MUNICIPALITY OF SAN JUAN; TOA ALTA COMPREHENSIVE URBAN/RURAL ADVANCED HEALTH SERVICES, INC.; RIO GRANDE COMMUNITY HEALTH CENTER, INC., Plaintiffs,
COMMONWEALTH OF PUERTO RICO, Defendant, Appellant, MIGRANT HEALTH CENTER, INC.; CORP. DE SERVICIOS INTEGRALES DE SALUD INTEGRAL DE LA MONTANA, INC.; MOROVIS COMMUNITY HEALTH CENTER, INC.; CORPORACION DE SERVICIOS DE SALUD Y MEDICINA AVANZADA, INC. (COSSMA); HEALTHPROMED FOUNDATION, INC., f/k/a Dr. Jose S. Belaval, Inc.; CONCILIO DE SALUD INTEGRAL DE LOIZA, INC. (CSILO); NEOMED CENTER, INC., f/k/a Gurabo Community Health Center, Inc.; CIALES PRIMARY HEALTH CARE SERVICES, INC.; CORPORACION DE SERV. MEDICOS PRIMARIOS Y PREVENCION DE HATILLO, INC.; COSTA SALUD, INC., f/k/a Rincon Health Center, Inc.; CAMUY HEALTH SERVICES, INC.; ATLANTIC MEDICAL CENTER, INC.; CENTRO DE SALUD FAMILIAR DR. JULIO PALMIERI FERRI, INC.; HOSPITAL GENERAL CASTANAR, INC.; EL CENTRO DE SERVICIOS PRIMARIOS DE SALUD DE PATILLAS, INC.; EL CENTRO DE SALUD DE LARES, INC., Plaintiffs, Appellees, DEPARTMENT OF HEALTH OF COMMONWEALTH OF PUERTO RICO; DEPARTMENT OF HEALTH AND HUMAN SERVICES; RAFAEL RODRIGUEZ-MERCADO, Secretary of the Department of Health for the Commonwealth of Puerto Rico; ALEX MICHAEL AZAR, II, Secretary of Health and Human Services, Defendants.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. Gustavo A. Gelpí, Jr., U.S. District
Lugo-Fiol, with whom Isaías
Sánchez-Báez, Solicitor General of Puerto Rico,
was on brief, for appellant.
L. Feldesman, with whom Nicole M. Bacon, Khatareh S. Ghiladi,
and Feldesman Tucker Leifer Fidell LLP were on brief, for
appellees Atlantic Medical Center, Inc., Camuy Health
Services, Inc., Centro de Salud Familiar Dr. Julio Palmieri
Ferri, Inc., Ciales Primary Health Care Services, Inc., Corp.
de Serv. Médicos Primarios y Prevención de
Hatillo, Inc., Costa Salud, Inc., Centro de Salud de Lares,
Inc., Centro de Servicios Primarios de Salud de Patillas,
Inc., and Hospital General Castañer, Inc.
A. Graham, with whom Iyen A. Acosta and Reno & Cavanaugh
PLLC were on brief, for appellees HealthproMed, Salud
Integral en la Montaña, Migrant Health Center, COSSMA,
Morovis Community Health Center, NeoMed Center, and Concilio
de Salud Integral de Loiza.
Lynch, Thompson, and Barron, Circuit Judges.
BARRON, CIRCUIT JUDGE
appeal concerns the automatic stay provision of the Puerto
Rico Oversight, Management, and Economic Stability Act
("PROMESA"), see 48 U.S.C. §§
2101-2241, a statute that Congress enacted in June 2016 to
address the Commonwealth of Puerto Rico's financial
crisis. The question presented is whether that automatic stay
applies to certain proceedings to determine the amount of
federal court-ordered payments (which the parties refer to as
"prospective wraparound payments") that the
Commonwealth owes to several federally qualified health
centers ("FQHCs") per a 2010 injunction. Those
proceedings arise out of Medicaid litigation that has been
ongoing against the Commonwealth for sixteen years in the
United States District Court for the District of Puerto Rico.
litigation began in June of 2003, when several FQHCs sought
to enjoin the Secretary of the Department of Health of Puerto
Rico from failing to reimburse them -- through what are known
as "wraparound payments" -- for their reasonable
costs of providing services to Medicaid patients, as required
under the Medicaid Act, 42 U.S.C. § 1396a(bb).
appeal arises from a motion that the Commonwealth filed in
that litigation on May 30, 2018. The motion notified the
District Court that the Commonwealth, through the Financial
Oversight and Management Board for Puerto Rico (the
"Oversight Board"),  had filed for bankruptcy under
Title III of PROMESA in May of 2017. The motion stated that,
in consequence, the litigation was subject to the automatic
stay that Title III imposes. The District Court entered an
order on July 11, 2018, in which it ruled that the automatic
stay did not apply. We now reverse.
begin by recounting the following undisputed facts. They
concern, in the main, the travel of the litigation that has
led to the present dispute over whether the Title III
automatic stay applies to the wraparound payment litigation.
parties to this appeal are the Commonwealth, which is the
appellant, and a number of FQHCs, which are the appellees.
The parties are connected to one another because the
Commonwealth contracts managed care organizations
("MCOs") to run its Medicaid program. The MCOs, in
turn, contract with FQHCs to provide medical assistance to
the Medicaid Act, the Commonwealth is a state, 42 U.S.C.
§ 1301(a)(1), and thus must reimburse the FQHCs'
total "reasonable" costs for providing Medicaid
services, id. § 1396a(bb). Because the
Commonwealth operates its Medicaid program through MCOs, the
Medicaid Act requires the Commonwealth to cover the
difference between what the FQHCs receive from the MCOs
directly and the "reasonable" costs that the FQHCs
would receive under the Medicaid Act's default payment
scheme. Id. § 1396a(bb)(5)(A).
"supplemental payment[s]" -- known as
"wraparound payments" -- are due to the FQHCs
"in no case less frequently than every 4 months."
Id. § 1396a(bb)(5)(B). In 1997, Congress
provided that states must make these wraparound payments via
a detailed calculation scheme, known as the prospective
payment system ("PPS"). See id. §
1396a(bb)(2)-(3). Congress made the PPS effective after
fiscal year 2000. Id.
longstanding litigation at issue in this case began in June
2003, when several FQHCs sued the Secretary of the Department
of Health of Puerto Rico in the District of Puerto Rico under
42 U.S.C. § 1983. Concilio de Salud Integral de
Loiza, Inc. v. Pérez-Perdomo, 551 F.3d 10, 11
(1st Cir. 2008). The FQHCs alleged that the Commonwealth had
failed both to implement a PPS and to issue the wraparound
payments required under the Medicaid Act. Rio Grande
Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56, 65 (1st
Cir. 2005). The FQHCs sought declaratory relief, injunctive
relief for the establishment of a PPS and interim emergency
wraparound payments, and attorney's fees and costs.
Id. On January 7, 2004, the FQHCs moved for a
preliminary injunction, which the District Court granted on
November 1, 2004. Concilio de Salud Integral de Loiza,
Inc., 551 F.3d at 12.
consequence of the 2004 preliminary injunction, the
Commonwealth began to make wraparound payments to the FQHCs
pursuant to a series of orders that calculated the required
payments according to a "rough methodology" that
the District Court had adopted. Id. The methodology
that the District Court adopted differed from the ones
proposed by the FQHCs (whose proposed methodology would have
resulted in higher payments) and by the Commonwealth (whose
proposed methodology would have resulted in lower payments).
Id. at 12-14.
2007, however, the Commonwealth's payments under that
methodology stopped, when the District Court vacated the
preliminary injunction based on the Commonwealth's
establishment of a permanent PPS Office. Id. at 14.
The FQHCs appealed that order, and, in 2008, we reversed.
Id. at 19. In doing so, we suggested that the
District Court appoint a Special Master to assist in
addressing the complex Medicaid payment calculations at issue
in this case. Id.
District Court appointed a Special Master in May of 2009. The
Special Master began assisting the District Court with the
process of updating the rates and formulas for the wraparound
payments owed by the Commonwealth -- a process known as
"rebasing." The Special Master issued a series of
reports and recommendations as to the amount due to each FQHC
for the period from June 2006 to July 2009.
District Court adopted the Special Master's
recommendations in a preliminary injunction that it issued on
November 8, 2010 ("2010 Injunction"). See
Preliminary Injunction, Consejo de Salud Playa Ponce v.
Pérez-Perdomo, No 06-1260 (D.P.R. Nov. 8, 2010),
ECF No. 743; Consejo de Salud de la Comunidad de la Playa
de Ponce, Inc. v. González-Feliciano, 695 F.3d
83, 90 (1st Cir. 2012). That preliminary injunction required
the Commonwealth to make prospective wraparound payments to
the FQHCs from that point going forward. Id.
consequence of the 2010 Injunction, the Commonwealth makes
some payments to the FQHCs based on the Special Master's
2006 to 2009 calculations. Although there have been some
adjustments to the payment amounts (e.g. for fluctuation in
the total federal Medicaid population) over the course of the
eight years that the 2010 Injunction has been in effect, the
rebasing process must be completed before the final amount of
the wraparound payments due to the FQHCs can be determined.
order to facilitate the completion of that process, the
Special Master held a series of meetings and issued three
separate rebasing reports, to which the FQHCs objected. On
April 12, 2017, the Special Master issued a fourth rebasing
report that proposed changes to the formulas and procedures
used to calculate the wraparound payments.
this ongoing litigation in federal court -- in which FQHCs
are seeking what are referred to by the parties as
prospective wraparound payments -- a nearly
identical group of FQHCs is involved in related litigation
against the Commonwealth in the Commonwealth's local
courts. See Rio Grande Cmty. Health Ctr., Inc., 397
F.3d at 64. The FQHCs involved in this parallel litigation
sued the Commonwealth on May 10, 2002, about a year before
the federal suit commenced. In that suit, the FQHCs sought to
require the Commonwealth to make retroactive
wraparound payments to the FQHCs dating back to
this ongoing litigation in the federal and Puerto Rico
courts, the Commonwealth, on May 3, 2017, through the
Oversight Board, filed for bankruptcy under Title III of
PROMESA. As relevant here, PROMESA incorporates sections of
the United States Bankruptcy Code, including a provision
imposing an automatic stay of
the commencement or continuation . . . 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, or to recover a
claim against the debtor that arose before the commencement
of the case under this title[.]
11 U.S.C. § 362(a)(1) (incorporated in 48 U.S.C. §
2161(a)). The filing of the Title III petition prompted
proceedings in both the District of Puerto Rico and the
Commonwealth's local courts about whether the automatic
stay applied to the wraparound payment litigation.
litigation in the Puerto Rico courts, the Court of Appeals of
Puerto Rico took notice of the Title III petition and
decided, on June 30, 2017, that the automatic stay applied to
the wraparound litigation over which it had jurisdiction.
See Asociación de Salud Primaria de Puerto Rico,
Inc. v. Estado Libre Asociado de Puerto Rico, 2017 WL
3842832 (P.R. Cir. June 30, 2017). The FQHCs did not seek
review or challenge the applicability of the stay to the
litigation in the Puerto Rico courts. See Motion for
Abstention, In re Financial Oversight and Management
Board for Puerto Rico, No. 17-0227 (D.P.R. Nov. 14,
2017), ECF No. 29 at 8. The FQHCs instead filed a notice of
removal to the Title III Court on August 2, 2017.
See Notice of Removal, In re Financial Oversight
and Management Board, No. 17-0227 (D.P.R. Aug. 2, 2017),
ECF No. 1 at 7.
Title III Court, on July 10, 2018, modified the automatic
stay to allow the local court litigation to proceed to
judgment but maintained the stay as to the execution or
enforcement of a final judgment. See Memorandum
Order, In re Financial Oversight and Management
Board, No. 17-0227 (D.P.R. July 10, 2018), ECF No.
Relatedly, on November 27, 2018, the Title III Court found
that the issue of whether the FQHCs' claims would
ultimately be nondischargeable was not yet ripe for review.
See Memorandum Order, In re Financial Oversight
and Management Board for Puerto Rico, No. 17-0278
(D.P.R. Nov. 27, 2018), ECF No. 65 at 5-8.
parallel prospective federal court litigation from which this
appeal arises, however, things have not been so
straightforward. On May 10, 2017, a week after the Title III
petition was filed, the District Court entered an order
adopting the Special Master's fourth rebasing report
(issued on April 27, 2017). Rio Grande Comm. Ctr., Inc.
v. Puerto Rico, No. 03-1640 (D.P.R. May 10, 2017), ECF
No. 1007. The FQHCs then appealed that order on June 21,
2017, without making any mention of the Title III petition.
course of the FQHCs' appeal from the District Court's
order adopting the Special Master's fourth rebasing
report, our Court issued an order in December of 2017
directing the FQHCs to show cause whether PROMESA's Title
III automatic stay applied to any part of their appeal of the
District Court's May 10, 2017 order. See Atl. Med.
Ctr., Inc. v. Dep't of Health of Puerto
Rico, No. 17-1812 (1st Cir. Dec. 21, 2017), ECF No. 13.
The FQHCs responded by arguing that the automatic stay did
not apply, by pointing to specific provisions of PROMESA. The
Commonwealth argued in response that the stay applied under
the plain language of Section 362(a)(1) of the Bankruptcy
Code, as incorporated by Section 301(a) of PROMESA.
March 1, 2018, we entered an
"abeyance-and-deferral" order holding that appeal
in abeyance "pending further proceedings in the
Commonwealth of Puerto Rico's Title III case for the
protective lifting of the automatic stay (to the extent that
it applies)." Atl. Med. Ctr., Inc., No. 17-1812
(1st Cir. Mar. 1, 2018), ECF No. 23. At that point, the
Commonwealth filed a motion before the District Court on May
30, 2018. Rio Grande Comm. Ctr., Inc. v. Puerto
Rico, No. 03-1640 (D.P.R. May 30, 2018), ECF No. 1107.
In that motion, the Commonwealth notified the District Court
of the Commonwealth's Title III bankruptcy proceedings
and of the status of the appeal of the District Court's
May 10, 2017 order in the prospective wraparound payment
Commonwealth stated in its motion that it would
continue to deposit the Quarterly Interim Wraparound payments
as they stand, in compliance with the Court's injunctive
order as it has consistently done in the past few years.
Nothing in PROMESA disturbs the Government of Puerto
Rico's public policy regarding the services provided
under Medicaid and the compliance with the prospective
payment to assure the service is rendered.
Id. (emphasis in original). Nevertheless, the
Commonwealth asserted in its motion that this
"pre-petition claim" is subject to the automatic
stay. Id. The FQHCs opposed the Commonwealth's
position in a motion arguing that the application of the