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Vargas-Colon v. Fundacion Damas, Inc.

United States Court of Appeals, First Circuit

July 19, 2017

LIZBETH VARGAS-COLÓN, in representation of her minor daughter, L.C.V.; JAIME MANUEL CEDEÑO-VARGAS; JAIME ALEXANDER CEDEÑO-VARGAS, Plaintiffs, Appellants,


          David Efron, with whom Joanne V. Gonzales Varon and Law Offices of David Efron, P.C. were on brief, for appellants.

          Freddie Pérez-González, with whom Freddie Peréz-González & Assoc., P.S.C. was on brief, for appellee Fundación Damas, Inc.

          Luis E. Padrón Rosado for appellee Banco Popular de Puerto Rico.

          Before Howard, Chief Judge, Lipez and Thompson, Circuit Judges.

          THOMPSON, Circuit Judge.

         The case before us is, simply put, a hot mess. The ongoing dispute has an evolving cast of characters and has featured stops in numerous federal and Puerto Rico courts. And, in its present iteration, the briefing from all parties leaves much to be desired. Yet, after slogging our way through these muddied waters, a modicum of clarity has emerged. In the end, because plaintiffs - L.C.V., a minor represented by her mother, Lizbeth Vargas-Colón (Vargas), [1] and L.C.V.'s two brothers, Jaime Manuel Cedeño-Vargas and Jaime Alexander Cedeño-Vargas (collectively, the brothers) - have not presented us with a developed argument that convinces us to disturb the judgment of the district court, we affirm.


         Although we could spill gallons of ink explaining the ins and outs of the extensive procedural history of the several cases in this saga, we instead opt for a more efficient course: setting forth only those background facts necessary to put these appeals into their proper context. At its core, this case is about a family's dogged efforts to recover for alleged acts of medical malpractice.

         A. First Medical-Malpractice Action

         This case has its genesis in an undeniably tragic episode. In 2000, Vargas went to Hospital Damas in Ponce, Puerto Rico for the birth of L.C.V. Plaintiffs allege the following facts concerning L.C.V.'s birth. The birth by Cesarean section was delayed until several hours after Vargas first arrived at Hospital Damas. During some or all of this period of delay, L.C.V.'s brain was not receiving a sufficient amount of oxygen. As a result, she suffered severe and permanent neurological defects, "has no hope of a normal life, " and will require lifelong, round-the-clock care for her conditions.

         In 2007, Vargas and her husband, Jaime M. Cedeño, [2]initiated a medical-malpractice action in the United States District Court for the District of Puerto Rico on their own behalf and on behalf of L.C.V. (Case No. 07-1032).[3] The amended complaint asserted claims against Vargas's doctor and "Hospital Damas or, alternatively, John Doe Corporation d/b/a Hospital Damas." It also alleged that "Hospital Damas is the owner and operator of a hospital of the same name, located in Ponce, Puerto Rico." In August 2009, on the eve of trial and after the parties engaged in extensive discovery, the plaintiffs in Case No. 07-1032 settled with Hospital Damas, Inc. (HDI) and the defendant doctor.[4] The settlement agreement - which listed Vargas, Cedeño, and L.C.V. as settling plaintiffs and HDI and Vargas's doctor as settling defendants - called for the defendants to pay the plaintiffs a total of $1.5 million in eight installments.

         The district court entered a judgment approving the settlement and dismissing the complaint with prejudice. Additionally, as the parties agreed, the district court retained jurisdiction over the case to enforce the terms of the settlement agreement.

         B. HDI's Bankruptcy Case

         The defendants paid the plaintiffs the initial payment of $400, 000 under the settlement agreement. But HDI failed to live up to its end of the bargain after that. Instead, it filed a petition for bankruptcy in September 2010 (bankruptcy case). In 2012, a group of medical-malpractice creditors of HDI - including L.C.V., Vargas, and Cedeño - moved to dismiss the bankruptcy petition, alleging (among other things) that the petition was filed fraudulently and in bad faith. These allegations were premised on the fact that the license to operate Hospital Damas and the certificate of need and convenience (CNC) - a document needed to operate a hospital in Puerto Rico - were actually held by Fundación Damas, Inc. (Fundación) and not by HDI, such that HDI was not lawfully operating Hospital Damas.

         The bankruptcy court held a hearing on the motion, at which documentary and testimonial evidence was admitted and the medical-malpractice creditors and HDI argued their respective positions. The bankruptcy court denied the dismissal motion. The court found that Fundación "owns the real property on which the hospital facility known as Hospital Damas is located. Prior to 1987, it operated Hospital Damas. In 1987, Fundación . . . incorporated [HDI] and then leased the hospital facility to [HDI]." It also found that Fundación "transferred the hospital operation to [HDI]" in 1987 and that HDI "has been operating Hospital Damas since 1987." The court determined that HDI "inadvertently failed to realize that there was a problem with its CNCs and licenses prior to the filing of the motion to dismiss." The medical-malpractice claimants appealed the denial of their motion to the United States Bankruptcy Appellate Panel (BAP) for the First Circuit.

         Meanwhile, the bankruptcy case continued on, and the court eventually confirmed a reorganization plan for HDI. In exchange for the medical-malpractice claimants' withdrawal of their objections to the plan and their appeal to the BAP, HDI and the medical-malpractice claimants filed a Joint Amended Plan of Reorganization (bankruptcy plan supplement) in the bankruptcy court. In pertinent part, the bankruptcy plan supplement provided that:

(C) . . . [N]othing in this Consented Supplement, or in the Plan as confirmed[, ] shall be construed as an impediment to any medical malpractice claimant, with or without judgment, to file before any court with jurisdiction a complaint, motion or legal action against Fundación or any other third party in order to pursue any action or collect from Fundación or any other third party any malpractice claim or deficiency thereof (amount not collected from [HDI]) for which said entity might be liable. . . .
(E) The Medical Malpractice Claimants that have judgment shall also be entitled to . . . any reimbursement or replenishment due the Trust Fund[5] and to pursue any cause of action against Fundación, its Board of Directors, the Trust Fund or any other third party for the reimbursement or replenishment of the Trust Fund.
(H) The confirmation of the Plan does not preclude the Medical Malpractice Claimants from pursuing their claims against third parties, including, without limitation, Fundación as to if [sic] Fundación must replenish the Trust Fund.[6]

         The bankruptcy court ultimately confirmed the reorganization plan, as supplemented by the bankruptcy plan supplement.

         The plaintiffs in Case No. 07-1032 received $244, 988.86 from HDI in payment of their pro rata distribution of their proof of claim in the bankruptcy case, bringing the total amount received to $644, 988.86 - over $855, 000 less than the $1.5 million to which they were entitled under the settlement agreement.

         C. Unsuccessful Attempt to Amend Judgment in Case No. 07-1032

         In an effort to collect the balance, the plaintiffs in Case No. 07-1032 returned to the district court and moved, pursuant to Rule 60 of the Federal Rules of Civil Procedure - which is entitled "Relief From a Judgment or Order" - to amend the judgment "to substitute, nunc pro tunc, [HDI] in the settlement agreement for another entity, Fundación." The motion argued that, because Fundación was "the only legal entity holding a CNC and authorized by law to operate Hospital Damas in Ponce, Puerto Rico[] as of the time of the facts alleged in the complaint in November 2000, " it was the true "owner and legal entity authorized by law to operate Hospital Damas" at the time of the alleged malpractice. Because hospital owners and operators can be held vicariously liable for the negligence of hospital employees and staff under Puerto Rico law, the motion argued, Fundación was liable for the medical malpractice. The motion therefore requested that Fundación be added as a party defendant in Case No. 07-1032. Finally, the motion repeated the theme sounded in the bankruptcy case: that HDI and Fundación had fraudulently misled the plaintiffs into believing that the soon-to-be bankrupt HDI was the owner and operator of Hospital Damas and concealed Fundación's status as the real owner and operator.[7] HDI opposed the motion, arguing that the bankruptcy court's finding that HDI, and not Fundación, was the owner and operator of Hospital Damas barred the plaintiffs' motion under the doctrine of issue preclusion.

         The district court denied the motion to amend the judgment. The plaintiffs in this case concede that, in recommending the denial of the motion to amend in Case No. 07-1032, the magistrate judge "appl[ied] the doctrine of issue preclusion based on the ruling of the [b]ankruptcy [c]ourt." As explained by the district-court judge who adopted the magistrate judge's R&R, "the [b]ankruptcy [c]ourt made the factual findings that, regardless of Fundación's ownership of the property comprising the hospital, [HDI] was indeed the hospital's operator since 1987, and, thus, liable for the negligence that caused [the plaintiffs'] injuries." Therefore, the court explained, it was "not persuaded by [the plaintiffs'] argument that [Fundación] was and is the only lawful owner and operator of the Hospital Damas and, as such, liable for the settlement agreement that led to a judgment from this court." The court clarified, however, that it was "not making a determination on the validity of any claims [the plaintiffs] might have against Fundación."

         The plaintiffs appealed from the denial of their motion, and we affirmed on the ground that the plaintiffs were not entitled to relief under Rule 60(a).[8] See Vargas-Colón, 561 F.App'x at 18, 21-22. In so doing, we expressed no opinion on "the question of whether issue preclusion might provide Fundación a defense" or on "the unpreserved suggestion that the settlement agreement might (according to its terms, if not to common sense) have created rights enforceable against Fundación and a number of other non-signatories." Id. at 21-22. We explained that "[t]hese issues are, at best, for another day in another case, " id. at 22, and that "[w]hether the plaintiffs actually have any viable claim against Fundación is an issue we need not and do not reach in order to affirm the judgment in this case, " id. at 22 n.5.[9]

         D. Puerto Rico Action Against Trustee

         Meanwhile, in 2012, the plaintiffs in Case No. 07-1032 filed an action for injunctive relief against Banco Popular de Puerto Rico (Banco Popular), as trustee of the Trust, in the Puerto Rico Court of First Instance. The plaintiffs alleged that Banco Popular committed acts as trustee that wrongfully impaired their ability to collect the settlement proceeds from the Trust. For reasons that need not concern us, the plaintiffs in that action successfully moved for voluntary dismissal of their complaint without prejudice in 2013.

         E. This Case

         At long last, we turn to the instant case. Vargas, on behalf of L.C.V., and L.C.V.'s two brothers filed this diversity action against Fundación and Banco Popular in December 2014. The amended complaint alleges that Fundación "is[, ] pursuant to filings in the Department of Health, the owner and operator of Hospital Damas located in Ponce, Puerto Rico." Plaintiffs assert three causes of action, two of which are relevant on appeal.[10]First, count 1 of the amended complaint asserts a medical-malpractice claim against Fundación under Articles 1802 and 1803 of the Puerto Rico Civil Code.[11] Second, plaintiffs also assert a negligence claim against Fundación and Banco Popular for mismanagement of the funds of the Trust (count 3).[12] Count 3 alleges that defendants owed plaintiffs, as medical-malpractice claimants, a duty "to not mismanage the [Trust] funds" and that they breached this duty by "squander[ing] . . . the funds."

         Banco Popular moved to dismiss count 3, and Fundación moved for summary judgment on counts 1 and 3. The district court granted both ...

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