Zorilla v. The Financial Oversight and Management Board for Puerto Rico
- Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
- 20 hours 55 min ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 25-1993 (1st Circuit, Jun 12,2026) Published
- Tag(s):
-
- Ruling:
- The U.S. Court of Appeals for the First Circuit affirmed a lower court's decision holding the discharge and injunction in Puerto Rico’s Title III Plan of Adjustment do not apply to personal-capacity claims against its employees. The circuit ruled that discharging personal-capacity lawsuits would amount to an impermissible, non-consensual third-party release, which the Plan itself stated it did not include. Applying the Supreme Court's Purdue Pharma opinion, it agreed with the lower court that the personal-capacity claims were against the individual employees, not the "sovereign," Puerto Rico.
- Procedural context:
- The First Circuit's opinion addresses multiple interrelated issues, including: (a) whether Puerto Rico's confirmed Plan of Adjustment under PROMESA applied to claims brought against Puerto Rico's officers or employees in their personal capacities; (b) whether a previous First Circuit decision—which held that personal-capacity suits constitute "indirect claims" that trigger an automatic bankruptcy stay—required that those claims also must be permanently discharged under the Plan of Adjustment; (c) whether discharging personal-capacity claims against non-debtor individual employees would amount to an impermissible, non-consensual third-party release, given that the Plan of Adjustment itself stated it did not include such releases; (d) how the Supreme Court's decision in Purdue Pharma limiting third-party plan releases applied to Title III proceedings under PROMESA; and (e) how much appellate deference to afford the Title III court's interpretation of the specific wording and intent of its own confirmation order for the Plan of Adjustment.
- Facts:
- On May 1, 2018, Plaintiffs/Appellees Jonathan Hernández Zorrilla and Yadira Carrasquillo González attended a demonstration in San Juan, Puerto Rico. Members of the Puerto Rico Police Bureau (PRPB) allegedly used physical aggression, threats, assault, tear gas, and rubber bullets against them. In April 2019, Plaintiffs filed separate lawsuits in the U.S. District Court for the District of Puerto Rico. The lawsuits named the then-Governor of Puerto Rico and other Puerto Rico and PRPB officials as defendants, asserting claims under the Puerto Rico Constitution and Civil Code. Plaintiffs demanded monetary damages from the defendants in their personal capacities. The district court consolidated the cases in 2021 and stayed them. While Plaintiffs' lawsuits proceeded, the Financial Oversight and Management Board for Puerto Rico commenced restructuring cases in May 2017 under Title III of PROMESA (short for the Puerto Rico Oversight, Management, and Economic Stability Act). In January 2022, the Title III court confirmed a Plan of Adjustment, which went into effect in March 2022. The Plan discharged certain debts and enjoined further collection efforts. Following confirmation of the Plan, the district court hearing Plaintiffs' consolidated lawsuit allowed the Title III court to determine whether the Plan of Adjustment's discharge and injunction applied to Plaintiffs' claims. On September 30, 2025, the Title III court held the Plan did not discharge personal-capacity claims against individual employees and officials, such that Plaintiffs' lawsuit could proceed. The Board timely appealed this decision to the First Circuit.
- Judge(s):
- Montecalvo, Howard, and Kayatta
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