Summary
The First Circuit reverses a district court ruling concerning whether a nearly $65,000 attorneys' fee award under 42 U.S.C. §§ 1983 and 1988 was subject to discharge and collection injunctions under Puerto Rico's PROMESA Title III restructuring plan. The court holds that the fee claim arose before the plan's effective date, was not exempt as an obligation arising under federal police or regulatory laws, and could not be avoided based on alleged lack of direct notice of the administrative-expense bar date. The court also rejects the plaintiffs' waiver and due-process arguments.
Topics
Practice areas
Questions Presented
- Whether defendants waived the argument that plaintiffs' attorneys' fee claim was discharged under the PROMESA Title III Plan of Adjustment.
- Whether plaintiffs' § 1988 attorneys' fee claim arose after the Plan's effective date because the district court did not award the fees until after that date.
- Whether the attorneys' fee claim was exempt from discharge under PROMESA's exception for obligations arising under federal police or regulatory laws.
- Whether due process required defendants to provide plaintiffs direct notice of the administrative-expense bar date notwithstanding plaintiffs' actual knowledge of the Title III proceedings.
Holdings
- Discharge under 11 U.S.C. § 524(a), as incorporated into PROMESA, applies automatically and cannot be waived by the debtor's failure to raise it earlier.
- A claim for attorneys' fees arises based on the underlying violation or transaction for which the fees were incurred, not when the court later reduces the claim to judgment or enters a fee award.
- A § 1988 attorneys' fee claim arising from a § 1983 voting-rights action is not an obligation arising under federal police or regulatory laws within the meaning of 48 U.S.C. § 2164(h).
- A claimant with notice or actual knowledge of the PROMESA Title III proceedings is not entitled to direct notice of the administrative-expense bar date as a prerequisite to discharge under 11 U.S.C. § 944(c)(2).
Key quotations
“discharge applies "automatically" and independent of any action (or inaction) by the debtor; thus it cannot be waived.” (at 9)
“Section 944(c)(2) thus establishes that once a claimant receives notice or gains actual knowledge of the bankruptcy proceedings, the burden of inquiry shifts to the claimant to identify and comply with specific filing deadlines.” (at 20)
“In sum, § 944(c)(2) specifies the "particular level of notice" to which a claimant is entitled.” (at 24)
Factual background
Plaintiffs sued the Comisión Estatal de Elecciones and its president under 42 U.S.C. § 1983, alleging that voting policies and restrictions on early and absentee voting during the COVID-19 pandemic unlawfully burdened the voting rights of persons over sixty under the First and Fourteenth Amendments. The district court entered preliminary and permanent injunctions, and plaintiffs subsequently sought attorneys' fees under § 1988. The court awarded $64,415 in fees after the effective date of Puerto Rico's PROMESA Title III Plan of Adjustment, but plaintiffs did not file a proof of claim or request for payment by the applicable administrative-expense bar date despite having actual knowledge of the Title III proceedings.
Procedural history
Plaintiffs obtained preliminary and permanent injunctive relief in a § 1983 action challenging Puerto Rico voting procedures and later moved for attorneys' fees under § 1988. The district court awarded $64,415 in fees. After defendants asserted that the award was discharged and enjoined under Puerto Rico's confirmed PROMESA Title III Plan of Adjustment, the district court denied defendants' request to stay collection. The First Circuit reversed.
Remand instructions
The district court's order denying application of the discharge injunction to the attorneys' fee award is reversed. The opinion does not state additional remand instructions.