IN RE: the FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO (2025)

PROMESA

Title III

Memorandum Order Concerning Motion for Relief from Automatic Stay

Before the Court is the Motion for Relief from Automatic Stay (Docket Entry No. 27345 in Case No. 17-3283)² (the “Motion”) filed by Raquel E. Vélez-Molina, her husband Radames Rivera-Colon, and the Conjugal Partnership between Vélez-Molina and Rivera-Colon (together, the “Movants”).

Movants are plaintiffs in an action captioned Vélez-Molina v. Rivera-Schatz, et al., Civ. No. 20-1565 (MEL) (previously Civ. No. 20-1656 (PAD)),³ before the United States District Court for the District of Puerto Rico (the “District Court Action”), which proceeding has been stayed permanently by order of United States Magistrate Judge Marcos E. López. See District Court Action, ECF No. 123 (the “Judgment Staying Case”). Movants request relief from the automatic stay imposed by section 362 of the Bankruptcy Code ⁴ to pursue their claims against the Senate of Puerto Rico.

The Court has carefully reviewed the filings in the District Court Action and considered the Motion and the Objection of the Commonwealth of Puerto Rico to Motion for Relief from Automatic Stay Filed by Raquel E. Vélez-Molina and Radames Rivera-Colon (Docket Entry No. 27490) (the “FOMB Objection”), filed by the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”).⁵

The Motion is denied on the basis of issue preclusion. Magistrate Judge López has already ruled that, as a result of the confirmation of and pursuant to the terms of the confirmed Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, et al. (Docket Entry No. 19784) (the “Plan”) in the Commonwealth's Title III Case, “the automatic stay has expired and been replaced by” a permanent injunction (the “Plan Injunction”), Movants “claims are discharged per the Plan,” and the “Plan Injunction applies and enjoins Plaintiffs’ claims” which arose “prior to the Effective Date[.]” Vélez-Molina v. Rivera-Schatz, Civ. No. 20-1565 (MEL), 2023 WL 6536235, at *3-4 (D.P.R. Sept. 29, 2023) (citing, inter alia, Plan §§ 92.2, 92.3. 92.25; Docket Entry No. 20349) (emphasis in original) (the “Injunction Opinion”) [also District Court Action, ECF No. 116]. Essentially, “Plaintiffs’ claims against the [Commonwealth] are permanently enjoined pursuant to the Plan's Injunction.” Id. at *2.

Magistrate Judge López further determined that the Plan Injunction deprived that court of jurisdiction to proceed—or to address Movants’ arguments (not presented in the Motion) regarding the nature of their claim in the Title III Case—and stayed the District Court Action permanently (in fact terminating the case for statistical purposes), subject to reopening upon an order by this Court modifying the Plan Injunction to permit Movants to proceed. See id. at *7 (“ ‘[a]ll injunctions or stays contained in the Plan or the Confirmation Order shall remain in full force and effect in accordance with their terms’—which is to say permanently, unless modified by [the Title III] Court.”) (quoting In re Fin. Oversight & Mgmt. Bd. for P.R., 650 B.R. 286, 296 (D.P.R. 2022)⁶ (citations omitted)).⁷

Movants have not requested that this Court modify the Plan Injunction, but merely repeat—verbatim—arguments that were previously dismissed by final rulings with respect to the expiration of the automatic stay, discharge of Movants’ claims, and applicability of the Plan Injunction.

Under the doctrine of issue preclusion, sometimes referred to as collateral estoppel, Movants are estopped from relitigating or collaterally attacking the Injunction Opinion here. Moreover, Movants’ request for relief, however construed, to pursue their claims here or elsewhere fails because they have filed no claim and can be afforded no relief in the Commonwealth's Title III Case, and because the Plan Injunction precludes them from seeking relief in any other forum. Movants have presented no basis in law or fact that would warrant modification of the Plan Injunction with respect to Movants’ unfiled, discharged, and enjoined claims, and any pursuit of or recovery on their asserted claims within the Title III Case or in any other forum remains permanently barred. See 11 U.S.C.A. § 944(a)(1) (Westlaw through P.L. 119-5) (“The provisions of a confirmed plan bind the debtor and any creditor, whether or not—(1) a proof of such creditor's claim is filed or deemed filed ․”). See, e.g., 11 U.S.C. § 944(b) (discharge provision incorporated by section 301 of PROMESA, 48 U.S.C. § 2161). (See also Plan §§ 92.2, 92.3, 92.25.)⁸

Background

On May 3, 2017 (the “Petition Date”), the Oversight Board commenced the Title III Case in this Court on behalf of the Commonwealth pursuant to PROMESA.

On February 15, 2018, the Court issued its Order (A) Establishing Deadlines and Procedures for Filing Proofs of Claim and (B) Approving Form and Manner of Notice Thereof (Docket Entry No. 2521) (the “Initial Bar Date Order”), setting May 29, 2018, as the deadline for filing proofs of claim concerning claims (as defined in section 101(5) of the Bankruptcy Code, 11 U.S.C. § 101(5)) against the Commonwealth that arose prior to the Petition Date. On May 25, 2018, the Court extended that deadline to June 29, 2018 (the “Bar Date”). (See Order (A) Extending Deadlines for Filing Proofs of Claim and (B) Approving Form and Manner of Notice Thereof, Docket Entry No. 3160 (the “Bar Date Extension Order” and, together with the “Initial Bar Date Order,” the “Bar Date Orders”).) The Debtors undertook broad publication of notice of the Commonwealth's Bar Date pursuant to the Bar Date Orders, including publishing notice of the Bar Date in English- and Spanish-language publications circulating in Puerto Rico and the mainland United States, as well as running radio advertisements throughout Puerto Rico. (Initial Bar Date Order ¶¶ 17-22; Bar Date Extension Order ¶¶ 3-4.)

On January 18, 2022, the Court confirmed the Plan. (See Order and Judgment Confirming Modified Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, and the Puerto Rico Public Buildings Authority, Docket Entry No. 19813 (the “Confirmation Order”).) The Commonwealth Confirmation Order provided that “[t]he last day to file proof of Administrative Expense Claims shall be ninety (90) days after the Effective Date, after which date, any Administrative Expense Claim, proof of which has not been filed, shall be deemed forever barred, and the Debtors and Reorganized Debtors shall have no obligation with respect thereto ․” (Confirmation Order ¶ 44.)

The Plan became effective on March 15, 2022 (the “Effective Date”). (See Notice of (A) Entry of Order Confirming Modified Eighth Amended Title III Plan of Adjustment of the Commonwealth of Puerto Rico, et al. Pursuant to Title III of PROMESA and (B) Occurrence of the Effective Date, Docket Entry No. 20349 (the “Effective Date Notice”) at 2.)

Accordingly, pursuant to the Commonwealth Confirmation Order and the Effective Date Notice, the last day to file proofs of administrative expense claims against the Commonwealth was June 13, 2022 (the “Administrative Expense Bar Date”). (Effective Date Notice at 2-3.) However, the Administrative Expense Bar Date was thereafter extended through 4:00 p.m. (Atlantic Standard Time) on January 18, 2023 (the “Extended Administrative Expense Bar Date”), solely with respect to any claim or cause of action meeting the following criteria:

(A) asserted in a litigation or action against the Commonwealth, PBA, or ERS commenced from and after the respective petition date and prior to the Effective Date and relating to an action or event occurring from and after the respective petition date and prior to the Effective Date, or (2) not subject to a pending litigation or action, but arising from actions or events occurring from or after the respective petition date and prior to the Effective Date, and

(B) the holder of such claim did not receive service of the Effective Date Notice as documented in a Certificate of Service ․

(Order Extending Administrative Claim Bar Date for Certain Parties and Modifying Discharge Injunction, Docket Entry No. 22650 (the “Administrative Bar Date Extension Order”) ¶ 2 (emphasis added).) The Extended Administrative Expense Bar Date was also widely published. (See Administrative Bar Date Extension Order ¶ 7.)

Movants commenced the District Court Action on October 21, 2020. District Court Action, ECF No. 1. The details of the District Court Action are recounted in the Injunction Opinion. A key fact for purposes of the District Court's analysis is that Movants’ claims as alleged arose no earlier than August 1, 2017—after the Commonwealth's Title III Case had commenced—and no later than 2019—prior to the Effective Date. Injunction Opinion, 2023 WL 6536235, at *4.

It is undisputed that Movants have filed no proofs of claim—administrative expense-related or otherwise—in the Commonwealth's Title III Case.

Discussion

Movants proffer an array of arguments as to why the automatic stay under section 362 of the Bankruptcy Code should be lifted to permit them to pursue their claims against the Commonwealth in the District Court Action. Movants’ arguments are largely grounded in irrelevant pre-Bankruptcy Code caselaw (see Mot. at 4, 10-11 (discussing In re Shenberg, 433 F. Supp. 677 (N.D. Ill. 1977))) and provisions of the Bankruptcy Code that have not been incorporated into section 301 of PROMESA and so are also irrelevant to these proceedings (see Mot. at 7-8 (discussing unincorporated Bankruptcy Code provision 11 U.S.C. § 541)).

However, this Court need not repeat and apply here its prior holdings with respect to the expiration of the automatic stay, the onset of the Plan Injunction, the definition of “claim” under the Bankruptcy Code, or the non-existence of an “estate” under PROMESA. (See, e.g., Memorandum Order Concerning Motion for Relief from Automatic Stay, Docket Entry No. 26402 at 8 n.4, 10-11.) This is because—although Movants did not disclose the prior ruling to the Court ⁹ —in the Injunction Opinion, Magistrate Judge López held that the Plaintiffs’ claims against the Commonwealth have been discharged and are “permanently enjoined pursuant to the Plan's Injunction.” 2023 WL 6536235, at *2.

A. Issue Preclusion Bars Movants’ Attempt to Relitigate Discharge of Their Claim and the Applicability of the Plan Injunction

The Oversight Board argues that, under the doctrine of issue preclusion/collateral estoppel, the Injunction Opinion estops Movants from relitigating discharge of their claim and the applicability of the Plan Injunction. (See FOMB Reply ¶¶ 13-15.) This Court agrees.

“The principle of collateral estoppel, or issue preclusion, bars relitigation of any factual or legal issue that was actually decided in previous litigation between the parties, whether on the same or a different claim.” Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir. 1994) (citation omitted) (emphasis in original); see also Montana v. United States, 440 U.S. 147, 153 (1979) (“Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.” (citations omitted)). The Oversight Board is the sole representative of the Commonwealth pursuant to section 315(b) of PROMESA—including necessarily, as pertinent here, the Senate of Puerto Rico.¹⁰ Accordingly, the parties are legally identical for present purposes.

Federal common law “determines the preclusive effect of a judgment previously entered by a federal court.” See Perez v. Volvo Car Corp., 247 F.3d 303, 311 (1st Cir. 2001) (citation omitted). As recently articulated by the Court of Appeals for the First Circuit:

Four elements must generally be satisfied to collaterally estop a party from relitigating a factual or legal issue in federal court: ‘(1) the issue sought to be precluded must be the same as that involved in the prior action; (2) the issue must have been actually litigated; (3) the issue must have been determined by a valid and binding final judgment; and (4) the determination of the issue must have been essential to the judgment.’

Buscone v. Botelho (In re Buscone), 133 F.4th 196, 199 (1st Cir. 2025) (quoting Grella v. Salem Five Cent Sav. Bank, 42 F.3d at 30).

Here, all four preclusion elements are comfortably satisfied. With respect to the third element, the case was referred upon the parties’ consent to Magistrate Judge López (District Court Action, ECF No. 60), including full authority to enter judgment, which was entered on October 6, 2023 (see Judgment Staying Case), and from which no appeals were taken.

With respect to the other elements, Magistrate Judge López issued the Injunction Opinion after not only granting Movants a full and fair opportunity to litigate the questions that are now before this Court, but after considering and explicitly rejecting the arguments Movants presented twice in the District Court Action (in reply in opposition to the Senate's filed notice of the Plan Injunction and later in surreply to the Senate's brief in further support of the notice of injunction) and have reproduced in the Motion.

As only one of several examples: in their brief in opposition to the notice of Plan Injunction filed in the District Court Action,¹¹ Movants argued, after quoting much of section 92.2 of the Plan, that “[i]f this Honorable Court reads said section, it will note that the ‘future claims’ that it makes reference to, are those claims that are reasonably related to any claim rooted to prebankruptcy past.” District Court Action, ECF No. 99 ¶¶ 15-16. The same paragraphs were reproduced in Movants’ surreply. District Court Action, ECF No. 110 ¶¶ 8-9. Movants have again reproduced the same two paragraphs at pages 5 and 6 of the present Motion. (Mot. at 5-6.)¹² In the Injunction Opinion, Magistrate Judge López addressed the argument directly, dismissing it in a manner unquestionably essential to the Injunction Opinion’s ultimate holding and the Judgment Staying Case:

Plaintiffs further argue that [Plan] Section 92.2 [ ] should be interpreted to discharge only ‘those claims that are reasonably related to any claim rooted to prebankruptcy past.’ ECF No. 99 [¶ 16]. However, Section 92.2 explicitly states that claims which arose prior to the Effective Date are discharged. [ ] Plan § 92.2. Because Plaintiffs’ claims arose between 2017 and 2019—which is before the Effective Date of March 2022—their claims are discharged per the Plan. [District Court Action,] ECF No. 20 at 3, 17 [ ]. Moreover, because Plaintiffs provide no reason to distinguish their claims from those in the [prior Title III case rulings] cited above or that an exception within the Plan is applicable, the Plan Injunction applies and enjoins Plaintiffs’ claims.

Injunction Opinion, 2023 WL 6536235, at *4 (bolded emphasis added).

Although a ruling solely pertaining to a grant or denial of relief from the automatic stay may have limited preclusive effect because it is not a ruling on the merits of the underlying claim (see Grella v. Salem Five Cent Sav. Bank, 42 F.3d at 34), the Injunction Opinion’s determination that the confirmed Commonwealth Plan discharged and permanently barred pursuit of Movants’ claims in the underlying District Court Action was a final determination with respect to Movants’ arguments—satisfying the third preclusion element. Accordingly, the essential issue, the applicability of the Plan Injunction, is the same question that the Oversight Board seeks to estop Movants from relitigating here—satisfying the first preclusion element—and was decided after fulsome briefing in the District Court Action—satisfying the second preclusion element. Finally, after concluding that “Plaintiffs’ claims against the [Commonwealth] are permanently enjoined pursuant to the Plan's Injunction[,]” Magistrate Judge López then entered judgment staying the District Court Action permanently, barring an order by this Court modifying the Plan Injunction to permit Movants to proceed. Injunction Opinion, 2023 WL 6536235, at *2, *4; see Judgment Staying Case. The court could not have reached the conclusion to stay the case permanently without the essential determination that the Plan Injunction applies because Movants’ claim has been discharged—ergo, the fourth and final preclusion element has also been satisfied.

Movants have disregarded the Injunction Opinion and do not request modification of the Plan Injunction, nor do they seek recovery under the Commonwealth Plan. Rather, they seek to relitigate their prior arguments before this Court. Movants’ effort is unavailing. The automatic stay relief they request cannot be granted because the Bankruptcy Code section 362 “automatic stay has expired” (Injunction Opinion, 2023 WL 6536235, at *4), and all of Movants’ other or different arguments regarding the Plan Injunction have been comprehensively litigated and are barred. See Santiago-Martínez v. Fundación Damas, Inc., 93 F.4th 47, 51 (1st Cir. 2024) (issue preclusion applies “only if the loser had a ‘full and fair opportunity to litigate’ the issue in the earlier proceeding.”).

Accordingly, the Motion is denied on the basis of issue preclusion.

B. Movants’ Unfiled Claim Against the Commonwealth Has Been Discharged and Permanently Enjoined by the Plan Injunction.

Movants have identified no other viable grounds for relief. As held in the Injunction Opinion, although the automatic stay no longer precludes the assertion of Movants’ claim against the Commonwealth, all such claims have been discharged by the Plan, which is res judicata, and cannot be pursued because they are subject to the Plan Injunction. Movants’ claims could only have been asserted within the Title III Case and, as unfiled pre-Effective Date claims that are not afforded any express treatment under the Plan, are governed by the Plan's general provision for discharge as of the Effective Date.

Movants were required to file a proof of claim prior to the Administrative Expense Bar Date or the Extended Administrative Expense Bar Date, as applicable, to have any administrative expense priority claims provided for under the Plan. (Effective Date Notice at 2-3.)¹³ They did not do so. Nor did Movants did file a proof of claim in the Title III Case with respect to their postpetition claim against the Commonwealth; they have not requested any recovery under the Plan, instead repeating their rejected arguments that their claim is not subject to the expired automatic stay. Movants’ unfiled claim against the Commonwealth, which was asserted in the District Court Action but was not asserted in accordance with the provisions of the Plan, was discharged and is subject to the Plan Injunction. Because there is no relief that Movants could obtain in the District Court Action or any other forum other than to liquidate a discharged claim that the Plan bars them from pursuing, Movants have not presented any basis in law or in fact that would warrant—nor have they even requested—modification of the Plan Injunction to pursue their discharged claims in the District Court Action or in any other forum. See In re Residential Cap., LLC, 508 B.R. 838, 848 (Bankr. S.D.N.Y. 2014) (denying a movant's post-confirmation motion to lift the stay because movant had failed to file a proof of claim and their claims were discharged and permanently enjoined by the confirmed plan).¹⁴

Conclusion

In conclusion, the doctrine of issue preclusion estops Movants from relitigating the determinations of the Injunction Opinion. Accordingly, the Motion—which does not request modification of the Plan Injunction—is denied in full insofar as the Motion could be construed to request such modification and leave to pursue litigation of Movants’ unfiled, discharged, and enjoined claim against the Commonwealth. Movants’ claim, as a postpetition claim arising prior to the Effective Date for which no Proof of Claim was filed, is discharged and is permanently subject to the Plan Injunction.

This Memorandum Order resolves Docket Entry No. 27345 in Case No. 17-3283.

SO ORDERED.

FOOTNOTES

2.   Unless otherwise noted, all references herein to Docket Entry Nos. are references to Case No. 17-3283 (herein, the “Title III Case”).

3.   The Court takes judicial notice of the docket in the District Court Action pursuant to Fed. R. Evid. 201(b)(2). See, e.g., In re Zak, 573 B.R. 13, 32 (Bankr. D. Mass 2017) (“This Court can take judicial notice of those decisions as their accuracy cannot reasonably be questioned.”) (citing United States v. Bello, 194 F.3d 18, 23 (1st Cir. 1999)).

4.   References herein to the provisions of Title 11 of the United States Code (the “Bankruptcy Code”) are to sections made applicable in these cases by section 301 of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”). 48 U.S.C. § 2161. PROMESA is codified at 48 U.S.C. section 2101 et seq. References herein to “PROMESA” section numbers are to the uncodified version of the legislation.

5.   After the grant of multiple extensions (Docket Entry Nos. 27532, 27580, 27646), Movants did not file a reply in support of the Motion.

6.   (Memorandum Order Concerning Inquiry Motion of Juan Manuel Cruzado-Laureano, Docket Entry No. 22349 at 15.)

7.   See also Judgment Staying Case at 1 (“This case will be administratively closed for statistical purposes. However, the case may be reopened upon the filing of a copy of an order stating that the injunction was lifted in the PROMESA Title III proceedings or upon further order of the court.”).

8.   As did Magistrate Judge López in the Injunction Opinion, this Court will note that the provisions of the confirmed Plan have largely identical mirror provisions in the Confirmation Order (defined below), which “may be used interchangeably for this analysis.” See 2023 WL 6536235, at *2 n.1.

9.   Movants referred in their pleading—without citation—only to the Judgment Staying Case and nowhere to the Injunction Opinion: “On October [6th] of 2023, the District Court issued a Judgment staying the case.” (Mot. at 2.) The Injunction Opinion was issued in September 2023.

10.   (See, e.g., Docket Entry No. 2828 Ex. B at 2 (listing the Senate on the Central Government Entities List). Accord In re Fin. Oversight & Mgmt. Bd. for P.R., 650 B.R. at 291-92 [Docket Entry No. 22349 at 7-9]) (claims against the Puerto Rico Controller's Office are claims against the Commonwealth for the purposes of Title III of PROMESA).

11.   Notice of Injunction Pursuant to the Confirmation Order Issued by the Title III Court Staying the Instant Case, District Court Action, ECF No. 95.

12.   The Court further notes that the quoted phrase “future claims” which Movants state was referenced in Plan section 92.2 is nowhere used in the Plan or the Confirmation Order.

13.   “PLEASE TAKE FURTHER NOTICE that, if you are required to file an Administrative Expense Request pursuant to Section 1.51 and Article III of the Plan and decretal paragraph 44 of the Confirmation Order and fail to do so by the Administrative Deadline, you will be forever barred, estopped, and enjoined from asserting such Administrative Expense Claim (and from filing an Administrative Expense Request with respect to such Administrative Expense Claim) against the Debtors and their property, and the Debtors and Reorganized Debtors will be forever discharged from any and all indebtedness or liability with respect to such Administrative Expense Claim.” (Effective Date Notice at 3 (bolded in original).)

14.   Moreover, it was not necessary that Movants file a proof of claim in the Commonwealth's Title III proceedings to be bound by the terms of the discharge and Plan Injunction. Under section 944 of the Bankruptcy Code: “(a) The provisions of a confirmed plan bind the debtor and any creditor, whether or not—(1) a proof of such creditor's claim is filed or deemed filed ․” 11 U.S.C.A. § 944 (Westlaw through P.L. 119-5). (See also Plan § 92.2(a); Confirmation Order ¶ 56(a).)

LAURA TAYLOR SWAIN, United States District Judge