EL COMANDANTE MANAGEMENT COMPANY LLC

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1 IN THE UNITED STATES BANKRUPTCY COURT

3 FOR THE DISTRICT OF PUERTO RICO

3 |} IN RE: CASE NO. 04-10938 (ESL)

4 EL COMANDANTE MANAGEMENT CHAPTER 11

5 || COMPANY, LLC, et al.,

(Jointly Administered)

6 Debtors.

7

8 OPINION AND ORDER

9 This case is before the court upon the “Motion Under Fed.R.Civ.P. 60(b) And Request For
10 wos

Reconsideration Of The June 8, 2006 Opinion And Order” filed by the Hon. Juan Vaquer Castrodad
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» (“Mr. Vaquer”), Executive Director of the Land Administration of Puerto Rico, in his personal
3 capacity, on June 30, 2006 (Docket No. 1260). For the reasons set forth below, the motion is denied.
14 Factual and Procedural Background
15 The facts relevant to the role of Mr. Vaquer in the instant bankruptcy case were detailed in
16 this court’s Opinion and Order of June 8, 2006 (Docket No. 1182). A short summary of said facts,
17
however, is necessary to address the issue now pending before the court.

18
19 Fl Comandante Management Company, LLC “ECMC”), Housing Development Associates,

99 || 8-E. CHDA”), and El Comandante Capital Corporation (“ECCC”) (collectively the “debtors”), filed

21 || for bankruptcy under chapter 11 of the Bankruptcy Code on October 14, 2004. During the

22 year 2005, Mr. Vaquer was appointed Executive Director of the Land Administration of the
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Commonwealth of Puerto Rico, and the Hon. Jorge Silva-Puras (“Mr. Silva-Puras”) was appointed
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95 Secretary of the Department of Economic Development and Commerce of the Commonwealth of

6 Puerto Rico.' In September 2005, Mr. Silva-Puras made several statements to the media regarding

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1 Reference is made to Mr. Silva-Puras, as his statements and actions concerning the government’s

possible taking of debtors’ property are intertwined with those of Mr. Vaquer. Moreover, the arguments presented by
Mr. Vaquer in his motion for reconsideration on the issue of qualified immunity, refer to and affect both Silva-Puras
as) and Vaquer (Docket No. 1260). Mr. Silva-Puras is currently the Chief of Staff for the Governor of Puerto Rico.

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the government’s intention of taking the debtors’ property, specifically the land where El
Comandante horse racetrack is located. The statements made by Mr. Silva-Puras to the media
triggered the “Urgent Motion For An Order To Show Cause” filed by debtors on September 20, 2005
(Docket No. 430). A status conference was held on November 8, 2005. The court directed the
parties to file simultaneous statements within fifteen (15) days, describing (a) the actions taken by
Messrs. Silva-Puras and Vaquer that represent a violation of the automatic stay; and, (b) what
governmental actions, if any, have been taken to commence the eminent domain proceeding against
debtors’ property.

Messrs. Silva-Puras and Vaquer complied with the court’s order of November 8, 2005,
however, debtors’ discovery was stalled by several motions requesting extension oftime. Upon their
failure to answer the discovery requests, the debtors filed a “Motion For Contempt For
Violation 11 U.S.C. 362(A)” [sic], on May 2, 2006, against Messrs. Silva-Puras and Vaquer, for (a)
failure to comply with the discovery requests, and, (b) trying to exercise control over debtors’
property of the estates (Docket No. 1110). On that same date, Mr, Silva-Puras filed a “Motion To
Dismiss Debtors’ Motion To Show Cause And To Set Aside Pending Discovery” (Docket No. 1111),
on the grounds of (a) lack of jurisdiction of the bankruptcy court, as an eminent domain action has
not yet been filed; and, (b) qualified immunity. On May 16, 2006, debtors filed an opposition,
supported with documentary evidence, setting forth the steps taken by Messrs. Silva-Puras and
Vaquer directed to file an eminent domain action (Docket No. 1142). On June 8, 2.006, the court
entered an Opinion and Order (Docket No. 1182), denying Mr. Silva-Puras’ motion to dismiss and
his request for qualified immunity. Mr. Silva-Puras has appealed the June 8, 2006 Opinion and
Order.

On May 3, 2006, Mr. Vaquer filed an “Opposition To Motion For Contempt For Violation

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11 U.S.C. 362(A)” (Docket No. 1114), on the grounds that (a) there is no violation of stay, as an
eminent domain action has not been filed; and, (b) Mr. Vaquer has complied with some discovery
requests and was ready to continue with the discovery. On May 18, 2006, debtors filed a reply to
Mr. Vaquer’s opposition (Docket No. 1147).

On June 8, 2006, the court entered an Opinion and Order (Docket No. 1182) denying
Mr. Vaquer’s opposition to motion for contempt (Docket No. 1114), On June 30, 2006, Mr. Vaquer
filed a “Motion Under Fed.R.Civ.P. 60(b) And Request For Reconsideration Of The June 8, 2006
Opinion And Order” (Docket No. 1260), on the grounds that (a) the Clerk failed to give proper
notice of the June 8, 2006 Opinion and Order; and, (b) the court erred when it ruled that Mr. Vaquer
is not entitled to qualified immunity. The court notes that, on July 10, 2006, Mr. Vaquer filed a
“Motion For Leave To Appeal June 8, 2006 Opinion And Order” (Docket No. 1300); “Motion
Requesting Extension Of Time To File Notice Of Appeal” (Docket No. 1301); and, a “Notice Of
Appeal” (Docket No. 1302), in the event that this court denies Mr. Vaquer’s motion for
reconsideration. The question of proper notice of the June 8, 2006 Opinion and Order will be
addressed separately when the court rules on Mr. Vaquer’s “Motion Requesting Extension Of Time
To File Notice Of Appeal,” as this procedural issue is not related to the merits of the court’s ruling
on the non-applicability of the defense of qualified immunity, and has no bearing on this court’s
ruling on the motion for reconsideration pending before the court.

Rule 60(b) Motion

Mr. Vaquer moves the court to vacate its June 8, 2006 order pursuant to Rule 60(b) of the
Fed. R. Civ. P. on the grounds that the same was not properly notified. Mr. Vaquer also moves the
court to reconsider its order denying the motion to dismiss filed by Mr. Silva-Puras on the grounds

that both Mr. Vaquer and Mr. Silva-Puras are entitled to qualified immunity.

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Even assuming that Mr. Vaquer is correct in his allegation that the June 8, 2006 order was
not properly notified, the court fails to see how the extraordinary remedies in Rule 60(b) warrant that
the order be set aside. Caisse v. DuBois, 346 F.3d 213 (1* Cir. 2003); Karak v. Bursaw Oil Corp.,
988 F. 3d 15,19 (1* Cir. 2002). The order was entered after considering the positions by all parties,
including Mr. Vaquer. The order was not entered on default. However, the court will assume, in
a liberal and broad perspective, that the standards of Rule 60(b) are being invoked because the
motion was filed on June 30, 2006, that is, after ten days from the entry of the June 8, 2006 order.
Whenever a party asks the court to modify an earlier disposition alleging legal error, the request must
be brought under Fed. R. Civ. P. 59 (e). U.S. v. $23,000 in U.S. Currency, 356 F. 3d 157, fn. 9 (i*
Cir. 2004), Requests under Rule 59 (e) must be brought within 10 days. The scenario having been
set, the court will now address the request.

The court in its June 8, 2006 order denied two motions, the motion to dismiss filed by Mr.
Silva-Puras and the opposition to motion for contempt filed by Mr. Vaquer. The court in its
conclusion made specific reference to its disposition by stating that “the motion to dismiss filed by
Mr. Siva-Puras (Docket No. 1111), and the opposition to motion for contempt filed by Mr. Vaquer
(Docket No. 1114), in their personal capacity, are hereby denied.” The motion by Mr. Siva-Puras
addressed the issue of qualified immunity, the motion by Mr. Vaquer did not. The opposition by Mr.
Vaquer alleged that debtors’ request for damages for violating the automatic stay do not proceed
because condemnation proceedings have not been filed, and also prayed that sanctions not be
imposed for failure to comply with discovery. The court overruled both, but did not sanction Mr.
Vaquer, Instead, it ordered respondents to comply with any pending discovery forthwith.
Clearly,Mr. Vaquer has no standing to challenge this court’s ruling as to Mr. Silva-Puras’request to

dismiss claiming to be entitle to qualified immunity. Mr. Vaquer did not make the request.

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In view of the above, the motion under Rule 60 (b) is denied.

To the extent that the motion may be construed as a motion to dismiss on the grounds that
Mr. Vaquer is entitled to qualified immunity, the same is hereby denied for the reasons that follow,
and which expand on this court’s rationale in the June 8, 2006 order.

Discussion

The issue before the court is whether the court erred when it ruled that Mr. Vaquer is not
entitled to qualified immunity, on the ground that the application of one of the factors of the three
(3) prong test “is flawed” (Docket No. 1260).

As stated in this court’s Opinion and Order of June 8, 2006 (Docket No. 1182), the defense
of qualified immunity is a “judge-made doctrine” geared to limit the personal liability of public
officials in damages actions when exercising its discretionary functions in their governmental role.
However, the defense of qualified immunity is far from being limitless or infinite. “As that
exclusion has been interpreted, the doctrine does not shield public officials who, from an objective
standpoint, should have known that their conduct was unlawful.” Pagan, et al. v. Calderén,
448 F.3d 16, 31 (Ist Cir. 2006).

When considering the three prong test followed in our circuit to determine whether a state
officer is entitled to qualified immunity, the court must examine (a) “whether the plaintiff's
allegations, if true, establish a constitutional violation;” (b) “whether the constitutional right at issue
was clearly established at the time of the putative violation,” and, (c) “whether a reasonable officer,
situated similarly to the defendant, would have understood the challenged act or omission to
contravene the discerned constitutional right.” Calderdn, 448 F.3d at 31 (citations omitted).

Mr. Vaquer had moved the court to reconsider the court’s ruling only as to the second prong

of the test, that is, “whether the constitutional right at issue was clearly established at the time of the

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1 | putative violation.” In the Opinion and Order of June 8, 2006 (Docket No. 1182), the court held:

No

Debtors’ tight to file for bankruptcy was enacted by Congress over
two hundred years ago, in 1776. Taking of property without just
compensation and due process of law were enacted by Congress by
the Fifth Amendment in 1791 and the Fourteenth Amendment
in 1868. ‘Thus, these constitutional rights were clearly established at
the time of the facts alleged in the complaint.”

Mr. Vaquer argues that the court’s the application is “flawed” because:

The controversy at bar is whether at the time of the adverse actions
allegedly committed by appearing party and respondent Silva Puras,
it was unlawful and in violation of the automatic stay to perform
certain actions intended to “evaluate” whether an eminent domain
10 proceeding should be “considered or contemplated” by government
agencies in case a possible expropriation of El Comandante Racetrack

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VW was necessary. Thus, to defeat the qualified immunity defense, the
2 debtors must show that Silva Puras and Vaquer Castrodad, the
officials, knew or reasonably should have known that the actions they
13 took within this sphere of official responsibility (consider or
contemplate a possible expropriation) would violate the statutory
14 rights (in this case, the automatic stay) of the debtor. (Docket
15 No. 1260).
16 Mr. Vaquer also argues that a violation of stay requires “an overt act that exercises control

17 || over property of the estate.” Mr. Vaquer alleges that “[t]he overt act in the instant case would have

18 been the filing of a condemnation proceeding without first requesting relief from the automatic stay

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in the Bankruptcy Court.” See Docket No.1260. We disagree.
20
1 The factors relied on by the court, as delineated in Calderdén, to find that the doctrine of

97, || qualified immunity does not apply at this juncture, are well established in the First Circuit. See Cox

23 || v. Hainey, 391 F.3d 25, 29-30 (1* Cir. 2004), citing Saucier v. Katz, 533 U.S. 194, 201-206, 121
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S.Ct. 2151, 150 L.Ed.2d 272 (2001); Rivera-Jimenez v. Picrluisi, 362 F.3d 87, 93 (1* Cir. 2004);

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Mihos, 358 F.3d at 102; Limone v. Condon, 372 F.3d 39, 44 (i* Cir. 2004).
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37 The doctrine of qualified immunity provides that “government officials performing

28 discretionary functions generally are shielded from liability for civil damages insofar as their conduct

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does not violate clearly established statutory or constitutional rights of which a reasonable person
would have known.” Mihos v. Swift, 358 F.3d91, 101 (1* Cir. 2004), quoting Harlow v. Fitzgerald,
457 U.S. 800, 818, 102 S. Ct. 2727, 2738, 73 L.Ed.2d 396 (1982). The doctrine “aspires to ‘balance
[the] desire to compensate those whose rights are infringed by state actors with an equally
compelling desire to shield public servants from undue interference with the performance of their
duties and from threats of liability which, though unfounded, may nevertheless be unbearably
disruptive.” Cox v. Hainey, 391 F.3d 25, 29 (1* Cir. 2004), citing Buenrostro v. Collazo, 973 F.2d

39, 42 (1* Cir. 1992). Qualified immunity “protects public officials from the specter of damages

liability for judgment calls made in a legally uncertain environment.” Santana v. Calderon, 342 F.3d

18, 23 (1* Cir, 2003), quoting Ryder v. United States, 515 U.S. 177, 185, 115 S. Ct. 2031, 132

L.Ed.2d 136 (1995). Qualified immunity is not only a defense to liability but “an entitlement not to
stand trial or face the other burdens of litigation.” Cox, 391 F.3d at 29, citing Mitchell v. Forsyth,
472, U.S. 511, 526, 105 S.Ct. 3806, 86 L.Ed.2d 411 (1985).

In order for plaintiffs to overcome a qualified immunity defense they must prove that their
allegations, if true, show a constitutional violation of aclearly established right and that a reasonable

official would have known that his actions violated the right at issue. Mihos, 358 F.3d at 98.

In determining whether the allegations establish a constitutional violation, the court should
examine whether the facts as alleged make out a constitutional violation. Mihos, 358 F.3d at 102.
This factor “should be treated as a ‘threshold question’ and “operates at a high level of generality.”
Cox, 391 F.3d at 30 (citations omitted) (wherein the court of appeals concluded that “the undisputed
facts, construed in the light most favorable to the appellant, make out a colorable claim of
constitutional dimension.”) The debtors herein allege that the government has made expressions

through Messrs. Silva Puras and Vaquer regarding the possibility of expropriating debtors’ real

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1 || estate. In its opinion and order the court stated that:
2 Debtors’ allegations are supported with several letters from
3 Messts. Silva-Puras and Vaquer, including a letter from Mr. Vaquer
io Mr. William Lockwood, President to the Government
4 Development Bank of Puerto Rico, dated August 18, 2005, requesting
5 a loan to compensate the owners of the racetrack when the eminent
domain action is filed. The letters included in debtors’ response
6 expressly acknowledge that the owners of the land to be expropriated
are under the protection of the bankruptcy court, and that the actions
7 to expropriate are aimed at protecting the horse racing industry. See
3 Docket No. 1151.
g || The court finds that these facts, as alleged, may constitute a violation of the debtors’ rights and
10 || therefore the first part of the qualified immunity test is established.
i The second part of the test examines whether the right claimed was clearly established at the
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time of the alleged violation. As to this point, “the Supreme Court has cautioned against applying
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4 general definitions of constitutional rights in the qualified immunity context” because “[t]he level
15 of abstractness at which the ‘right’ in question is articulated can often determine the outcome of [the]
16 || inquiry.” Mihos, 358 F.3d at 109. This court concludes that at the time of the alleged violation
17 || herein, the right of a citizen to not have their property taken without due process of law and the
18 automatic stay provisions of 11 U.S.C. § 362(a) were clearly established.
19
The third step in the qualified immunity analysis requires the court to analyze “whether an
20
1 objectively reasonable officer in the defendant’s position would have understood [his] action to
92 || violate the plaintiff's rights.” Mihos, 358 F.3d at 110 (citation omitted). For its purposes, “the
23 |) operative inquiry is not whether the defendant’s actions actually abridged some constitutional right,
24 but, rather, whether those actions were obviously inconsistent with that right.” Cox, 391 F.3d at 31
25
(citations omitted). Thus, the doctrine of qualified immunity “draws a line that separates
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77 unconstitutional but objectively reasonable acts from obviously unconstitutional acts” and said line
8 “provides ample protection to all but the plainly incompetent or those who knowingly violate the
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of property.

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law.” Cox, 391 F.3d at 31 (citations omitted).

court held that the government’s mere abuse of its eminent domain power would constitute at

An abuse of the exercise of the power of eminent domain would
constitute a taking of property without just compensation if that
abuse directly and proximately contributes to, hastens, and
aggravates, acting alone or in combination with other causes, the
deterioration and decline in value of the area and the subject
property. (Emphasis supplied.)

was located, resulting in a decrease of value of Sayre’s assets. The court held:

Yet, without being absolutely taken, a taking of property may occur
‘if the action by the government involves a direct interference with or
disturbance of property rights.’ (Citing RJ Wilden Co. v. United
States, 357 F.2d 988, 174 Ct.Cl, 1020 (1966).

Nevertheless, a government’s intention to take property is deemed
essential to constitute a taking of private property. In construing and
applying the requirement of the fifth amendment that private property
shall not be taken for public use without just compensation (equally
applicable to the due process clause of the fourteenth amendment) the
Court of Claims hold, as reaffirmed in Biggs Rental Co. v. United
States, 353 F.2d 1013, at 1017, 173 Ct.Cl. 789 (1965).

To constitute a taking there must be an intent on the part of the
United States to take plaintiffs properties, or, at least an intention to
do an act the natural consequences of which was to take property.

988, 993 (Ct.Cl. 1966). In Widen, the court held:

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In Sayre v. the U.S.A. and the City of Cleveland, 282 F.Supp. 175, 185 (N.D. Ohio 1967), the

aking

In Sayre, supra at 184-185, there was no physical invasion of the properties by the government.

However, the City of Cleveland sidelined the services provided to the area where Sayre’s property

See also, R.J. Widen Company v. The United States and Commonwealth of Massachusetts, 357 F.2d

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| [T}o constitute a taking under the Fifth Amendment it is not
necessary that property be absolutely ‘taken’ in the narrow sense of
that word to come within the protection of this constitutional
provision; it is sufficient if the action by the government involves a
direct interference with or disturbance of property rights. (Citations
omitted.) Nor need the government directly appropriate the title,
possession or use of the properties in question since it is the
deprivation of the former owner rather that the accretion of a right or
interest to the sovereign (which) constitutes the taking.

In Inre Atamian, 344 B.R. 200, 204-205 (Bankr. D. Mass. 2006), the court recited Congress’

intent when enacting section 362(a) of the Bankruptcy Code:

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Section 362(a) which provides the automatic stay, is acknowledged
10 to be ‘one of the fundamental debtor protections provided by the
bankruptcy laws.’ S.Rep. No. 95-9989, p. 54 (1978);
i ELR.Rep. No. 95-595, p. 340 (1977), U.S. Code Cong, & Admin.
12 News 1978, pp. 5787, 5840, 5963, 6296. It gives debtors “breathing
room by stop[ping] all collection efforts, all harassment, and all
13 foreclosure actions.’ Soares v. Brockton Credit Union (Inre Soares),
107 F.3d 969, 975 (1st Cir. 1997) (quoting H.R.Rep. No. 95-595
14 at 340 [1977], reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97). It
15 permits an orderly administration of the estate thus safeguarding the
rights of all creditors. Jd. Consequently courts “must display a
16 certain rigor in reacting to violations of the automatic stay.’ Jd.

at 975-76.
17

18 In the instant case, Mr. Vaquer failed to submit new evidence to show that the government

19 || did not have the intention to take debtors’ estates, nor how the actions taken by Messrs. Silva-Puras

20 || and Vaquer, including the alleged and supported statements or threats of the taking of El

2 Comandante horse racetrack, will not adversely affect or decrease the value of debtors’ estates.
22

The allegations in debtors’ motion and the documents in support thereof that have been
23 ;
24 presented to the court show that Messrs. Silva-Puras and Vaquer had the intention to move forward

95 || with the taking of El Comandante horse racetrack. This court finds that an objectively reasonable

26 || government official should understand that, upon deciding whether or not to make public

27 expressions and take steps concerning the expropriation of property under the jurisdiction of the

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bankruptcy court, such actions may constitute a taking of that citizen’s property in violation of their
constitutional rights without due process of law.

The court is not persuaded by Mr. Vaquer’s arguments that mere contemplation, by itself,
does not constitute a violation of stay, in light of the allegations in debtors’ motion, as well as the
documents in support thereof, which the court is constrained to acceptas true when deciding whether
or not to dismiss the motion. However, the denial of qualified immunity to a defendant does not
mean a victory for the plaintiff on the merits; it simply means that the case may go forward. Id. at
99, The “clearly established rights” standard makes the defense of qualified immunity a difficult

basis for a motion to dismiss. Walton v. Watts, 185 B.R. 963, 969 n. 5 (N.D. Ga. 1995).

As stated by the court in its order:

The issue is fact intensive and hinges on the actual parameters
encompassing the "contemplation" of the eminent domain action, the
underlying reasons for any actions, and the legal basis upon which the
actions were taken. Acts or statements directed to the government’s
taking of debtors’ property by an eminent domain action, may, under
certain circumstances, constitute a violation of the automatic stay, as
the consequences may be detrimental to debtors’ reorganization and
to the value of the estates. The documents in support of debtors’
allegations show that the government, through its officers (Silva-
Puras and Vaquer) was not just “contemplating” the idea of taking
debtors’ property, but it has taken affirmative steps to pursue an
eminent domain action while the automatic stay is in effect. Whether
the actions taken are a valid exercise of the government's police
power through an eminent domain action or a violation of the
automatic stay must be decided in light of the particular facts and
circumstances of this case. At this stage, the court is constrained to
accept as true the allegations in the debiors' motions and to draw ail
reasonable inferences in their favor.

Conclusion
In view of the foregoing, the motion for reconsideration filed by Mr. Juan Vaquer Castrodad

(Docket No. 1260), is hereby denied.

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1 SO ORDERED. Ae

In San Juan, Puerto Rico, this _/ 0 day of August, 2006,

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US. Bankruptcy Judge

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