Migrant Health Center, Inc. v. Commonwealth of Puerto Rico

United States Court of Appeals
For the First Circuit
No. 18-1783
MUNICIPALITY OF SAN JUAN; TOA ALTA COMPREHENSIVE URBAN/RURAL
ADVANCED HEALTH SERVICES, INC.; RIO GRANDE COMMUNITY HEALTH
CENTER, INC.,
Plaintiffs,
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,
v.
COMMONWEALTH OF PUERTO RICO,
Defendant, Appellant,
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]
Before
Lynch, Thompson, and Barron,
Circuit Judges.
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.
March 21, 2019
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
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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.
1The Oversight Board is the Commonwealth's representative in
any case filed under Title III of PROMESA. 48 U.S.C. § 2175(b).
We recently held that the process for appointing the Oversight
Board members was unconstitutional under the Appointments Clause
of the United States Constitution, U.S. Const. art. 2, U.S.C. § 2,
cl. 2. Aurelius Inv., LLC v. Puerto Rico, 915 F.3d 838, 862 (1st
Cir. 2019). However, we did not order the dismissal of the
Oversight Board's Title III petitions, nor did our ruling nullify
any otherwise valid actions of the Oversight Board that were taken
prior to the issuance of mandate in that case. Id.- 4 -
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,
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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.- 6 -
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
2
The District Court found that the Eleventh Amendment barred
the full payment of the amounts calculated by the Special Master
and therefore ordered only the payment of prospective payments as
of the date of its order. See Preliminary Injunction, Consejo de
Salud, No. 06-1260 (D.P.R. Nov. 8, 2010), ECF No. 743.
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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
3 We note that, in continuing to make its quarterly payments
using the 2006 to 2009 calculations, the Commonwealth has not
adjusted its payments to account for the revised formula that the
Special Master has set forth in these recent reports. For example,
the Special Master's understanding of the term "visit" -- which is
a foundational component of the calculation -- has changed since
the issuance of the 2010 injunction.
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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
4
The FQHCs were barred from pursuing the retroactive payments
in federal court under the Eleventh Amendment. See id. at 64-65;
see also Consejo de Salud, 695 F.3d at 102-05.
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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
5 The Commonwealth had first filed a motion for abstention on
November 14, 2017, seeking to continue moving the case forward in
the local Puerto Rico courts and proposing to modify the automatic
stay such that it would apply only to the execution or enforcement
of a judgment. See Motion for Abstention, In re Financial Oversight
and Management Board, ECF No. 29. In opposing the Commonwealth's
motion on December 5, 2017, the FQHCs argued (for what appears to
be the first time) that the automatic stay did not apply to the
litigation at issue. See Opposition to Request for Abstention, In
re Financial Oversight and Management Board, No. 17-0227 (D.P.R.
December 5, 2017), ECF No. 38. On April 2, 2018, the Magistrate
Judge recommended that the Title III Court grant the Commonwealth's
motion for abstention and that the Title III Court modify the
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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
automatic stay to allow the litigation to proceed to judgment, as
the Commonwealth proposed in its motion. See Report and
Recommendation, In re Financial Oversight and Management Board,
No. 17-0227 (D.P.R. April 2, 2018), ECF No. 55. The FQHCs opposed
the Magistrate Judge's recommendation but did not again raise their
argument in the Title III Court that the stay did not apply. See
Plaintiffs' Objections, In re Financial Oversight and Management
Board, No. 17-0227 (D.P.R. April 30, 2018), ECF No. 60. However,
the FQHCs recently appealed the Title III Court’s order granting
the Commonwealth’s motion for abstention and modifying the
automatic stay. See Centro de Salud Familiar J.P.F.
v. Commonwealth of Puerto Rico, No. 19-1189 (1st Cir. Feb. 25,
2019), ECF No. 1.
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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
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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 automatic
stay would impermissibly impair their rights.
The District Court entered an order on July 11, 2018, in
which it ruled that the automatic stay did not apply and thus that
the proceedings regarding the rebasing calculations could
continue. The Commonwealth now appeals from that order.
II.
We begin with the jurisdictional issues that this appeal
presents. We start with a question concerning our appellate
jurisdiction. We then consider the Commonwealth's contention that
the District Court lacked subject matter jurisdiction to decide
whether the automatic stay applies.
A.
The Commonwealth asserts that we have appellate
jurisdiction because the District Court's order denying the
applicability of the PROMESA automatic stay, like an order granting
relief from the automatic stay in the ordinary bankruptcy context,
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is a final, appealable order. 28 U.S.C. § 1291. The FQHCs do not
dispute the point. We nevertheless address the issue, because it
is jurisdictional and because we have not previously had occasion
to do so.
The Commonwealth relies for its assertion about our
appellate jurisdiction on Tringali v. Hathaway Machinery Co., 796
F.2d 553, 558 (1st Cir. 1986), in which we reviewed an order of a
district court sitting in bankruptcy. There, we held, in the
context of an ordinary bankruptcy, that a district court's order
granting relief from the automatic stay established by Section 362
of the Bankruptcy Code was a final appealable order under 28 U.S.C.
§ 1291.6 And, all other circuits to have addressed that issue have
ruled similarly. See 1 Collier on Bankruptcy ¶ 5.09 (collecting
cases). Moreover, the only circuits that have addressed the issue
have treated a ruling as to whether the Section 362 automatic stay
applies in the ordinary bankruptcy context as being no different
-- for purposes of 28 U.S.C. § 1291 -- from an order as to whether
to grant or deny relief from such a stay. See Rajala v. Gardner,
709 F.3d 1031, 1034 (10th Cir. 2013) ("[T]he district court's
order, which deemed § 362 inapplicable to the judgment proceeds,
6 We note that 28 U.S.C. § 158(d) is the statute that
establishes the federal courts of appeals' jurisdiction to review
bankruptcy appeals. Because the appeal now before us arises from
nonbankruptcy litigation in district court, it falls within the
scope of 28 U.S.C. § 1291, a statute of general appealability.
See Tringali, 796 F.2d at 558.
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was essentially an order granting relief from the automatic
stay."); In re Quigley Co., 676 F.3d 45, 51 (2d Cir. 2012) (holding
that a decision on the automatic stay's applicability is "the
equivalent of a decision . . . on a motion seeking relief from a
stay").
We have not previously had occasion to address whether
the equation between these types of orders concerning the automatic
stay is apt even in the ordinary bankruptcy context, let alone
whether such an equation would be apt in the PROMESA context. We
note that we recently held that a district court's denial of relief
from PROMESA's Section 405 automatic stay, 48 U.S.C. § 2194(a)-
(b), the precursor to PROMESA's Title III automatic stay, is not
necessarily a final, appealable order under 28 U.S.C. § 1291 in
every circumstance. See Peaje Invs. LLC v. García-Padilla, 845
F.3d 505, 510-11 (1st Cir. 2017). And we did so by referencing
our similar caselaw in the analogous bankruptcy context.
In particular, we explained in Peaje Investments that
"in the analogous bankruptcy context, we have held that the denial
of relief from a stay is not necessarily a final decision
sufficient to confer appellate jurisdiction. But such a decision
is final where it 'conclusively decide[s] the fully-developed,
unreviewable-elsewhere issue that triggered the stay-relief
fight.'" Id. (citing In re Atlas IT Exp. Corp., 761 F.3d 177, 185
(1st Cir. 2014)). And, in In re Atlas, we further explained that
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appellate jurisdiction "depends on the circumstances[,]" including
the "particular order's reasoning and effect." 761 F.3d at
185. For example, we clarified that we would not have appellate
jurisdiction over a denial that was "based on circumstances that
[were] rapidly changing and on [a] record[] that [was] not fully
developed." Id.
Nevertheless, here, there are no rapidly changing
circumstances, and the record is fully developed in the relevant
respects. Thus, our reasoning in Peaje Investments and In re Atlas
does appear to accord with the conclusion of the other circuits
that treat an order like the one at issue here as final and
appealable under 28 U.S.C. § 1291.
In so concluding, we recognize that, although the order
at issue here is -- consistent with Tringali, Peaje Investments,
and In re Atlas -- "final" in the "more flexible . . . bankruptcy
context," Rajala, 709 F.3d at 1036, it does not "end the litigation
on the merits," but rather "ensures that litigation will continue
in the District Court." Gulfstream Aerospace Corp. v. Mayacamas
Corp., 485 U.S. 271, 275 (1988) (internal quotation marks and
citations omitted). But, even if that feature of this order might
be thought to raise a question as to whether it is "final" within
the meaning of 28 U.S.C. § 1291, it is still appealable under the
collateral order doctrine. See Cohen v. Beneficial Indus. Loan
Corp., 337 U.S. 541, 546 (1949).
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There is no question that the order denying the
applicability of the statutorily-prescribed, automatic stay
"conclusively determine[s] the disputed question," Gulfstream
Aerospace Corp., 485 U.S. at 276 (quoting Coopers & Lybrand v.
Livesay, 437 U.S. 463, 468 (1978)), and that it was "made with the
expectation that [it would] be the final word on the subject
addressed," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 12 n.14 (1983). Cf. Gulfstream Aerospace Corp., 485
U.S. at 278 (holding that an order denying a motion to stay an
order under Colorado River abstention because "the district court
may well have determined only that it should await further
developments before concluding that the balance of factors to be
considered . . . warrants a . . . stay"). In addition, the order
"resolve[s] an important issue completely separate from the merits
of the action." Gulfstream Aerospace Corp., 485 U.S. at 276(quoting Coopers & Lybrand, 437 U.S. at 468). Finally, the
Commonwealth's protection from litigation under the automatic stay
is "effectively unreviewable on appeal from a final judgment."
Id.B.
Having established our appellate jurisdiction, we now
consider the Commonwealth's contention that the District Court did
not have jurisdiction to entertain the FQHCs' motions opposing the
applicability of the stay. "Where pertinent facts are not in
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dispute, we review the district court's determination of subject
matter jurisdiction de novo." Ortiz-Espinosa v. BBVA Sec. of
Puerto Rico, Inc., 852 F.3d 36, 42 (1st Cir. 2017).
The basis for the Commonwealth's jurisdictional argument
is our March 1, 2018 order in which we held the FQHCs' appeal of
the District Court's May 10, 2017 order in abeyance. Specifically,
the Commonwealth contends that "a federal district court and a
federal court of appeals should not attempt to assert jurisdiction
over a case simultaneously," Griggs v. Provident Consumer Discount
Co., 459 U.S. 56, 58 (1982), and that, in consequence, the District
Court lacked jurisdiction to issue its order finding that the
automatic stay did not apply.
But, our March 1, 2018 order did not purport to divest
the District Court from ruling on whether the automatic stay
applied. That order expressly contemplated that, while we held
the "appeals" pending before us in abeyance, there would be
litigation below concerning precisely that issue. In fact, the
order included, in referring to litigation over the lifting of the
automatic stay, the parenthetical phrase: "to the extent that [the
automatic stay] applies." See Atl. Med. Ctr., Inc., No. 17-1812
(1st Cir. Mar. 1, 2018), ECF No. 23 (emphasis added). The
Commonwealth has misread and misunderstood our March 1, 2018 order.
It is not clear that the Commonwealth's argument is based
on anything other than the March 1, 2018 order. Even if it is, we
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still reject the argument. In the ordinary bankruptcy context, a
district court has concurrent jurisdiction with a bankruptcy court
to decide whether the automatic stay provision of Section 362
applies to its own proceedings. See In re Baldwin-United Corp.
Litig., 765 F.2d 343, 347 (2d. Cir. 1985). And we see no basis
for concluding that the rule is otherwise with respect to the
District Court, the Title III Court, and the PROMESA automatic
stay.
To be sure, the Second Circuit in In re Baldwin-United
Corp. Litig. did hold that, although the district court in that
litigation "had jurisdiction to determine the scope of the stay,
its issuance of the injunction challenged on . . . appeal was a
misuse of its equitable power." 765 F.2d at 347. But, the misuse
there arose from "the injunction's prohibition of the debtor's
opportunity to apply to the Bankruptcy Court for any relief under
[11 U.S.C. § 105]," the possibility that the applicability of the
stay would be "determined in various district courts throughout
the country," and other factors regarding the particular filings
in that case. Id. at 348-49.
Those circumstances are not present here. Nor does
either party argue that, insofar as the District Court had
jurisdiction to decide whether the automatic stay applies, as we
hold that the District Court did, the District Court nonetheless
misused its equitable authority by deciding that issue. See In re
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Mid-City Parking, Inc., 332 B.R. 798, 805 (Bankr. N.D. Ill. 2005)
("[S]tate and federal courts handling nonbankruptcy litigation
that is somehow tied to the filing of a federal bankruptcy case .
. . [have] concurrent jurisdiction to initially determine whether
§ 362(a)-(b) stays the proceeding, but the federal bankruptcy forum
may entertain a collateral attack on that ruling."). We turn,
then, to the merits of the District Court's ruling concerning the
stay's applicability.
III.
The Commonwealth asserts that the District Court's
determination that the Title III stay does not apply to this case
was erroneous as a matter of law. The District Court based its
determination on two provisions of PROMESA: Section 304(h), 48
U.S.C. § 2164(h), and Section 210(c), 48 U.S.C. § 2150(c).
The FQHCs contend that the District Court was correct in
both respects. They add, however, that, even if we do not agree,
we still may affirm the District Court's ruling based on either of
two other provisions of PROMESA -- Section 7, 48 U.S.C. § 2106,
and Section 204(d)(1), 48 U.S.C. § 2144(d)(1) -- which they argue
also establish exceptions to the application of the automatic stay
in this case. Finally, the FQHCs argue that PROMESA and other
provisions of federal law, when read together, reveal that the
Title III automatic stay has no application here.
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"We review pure questions of statutory interpretation de
novo." United States v. Tobin, 552 F.3d 29, 32 (1st Cir. 2009)
(citing United States v. Jaca-Nazario, 521 F.3d 50, 56 (1st Cir.
2008)). Because we are "not confined to a consideration of the
grounds relied on by the district court," United States v. Werra,
638 F.3d 326, 346 (1st Cir. 2011) (internal citations omitted), we
consider not only the two provisions of PROMESA that the District
Court relied upon for its ruling, but also the two provisions
raised by the FQHCs, as well as the FQHCs' more holistic contention
as to why the automatic stay does not apply.
A.
We start with the provision in PROMESA that indicates
that this litigation is subject to an automatic stay. That
provision is Section 301(a) of PROMESA, 48 U.S.C. § 2161(a).
Section 301(a) expressly incorporates Section 362 of the
Bankruptcy Code, which requires that, as soon as a bankruptcy
petition is filed, pending litigation against the debtor is stayed
automatically. 11 U.S.C. § 362(a)(1); see 3 Collier on Bankruptcy
¶ 362.03 (16th ed. 2018). Neither Section 362 of the Bankruptcy
Code nor Section 301(a) of PROMESA -- whether considered on their
own or together -- provide any indication that the automatic stay
is not fully applicable here. Certainly, none of the enumerated
exceptions to the stay's application that are set forth in the
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Bankruptcy Code itself apply to this circumstance. See 11 U.S.C.
§ 362(b). Nor do the parties suggest otherwise.7
Furthermore, there is no indication that the automatic
stay in Section 362 does not apply to injunctions. See 3 Collier
on Bankruptcy ¶ 362.03 (16th ed. 2018) ("The stay includes actions
seeking injunctive relief or similar relief as well as actions
seeking money judgments . . . . The stay provision of subsection
(a)(1) is drafted so broadly that it encompasses all types of legal
proceedings, subject only to the exceptions provided in section
362(b)."); see also Nat'l Tax Credit Partners, L.P. v. Havlik, 20
F.3d 705, 707-08 (7th Cir. 1994) (holding that the automatic stay
applied to an injunction compelling payment that exercised control
7 The FQHCs do contend that this case does not fall within
the scope of the automatic stay because it "is an action seeking
return of [the FQHCs'] own property." They argue in this regard
that they are simply seeking payments from the Commonwealth that
would cover the payments that they themselves have had to make,
using the federal funding they receive under Section 330 of the
Public Health Service Act, in consequence of the Commonwealth's
failure to make its required wrapround payments. However, this
argument provides no basis for the conclusion that the case that
the FQHCs have brought against the Commonwealth is not an "action
or proceeding against the debtor that was or could have been
commenced before the commencement of the case under" Title III.
11 U.S.C. § 362(a)(1) (incorporated in 48 U.S.C. § 2161(a)). The
FQHCs also state that the First Circuit "has recognized that
federal funds are excluded from a bankruptcy estate where the
debtor possesses no equitable interests in the funds." See In re
LAN Tamers, Inc., 329 F.3d 204, 209-15 (1st Cir. 2003). But, the
case upon which the FQHCs rely for this argument applies a
provision of the Bankruptcy Code that PROMESA does not incorporate,
id. (applying 11 U.S.C. § 541); see 48 U.S.C. § 2161(a)
(incorporating specific provisions of Chapter 11, not including
Section 541).
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over the property of the debtor's estate); Matter of Mahurkar
Double Lumen Hemodialysis Catheter Patent Litig., 140 B.R. 969,
977 (N.D. Ill. 1992) (Easterbrook, J., sitting by designation)
(holding that the automatic stay applied to a request for an
injunction against a debtor who was illegally using intellectual
property rights). Rather, the text of 11 U.S.C. § 362(a)(1)
"addresses all actions within the judicial power." Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Bradley, 756 F.2d 1048, 1052 & n.3
(4th Cir. 1985).
We note, too, that, in the ordinary bankruptcy context,
the automatic stay is a "fundamental protection" that is meant to
offer the debtor "breathing room during the period of financial
reshuffling" and "protect[] the debtor's assets from disorderly,
piecemeal dismemberment outside the bankruptcy proceedings." In
re Smith, 910 F.3d 576, 580 (1st Cir. 2018) (internal quotation
marks, citations, and alterations omitted). "And it enables the
bankruptcy court to centralize all disputes concerning property of
the debtor's estate so that reorganization can proceed
efficiently, unimpeded by uncoordinated proceedings." Id.(internal quotation marks, citations, and alterations omitted).
Nothing about those purposes is -- inherently -- at odds with the
application here of the automatic stay that Section 301(a)
expressly incorporates.
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Thus, if we were to confine our analysis only to Section
301(a) and the provision of the Bankruptcy Code that it
incorporates, it would be clear that the automatic stay does apply.
Nevertheless, the FQHCs assert that, Section 301(a)
notwithstanding, a number of provisions in PROMESA preclude the
automatic stay's application to the wraparound payment litigation.
In particular, they point to Sections 304(h), 210(c), 204(d)(1),
and 7.8 We thus address each of these provisions in turn.
B.
Section 304(h), on which the District Court relied for
its ruling that the automatic stay does not apply here, states:
(h) Public safety
This chapter may not be construed to permit
the discharge of obligations arising under
Federal police or regulatory laws, including
laws relating to the environment, public
health or safety, or territorial laws
implementing such Federal legal provisions.
This includes compliance obligations,
requirements under consent decrees or judicial
orders, and obligations to pay associated
administrative, civil, or other penalties.
48 U.S.C. § 2164(h) (emphasis added).
This provision directly references the Commonwealth's
"obligations arising under Federal . . . laws," of which the
Medicaid Act is certainly one. The District Court thus concluded
that Section 304(h) operates as an exception to the automatic stay
8 These four sections of PROMESA are codified at 48 U.S.C.
§§ 2164(h), 2150(c), 2106, and 2144(d)(1), respectively.
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provision that precludes its application to this case, given the
Commonwealth's obligation to make the Medicaid wraparound payments
that have been imposed by the 2010 Injunction that is in place.
But, by its terms, Section 304(h) bars only the
"discharge" -- not the "stay" -- of "compliance obligations." And,
looking at the context of this provision within PROMESA, which
incorporates not only Section 362 of the Bankruptcy Code, but also,
among others, 11 U.S.C. § 524 ("Effect of discharge"), 48 U.S.C.
§ 2161(a), the term "discharge" cannot mean, in all cases, "stay."
After all, a discharge in bankruptcy "permanently
enjoins creditor actions to collect discharged debts." Internal
Revenue Serv. v. Murphy, 892 F.3d 29, 38 (1st Cir. 2018) (quoting
Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 444 (1st Cir.
2000)). By contrast, an "automatic stay is similar to a temporary
restraining order." Grella v. Salem Five Cent Sav. Bank, 42 F.3d
26, 33 n.8 (1st Cir. 1994) (quoting H.R. Rep. No. 95-595, at 344
(1977), as reprinted in U.S.C.C.A.N. 5787, 6300).
The FQHCs do argue that, because the federal obligation
at issue is continuing in nature, it differs from a lump sum debt,
such that even a stay of it amounts "effectively" to a discharge.
However, the FQHCs' use of the word "effectively" reflects the
fact that, on this record, a discharge -- which is what Section
304(h) precludes by its terms -- is not at issue here, only a stay
is. After all, precisely because the compliance obligation is
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continuing, the stay will not bring it to an end permanently. It
will suspend it only temporarily. A discharge of that continuing
obligation, by contrast, would bring an end to it altogether. For
these reasons, we conclude that Section 304(h) cannot help the
FQHCs, without purporting in doing so to address questions on other
facts about what the term "discharge" may encompass.9
C.
We consider, next, the second PROMESA provision that the
District Court relied on for its ruling, Section 210(c):
(c) Funding
No Federal funds shall be authorized by this
chapter for the payment of any liability of
the territory or territorial instrumentality.
48 U.S.C. § 2150(c) (emphasis added).
The FQHCs assert that this provision bars application of
the stay here. They contend that, if the stay were to apply, then
"at least some [federal] funds might, through the reach of
9We note that, if the federal government itself chose to
enforce the Commonwealth's compliance obligations under the
Medicaid Act, such an enforcement action would be excepted from
the automatic stay. See 11 U.S.C. § 362(b)(4); Parkview Adventist
Med. Ctr. v. United States, 842 F.3d 757, 763 (1st Cir. 2016) ("The
exception provision in § 362(b)(4) provides that the automatic
stay of actions against the debtor does not apply to 'an action or
proceeding by a governmental unit . . . to enforce such
governmental unit's . . . police and regulatory power.' . . .
[If] the governmental action is designed primarily to protect the
public safety and welfare . . ., the government action . . . is
exempt." (internal quotation marks and citations omitted)).
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incorporated provisions of federal bankruptcy law or otherwise,
wind up paying for the Commonwealth's liabilities[.]"
It is true that Medicaid is supported by both federal
funds and the Commonwealth's own funds. Thus, it is true that, if
the stay applies, the Commonwealth might not make complete payments
to the FQHCs. But, the speculative possibility that the
Commonwealth's failure to do so could, in turn, lead federal funds
-- Medicaid or otherwise -- to be used to cover the FQHCs' costs
provides no support for the contention that the application of the
stay here would contravene this provision of PROMESA. The
provision clearly bars the use of federal funds to be "authorized"
by "this chapter" to cover the Commonwealth's liability. The
provision is thus not implicated by the possibility that, in
consequence of the application of the automatic stay, federal funds
may "wind up" -- as the FQHCs put it -- covering a portion of the
amount which the Commonwealth owes the FQHCs. Whether "federal
funds" will ever be "authorized" is at best a hypothetical.
D.
We turn, then, to Section 204(d)(1), which provides:
(d) Implementation of Federal programs
In taking actions under this chapter, the
Oversight Board shall not exercise applicable
authorities to impede territorial actions
taken to--
(1) comply with a court-issued consent
decree or injunction, or an administrative
order or settlement with a Federal agency,
with respect to Federal programs.
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48 U.S.C. § 2144(d)(1) (emphasis added).
This provision could apply here, by its terms, only if
the application of the automatic stay in and of itself could be
understood to constitute an instance of the Oversight Board "taking
action[]" or "exercis[ing] applicable authorities." However, the
FQHCs have not explained to us why, exactly, the imposition of the
automatic stay would constitute the Board "taking action[]" or
"exercis[ing] applicable authorities." Instead, they simply
suggest that the stay would "amount to an exercise of powers
conferred through PROMESA." Without a clearer explanation of the
basis for applying this exception, we cannot deny the application
of the automatic stay, as it is, after all, automatic under Section
301(a) of PROMESA and the provision of the Bankruptcy Code that it
incorporates.
Nor does an explanation clearly present itself from the
text. We note that the operation of the automatic stay set forth
in Section 362 of the Bankruptcy Code, per its incorporation by
Section 301(a) of PROMESA, is merely the default consequence that
follows from the Board's filing of a Title III petition. Thus, it
is by no means obvious that the stay's application constitutes the
Oversight Board "taking" a prohibited "action[]" or "exercis[ing]"
a prohibited "authorit[y]" within the meaning of this provision.
Rather, it would appear that the stay follows automatically,
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without the Board taking any action or exercising any authority,
from the filing of the Title III petition itself. It would be
nonsensical, however, to read this provision to bar the Oversight
Board from making that filing. Accordingly, we conclude that
Section 204(d)(1), too, has no bearing on the applicability of the
stay in this case.
E.
That leaves one last provision in PROMESA for us to
consider, Section 7, which reads as follows:
Except as otherwise provided in this chapter,
nothing in this chapter shall be construed as
impairing or in any manner relieving a
territorial government, or any territorial
instrumentality thereof, from compliance with
Federal laws or requirements or territorial
laws and requirements implementing a federally
authorized or federally delegated program
protecting the health, safety, and environment
of persons in such territory.
48 U.S.C. § 2106 (emphasis added).
The FQHCs seize on the fact that the effect of the
automatic stay would be to relieve the Commonwealth from
"compliance with Federal laws and requirements," insofar as the
stay would free the Commonwealth -- albeit temporarily -- from the
preliminary injunction to which it is now subject in the wraparound
litigation. But, in pressing this contention, the FQHCs make no
mention of the opening words of the provision -- "[e]xcept as
otherwise provided in this chapter[.]" Nor do they attempt to
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grapple with the words that immediately follow -- "nothing in this
chapter shall be construed[.]" Instead, they direct all of their
attention to the remaining words of the provision.
Because the FQHCs make no serious argument about the
meaning or import of any of the opening words that we have just
quoted, we conclude that they have failed to explain why Section
7 provides an exception to the otherwise automatic application of
the stay here. Nor is this a case in which the omission may be
excused because it is clear that the unaddressed text supports the
FQHCs' position. If we consider the entirety of the provision's
language, the text does not clearly require the FQHCs' desired
construction, nor do the other indicia of statutory meaning clearly
favor that result. See In re Weinstein, 272 F.3d 39, 40 (1st Cir.
2001) (noting that courts must consider the text, context,
legislative history, and underlying policies when interpreting a
bankruptcy statute).
After all, the text comfortably bears a reading in which
the phrase "[e]xcept as otherwise provided" means simply that
nothing in PROMESA should be "construed" to impair any rights or
obligations imposed by federal laws or requirements other than
those that PROMESA itself "provides." This reading would mean
that where PROMESA expressly includes a provision that, by its
plain terms, operates to "impair[] or in any manner reliev[e]" the
Commonwealth "from compliance with Federal laws or requirements,"
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then PROMESA controls, but that no provision in PROMESA should be
"construed" to have such an effect if it would not have such an
effect by the simple operation of its terms. Cf. McNely v. Ocala
Star-Banner Corp., 99 F.3d 1068, 1074 (11th Cir. 1996) (noting
that the ADA includes the language, "Except as otherwise provided
in this chapter, nothing in this chapter shall be construed . . .
," in 42 U.S.C. § 12201(a), and concluding that the introductory
clause of that provision "direct[ed] [the court] not to" apply the
second half of the provision to other sections of the statute when
it was "not warranted . . . under the plain language" of those
other sections).
This reading of "[e]xcept as otherwise provided" would,
of course, except the automatic stay provision from Section 7's
scope. PROMESA, by virtue of Section 301(a), expressly
incorporates 11 U.S.C. § 362, and the default operation of Section
362 in this case is to stay -- or temporarily "relieve" -- the
Commonwealth's compliance with its federal obligations under the
Medicaid Act.
In addition to the fact that this reading gives effect
to all of the words of the statute, see United Sav. Assn. of Tex.
v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988)
("A provision that may seem ambiguous in isolation is often
clarified by the remainder of the statutory scheme . . . because
only one of the permissible meanings produces a substantive effect
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that is compatible with the rest of the law."), it is also not
precluded by the surrounding statutory context. See In re
Weinstein, 272 F.3d at 43-45. The provision appears, after all,
in the introductory section of PROMESA, and not in the more
detailed sections that address adjustment of debts or
responsibilities of the Oversight Board. Thus, Section 7 would
appear to be designed to have a general application to the entire
statute, rather than one that would specifically direct the
circumstances in which to apply or not to apply Section 362 of the
Bankruptcy Code, which is included in Section 301(a) of PROMESA.
The legislative history of the statute may be read to
support this reading, too. See id. The House Committee Report to
PROMESA states clearly that "[t]his section requires territories
to continue compliance with all other Federal laws or requirements
protecting health, safety, and the environment, as well as those
territorial laws implementing Federally-authorized and delegated
programs." H.R. Rep. No. 114-602, pt. 1, at 42 (2016) (emphasis
added). Thus, Section 7 may be understood to have been intended
to ensure that PROMESA would not supersede those federal
requirements that PROMESA does not, by its terms, address. And,
the inclusion of such a provision would seem prudent, given the
novel federal statutory intervention into the Commonwealth's
affairs that PROMESA represents.
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Thus, the FQHCs have failed to explain why we should
read this provision to indicate that PROMESA exempts from its scope
a provision -- namely, Section 362 of the Bankruptcy Code -- that
PROMESA expressly incorporates in Section 301(a) and that takes
effect here by only the default operation of its terms. We thus
conclude that Section 7, like the other provisions discussed, does
not preclude the automatic stay's application in this case.
F.
The FQHCs' final contention is that all four of the
above-mentioned PROMESA provisions must be considered in
connection with the Medicaid Act and Section 330 of the Public
Health Service Act. Specifically, the FQHCs contend that, by not
making its required wraparound payments, the Commonwealth is in
violation of the FQHCs' right to payment under the Medicaid Act,
42 U.S.C. § 1396a(bb)(5)(B), which is enforceable under 42 U.S.C.
§ 1983. Additionally, they argue, "if further proceedings in this
case are stayed, this Court would be effectively allowing the
illegal use of federal funds from one program (Section 330) to
subsidize another (Medicaid)." The FQHCs contend that these
clearly impermissible outcomes would not occur if the provisions
of PROMESA that we have just reviewed are understood to support
the conclusion reached by the District Court -- that the automatic
stay that Section 301(a) of PROMESA incorporates does not apply
here.
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But, Section 362 of the Bankruptcy Code, and PROMESA by
incorporation, does except from the stay an action brought by the
federal government itself to enforce the Commonwealth's
obligations under the Medicaid Act or otherwise. See 11 U.S.C.
§ 362(b)(4) (incorporated in 48 U.S.C. § 2161(a)). In addition,
the FQHCs themselves may seek prompt relief from the stay in the
Title III Court. In fact, as we have already mentioned, in the
parallel wraparound litigation in the Puerto Rico local courts,
the Title III Court modified the automatic stay to allow the
litigation to proceed to the point of judgment. Considering that
the Commonwealth itself proposed the granting of such relief to
the Title III Court in that litigation, we have no reason to think
that the Commonwealth would not be similarly supportive here. 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. In fact, during oral argument, the Commonwealth expressed
its desire not to delay the proceedings. Instead, it asserted
that it wanted to make sure that the automatic stay was in effect
only so that the FQHCs would not be able to collect on an ultimate
judgment without guidance from the Title III Court -- once relief
from the stay has been sought and obtained. The Commonwealth
expressed no interest in bringing to a halt the pre-judgment
proceedings concerning rebasing.
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IV.
The District Court's holding that the PROMESA stay does
not apply is reversed, and the matter is remanded for proceedings
consistent with this opinion.
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