MRCo, Inc. v. Juarbe-Jimenez

United States Court of Appeals
For the First Circuit

No. 07-1614

MRCO, INC.,

Plaintiff, Appellant,

v.

DORELISSE JUARBE-JIMENEZ,
INSURANCE COMMISSIONER OF PUERTO RICO,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Juan M. Pérez-Giménez, U.S. District Judge]

Before

Howard and Lipez, Circuit Judges,
and Smith,* District Judge.

Nicholas T. Christakos, Juan H. Saavedra Castro, and Luis M.
Correa Marquez, for appellant.
Iván Díaz de Aldrey and Iván Díaz López, for appellee.

March 27, 2008

*
Of the District of Rhode Island, sitting by designation.
 SMITH, District Judge. This diversity action originally

was brought by MRCo, Inc.1 (“MRCo”) against Banco Popular de Puerto

Rico, Inc. (“Banco Popular”). MRCo later amended its complaint to

name the Insurance Commissioner of Puerto Rico (“Commissioner”) as

an additional defendant.2 After MRCo and Banco Popular reached a

settlement and all claims between them were dismissed, MRCo moved

for partial summary judgment on its claims against the

Commissioner. The district court denied MRCo’s motion, and then

dismissed the entire case on the ground that MRCo’s claims are

barred by Puerto Rico law. This timely appeal followed, and we now

consider whether MRCo’s claims should be resurrected.

I. FACTUAL BACKGROUND

Plaintiff-appellant MRCo is a corporation organized and

existing under the laws of the State of Maryland, with its

principal place of business in the District of Columbia. Former

defendant Banco Popular is a banking organization incorporated

under the laws of the Commonwealth of Puerto Rico, with its

principal place of business in Puerto Rico. Defendant-appellee

Commissioner is the Insurance Commissioner of Puerto Rico, and is

1
The record reflects that MRCo’s parent corporation, ULLICO
Inc., undertook at least some of the actions that preceded this
litigation. For simplicity, however, we refer to MRCo and ULLICO
collectively as “MRCo.”
2
At the time MRCo amended its Complaint, the Commissioner was
Fermin Contreras Gómez. He was succeeded by Dorelisse Juarbe-
Jimenez, who replaced him as co-defendant in March 2004.

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named solely in her capacity as liquidator of the Plan de Salud de

la Federación de Maestros de Puerto Rico (“the Plan”)3. The Plan

is a nonprofit corporation which functions as a health service

organization under the Insurance Code of Puerto Rico. See P.R.

Laws Ann. tit. 26, §§ 1901 et seq. (2005). The Plan provides

insurance coverage to teachers, government employees, and certain

private organizations.

In 2000, the Commissioner audited the Plan for the period

covering January 1, 1997 through December 31, 1999. As a result of

the audit, on October 11, 2000, the Commissioner notified the Plan

that there was a shortfall in the latter’s assets of approximately

$13.2 million. The Commissioner ordered the Plan to identify

sufficient assets to cover the shortfall within 90 days.

Subsequently, the Commissioner amended his audit report to reflect

an actual shortfall of $13,516,725, which amount was confirmed at

a hearing before the Commissioner on December 13, 2000. The

Commissioner gave the Plan until February 28, 2001 to submit

evidence that the shortfall had been covered; otherwise, the Plan

would be considered insolvent and placed into liquidation.

With the alleged overt support of the Commissioner the

Plan solicited a loan from MRCo, the terms of which called for the

Plan to borrow $13,516,725 pursuant to a Surplus Note Agreement

3
Translated, the name is “Health Plan for the Teachers
Federation of Puerto Rico.”

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(“Surplus Note”). MRCo and the Plan agreed to establish an escrow

account at Banco Popular, with Banco Popular acting as escrow

agent, that would be used to disburse the loaned funds to the Plan.

The Surplus Note provided that the loan would be executed

and the funds disbursed only after the Plan secured the

Commissioner’s express written approval of the loan transaction.

This condition reflected Puerto Rico’s statutory requirement that

the Commissioner give prior approval before a surplus loan

transaction is entered into by a Puerto Rico insurer. See P.R.

Laws Ann. tit. 26, § 2930. On March 21, 2001, in response to the

Plan’s request for approval, the Commissioner sent to the Plan a

letter which stated, in relevant part:

After evaluating the loan agreement and
certificate in the light of Articles 29,300
and 29,310 of the Puerto Rico Insurance Code,
we approve them, subject to your submitting
the duly signed originals of the loan
certificate and agreement with the corporate
seal of each corporation.

The letter contained additional requirements, including

the submission of a sworn statement by the chairmen of the Plan and

MRCo that the loan agreement had been executed and implemented.

MRCo alleges that this letter, specifically the portion excerpted

above, as well as statements made by the Commissioner, were

understood by both MRCo and the Plan to constitute approval of the

loan. The Commissioner, on the other hand, alleges that the loan

was never approved, and points to an internal file memorandum dated

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April 2, 2001 that the Commissioner claims contemporaneously

recorded that the letter expressed only approval of the form of the

loan documentation - not approval of the loan itself.

In any event, MRCo and the Plan executed the Surplus Note

and accompanying loan certificate on March 26, 2001. On the same

date, MRCo entered into an escrow agreement (“Escrow Agreement”)

with Banco Popular establishing the terms under which the funds

would be available and used in accordance with the Surplus Note.

MRCo deposited $13,516,725 in the escrow account and, almost

immediately, Banco Popular made several disbursements to the Plan,

totaling approximately $3.6 million, as well as a payment of

$400,000 to itself on behalf of the Plan to cover an overdraft in

a Plan bank account, and $5,000 to itself as the fee for acting as

escrow agent. After the disbursements, approximately $8.8 million

remained in escrow.4

On March 30, 2001, only days after the execution of the

Surplus Note and Escrow Agreement, the Commissioner filed a sworn

petition to the Puerto Rico Court of First Instance (the

“Liquidation Court”) to place the Plan into liquidation, and

4
The record appears to contain slight inconsistencies as to
how much money was disbursed from the escrow account. The precise
amounts, whatever they may actually be, are immaterial to our
decision. While the Liquidation Court has apparently reserved the
precise amount of $3,612,577 until this federal case is concluded,
it is enough for the present purposes to record that MRCo is
seeking to recover the approximately $3.6 million that was
disbursed to the Plan.

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declared therein that the Plan had an operating deficit of

$13,516,725 (the exact amount of the loan). The Liquidation Court

issued an ex parte order provisionally placing the Plan into

liquidation, which order was confirmed on May 25, 2001.

After it learned that the Plan had been placed into

liquidation, MRCo demanded that Banco Popular return all of the

funds remaining in the escrow account. Instead of returning the

funds, however, Banco Popular, at the apparent behest of the

Commissioner, deposited the remaining funds in escrow in the

registry of the Liquidation Court, effectively denying MRCo access

to the funds. Also at about the same time, in a filing with the

Liquidation Court, the Commissioner stated that he “never gave the

approval to the loan transaction, which is a requirement of the

Insurance Code for a loan without guarantee of the assets.”

On July 3, 2001, MRCo filed its diversity action against

Banco Popular in the District of Columbia, alleging that the loan

contract was never validly executed, since the Commissioner never

approved the transaction as required by Puerto Rico law. Since no

loan existed, MRCo alleged, the Plan never acquired any right,

title, or interest in any of the funds that had been placed in

escrow. Thus, according to MRCo, Banco Popular had a duty to

return the funds (the $8.8 million) that had remained in escrow to

MRCo. Banco Popular moved to dismiss the case or to change venue

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to the District of Puerto Rico. By order entered October 15, 2001,

the case was transferred to the District of Puerto Rico.

Once before the federal court in Puerto Rico, MRCo

amended its Complaint to name the Commissioner as an additional

defendant. Banco Popular once again moved to dismiss, arguing that

the Commissioner was an indispensable party that could not be added

as a defendant because the pendency of the liquidation proceedings

precluded any action against the Commissioner as liquidator,

pursuant to P.R. Laws Ann. tit. 26, § 4021. The district court

denied the motion on September 9, 2002. On December 13, 2002, the

Commissioner filed an “informative motion” advising the district

court of its Resolution and Decision filed with the Liquidation

Court that same day, in which the Commissioner concluded that the

funds that had remained in escrow at Banco Popular at the time of

liquidation were not assets of the Plan and belonged to MRCo. The

Commissioner purported to conclude, as well, that the approximately

$3.6 million that was disbursed to the Plan prior to liquidation

was an asset of the Plan and therefore part of the liquidation

estate, notwithstanding the Commissioner’s failure to approve the

loan transaction as required.

In response to the Commissioner’s acknowledgment that the

$8.8 million that had remained in escrow was not an asset of the

Plan, MRCo moved the district court to order the transfer of the

funds from the Liquidation Court to the district court pursuant to

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the district court’s removal jurisdiction. The district court

ordered the clerk of the Liquidation Court to transfer the $8.8

million, including accrued interest, to the district court,

whereupon the funds were paid to MRCo, less amounts paid to resolve

a claim against the funds and a sum requested by Banco Popular to

cover its claims for escrow agent fees.

Eventually, MRCo and Banco Popular reached a settlement

of their claims, and Banco Popular was dismissed from the action.

MRCO and the Commissioner, however, continued to litigate over the

fate of the $3.6 million that was disbursed to the Plan just prior

to the commencement of the liquidation proceedings. The crux of

MRCo’s claims has always been that the loan to the Plan was never

approved by the Commissioner and thus never actually executed.

Since it was never executed, asserts MRCo, the loan proceeds never

should have been disbursed to the Plan, and never became an asset

of the Plan. In the meantime, the Commissioner filed motions on

two separate occasions urging the dismissal of MRCo’s claims

against the Commissioner on the ground that the liquidation

proceeding precluded MRCo’s claims by operation of 26 P.R. Law Ann.

§ 4021, the same ground previously argued (unsuccessfully) by Banco

Popular. The district court denied both motions.

MRCo moved for partial summary judgment, arguing that no

legally cognizable loan had materialized and that, as a result, the

approximately $3.6 million disbursed to the Plan prior to

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liquidation never actually became an asset of the Plan and should

be returned to MRCo. In its opinion and order on February 20,

2007, from which this appeal is taken, the district court denied

MRCo’s motion on the ground that disputed material facts precluded

summary judgment, but also dismissed the underlying claims against

the Commissioner on the ground that P.R. Law Ann. tit. 26, § 4021

precluded actions against the Commissioner during the pendency of

the proceeding in the Liquidation Court. MRCo’s timely appeal

followed.

II. STANDARD OF REVIEW

This court’s jurisdiction is limited to final decisions

of the district court. 28 U.S.C. § 1291. A district court’s order

denying a motion for summary judgment is interlocutory and thus, in

most cases, not appealable. Fletcher v. Town of Clinton, 196 F.3d

41, 45 (1st Cir. 1999). The order is reviewable, however, if the

district court simultaneously enters final judgment in the case.

See Swint v. Chambers County Comm’n, 514 U.S. 35, 42–43 (1995).

“[A]n order or judgment is usually considered ‘final’ (hence,

appealable) only when it resolves the contested matter, leaving

nothing to be done except execution of the judgment.” Petralia v.

AT&T Global Info. Solutions Co., 114 F.3d 352, 354 (1st Cir. 1997)

(quoting Director, Office of Workers’ Comp. Programs, United States

Dep’t of Labor v. Bath Iron Works Corp., 853 F.2d 11, 13 (1st Cir.

1988)). Since the district court’s order dismissing all of the

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underlying claims fully disposed of all the parties’ claims, we

have appellate jurisdiction under § 1291.

In a strict sense, the district court committed itself to

three decisions: it (1) denied MRCo’s motion for summary judgment;

(2) interpreted substantive Puerto Rico law; and (3) dismissed the

action based on its interpretation. Each of these are questions of

law and thus subject to de novo review. See Reich v. Newspapers of

New England, Inc., 44 F.3d 1060, 1069 (1st Cir. 1995) (“Appeals

involving pure questions of law are generally reviewed de novo.”).

Because we believe the district court properly dismissed MRCo’s

claims, we need not reach the issue of whether the district court

properly denied MRCo’s motion for partial summary judgment inasmuch

as the issue is moot.

III. LEGAL ANALYSIS

The district court dismissed MRCo’s claims against the

Commissioner, finding the claims barred by Article 40.210 of the

Puerto Rico Insurance Code (“Article 40.210”). Article 40.210

provides:

Upon issuance of an order appointing a
liquidator of a domestic insurer or of an
alien insurer domiciled in Puerto Rico, no
action at law shall be brought against the
insurer or the liquidator, whether in Puerto
Rico or elsewhere, nor shall an action of that
nature be maintained or entered after issuance
of such order.

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P.R. Law Ann. tit. 26, § 4021(1). On its face, the statute

provides that no “action at law” shall be brought or maintained

against an insurer or liquidator upon issuance of the order

appointing the liquidator. In arguing that its claims are not

barred, MRCo urges us to adopt one of three alternative, though not

mutually exclusive, interpretations of the statute.

First, MRCo argues that its claims, being equitable in

nature, are not barred by Article 40.210’s proscription against

“action[s] at law.” But while this construction appears initially

to follow reasonably from the plain language of Article 40.210, it

does not survive closer examination of the statute. In its

original Spanish, Article 40.210 provides:

Al emitirse una orden nombrando un liquidador
de un asegurador del país o de un asegurador
foráneo domiciliado en Puerto Rico, no se
radicará ninguna acción judicial contra el
asegurador o contra el liquidador, ni en
Puerto Rico ni en cualquier otro lugar, ni se
mantendrá ni instará una acción de esa
naturaleza luego de emitida la orden.

P.R. Law Ann. tit. 26, § 4021(1) (emphasis added). The widely

disseminated English translation of this section contains what is

arguably an important error. While translated as barring “actions

at law,” Article 40.210 actually and more broadly provides that

“ninguna acción judicial” -- “no judicial action” -- may be brought

or maintained against an insurer or liquidator after issuance of a

liquidation order. The original Spanish, in other words, makes no

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distinction between actions at law and at equity, as is possibly

implied by the translation and argued by MRCo.

Moreover, the bar on all judicial actions comports with

our understanding of Puerto Rico legal tradition. While a concept

of “equity” is not entirely absent from Puerto Rico law, Anglo-

Saxon common law, with its traditional distinction between law and

equity, has never been a force in Puerto Rico. See, e.g., Dalmau

v. Hernandez Saldana, 3 P.R. Offic. Trans. 678 (1975). It is true

that the Puerto Rico Civil Code provides that “[w]hen there is no

statute applicable to the case at issue, the court shall decide in

accordance with equity.” P.R. Laws Ann. tit. 31, § 7. However,

the “equity” contemplated by the statute is not that developed

through application of the common law, but rather that defined by

the Civil Code. Dalmau, 3 P.R. Offic. Trans. 678. This latter

conception of equity “means that natural justice, as embodied in

the general principles of jurisprudence and in accepted and

established usages and customs, shall be taken into consideration.”

P.R. Laws Ann. tit. 31, § 7. This manifestation is sufficiently

amorphous that, even if we permitted MRCo its entreaty to equity,

its chance of success on appeal would be uncertain. But in any

event, there is no need for us to be sidetracked by this issue

because it happens that there is a Puerto Rico statute applicable

to this case - Article 40.210 - and that statute quite plainly

provides that no judicial action shall be brought or maintained

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against an insurer or liquidator after the issuance of an order

appointing the liquidator. In short, MRCo’s appeal to equity is a

nonstarter.

MRCo next argues that Article 40.210’s apparent

prohibition of actions against liquidators and insolvent insurers

applies only to actions germane to the liquidation proceeding

itself, i.e. actions involving creditor claims against the assets

of the insurer. As it claims to be seeking recovery only of its

own assets, rather than any assets of the Plan, MRCo’s position is

that the prohibition of Article 40.210 is inapplicable. See, e.g.,

McDonough Caperton Shepherd Group, Inc. v. Acad. of Med.,

Cleveland, 888 F.2d 1392 (6th Cir. 1989); Bryant v. United

Shoreline Inc. Assurance Servs., N.A., 972 S.W.2d 26 (Tex. 1998);

Nova Ins. Group, Inc. v. Florida Dep’t of Ins., 606 So.2d 429 (Fla.

Dist. Ct. App. 1992).

MRCo’s position regarding the application of Article

40.210 to claims involving nonassets may have merit; however, it is

not for this or any other court, state or federal, to determine in

the first instance what constitutes an “asset” of the Plan, for

purposes of the liquidation proceedings. The Puerto Rico Insurance

Code provides that, “after a liquidation order . . . the liquidator

shall prepare in duplicate a list of the insurer’s assets. This

list shall be amended or supplemented from time to time, as the

liquidator may determine.” P.R. Laws Ann. tit. 26, § 4022(1)

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(emphasis added). This provision was interpreted, as it applies to

this very case, by the Puerto Rico Court of Appeals in Comm’r v.

Plan de Salud de la Federacion de Maestros de Puerto Rico, Inc.,

KLCE No. 2001-1111 (June 20, 2002), which arose from a writ of

certiorari filed by the Commissioner to review certain resolutions

of the Liquidation Court. The Court of Appeals explained that,

while the Liquidation Court must approve any effort by the

Commissioner to “sell, transfer, abandon or in any other manner

dispose of . . . any property of the insurer,” P.R. Laws Ann. tit.

26, § 4018, “it is the competence of the Commissioner to establish

which are and, therefore, which are not the assets that constitute

the capital of the insurer.” The Plan’s appeal was denied and the

Commissioner ordered to act “pursuant to the faculties delegated on

him by the Insurance Code, one of which is to determine if the $8.8

million form part of the assets of the Plan de Salud de la

Federación de Maestros.” Thus, after the Commissioner had

determined that the $8.8 million that had remained in escrow never

became part of the Plan’s assets, the Liquidation Court correctly

determined that it lacked jurisdiction over the money and ordered

the Commissioner to return the funds to MRCo.5

5
We are unaware of any decision by the Puerto Rico Supreme
Court involving whether the Commissioner, as statutory liquidator,
has the authority to determine what constitutes an “asset” of an
insurer in liquidation. Therefore, we follow the rule laid down in
CPC Int’l, Inc. v. Northbrook Excess & Surplus Ins. Co., 962 F.2d
77, 91 (1st Cir. 1992) (quoting West v. A.T. & T. Co., 311 U.S.
223, 237 (1940)), that “[w]here an intermediate appellate court

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 Thus, we think that MRCo’s argument again is ably

dispatched by the plain language of the statute, as described

above. Even if we do not construe Article 40.210 to apply to every

judicial action that conceivably may be brought, here the

Commissioner has determined that the $3.6 million still in dispute

is to be classified as an “asset” of the Plan, and therefore this

case falls within the prohibition of Article 40.210.6 Intaco

Equip. Corp. v. Arelis Constr., 142 D.P.R. 648 (1997); see also

Calderon, Rosa-Silva & Vargas v. Commonwealth Ins. Co., 111 D.P.R.

153 (1981).

MRCo last argues that Puerto Rico cannot, either by

statute or judicial fiat, divest the federal court of its

jurisdiction. This argument similarly misses the mark because it

is not correct to say, as MRCo suggests, that Puerto Rico has

divested the federal court of its subject matter jurisdiction over

rests its considered judgment upon the rule of law which it
announces, that is a datum for ascertaining state law which is not
to be disregarded by a federal court unless it is convinced by
other persuasive data that the highest court of the state would
decide otherwise.”
6
MRCo cites to Foster v. Progress Fed. Sav. & Loan, 697 A.2d
1043 (Pa. Commw. Ct. 1997) to show that a liquidation court may
lack exclusive jurisdiction where, as alleged by MRCo here, funds
may have been inadvertently mingled with undisputed assets of an
insurer in liquidation. However, Foster is distinguishable because
it involved a suit not against a liquidator, but rather by a
liquidator against a bank alleged to have violated a suspension
order which froze an insurer’s accounts. Id. at 1044. More
importantly, the suit apparently was not brought in the face of a
statute precluding any “judicial actions” against the statutory
liquidator.

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matters such as this. “The jurisdiction of the federal courts -

their power to adjudicate - is a grant of authority to them by

Congress.” Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S.

165, 167 (1939). Once Congress has conferred subject matter

jurisdiction on the federal courts, state law cannot expand or

contract that grant of authority. See, e.g., Goetzke v. Ferro

Corp., 280 F.3d 766, 779 (7th Cir. 2002); see also Frink Co. v.

Erikson, 20 F.2d 707, 711 (1st Cir. 1927). In this case, the

federal diversity statute, 28 U.S.C. § 1332, conferred subject

matter jurisdiction on the district court to adjudicate MRCo’s

claims. Article 40.210 does nothing to affect that grant of

jurisdictional authority.

Whether there remains a viable cause of action is another

matter. When a federal court exercises diversity jurisdiction, it

does so as a neutral forum in which to present state law claims.

See Woods v. Interstate Realty Co., 337 U.S. 535, 538 (1949). As

such, it must apply applicable substantive state laws to the case

before it. See Umsted v. Umsted, 446 F.3d 17, 20 (1st Cir. 2006)

(applying Rhode Island substantive law in case premised on

diversity jurisdiction); Reyes-Cardona v. J.C. Penney Co., 694 F.2d

894, 896-97 (1st Cir. 1982). Thus, a federal forum, “when invoked

on grounds of diversity of citizenship, cannot give that which [the

state] has withheld.” Angel v. Bullington, 330 U.S. 183, 192

(1947). If state substantive law has denied a plaintiff a cause of

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action, the district court must dismiss the complaint for failure

to state a claim upon which relief may be granted. See Goetzke,

280 F.3d at 779.

In Goetzke, the Seventh Circuit Court of Appeals

considered whether a provision of Indiana law, which gave the state

worker’s compensation board exclusive jurisdiction to determine

whether an employer’s worker’s compensation administrator or

carrier “has committed an independent tort in adjusting or settling

a claim for compensation,” denied the plaintiff the ability to

assert a remediable tortious interference claim against his former

employer’s worker’s compensation administrator. Id. at 779. The

Court, after holding that the statute did not deprive the district

court of its subject matter jurisdiction, held that the statute did

not bar the plaintiff’s claim because the defendant compensation

administrator did not commit the alleged tort “in the context of

adjusting or settling a claim for benefits,” i.e. the claim did not

fall within the purview of the worker’s compensation board’s

exclusive jurisdiction. Id. at 779.

Here, given that Article 40.210 precludes any judicial

action from being brought against the Plan or Commissioner, once

the Commissioner had been appointed as liquidator, the district

court appropriately (if only impliedly) dismissed MRCo’s claim for

failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6),

rather than for lack of subject matter jurisdiction pursuant to

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Fed. R. Civ. P. 12(b)(1). See, e.g., Goetzke, 280 F.3d at 779 (“If

state substantive law has denied a plaintiff a remedy for his cause

of action, the district court [sitting in diversity] must dismiss

the complaint for failure to state a claim upon which relief may be

granted.”).

To hold that the district court may entertain MRCo’s

claims would, in effect, create a cause of action for MRCo that is

denied to citizens of Puerto Rico who are unable to invoke the

jurisdiction of the federal courts through diversity. That being

said, our decision does not strand MRCo without a potential remedy

for the wrong it alleges; it simply clarifies that the remedy, if

any, lies with the liquidation proceedings rather than in the

federal district court. See P.R. Laws Ann. tit. 26, § 4036(2)

(providing that after the liquidator denies a claim, the claimant

may resort to a review by the Court of First Instance).7 We must

therefore turn back MRCo’s appeal and affirm the judgment of the

district court.

Affirmed.

7
The Puerto Rico Insurance Code also provides generally for
appeals from orders of the Commissioner. See P.R. Laws Ann. tit.
26, § 226.

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