Atl. Med. Ctr., Inc. v. Commonwealth (In re Fin. Oversight & Mgmt. Bd. for P.R.)

624 B.R. 310

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico, et al., Debtors.

Atlantic Medical Center, Inc., et al., Plaintiffs,

v.Commonwealth of Puerto Rico, Defendant.

Corporación de Servicios Integrales de Salud del Area de Barranquitas, Comerío, Corozal, Naranjito y Orocovis, Plaintiff,

v.Commonwealth of Puerto Rico, Defendant.

No. 17 BK 3283-LTS (Jointly Administered)

Adv. Proc. No. 17-278-LTS

Adv. Proc. No. 17-292-LTS

United States District Court, D. Puerto Rico.

Signed November 27, 2018

MEMORANDUM ORDER OVERRULING OBJECTIONS AND ADOPTING REPORT AND RECOMMENDATION

LAURA TAYLOR SWAIN, United States District Judge

On August 7, 2018, Magistrate Judge Judith Gail Dein issued a Report and Recommendation (Docket Entry No. 57,² the "Report") recommending that the Court grant the Commonwealth of Puerto Rico's Motion to Dismiss Consolidated Complaints under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6) (Docket Entry No. 26, the "Motion to Dismiss") and dismiss the above-captioned adversary proceedings pursuant to Federal Rule of Civil Procedure 12(b)(1). The Court has received two objections to the Report. (See Docket Entry Nos. 58 and 61.) On August 12, 2018, Plaintiff Corporación de Servicios Intergrales de Salud del Area de Barranquitas, Comerío, Corozal, Naranjito y Orocovis (the "Corporación") filed its objection to the Report (Docket Entry No. 58, the "Corporación Objection"). On August 28, 2018, certain other Plaintiffs in the above-captioned adversary proceedings (the "Additional Objectors" and, together with the Corporación, the "Objectors") filed their objection to the Report (Docket Entry No. 61, the "Omnibus Objection" and, together with the Corporación Objection, the "Objections"). The Commonwealth filed an omnibus reply submission on September 18, 2018. (Docket Entry No. 63.) The Court has reviewed all of the submissions of the parties carefully and, for the following reasons, adopts the Report. The Objections are overruled in their entirety.

BACKGROUND

Plaintiffs are non-profit health centers that operate in the Commonwealth of Puerto Rico (the "Commonwealth" or "Puerto Rico"). (Docket Entry No. 1, the "Atlantic Medical Complaint," ¶¶ 7–16; Docket Entry No. 1 in Case No. 17-AP-00292, the "CSI Complaint," ¶ 11.) In the above-captioned adversary proceedings, they seek two declaratory judgments against the Commonwealth. First, Plaintiffs seek a declaration that their retroactive claims against the Commonwealth for certain payments related to health care provided under the federal Medicaid program are not dischargeable within the Title III restructuring process. (Atlantic Medical Compl. ¶ 84; CSI Compl. ¶ 84.) Second, Plaintiffs seek a declaration that those claims may not otherwise be impaired by the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). (Id. ) On February 2, 2018, Magistrate Judge Judith Gail Dein entered an order consolidating the two adversary proceedings. (Docket Entry No. 25.) Her Report recommends that the adversary proceedings be dismissed for lack of subject matter jurisdiction, concluding that neither demand for declaratory judgment presents issues that are ripe for adjudication.

The Court hereby incorporates by reference the Statement of Facts section of the Report. (See Report at 3–7.)

DISCUSSION

Standard of Review

In reviewing a report and recommendation, a district court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C.A. § 636(b)(1)(C) (West 2018). The court must make a de novo determination insofar as a party makes specific objections to portions of the magistrate judge's report or specified proposed findings or recommendations to which objection is made. Id.; see also Vega-Feliciano v. Doctors' Center Hosp., Inc., 100 F. Supp. 3d 113, 116 (D.P.R. 2015) ("A party that files a timely objection is entitled to a de novo determination of those portions of the report or specified proposed findings or recommendations to which specific objection is made.") (citations omitted).

However, a district court need not consider "frivolous, conclusive, or general objections." Id. at 116 (citations omitted). To the extent that objections to a magistrate judge's report and recommendation are general or conclusory, a de novo review is unwarranted, and the district judge will instead review the report and recommendation for clear error. Id. Objections that do not specify the analytical aspects of the report and recommendation to which the party is objecting are considered "general or conclusory," as are objections that are repetitive of arguments already presented to the magistrate judge. Id. In this case, Plaintiffs have tendered specific objections and the Court has reviewed de novo the Report's analysis of the jurisdictional issues presented by Plaintiffs' claims and recommended conclusions.³

Overview of Objections

In its Objection, Corporación argues that the Report errs in its determination that Plaintiffs' claims are not ripe for review. (Corporación Obj. at 2.) Corporación contends that an actual controversy exists, despite a pending appeal relating to the judgment that it has obtained.⁴

In the Omnibus Objection, the Additional Objectors argue that the Report contains factual errors. (Omnibus Obj. at 3.) Specifically, the Additional Objectors argue that the Report errs in concluding that all of the Objectors' claims are currently being litigated. (Id. ) Instead, the Additional Objectors contend that certain prepetition judgments are final and that they are therefore entitled to an immediate ruling on whether those claims are dischargeable. (Id. ) The Additional Objectors also argue that they satisfy the hardship prong of the ripeness analysis because a ruling on dischargeability will inform their decision regarding whether to continue litigating their claims. (Id. at 14–15.) With respect to their demand for a declaration that their claims cannot be impaired by PROMESA, Objectors argue that the claim is ripe because certain payments are currently due under the federal Medicaid statute. (Id. at 10–12.)⁵

Dischargeability Claim

The Report concludes that this Court lacks subject matter jurisdiction to consider Plaintiffs' request for a declaration that Plaintiffs' claims for payment cannot be discharged in a plan of adjustment. (Id. at 9–13.) The Report's conclusion that the "question of dischargeability ... is not fit for review" rests on two determinations. First, the extent of the Commonwealth's monetary obligation, if any, for the reimbursements at issue has not been finally determined. Second, it is uncertain whether a future plan of adjustment will propose to discharge the claims that are at issue. (Id. at 10–11.)

The Additional Objectors' argument regarding the alleged "factual errors" is unavailing. Even if certain prepetition judgments held by Additional Objectors are final, the dischargeability question is still unfit for review because it is entirely dependent on a future event that may never occur. Absent the filing of a proposed plan of adjustment, it is unknown whether the Commonwealth will attempt to seek discharge of any of Plaintiffs' claims, and it would be premature for this Court to issue a ruling at this point in the Title III proceedings concerning the dischargeability of those claims. Furthermore, the Report correctly concludes that the Objectors failed to establish the hardship prong of the ripeness analysis. (Report at 12–13.) The Court understands and is sympathetic to the fact that Objectors wish to avoid expending resources in litigating claims that may ultimately be dischargeable. However, that fact alone does not satisfy the hardship prong of the ripeness analysis, as immediate harm to the Objectors will only be in prospect in the event that a plan of adjustment is filed that seeks to discharge the Objectors' claims. See, e.g., ACP Master, Ltd. v. Commonwealth of P.R. (In re The Fin. Oversight and Mgmt. Bd. for P.R.), 300 F. Supp. 3d 328, 337 (D.P.R. 2018) (stating that "[r]ulings on isolated or abstract points that will principally be useful in formulating or litigating future choices that might or might not be made are outside the authorized scope of declaratory relief"). It should be noted, however, that nothing in the Court's conclusion that the hardship prong of the ripeness inquiry is not met in this declaratory judgment proceeding precludes Plaintiffs from conserving resources by seeking to stay their reimbursement litigation until any dischargeability claims are ripe.

Impairment Claim

The Report correctly concludes that the Objectors' request for a declaration that their claims are not impaired by PROMESA fails both the fitness and hardship prongs of the ripeness analysis. (Report at 13–14.) In their Objection to the Report, the Additional Objectors argue that the impairment claim is ripe because certain of the "wraparound" payments are due under the federal Medicaid statute and that Plaintiffs are therefore entitled to a declaration that PROMESA does not impair the payment of such claims. (Id. at 10–12.) However, their Complaints do not allege facts that, even when read in the light most favorable to Plaintiffs, support plausibly a conclusion that PROMESA has caused any impairment of or failure to pay the claims. Similarly, Objectors have failed to establish that significant hardship exists absent a ruling on the issue of impairment.

CONCLUSION

For the foregoing reasons, the Court adopts the thorough and well-reasoned Report and the Objections are overruled. The Motion to Dismiss is granted insofar as it seeks dismissal of the above-captioned consolidated adversary proceedings for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). The Clerk of Court is directed to enter judgment accordingly and close the above-captioned adversary...