is expressly asserted that nothing contained herein shall require the 

Commonwealth or any of the other Debtors in the above-captioned cases or their assets or 

properties to satisfy any liability to Movant in any way whatsoever with respect to the Prepetition 

Actions. Nothing contained herein operates as a waiver or modification of the stay for any purpose 

other than as expressly provided for in the previous paragraph. 

Dated: April 9, 2018.

San Juan, Puerto Rico 

 

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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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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