Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Municipality of San Juan v. Commonwealth of Puerto Rico

United States Court of Appeals, First Circuit

March 21, 2019

MUNICIPALITY OF SAN JUAN; TOA ALTA COMPREHENSIVE URBAN/RURAL ADVANCED HEALTH SERVICES, INC.; RIO GRANDE COMMUNITY HEALTH CENTER, INC., Plaintiffs,
v.
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.

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Gustavo A. Gelpí, Jr., U.S. District Judge]

          Carlos Lugo-Fiol, with whom Isaías Sánchez-Báez, Solicitor General of Puerto Rico, was on brief, for appellant.

          James 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.

          Robert 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.

          Before Lynch, Thompson, and Barron, Circuit Judges.

          BARRON, CIRCUIT JUDGE

         This 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.

         The 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).

         This 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"), [1] 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.

         I.

         We 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.

         The 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 Medicaid patients.

         Under 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).

         Such "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.

         The 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.

         In 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.

         In 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.

         The 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.

         The 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.[2] Id.

         In 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.

         In 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.[3]

         Alongside 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 1997.[4]

         Amidst 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.

         In the 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.

         The 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. 64.[5] 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.

         In the 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.

         In the 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.

         On 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 litigation.

         The 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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.