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 Nos. 3477, 3479

(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 URGENT MOTION 

REQUESTING THE LIFT OF STAY FILED BY MICHAEL MELÉNDEZ

 

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.................................................................................................................................. 3

I. MOVANT HAS FAILED TO ESTABLISH CAUSE EXISTS TO LIFT

THE STAY ............................................................................................................ 3

CONCLUSION............................................................................................................................ 13

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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)..................................................................5, 9

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)................................................................... 10-11

FCC v. NextWave Pers. Commc’ns Inc., 

537 U.S. 293, 302 (2003).....................................................................................................7

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

2006 U.S. Dist. LEXIS 55284, at *33 (S.D.N.Y. Aug 4, 2006)........................................10

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

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

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

2009 WL 8003536, at *3 (Bankr. N.D. Ala. Sept. 14, 2009) ..............................................8

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

2017 WL 1379363, at *4 (Bankr. S.D.N.Y. Apr. 14, 2017)................................................5

In re City of Stockton, 

484 B.R. 372, 374, 378 (Bankr. E.D. Cal. 2012)............................................................. 8-9

In re Cummings, 

221 B.R. 814, 818 (Bankr. N.D. Ala. 1998) ........................................................................6

In re Gatke Corp.,

117 B.R. 406, 410 (Bankr. N.D. Ind. 1989).........................................................................9

In re Jefferson Cnty., 

491 B.R. 277, 285 (Bankr. N.D. Ala. 2013) ........................................................................4

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

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

In re Murrin, 

477 B.R. 99, 109 (D. Minn. 2012).......................................................................................6

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TABLE OF AUTHORITIES

(continued)

Page(s)

iii

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

006 WL 694727, at *2 (Bankr. S.D.N.Y. Mar. 13, 2006) ...................................................9

In re Plumberex Specialty Prod., Inc., 

311 B.R. 551, 563-64 (Bankr. C.D. Cal. 2004) .................................................................11

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

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

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 

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

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

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

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

980 F.2d 110, 117 (2d Cir. 1992).........................................................................................8

Soares v. Brockton Credit Union (In re Soares)

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

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

907 F.2d 1280, 1286, 1287 (2d Cir. 1990)...................................................... 2,4,5,6,7,9-13

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

848 F.2d 311, 313 (1st Cir. 1988).................................................................................... 3-4

STATUTES

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TABLE OF AUTHORITIES

(continued)

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iv

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

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

11 U.S.C. § 922 and 922(a)......................................................................................................... 3, 8 

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

11 U.S.C. §101.............................................................................................................................6, 7

11 U.S.C. §101(a) ............................................................................................................................6

11 U.S.C. §101(5).........................................................................................................................6,7 

11 U.S.C. §101(10)..........................................................................................................................6

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

11 U.S.C. § 501 and 501(a)..............................................................................................................6

48 U.S.C. § 2101..............................................................................................................................7

Fed. R. of Bankr. P. 3003(c)(1) .......................................................................................................6

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

PROMESA § 310.............................................................................................................................6

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

OTHER AUTHORITIES

H.R. Rep. No. 95-595 at 309, 340 (1977).....................................................................................4,7

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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 Urgent Motion Requesting the Lift of Stay [ECF No. 3477] 

(the “Motion”) filed by Michael Meléndez (“Movant”), a party in the case captioned Michael 

Meléndez v. José L. Calderon López, Civil No. KPE 2016-3539 (508) (the “Lawsuit”), pending 

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

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

PRELIMINARY STATEMENT

1. On December 1, 2016, Movant commenced the Lawsuit against the 

Commonwealth and the Police of Puerto Rico for events that allegedly occurred on or before the 

commencement of this Title III case on May 3, 2017. Movant seeks in the Lawsuit damages 

allegedly suffered as a consequence of the Commonwealth and the Police of Puerto Rico’s alleged 

age discrimination in the terms and conditions of Movant’s employment, and transfer of Movant 

to another division of the Police of Puerto Rico without cause. The summons was served on 

May 9, 2017, after the commencement of this Title III case. 

2. On May 22, 2017, 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 Commonwealth Court take 

notice of, among other things, the automatic stay applicable to the Lawsuit. On May 26, 2017, the 

Commonwealth Court issued an order granting the Commonwealth's petition due to the 

commencement of the Title III case. 

 

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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3. On July 11, 2018, Movant filed the Motion seeking to lift the automatic stay to 

proceed with the Lawsuit against the Commonwealth and the Police of Puerto Rico.

3

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

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

United States Code (the “Bankruptcy Code”). As a potential, prepetition, unsecured creditor, 

Movant has failed to demonstrate the extraordinary circumstances necessary to show why his

claims should not be resolved through the claims resolution process to be undertaken in the Title 

III cases. 

5. The case is in a very preliminary stage, having been commenced just before the 

Commonwealth filed its Title III petition. Nevertheless, the summons was served after the Title 

III petition was filed. The Lawsuit is not ready for trial, as no answer or other responsive pleading 

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, Movant relies on conclusory statements to assert 

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

the facts of the underlying action.

6. 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. Therefore, it is 

respectfully submitted that the Motion be denied.

 

3 The Police of Puerto Rico 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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OBJECTION

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

7. 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”).

8. “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 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 

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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.’”).

9. 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; 

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(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.

10. 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). 

11. 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.

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12. 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”). 

13. Here, Movant has failed to show how allowing the Lawsuit to proceed would 

resolve any issues relevant to the Commonwealth’s Title III case. Resolution of the Lawsuit is not 

necessary to determine whether Movant “has a right to file a proof of claim in the Title III case,”

as Movant incorrectly asserts. Motion at 11. Indeed, neither the Bankruptcy Code nor the Federal 

Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), made applicable to this Title III case 

pursuant to PROMESA section 310, preclude Movant from filing a proof of claim with respect to 

his asserted right to payment. Bankruptcy Code section 501 and Bankruptcy Rule 3003(c)(1) 

provides that any “creditor” may file a proof of claim. 11 U.S.C. § 501(a). Bankruptcy Code 

section 101(10) defines “creditor” to include any entity that has a “claim” against the debtor that 

arose at the time or before the order for relief concerning the debtor. 11 U.S.C. § 101(a). 

Bankruptcy Code section 101(5) defines “claim” to mean any “right to payment, whether or not 

such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, 

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disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5) (emphasis 

added). Therefore, whether the Commonwealth disputes the asserted claim does not affect 

Movant’s ability to file a proof of claim.4

14. Accordingly, lifting the automatic stay would not resolve any issues relevant to the 

Commonwealth’s Title III case. Movant’s claims, if any, could be resolved through the claims 

resolution process to be undertaken in the Title III cases. Therefore, the first Sonnax factor 

supports denying the Motion. 

15. 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 Movant’s 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). 

16. As a potential, 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. 

 

4 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, to 

impair and discharge Movant’s claims, and to object to any filed proof of claim as untimely or under any other 

basis.

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Requiring the Commonwealth to defend Movant’s 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.”). 

17. 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 claim be given carte blanche to litigate their claims, the 

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.”).

18. 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 

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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.

19. 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. 

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

conclusory statement that “the lifting of the automatic stay . . . will not disrupt the 

Commonwealth’s processes for managing the Commonwealth; and (ii) will not interfere with the 

Commonwealth’s ability to provide essential services” (Motion at 11) 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)).

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21. 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.

22. 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 Movant does not allege any facts to the contrary. Thus, Sonnax factor 

5 weighs in favor of denying the Motion.

23. 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, 

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)).

24. Here, the Commonwealth and the Police of Puerto Rico, an agency of the 

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

involve third parties at all. 

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

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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 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. 

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. Accordingly, Sonnax factor 7 does not 

support granting the Motion.

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

preliminary stage, having been commenced on December 1, 2016, and the summons having been 

served on May 9, 2017 (after the commencement of this Title III case). A myriad of proceedings

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necessary for the Lawsuit to even be trial ready remain pending, 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.

28. 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”).

29. 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 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. 

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30. On the other hand, postponing liquidation of the Movant’s 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 

Movant may have could be dealt with during the Title III claims process, as any other creditor’s 

claims. And, given the early stage of the Lawsuit, there is no guaranty that the resolution of the 

Lawsuit would come any sooner than the resolution of Movant’s purported claims in the Title III 

case. Thus, on balance, Sonnax factor 12 weighs in favor of denying the Motion.5

CONCLUSION

31. Movant has 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 25, 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

 

5 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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