919 F.3d 565
1st Cir.2019Background
- Federally qualified health centers (FQHCs) sued Puerto Rico in 2003 under § 1983 alleging failure to implement the Medicaid prospective payment system (PPS) and to make required "wraparound" supplemental Medicaid payments; a Special Master produced rebasing reports and the district court issued a 2010 preliminary injunction requiring prospective wraparound payments.
- The Commonwealth (through managed care organizations) has been making interim quarterly payments based on earlier calculations while rebasing continued; the Special Master issued revised rebasing reports in 2017 that the FQHCs objected to and appealed.
- The Financial Oversight and Management Board filed a Title III petition under PROMESA on May 3, 2017, which, by § 301(a), incorporates the Bankruptcy Code § 362 automatic stay.
- The Commonwealth notified the district court (May 30, 2018) that Title III had been filed and asserted the automatic stay applied; the district court held (July 11, 2018) the stay did not apply to the prospective wraparound/rebasing proceedings.
- The First Circuit reversed, holding that PROMESA § 301(a) (incorporating § 362) applies and that the district court erred in concluding the selected PROMESA provisions (and related arguments) exempted these proceedings from the automatic stay; the case was remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does PROMESA Title III automatic stay (via 48 U.S.C. § 2161(a) incorporating 11 U.S.C. § 362) apply to the district-court proceedings determining prospective wraparound payments? | FQHCs: No — PROMESA and related federal statutes (and public-health protections) prevent the stay from applying to enforcement/continuing obligations to pay Medicaid wraparound amounts. | Commonwealth: Yes — § 301(a) incorporates § 362, which automatically stays pending actions against the debtor, including injunction-enforcement and pre-judgment calculations. | Held: The Title III automatic stay applies; district court erred in holding otherwise. |
| Do PROMESA §§ 304(h) (public safety/discharge), 210(c) (no federal funds authorized), 2144(d)(1) (Oversight Board not to impede compliance), or § 7 (preserve compliance with federal health laws) create exceptions that prevent the stay? | FQHCs: These provisions (esp. § 304(h) and § 7) protect Medicaid and public-health obligations from being stayed or discharged; thus the stay should not bar proceedings. | Commonwealth: These provisions do not negate the automatic stay as incorporated; their text does not operate to exempt this litigation from § 362. | Held: None of these PROMESA provisions negate or carve out an automatic exception here. § 304(h) speaks to discharge not stay; § 210(c) does not bar hypothetical future federal authorization; § 2144(d)(1) does not treat an automatic stay as an Oversight Board act; § 7 is subject to "except as otherwise provided" and does not override express incorporation of § 362. |
| Can the district court decide whether the PROMESA automatic stay applies while Title III proceedings are pending (i.e., concurrent jurisdiction)? | FQHCs: District court may proceed to decide scope and continue rebasing work; abstention/modification issues are for Title III court but district court can act. | Commonwealth: Circuit’s abeyance order and Title III filing limit district court jurisdiction; federal district and Title III courts should not act simultaneously. | Held: District court had jurisdiction to decide the stay question (concurrent jurisdiction exists); but its legal conclusion that the stay did not apply was incorrect. |
| Is the district court's order denying applicability of the PROMESA automatic stay appellate-final under § 1291? | Commonwealth: The order is final and immediately appealable like orders concerning relief from bankruptcy stays. | FQHCs: Did not dispute finality; argued merits. | Held: The First Circuit has appellate jurisdiction; such orders are final/appealable under § 1291 (and collateral-order principles apply). |
Key Cases Cited
- Concilio de Salud Integral de Loiza, Inc. v. Pérez-Perdomo, 551 F.3d 10 (1st Cir. 2008) (background rulings on preliminary injunctions and Special Master process in the underlying Medicaid litigation)
- Rio Grande Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56 (1st Cir. 2005) (earlier appellate discussion of FQHCs’ claims under Medicaid law)
- Peaje Invs. LLC v. García-Padilla, 845 F.3d 505 (1st Cir. 2017) (treatment of PROMESA stay-related appellate finality issues)
- Tringali v. Hathaway Machinery Co., 796 F.2d 553 (1st Cir. 1986) (order granting relief from an automatic stay is appealable under § 1291)
- In re Atlas IT Exp. Corp., 761 F.3d 177 (1st Cir. 2014) (denial of stay relief may or may not be final depending on record and circumstances)
- Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271 (1988) (collateral-order doctrine and criteria for interlocutory appealability)