Background
Following the confirmation of a Plan of Adjustment under Title III of PROMESA, the Commonwealth of Puerto Rico received a discharge of claims and an injunction barring their pursuit. Two individuals sued Puerto Rico police officers and officials in their personal capacities for alleged constitutional violations. The Board argued these personal-capacity claims were indirect claims against the Commonwealth and thus discharged. The Title III court ruled they were not barred, and the Board appealed.
The court’s reasoning
The court distinguished between the automatic stay and the permanent discharge, noting they are not coextensive. While the automatic stay under Section nine hundred twenty-two of the Bankruptcy Code covers indirect claims, the discharge scope is defined by the confirmed Plan. The Plan expressly states it does not provide for non-consensual third-party releases. Discharging personal-capacity claims would extinguish claims against non-debtors without their consent, a power the Supreme Court limited in Harrington versus Purdue Pharma. The court also deferred to the Title III court’s interpretation of its own Confirmation Order, which clarified that the discharge does not cover personal-capacity suits.
The question is not simply whether these suits press claims against the Commonwealth. The question is whether these particular claims fall within the subset of claims discharged by the confirmed Commonwealth Plan.
What it means going forward
Creditors and individuals retain the ability to pursue personal-capacity lawsuits against Puerto Rico officials and employees despite the Commonwealth’s bankruptcy discharge. The ruling clarifies that the Commonwealth Plan does not shield officials from personal liability for their own conduct.