Background
On May 1, 2018, appellees Hernández Zorrilla and Carrasquillo González attended a demonstration in San Juan, Puerto Rico, where they alleged Puerto Rico Police Bureau officers used physical aggression, tear gas, and rubber bullets against them. In April 2019, they sued in federal court against the officers and Commonwealth officials in their personal capacities, alleging violations of the First, Fourth, and Fourteenth Amendments to the U.S. Constitution and Puerto Rico law. They sought monetary damages from the defendants individually.
The Commonwealth agreed to defend and potentially indemnify these officials under Law 9, a Puerto Rico statute providing such protections. The Financial Oversight and Management Board had initiated Title III bankruptcy restructuring proceedings under PROMESA (the Puerto Rico Oversight, Management, and Economic Stability Act) in May 2017. In January 2022, the Title III court confirmed a Plan of Adjustment discharging various claims against the Commonwealth and permanently enjoining pursuit of discharged claims, effective March 15, 2022. The district court stayed appellees’ case pending determination of whether the confirmed Plan discharged their personal-capacity claims.
In September 2025, the Title III court issued an Opinion and Order concluding that appellees’ personal-capacity claims against Commonwealth officials and employees are not barred by the confirmed Commonwealth Plan. The Financial Oversight and Management Board appealed, arguing that these personal-capacity claims function as “indirect claims” against the Commonwealth and therefore fall within the discharged claims.
The Court’s Holding
The First Circuit affirmed the Title III court’s decision, holding that the Commonwealth’s Plan of Adjustment does not discharge personal-capacity claims against Commonwealth employees and officials. The court rejected the Board’s argument that because personal-capacity claims indirectly affect the Commonwealth (through Law 9’s indemnification scheme), they must be treated identically to official-capacity claims under the discharge provisions.
The court emphasized that while the automatic stay provisions of PROMESA (Section 922) may reach indirect claims against the debtor through suits against its officers, the scope of discharge in the confirmed Plan is narrower. The Plan explicitly states it “does not provide for non-consensual third-party releases.” Discharging personal-capacity claims would constitute such a release because personal-capacity claims are direct claims against the individual officials themselves—true third parties—not against the Commonwealth debtor. Official-capacity claims, by contrast, are only nominally against the official; they substantively target the sovereign entity and can be discharged as claims against the debtor.
The court drew support from recent Supreme Court precedent in Harrington v. Purdue Pharma L.P. (2024), which held that bankruptcy courts lack power to extinguish without consent claims held by nondebtors against other nondebtors. The Supreme Court distinguished between derivative claims (which nominally belong to third parties but substantively belong to the debtor) and claims truly belonging to third parties. Personal-capacity claims against government officials are analogous to the latter category—they truly belong to the individual plaintiffs as claims against individual defendants. The court also gave deference to the Title III court’s interpretation of its own Confirmation Order, which the trial court had determined was simply designed to prevent circumventing official-capacity discharge through indirect personal-capacity suits.
Key Takeaways
- Personal-capacity claims against government officials and employees are not discharged by a debtor commonwealth’s Plan of Adjustment, even if the commonwealth must defend and potentially indemnify those officials.
- Discharging such claims would constitute a non-consensual third-party release, which Puerto Rico’s Plan explicitly excludes and which bankruptcy courts lack authority to grant without consent under recent Supreme Court precedent.
- The distinction between official-capacity claims (which are substantively against the sovereign) and personal-capacity claims (which are substantively against the individual) is critical to determining dischargeability in municipal bankruptcy proceedings.
- The automatic stay provisions and discharge provisions of PROMESA Title III are not coextensive; a claim stayed by Section 922 during restructuring proceedings is not necessarily discharged once the Plan is confirmed.
Why It Matters
This decision significantly clarifies the scope of debt discharge in Puerto Rico’s restructuring under PROMESA and has implications for any municipality or territory with similar bankruptcy schemes. The ruling preserves a critical avenue of accountability: government officials cannot shield themselves from personal liability for constitutional violations merely because their employer entity has discharged its debts. While the Commonwealth can defend such officials under indemnification schemes like Law 9, those officials remain personally exposed to judgments.
The decision also signals how courts will apply the Supreme Court’s recent Harrington precedent limiting bankruptcy courts’ power to extinguish third-party claims. It draws a clear line between discharge of entity debts (proper within a plan) and non-consensual discharge of individual third-party claims (improper absent specific statutory authority). For Puerto Rico’s ongoing restructuring and for other jurisdictions with government employees facing personal liability, the ruling establishes that a debtor entity’s discharge will not shield individual officers or employees sued in their personal capacities.