The opinion
United States Court of Appeals
For the First Circuit
No. 05-1430
ASOCIACIÓN DE SUBSCRIPCIÓN CONJUNTA
DEL SEGURO DE RESPONSABILIDAD OBLIGATORIO,
Plaintiff, Appellee,
v.
JUAN A. FLORES GALARZA, in his personal and official capacity as
the Secretary of the Treasury of the Commonwealth of Puerto Rico;
and ANNABELLE RODRÍGUEZ, Secretary of Justice of the Commonwealth
of Puerto Rico,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Daniel R. Dominguez, U.S. District Judge]
Before
Lipez, Circuit Judge,
Gibson,* Senior Circuit Judge,
Howard, Circuit Judge.
Eduardo do Vera Ramírez, with whom Julio César Alejandro
Serrano and Landrón & Vera, LLP were on brief, for appellants.
Veronica Ferraiuoli-Hornedo, with whom Rubén T. Nigaglioni,
Rafael J. Martínez, and Nigaglioni & Ferraiuoli Law Offices, PSC
were on brief, for appellee.
March 1, 2007
* Of the Eighth Circuit, sitting by designation.
LIPEZ, Circuit Judge. The Compulsory Liability Joint
Underwriting Association of Puerto Rico ("JUA"), a Commonwealth-
created entity, filed a lawsuit against Juan A. Flores Galarza
("Flores Galarza" or "Secretary"), then the Secretary of the
Treasury of the Commonwealth, in both his official and personal
capacities,1 claiming that he violated the Takings Clause of the
United States Constitution by withholding from the JUA and
appropriating insurance premiums generated by Puerto Rico's
compulsory liability insurance law to alleviate the cash-flow
problems of the Commonwealth. Flores Galarza moved for judgment on
the pleadings, claiming that the forms of relief sought by the
plaintiff (declaratory, injunctive, and damages) were barred by the
Eleventh Amendment and the doctrine of qualified immunity. The
1
During the pendency of this case, Juan Carlos Méndez replaced
Flores Galarza as Secretary of the Treasury. As a matter of law,
Méndez was automatically substituted as a party for Flores Galarza
in his official capacity as Secretary. See Fed. R. Civ. P.
25(d)(1) ("When a public officer is a party to an action in his
official capacity and during its pendency dies, resigns, or
otherwise ceases to hold office, the action does not abate and the
officer's successor is automatically substituted as a party.").
Flores Galarza remains a party in his personal capacity. See,
e.g., Batistini v. Aquino, 890 F.2d 535, 536 n.1 (1989). While the
parties' briefs do not acknowledge this substitution, these
misnomers do not affect the substantial rights of the parties and,
therefore, we disregard them. See Fed. R. Civ. P. 25(d)(1)
("[M]isnomer[s] not affecting the substantial rights of the parties
shall be disregarded."). For the sake of consistency with the
parties' briefs, we use the name of the former Secretary of the
Treasury, Flores Galarza, when referring to the official-capacity
suit against the Secretary.
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district court denied that motion. We have before us an
interlocutory appeal from that denial.
Among other complexities, this case tests the sometimes
uncertain boundary between official- and personal-capacity claims
against a government official, and the applicability of the
qualified immunity doctrine to an unusual takings claim. For the
reasons set forth below, after concluding that the JUA has standing
to sue Flores Galarza, we conclude that, consistent with the
Eleventh Amendment, Flores Galarza is amenable to suit in his
official capacity for injunctive and declaratory relief, but is
protected from damages in his personal capacity by the doctrine of
qualified immunity.
I.
A. Law 253: The Compulsory Liability Insurance System
The following facts are drawn from the complaint and,
where noted, from relevant statutory and case law. On December 27,
1995, in response to financial losses from uncompensated damages to
motor vehicles in traffic accidents, the Commonwealth of Puerto
Rico ("Commonwealth") enacted the Compulsory Motor Vehicle
Liability Insurance Act, Act No. 253 ("Law 253"), codified at P.R.
Laws Ann. tit. 26, §§ 8051-61. Under Law 253, liability insurance
coverage is required for all motor vehicles that travel on public
thoroughfares. Law 253 "provides each insured vehicle owner with
$3000 of coverage for damages caused to third parties per accident
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in exchange for a uniform premium, initially set at $99 for each
private passenger vehicle and $148 for each commercial vehicle."
Arroyo-Melecio v. P.R. Am. Ins. Co., 398 F.3d 56, 60-61 (1st Cir.
2005) (citing P.R. Laws Ann. tit. 26, §§ 8052(j), 8056(a)).
All "private insurers" – defined under Law 253 as those
with more than 1% of the total volume of vehicle liability premiums
in Puerto Rico, P.R. Laws Ann. tit. 26, § 8052(b) – are required to
provide compulsory liability insurance in one of two ways. First,
private insurers are "bound to provide the compulsory liability
insurance to those motor vehicle owners that request it," id. §
8054(a), unless those owners meet certain statutory criteria, most
of which "identify applicants who are bad drivers or otherwise of
high risk," Arroyo-Melecio, 398 F.3d at 61. Second, private
insurers are required to provide compulsory liability insurance as
members of the JUA, to which they must belong. The JUA is an
association of all private insurers in Puerto Rico, which "provides
compulsory liability insurance to all drivers, including those
high-risk drivers whom private insurers are not required to
insure." Id. (footnote omitted). "Through the JUA, the risk of
insuring these high-risk drivers is thus spread among all the
private insurers." Id. at 62.
Every vehicle owner must either: (1) pay the premium for
compulsory liability insurance to the Secretary of the Treasury at
the time that the owner acquires or renews a vehicle license,
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effectively as part of the license payment; or (2) opt out of the
compulsory liability insurance scheme by privately purchasing
liability insurance with comparable or better coverage. Id. at 61
n.2 (citing P.R. Laws Ann. tit. 26, § 8061).2 In the case of those
vehicle owners who pay the Secretary for compulsory liability
insurance, "[t]he [JUA] shall receive from the Secretary of the
Treasury the total amount of the compulsory liability insurance
premiums received by said official, for its eventual distribution
among the private insurers and the [JUA] itself, as the case may
be." P.R. Laws Ann. tit. 26, § 8055(c). The JUA's administrative
and operating expenses are "charged to the amount received from the
corresponding premiums according to this distribution." Id.
If a vehicle owner does not present a Certificate of
Compliance proving that he carries traditional liability insurance,
he must pay the compulsory liability insurance premium on the date
2
Section 8061(a) states that motor vehicle owners with sufficient
"traditional" liability insurance may rely on that coverage to
comply with Law 253. "Traditional liability insurance" is defined
by Law 253 as standard vehicle insurance, which in turn is defined
in P.R. Laws Ann. tit. 26, § 407(1) as, inter alia, insurance
protecting against both personal and property damage "resulting
from or incident to ownership, maintenance, or use of any . . .
vehicle."
According to the JUA's website, individuals who have the
requisite amount of traditional liability insurance may obtain a
Certificate of Compliance from their insurer to present when they
obtain or renew licenses, and may thereby avoid paying the
compulsory insurance premium to the Secretary. See P.R. Laws Ann.
tit. 26, § 8061(b) (empowering the Insurance Commissioner to
establish regulations "so that motor vehicle owners who comply with
the insurance requirements of subsection (a) of this section may
present attesting proof of . . . compliance").
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of issuance or renewal of the vehicle license, and may then seek
reimbursement directly from the JUA or from his insurer, who will,
in turn, seek reimbursement from the JUA.3 Thus, the funds
transferred from the Secretary to the JUA appear to consist of: (1)
premium payments from individuals seeking to purchase insurance
through the JUA who paid the Secretary, as required by the statute,
when they obtained or renewed their vehicle licenses, (2) duplicate
premium payments from individuals who are purchasing the compulsory
insurance directly from a private insurer, but who paid the
compulsory assessment to the Secretary along with their license
fees (and who thus are eligible for a refund from the JUA), and (3)
duplicate premium payments from individuals who have adequate
traditional liability coverage, but who did not obtain the
Certificate of Compliance that would have exempted them from the
compulsory assessment (who also are eligible for a refund). The
JUA is responsible for distributing the premiums it receives from
the Secretary to its member insurers for the coverage they provide.
Arroyo-Melecio, 398 F.3d at 61 n.2.4
3
The statute does not indicate whether individuals who privately
purchase only the compulsory coverage – and not the more
comprehensive traditional liability coverage – may avoid the
premium payment to the Secretary by presenting proof of coverage.
For purposes of this appeal, we assume that they may not, and that,
consequently, this group of vehicle owners must seek later
reimbursement of their duplicate payments.
4
Although the JUA's member insurers provide the compulsory
coverage, "every vehicle for which the requisite compulsory
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The JUA is required to file an annual statement with the
Insurance Commissioner detailing its financial condition,
transactions, and affairs for the preceding calendar year. Because
a portion of the total amount of premiums received by the JUA may
be owed to third parties who seek refunds for duplicate payments –
i.e., vehicle owners who bought insurance from a private insurer
but also paid the compulsory liability premium when obtaining
licenses, or private insurers who have reimbursed their insureds
for payment of the compulsory premium – the JUA is required by
regulation to set aside these premiums and accumulate them in a
separate reserve account ("Reserve").5
liability insurance premium has been paid is considered to be
insured by the JUA unless the owner of the vehicle opts out by
selecting a private insurer or purchasing a traditional insurance
policy." Arroyo-Melecio, 398 F.3d at 61 n.2.
5
Pursuant to the general provisions of Puerto Rico's Insurance
Code, P.R. Laws Ann. tit. 26, §§ 2603-2607, the JUA's obligation to
reimburse these so-called "unearned premiums" lasts seven years,
after which time the premiums lapse to the Insurance Commissioner
and are then deposited in the general fund of the Commonwealth
Treasury. Although the JUA did not reference this general
provision in either its brief before us or at oral argument, Puerto
Rico's Insurance Code makes clear that this general provision
applies to the compulsory liability insurance system under Law 253.
See id. § 2612 ("The [general provision governing unclaimed funds]
shall prevail over the provisions of any other chapter present or
future which may be in conflict herewith."). Flores Galarza
invokes this statutory provision in his brief.
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B. The Secretary's Withholding of Funds
Since the effective date of the compulsory liability
insurance system on January 1, 1998,6 the JUA has been unable to
determine exactly how many registered motor vehicles in Puerto Rico
are covered by private liability insurance. The JUA initially
estimated that 25% of all vehicles were covered by policies from
private insurers, and, accordingly, set aside 25% of all premiums
received and accumulated them in the Reserve. By 2001, experience
and additional data revealed that the actual proportion of
privately insured registered motor vehicles was closer to 17%. As
a result, the Reserve as disclosed in the December 2001 annual
statement – approximately $73 million – exceeded the actual amount
owed to third parties by approximately $10 million ("Overstated
Reserve Funds"). In other words, the JUA set aside and accumulated
in the Reserve approximately $10 million more than was actually
owed to privately insured vehicle owners and their insurers who
would be seeking reimbursement for the purchase of duplicative
compulsory liability insurance. In 2001, the JUA sought permission
from the Insurance Commissioner to adjust the Reserve to the
accumulated level that it would have been if only 17% of all
6
While Law 253 was enacted in 1995, the compulsory liability
insurance system established under Law 253 did not take effect
until January 1, 1998. 1995 P.R. Laws 253, § 16.
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premiums had been set aside, rather than 25%. The Insurance
Commissioner agreed to allow the JUA to adjust the Reserve for the
2001 fiscal year, but did not allow any adjustments for the
preceding fiscal years.
In 1998 and 1999, the Secretary collected the insurance
premiums and transferred them to the JUA in accordance with Law
253.7 The JUA then set aside a portion of these premiums in the
Reserve. Beginning in 2000, however, the Secretary discontinued
the transfer of compulsory liability insurance premiums to the JUA
in an attempt to ease the Commonwealth's cash-flow problems.8 On
7
At oral argument, counsel for the JUA explained that "[p]rior to
the year 2000, the premiums were being turned over [by the
Secretary] . . . in a term of about 30-60 days," which the JUA
found "reasonable, given the bureaucratic process" involved with
such transfers.
8
The record contains conflicting information about when the
Secretary began withholding the compulsory insurance premiums. At
oral argument before us, in their appellate brief, and in their
opposition to Flores Galarza's motion for judgment on the
pleadings, the JUA states that the Secretary withheld the insurance
premiums beginning in 2000. In the complaint, the JUA likewise
states that it was forced to liquidate its investments as early as
January 2000 "[a]s a result of the [Secretary's] failure to
transfer th[e premiums]." Elsewhere in the complaint, however, the
JUA states that the Secretary withheld premiums "[d]uring the past
two years," which would mean that the alleged withholding began in
approximately February 2001, based on the February 2003 filing date
of the complaint. Flores Galarza argues that "although not alleged
in the complaint, the supposed withholding of the transfers would
have started on March 2001." While our analysis does not require
that we resolve this discrepancy, we use for our analysis the
earliest date that Flores Galarza is alleged to have withheld the
premiums (January 2000), which date is supported by the record at
this stage of the proceedings.
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May 30, 2002, the JUA filed a petition for mandamus against the
Secretary in the Puerto Rico Superior Court, requesting an order
that the Secretary transfer to the JUA the withheld compulsory
liability insurance premiums. By September 2002, the Secretary had
withheld approximately $173 million in premiums from the JUA.
Because of the Secretary's failure to transfer the insurance
premiums, the JUA was forced to liquidate approximately $98 million
of investments in order to comply with its own cash-flow needs.
The liquidation of the JUA's investments, together with the lost
opportunity to invest new premiums, resulted in a loss to the JUA
of $14.2 million in interest. Despite the Secretary's withholding
of premiums, the JUA continued to reimburse privately insured
motorists and their insurers from its own funds. From January 2002
through September 2002, the JUA reimbursed third parties out-of-
pocket a total of $13.6 million ("Out-of-Pocket Funds").
C. The 2002 Amendment to Law 253
On September 11, 2002, the Puerto Rico Legislature
amended Law 253, 2002 P.R. Laws 230 ("2002 Amendment"), to require
the JUA to turn over to the Secretary all funds held in the Reserve
as of December 31, 2001 (i.e., $73 million), and to continue
providing such funds every two years thereafter. The 2002
Amendment requires the Secretary to keep these funds in a fiduciary
capacity for five years, to be reimbursed to owners of privately
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insured motor vehicles and their insurers who seek refunds, after
which time the funds become the property of the Commonwealth and
pass to the general fund of the Commonwealth Treasury.9 The 2002
Amendment also provides that any excess funds in the Reserve, that
is, any funds included in the Reserve based on estimates which
exceed the actual amount owed to third parties (the Overstated
Reserve Funds), shall be immediately available for use by the
Commonwealth. Income generated from the funds provided to the
Secretary shall also be immediately available for use by the
Commonwealth. Lastly, while the Secretary continues to transfer to
the JUA the total amount of compulsory liability insurance
premiums, the 2002 Amendment allows the Secretary to deduct from
these premiums a fee for the collection service it performs.
D. The 2002 Settlement
In November 2002, pursuant to a settlement stipulation in
the mandamus action in the Puerto Rico Superior Court, the
Secretary transferred to the JUA a significant portion of the $173
million in insurance premiums that had been withheld ("2002
Settlement").10 Rather than transferring the full amount of funds
9
The 2002 Amendment thus allocates the seven-year period provided
by the general provisions of Puerto Rico's Insurance Code, P.R.
Laws Ann. tit. 26, § 2603, among the JUA (which holds the funds for
two years) and the Secretary (who holds the funds for five
additional years), after which time the funds lapse to the general
fund of the Commonwealth Treasury.
10
In his answer to the JUA's complaint, Flores Galarza asserts
that, by November 2002, he had paid the JUA approximately $85.8
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withheld, however, the Secretary retained approximately $73 million
– an amount corresponding to the amount of funds in the Reserve as
of December 2001, which the JUA was required to turn over to the
Secretary pursuant to the 2002 Amendment.
II.
In February 2003, the JUA filed a complaint under 42
U.S.C. § 1983 against Flores Galarza in his personal capacity and
in his official capacity as Secretary of the Treasury.11 In the
complaint, the JUA alleged that Flores Galarza took the JUA's
million ($8,576,709.37 on October 23, 2002 and $77,190,384.31 on
November 13, 2002), which amount represented "all the moneys" owed
to the [JUA]." While the JUA's complaint suggests that the amount
paid by Flores Galarza was closer to $100 million, what matters for
purposes of our analysis is the amount which Flores Galarza did not
pay – $73 million. The parties do not dispute that these funds
were never paid to the JUA.
11
Defendant-Appellant Annabelle Rodríguez, then the Secretary of
Justice of the Commonwealth of Puerto Rico, is not listed as a
defendant in either the complaint or in the district court order
that is the subject of this appeal. The first mention of Rodríguez
comes in the Notice of Interlocutory Appeal, which references her
by political office only, not by name. The parties refer to
Rodríguez again – this time, in her official capacity as Secretary
of Justice – in the caption on their briefs before us, but neither
party makes any argument respecting her. Assuming that Rodríguez
was properly joined as a party to this action, she ceased to be a
party when she left her post as Secretary of Justice in 2004 and
was succeeded by William Vazquez Irizarry, who was, in turn,
succeeded by the present Secretary of Justice, Roberto J. Sánchez
Ramos. See Fed. R. Civ. P. 25(d). We therefore do not reach
Rodríguez's interests here. Furthermore, since neither the
complaint nor the district court order lists the Secretary of
Justice as a party, and since neither party argues that we should
adjudicate the interests of the Secretary of Justice in this
appeal, we do not reach the interests of Sánchez Ramos. On remand,
it will be important for the district court to clarify Sánchez
Ramos's status in this litigation.
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property without just compensation and deprived the JUA of its
property without due process in violation of the Fifth and
Fourteenth Amendments and § 1983.12 Specifically, the JUA contends
that "in order to alleviate the Commonwealth's cash-flow problems,"
Flores Galarza temporarily withheld "for [an] unreasonable period[]
of time" (i.e., from January 2000 through November 2002) $173
million in insurance premiums, which are "the private property of
the [JUA]" and "which [Flores Galarza] was bound by law to transfer
to JUA." By temporarily withholding these premiums, the JUA
argues, Flores Galarza also wrongfully appropriated $14.2 million
in "interest generated by those premiums [which is] also the
private property of the [JUA]." While Flores Galarza subsequently
paid to the JUA a large portion of the withheld premiums pursuant
to the 2002 Settlement, the JUA argues that by retaining $73
million, an amount of funds equal to the Reserve as of December
2001, Flores Galarza wrongfully appropriated the following amounts:
approximately $10 million13 in Overstated Reserve Funds which do not
12
For the sake of clarity, we note that § 1983 cannot be
"violated," as the JUA suggests in the complaint. "Section 1983
does not confer substantive rights but merely provides a means to
vindicate rights conferred by the Constitution or laws of the
United States." Wilson v. Spain, 209 F.3d 713, 715 (8th Cir.
2000). Here, the JUA seeks to vindicate its right under the Fifth
and Fourteenth Amendments to be free from an uncompensated taking.
13
The JUA uses two different percentages to calculate the
Overstated Reserve Funds, and therefore arrives at two different
totals for such funds. As noted above, the JUA originally
estimated that 25% of all registered motor vehicles were privately
insured, and so set aside 25% of all premiums received and
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belong to third parties and therefore constitute the JUA's private
property; and approximately $13.6 million in Out-of-Pocket Funds
which the JUA was forced to pay to third parties from its own funds
when Flores Galarza withheld $173 million in insurance premiums to
meet the cash-flow needs of the Commonwealth.14
accumulated them in the Reserve. In its complaint, the JUA argues
that the number of privately insured motor vehicles as of 2001 was
actually 17.4%, which means that the JUA overstated the Reserve by
approximately $10 million. In its brief before us and at oral
argument, however, the JUA argues that the number of privately
insured motor vehicles in 2001 was actually 19.3%, which means that
the Reserve was overstated by approximately $8 million. Counsel
for the JUA also explained at oral argument that the Insurance
Commissioner used the higher percentage in adjusting the Reserve
for fiscal year 2001. The Secretary says nothing about this
discrepancy. Because we must draw all reasonable inferences in
favor of the non-movant when considering a motion for judgment on
the pleadings, and because the 17% figure set forth in the
complaint would presumably yield a higher damages award for the JUA
than the 19% figure, i.e., $10 million as opposed to $8 million, we
use the lower percentage yielding the higher damages amount for
purposes of our analysis.
We note that even that amount might understate the damages
figure. If, as the JUA indicates, the Reserve is based on the
estimated total number of privately insured vehicles – in an
attempt to reflect the greatest number of owners who might be
entitled to a refund – the Reserve would contain more than the
amount needed for reimbursement to the extent that any of the
privately insured owners had avoided payment of the compulsory
insurance premium by presenting a Certificate of Compliance. Such
owners would not be entitled to a refund, but the Reserve would
include enough to reimburse them based on their private insurance
status.
14
The record does not contain the 2002 Settlement. Therefore, it
is not clear whether the JUA is suing for more than they agreed to
in the settlement. Because the record does not permit us to answer
this question, and because Flores Galarza does not raise the issue,
we do not address it.
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The JUA requested relief in the form of a declaratory
judgment that Flores Galarza "infringed upon the rights guaranteed
under the Takings Clause and the Fourteenth Amendment's Due Process
Clause" by temporarily withholding the insurance premiums and
permanently taking the interest generated by those premiums, the
Overstated Reserve Funds, and the Out-of-Pocket Funds. Because the
JUA does not argue that Flores Galarza's taking of property
violated its substantive or procedural due process rights under the
Fourteenth Amendment, the JUA appears to invoke the Fourteenth
Amendment only for purposes of bringing a Fifth Amendment Takings
claim against Flores Galarza. See Chi., Burlington & Quincy R.R.
Co. v. City of Chi., 166 U.S. 226, 239 (1897) (holding that the
Takings Clause of the Fifth Amendment is applicable to the states
through the Fourteenth Amendment). Our Fourteenth Amendment
inquiry is therefore limited to the JUA's takings claim.
The JUA also sought injunctive relief enjoining Flores
Galarza, in his official capacity, from "engaging in violations of
JUA's [constitutional] rights," that is, from withholding any more
insurance premiums.15 In addition, it sought to enjoin him from
"[a]ttempting to enforce or impose upon JUA the terms and
conditions of [the 2002 Amendment] . . . inasmuch as they amount to
15
The JUA conceded at oral argument that the Secretary resumed
transfer of the insurance premiums following the filing of this
action in February 2003, thereby "correct[ing]" the "situation
which caused this problem . . . for the time being."
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an unconstitutional taking," that is, from requiring the JUA to
transfer funds accumulating in the Reserve to the Secretary every
two years (which funds must be retained by the Secretary for an
additional five years before lapsing to the general fund),16 and
from retaining interest income accruing on the Reserve funds as
well as any excess Reserve funds, i.e., the Overstated Reserve
Funds that are not actually owed to third parties (which funds
shall lapse immediately to the general fund). Finally, the JUA
sought from Flores Galarza, in his personal capacity, approximately
$38 million in damages: $10 million in Overstated Reserve Funds,
$13.6 million in Out-of-Pocket Funds, and $14.2 million in lost
interest as a result of Flores Galarza's taking of the insurance
premiums.
Flores Galarza filed a motion for judgment on the
pleadings pursuant to Fed. R. Civ. P. 12(c), arguing that: the JUA
lacked standing to sue Flores Galarza in any capacity; Eleventh
Amendment immunity barred the JUA from suing Flores Galarza in his
official capacity; and the doctrine of qualified immunity barred
the JUA from suing Flores Galarza in his personal capacity. The
district court denied Flores Galarza's motion, holding that the JUA
16
While the JUA seeks to enjoin the Secretary from enforcing the
terms of the 2002 Amendment, which requires the JUA to transfer
funds in the Reserve to the Secretary every two years, the JUA does
not challenge the general provisions of Puerto Rico's Insurance
Code, P.R. Laws Ann. tit. 26, §§ 2601-2607, which require that any
premiums not claimed within seven years must be paid to the
Insurance Commissioner.
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was not an arm of the state and therefore was not precluded from
suing Flores Galarza;17 that Flores Galarza was not entitled to
Eleventh Amendment immunity because the declaratory and injunctive
relief sought by the JUA was prospective, as was the JUA's claimed
right to "money allegedly unconstitutionally attached" by Flores
Galarza, i.e., "the insurance premiums for the compulsory liability
insurance [and] . . . certain funds belonging to JUA"; and that
Flores Galarza was not entitled to qualified immunity because the
JUA alleged a constitutional violation that was well established at
the time of the alleged conduct. Flores Galarza filed a motion for
reconsideration that was also denied. This interlocutory appeal
followed.
III.
We address in this section various preliminary issues,
including the JUA's standing and the rationale supporting
interlocutory review. We raised two issues sua sponte, mindful of
our obligation to consider the basis of appellate jurisdiction,
even if the parties have assumed its existence. See Espinal-
Dominguez v. Puerto Rico, 352 F.3d 490, 495 (1st Cir. 2003). After
17
The court denied Flores Galarza's arm-of-the-state claim without
prejudice, noting that Flores Galarza could "present the issue
again via summary disposition[,] providing evidence as to whether
the state bore legal liability for the entities['] debts or the
risk that the damages will be paid from the public treasury."
Instead of moving for summary judgment or providing any new
evidence, Flores Galarza filed this interlocutory appeal because of
the court's immunity rulings.
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oral argument, we asked the parties to submit supplemental briefs
addressing the following questions: (1) whether the JUA's claim
meets the prudential ripeness requirements of the Supreme Court's
jurisprudence on takings, and (2) whether the res judicata doctrine
bars our review. As we discuss below, neither of those doctrines
precludes our jurisdiction. Nor do we find any other
jurisdictional barriers to this interlocutory appeal.
A. Availability of Interlocutory Review
Generally speaking, appeals are permitted only from final
judgments of the district court. 28 U.S.C. § 1291. There are,
however, several exceptions. "Chief among these is the so-called
collateral order doctrine," by which "an order may be appealed
immediately if it 'finally determine[s] claims of right separable
from, and collateral to, rights asserted in the action, too
important to be denied review and too independent of the cause
itself to require that appellate consideration be deferred until
the whole case is adjudicated.'" Espinal-Dominguez, 352 F.3d at
495 (quoting Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541,
546 (1949)).
Orders denying claims of Eleventh Amendment immunity and
qualified immunity, to the extent they turn on issues of law, fall
within the ambit of this exception, and are thus immediately
appealable to this Court. See P.R. Aqueduct & Sewer Auth. v.
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Metcalf & Eddy, Inc., 506 U.S. 139, 143 (1993) ("[O]rders denying
individual officials' claims of . . . qualified immunity are among
those that fall within the ambit of [the collateral order
doctrine]. . . . [W]e agree[] that the same rationale ought to
apply to claims of Eleventh Amendment immunity made by States and
state entities possessing a claim to share in that immunity.")
(citations and footnote omitted); Pagán v. Calderón, 448 F.3d 16,
26 (1st Cir. 2006) (stating that denial of qualified immunity is an
appealable final decision). Flores Galarza claims that, even on
the facts construed in the light most favorable to the JUA, he is
entitled to Eleventh Amendment immunity in his official capacity
and qualified immunity in his personal capacity as a matter of law.
The district court's denial of these claims thus falls within the
collateral order doctrine.
B. Ripeness
A plaintiff frequently must scale "two independent
prudential hurdles" before bringing a takings claim against state
entities in federal court. Suitum v. Tahoe Reg'l Planning Agency,
520 U.S. 725, 733-34 (1997). The Supreme Court explained in
Williamson County Reg'l Planning Comm'n v. Hamilton Bank of Johnson
City, 473 U.S. 172, 194 (1985), that such a plaintiff must
demonstrate that he has both received a final decision from the
state on the use of his property and "sought 'compensation through
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the procedures the State has provided for doing so,'" Suitum, 520
U.S. at 734 (quoting Williamson County, 473 U.S. at 194).
The plaintiff in Williamson County had alleged that the
application of various zoning laws and regulations to its property
in Tennessee amounted to a taking of that property. The Supreme
Court held that the claim was not ripe because the plaintiff had
"not yet obtained a final decision regarding the application of the
zoning ordinance and subdivision regulations to its property, nor
utilized the procedures Tennessee provides for obtaining just
compensation." 473 U.S. at 186. The Court noted that the Board of
Zoning Appeals had the power to approve variances to the zoning
ordinance, and the Planning Commission could grant variances from
the subdivision regulations. The plaintiff, however, had not
sought such variances, and thus, "respondent has not yet obtained
a final decision regarding how it will be allowed to develop its
property." Id. at 190.
The Court held that the claim also was not ripe for a
second reason: the plaintiff had not sought recovery through the
state's inverse condemnation procedure, under which a property
owner may seek just compensation for an alleged taking of property
effected by restrictive zoning laws or development regulations.
Id. at 196. The Court explained that, because the Fifth Amendment
proscribes not the taking of property, but takings without just
compensation, "[if] the government has provided an adequate process
-20-
for obtaining compensation, and if resort to that process 'yield[s]
just compensation,' then the property owner 'has no claim against
the Government' for a taking." Id. at 194-95 (alteration in
original) (quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1013
n.21 (1984)). Because the plaintiff in Williamson County "ha[d]
not shown that the inverse condemnation procedure is unavailable or
inadequate," the takings claim was premature "until it has utilized
that procedure," id. at 197. Cf. González-Álvarez v. Rivero-
Cubano, 426 F.3d 422, 427 (1st Cir. 2005) (finding no Williamson
County ripeness barriers where plaintiffs claimed that cancellation
of their milk production quotas violated the Takings Clause: "Since
in this case, the state has always clearly denied that any
compensation would be due and there is no state remedy available
for seeking compensation, the second hurdle falls away.").
For multiple reasons, the Williamson County prudential
ripeness concerns are inapposite here. First, to the extent that
the JUA is making a facial statutory challenge, its takings claim
need not be brought first to a Commonwealth body, either
administrative or judicial. See Suitum, 520 U.S. at 736 n.10
("'[F]acial' challenges to regulation are generally ripe the moment
the challenged regulation or ordinance is passed, but face an
'uphill battle,' since it is difficult to demonstrate that '"mere
enactment"' of a piece of legislation 'deprived [the owner] of
economically viable use of [his] property.'") (citations omitted);
-21-
Yee v. City of Escondido, 503 U.S. 519, 534 (1992) (finding
petitioners' facial challenge ripe because it "does not depend on
the extent to which petitioners are deprived of the economic use of
their particular pieces of property or the extent to which these
particular petitioners are compensated"); Quicken Loans, Inc. v.
Wood, 449 F.3d 944, 953 (9th Cir. 2006) (finding that a facial
takings claim was ripe when the challenged statutes were enacted);
Pharm. Care Mgmt. Ass'n v. Rowe, 429 F.3d 294, 307 (1st Cir. 2005)
("[A] facial challenge is usually ripe 'the moment the challenged
regulation or ordinance is passed,'" but "'face[s] an uphill
battle.'" (alterations in original)(citations omitted)). The JUA
arguably has stated two facial challenges: (1) that Law 253 effects
a taking in failing to provide for the transfer to the JUA of
interest earned on its money during the time the Commonwealth holds
the funds; and (2) that the 2002 Amendment effects a taking by
requiring transfer to the Commonwealth of the excess reserve funds,
some of which belong to the JUA, and by explicitly "taking" the
interest on those funds to use for Commonwealth operations.
More significantly, however, the Williamson County
requirements are not fully applicable to the type of taking alleged
here. The Court in Suitum noted that Williamson County identified
"two independent prudential hurdles to a regulatory takings claim
brought against a state entity in federal court." 520 U.S. at 733-
34 (emphasis added). This is not a regulatory takings case. The
-22-
JUA has alleged a physical taking – "a direct government
appropriation . . . of private property," Lingle v. Chevron U.S.A.
Inc., 544 U.S. 528, 537 (2005) – and the analysis for such a claim
differs from that of a regulatory taking. See infra at Section
V(A)(2). We previously have held that the finality prong of
Williamson County is inapplicable to physical takings and that only
the "just compensation" prong remains. See Pascoag Reservoir & Dam
LLC v. Rhode Island, 337 F.3d 87, 91-92 (1st Cir. 2003) ("In a
physical taking case, the final decision requirement is relieved or
assumed . . . . However, . . . '[c]ompensation must first be
sought from the state if adequate procedures are available.'")
(citations omitted).
Even if both Williamson County prerequisites applied,
however, they would not foreclose our jurisdiction. The case law
addressing the first "hurdle" focuses on whether the administrative
body responsible for applying the challenged regulations has
completed discretionary review of the plaintiff's particular
situation. Here, there is no pending administrative process that
could, through a variance, waiver or other discretionary decision,
modify the statute's impact on the JUA.18
18
The Court in Williamson County emphasized the distinction between
the finality requirement it was describing and the need to exhaust
remedies, which is not a prerequisite to a suit brought under §
1983. The Court explained:
While the policies underlying the two concepts often
overlap, the finality requirement is concerned with
-23-
Nor does the second "hurdle" – the need to seek
compensation through procedures provided by the state – pose a
barrier here. See Suitum, 520 U.S. at 734 ("The second hurdle
stems from the Fifth Amendment's proviso that only takings without
whether the initial decisionmaker has arrived at a
definitive position on the issue that inflicts an actual,
concrete injury; the exhaustion requirement generally
refers to administrative and judicial procedures by which
an injured party may seek review of an adverse decision
and obtain a remedy if the decision is found to be
unlawful or otherwise inappropriate. . . .
The difference is best illustrated by comparing the
procedure for seeking a variance with the procedures
that, under Patsy[v. Florida Board of Regents, 457 U.S.
496 (1982)], respondent would not be required to exhaust.
While it appears that the State provides procedures by
which an aggrieved property owner may seek a declaratory
judgment regarding the validity of zoning and planning
actions taken by county authorities, respondent would not
be required to resort to those procedures before bringing
its § 1983 action, because those procedures clearly are
remedial. Similarly, respondent would not be required to
appeal the Commission's rejection of the preliminary plat
to the Board of Zoning Appeals, because the Board was
empowered, at most, to review that rejection, not to
participate in the Commission's decisionmaking.
Resort to those procedures would result in a
judgment whether the Commission's actions violated any of
respondent's rights. In contrast, resort to the
procedure for obtaining variances would result in a
conclusive determination by the Commission whether it
would allow respondent to develop the subdivision in the
manner respondent proposed. The Commission's refusal to
approve the preliminary plat does not determine that
issue; it . . . leaves open the possibility that
respondent may develop the subdivision according to its
plat after obtaining the variances. In short, the
Commission's denial of approval does not conclusively
determine whether respondent will be denied all
reasonable beneficial use of its property, and therefore
is not a final, reviewable decision.
473 U.S. at 193-94 (citations omitted).
-24-
'just compensation' infringe that Amendment; 'if a State provides
an adequate procedure for seeking just compensation, the property
owner cannot claim a violation of the Just Compensation Clause
until it has used the procedure and been denied just
compensation.'" (quoting Williamson County, 473 U.S. at 195)).
Most commonly in regulatory takings cases – which typically involve
land-use regulation – such a procedure is a state inverse
condemnation proceeding.19 See, e.g., Williamson County, 473 U.S.
at 196; Urban Developers LLC v. City of Jackson, 468 F.3d 281, 295
(5th Cir. 2006); SFW Arecibo, Ltd. v. Rodríguez, 415 F.3d 135, 139
(1st Cir. 2005) (noting that "[a]dequate procedures for seeking
just compensation are available under Puerto Rico law," and
19
The Supreme Court explained the "important legal and practical
differences between an inverse condemnation suit and a condemnation
proceeding" as follows:
Although a landowner's action to recover just
compensation for a taking by physical intrusion has come
to be referred to as "inverse" or "reverse" condemnation,
the simple terms "condemn" and "condemnation" are not
commonly used to describe such an action. Rather, a
"condemnation" proceeding is commonly understood to be an
action brought by a condemning authority such as the
Government in the exercise of its power of eminent
domain. . . .
. . . .
. . . The phrase "inverse condemnation" appears to
be one that was coined simply as a shorthand description
of the manner in which a landowner recovers just
compensation for a taking of his property when
condemnation proceedings have not been instituted.
United States v. Clarke, 445 U.S. 253, 255-57 (1980).
-25-
referring specifically to an inverse condemnation remedy). For
takings claims asserted against the federal government, the
applicable procedure is a claim brought under the Tucker Act.
Williamson County, 473 U.S. at 195 ("[T]aking claims against the
Federal Government are premature until the property owner has
availed itself of the process provided by the Tucker Act."
(citation omitted)); see also Student Loan Mktg. Ass'n v. Riley,
104 F.3d 397, 401 (D.C. Cir. 1997) ("Normally a taking claim
against the federal government must be brought as a suit for money
damages (i.e., the 'just compensation' that the Constitution
assures) under the Tucker Act . . . .") (citing 28 U.S.C. § 1491).
The key component of this prong of Williamson County is
the availability of a process that is particularly aimed at
providing compensation when government action effects a taking.
See, e.g., McNamara v. City of Rittman, 473 F.3d 633, 638 (6th Cir.
2007) (noting that "the critical inquiry" after Williamson County
is whether the state has "'reasonable, certain[] and adequate'"
compensation procedures, and identifying mandamus as the vehicle
available to Ohio landowners who were not provided the required
"appropriation proceeding") (citations omitted).20 In our view,
20
Under Ohio law, a government actor seeking to take property must
bring a statutory "appropriation proceeding" against the landowner.
Coles v. Granville, 448 F.3d 853, 865 (6th Cir. 2006). Because
Ohio has no "inverse condemnation or other direct, statutory cause
of action for plaintiffs seeking just compensation for a taking,"
the state's courts over time concluded that property owners who
believe a taking has occurred without the statutory process could
-26-
such procedures do not include litigation of a state takings claim
or any general remedial cause of action under state law. Rather,
the Supreme Court must have had in mind only those procedures
specifically designed by the state to avoid constitutional injury
in the first instance by providing a means for a plaintiff to
obtain compensation for the government's taking of property.
An inverse condemnation cause of action is a classic
example of such a particularized procedure; it gives a property
owner aggrieved by government conduct the opportunity to obtain
compensation, thereby avoiding an unconstitutional taking.
Requiring plaintiffs to avail themselves of such a procedure before
bringing a federal takings claim protects the state's opportunity
to use the scheme it designed specifically to avoid constitutional
injury. By contrast, requiring plaintiffs to invoke any generally
available state procedure that might provide a remedy for an
uncompensated taking before bringing a federal claim would
"transform[] Williamson County's finality rule into a rule of
exhaustion," Washlefske v. Winston, 234 F.3d 179, 183 (4th Cir.
2000).
This result would be in diametric opposition
to a foundational decision of modern § 1983
jurisprudence, Monroe v. Pape, which held that
initiate a mandamus action "to force the government actor into the
correct appropriation proceeding." Id. In Ohio, therefore,
mandamus as a vehicle to obtain an appropriation proceeding
effectively substitutes for the more common inverse condemnation
process.
-27-
"[t]he federal remedy is supplementary to the
State remedy, and the latter need not be first
sought and refused before the federal one is
invoked."
Id. (quoting Monroe v. Pape, 365 U.S. 167, 183 (1961)). See also
Liberty Mut. Ins. Co. v. Brown, 380 F.3d 793, 797-98 (5th Cir.
2004) (noting that "the exhaustion of state administrative remedies
is not an independent federal law prerequisite to a federal takings
claim," but that plaintiff was obliged to seek compensation in an
inverse condemnation action).
The holding in Williamson County that a federal takings
claim is not ripe until the plaintiff has sought compensation
through state procedures has drawn substantial criticism, including
from Chief Justice Rehnquist in his concurring opinion in San Remo
Hotel v. City of San Francisco, 545 U.S. 323 (2005), because of the
risk that preclusion law will result in barring "litigants who go
to state court to seek compensation . . . [from] assert[ing] their
federal takings claims in federal court," id. at 351. See also,
e.g., J. David Brenner, You Can Check Out But You Can Never Leave:
The Story of San Remo Hotel – the Supreme Court Relegates Federal
Takings Claims to State Courts Under A Rule Intended to Ripen the
Claims for Federal Review, 33 B.C. Envtl. Aff. L. Rev. 247 (2006);
Scott Keller, Judicial Jurisdiction Stripping Masquerading as
Ripeness: Eliminating the Williamson County State Litigation
Requirements for Regulatory Takings Claims, 85 Tex. L. Rev. 199
(2006) ("Judicial Jurisdiction Stripping"). The risk of preclusion
-28-
becomes a reality when, in the course of ruling on the plaintiff's
compensation claim, the state court reaches federal constitutional
issues. See San Remo Hotel, 545 U.S. at 342-43; see also Torromeo
v. Town of Fremont, 438 F.3d 113, 117 (1st Cir. 2006) (affirming
res judicata dismissal of federal takings claim where claim "was
actually litigated to a final judgment on the merits in the state
court") (emphasis in original). At least some of the commentary
assumes that federal takings plaintiffs would need to pursue an
available state takings claim, among other procedures, to meet the
Williamson County requirements – which almost inevitably would lead
to an overlap with federal principles. See, e.g., Judicial
Jurisdiction Stripping, supra at 204-05.
We consider a state takings claim to be remedial in
nature, however, and not a "procedure[] the State has provided for
[seeking compensation]," Williamson County, 473 U.S. at 194. See
id. at 194 n.13 (contrasting review procedures with "procedures
that allow a property owner to obtain compensation for a taking").
A takings claim seeks damages for the unconstitutional taking of
property without due compensation. By contrast – as discussed
above – an inverse condemnation proceeding is designed to enable
plaintiffs to obtain compensation – which, if granted, would avoid
the alleged constitutional violation that the takings claim is
intended to remedy. This is a subtle, but important distinction.
As with more general remedial provisions, requiring a state takings
-29-
claim as a prerequisite to a federal takings claim effectively
would impose an exhaustion requirement – which the Supreme Court
explicitly said it did not do in Williamson County. Moreover,
although we have not done a survey, we suspect that, like Puerto
Rico, most state constitutions have takings provisions. See P.R.
Const. Art. II, §9. We thus think it likely that the Supreme Court
would have made explicit reference to a state takings claim if it
deemed such a cause of action a relevant "procedure" for purposes
of the second prong of Williamson County.21
21
In his concurrence, our colleague notes that the Supreme Court
addressed exhaustion in the context of the finality requirement
but did not suggest a similar limitation on the state litigation
prong. Although the Court's primary discussion of exhaustion
occurred with respect to finality, it reiterated that review
procedures need not be exhausted when explaining the need for "a
property owner [to] utilize procedures for obtaining compensation."
473 U.S. at 194 n.13.
We note, in addition, that at least some of the cases
identified in the concurrence as rejecting our limitation on the
litigation requirement are not wholly in conflict with our view
that Williamson County requires resort to a procedure akin to
inverse condemnation. For example, in Villager Pond, Inc. v. Town
of Darien, 56 F.3d 375 (2d Cir. 1995), the court relied on a
Connecticut state court decision that had held that the state's
takings clause "may be used as the basis of an inverse condemnation
action to recover compensation for property taken from private
individuals, even in the absence of a separate statutory remedy."
Id. at 380. See also id. at 381 ("The inverse condemnation
requirement of Williamson applies whenever compensation is sought
for land that is taken . . . ."). Similarly, in Austin v. City &
County of Honolulu, 840 F.2d 678, 681 (9th Cir. 1987), the court
noted that, "[u]ntil the state courts establish that landowners may
not obtain just compensation through an inverse condemnation action
under any circumstances [including under the state constitution's
takings provision], Hawaii procedures are adequate within the terms
of Williamson County and [plaintiff's] failure to use them cannot
be excused." Our view does not exclude the possibility that a
state explicitly could create a non-statutory inverse condemnation
-30-
Here, no Commonwealth administrative process or cause of
action has been identified through which a claimant is expected to
seek compensation in the unusual circumstance of an alleged
unconstitutional taking arising from the government's appropriation
of funds. Cf. González-Álvarez, 426 F.3d at 427 (noting the lack
of an available state process for seeking compensation for
cancellation of milk production quotas); SFW Arecibo, 415 F.3d at
139 (noting Puerto Rico's inverse condemnation procedure for land-
based takings claims).
Indeed, another line of cases suggests the
inapplicability of the Williamson County prerequisites to a taking
that involves the direct appropriation of funds. In Eastern
Enterprises v. Apfel, 524 U.S. 498 (1998) (plurality opinion), the
Supreme Court considered a challenge to the Coal Act, which
established a mechanism for funding health care benefits for coal
industry retirees. Id. at 504. Under the Act, private coal
operators were required to contribute to the payment of premiums to
procedure. Cf. Southview Assocs., Ltd. v. Bongartz, 980 F.2d 84,
99 (2d Cir. 1992) (rejecting the "contention that only a statutory
compensation scheme can suffice"). We disagree with the Ninth
Circuit's implication, however, that a federal takings claim is
unripe if a plaintiff has not litigated a state claim where the
state has not specifically utilized its takings clause to establish
a compensatory process (and no other compensatory process has been
identified).
As our discussion and the difference of opinion among our own
panel members indicate, there is substantial tension among the
various doctrines at issue in this context – ripeness, exhaustion
and preclusion – and further guidance from the Supreme Court seems
necessary to resolve the uncertainties.
-31-
fund such benefits. One such operator, Eastern, brought suit
claiming that the Act, either on its face or as applied, violated
substantive due process and constituted a taking of its property in
violation of the Fifth Amendment. The Supreme Court considered
whether the takings claim needed to be asserted first under the
Tucker Act, which, as noted above, usually must be a preliminary
step in a takings action against the federal government.
The plurality observed that Eastern was not seeking
compensation from the government; it was requesting declaratory and
injunctive relief against enforcement of the act by the
Commissioner of Social Security. The Justices noted conflicting
lower court precedent on whether a claim for equitable relief under
the Takings Clause, even without a request for damages, must be
brought first under the Tucker Act. Id. at 520-21. The plurality
rejected such a prerequisite, stating that "Congress could not have
contemplated that the Treasury would compensate coal operators for
their liability under the Act, for '[e]very dollar paid pursuant to
a statute would be presumed to generate a dollar of Tucker Act
compensation.'" Id. at 521 (quoting In re Chateaugay Corp., 53
F.3d 478, 493 (2d Cir. 1995)). The Court plurality continued:
Accordingly, the "presumption of Tucker Act
availability must be reversed where the
challenged statute, rather than burdening real
or physical property, requires a direct
transfer of funds" mandated by the Government.
[In re Chateaugay, 53 F.3d at 493.] In that
situation, a claim for compensation "would
entail an utterly pointless set of
-32-
activities." Student Loan Marketing Ass'n v.
Riley, 104 F.3d 397, 401 [(D.C. Cir. 1997)].
Instead, . . . the Declaratory Judgment Act
"allows individuals threatened with a taking
to seek a declaration of the constitutionality
of the disputed governmental action before
potentially uncompensable damages are
sustained."
Id. (citation omitted). Five members of the Court went on to
conclude that the Coal Act's application to Eastern was
unconstitutional, but Justice Kennedy relied on due process, rather
than takings, principles. See id. at 537, 539.
This case differs from Apfel because, among other
distinctions, it does not involve the federal government and the
Tucker Act. Nonetheless, the nature of the claim – that Puerto
Rico's Secretary of the Treasury improperly withheld money
belonging to the JUA so that it may be used for public purposes –
strikes us as equivalent to the complaints about the "direct
transfer of funds" at issue in Apfel and the decisions it cites.
Application of the Williamson County prerequisites here similarly
could only "'entail an utterly pointless set of activities.'" For
that reason, and the others we have noted, we conclude that
Williamson County's prudential factors do not prevent our review of
the JUA's takings claim.
C. Standing
Flores Galarza challenges the JUA's statutory standing,
arguing that the JUA, as a "state-created entity," lacks standing
to "challenge actions taken by the state that created it [because]
-33-
it is [not] absolutely clear from the enabling statute that such
access was expressly intended by the state legislature." The JUA
contends that, while it was "created via an official act of the
state," the JUA is not an "arm of the state [with] no
constitutional rights to assert against the state which created
it."22
Flores Galarza's argument is precluded by our case law.
In Arroyo-Melecio, we stated that, while "[t]he JUA is under some
direction by the commonwealth," it is "private in nature" and is
therefore "not an agency of the commonwealth." 398 F.3d at 62. A
private corporation may allege a constitutional violation under §
1983. See Ill. Clean Energy Cmty. Found. v. Filan, 392 F.3d 934,
936-37 (7th Cir. 2004) (holding that state-created foundation was
not a state agency and therefore could sue the state for taking its
property); Advocates for the Arts v. Thomson, 532 F.2d 792, 794
(1st Cir. 1976) ("That [plaintiff] is a corporation has no bearing
on its standing to assert violations of the first and fourteenth
22
Neither Flores Galarza nor the JUA addresses the threshold
question of whether we may consider Flores Galarza's standing
challenge in this interlocutory appeal. Although not all circuits
agree, see, e.g., Triad Assocs., Inc. v. Robinson, 10 F.3d 492, 496
n.2 (7th Cir. 1993) ("[T]hat we have jurisdiction to review the
district court's denial of qualified immunity is not sufficient to
confer on us jurisdiction to review [standing challenges] presented
to the district court." (citation omitted)), we previously have
held that appellate jurisdiction extends to issues of standing on
interlocutory appeal of a denial of immunity. See Pagán, 448 F.3d
at 26-27. We therefore may review Flores Galarza's challenge to
the JUA's standing.
-34-
amendments under 42 U.S.C. [§] 1983."). The JUA is therefore a
proper plaintiff in this case.
D. Res Judicata
In his supplemental brief, Flores Galarza asserts that
the JUA seeks "exactly the same remedy that it previously sought"
– and failed to receive – in the Commonwealth court, and argues
that the doctrine of res judicata bars the federal court from
reaching a different outcome on identical claims involving the same
parties. In response, the JUA emphasizes that both of the
Commonwealth court's rulings – the Partial Judgment issued in July
2003 and the Judgment issued in September 2003 – were "without
prejudice," and it argues that, under Puerto Rico law, a judgment
without prejudice is not an adjudication on the merits that would
trigger res judicata consequences. See Pueblo Int'l, Inc. v. Cruz,
17 P.R. Offic. Trans. 275 (1986) (Hernandez Denton, J., concurring
and dissenting) (citing Fresh-O-Baking Co. v. Molinos de P.R., 103
D.P.R. 509, 514 (1975)).
We do not reach the substantive res judicata question,
however, because we conclude that it is outside the limited sphere
of this interlocutory appeal. Although we have not previously held
explicitly that res judicata, unlike standing, may not be reviewed
along with immunity issues, we intimated as much in Nieves-Márquez
-35-
v. Puerto Rico, 353 F.3d 108, 123 (1st Cir. 2003), where we
considered the scope of an interlocutory appeal from the denial of
a motion to dismiss based on Eleventh Amendment immunity. We cited
there the Supreme Court's decision in Swint v. Chambers County
Comm'n, 514 U.S. 35 (1995), where the Court held that a court of
appeals does not have discretion to exercise pendent appellate
jurisdiction in an interlocutory appeal from a denial of qualified
immunity unless "the otherwise unappealable issue is []
'inextricably intertwined' with the issue on collateral order
appeal." 353 F.3d at 123 (quoting Swint, 514 U.S. at 48-51). We
concluded that the question whether a cause of action for damages
exists is "inextricably intertwined with the issue of Eleventh
Amendment immunity" and therefore could be addressed in an
interlocutory appeal. Id.
In so ruling, however, we noted the Third Circuit's
decision in Bell Atlantic-Pennsylvania, Inc. v. Pennsylvania Public
Utilities Commission, 273 F.3d 337, 343-45 (3d Cir. 2001), on the
"very different issue[]" of whether denial of a motion to dismiss
on res judicata grounds was immediately appealable under the
collateral order doctrine. The Third Circuit held that it was not,
and we observed that, "[l]ike the Third Circuit, we agree that not
every issue raised by the denial of a pre-trial motion to dismiss
may be reached on collateral order appeal; indeed most may not be."
353 F.3d at 124. We construe that observation as an endorsement of
-36-
the Third Circuit's refusal to address res judicata in an
interlocutory appeal. Moreover, we find a similar perspective in
the Supreme Court's decision in Digital Equipment Corp. v. Desktop
Direct, Inc., 511 U.S. 863 (1994). In that case, the Court listed
preclusion among a collection of claims that arguably relate to a
"right not to stand trial" and therefore could plausibly warrant
interlocutory appellate review. See id. at 873. The Court,
however, cautioned that such claims must be viewed "with
skepticism, if not a jaundiced eye," to avoid emasculating
Congress's final decision rule. Id. at 871-73. Consistent with
this precedent, we conclude that res judicata is not properly
addressed at this stage of the case. See, e.g., Timpanogos Tribe
v. Conway, 286 F.3d 1195, 1200 (10th Cir. 2002) (finding no basis
to review pendent res judicata claim with Eleventh Amendment
interlocutory claim); Garramone v. Romo, 94 F.3d 1446, 1452 (10th
Cir. 1996) (holding that district court's res judicata ruling could
not be reviewed in interlocutory appeal on immunity issues). See
generally 15A Charles Alan Wright, Arthur R. Miller & Edward H.
Cooper, Federal Practice and Procedure § 3911.4 at 424-26 (2d ed.
1992) ("[C]ollateral order appeal is not automatically available to
review . . . rejection of an argument that repetitious litigation
is barred by res judicata . . . .").
IV.
A. Summary of Claims
-37-
Before turning to an analysis of the Eleventh Amendment
immunity and qualified immunity claims, we pause to summarize the
varied claims for relief made by the JUA. We do so because we must
be clear about the precise nature of those claims in conducting the
immunity analyses. As noted above, the JUA seeks three kinds of
relief. First, the JUA seeks a declaratory judgment against Flores
Galarza in his official capacity, declaring that he violated the
JUA's constitutional rights by:
(1) withholding $173 million in insurance premiums for
an extended period so that the funds could be used to ease the
Commonwealth's cash flow problems, before transferring a large
portion of those premiums to the JUA pursuant to the 2002
Settlement; and
(2) permanently appropriating: (a) $14.2 million in
interest on lost or forgone investments as a result of Flores
Galarza's taking of the insurance premiums; (b) $10 million in
Overstated Reserve Funds that do not belong to third parties and
therefore should have been deducted from the $73 million retained
by Flores Galarza; and (c) $13.6 million in Out-of-Pocket Funds
that the JUA was forced to pay to third parties from its own funds
and therefore should have been deducted from the $73 million
retained by Flores Galarza.23
23
Flores Galarza helpfully summarizes the alleged permanent
appropriations as follows:
-38-
Second, the JUA seeks injunctive relief from Flores
Galarza in his official capacity, enjoining him from:
(1) withholding any more insurance premiums; and
(2) enforcing the terms of the 2002 Amendment, that
is, from requiring the JUA to transfer Reserve funds to the
Secretary every two years, and from retaining interest income
earned on the Reserve funds and any Overstated Reserve Funds (i.e.,
funds included in the Reserve that are not actually owed to third
parties).
Third, the JUA seeks approximately $38 million in damages
from Flores Galarza in his personal capacity, that is: (1) $14.2
million in lost interest as a result of Flores Galarza's taking of
the insurance premiums; (2) $10 million in Overstated Reserve
Funds; and (3) $13.6 million in Out-of-Pocket Funds. These items
of damage mirror the items identified in the permanent
appropriation portion of the demand for declaratory relief.
B. Standard of Review
The JUA claims that when the Reserve Account was
retained, the [Secretary] took its property without just
compensation because it withheld the [Overstated Reserve
Funds], and did not allow the [Out-of-Pocket Funds] to be
debited from the Reserve Account. The JUA also claims
that it is entitled to just compensation for the period
of time during which the [Secretary] withheld the
transfers of the premiums without transmitting these to
the JUA.
-39-
Where a district court's denial of Eleventh Amendment
immunity and qualified immunity turns upon purely legal questions,
our review is de novo. See Rodríguez-Marín v. Rivera-González, 438
F.3d 72, 84 (1st Cir. 2006) (reviewing de novo denial of qualified
immunity); Redondo Constr. Corp. v. P.R. Highway & Transp. Auth.,
357 F.3d 124, 126 (1st Cir. 2004) (reviewing de novo denial of
Eleventh Amendment immunity). "The standard for evaluating a Rule
12(c) motion for judgment on the pleadings is essentially the same
as that for deciding a Rule 12(b)(6) motion. '[T]he trial court
must accept all of the nonmovant's well-pleaded factual averments
as true, and draw all reasonable inferences in his favor.'" Pasdon
v. City of Peabody, 417 F.3d 225, 226 (1st Cir. 2005) (quoting
Rivera-Gomez v. de Castro, 843 F.2d 631, 635 (1st Cir. 1998)).
"Judgment on the pleadings under Rule 12(c) may not be entered
unless it appears beyond a doubt that the nonmoving party can prove
no set of facts in support of her claim which would entitle her to
relief." Feliciano v. Rhode Island, 160 F.3d 780, 788 (1st Cir.
1998).
C. Eleventh Amendment Immunity
Flores Galarza argues that the Eleventh Amendment bars
the JUA's suit against him in his official capacity.24 He
24
The Eleventh Amendment states that "[t]he Judicial power of the
United States shall not be construed to extend to any suit in law
or equity, commenced or prosecuted against one of the United States
by Citizens of another State, or by Citizens or Subjects of any
-40-
emphasizes that the JUA seeks damages of $10 million in Overstated
Reserve Funds, $13.6 million in Out-of-Pocket Funds, and $14.2
million in lost interest during the period in which the insurance
premiums were retained, all of which "[are] clearly retrospective
in nature." Flores Galarza misapprehends the JUA's argument.
While the complaint is not a model of clarity on this point,25 the
JUA explained in its argument to us and to the district court that
Foreign State." U.S. Const. amend. XI. "[N]otwithstanding its
plain language," the Eleventh Amendment "prohibit[s federal courts]
from hearing most suits brought against a state by citizens of that
or any other state." Metcalf & Eddy, Inc. v. P.R. Aqueduct & Sewer
Auth., 991 F.2d 935, 938 (1st Cir. 1993). "[D]espite the absence
of any express reference," the Eleventh Amendment "pertains to
Puerto Rico in the same manner, and to the same extent, as if
Puerto Rico were a State." De Leon Lopez v. Corporacion Insular de
Seguros, 931 F.2d 116, 121 (1st Cir. 1991).
25
The complaint states that the "JUA respectfully requests that
this Honorable Court order the Secretary of the Treasury to pay the
JUA the amount of $38,321,556.83 in order to return to JUA its
private property and to compensate JUA for the opportunity cost it
has suffered due to the Secretary of the Treasury's violations of
JUA's constitutional rights." However, the complaint does not
state whether the JUA's request is directed at Flores Galarza in
his official capacity, his personal capacity, or both. The JUA's
request that Flores Galarza "return [] its private property," on
the one hand, and "compensate" the JUA, on the other, contributes
to this confusion, suggesting that the JUA seeks the return of
certain funds in the Commonwealth Treasury from Flores Galarza in
his official capacity, and seeks damages from Flores Galarza in his
personal capacity. As the JUA indicated in its brief to the
district court, and as it made clear at oral argument before us,
the JUA seeks damages for the taking of the funds at issue from
Flores Galarza in his personal capacity – the JUA is "not asking to
have any money returned to it" by the Commonwealth. Given the
complaint's lack of precision, we understand Flores Galarza's
misapprehension of the nature of the JUA's claims.
-41-
it is not seeking damages from Flores Galarza in his official
capacity.
The JUA states that, while it "seeks damages against Mr.
Flores-Galarza in his personal capacity," it seeks only prospective
injunctive relief from Flores Galarza in his official capacity –
"enjoin[ing him] from continuing to engage in the unconstitutional
conduct." (Emphasis added.) At oral argument before us, the JUA
stated that it merely seeks to compel the transfer of compulsory
liability insurance premiums in the future – a remedy that it
argues "is clearly a prospective one." The JUA further argues that
"[t]he fact that funds would have to be transferred [in the future]
as a result of the injunction requested does not create an Eleventh
Amendment bar to the issuance of the injunction" because these
funds do not constitute damages, but rather "belong to the JUA and
are held by [the Secretary] in a fiduciary capacity."
In many instances, a suit against a state official is a
suit against the state, thereby triggering Eleventh Amendment
immunity. See Muirhead v. Mecham, 427 F.3d 14, 18 (1st Cir. 2005)
("[A] suit, although nominally aimed at an official, will be
considered one against the sovereign 'if the judgment sought would
expend itself on the public treasury or domain, or interfere with
the public administration, or if the effect of the judgment would
be to restrain the Government from acting, or to compel it to
-42-
act.'" (quoting Dugan v. Rank, 372 U.S. 609, 620 (1963)). While
the Eleventh Amendment prohibits a party from bringing suit against
a state in federal court, see De Leon Lopez, 931 F.2d at 121, it
does not prohibit a party from bringing suit against a state
officer in federal court for prospective declaratory or injunctive
relief under federal law.26 Ex parte Young, 209 U.S. 123, 155
(1908). See generally Erwin Chemerinsky, Federal Jurisdiction
§ 7.5, at 424 (4th ed. 2003) (distinguishing prospective injunctive
relief against a state officer, which the Eleventh Amendment does
not forbid, from "retroactive relief – damages to compensate past
injuries," which the Eleventh Amendment does forbid).
In Ex parte Young, the Supreme Court created an exception
to Eleventh Amendment immunity "for suits challenging the
constitutionality of a state official's action, on the theory that
since the state cannot authorize such an unconstitutional action,
the officer is 'stripped of his official or representative
character and . . . subjected in his person to the consequences of
his individual conduct.'" Parents for Quality Educ. With
Integration, Inc. v. Indiana, 977 F.2d 1207, 1209 (7th Cir. 1992)
26
As we noted in Díaz-Fonseca v. Puerto Rico, 451 F.3d 13 (1st Cir.
2006), "[Ex parte Young] does not allow injunctive relief against
state officials for violation of state law . . . because '[a]
federal court's grant of relief against state officials on the
basis of state law, whether prospective or retroactive, does not
vindicate the supreme authority of federal law.'" Id. at 43
(quoting Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89,
106 (1984)).
-43-
(quoting Pennhurst, 465 U.S. at 102). Ex parte Young thus "allows
a way around the bar to federal jurisdiction . . . in cases where
prospective declaratory or injunctive relief is sought under
federal law." Mills v. Maine, 118 F.3d 37, 54 (1st Cir. 1997).
Here, the JUA seeks a declaration that the taking of insurance
premiums by Flores Galarza in his official capacity violates the
Constitution and an injunction enjoining Flores Galarza from
enforcing the terms of the 2002 Amendment – that is, from requiring
the JUA to transfer Reserve funds every two years and from
retaining either the interest earned on those funds or any excess
Reserve funds not owed to traditionally insured vehicle owners or
their insurers. We agree with the district court that these
requests are for prospective declaratory and injunctive relief that
is not barred by the Eleventh Amendment.27 Therefore, the district
court's denial of Eleventh Amendment immunity to Flores Galarza in
his official capacity was correct.
D. Official- Versus Personal-Capacity Suits
27
In addition to finding that "[the JUA's] request for injunctive
and declaratory relief is prospective," the district court found
that "the retention of money allegedly unconstitutionally attached
is equitable and subject to injunctive relief exempt from the
Eleventh Amendment bar." To the extent that this latter statement
may be understood as affording the JUA the right to sue Flores
Galarza in his official capacity for damages, we reject this
proposition. As discussed above, the JUA does not make this
argument and, therefore, neither we nor the district court need
reach it. Because we otherwise arrive at the same result as the
district court on Eleventh Amendment immunity, any potential error
on the part of the district court in its analysis was harmless.
-44-
The JUA argues that Flores Galarza, in his personal
capacity, temporarily withheld approximately $173 million in
compulsory liability insurance premiums for an "unreasonable
period[] of time," and, in so doing, appropriated $14.2 million in
interest generated by those premiums. The JUA also argues that
Flores Galarza personally appropriated $10 million in Overstated
Reserve Funds and $13.6 million in Out-of-Pocket Funds.
However, the JUA does not seek to hold Flores Galarza
personally liable for the full $173 million in withheld insurance
premiums, most of which was subsequently paid to the JUA pursuant
to the 2002 Settlement, nor does the JUA seek to hold Flores
Galarza personally liable for the full $73 million in Reserve funds
retained by Flores Galarza after the 2002 Settlement. Instead, the
JUA seeks to hold Flores Galarza personally liable for interest
lost on the $173 million plus two portions of the $73 million
Reserve – i.e., the Overstated Reserve Funds and Out-of-Pocket
Reserve Funds. The total amount sought by the JUA is approximately
$38 million, that is, roughly $14.2 million in lost interest, $10
million in Overstated Reserve Funds, and $13.6 million in Out-of-
Pocket Funds. Flores Galarza contends that he is not liable in his
personal capacity based on qualified immunity.
Before analyzing whether Flores Galarza is entitled to
qualified immunity, we pause to note the unusual nature of this
personal-capacity suit. We are troubled by the notion that the
-45-
personal-capacity claim against Flores Galarza, by which the JUA
seeks enormous personal damages from him, is really a subterfuge
for an official-capacity suit that seeks payment from the
Commonwealth Treasury. Certainly the line between personal assets
and the Commonwealth fisc seems indistinct. The JUA has sued the
Secretary of the Treasury; the JUA claims that the Secretary
temporarily withheld and permanently appropriated the JUA's funds
for the benefit of the Commonwealth; and some of the damages sought
by the JUA correspond to funds accumulated in the general fund
pursuant to the 2002 Amendment. "'[W]hen the action is in essence
one for the recovery of money from the state, the state is the
real, substantial party in interest and is entitled to invoke its
sovereign immunity from suit. . . .'" Metcalf, 991 F.2d at 939
(quoting Ford Motor Co. v. Dep't of Treasury, 323 U.S. 459, 464
(1945), overruled on other grounds by Lapides v. Bd. of Regents of
Univ. Syst. of Ga., 535 U.S. 613 (2002)). There is a plausible
view of this case that the demand for damages from Flores Galarza
is, in essence, a demand for the recovery of money from the
Commonwealth.
In considering that possibility, we have looked closely
at Hafer v. Melo, 502 U.S. 21 (1991), a case in which the Supreme
Court tried to clarify the distinction between official- and
personal-capacity suits. There, the plaintiffs sued the auditor
general of Pennsylvania, Hafer, after she fired them from their
-46-
jobs, alleging that they were fired for personal reasons in
violation of the First Amendment; they sought monetary damages from
Hafer personally. The claims against Hafer had nothing to do with
her handling of funds in the state treasury, nor did the damages
sought bear any relationship to funds accumulated in the state
treasury. Id. at 23.
However, the principles set forth in Hafer make the
factual distinctions between this case and Hafer seemingly
irrelevant. There, the Court said that "the phrase 'acting in
their official capacities' is best understood as a reference to the
capacity in which the state officer is sued, not the capacity in
which the officer inflicts the alleged injury." Id. at 26. Even
earlier, the Supreme Court had suggested that in determining
whether a suit involves a personal- or official-capacity claim, we
should be guided by the complaint or, if not clearly specified in
the complaint, by the "[t]he course of proceedings." Kentucky v.
Graham, 473 U.S. 159, 167 n.14 (1985).
Here, the complaint, in combination with the course of
proceedings, see supra note 25, establishes that Flores Galarza is
being sued for damages in his personal capacity. If the JUA wishes
to seek a personal judgment against Flores Galarza in a ruinous and
probably uncollectible amount for actions that he took as the
-47-
Commonwealth Treasurer to serve the interests of the Commonwealth,
they are entitled to do that. See generally Chemerinsky, supra,
§ 7.5.2, at 430 ("[T]he fact that a government officer is acting in
the scope of official duties is not enough to bar a suit as being
in 'official capacity'."). If such a judgment might induce the
Commonwealth to indemnify Flores Galarza from the Commonwealth
Treasury to spare him from ruin, that likelihood is irrelevant to
the personal-capacity determination. See Berman Enters., Inc. v.
Jorling, 3 F.3d 602, 606 (2d Cir. 1993) ("Whether or not a state
would choose to reimburse an official for damages for
constitutional harm he caused in his individual capacity is a
matter of no concern to a federal court."). See generally
Chemerinsky, supra, § 7.5.2, at 423 ("State indemnification
policies are irrelevant for Eleventh Amendment analysis and do not
prevent federal court relief against individual officers.").28 In
short, in a suit "against an officer for money damages when the
relief would come from the officer's own pocket, there is no
Eleventh Amendment bar even though the conduct was part of the
28
As we noted in Díaz-Fonseca, the Commonwealth "generally
indemnifies its officials for suits against them in their personal
capacities." 451 F.3d at 37 n.26 (citing P.R. Laws Ann. tit. 32,
§ 3085 ("Every official . . . of the Commonwealth of Puerto Rico
who is sued for damages in his personal capacity, when the cause of
action is based on alleged violations of the plaintiff's civil
rights, due to acts or omissions committed in good faith, in the
course of his employment and within the scope of his functions, may
request the Commonwealth of Puerto Rico to provide him with legal
representation, and to subsequently assume the payment of any
judgment that may be entered against his person.")).
-48-
officer's official duties. In such a suit, the officer could claim
absolute or qualified immunity as a defense." Id. at 429. We
turn, therefore, to Flores Galarza's qualified immunity defense.
V.
Our starting point is the principle that "government
officials performing discretionary functions generally are shielded
from liability for civil damages insofar as their conduct does not
violate clearly established statutory or constitutional rights of
which a reasonable person would have known." Harlow v. Fitzgerald,
457 U.S. 800, 818 (1982). We have used a three-prong analysis for
evaluating qualified immunity claims. Thus, we must determine:
(1) whether the claimant has alleged the
deprivation of an actual constitutional right; (2)
whether the right was clearly established at the
time of the alleged action or inaction; and (3) if
both of these questions are answered in the
affirmative, whether an objectively reasonable
official would have believed that the action taken
violated that clearly established constitutional
right.
Wilson v. City of Boston, 421 F.3d 45, 52 (1st Cir. 2005).
A. First Prong: Alleged Deprivation of Constitutional Right
Here we ask whether the facts, "[t]aken in the light most
favorable to the party asserting the injury . . . show the
officer's conduct violated a constitutional right[.]" Saucier v.
Katz, 533 U.S. 194, 201 (2001). As we have noted, "[t]he first
prong inquiry at this 12(b)(6) stage is unlikely to be very
specific, given that federal civil practice is based on notice
-49-
pleading, where great specificity is not required, and that there
is no heightened pleading requirement for civil rights cases."
Riverdale Mills Corp. v. Pimpare, 392 F.3d 55, 61 (1st Cir. 2004)
(citations omitted). The JUA argues that Flores Galarza took its
private property without compensation in violation of the Fifth and
Fourteenth Amendments, by physically appropriating the insurance
premiums, the interest lost as a result of the withholding of those
premiums, the Overstated Reserve Funds, and the Out-of-Pocket
Funds. This alleged violation of its constitutionally protected
property rights, the JUA argues, is thus sufficient to satisfy the
first prong of the qualified immunity analysis. Flores Galarza
argues that the JUA fails to allege a taking of its property in
satisfaction of the first prong of the qualified immunity analysis
for two reasons: first, the JUA is a state-created entity, which,
like the state itself, lacks the capacity to allege a taking under
§ 1983; and second, the complaint does not allege the elements of
a successful takings claim.
1. Capacity to Allege Constitutional Deprivation
Flores Galarza's argument that the JUA, as a state-
created entity, "simply does not enjoy constitutional rights" and
thus is "wholly incapable" of setting forth a violation of
constitutionally protected property rights, is his standing
challenge recast in qualified immunity terms. We have already
-50-
rejected this standing argument. The JUA has the capacity to
allege an unconstitutional taking of its property.
2. Elements of a Takings Violation
The Takings Clause of the Fifth Amendment provides that
"private property [shall not] be taken for public use, without just
compensation." U.S. Const. amend. V. Takings claims involve a
two-step inquiry. "To make a cognizable claim of a taking in
violation of the Fifth Amendment, the plaintiffs must first show
that they possess a recognized property interest which may be
protected by the Fifth Amendment. The plaintiffs must point to
credible sources for their claimed property interest . . . 'such as
state law-rules or understandings that secure certain benefits and
that support claims of entitlement to those benefits.'" Wash.
Legal Found. v. Mass. Bar Found., 993 F.2d 962, 973 (1st Cir. 1993)
(quoting Bd. of Regents v. Roth, 408 U.S. 564, 577 (1972)); see
also Parella v. Ret. Bd. of R.I. Employees' Ret. Sys., 173 F.3d 46,
58 (1st Cir. 1999) ("[P]laintiffs must first establish an
independent property right before they can argue that the state has
taken that right without just compensation.").
Assuming that the plaintiff can establish a
constitutionally protected property interest, the plaintiff must
next show that the challenged action "cause[d] an illegal taking of
th[at] interest[]." Wash. Legal Found., 993 F.2d at 974. The
Supreme Court has recognized two types of takings: physical
-51-
takings and regulatory takings. See Brown v. Legal Found. of
Wash., 538 U.S. 216, 233 (2003). As already noted, the JUA asserts
a physical taking, and we therefore confine our analysis to that
strand of takings law.29
"A physical taking occurs either when there is a
condemnation or a physical appropriation of property." Philip
Morris, Inc. v. Reilly, 312 F.3d 24, 33 (1st Cir. 2002) (en banc).
Physical takings challenges "involve[] the straightforward
application of per se rules," which means that "[w]hen the
government physically takes possession of an interest in property
for some public purpose, it has a categorical duty to compensate
the former owner." Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l
Planning Agency, 535 U.S. 302, 322 (2002); see also Lingle v.
Chevron U.S.A. Inc., 544 U.S. 528, 537 (2005) ("The paradigmatic
taking requiring just compensation is a direct government
appropriation or physical invasion of private property.").
"Temporary [physical] takings . . . are not different in kind from
permanent takings, for which the Constitution clearly requires
compensation." First English Evangelical Lutheran Church v. County
of L.A., 482 U.S. 304, 318 (1987) (quotation marks omitted).
29
Regulatory takings challenges involve a multiple-factor test that
was set forth in Penn Central Transportation Co. v. City of New
York, 438 U.S. 104 (1978). We note that Flores Galarza's brief
incorrectly invokes regulatory takings principles in response to
the JUA's physical takings argument.
-52-
For purposes of satisfying the first prong of the
qualified immunity analysis, the JUA need not prove the taking of
a constitutionally protected property interest; it need only allege
such a taking. See Saucier, 533 U.S. at 201 (stating that the
first prong of the qualified immunity analysis is satisfied where
a constitutional right "would have been violated were the
allegations established"); Mihos v. Swift, 358 F.3d 91, 98 (1st
Cir. 2004) ("For a plaintiff to overcome a qualified immunity
defense, he must show that his allegations, if true, establish a
constitutional violation . . . ."). In accordance with our two-
step approach to takings claims, the JUA must first allege a
constitutionally protected property right to the funds in dispute.
The JUA argues that, pursuant to Law 253 and the 2002 Amendment,
"[t]he premiums collected and withheld by [Flores Galarza]," the
"interest derived from the withheld premiums," and the Overstated
Reserve Funds and Out-of-Pocket Funds – "are the private property
of the [JUA]." Second, the JUA must allege a taking of that
property. The JUA argues that Flores Galarza's appropriation of
the funds in dispute is equivalent to a "permanent physical
occupation and a per se taking for which just compensation must be
paid."
Flores Galarza, on the other hand, argues that the JUA's
takings claim fails both prongs of the takings analysis. According
to Flores Galarza, "the JUA cannot establish that it has a
-53-
recognizable property interest" in any of the funds in dispute or
that Flores Galarza's appropriation of these funds constitutes a
taking.
Taking all facts in the light most favorable to the party
asserting the injury, as we must at this threshold stage of the
qualified immunity analysis, Saucier, 533 U.S. at 201, we find that
the JUA alleges the taking of a constitutionally protected property
interest in most, but not all, of the funds in dispute under Law
253 and the 2002 Amendment.
3. The Insurance Premiums
a. The Earned Premiums
The JUA argues that "the premiums collected and withheld
by the [Secretary] are the private property of the [JUA]" under the
plain language of Law 253. According to the JUA, although the
premiums pass through Flores Galarza's hands before reaching the
JUA, the premiums are never funds of the Commonwealth. To the
contrary, the JUA argues, given that the JUA's responsibility for
the compulsory insurance comes into effect at the time the premiums
are paid to the Secretary of the Treasury, "the premium has to
belong to the [JUA] at that time." Flores Galarza, the JUA argues,
is thus merely a fiduciary who holds the premiums for the benefit
of the JUA, as demonstrated by the 2002 Amendment's reference to
the Secretary of the Treasury's "collection service performed in
favor of the [JUA]." P.R. Laws Ann. tit. 26, § 8055(c). Flores
-54-
Galarza, on the other hand, contends that Law 253 "does not entitle
JUA to ownership of the collected premiums until they are
transferred to it by [Flores Galarza]." Therefore, Flores Galarza
argues, because Law 253 does not state "when" the Secretary must
transfer the insurance premiums to the JUA, his retention of the
$173 million in premiums was not a withholding of private property
– it was merely a "temporary retention or delay" in the transfer of
funds which did not yet belong to the JUA.
In our view, Law 253 supports the JUA's claim of a
property right to that portion of the insurance premiums not owed
to privately insured motorists or their insurers ("Earned
Premiums"30). Law 253 created the JUA for "[t]he main purpose of
. . . provid[ing] the compulsory liability insurance to the
applicants for said insurance that have been rejected by private
insurers." Id. § 8055(b). As an insurer, the JUA is entitled to
the Earned Premiums. Law 253 gives the JUA the power to hold
property, and provides that the JUA "shall receive" premiums from
the Secretary and that the Secretary "shall transfer" these
premiums to the JUA. While the Secretary collects the insurance
premiums and holds them for some unspecified amount of time before
30
By "Earned Premiums," we mean the compulsory liability insurance
premiums paid by vehicle owners who are obtaining the required
coverage through the JUA rather than from a private insurer. We do
not use this term in its strict definitional sense, that is, "[t]he
portion of an insurance premium applicable to the coverage period
that has already expired." Black's Law Dictionary (8th ed. 2004).
-55-
relinquishing them to the JUA, the Secretary is not an insurer – he
is merely the custodian of these funds. As a custodian, the
Secretary has no entitlement to the premiums, and his woefully
undeveloped argument that the premiums do not vest in the JUA until
the Secretary transfers them does not convince us otherwise. Cf.
Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 162
(1980) ("[T]he State's having mandated the accrual of interest does
not mean the State or its designate is entitled to assume ownership
of the interest."). The JUA has successfully alleged an
entitlement to the Earned Premiums under Law 253, and therefore a
property interest in those funds. See id. at 161 (recognizing
interest earned on private funds as property entitled to protection
under Fifth Amendment); see also Brown, 538 U.S. at 235; Phillips
v. Wash. Legal Found., 524 U.S. 156, 170-72 (1998).
We thus proceed to the second step of the takings
analysis (i.e., whether the property was taken). The JUA argues
that Flores Galarza's withholding of the Earned Premiums
constituted a "permanent physical occupation and a per se taking
for which just compensation must be paid." Specifically, the JUA
contends that Flores Galarza physically took, albeit temporarily,
$173 million of its insurance premiums, before transferring a large
portion of those premiums to the JUA pursuant to the 2002
Settlement. The JUA's assertion of a property right in the Earned
Premiums, together with its allegation of a physical appropriation
-56-
of those funds, is sufficient to allege the taking of a
constitutionally protected property interest in those premiums
under the first prong of the qualified immunity analysis. See
Webb's, 449 U.S. at 164-65 (holding that taking of interest earned
on private funds was a taking).
b. Reserve Fund: the Duplicate Premiums
While the JUA's alleged property right to the Earned
Premiums is supported by Law 253, the same cannot be said for the
JUA's alleged property right to the duplicate premiums paid by
those already covered by privately obtained insurance policies
("Duplicate Premiums"). These premiums, Flores Galarza argues,
"constitute a double payment for the same insurance," and,
therefore, do not belong to the JUA, but rather belong to privately
insured motorists or their insurers who are entitled to
reimbursement. We agree.
Based on the law in effect at the time the premiums were
withheld, the JUA was obliged to return the Duplicate Premiums to
those requesting reimbursement. If no claim was made to these
premiums after seven years, that money would lapse to the general
fund of the Commonwealth Treasury. See P.R. Laws Ann. tit. 26, §§
2603, 2606-2607. Thus, even if no one claimed the Duplicate
Premiums within the requisite seven years, these funds became the
property of the Commonwealth – not the JUA. Just as the Secretary
is a custodian of the Earned Premiums for the benefit of the JUA,
-57-
the JUA is a custodian of the Duplicate Premiums for the benefit of
either those entitled to reimbursement or, if the premiums go
unclaimed, the Commonwealth.
The 2002 Amendment, which requires the JUA to transfer
the Duplicate Premiums to the Secretary after just two years,
explicitly recognizes the JUA's lack of a property right to the
Duplicate Premiums. The "Statement of Motives" section of the 2002
Amendment states that
during the existence of the Association,
certain funds have been accumulated that do
not belong to it . . . [which] results from
the fact that a great number of [privately
insured] consumers . . . pay the corresponding
[compulsory liability insurance] premium . . .
when they obtain the motor vehicle license for
the first time or when they renew it, but they
do not request the Association to reimburse
the money as is their right.
(Emphasis added.)
Although claiming a right to all of the insurance
premiums, the JUA concedes that a portion of the premiums collected
by the Secretary (i.e., the Duplicate Premiums placed in the
Reserve) "may belong to third parties: either motor vehicle owners
with private insurance or private insurers who reimbursed their
insureds." The JUA consequently admits that a large portion of
the $73 million Reserve is the property of others. Given the lack
of support for the JUA's claimed property right to the Duplicate
Premiums, the JUA fails to allege a taking of this portion of the
premiums under the first prong of the qualified immunity analysis.
-58-
c. Reserve Fund: the Overstated Funds
Our determination that the JUA has not alleged a property
interest in the Duplicate Premiums does not extend to the remainder
of the Reserve Fund – the "Overstated Reserve Funds" – which
consists of the cushion set aside by the JUA to ensure that the
Reserve was large enough to meet all of the requests for
reimbursement by insurers who purchased private insurance. As
noted earlier, the $73 million Reserve held back by the
Commonwealth allegedly contained approximately $10 million in
excess funds – money that, as it turned out, was not needed for
reimbursement because fewer individuals than estimated had
purchased their own policies, which meant, in turn, that less of
the Reserve than anticipated constituted Duplicate Premiums.
According to the JUA, "since the [Overstated Reserve
Funds] came from the [JUA] and do not, in fact, belong to others,
they should have been accounted for as income for the [JUA]."
Flores Galarza contends that since these funds are merely portions
of the Reserve, which, in turn, "is merely an accounting tool" for
allocating the Duplicate Premiums, "the JUA has no proprietary
interest[] in the[se] moneys."
The "Statement of Motives" section of the 2002 Amendment,
which was in place prior to Flores Galarza's appropriation of the
Overstated Reserve Funds in November 2002, explicitly provides that
the $73 million Reserve consists of funds "that do not belong to it
-59-
[the JUA]" as the result of the double payment of insurance
premiums by some drivers. The 2002 Amendment therefore requires
the JUA to immediately transfer to the Secretary "the funds known
in its annual statement as 'Funds Retained by the Insurer Belonging
to Others'" – that is, the $73 million Reserve – and to continue
doing so every two years. There is, however, no carve-out for the
"cushion" portion of the Reserve that consists of Overstated Funds.
In fact, the 2002 Amendment provides that the Reserve funds
transferred to the Secretary necessarily include any "reserve
excess," and that this reserve excess "may be used as resources in
the General Fund." P.R. Laws Ann. tit. 26, § 8055(l).
The JUA argues, in essence, that to the extent the
Amendment directs the transfer of the Overstated Reserve Funds to
the Commonwealth, the provision effects a taking of the JUA's
property. Under Law 253, the JUA is obliged to insure drivers who
might otherwise be uninsurable; the premiums for that insurance are
initially collected by the Secretary. The JUA argues that all of
those collected funds, other than the Duplicate Premiums,
constitute the "Earned Premiums" and thus belong to it. Indeed,
the Insurance Commissioner's adjustment of the Reserve percentage
in 2001 to more accurately reflect the percentage of traditionally
insured vehicle owners indicates the Commonwealth's recognition
that the JUA is entitled to any funds above the amount representing
Duplicate Premiums. Notably, the Amendment identifies the funds to
-60-
be transferred to the Commonwealth every two years as funds
"Belonging to Others." Presumably, any such funds that do not
belong to others belong to the JUA. We therefore conclude that the
JUA has alleged the taking of a constitutionally protected property
interest in the Overstated Reserve Funds.
4. The Out-of-Pocket Funds
When Flores Galarza stopped transferring insurance
premiums to the JUA in 2000 in order to meet the cash-flow needs of
the Commonwealth, the JUA had to reimburse privately insured
drivers and their insurers out of its own pocket. While the JUA
presumably recouped some of its costs pursuant to the 2002
Settlement, the JUA alleges that there was still $13.6 million
outstanding – an amount which the JUA argues should have been set
off against the $73 million retained by Flores Galarza. The JUA
alleges that the $13.6 million in Out-of-Pocket Funds "used to
reimburse insurance premiums from January to September 2002 [is]
the private property of the [JUA]."
The parties do not dispute that the Out-of-Pocket funds
used by the JUA to reimburse third parties belonged to the JUA.
Accordingly, the JUA alleges a property right in the Out-of-Pocket
Funds. Turning to the second step of the takings analysis, the JUA
alleges that Flores Galarza physically appropriated $13.6 million
in Out-of-Pocket Funds from the JUA by retaining the full $73
million in Reserve funds. At this stage of the qualified immunity
-61-
analysis, the JUA's assertion of a property right to the Out-of-
Pocket Funds, together with its allegation of a physical invasion
of those funds, is sufficient to allege the taking of a
constitutionally protected property interest in those funds.
5. The Interest
Our determination that the JUA alleges a property right
to the Earned Premiums, the Overstated Reserve Funds and the Out-
of-Pocket Funds compels a similar conclusion with respect to the
interest lost as a result of the withholding of those monies. In
Phillips, the Supreme Court held that interest income generated by
client funds in IOLTA accounts was the private property of the
client under the common law rule that "interest follows principal."
524 U.S. at 165-72; see also Webb's, 449 U.S. at 162 ("The usual
and general rule is that any interest . . . follows the principal
and is to be allocated to those who are ultimately to be the owners
of that principal."). The fact that the Secretary is authorized to
hold the Earned Premiums for some time before turning them over to
the JUA is of no consequence. See Webb's, 449 U.S. at 162 ("That
lack of immediate right . . . does not automatically bar a claimant
ultimately determined to be entitled to all or a share of the fund
from claiming a proper share of the interest, the fruit of the
fund's use, that is realized in the interim."). By alleging a
property right in the Earned Premiums, the Overstated Reserve Funds
-62-
and the Out-of-Pocket Funds, the JUA also has alleged a property
right in the resulting lost interest.31
Turning to the second step of the takings analysis with
respect to interest, the JUA alleges that by temporarily
withholding the Earned Premiums, Flores Galarza physically took
$14.2 million in interest generated by them. See Parella, 173 F.3d
at 59 n.10 (stating that in order to demonstrate a taking of
interest, "plaintiffs have the burden of proving that they had a
constitutional right both to the principal (i.e., withheld
benefits) and to the interest on that principal"). The JUA's
assertion of a property right in the interest generated by the
Earned Premiums, together with its allegation of a physical taking
of that interest, is sufficient to allege the unconstitutional
taking of that interest under the first prong of the qualified
immunity analysis. See Brown, 538 U.S. at 235; Webb's, 449 U.S. at
164-65.32
31
It follows, of course, that the JUA does not possess a property
right to the interest lost as a result of the withholding of the
Duplicate Premiums, which we have held do not belong to the JUA.
See Parella v. Ret. Bd. of R.I. Employees' Ret. Sys., 173 F.3d 46,
62 (1st Cir. 1999) (holding that defendant's refusal to pay
interest on withheld benefits was not a taking because plaintiffs
did not demonstrate property right to benefits).
32
The allegation that Flores Galarza took the interest on the full
amount of the $173 million in Earned Premiums that was withheld
covers at least a portion of the interest generated by the
Overstated Reserve Funds and the Out-of-Pocket Funds, which were
part of that $173 million total. It appears that the $14.2 million
in claimed interest also includes the interest on the Overstated
Reserve and Out-of-Pocket Funds that were retained after the
-63-
6. Summary of Analysis of the First Prong of the
Qualified Immunity Doctrine
The JUA has successfully alleged that Flores Galarza
committed a constitutional violation by taking its Earned Premiums,
Overstated Reserve Funds, Out-of-Pocket Funds, and the interest
generated thereon. The JUA has failed to allege a taking of the
Duplicate Premiums or the interest generated thereon. Therefore,
as we turn to the second prong of the qualified immunity analysis
(i.e., whether the impermissibility of the taking was clearly
established at the time of the violation), we exclude from our
analysis the Duplicate Premiums and the related interest.
B. Second Prong: Constitutional Right was "Clearly Established" at
Time of Violation
"The second question [of the qualified immunity analysis]
deals with fair warning; it asks whether the law was clearly
established at the time of the constitutional violation." Savard
v. Rhode Island, 338 F.3d 23, 27 (1st Cir. 2003) (en banc). This
requirement ensures that "officers are on notice that their conduct
is unlawful" before subjecting them to suit. Saucier, 533 U.S. at
206. One way of determining whether a constitutional right was
clearly established at the time of the alleged violation "is to ask
whether existing case law gave the defendants fair warning that
their conduct violated the plaintiff's constitutional rights."
Settlement. Such interest also is embraced within our conclusion
that the JUA adequately alleged an unconstitutional taking of the
interest.
-64-
Suboh v. Dist. Attorney's Office of Suffolk, 298 F.3d 81, 93 (1st
Cir. 2002). In conducting this inquiry, "[t]he court must canvass
controlling authority in its own jurisdiction and, if none exists,
attempt to fathom whether there is a consensus of persuasive
authority elsewhere." Savard, 338 F.3d at 28.
Significantly, "[t]his inquiry 'must be undertaken in
light of the specific context of the case, not as a broad general
proposition.'" Wilson, 421 F.3d at 56 (quoting Saucier, 533 U.S.
at 201). As we have noted, "[c]ourts must be careful not to permit
an artful pleader to convert the doctrine of qualified immunity
into a hollow safeguard simply by alleging a violation of an
exceedingly nebulous right."33 Limone v. Condon, 372 F.3d 39, 46
(1st Cir. 2004).
On the other hand, "[t]his exploration is not limited to
cases directly on point . . . . '[O]fficials can still be on
notice that their conduct violates established law even in novel
factual circumstances' . . . ." Savard, 338 F.3d at 28 (quoting
Hope v. Pelzer, 536 U.S. 730, 741 (2002)). In striking this
balance, we have noted that
the relevant legal rights and obligations must be
particularized enough that a reasonable official can be
expected to extrapolate from them and conclude that a
certain course of conduct will violate the law.
33
We note that, given the required specificity, "the bases for
the[] determinations [under the second and third prongs of the
qualified immunity analysis] often overlap." Savard, 338 F.3d at
27.
-65-
Consequently, if the operative legal principles are
clearly established only at a level of generality so high
that officials cannot fairly anticipate the legal
consequences of specific actions, then the requisite
notice is lacking. The bottom line is that the qualified
immunity defense prevails unless the unlawfulness of the
challenged conduct is "apparent."
Savard, 338 F.3d at 28 (citation omitted) (quoting Anderson v.
Creighton, 483 U.S. 635, 640 (1987)).
The JUA argues that "[t]he contours of the Takings Clause
. . . are very straightforward in the case where the government
takes property from an individual for public use," as alleged here.
Relying upon cases which hold that uncompensated physical
appropriations of private property – including interest – are
unconstitutional under the Fifth Amendment, the JUA contends that
its "right to be justly compensated for the taking of its property"
was "clearly established" at the time of the challenged conduct.
Not surprisingly, Flores Galarza disagrees. While "it
[i]s clearly established that the taking of a property interest
without just compensation [i]s unconstitutional," he argues that
this proposition is too broad to satisfy the second prong of the
qualified immunity analysis. "The property rights claimed by the
JUA," Flores Galarza contends, "cannot be easily read into the law
enabling the JUA and the Compulsory Liability Insurance," and,
therefore, are not clearly established. We now test that
proposition.
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1. The Earned Premiums and Interest34
We already have concluded that the JUA, under Law 253,
alleges a property interest in the Earned Premiums and the interest
generated by those premiums. Because Law 253 was on the books at
the time Flores Galarza withheld the Earned Premiums and interest,
we conclude that the JUA's alleged property interest in those funds
was clearly established. Flores Galarza essentially acknowledged
as much (at least with respect to the Earned Premiums) by returning
the Earned Premiums to the JUA pursuant to the 2002 Settlement.
The law was not so clear, however, that Flores Galarza's
alleged withholding of the Earned Premiums and interest was a
taking. Law 253 does not establish when the Secretary must
transfer the premiums to the JUA. As noted by Flores Galarza,
[t]he compulsory insurance law is completely
devoid of a timetable that controls the
transfer of the premiums collected by the
Secretary of the Treasury to the JUA. The
statute simply states that the transfers must
be made. However, when these transfers must
be made is an entirely different question.
The JUA has never pointed to any substantive
34
The JUA does not explicitly allege a separate property right in
the interest on the Overstated Reserve and Out-of-Pocket Funds,
presumably because such an allegation is largely subsumed within
its interest allegation concerning the Earned Premiums. See supra
note 32. We therefore address interest in this section and the
next only in the context of the Earned Premiums. To the extent
interest on the Overstated Reserve and Out-of-Pocket Funds is not
covered by that discussion – i.e., for interest accruing on those
funds after the Settlement amount was transferred to the JUA – our
discussion of the principal amounts suffices to dispose of the
interest.
-67-
source that establishes its entitlement to a
prompt transfer of the premiums.
(Citation omitted.) Under the second prong of the qualified
immunity analysis, it is not enough for the JUA to argue that
Flores Galarza physically took the Earned Premiums to which the JUA
was entitled under Law 253. Here, the JUA must demonstrate that
Law 253 entitled the JUA to the Earned Premiums within a specified
amount of time, such that the unlawfulness of Flores Galarza's
temporary withholding of the premiums was "apparent." This it
cannot do. Indeed, even if we imported into Law 253 a requirement
that the Secretary transfer the premiums to the JUA within a
reasonable period of time, that reasonableness requirement would be
too indefinite to allow us to conclude that the alleged taking was
clearly established. The unlawfulness of Flores Galarza's
temporary withholding of the Earned Premiums, therefore, was not
"apparent" under the statute. The right to interest inescapably is
tied to the JUA's entitlement to the premiums and therefore also
was not clearly established.
2. The Overstated Reserve Funds
The lack of clarity is even more apparent with respect to
the Overstated Reserve Funds, which was the portion of the Reserve
in excess of the amount necessary to reimburse insureds or insurers
who already had paid for coverage. Certainly after enactment of
the 2002 Amendment to the compulsory insurance law, which
specifically required the JUA to transfer to the Secretary all
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funds held in the Reserve as of December 31, 2001, the law did not
clearly establish that the JUA had a property right in the $10
million of Overstated Reserve Funds or, indeed, that withholding
any of the designated Reserve of $73 million was an
unconstitutional taking. Whether, and how much, of that $10
million is in fact "excess" remains a matter of debate.
Although the Secretary began withholding the Overstated
Reserve Funds in 2000, along with the Earned and Duplicate
Premiums, the alleged $10 million excess was undifferentiated from
the balance of the Earned Premiums. As noted earlier, the JUA
essentially claims that the $10 million should be considered Earned
Premiums in which it holds a property right, and as such that money
is encompassed within our prior discussion. Therefore, the law was
not clearly established either before or after the 2002 Amendment
that the Secretary's retention of the Overstated Reserve Funds was
an unconstitutional taking.
3. The Out-of-Pocket Funds
The JUA argues that it has a clearly established right to
the $13.6 million in Out-of-Pocket Funds, which Flores Galarza
allegedly should have deducted from the $73 million Reserve he took
on behalf of the Commonwealth. Since it is undisputed that the
Out-of-Pocket funds belong to the JUA, the JUA's alleged property
right in the Out-of-Pocket Funds is clearly established. It also
was clearly established that the physical taking of property,
-69-
without compensation, violated the Constitution. See Tahoe-Sierra,
535 U.S. at 322-23 (noting that the Supreme Court's "jurisprudence
involving condemnations and physical takings is as old as the
Republic"). We therefore conclude that Flores Galarza's alleged
physical taking of the Out-of-Pocket Funds alleged a violation of
clearly established law.35
4. Summary of Analysis of the Second Prong of the
Qualified Immunity Doctrine
The JUA has successfully alleged that Flores Galarza's
taking of the Out-of-Pocket Funds violated clearly established
constitutional law. The JUA has failed to allege a clearly
established violation of law with respect to the Earned Premiums,
the interest generated by those premiums, or the Overstated Reserve
Funds. Therefore, as we turn to the third prong of the qualified
immunity analysis (whether a reasonable officer would have believed
that the alleged conduct violated clearly established law), we
focus only on the alleged taking of the Out-of-Pocket Funds.
C. Third Prong: Reasonable Official Would Believe that Action
Violated Clearly Established Right
35
While we note that the law was "clearly established," we take no
position on whether Flores Galarza's alleged appropriation of the
Out-of-Pocket Funds was, in fact, a taking without compensation.
"The inquiry into qualified immunity is separate and distinct from
the inquiry into the merits." Camilo-Robles v. Hoyos, 151 F.3d 1,
7 (1st Cir. 1998).
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"The final prong of the qualified immunity analysis,
often the most difficult one for the plaintiff to prevail upon, is
'whether an objectively reasonable official would have believed
that the action taken violated that clearly established
constitutional right.'" Wilson, 421 F.3d at 57-58 (quoting
Starlight Sugar, Inc. v. Soto, 253 F.3d 137, 141 (1st Cir. 2001)).
The qualified immunity inquiry recognizes that "[i]t is not always
evident at the time an official takes an action that a clearly
established right is involved. For example, the factual situation
might be ambiguous or the application of the legal standard to the
precise facts at issue might be difficult." Riverdale Mills Corp.
v. Pimpare, 392 F.3d 55, 61 (1st Cir. 2004). So long as an
"officer's mistake as to what the law requires is reasonable,"
Saucier, 533 U.S. at 205, the officer will be entitled to qualified
immunity.
The JUA argues that "[t]he fact that the [JUA's] property
was taken without any compensation whatsoever – and actually, to a
very large cost to the [JUA] – would have alerted any reasonable
official that he was violating [the JUA's] rights under the Takings
Clause." We disagree.
After the Secretary discontinued the transfer of premiums
in 2000, the JUA was forced to pay out a total of $13.6 million of
its own funds to third parties seeking reimbursement. The 2002
Amendment was subsequently enacted, which required the JUA to pay
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to the Secretary $73 million in Reserve funds. One month later,
pursuant to the 2002 Settlement, Flores Galarza made a "massive
transfer of all the funds [he] had retained since [he] stopped
making the transfers," but he held back the $73 million in Reserve
funds that the JUA was required to pay the Secretary under the 2002
Amendment. As Flores Galarza argues, a reasonable officer in these
circumstances would have believed that he "had a law mandate,
stemming from the [2002 Amendment], to retain for use by the
Department of Treasury the Reserve Fund recognized by JUA as of
December 31, 2001. Any officer in his shoes would have acted as he
did in immediately retaining the full Reserve Fund amount without
any compensation" to the JUA. Nothing in the 2002 Amendment
suggests that funds owed to the JUA had to be deducted from the $73
million Reserve, and that the failure to do so would constitute a
taking. As Flores Galarza argues, "money [is] fungible in nature."
Thus, a reasonable officer could have believed that the 2002
Amendment required "the JUA [] to replenish the Reserve Fund" and
then debit the Out-of-Pocket Funds "from this 'new' Reserve Fund
. . . and not from the [$73 million] Reserve allocation recognized
as of December 31, 2001." In that way, the JUA would be made whole
with respect to the Out-of-Pocket Funds. Because a reasonable
officer would not have believed that retaining $13.6 million in
Out-of-Pocket Funds violated the JUA's clearly established rights,
-72-
we conclude that Flores Galarza is entitled to qualified immunity
on this claim.
VI.
We summarize the essential points of our analysis. The
JUA has standing to sue Flores Galarza under 42 U.S.C. § 1983, and
the Supreme Court's prudential ripeness requirements for takings
claims pose no barrier to our consideration of the case. We may
not, however, address res judicata issues in this interlocutory
appeal. Flores Galarza is amenable to suit in his official
capacity under the Eleventh Amendment because the JUA seeks
prospective declaratory and injunctive relief against him in that
capacity, namely: a declaration that his taking of insurance
premiums, interest, and other funds to alleviate the cash-flow
problems of the Commonwealth violates the Constitution; and an
injunction enjoining him from withholding insurance premiums and
from enforcing the terms of the 2002 Amendment to the extent they
amount to an unconstitutional taking. Notwithstanding the
indistinct line between official- and personal-capacity suits
against government officials, we conclude that the JUA seeks to
hold Flores Galarza liable in his personal capacity for damages.
We conclude, however, that he is immune from such liability.
Specifically, because the law was not clearly established that
Flores Galarza effected an unconstitutional taking of the withheld
insurance premiums, the interest generated by those premiums, or
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the Overstated Reserve Funds, he is entitled to qualified immunity
on these claims. Additionally, because a reasonable officer would
not have believed that the failure to reimburse the JUA for the
Out-of-Pocket Funds violated the JUA's rights, qualified immunity
forecloses a damages remedy against him on that claim as well.
In conclusion, we affirm the district court's decision
that the JUA has standing to sue Flores Galarza, and that Flores
Galarza is amenable to suit in his official capacity under the
Eleventh Amendment. We reverse the district court's decision that
Flores Galarza is not entitled to qualified immunity from suit in
his personal capacity. Each party shall bear its own costs of
appeal.
So ordered.
- Concurring Opinion Follows -
-74-
HOWARD, Circuit Judge, concurring in the judgment. One
part of this appeal concerns a takings claim under the Fifth and
Fourteenth Amendments of the federal Constitution against Juan
Flores Galarza, a state official acting in his individual capacity,
for withholding millions of dollars from the JUA, a state-created
pool of insurers. The lead opinion concludes that a viable takings
claim may exist against state officials acting in their individual
capacities, but that Flores Galarza is entitled to qualified
immunity because his withholding funds was reasonable in light of
the unique circumstances present. Ante at 67-69. I am not
entirely convinced that federal takings claims may ever properly
lie against state officials acting in their individual capacities.
Cf. Monell v. N.Y City Dep't of Social Servs., 436 U.S. 658, 687
(1978) ("It beggars reason to suppose that Congress would have
exempted municipalities from suit [in enacting 42 U.S.C. § 1983],
insisting instead that compensation for a taking come from an
officer in his individual capacity rather than from the government
unit that had the benefit of the property taken."); Langdon v. J.J.
Swain, 29 Fed. Appx. 171, 172 (4th Cir. 2002) ("[T]akings actions
sound in tort against governmental entities rather than individual
state employees in their individual capacities."). But we should
not be resolving this difficult question here because the JUA's
individual capacity claim against Flores Galarza is not ripe under
-75-
Williamson County Regional Planning Commission v. Hamilton Bank of
Johnson City, 473 U.S. 172, 195 (1985).
In Williamson County, the Supreme Court held that a
federal takings claim is not ripe until the claimant has met two
preconditions. See 473 U.S. at 186, 194-95. First, in regulatory
takings cases, the claimant must show that the government entity
charged with enforcing the regulation at issue has rendered a final
decision on the regulation's meaning ("the finality requirement").
See id. at 186; Pascoag Reservoir & Dam, LLC v. Rhode Island, 337
F.3d 87, 91 (1st Cir. 2003) (stating that the finality requirement
does not apply in physical takings cases). Second, in regulatory
and physical takings cases, the claimant must pursue compensation
for the alleged taking through state processes, so long as the
state provides a "reasonable, certain and adequate provision for
obtaining compensation" ("the litigation requirement"). Williamson
County, 473 U.S. at 194-95; Pascoag, 337 F.3d at 92. The
litigation requirement follows from the principle that no federal
takings violation occurs until "just compensation" has been denied
by the state. See Suitum v. Tahoe Reg'l Planning Agency, 520 U.S.
725, 733 (1997).
My disagreement with the lead opinion's treatment of the
ripeness issue concerns its application of the litigation
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requirement.36 According to the lead opinion, claimants must avail
themselves only of state process to recover compensation if the
state has adopted a process "particularly aimed at providing
compensation when government action effects a taking" and that
"such [process does] not include litigation of a state takings
claim [under the state constitution] or any general remedial cause
of action under state law." Ante at 26 & 28. Based on this
reasoning, the JUA's claim against Flores Galarza is deemed ripe
because Puerto Rico does not offer a specific administrative
process or cause of action to seek "compensation in the unusual
circumstance of an alleged unconstitutional taking arising from the
government's appropriation of funds." Id. at 29.
There is no support in Supreme Court precedent for the
conclusion that claimants are relieved of the litigation
requirement unless the state has adopted specific processes
(presumably by way of statute) through which such compensation may
be recovered. Indeed, Williamson County suggests just the
opposite. The Williamson County Court derived the litigation rule
from procedural due process cases holding that a plaintiff does not
have a due process claim "unless or until the state fails to
provide an adequate remedy for the property loss." Id. at 195
(citing Hudson v. Palmer, 468 U.S. 517, 532 n.12 (1984)). In the
36
The finality requirement does not apply because the JUA seeks
compensation for a physical, rather than a regulatory, taking.
Pascoag, 337 F.3d at 91.
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due process context, the Court has held that common-law remedies
available in state-court actions are adequate. Hudson, 468 U.S.
534-35. Yet the causes of action recognized as adequate in Hudson
are exactly the sort of "general remedial causes of action under
state law" that the lead opinion deems insufficient here. Ante at
26.
Several other federal courts have rejected my colleagues'
limitation on the litigation requirement. The Second Circuit has
held that a federal takings claim was not ripe under Williamson
County because the claimant had not brought a state-court action
seeking recovery under the takings clause of the Connecticut
Constitution. Villager Pond, Inc. v. Town of Darien, 56 F.3d 375,
379-80 (2d Cir. 1995); see also Southview Assocs. v. Bongartz, 980
F.2d 84, 100 (2d Cir. 1992) (concluding that takings case was not
ripe because plaintiff did not bring claim under Vermont
Constitution's takings clause seeking compensation).37 Similarly,
the Ninth Circuit ordered dismissal of a federal takings claim as
not ripe where the claimant did not bring an action for recovery
under the Hawaii Constitution's takings clause. Austin v. City &
County of Honolulu, 840 F.2d 678, 681 (9th Cir. 1988). And the
Fifth Circuit rejected a takings claim on ripeness grounds where
37
Indeed, in Southview, 980 F.2d at 100, the court explicitly
rejected the argument that Williamson County's litigation
requirement mandated the claimant to pursue state processes only if
the state provided a specific statutory avenue of relief.
-78-
the claimant could have, but did not, bring a state-court nuisance
action to obtain compensation. See Samaad v. City of Dallas, 940
F.2d 925, 935 (5th Cir. 1991); accord Wiltzius v. Town of New
Milford, 453 F. Supp. 2d 421, 431 (D. Conn. 2006) (takings claim
not ripe because claimant did not bring state court action under
state constitution to seek compensation); Franco v. Dist. of
Columbia, 456 F. Supp. 2d 35, 42 (D.D.C. 2006) (takings claim not
ripe where claimant failed to bring contract action in state court
to obtain compensation); Bender v. City of Clearwater, 2006 WL
1046944, at *23 (M.D. Fla. Apr. 19, 2006) ("Plaintiff must look to
state remedies for compensation for the alleged taking, whether
that remedy is titled 'an inverse condemnation' claim or something
else, such as a suit for damages or trespass, before he can pursue
his takings claim in federal court."). These cases amply
demonstrate that adequate state process under the litigation
requirement encompasses more than just those state processes
"particularly aimed at providing compensation" for a government
taking.38 Ante at 26.
38
I understand that the lead opinion seeks to limit the litigation
requirement because of its concern that preclusion principles will
prevent takings claims from being litigated in federal court, if
claimants must pursue state remedies in state court. See ante at
28. This was the view of four Justices of the Supreme Court in San
Remo Hotel v. City & County of San Francisco, 545 U.S. 323, 349
(Rehnquist C.J., concurring) who proposed revisiting the litigation
requirement. The majority, however, disagreed, concluding that "it
is hardly a radical notion to recognize that . . . a significant
number of plaintiffs will necessarily litigate their federal
takings claims in state courts." Id. at 347. As the Court has
-79-
In light of this understanding of the litigation
requirement, the remaining question is whether Puerto Rico provides
"an adequate procedure" for the JUA to seek compensation. The
burden of proving that no adequate state process is available rests
with the JUA. See Liberty Mut. Ins. Co. v. La. Dep't of Ins., 62
F.3d 115, 117 (5th Cir. 1995). It is not enough to show only that
the adequacy of state process remains unsure and undeveloped; it
must be shown to be unavailable. See Culebras Enters. Corp. v.
Rivera Rios, 813 F.2d 506, 513-15 (1st Cir. 1987) (holding that
taking claimant was required to seek compensation from the Puerto
Rico courts even though the Puerto Rico Supreme Court had never
awarded damages in an inverse condemnation action); accord, e.g.,
rejected this concern as a basis for revisiting the litigation
requirement, it does not serve as an adequate basis for
substantially limiting it in this circuit.
The lead opinion also supports its limiting construction of
the litigation requirement by suggesting that requiring claimants
to pursue state constitutional takings claims or other general
causes of action would require claimants to exhaust state remedies,
which is inconsistent with Supreme Court caselaw interpreting 42
U.S.C. § 1983. E.g., Pasty v. Fla. Bd. of Regents, 457 U.S. 496
(1982) The Williamson County Court accepted this argument for
purposes of the finality requirement, by holding that a claimant
need not exhaust judicial review after a state agency has
definitively interpreted a regulation. 473 U.S. at 192-93. But
the Court did not endorse a similar limiting principle for the
litigation requirement. Moreover, Washlefske v. Winston, 234 F.3d
179, 183 (9th Cir. 2000), relied on by the lead opinion for its
exhaustion analysis, states that exhaustion is not required to meet
the finality requirement; it says nothing about the scope of the
litigation requirement.
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Villager Pond, 56 F.3d at 380; S. Pac. Transp. Co. v. City of Los
Angeles, 922 F.2d 498, 505 n.8 (9th Cir. 1990).
Puerto Rico's Constitution includes a takings provision,
See P.R. Const. Art. II, § 9, and Flores Galarza suggests that the
JUA could seek compensation through a mandamus action. It is not
entirely clear that the JUA could obtain the compensation that it
seeks through either an action under the Commonwealth's
Constitution or some other cause of action. But it has not been
shown that such relief is unavailable either. In these
circumstances, the JUA was required to pursue its state-law
remedies before turning to the federal Constitution for relief.
E.g., Southview Assocs., 980 F.2d at 100. Because the JUA did not
pursue compensation through the state system, its federal claim
against Flores Galarza, in his individual capacity, should have
been dismissed on ripeness grounds.39
39
I agree that, to the extent the JUA is pursuing facial challenges
to Puerto Rico statutes, the litigation requirement is not
implicated. San Remo, 545 U.S. 345-46.
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