Fiscal board seeks emergency stay from order that could fuel lawsuits against gov’t workers

U.S. Court of Appeals for the First Circuit in Boston

By THE STAR STAFF

The Financial Oversight and Management Board for Puerto Rico is seeking an emergency stay of a recent court order that could reopen potentially hundreds of lawsuits against commonwealth employees, arguing that the directive threatens Puerto Rico’s fragile fiscal recovery and contradicts the island’s court-approved debt restructuring plan.

The order, issued in the Title III bankruptcy case, requires the oversight board and the commonwealth to notify litigants by Wednesday that the commonwealth Plan of Adjustment (POA) does not bar claims against government officials in their personal capacities. The board contends that such claims are effectively indirect claims against the commonwealth itself, which the POA was designed to discharge.

In a motion filed last Friday, the oversight board argues that the order should be automatically stayed under Section 106 of the Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA, the federal law governing Puerto Rico’s fiscal recovery. That provision stipulates that no court order granting injunctive relief against the board takes effect while an appeal is pending.

“The Order will have a significant fiscal impact on the Commonwealth,” the oversight board wrote, warning that defending and potentially paying judgments in such cases could cost Puerto Rico millions. “A short stay would protect the Commonwealth’s finances while avoiding any confusion.”

The oversight board has already appealed the order and is seeking expedited review from the U.S. Court of Appeals for the First Circuit, which is expected to hear arguments on similar issues later this month. In the meantime, the board is asking the court to either stay the order or extend the deadline to Oct. 31 to allow time for coordination across hundreds of pending cases.

The lawsuits in question involve claims for damages against individual government employees for actions taken during their official duties. Under Puerto Rico’s Law 9, the commonwealth often assumes legal defense and financial liability for such claims, making them functionally equivalent to claims against the government itself.

The oversight board maintains that allowing the cases to proceed now would be premature and potentially wasteful, especially if the First Circuit ultimately rules that such claims were discharged under the POA.

The court confirmed the commonwealth’s POA in January 2022. The plan, which became effective on March 15, 2022, provides for a broad discharge and release of claims against the commonwealth.

The latest case stems from a civil rights litigation. In 2019, Jonathan Hernández Zorrilla and Yadira Carrasquillo González each filed a civil rights action in U.S. District Court for the District of Puerto Rico against the sitting governor and other current and former commonwealth employees, seeking compensatory and punitive damages for alleged constitutional violations. The cases were later consolidated. Following confirmation of the POA, the oversight board and the commonwealth filed a notice of permanent injunction in the consolidated federal litigation, which stated that the claims for damages asserted by claimants were discharged pursuant to the Plan and Confirmation Order. The claimants sued for relief from the automatic stay so that their litigation could proceed to final judgment. The court partially granted the motion, holding that the discharge and discharge injunction provisions of the Plan and Confirmation Order do not bar the prosecution of claimants’ claims against commonwealth officials in their individual capacities.