EL COMANDANTE MANAGEMENT COMPANY LLC

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Case:04-10938-ESL11 Doc#:1691 Filed:09/14/06 Entered:09/14/06 15:53:14 Desc:
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IN THE UNITED STATES BANKRUPTCY COURT

1 FOR THE DISTRICT OF PUERTO RICO

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° IN RE:

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EL COMANDANTE MANAGEMENT : Case No. 04-10938

5 COMPANY, LLC, et al., : Chapter 11

6 Debtors. (Jointly Administered)

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; OPINION AND ORDER
i0 This case is before the court upon Motion for Stay Pending Appeal filed on
11 August 18, 2006 by the Hon. Juan Vaquer Castrodad (“Mr. Vaquer”), Executive Director
ae of the Land Administration of Puerto Rico. (Docket No. 1525). For the reasons set forth
8 below the motion is hereby granted.
; Factual and Procedural Background
16 On June 8, 2006, this court entered an Opinion and Order (Docket No. 1182)
17 denying the opposition to motion for contempt for violation of the automatic stay
18 provisions of the Bankruptcy Code filed by Mr. Vaquer, in his personal capacity (Docket
" No. 1114). In his opposition, Mr. Vaquer argued that there was no violation of stay
; because an eminent domain action had not been filed; and, that he had complied with
99 some discovery requests and was ready to continue with discovery. In the June 8, 2006
23 Opinion and Order this court also denied the Motion to Dismiss Debtors’ Motion to Show
24 Cause and to Set Aside Pending Discovery (Docket No. 1111) filed by Hon. Jorge Silva
8 Puras (“Mr. Silva Puras”) in which he alleges lack of jurisdiction of the bankruptcy court,
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because an eminent domain action had not been filed; and, on the grounds that he enjoyed
1 qualified immunity for his actions. This court denied Mr. Silva Puras’ request for
2 qualified immunity.
° The facts relevant to the actions taken by Mr. Vaquer and Mr. Silva Puras, which
prompted the filing of debtors’ motion for contempt for violation of the automatic stay
6 were detailed in this court’s Opinion and Order of June 8, 2006. The foliowing is a brief
7 summary of these facts which are included in debtors’ motion and documents in support
8 thereof and that must be accepted as true when considering a motion to dismiss.
° El Comandante Management Company, LLC (“ECMC”), Housing Development
; Associates, S.E. (“HDA”), and El Comandante Capital Corporation (“ECCC”)
2 (collectively the “debtors”), filed for bankruptcy under chapter 11 of the Bankruptcy
13 Code on October 14, 2004. During the year 2005, Mr. Vaquer was appointed Executive
14 Director of the Land Administration of the Commonwealth of Puerto Rico, and Mr. Silva
6 Puras was appointed Secretary of the Department of Economic Development and
° Commerce of the Commonwealth of Puerto Rico. In September 2005, Mr. Silva Puras
; made several statements to the media regarding the government’s intention of taking the
49 debtors’ property, specifically the land where El Comandante racetrack is located. Mr.
20 Silva Puras’ statements and actions concerning the government’s possible taking of
21 debtors’ property are intertwined with those of Mr. Vaquer. The statements made by
2 Silva Puras to the media prompted debtors’ Urgent Motion for an Order to Show Cause
; and later Motion for Contempt for Violation 11 USC. 362(A) [sic] against Mr. Silva
95 Puras and Mr. Vaquer for failure to comply with discovery requests and trying to exercise
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control over debtors’ property of the estates (Docket No. 1110).

On June 30, 2006 Mr. Vaquer filed Motion under Fed R Civ P 60(b) and Request
for Reconsideration of the June 8, 2006 Opinion and Order (the “Motion for
Reconsideration”) (Docket No. 1260). In the Motion for Reconsideration Mr. Vaquer
argues, inter alia, that this court erred when it ruled that Mr. Silva Puras and him are not
entitled to qualified immunity, particularly because “their conduct did not violate any
clearly established statutory or constitutional right, inasmuch as it is clear that a violation
of stay requires an overt act that exercises control over property of the estate.” Motion for
Reconsideration, Docket No. 1260 at page 6.

On July 10, 2006 Mr. Vaquer filed: Motion for Leave to Appeal the June 8, 2006
Opinion and Order (Docket No. 1300), Motion Requesting an Extension of Time to File
Notice of Appeal Pursuant to Fed R Bankr P 8002 (Docket No. 1301}, and Notice of
Appeal of the June 8, 2006 Opinion and Order (Docket No. 1302).

On August 10, 2006 this court denied the Motion for Reconsideration (Docket
No. 1477) and on August 11, 2006 denied the motion for extension of time (Docket No.
1488). In the August 10, 2006 Opinion and Order this court notes that in his opposition
to the motion for contempt for violation of the automatic stay provisions of the
Bankruptcy Code, Mr. Vaquer did not address the issue of qualified immunity, thus he
had no standing to challenge the court’s ruling as to Mr. Silva Puras’ request to dismiss
claiming to be entitled to qualified immunity. This court added that to the extent the
Motion for Reconsideration may be construed as a motion to dismiss on the grounds that

Mr. Vaquer may be entitled to qualified immunity, the same was denied for the reasons

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explained subsequently, which expanded on the court’s rationale espoused in the June 8,
2006 Opinion and Order. In the August 10, 2006 Opinion and Order the court discussed
the three prong test followed in our circuit to determine whether a state officer is entitled
to qualified immunity, to wit, (a) that the allegations made by plaintiff if true, establish a
constitutional violation; (b) that the constitutional right at issue was clearly established at
the time of the putative violation; and (c) that a reasonable officer, situated similarly to
the defendant, would have understood the challenged act or omission to contravene the
discerned constitutional right, Pagan et al v. Calderon, 448 F.3d 16, 31 (1* Cir. 2006)
(citations omitted), and concluded that Mr. Vaquer is not entitled to the qualified
immunity defense.

On August 18, 2006 Mr. Vaquer filed Notice of Appeal the Opinion and Order
entered on August 10, 2006 (Docket No. 1523) and on August 21, 2006 he filed Notice of
Appeal of order entered on August 11, 2006 denying his motion requesting extension of
time to file the Notice of Appeal (Docket No. 1538).

The Motion for Stay Pending Appeal filed on August 18, 2006 (Docket No. 1525)
by Mr. Vaquer argues that the filing of the Notice of Appeal divests the court of
jurisdiction over the matters subject to the appeal and continues to discuss the four factors
considered by the courts upon determining whether to grant a motion for stay pending
appeal, to wit, 1. likelihood that a party seeking the stay will prevail on the merits of the
appeal; 2. irreparable injury to the moving party unless the stay is granted; 3. no
substantial harm will be caused to the moving party unless the stay is granted; and 4. the

public interest will not be harmed if a stay is denied.

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On September 7, 2006 debtors filed Opposition to Motion for Stay Pending

1 Appeal arguing that Mr. Vaquer failed to prove that he will suffer irreparable injury if the

2 stay is denied; that no substantial harm will be caused to other interested parties; and, that

. the stay will do no harm to the public interest, therefore the stay pending appeal should be

denied.

P Discussion

7 As stated in the Opinion and Order entered on August 10, 2006 the defense of

a qualified immunity is a “judge made doctrine” geared to limit the personal liability in

° damages actions against public officials when exercising discretionary functions in their
; government roles, The concept inspiring the qualified immunity doctrine as set forth in
rr Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L-Ed.2d. 396 (1982), is that
13 “where an official’s duties legitimately require action in which clearly established righis
14 are not implicated, the public interest may be better served by action taken ‘with
8 independence and without fear of consequences” Id, at 819 . The referred consequences
; include “the general costs of subjecting officials to the risks of trial-distraction of officials
48 from their governmental duties, inhibition of discretionary action, and deterrence of able
19 people from public service.” Id. at 816.
20 Later, the Supreme Court, in the case of Mitchell v. Forsyth, 472 U.S. 511, 105 S.
a1 Ct 2806, 86 L.Ed.2d. 411 (1985), expanding on its decision in Harlow, established that a
2 “district court’s denial of a qualified immunity claim, to the extent that it turns on an
; issue of law, is an appealable final decision within the meaning of 28 USC sec. 1291,
95 notwithstanding the absence of a final judgment”. The Forsyth Court reasoned that “the
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entitlement [to qualified immunity] is an immunity from suit rather than a mere defense to
liability; and like absolute immunity, it is effectively lost if a case is erroneously
permitted to go to trial.” Id, at 526 (emphasis in the original). In fact, the Supreme Court
has repeatedly “stressed the importance of resolving immunity questions at the earliest
possible stage in litigation”. Hunter v. Bryant, 502 U.S. 224, 227, 112 S.Ct. 534, 116
L.Ed.2d 589 (1991), cited in Saucier, 121 S.Ct. at 2156. Where a defendant seeks
qualified immunity, courts are encouraged to make a ruling on the issue “early in the
proceedings so that the costs and expenses of trial are avoided where the defense is
dispositive.” Id. at 2156-37.

In light of the Supreme Court’s decisions in Harlow, and subsequently in Forsyth,
the First Circuit Court of Appeals in the case of Hegarty v. Somerset, 25 F.3d 17 at 18
(1* Cir. 1994) stayed discovery pending resolution of the interlocutory appeals on the
issue of qualified immunity by stating that “the rationale for allowing an immediate
appeal from the denial of qualified immunity is that the immunity from suit is effectively
lost if a case is erroneously permitted to go to trial”. The Hegarty case involved a 42
U.S.C. sec. 1983 suit for money damages against police officers who attempting to
execute a warrantless entry and arrest, killed a woman in her home. The court denied
summary judgment on the basis of qualified immunity to the individual officers, and they
appealed and moved for a stay of discovery in the case while the appeal of the denial of
qualified immunity was pending. The Hegarty court found that the immunity from suit

includes protection from the burdens of discovery;

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we believe that the stay of discovery, of necessity, ordinarily must carry over
through the appellate court’s resolution of that question [immunity], so long as the
appeal is non frivolous. The rationale for staying discovery applies with no less
force while the appeal, to which the officers are entitled, proceeds.

Hegarty at 18.

In the case of Rivera Torres v. Ortiz Velez, 341 F.3d 86 (1* Cir. 2003), the First

Circuit again faced the question of a stay pending an appeal of an order denying qualified
immunity to defendants. In Rivera Torres the court recognized that the filing of
interlocutory appeals confers jurisdiction on the court of appeals and strips the district
court of authority over those matters subject to the appeal until the court of appeals issues
its mandate. Id. at 93. The court acknowledged that this principle may lead to frivolous
appeals taken in order to stall proceedings against them; the aggrieved individuals need
only file a notice of appeal in order to effectively stop the proceedings. The Seventh
Circuit, as well as the Sixth, Ninth and Tenth Circuits have carved out an exception when
appeals are taken frivolously. These Circuits have established a certification procedure to
address interlocutory appeals challenging the denial of qualified immunity. Id. at 95. The
district court certifies to the court of appeals that the appeal is frivolous and continues

with the trial, not losing jurisdiction because the appeal taken is baseless. See, Apostol v.

Gallion, 870 F.2d 1335 (7" Cir. 1989). The party aggrieved by the determination of
frivolousness may turn to the court of appeals for a stay; ifit is concluded that the appeal
presents a genuine issue, the trial is postponed until the appeal is resolved, Id. at 1339. If
however, the district court does not find frivolousness, the proceedings are automatically

stayed by virtue of Forsyth, Id.

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The First Circuit has not specifically adapted the certification procedure.

1 However, the Rivera Torres court found that the frivolousness analysis resembles the
2 evaluation that courts must conduct upon entertaining a motion for stay pending appeal;
; that is, considering the merits of the petition and anticipating the outcome of the appeal.
Rivera Torres, 341 F. 3d at 95. In the case of Rivera Torres the court found that the
6 appeal was “patently meritless” and thus, it failed to divest the district court from its
7 jurisdiction.
8 Having evaluated the arguments presented by counsel for both parties in the
, Motion for Stay Pending Appeal and its Opposition, this court cannot conclude that the
. appeal taken on August 18, 2006 is totally devoid of merit and thus frivolous. Therefore,
10 in light of the foregoing, the Motion for Stay Pending Appeal filed by Mr. Juan Vaquer
13 Castrodad (Docket No. 1525) is hereby granted.
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"8 SO ORDERED.
; In San Juan, Puerto Rico, this 14" day of September, 2006.
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0 U. S. Bankruptcy Judge

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