# United States Court of Appeals For the First Circuit

No. 18

- 1 074 ROBERT ANEL D Í AZ
- MORALES , Plaintiff, Appellee,

v. SERGIO RUBIO
- PAR E DES , Puerto Rico District Attorney; EMILIO

ARILL
- GARCIA; L IMARIS CRUZ
- VÉLEZ , Defendant s , Appellant s ,
JOHN DOE; CONJUGAL PARTNERSHIP DOE
- CRUZ; UNKNOWN PUERTO RICO POLICE RANKED SUPERVISORS AND OFFICERS A., B., AND C.; JANE DOE; CONJUGAL PARTNERSHIP RUBIO
- DOE; MARY DOE; CONJUGAL PARTNERSHIP ARILL
- D OE; UNKNOWN ASSISTANT DISTRICT ATTORNEYS D., E., AND F., Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Juan M. Pérez

- Giménez , U.S. District Judge ]

Before Howard, Chief Judge , and Barron, Circuit Judge . *

* Judge Torruella heard oral argument in this matter and participated in the semble, but he did not participate in the issuance of the panel ' s opinion in this case. The remaining two panelists therefore issued the opinion pursuant to 28 U.S.C. § 46(d).Ángel E. Rotger

- Sabat , with whom Ramón Coto

- Ojeda and Coto &

Associates were on brief, for the Appellee . Carlos Lugo
- Fiol , with whom Isaías Sánchez

- Báez , Solicitor General of Puerto Rico, was on brief, for the Appellants . May 10, 2021- 3

- HOWARD , Chief Judge . Like Colón

- Torres v. Negrón

Fernández , No. 18

- 1579 (1st. Cir May 10 , 2021 ) , which was also decided today , this case implicates a question about the scope of the automatic stay provision of the Puerto Rico Oversight, Management , and Economic Stability Act ( " PROMESA " ) . And, like Colón

- Torres , this dispute arises from a settlement following a suit under 42 U.S.C. § 1983 against an officer of the Commonwealth of Puerto Rico sued in the officer ' s individual capacit y .

In Colón

- Torres , we con fronted a plaintiff ' s effort to

recover under the settlement , and we conclude d that the enforcement action at issue must be stayed under PROMESA , even though the original suit was against the officer individually, because the plaintiff ' s motion to enforce the settlement was against the Commonwealth and sought payment directly from it pursuant to the settlement . See Colón

- Torres , s lip o p. at 1 7

– 2 1 . Here, however, the § 1983 claim itself has been dismissed with prejudice , and there is no pending action to enforce the settlement through an action agai nst the Commonwealth or anyone else. We thus conclude that the District Court was right to deny the Commonwealth ' s motions for reconsideration that are at issue, insofar as they may be construed as motions to apply PROMESA ' s automatic stay to either the now
- dismissed § 1983 action or the as

- yet
- unenforced settlement agreement .- 4
- I. BACKGROUND Because the parties reached a settlement, we recite the facts underlying this case only briefly and draw them from the district court ' s opinion s at the motion to dismiss and summary judgment stage s . A. Factual Background

In November 2003, the plaintiff, Robert Anel Díaz

Morales , was convicted of murder and assault in connection with the October 2001 death of Kenia Rosario Viera. In May 2012, the Supreme Court of Puerto Rico vacated Díaz ' s conviction and sentenc e. S hortly thereafter, Díaz filed suit in the Federal District Court for the District of Puerto Rico for violations of his civil rights under 42 U.S.C. § 1983 against the Defendants : the law enforcement officer in charge of investigating the murder and the two district attorneys who prosecuted his case.

In particular, Día z alleged that, during the course of the investigation, law enforcement officers, including Defendant Limaris Cruz

- V é lez, were told by several witnesses that four other individuals, including the victim ' s former romantic partner, were responsible for the a ssault and murder. But Cruz and other officers were led to Díaz after tracking the victim's phone. Díaz was interviewed and eventually arrested and charged with murder . Díaz later alleged that he was only charged because Cruz conducted the investigation recklessly and with gross disregard for his- 5
-

rights and protections under the Fourth and Fifth Amendments. Díaz also alleged that Defendant Sergio Rubio

- Par e des, the lead district attorney in his case, not only charged and prosecuted him despite knowing t hat other suspects had been identified but also coerced witnesses to implicate Díaz . Díaz raised the same allegations , along with a claim for supervisory liability, against Defendant Emilio Arill

- Garcia, Rubio ' s direct supervisor. B. Procedural History

In March 2016, the district court granted in part and denied in part the D efendants ' motion for summary judgment. Though the district court concluded that Díaz had failed to provide any proof of a conspiracy between the D efendants, it a llowed Díaz ' s claims for malicious prosecution to proceed against each defendant individually. The parties then began preparing for trial, which was scheduled to begin on January 23, 2017. On the eve of trial, the parties began settlement negotiations an d, on February 3, 2017, Díaz notified the court that they had reached a settlement and that the case would be voluntarily dismissed.

The settlement agreement was filed under seal , and the district court dismissed the case with prejudice on February 6, 2017. In the judgment, the district court expressly stated that

" [i]n accordance with the stipulation, the court will retain jurisdiction until the terms and conditions of [the settl ement] are implemented and fully complied with. " As relevant here, the- 6

-

agreement specifically stated that the settlement amount would " be paid to . . . Robert Díaz

- Morales by the Commonwealth of Puerto Rico " because " D efendants are beneficiaries of [Puer to Rico Law 9 ]. " (emphasis added). The settlement ordered the payment to be made in installments, with the first installment due by December 31, 2017. On May 3, 2017 , before the first installment of the agreed settlement payment s was due, the Financial Oversight and Management Board ( " FOMB " ) filed a petition for bankruptcy relief on behalf of the Commonwealth under Title III of PROMESA. On September 4 , 2017, the Puerto Rico Department of Justice, on behalf of the D efendants, filed an " informat ive motion " with the district court notifying it of the Title III petition ; the motion did not ask the district court to take any action.

Nevertheless, Díaz filed a motio n in opposition . He argued that the " automatic stay is not applicable to this case" and that "the judgment against the Defendants is enforceable." Specifically, he first contended that the complaint "was NOT against the Commonwealth nor was it on account of a debt of the Commonwealth" but instead "sought damages against the Defendants[] exclusively in their personal and individual capacity." He went on to assert that if the settlement were breached, the district court would retain jurisdiction to determine the proper course but that such a possibility remained "premature and speculative ."- 7
- T he district court granted Díaz ' s opposition without elaboration, and the D efendants sought reconsideration . They argued that "the stay bars [Díaz] from continuing his collection efforts against the Government through the instant Complaint," since the Commonwealth was the party "responsible for paying the amount agreed upon in the covenant." They devoted the bul k of their motion to the assertion that a claim against an officer of Puerto Rico in his individual capacity seeks to enforce a claim against the Commonwealth, then closed by arguing that "in all earnest, this discussion is moot given that there is a settl ement agreement that disposed of the case at bar

-- and that settlement unequivocally states that the Commonwealth will pay." Thus, the D efendants requested that the District Court "respect the automatic stay that is in effect."

The district court denie d the motion for reconsideration, this t im e issuing an opinion. The district court reasoned that the Commonwealth was not a party to the suit or the judgment because the plaintiff had sought damages from the D efendants solely in their individual capacitie s. The district court also noted that at no point in the litigation was there a "cause of action alleged against the Commonwealth[] seeking payment or compensation of any kind" and that, because the Commonwealth had "consistently averred that in no way ha [d] it submitted to the [court ' s] jurisdiction," there was "nothing to be- 8

-

stayed here." The D efendants filed a second motion for reconsideration, primarily to highlight additional case law, but the district court denied that motion as well.

The D efendan ts timely appealed both the initial denial of the motion and the denial of both motions for reconsideration. II. DISCUSSION W e typically review a district court ' s denial of reconsideration for abuse of discretion, but we will evaluate the denial of these motions de novo because they "cover[ ] . . . more or less the same points . . . earlier made to the district court." Town of Norwood v. New Eng . Power Co. , 202 F.3d 408, 415 (1st Cir. 2000) (emphasis omitted) . In undertaking that review, we treat t he denials of these motions, as the parties do, as rulings that the PROMESA automatic stay does not apply in the face of a request to apply it to either the § 1983 suit itself or an action to enforce the settlement agreement. We thus consider the Commonwe alth ' s appeal to be a challenge to the conclusion that the stay does not apply here because the § 1983 suit has been dismissed with prejudice and no action to enforce the settlement has yet been brought, such that , as the district court articulated, "there is nothing to be stay ed ." For the reasons that we will explain, we conclude that the d istrict c ourt was right.

In Colón

- Torres , we concluded that the PROMESA stay applie d to a motion the plaintiff had filed seeking payment from- 9

-

the Commonwealth directly under a settlement agreement because we held that motion was an effort "to recover a claim against" the Commonwealth. Colón

- Torres , s lip o p. at 20 ( quoting 11 U.S.C. § 36 2(a)(1) ). PROMESA, we explained , directly incorporates the automatic stay provisions of the Bankruptcy Code, 11 U.S.C. §§ 362 , 922 , which, among other things, stay "the commencement or continuation . . . of a judicial . . . action or proceeding against the debtor . . . to recover a claim against the debtor . " Id. § 3 6 2(a)(1).

In Colón

- Torres , the parties disputed whether the Commonwealth was a party to the settlement, but the plaintiff

appellee had styled his motion to recoup the settlement monies as one against the Commonwealth rather than one against the individual defendant . For that reason , we held that his enforcement action must be stayed as it was an action "against the debtor . " Colón

Torres , slip op. at 17

- 21.

Here, by contrast, e ven accepting that the text of the settlement agreement indicate s th at the Commonwealth is the liable party under it , there i s no "action" or "proceeding" demanding that the Commonwealth make th e payment to the plaintiff , and there has been no effort to "commence[]" or "continu[e]" one. 11 U.S.C. § 362(a)(1) . Of course, at the time the motion for reconsideration was filed, the re was some chance that the Commonwealth might refuse to comply with the terms of the agreement when the deadline for- 10

-

payment arrived, and that the plaintiff might then ask the district court to enforce the obligation . 1 Even so, Díaz was right to argue th at possibility remained "premature and speculative" at the time s relevant to this appeal . Thus, we agree with the district court that "there is nothing to be stayed here" with respect to the enforcement of the settlement itself.

T he appellant
- D efendants do renew their contention that the complaint in the original § 1983 action "is functionally an action against the Commonwealth . " Regardless of whether th ey are right to so argue , cf. Colón

- Torres , s lip o p. at 22

- 24 , however, t hat action was not before the district court at the time they sought application of the stay . Though this dispute has its genesis in th at § 1983 suit , th e complaint was dismissed with prejudice pursuant to the terms of the settlement agreement before the Commonwealth filed for bankruptcy . Whether the "commencement" or "continuation" of that action should have been stayed pursuant to § 922

-- if it had still been live at the time of filing

-- is not before us.

Of course, if Díaz does make any attempt to enforce the settlemen t here, Colón

- Torres would likely bear on the question of

1 The district court expressly retained jurisdiction to enforce the settlement agreement in its judgment dismissing the case. Cf. Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375 , 378, 381 (1994) ; Colón

- Torres , s lip o p. at 15

– 16 (discussing the Commonwealth ' s challenge to the district court ' s jurisdiction to enforce the terms of the settlement agreement).- 11

-

whether his claim could proceed. Because the Commonwealth is the only party that has expressly committed in the settlement to pay the agreed
- upon amount , it may be that any future collection effort under the terms of that agreement would be against the Commonwealth. See Colón

- Torres , s lip o p. at 22

- 24 . And, any action to enforce the settlement in this case that "seeks to

recover a claim against the debtor" must be stayed i f it is brought. See 11 U.S.C. § 362. But, no such action is now pending , and the settlement agreement itself does not trigger the automatic stay . See Smith v. Capital One Bank (USA), N.A. , 845 F.3d 256, 258

- 59, 261 n.4 (7th Cir. 2016) (holding automatic stay was not violated where credit card company received a judgment it may have been able to enforce against a debtor but had not tried to do so) . III. CONCLUSION For the foregoing reasons, we affirm the dist rict court ' s order denying the application of the PROMESA s tay .