MBIA : Motion for Reconsideration (English Translation)

COMMONWEALTH OF PUERTO RICO

COURT OF APPEALS

PANEL VIII

NATIONAL PUBLIC FINANCE		CERTIORARI FROM THE
GUARANTEE CORPORATION; et		TPI, SUPERIOR COURT
al.		OF SAN JUAN
Plaintiffs-Appellees		CASE NO.:
v.	KLCE202100827	SJ2019CV07932
UBS FINANCIAL SERVICES, INC.;		RE:
et al.
Defendants-Appellants		ACTOS PROPIOS AND
		UNILATERAL
		DECLARATION OF WILL

MOTION FOR RECONSIDERATION

TO THE HONORABLE COURT OF APPEALS:

Plaintiffs-Appellees NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION and MBIA INSURANCE CORPORATION (hereinafter "National"), APPEAR through their undersigned counsel, and very respectfully STATE, ALLLEGE and

REQUEST:

INTRODUCTION

On December 17, 2021, this Honorable Court issued a ruling written by Judge Vázquez Santisteban, which was notified on the 20th of the same month (hereinafter, the "Judgment"), with which it issued the writ of Certiorari to revoke a decision issued by the Hon. Ladi Buono De Jesus (hereinafter, the "Appealed Decision"). The lower court's opinion was comprehensive, well- founded and, more importantly, correct in law. However, this Appellate Court reversed it with a Judgment that ignores the important and solid precedents on which the Court of First Instance ("TPI") based its actions when it refused to dismiss the complaint at the pleading stage. At this crossroads, there is an evident need for this Honorable Court to reconsider its Judgment that dismissed the complaint with a superficial opinion that erroneously subsumed it in a claim under Art. 1802 of the Civil Code of 1930 (hereinafter, "Art. 1802"), even though these are equitable claims to which Art. 7 applies, not Art. 1802.

The concrete consequence of that erroneous Judgment is that it impedes the ordinary procedural development of a case of high public interest and of important implications for Puerto Rico, which must be resolved in a plenary trial, since discovery and the eventual presentation of evidence are crucial to demonstrate the merits of the equitable action under Art. 7. This lawsuit is the only opportunity that Puerto Rico's courts will have to adjudicate, on the merits, the

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corresponding liability of the defendant Banks for the greatest financial debacle Puerto Rico has ever experienced and which precipitated the Government's bankruptcy, the passage of PROMESA, and the appointment of the Fiscal Oversight Board.

Note that the filed action is clearly based on the defendant Banks' liability under the doctrines of actos propios and unilateral declaration of will, recognized in our legal system as autonomous sources of obligations, the breach of which justifies the granting of a remedy. Ortiz Rivera v. P.R. Tel. Co., 162 DPR 715, 731 (2004); Int'l Gen. Elec. v. Concrete Builders of P.R., Inc., 104 DPR 871 (1976). Also, Puerto Rico's civil jurisprudence affirms that the contribution of the International General Electric case is that the Supreme Court applied the doctrine of actos propios, derived from the principle of good faith, to establish new sources of obligations. See Michel J. Godreau Robles, Lealtad y Buena Fe Contractual, 58 Rev. Jur. U.P.R. 367, 396 (1989).

The truth is that the principles on which the plaintiffs' claims are based transcend the private sector because, as the Supreme Court of Puerto Rico has made clear, enforcing promises to comply with the law or industry standards and customs protects and advances public order, and is moreover indispensable in a State governed by the rule of law. See Méndez Moll v. AXA, 202 DPR 630, 648-50 (2019). This is particularly true in the context of the instant case given the "vital role [the] [insurance] industry plays in both our society and our economy." O.C.S. v. Universal Ins. Co., 187 DPR 164, 174 (2012). Enforcing the law also promotes the cardinal principle of good faith, which "permeates our entire legal scheme," S.L.G. Irizarry v. S.L.G. García, 155 DPR 713, 731 (2001), and which the defendant Banks violated with impunity by failing to comply with the obligation they voluntarily assumed towards National.

In issuing this appeal, this Court intervened to erroneously dismiss a complaint at the pleading stage and disregarded the careful judgment of the TPI, even though it had correctly ruled that the liability alleged in the complaint does notemanate from Art. 1802 because the claim does notarise from illicit and willful acts, fraud, or willful or negligent omissions. The lower court concluded in its detailed decision that the allegations in the complaint are based on facts related to the defendant Banks' breach of an obligation they voluntarily assumed through their conduct and statements when applying for insurance. This obligation consisted of carrying out an investigation to form a reasonable basis as to the truth and sufficiency of the official declarations that the appellants presented to the plaintiffs in requesting that they insure certain bond issuances.

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Instead, this Honorable Court granted the writ of Certiorari to erroneously reject the TPI's reasoned opinion and, although it was not required to do so, it chose to issue an opinion. It did so, however, without any discussion or analysis, with erroneous conclusory statements in which it notes that "from a lightexamination of the allegations of the [c]omplaint the classic elements of a cause of action for damages clearly emerge" (Judgment, p. 13, emphasis added); "this is an allegation of negligence paradigmatic of Section 1802" and that, therefore, "equitable remedies are displaced in the instant case" (Judgment, p. 14.); "because a statutory remedy is applicable, equitable remedies are not available". Id. It is evident that the admittedly cursory analysis set forth in the Judgment led this appellate forum to a result contrary to law.

DISCUSSION AND ANALYSIS1

First, it cannot be ignored that the Supreme Court has made it clear that an equitable action cannotbe dismissed before the presentation of evidencejust because it is alleged that a statute applies to the case. See Ortiz v. P.R. Tel., 162 DPR 715, 731 (2004). Therefore, the result reached by this Honorable Court to dismiss the complaint at the initial pleading stage, without prior discovery and showing of evidence, is erroneous as a matter of law even in the face of a motion to dismiss based on Art. 1802 allegedly applying. This shows, moreover, that this Honorable Court erred in the application of the standard in Civil Procedure Rule 10.2, 32 LPRA App. V, R. 10.2, which requires accepting the allegations of the complaint as true and examining them in the manner most favorableto the plaintiff. Therefore, in accordance with the procedural regulations, only if the plaintiff could not prevail under any set of factual and legal assumptions, then it would be appropriate to dismiss the claim at the initial stage of allegations. The "light" examination of the complaint's allegations carried out by this Honorable Court is not the one required by our legal system to dispose of this appeal fairly and adequately, much less in a case of such public interest and which presents important novel controversies in law. Respectfully, we maintain that this appellate forum should not have rejected the correct finding of the lower court, but rather should have refused to intervene at this stage, giving way to discovery, as the lower court had ordered, because it was the correct thing to do at the initial procedural stage.

1 Rule 84 of the Rules of Appellate Procedure provides for reconsideration when there is an error in the determination or application of the law, which is precisely the case with the Judgment whose reconsideration is requested. Through this request this appellate court has the opportunity to reexamine its decision and correctly apply the legal grounds that we set forth below.

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1. Why Art. 1802 of the Civil Code does not apply. The admittedly "light" (Judgment, p. 13)2 analysis of the complaint's allegations led the reviewing panel to the erroneous path of not accepting them as true, as required by jurisprudential guidelines, because if they had carefully weighed them, they would have concluded that the obligations of the defendants-appellants,which generate liability in this case, and which arise from their particular relationship with the plaintiffs- appellees, were "voluntarily" assumed and do notarise from the independent general duty arising from Art. 1802. This is precisely why the lower court correctly determined that the complaint does

notallege the elements of an Art. 1802 claim such as a wrongful act or fraud, which makes it inapplicable.

The elements of a claim under Art. 1802 are: "[1] damage [2] [the occurrence] a culpable or negligent action or omission, and [3] the corresponding causal relationship between the damage and the culpable or negligent conduct." Hernández Vélez v. Televicentro, 168 DPR 803, 812 (2006) (missed appointments). As the lower court observed (Ap. 20), Art. 1802 obligations do not arise from the will of the parties, nor due to a prior legal contract or relationshipbetween them, but rather from the obligations and duties imposed by law. See Treated Woods v. Sun Alliance, 185 DPR 880, 908 (2012); Santiago Nieves v. A.C.A.A., 119 DPR 711, 716 (1987). In addition, a claim for negligence under Art. 1802 cannot be raised if there is no duty of care imposed or recognized by law. Hernández Vélez, 168 DPR at 812-13. The Judgment issued by this Honorable Court must also be reconsidered because it is contrary to the jurisprudence of the Supreme Court, which affirm that the liability of Art. 1802 is "derived from the damage caused to another person, withoutthere being a prior agreed legal relationship between the tortfeasor and the injured party", and "it is limited to fault or negligence not related to a previous obligation". Municipality of Cayey v. Soto Santiago, 131 DPR 304, 313 (1992) (emphasis added). If there is a prior relationship, as there is in this case, a cause of action is notestablished in accordance with Art. 1802, because the duties imposed by said prior relationship are exclusive to the parties, in contrast to those imposed by society. See Rivera Sanfeliz v. Account Director of FirstBank, 193 DPR 38, 57, 59-60 (2015).

The prior relationship between the parties need not arise from a contract; instead, it may arise from anyprior relationship that creates a legal obligation between the parties. See id.; Ramos Lozada v. Orientalist Rattan Furniture Inc., 130 DPR 712, 725 (1992). In fact, in this decision,

2 In the Judgment the reviewing panel even shows its confusion by erroneously referring to the appellant Banks as "Insurers" and to the appellee insurers as "Banks." See Judgment, pp. 1 and 2. Whenever the term "Banks" is used with a capital letter in this brief, we refer to the defendants-appellants.

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130 DPR at 725 n.7, the Supreme Court cited with approval Spanish judgments that clearly

establish the inapplicability of Art. 1902 of the Spanish Civil Code (Art. 1802 of Puerto Rico Civil

Code) when the liability arises from a prior legal relationship:3

[t]he contractual fault may be preceded by a legal relationship that is not a contract but rather another kind ... since the general rule is the preferential application of the precepts regarding contractual liability: there being an obligation derived from the contract or from a preceding analogous [legal] relationship, it is not necessary to resort to Articles 1902 and 1903, [(1802 and 1803 of ours)] that govern the obligations arising from fault or negligence without any agreement." [...] "…this precept [(Art. 1802 our)] sanctioner of the principle 'nominen laedere'... is only applicable to correct or repair the damage caused by an unlawful act contrary to the relationships imposed by social coexistence, but not when the parties are intimately bound by a previous agreement, since [A]rt. 1101, of said Code the comes into play ... without it being feasible to simultaneously exercise the actions conferred by both legal rules a[u]n when the injury originated comes from the same fact (S. of June [of] 3, 1962) and without in the cases of liabilities arising from the breach of obligations being subject to the statute of limitations period to the rule contained in No. 2§A of [A]rt. 1968, but rather that which is set out in [Art.] 1964 of a general nature for personal actions.4

In short, to the extent there is a prior relationship between the parties in this case, Art. 1802

cannot apply. In this sense, the reasoned decision of the lower court is correct and the fact that this

appellate forum's erroneous Judgment revoked it, openly disregarding the applicable norms,

makes its reconsideration imperative.

On the other hand, reconsideration is also appropriate because the determination and

application of the law in the Judgment is erroneous because if any element of a claim based on

Art. 1802 is missing, the statute cannot be applied. In this case, multiple elements are missing, as

the lower court properly found, "National's allegations do not meet the requirements of a cause of

action under Art. 1802" and, therefore, that this precept cannot prevent National's claims. (Ap.

25). Note that, as determined by the lower court, the Banks' duties towards National "do not have

their genesis in Art. 1802," so there can be no claim in light of that precept. (Ap. 25). By applying

for insurance, the defendant Banks did not have a generic duty to National or anyone else to

conduct due diligence, but rather, as the TPI correctly concluded and with good reason, the

"alleged source of [the] defendant Banks' responsibility" to National-which they exclusively

have toward National-is the specific obligation that they "voluntarily" assumed toward National

for their conduct and representations when they submitted the insurance applications and

"represented that they would investigate the content in the Official Statements." (Ap. 25; see also

1. Ramos Lozada v. Orientalist Rattan Furnature, Inc., 130 DPR at 727, also establishes that only when the alleged conduct against the defendant violates both the general obligation of Article 1802 and an obligation arising from a previous similar contract or legal relationship is there a concurrence of actions and the plaintiff must opt for one of them. This does not apply in this case, because the duty of the defendant Banks to fulfill the obligation assumed via their conduct towards National is not a generic duty owed to society in general (erga omnes).
2. (Emphasis added and citations omitted).

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