Diaz Mayoral v. FOMB, 998 F.3d 35

Background

Mayoral and Escudero invested in mutual funds that held Commonwealth of Puerto Rico bonds and filed proofs of claim in Puerto Rico's Title III case claiming about $328,400 based only on "Investment in Mutual Funds."
They did not allege direct ownership of Puerto Rico bonds and initially failed to identify the specific funds or bonds in the proofs of claim.
The Financial Oversight and Management Board (FOMB) objected, arguing the investors lacked standing because any claim belonged to the mutual funds (corporations) and was therefore derivative.
The Title III court disallowed the claims for lack of standing; the claimants moved for reconsideration twice, first advancing a new negligence theory under P.R. Laws Ann. tit. 31, § 5141, and later asserting transcript unavailability; both motions were denied.
The court concluded the investors were not creditors of the Commonwealth, had only derivative injuries as shareholders of corporate mutual funds, and that the negligence theory was barred as a commercial-contract context and could allow double recovery.
The claimants appealed; the First Circuit affirmed the disallowance and the denials of the reconsideration motions.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standing to file proof of claim	Mayoral/Escudero: as mutual-fund investors they have a beneficial interest in the funds' securities and thus may assert claims against Commonwealth.	FOMB: only the creditor (bondholder) or indenture trustee may file; shareholders of corporate funds have only derivative claims.	Held: No standing. Investors did not own bonds, funds were corporations, and shareholders cannot sue in their own name for corporate injuries.
Whether plaintiffs could sue under P.R. negligence statute (§ 5141)	Plaintiffs (on reconsideration): Commonwealth’s defaults caused personal injuries actionable under § 5141.	FOMB: § 5141 does not reach damages arising exclusively from commercial/contractual breaches; no independent noncontractual duty to individual investors.	Held: Rejected. Puerto Rico law bars negligence recovery for damages arising solely from commercial contracts; theory not preserved and lacks merit.
Reconsideration standard and availability of new evidence	Plaintiffs: new evidence (plan/disclosure, transcript) and legal theory justified Rule 59(e)/§ 502(j) relief.	FOMB: materials were not new/unavailable; legal theory untimely and meritsless; no cause for § 502(j).	Held: Denials affirmed as not an abuse of discretion; plaintiffs failed to show manifest error or newly discovered evidence and offered no adequate cause under § 502(j).
Risk of double recovery	Plaintiffs: did not press a clear response; sought recovery individually.	FOMB: allowing both funds and individual investors to recover on same bonds would permit impermissible double recovery.	Held: Concerned court; plaintiffs’ approach could produce double recovery, weighing against allowing their claims.

Key Cases Cited

Cohen v. de la Cruz, 523 U.S. 213 (1998) (defines "right to payment" as an enforceable obligation)
Pa. Dep't of Pub. Welfare v. Davenport, 495 U.S. 552 (1990) (context for bankruptcy "claim" and "right to payment")
In re Melillo, 392 B.R. 1 (B.A.P. 1st Cir. 2008) (creditor standing and proof-of-claim principles in bankruptcy)
Isla Nena Air Servs., Inc. v. Cessna Aircraft Co., 449 F.3d 85 (1st Cir. 2006) (Puerto Rico negligence statute does not apply where damages arise exclusively from a commercial contract)
Pagán v. Calderón, 448 F.3d 16 (1st Cir. 2006) (shareholder lacks individual standing to sue for injuries to the corporation)
In re Redondo Constr. Corp., 820 F.3d 460 (1st Cir. 2016) (principle that a plaintiff is entitled to only one full recovery; hostility to double recovery)
TI Fed. Credit Union v. DelBonis, 72 F.3d 921 (1st Cir. 1995) (standard of review for bankruptcy claims)
In re Colley, 814 F.2d 1008 (5th Cir. 1987) (court may deny reconsideration under § 502(j) without a hearing)