Mrco, Inc. v. Dorelisse Juarbe-Jimenez, Insurance Commissioner of Puerto Rico

Of the District of Rhode Island, sitting by designation. *
United States Court of Appeals
For the First Circuit
No. 07-1614
MRCO, INC.,
Plaintiff, Appellant,
v.
DORELISSE JUARBE-JIMENEZ,
INSURANCE COMMISSIONER OF PUERTO RICO,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Pérez-Giménez, U.S. District Judge]
Before
Howard and Lipez, Circuit Judges,
and Smith, District Judge. *
Nicholas T. Christakos, Juan H. Saavedra Castro, and Luis M.
Correa Marquez, for appellant.
Iván Díaz de Aldrey and Iván Díaz López, for appellee.
March 27, 2008

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The record reflects that MRCo’s parent corporation, ULLICO 1
Inc., undertook at least some of the actions that preceded this
litigation. For simplicity, however, we refer to MRCo and ULLICO
collectively as “MRCo.”
At the time MRCo amended its Complaint, the Commissioner was 2
Fermin Contreras Gómez. He was succeeded by Dorelisse Juarbe-
Jimenez, who replaced him as co-defendant in March 2004.
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SMITH, District Judge. This diversity action originally
was brought by MRCo, Inc. (“MRCo”) against Banco Popular de Puerto 1
Rico, Inc. (“Banco Popular”). MRCo later amended its complaint to
name the Insurance Commissioner of Puerto Rico (“Commissioner”) as
an additional defendant. After MRCo and Banco Popular reached a 2
settlement and all claims between them were dismissed, MRCo moved
for partial summary judgment on its claims against the
Commissioner. The district court denied MRCo’s motion, and then
dismissed the entire case on the ground that MRCo’s claims are
barred by Puerto Rico law. This timely appeal followed, and we now
consider whether MRCo’s claims should be resurrected.
I. FACTUAL BACKGROUND
Plaintiff-appellant MRCo is a corporation organized and
existing under the laws of the State of Maryland, with its
principal place of business in the District of Columbia. Former
defendant Banco Popular is a banking organization incorporated
under the laws of the Commonwealth of Puerto Rico, with its
principal place of business in Puerto Rico. Defendant-appellee
Commissioner is the Insurance Commissioner of Puerto Rico, and is

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Translated, the name is “Health Plan for the Teachers 3
Federation of Puerto Rico.”
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named solely in her capacity as liquidator of the Plan de Salud de
la Federación de Maestros de Puerto Rico (“the Plan”) . The Plan 3
is a nonprofit corporation which functions as a health service
organization under the Insurance Code of Puerto Rico. See P.R.
Laws Ann. tit. 26, §§ 1901 et seq. (2005). The Plan provides
insurance coverage to teachers, government employees, and certain
private organizations.
In 2000, the Commissioner audited the Plan for the period
covering January 1, 1997 through December 31, 1999. As a result of
the audit, on October 11, 2000, the Commissioner notified the Plan
that there was a shortfall in the latter’s assets of approximately
$13.2 million. The Commissioner ordered the Plan to identify
sufficient assets to cover the shortfall within 90 days.
Subsequently, the Commissioner amended his audit report to reflect
an actual shortfall of $13,516,725, which amount was confirmed at
a hearing before the Commissioner on December 13, 2000. The
Commissioner gave the Plan until February 28, 2001 to submit
evidence that the shortfall had been covered; otherwise, the Plan
would be considered insolvent and placed into liquidation.
With the alleged overt support of the Commissioner the
Plan solicited a loan from MRCo, the terms of which called for the
Plan to borrow $13,516,725 pursuant to a Surplus Note Agreement

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(“Surplus Note”). MRCo and the Plan agreed to establish an escrow
account at Banco Popular, with Banco Popular acting as escrow
agent, that would be used to disburse the loaned funds to the Plan.
The Surplus Note provided that the loan would be executed
and the funds disbursed only after the Plan secured the
Commissioner’s express written approval of the loan transaction.
This condition reflected Puerto Rico’s statutory requirement that
the Commissioner give prior approval before a surplus loan
transaction is entered into by a Puerto Rico insurer. See P.R.
Laws Ann. tit. 26, § 2930. On March 21, 2001, in response to the
Plan’s request for approval, the Commissioner sent to the Plan a
letter which stated, in relevant part:
After evaluating the loan agreement and
certificate in the light of Articles 29,300
and 29,310 of the Puerto Rico Insurance Code,
we approve them, subject to your submitting
the duly signed originals of the loan
certificate and agreement with the corporate
seal of each corporation.
The letter contained additional requirements, including
the submission of a sworn statement by the chairmen of the Plan and
MRCo that the loan agreement had been executed and implemented.
MRCo alleges that this letter, specifically the portion excerpted
above, as well as statements made by the Commissioner, were
understood by both MRCo and the Plan to constitute approval of the
loan. The Commissioner, on the other hand, alleges that the loan
was never approved, and points to an internal file memorandum dated

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The record appears to contain slight inconsistencies as to 4
how much money was disbursed from the escrow account. The precise
amounts, whatever they may actually be, are immaterial to our
decision. While the Liquidation Court has apparently reserved the
precise amount of $3,612,577 until this federal case is concluded,
it is enough for the present purposes to record that MRCo is
seeking to recover the approximately $3.6 million that was
disbursed to the Plan.
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April 2, 2001 that the Commissioner claims contemporaneously
recorded that the letter expressed only approval of the form of the
loan documentation - not approval of the loan itself.
In any event, MRCo and the Plan executed the Surplus Note
and accompanying loan certificate on March 26, 2001. On the same
date, MRCo entered into an escrow agreement (“Escrow Agreement”)
with Banco Popular establishing the terms under which the funds
would be available and used in accordance with the Surplus Note.
MRCo deposited $13,516,725 in the escrow account and, almost
immediately, Banco Popular made several disbursements to the Plan,
totaling approximately $3.6 million, as well as a payment of
$400,000 to itself on behalf of the Plan to cover an overdraft in
a Plan bank account, and $5,000 to itself as the fee for acting as
escrow agent. After the disbursements, approximately $8.8 million
remained in escrow.4
On March 30, 2001, only days after the execution of the
Surplus Note and Escrow Agreement, the Commissioner filed a sworn
petition to the Puerto Rico Court of First Instance (the
“Liquidation Court”) to place the Plan into liquidation, and

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declared therein that the Plan had an operating deficit of
$13,516,725 (the exact amount of the loan). The Liquidation Court
issued an ex parte order provisionally placing the Plan into
liquidation, which order was confirmed on May 25, 2001.
After it learned that the Plan had been placed into
liquidation, MRCo demanded that Banco Popular return all of the
funds remaining in the escrow account. Instead of returning the
funds, however, Banco Popular, at the apparent behest of the
Commissioner, deposited the remaining funds in escrow in the
registry of the Liquidation Court, effectively denying MRCo access
to the funds. Also at about the same time, in a filing with the
Liquidation Court, the Commissioner stated that he “never gave the
approval to the loan transaction, which is a requirement of the
Insurance Code for a loan without guarantee of the assets.”
On July 3, 2001, MRCo filed its diversity action against
Banco Popular in the District of Columbia, alleging that the loan
contract was never validly executed, since the Commissioner never
approved the transaction as required by Puerto Rico law. Since no
loan existed, MRCo alleged, the Plan never acquired any right,
title, or interest in any of the funds that had been placed in
escrow. Thus, according to MRCo, Banco Popular had a duty to
return the funds (the $8.8 million) that had remained in escrow to
MRCo. Banco Popular moved to dismiss the case or to change venue

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to the District of Puerto Rico. By order entered October 15, 2001,
the case was transferred to the District of Puerto Rico.
Once before the federal court in Puerto Rico, MRCo
amended its Complaint to name the Commissioner as an additional
defendant. Banco Popular once again moved to dismiss, arguing that
the Commissioner was an indispensable party that could not be added
as a defendant because the pendency of the liquidation proceedings
precluded any action against the Commissioner as liquidator,
pursuant to P.R. Laws Ann. tit. 26, § 4021. The district court
denied the motion on September 9, 2002. On December 13, 2002, the
Commissioner filed an “informative motion” advising the district
court of its Resolution and Decision filed with the Liquidation
Court that same day, in which the Commissioner concluded that the
funds that had remained in escrow at Banco Popular at the time of
liquidation were not assets of the Plan and belonged to MRCo. The
Commissioner purported to conclude, as well, that the approximately
$3.6 million that was disbursed to the Plan prior to liquidation
was an asset of the Plan and therefore part of the liquidation
estate, notwithstanding the Commissioner’s failure to approve the
loan transaction as required.
In response to the Commissioner’s acknowledgment that the
$8.8 million that had remained in escrow was not an asset of the
Plan, MRCo moved the district court to order the transfer of the
funds from the Liquidation Court to the district court pursuant to

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the district court’s removal jurisdiction. The district court
ordered the clerk of the Liquidation Court to transfer the $8.8
million, including accrued interest, to the district court,
whereupon the funds were paid to MRCo, less amounts paid to resolve
a claim against the funds and a sum requested by Banco Popular to
cover its claims for escrow agent fees.
Eventually, MRCo and Banco Popular reached a settlement
of their claims, and Banco Popular was dismissed from the action.
MRCO and the Commissioner, however, continued to litigate over the
fate of the $3.6 million that was disbursed to the Plan just prior
to the commencement of the liquidation proceedings. The crux of
MRCo’s claims has always been that the loan to the Plan was never
approved by the Commissioner and thus never actually executed.
Since it was never executed, asserts MRCo, the loan proceeds never
should have been disbursed to the Plan, and never became an asset
of the Plan. In the meantime, the Commissioner filed motions on
two separate occasions urging the dismissal of MRCo’s claims
against the Commissioner on the ground that the liquidation
proceeding precluded MRCo’s claims by operation of 26 P.R. Law Ann.
§ 4021, the same ground previously argued (unsuccessfully) by Banco
Popular. The district court denied both motions.
MRCo moved for partial summary judgment, arguing that no
legally cognizable loan had materialized and that, as a result, the
approximately $3.6 million disbursed to the Plan prior to

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liquidation never actually became an asset of the Plan and should
be returned to MRCo. In its opinion and order on February 20,
2007, from which this appeal is taken, the district court denied
MRCo’s motion on the ground that disputed material facts precluded
summary judgment, but also dismissed the underlying claims against
the Commissioner on the ground that P.R. Law Ann. tit. 26, § 4021
precluded actions against the Commissioner during the pendency of
the proceeding in the Liquidation Court. MRCo’s timely appeal
followed.
II. STANDARD OF REVIEW
This court’s jurisdiction is limited to final decisions
of the district court. 28 U.S.C. § 1291. A district court’s order
denying a motion for summary judgment is interlocutory and thus, in
most cases, not appealable. Fletcher v. Town of Clinton, 196 F.3d
41, 45 (1st Cir. 1999). The order is reviewable, however, if the
district court simultaneously enters final judgment in the case.
See Swint v. Chambers County Comm’n, 514 U.S. 35, 42–43 (1995).
“[A]n order or judgment is usually considered ‘final’ (hence,
appealable) only when it resolves the contested matter, leaving
nothing to be done except execution of the judgment.” Petralia v.
AT&T Global Info. Solutions Co., 114 F.3d 352, 354 (1st Cir. 1997)
(quoting Director, Office of Workers’ Comp. Programs, United States
Dep’t of Labor v. Bath Iron Works Corp., 853 F.2d 11, 13 (1st Cir.
1988)). Since the district court’s order dismissing all of the

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underlying claims fully disposed of all the parties’ claims, we
have appellate jurisdiction under § 1291.
In a strict sense, the district court committed itself to
three decisions: it (1) denied MRCo’s motion for summary judgment;
(2) interpreted substantive Puerto Rico law; and (3) dismissed the
action based on its interpretation. Each of these are questions of
law and thus subject to de novo review. See Reich v. Newspapers of
New England, Inc., 44 F.3d 1060, 1069 (1st Cir. 1995) (“Appeals
involving pure questions of law are generally reviewed de novo.”).
Because we believe the district court properly dismissed MRCo’s
claims, we need not reach the issue of whether the district court
properly denied MRCo’s motion for partial summary judgment inasmuch
as the issue is moot.
III. LEGAL ANALYSIS
The district court dismissed MRCo’s claims against the
Commissioner, finding the claims barred by Article 40.210 of the
Puerto Rico Insurance Code (“Article 40.210”). Article 40.210
provides:
Upon issuance of an order appointing a
liquidator of a domestic insurer or of an
alien insurer domiciled in Puerto Rico, no
action at law shall be brought against the
insurer or the liquidator, whether in Puerto
Rico or elsewhere, nor shall an action of that
nature be maintained or entered after issuance
of such order.

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P.R. Law Ann. tit. 26, § 4021(1). On its face, the statute
provides that no “action at law” shall be brought or maintained
against an insurer or liquidator upon issuance of the order
appointing the liquidator. In arguing that its claims are not
barred, MRCo urges us to adopt one of three alternative, though not
mutually exclusive, interpretations of the statute.
First, MRCo argues that its claims, being equitable in
nature, are not barred by Article 40.210’s proscription against
“action[s] at law.” But while this construction appears initially
to follow reasonably from the plain language of Article 40.210, it
does not survive closer examination of the statute. In its
original Spanish, Article 40.210 provides:
Al emitirse una orden nombrando un liquidador
de un asegurador del país o de un asegurador
foráneo domiciliado en Puerto Rico, no se
radicará ninguna acción judicial contra el
asegurador o contra el liquidador, ni en
Puerto Rico ni en cualquier otro lugar, ni se
mantendrá ni instará una acción de esa
naturaleza luego de emitida la orden.
P.R. Law Ann. tit. 26, § 4021(1) (emphasis added). The widely
disseminated English translation of this section contains what is
arguably an important error. While translated as barring “actions
at law,” Article 40.210 actually and more broadly provides that
“ninguna acción judicial” -- “no judicial action” -- may be brought
or maintained against an insurer or liquidator after issuance of a
liquidation order. The original Spanish, in other words, makes no

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distinction between actions at law and at equity, as is possibly
implied by the translation and argued by MRCo.
Moreover, the bar on all judicial actions comports with
our understanding of Puerto Rico legal tradition. While a concept
of “equity” is not entirely absent from Puerto Rico law, Anglo-
Saxon common law, with its traditional distinction between law and
equity, has never been a force in Puerto Rico. See, e.g., Dalmau
v. Hernandez Saldana, 3 P.R. Offic. Trans. 678 (1975). It is true
that the Puerto Rico Civil Code provides that “[w]hen there is no
statute applicable to the case at issue, the court shall decide in
accordance with equity.” P.R. Laws Ann. tit. 31, § 7. However,
the “equity” contemplated by the statute is not that developed
through application of the common law, but rather that defined by
the Civil Code. Dalmau, 3 P.R. Offic. Trans. 678. This latter
conception of equity “means that natural justice, as embodied in
the general principles of jurisprudence and in accepted and
established usages and customs, shall be taken into consideration.”
P.R. Laws Ann. tit. 31, § 7. This manifestation is sufficiently
amorphous that, even if we permitted MRCo its entreaty to equity,
its chance of success on appeal would be uncertain. But in any
event, there is no need for us to be sidetracked by this issue
because it happens that there is a Puerto Rico statute applicable
to this case - Article 40.210 - and that statute quite plainly
provides that no judicial action shall be brought or maintained

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against an insurer or liquidator after the issuance of an order
appointing the liquidator. In short, MRCo’s appeal to equity is a
nonstarter.
MRCo next argues that Article 40.210’s apparent
prohibition of actions against liquidators and insolvent insurers
applies only to actions germane to the liquidation proceeding
itself, i.e. actions involving creditor claims against the assets
of the insurer. As it claims to be seeking recovery only of its
own assets, rather than any assets of the Plan, MRCo’s position is
that the prohibition of Article 40.210 is inapplicable. See, e.g.,
McDonough Caperton Shepherd Group, Inc. v. Acad. of Med.,
Cleveland, 888 F.2d 1392 (6th Cir. 1989); Bryant v. United
Shoreline Inc. Assurance Servs., N.A., 972 S.W.2d 26 (Tex. 1998);
Nova Ins. Group, Inc. v. Florida Dep’t of Ins., 606 So.2d 429 (Fla.
Dist. Ct. App. 1992).
MRCo’s position regarding the application of Article
40.210 to claims involving nonassets may have merit; however, it is
not for this or any other court, state or federal, to determine in
the first instance what constitutes an “asset” of the Plan, for
purposes of the liquidation proceedings. The Puerto Rico Insurance
Code provides that, “after a liquidation order . . . the liquidator
shall prepare in duplicate a list of the insurer’s assets. This
list shall be amended or supplemented from time to time, as the
liquidator may determine.” P.R. Laws Ann. tit. 26, § 4022(1)

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We are unaware of any decision by the Puerto Rico Supreme 5
Court involving whether the Commissioner, as statutory liquidator,
has the authority to determine what constitutes an “asset” of an
insurer in liquidation. Therefore, we follow the rule laid down in
CPC Int’l, Inc. v. Northbrook Excess & Surplus Ins. Co., 962 F.2d
77, 91 (1st Cir. 1992) (quoting West v. A.T. & T. Co., 311 U.S.
223, 237 (1940)), that “[w]here an intermediate appellate court
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(emphasis added). This provision was interpreted, as it applies to
this very case, by the Puerto Rico Court of Appeals in Comm’r v.
Plan de Salud de la Federacion de Maestros de Puerto Rico, Inc.,
KLCE No. 2001-1111 (June 20, 2002), which arose from a writ of
certiorari filed by the Commissioner to review certain resolutions
of the Liquidation Court. The Court of Appeals explained that,
while the Liquidation Court must approve any effort by the
Commissioner to “sell, transfer, abandon or in any other manner
dispose of . . . any property of the insurer,” P.R. Laws Ann. tit.
26, § 4018, “it is the competence of the Commissioner to establish
which are and, therefore, which are not the assets that constitute
the capital of the insurer.” The Plan’s appeal was denied and the
Commissioner ordered to act “pursuant to the faculties delegated on
him by the Insurance Code, one of which is to determine if the $8.8
million form part of the assets of the Plan de Salud de la
Federación de Maestros.” Thus, after the Commissioner had
determined that the $8.8 million that had remained in escrow never
became part of the Plan’s assets, the Liquidation Court correctly
determined that it lacked jurisdiction over the money and ordered
the Commissioner to return the funds to MRCo.5

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rests its considered judgment upon the rule of law which it
announces, that is a datum for ascertaining state law which is not
to be disregarded by a federal court unless it is convinced by
other persuasive data that the highest court of the state would
decide otherwise.”
MRCo cites to Foster v. Progress Fed. Sav. & Loan, 697 A.2d 6
1043 (Pa. Commw. Ct. 1997) to show that a liquidation court may
lack exclusive jurisdiction where, as alleged by MRCo here, funds
may have been inadvertently mingled with undisputed assets of an
insurer in liquidation. However, Foster is distinguishable because
it involved a suit not against a liquidator, but rather by a
liquidator against a bank alleged to have violated a suspension
order which froze an insurer’s accounts. Id. at 1044. More
importantly, the suit apparently was not brought in the face of a
statute precluding any “judicial actions” against the statutory
liquidator.
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Thus, we think that MRCo’s argument again is ably
dispatched by the plain language of the statute, as described
above. Even if we do not construe Article 40.210 to apply to every
judicial action that conceivably may be brought, here the
Commissioner has determined that the $3.6 million still in dispute
is to be classified as an “asset” of the Plan, and therefore this
case falls within the prohibition of Article 40.210. Intaco 6
Equip. Corp. v. Arelis Constr., 142 D.P.R. 648 (1997); see also
Calderon, Rosa-Silva & Vargas v. Commonwealth Ins. Co., 111 D.P.R.
153 (1981).
MRCo last argues that Puerto Rico cannot, either by
statute or judicial fiat, divest the federal court of its
jurisdiction. This argument similarly misses the mark because it
is not correct to say, as MRCo suggests, that Puerto Rico has
divested the federal court of its subject matter jurisdiction over

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matters such as this. “The jurisdiction of the federal courts -
their power to adjudicate - is a grant of authority to them by
Congress.” Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S.
165, 167 (1939). Once Congress has conferred subject matter
jurisdiction on the federal courts, state law cannot expand or
contract that grant of authority. See, e.g., Goetzke v. Ferro
Corp., 280 F.3d 766, 779 (7th Cir. 2002); see also Frink Co. v.
Erikson, 20 F.2d 707, 711 (1st Cir. 1927). In this case, the
federal diversity statute, 28 U.S.C. § 1332, conferred subject
matter jurisdiction on the district court to adjudicate MRCo’s
claims. Article 40.210 does nothing to affect that grant of
jurisdictional authority.
Whether there remains a viable cause of action is another
matter. When a federal court exercises diversity jurisdiction, it
does so as a neutral forum in which to present state law claims.
See Woods v. Interstate Realty Co., 337 U.S. 535, 538 (1949). As
such, it must apply applicable substantive state laws to the case
before it. See Umsted v. Umsted, 446 F.3d 17, 20 (1st Cir. 2006)
(applying Rhode Island substantive law in case premised on
diversity jurisdiction); Reyes-Cardona v. J.C. Penney Co., 694 F.2d
894, 896-97 (1st Cir. 1982). Thus, a federal forum, “when invoked
on grounds of diversity of citizenship, cannot give that which [the
state] has withheld.” Angel v. Bullington, 330 U.S. 183, 192
(1947). If state substantive law has denied a plaintiff a cause of

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action, the district court must dismiss the complaint for failure
to state a claim upon which relief may be granted. See Goetzke,
280 F.3d at 779.
In Goetzke, the Seventh Circuit Court of Appeals
considered whether a provision of Indiana law, which gave the state
worker’s compensation board exclusive jurisdiction to determine
whether an employer’s worker’s compensation administrator or
carrier “has committed an independent tort in adjusting or settling
a claim for compensation,” denied the plaintiff the ability to
assert a remediable tortious interference claim against his former
employer’s worker’s compensation administrator. Id. at 779. The
Court, after holding that the statute did not deprive the district
court of its subject matter jurisdiction, held that the statute did
not bar the plaintiff’s claim because the defendant compensation
administrator did not commit the alleged tort “in the context of
adjusting or settling a claim for benefits,” i.e. the claim did not
fall within the purview of the worker’s compensation board’s
exclusive jurisdiction. Id. at 779.
Here, given that Article 40.210 precludes any judicial
action from being brought against the Plan or Commissioner, once
the Commissioner had been appointed as liquidator, the district
court appropriately (if only impliedly) dismissed MRCo’s claim for
failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6),
rather than for lack of subject matter jurisdiction pursuant to

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The Puerto Rico Insurance Code also provides generally for 7
appeals from orders of the Commissioner. See P.R. Laws Ann. tit.
26, § 226.
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Fed. R. Civ. P. 12(b)(1). See, e.g., Goetzke, 280 F.3d at 779 (“If
state substantive law has denied a plaintiff a remedy for his cause
of action, the district court [sitting in diversity] must dismiss
the complaint for failure to state a claim upon which relief may be
granted.”).
To hold that the district court may entertain MRCo’s
claims would, in effect, create a cause of action for MRCo that is
denied to citizens of Puerto Rico who are unable to invoke the
jurisdiction of the federal courts through diversity. That being
said, our decision does not strand MRCo without a potential remedy
for the wrong it alleges; it simply clarifies that the remedy, if
any, lies with the liquidation proceedings rather than in the
federal district court. See P.R. Laws Ann. tit. 26, § 4036(2)
(providing that after the liquidator denies a claim, the claimant
may resort to a review by the Court of First Instance). We must 7
therefore turn back MRCo’s appeal and affirm the judgment of the
district court.
Affirmed.

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