Petition — Perez v. Rodriguez de Quiñonez
Supreme Court brief1979
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IN THE
Supreme Court of the United States
OCTOBER TERM, 1978 \
No. 78-
HON. JULIO CESAR PEREZ, Secretary of the
Treasury of the Commonwealth of Puerto Rico, et al
Petitioners,
Vv.
JUDITH RODRIGUEZ DE QUINONEZ, LUIS S.
PARRILLA AND ANTERO SOLIS LAZU
Respondents,
PETITION FOR A WRIT OF
CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FIRST
CIRCUIT
HECTOR A. COLON CRUZ
Solicitor General
LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
TABLE OF CONTENTS
Page
EM eet Las, Wi eo pak wine aa kea es oe 2
I aes Sal SS dg Wha a 6 ba oeis 2
SUBTIONG PREGENTED occ. kc ccc cae 2
THE CONSTITUTIONAL PROVISIONS AND STATUTES
EC ceri, RS Sore 0 oat ee
i.
Whether in reversing the judgment of the
United States District Court for the District
of Puerto Rico the United States Court of Ap-
peals for the First Circuit: erred in the inter-
pretation of the Statute under which the
I OCU oon 5 kn kc cmc vedo ses 11
Whether the United States Court of Appeals
for the First Circuit is Constitutionally bound
to take judicial notice of the statute of the
Commonwealth of Puerto Rico and their sub-
sequent amendments in force at the time of
the supposed violation of the Due Process
Clause of the Fourteenth Amendment .... 13,14
Whether the United States Court of Appeals
for the First Circuit erred in finding a viola-
tion of a liberty interest protected by the Due
Process Clause of the Fourteenth Amend-
ment under a statute that does not require
stigmatizing grounds for removal.......... 16
Sa ona St gr al a a a ga 20
TABLE OF AUTHORITIES
Page
CASES:
American Seating Co. v. Zell, 138 F.2d 641 (2nd. Cir.
ate GDRs ohne Os See SAA CA wake oe 14
Bishop v. Wood, 426 U.S. 341 (1976).......... 10, 19, 20
Board of Regents v. Roth, 408 U.S. 564 (1972) ....... 10
Feinburg v. Federal Ins. Corp. 522 F.2d 1335
Rs ahaa ea. CS VOM OS we KA 6.4 awk 6 Bienes 9
Gallager v. Ford Motor Comp., 226 F.2d 728
IN Se She ee Cie k EBL T ie bN «oko 8 Rha ae 14
Hoyt v. Russell, 117 U.S. 401 (1886). .............. 14
Jannanga v. Nationwide Life Ins. Co., 288 F.2d 169
NS Wek ects Sars. 6 We Gk of sais Oi dve.k kala es 15
Lamar v. Micou, 114 U.S. 218 (1885). .............. 14
Lilly v. Grand Trunk Western R. Co., 317 U.S. 481
SEAS <a we Cais Sek SEN oss cm wie «awe et oi 15
Mitchell v. King, 537 F.2d 382 (10th Cir.,
Nas ha wk 0 oss 4 hw ks 6 Sic 0d 560 8 6 Me we 10, 12,13
Nev-Cal. Electric Securities Co. v. Imperial Irr. Dist.
85 F 2d 889 (Oth Cir., 1996) .... 0... ccc eee 14
Paul v. Davis, 424 U.S. 693 (1975) ....... 9,10, 13, 17,18
Palkway Baking Comp. v. Freihofer Baking Company,
255 F.2d 641 (Srd. Cir. 1958) ................. 15
Peterson v. Chicago Great Western R. Co. 3 F.R.D.
PU TID i soe aa eet ous Goee swan ten 14
Reeves v. Schulmeier, 303 F.2d 802 (1962).......... 14
Schultz v. Tecumseh Products, 310 F.2d 426
SRE) Sd hk ps coed oe KAR Rae eo 15
CONSTITUTIONAL AND STATUTORY PROVISIONS:
1. Section 1 of the Fourteenth Amendment of U.S.
No rg ae oe a ET ot 3,4
ili
Page
9. Article 18(A) of Law 94 of May 31, 1976 (Title 7
Laws of Puerto Rico Annotated sec. 768
nak < pea bee Chon ee Ree eee ny Ome passim
8. Article 18(A) of Law 94 of May 31, 1976 as amend-
ed by Law No. 16 of May 5, 1977 (Title 7 Laws of
Puerto Rico Annotated sec. 768(a))......... passim
4. 7 Laws of Puerto Rico Annotated sec. 751 et ;
OVE POES TTP Ore yer Tee Ee thie.
5. Law No. 15 0f May 5, 1977... .....-. 6c eee eee 7
C SEU Bak. ci kee ace head pawn cerer ces 8
Wa Lh lok. | err ree ere ee 8
OTHER AUTHORITIES:
R. Elfren Bernier, Aprobacion e Interpretacion de las
Leyes en Puerto Rico, 254 (1963)... 0... -- +++ 12
1A Sutherland Statutory Construction 134 (4th ed.
Sy SEER Cent Pet el ee 12
29 Am. Jur. 2d sec. 27, p. 63. 2... ee ee eee eee eee 14
IN THE
Supreme Court of the United States
OCTOBER TERM, 1978
HON. JULIO CESAR PEREZ, Secretary of the
Treasury of the Commonwealth of Puerto Rico, et al
Petitioners,
Vv.
JUDITH RODRIGUEZ DE QUINONEZ, LUIS S.
PARRILLA AND ANTERO SOLIS LAZU
Respondents,
PETITION FOR A WRIT OF
CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FIRST
CIRCUIT
TO THE HONORABLE COURT:
Honorable Julio Cesar Perez, Secretary of the
Treasury of Puerto Rico, et al, hereby petition for a
writ of certiorari to review the Opinion and Judgment
of the United States Court of Appeals for the First
Circuit entered on March 30, 1979, and the order de-
nying our Motion for Rehearing of May 7, 1979, which
reversed the Judgment of the United States District
Court for the District of Puerto Rico.
=E“__ EO
2
OPINION BELOW
The Opinion and Judgment of the United States
Court of Appeals for the First Circuit (App. I and II)
is not reported. The initial Magistrate’s Report and
Recommendation (App. III) and the Opinion and Or-
der of the United States District Court for the District
of Puerto Rico (App. IV) are not reported.
JURISDICTION
The decision of the United States Court of Appeals
for the First Circuit was announced on March 30
_ 1979 (App. I) and Judgment was entered on the same
date (App. II). A timely Motion for Rehearing was
filed on April 10, 1979 (App. V). Said motion was
denied in a Per Curiam Opinion on May 7, 1979 (App.
VI) entered on the same date and as yet unreported
(App. VII). A Motion for Stay of Mandate was filed
in the United States Court of Appeals for the First
Circuit on May 15, 1979 (App. VIII) and the United
States Court of Appeals for the First Circuit entered
an Order dated May 18, 1979 staying mandate pend-
ing the filing of a Petition for Writ of Certiorari in the
Supreme Court of the United States by June 14, 1979
(App. IX).
The jurisdiction of this Court is invoked
U.S.C, 1254(1). oked under 28
QUESTIONS PRESENTED
The Secretary of the Treasury of Puerto Rico, here-
inafter, the “Secretary”, by virtue of the authority
conferred on him by Article 18 (a) of Law number 88
of the Banco Cooperativo de Puerto Rico, hereinafter,
the ‘‘Bank”’, approved on June 21, 1966, as amended
Cie state nk HOM aye in has Lk
3
(7 L.P.R.A. 768(a)), removed the respondents. from
their directorship for having performed acts contrary
to sound banking practices and for having incurred in
omissions or practices that constituted a violation of
their fiduciary duties as directors, that resulted in a
substantial financial loss to the bank. The United
States Court of Appeals for the First Circuit deter-
mined that the statute under which the Secretary
acted was unconstitutional by failing to provide for
the constitutionally required hearing where a liberty
interest has been affected.
In this situation, the questions presented are:
1. Whether in reversing the judgment of the
United States District Court for the District of Puerto
Rico the United States Court of Appeals for the First
Circuit erred in the interpretation of the statute under
which the Secretary had acted.
2. Whether the United States Court of Appeals for
the First Circuit is constitutionally bound to take
judicial notice of the statutes of the Commonwealth
of Puerto Rico and their subsequent amendments in
force, at the time of the supposed violation of the due
process clause of the Fourteenth Amendment.
3. Whether the United States Court of Appeals for
the First Circuit erred in finding a violation of a lib-
erty interest protected by the due process clause of
the Fourteenth Amendment under a statute that does
not require stigmatizing grounds for removal.
4
THE CONSTITUTIONAL PROVISIONS AND
STATUTES INVOLVED
Section 1 of the Fourteenth Amendment of the
United States Constitution provides, in part:
- nor shall any state deprive any person of
life, li i
2 ~ = or property, without due process of
Article 18 A of Law 94 of May 31, 1976 (Title
7, Laws of Puerto Rico A .
(a)) (App. X). ico Annotated, Section 768
Article 18 A of Law 94 of May 31, 19
, 1976,
amended by Law No. 16 of May 5 1977 (Title 7,
La f i i
i " oo Rico Annotated, Section 768 (a))
STATEMENT :
Rs Bank was organized under the terms of Law 88
of June 21, 1966 approved by the Legislature of the
Commonwealth of Puerto Ri /
ge ico (7 L.P.R.A., Sec. 751,
The purpose of the Bank was to promote the gen-
eral welfare of the community by the proper chan-
nelling of the resources of cooperative enterprises and
their members (7 L.P.R.A., Sec. 752).
Given the special nature of this bank
ture of the Commonwealth of Puerto ee
necessary to provide in section 18 of Law 88 (7
L.P.R.A., Sec. 768), that the Secretary closely monitor
the operation of the Bank, making at least one ex-
amination of the same each year, including an exam-
ination of the actions of the directors. The Legislature
further provided in section 19 (7 L.P.R.A., Sec 769)
that if as a result of any such examination the Sec-
5
retary found evidence that the Bank was not in a
sound economic condition or was being managed in
such manner that its depositors were in jeopardy of
being defrauded, he should assume its direction and
management and appoint a receiver. No alternative
course of action was provided, nor was the Secretary
required therein to provide any type of prior hearing,
even though the receivership could “terminate with
the total liquidation of the Bank, if so necessary” (7
L.P.R.A., Sec. 769).
The yearly examination of the Bank made by the
Secretary pursuant to 7 L.P.R.A. 768, supra, showed
a steadily deteriorating situation. Furthermore, the
examination showed repeated violations of applicable
provisions of law as well as the fact that the Secre-
tary’s recommendations to the Board of Directors
went unheeded. Faced with the disastrous economic
condition of the Bank, the Legislature of Puerto Rico
enacted Law No. 94 of May 31, 1976 to amend Law
No. 88 of June 21, 1966 (App. X). This law established
a new section (7 L.P.R.A., Sec. 768 (a)) to provide the
Secretary with an alternative (a less drastic one) to
the appointment of a receiver, namely, the removal of
directors of the Bank.
Removal was possible if theSecretary determined
that three requirements were met: (1) that a director
had incurred in any of the statutorily enumerated
violations, (2) that the Bank had sustained or would
probably sustain financial loss on account of the men-
tioned statutorily enumerated violations, and (3) that
the director’s violation was one involving personal
dishonesty on the part of the director.
On May 5, 1977 by virtue of Law No. 16, Sec. 768(a)
of 7 L.P.R.A. was further amended (App. XI) substi-
6
tuting ‘‘or” for ‘‘and’’ before the third requirements.
This amendment made it clear that no charge of dis-
honesty need be made in order to justify dismissal. In
other words, the first two of the above mentioned
requirements were sufficient to justify removal of a
director.
This conformed even more accurately with the orig-
inal thrust of the first amendment of the statute,
which was to make available to the Secretary a less
drastic alternative to the solution of the bank’s prob-
lems.
Thus, the amendment made personal dishonesty
one of several statutorily enumerated violations sup-
porting dismissal. It also allowed the Secretary to
substitute directors on grounds other than personal
dishonesty, as he would deem convenient, to assure a
sound and safe management of the Bank.
The third yearly examination made in J anuary of
1977 showed that the Bank had a capital deficiency
in excess of three million nine hundred thousand dol-
lars ($3,900,000.00). It was apparent that the Secre-
tary’s exhortation had gone unheeded, the Board of
Directors had not corrected the deteriorating econom-
ic situation nor acted to prevent the continued, re-
peated violations of applicable provisions of law. The
financial condition of the Bank had become untenable
and under 7 L.P.R.A., Sec. 769 it was ready for re-
ceivership and liquidation. /However, in view of the
great repercussions such\a Situation would entail, and
taking into account the government’s interest in pro-
moting and strengthening the cooperative movement,
as well as stabilizing the already undermined condi-
tion of the banking industry of the Commonwealth of
' ane
te st A OS ete Ne net Alt tt
7
Puerto Rico, the Legislature of Puerto Rico acted to
prevent the total collapse of the Bank.
By virtue of Law No. 15 of May 5, 1977 the —
islature of Puerto Rico assigned sixty million do _
($60,000,000.00) to enable the government " ~
chase ‘‘bad loans” (uncollectable or doubtful —.
from the Bank and from the Savings and Labor Bank.
Thus, it was only by virtue of these legislative
measures and faced with the responsability of ——
the Bank that the Secretary removed respondents an
named other directors in lieu thereof.
On May 9, 1977 the Secretary wrote the following
letter to respondents:
: ™
“By virtue of the authority vested in me
Article 18A of Act No. 88 of June 21, —- o
amended, the Law of the Cooperative ban
Puerto Rico, I hereby remove you from your
sition as a member of the Board of gg ee o
the Cooperative Bank of Puerto Rico for havin
articipated in acts that are contrary to —_
Canis practices and for having gage et 7
omissions or practices constituting a v10 —
your fiduciary duty as a director, as a resu
which the Bank has sustained a substantia
nancial loss.
is removal shall take effect upon your re-
ceipt of this communications”’.' (App. XII)
i is in harmony with Law
hould be noted that this letter is in }
i of May 5, 1977 as it amended sec. 768(a) of . L ye
Only two requirements had wat — een A —-
: tatutorily enumerated violatio
coe gf violation of fiduciary duties) and a substantial
financial loss due to these practices.
8
On June 15, 1977’ respondents Judith Rodriguez
de Quifionez, Luis S. Parrilla and Antero Solis Lazt
filed a complaint in the United States District Court
for the District of Puerto Rico against Hon. Julio
Cesar Perez, Secretary of the Treasury of the Com-
monwealth of Puerto Rico and petitioners Arturo To-
rregrosa, Aida Perez, Adalberto Ortiz and Carlos Fi-
gueroa. The action was brought under 42 U.S.C. 1983
and its jurisdictional counterpart 28 U.S.C. 2201 and
2202.
Breifly, respondents alleged that article 18(a) of
Law 94 of May 31, 1976 (7 L.P.R.A. 768(a)) utilized
by the Secretary to remove them from their position
as members of the Board of Directors of the Bank
was null and void and unconstitutional because it
allowed that removal as directors occur without prior
hearing and without notification of the acts, omis-
sions and unsound practices warranting said removal.
It is further alleged that in so dismissing them, peti-
tioner accused and adjudged respondents guilty of
violating Commonwealth laws and of being involved
in personal dishonesty; that said removal denied them
their right to serve on the Board of Directors and
constituted punishment without trial; that as a result
of their removal they received a stigma of ridicule,
embarrassment and dishonor. In short, that their re-
moval had deprived them of their property and liberty
in violation of their constitutional right to due pro-
cess.
* It should be borne in mind that respondents filed their orig- ;
inal complaint subsequent to the last amendment to the law
involved in this action, namely Section 768 (a) of 7 L.P.R.A. of
May 5, 1977.
9
As remedy, respondents requested the Court to de-
clare the statute unconstitutional and their removal
null and void; and that they be reinstated to their
positions as directors of the Bank and that petitioners
be restrained from preventing respondents’ partici-
pation as such directors.
Respondents in their complaint not only misquoted
the letter sent to them by the Secretary by saying
that he acted pursuant to Law number 88 of June 21,
1976 when in truth and in fact the Secretary acted
only by virtue of Law number 88 of June 21, 1966.
Respondents also purportedly avoided any reference
to the law as amended, and specifically referred to it
as Section 18(a) of Law 94 of May 3lst., 1976, an
omission that obviously acted on their behalf in de-
ciding an action by virtue of an unexistent statute.
There is no dispute in the fact that the Secretary
himself in his letter mentioned the law as amended
and even though petitioners always referred to the
removal statute as amended, they did not discuss the
significance of the last amendment.
The matter was referred to the United States Mag-
istrate for Report and Recommendation. On April 28,
1978, the Hon. Magistrate recommended that the
complaint be dismissed on the basis that no property’
or liberty‘ interests were present. (See App. III)
On June 20, 1978 the District Court entered an
Opinion and Order dismissing the complaint on the
grounds that no property interest was present since
from the record respondents did not earn their liveli-
’ Feinburg v. Federal Ins. Corp., 522 F. 2d 1335 (1975).
* Paul v. Davis, 424 U.S. 693 (1976).
10
hood from their services as directors, nor did any
statute of the Commonwealth create an expectation
of deriving any property interest for their position as
directors.*
The District Court also discussed extensively the
liberty right issue and went on to apply the doctrines
of Paul v. Davis, 424 U.S. 693 (1975) and particularly
the case of Mitchell v. King, 537 F.2d 382 (10th Cir.
1976) (App. IV).
On June 23, 1978 respondents filed their notice of
appeal.
After briefs were presented and oral argument was
heard, the lower court entered an Opinion and Judg-
ment on March 30, 1979. (See App. I) Said court
agreed that no property right was present in the case
but it did make a finding that there was a sufficient
liberty interest to trigger the due process safeguards.
The court distinguished the case at bar from Bishop
v. Wood, 426 U.S. 341 (1976) and Mitchell v. King,
supra. The stigma plus test of Paul v. Davis, supra,
was found to have been met because under the una-
mended removal statute (7 L.P.R.A. sec. 768 (a)) per-
sonal dishonesty was statutorily required.
On April 10, 1979 petitioners filed a Motion for
Rehearing on the grounds that Law No. 16 of May 5,
1977 (7 L.P.R.A. sec. 768 (a)) and not article 18(a) of
Law No. 94 of May 3lst. 1976 governed the case at
bar. The significance of the difference between the
concepts ‘“‘and”’ and “‘or’’ was established, for the sub-
stitution of the word “‘or’’ for ‘“‘and’’ by Law No. 16
made the act of removal under that statute one that
* Board of Regents v. Roth, 408 U.S. 564 (1972).
11
did not bring into question any of the Director’s in-
tegrity.
On May 7, 1979 the petition for rehearing was de-
nied (See App. VI) and the Honorable Court of Ap-
peals for the First Circuit determined that even under
the amended statute it was a close question whether
there was not such a stigma as to give rise to the due
process rights. The Court of Appeals instructed the
District Court to regard the case as standing on the
removal statute prior to its 1977 amendment.
A Motion for Stay of Mandate was filed on May
15, 1979 and granted on May 18, 1979. (See App. VIII
and IX).
REASONS FOR GRANTING THE WRIT
1. Whether in reversing the judgment of
the United States District Court for the Dis-
trict of Puerto Rico the United States Court
of Appeals for the First Circuit erred in the
interpretation of the Statute under which the
Secretary had acted.
The Secretary in his letter of dismissal specified the
reasons for responc ‘nts’ discharge (See App. XII).
The stated reasons were unsound banking practices
and violations of their fiduciary duties which resulted
in a substantial financial loss to the Bank. The Sec-
retary in his notification of dismissal referred to the
removal provisions of the statute as Law No. 88 of
June 21, 1966, as amended.
In this jurisdiction as well as in other jurisdictions,
it is a rule that when statutes are cited as having been
amended, the citations mean to include all the amend-
ments passed up to the time when the statute is quot-
12
ed. See, R. Elfren Bernier, Aprobacion e Interpreta-
cion de las Leyes en Puerto Rico, 254 (1963).
1A Sutherland Statutory Construction 134 (4th, ed.
1972) sec. 20.10 states:
“The ‘original act’ theory is used in most of
the states. it is based upon the rule of construc-
tion that a statute which has been amended is to
be read in the future as though it were originally
enacted in the amended form. Therefore, when
amending a statute which has been previousl
amended, the title of the amendatory act is suf-
ficient if it reasonably identifies the original act.
The intervening amendments are treated as in-
corporated into the original act. However, cau-
tion often makes the identification include a ref-
erence to the intervening amendments.”
Thus, the Secretary correctly read the amended
statute not to require him to find personal dishonesty
in order to dismiss the directors.
The District Court relied on Mitchell v. King, supra,
as controlling in the case at bar. Evidently, in deciding
the case it had in mind the provisions of the amended
statute making it clear that no charge of dishonesty
need be made in order for dismissal to occur.
Mitchell, supra, was found to be relevant to the
case at bar for a number of reasons. The member of
the Board of Regents in the case was appointed for a
fixed term, he was not compensated for his services
as such, and most importantly, the statute under
which he was removed had a disjunctive provision
whereby personal dishonesty, in Mitchell v. King
‘malfeasance’, was not required for removal.°
* In the case at bar respondents were appointed for fixed terms
and were not compensated for their services. Under sec. 768 (a)
13
Therefore, the finding of the District Court that
personal dishonesty was not a statutorily required
ground for removal in this case led them to correctly
determine that the stigma plus test in Paul v. Davis,
supra, was not necessarily implicated by a removal
under such a statute.
The Circuit Court of Appeals, in footnote three (3),
(See App. I page 6) considered that the Secretary's
removal of respondents could have been founded on
exercises of poor business judgments alone, rather
than upon acts of dishonesty. If that had been the
case, Mitchell v. King supra, would have saved the
constitutionality of the law, but since the Circuit
Court of Appeals misread the Secretary's actions un-
der the statute to be premised on a finding of personal
dishonesty, the Court distinguished this case from
being controlled by Mitchell v. King, supra.’
2. Whether the United States Court of Ap-
peals for the First Circuit is constitutionally
bound to take judicial notice of the statutes
of the Commonwealth of Puerto Rico and
their subsequent amendments in force at the
time of the supposed violation of the due
as amended (See App. XI) the statute clearly established that
removal is allowed when the directors have performed acts con-
trary to sound banking practices or have committed or partici-
pated in the commission of any act, omission or practice consti-
tuting a violation of their fiduciary duties as director of the bank,
or when the Secretary determines that the Bank has sustained
or will probably sustain financial loss or other prejudice on ac-
count of such violations or that such violation is one involving
personal dishonesty.
’ There is no dispute as to the fact that in the Secretary's letter
the statute cited is Law No. 88 of June 21, 1966, as amended...
14
process clause of the Fourteenth Amend-
ment.
It is a well settled rule of law that generally courts
will take judicial notice of the law prevailing within
the forum within which they sit, whether said law in
question is written or unwritten. Hoyt v. Russell, 117
U.S. 401 (1886). (See also 29 Am. Jur. 2d Sec. 27, p.
63). The only limitation to said judicial recognition of
a law of the forum is that it be a public law. The
Delaware, 161 U.S. 459 (1896).
The legislative acts of the state within the areas of
laws reserved to them by the Federal constitution
bind the Federal Courts. Federal Courts cannot act in
disregard of the state law in the particular jurisdiction
on which they sit.
Therefore it follows, that even though the aver-
ments of the complaint were true, they cannot be
treated as verities if they are in conflict with the
statutes. Nev-Cal Electric Securities Co. v. Imperial
Irr. Dist., 85 F. 2d 886 (9th Cir., 1936); Gallager v.
Ford Motor Comp., 226 F. 2d 728 (1955).
It is also established that there is no need to allege
or prove state law in federal courts, notwithstanding
state law which requires special pleading or proof.
American Seating Co. v. Zell, 138 F. 2d 641 (2nd Cir.
1943); Peterson v. Chicago Great Western R. Co. 3
F.R.D. 346 (Neb. 1943), Reeves v. Schulmeier, 303 F.
2d 802 (1962).
The law of any State of the Union, whether depend-
ing upon statutes or upon judicial opinions, is a mat-
ter of which the courts of the United States are bound
to take judicial notice, without plea or proof. Lamar
v. Micou, 114 U.S. 218, 223 (1885). Lamar v. Micou,
supra, has been interpreted to mean that a federal
court cannot refuse to apply the law of a state other
15
than the forum solely on the ground that it was not
affirmatively pleaded or proved. (Jannanga v. Nation-
wide Life Ins. Co., 288 F. 2d 169, 171 (1961).
How much more is a federal court bound to take
judicial notice of a law of the very forum in which it
sits!
Counsel’s failure to cite law of which a United
States Court must take judicial notice, and which
controls the disposition of the case, does not render
such law inapplicable or prevent reliance upon it on
appeal. Palkway Baking Comp. v. Freihofer Baking
Company, 255 F. 2d 641 (8rd. Cir., 1958); Lilly v.
Grand Trunk Western R. Co., 317 U.S. 481 (1943);
Schultz v. Tecumseh Products, 310 F. 2d 426 (1962).*
All the above mentioned principles are fuiiy appli-
cable in the case at bar. In spite of respondents’ faulty
averments to the controlling laws—an omission that
favored their theory of the case, neither the District
nor the Circuit Court can refuse to consider, indeed
they are bound to consider, the prevailing law.
The Honorable Circuit Court was definitely mis-
led with regard to the state of the law governing the
action.* However, when on the Petitioners’ motion for
Rehearing said Court was presented with the amend-
ed law, it went as far as ordering the District Court
to regard the case under a law that at the moment of
* Even though the Court expressed that it had no recollection
that the amended statute was orally argued, it is evident from
the record that it was timely presented in our Motion for Re-
hearing. (See App.V page 34).
* The Secretary's dismissal letter quoted in the pleading (See
App. XII) would have warned them of the amendment to the
removal provisions.
16
respondents’ removal was totally unexistent in view
of the amendment that substantially altered the re-
quirements for dismissal.
With due respect, it is the position of the petitioners
that amendment of 1977 (7 LPRA 768 (a)) controls
solely the disposition of this case. To disregard the
legislative binding acts of the Commonwealth of Puer-
to Rico because counsel failed to explain the 1977
amendment, an amendment which petitioners had no
reason to hide, did not release the lower Court from
its duty to take judicial notice thereof.
3. Whether the United States Court of Ap-
peals for the First Circuit erred in finding a
violation of a liberty interest protected by
the due process clause of the Fourteenth
Amendment under a statute that does not
require stigmatizing grounds for removal.
In denying the Motion for Rehearing presented by
petitioners the United States Court of Appeals for the
First Circuit considered that:
‘Even under the amended statute, it is a close
question, given the accompanying circumstan-
ces, whether there was not such a stigma as to
give rise to the due process rights discussed in
our opinion’’. (See App. VI, page 50)
As has been repeatedly stated, the amended statute
does not require the finding of personal dishonesty to
be made in order to dismiss directors. The Court of
Appeals in its opinion had discussed the statute as it
read before the amendment and had concluded that
the required finding of personal dishonesty of the re-
17
moval statute itself, was enough to meet the stigma-
plus test developed in Paul v. Davis, supra.
In the case of Paul v. Davis, supra, the Supreme
Court specifically rejected the notion that the inflic-
tion by state officials of a “‘stigma’’ to one’s reputa-
tion, without more, would constitute a violation of the
Due Process Clause and at page 701 stated:
‘*... The words ‘liberty’ and ‘property’ as used
in the Fourteenth Amendment do not in terms
single out reputation as a candidate for special
protection over and above other interest that
may be protected by state law. While we have in
a number of our prior cases pointed out the fre-
quently drastic effect of the ‘stigma’ which may
result from defamation by the government in a
variety of contexts, this line of cases does not
establish the proposition that reputation alone,
apart from some more tangible interests such as
employment, is either ‘liberty’ or ‘property’ by
itself sufficient to invoke the procedural protec-
tion of the Due Process Clause. . . , we think that
the weight of our decisions establishes no con-
stitutional doctrine converting every defamation
by a public official into a deprivation of liberty
within the meaning of the Due Process Clause of
the Fifth or Fourteenth Amendments...’ The
Court went on to say at page 711:
‘In each of these cases, as a result of the state
action complained of, a right or status previously
recognized by state law was distinctly altered or
extinguished. It was this alteration, officially re-
moving the interest from the recognition and pro-
tection previously afforded by the State, which
we found sufficient to invoke the procedural
guarantees contained in the Due Process Clause
of the Fourteenth Amendment. But the interest
in reputation alone which respondent seeks to
vindicate in this action in federal court is quite
18
nized in those decisions. Kentu aw does not
extend to respondent any legal guarantee of pres-
ent enjoyment of reputation which has been al-
tered as a result of petitioners’ actions. Rather
his interest in reputation is simply one of a num-
ber which the state may protect against injury
by virtue of its tort law, providing a forum for
vindication of those interests by means of dam-
ages actions. And any harm or injury to that
interest, even where as here inflicted by an officer
of the State, does not result in a deprivation of
any ‘liberty’ or ‘property’ recognized by state or
federal law, nor has it worked any change in re-
spondent’s status as theretofore recognized un-
der the State’s laws. For these reasons we hold
that the interest in reputation asserted in this
case is neither ‘liberty’ nor ‘property’ guaranteed
=? state deprivation without due process of
aw’.
different from the ‘liberty’ or E aay ada recog-
CKYy
The principle stated in Paul v. Davis, supra, can be
summarized into the following rule of thumb: “‘loss of
reputation plus loss of employment” presents a
cognizable liberty-property claim under the Due Pro-
cess Clause."
It is stigmatizing activities by the government con-
nected with a denial of some kind of right or interest
granted by the state that gives rise to the liberty
wo . The Fifth Circuit has capsulized the import of Paul v.
Davis into the following ‘stigma-plus’ test: ‘to establish a liberty
interest sufficient to implicate fourteenth amendment safe-
guards, the individual must be not only stigmatized but also
stigmatized in connection with a denial of a right or status pre-
viously recognized under state law’. Dennis v. S & S Consolidated
Rural High School District, 577 F. 2d 338, 341 (5th Cir. 1978),
quoting Moore v. Otero, 557 F.2d at 437’’. (See App. I page 5)
> DE CTSNET CO
19
interests safeguarded by the due process right of the
Fourteenth Amendment.
A state given right by itself or stigmatizing activ-
ities by themselves do not constitute enough of a
liberty interest to trigger the due process safeguards.
In other words, if no stigma has been caused by the
government then there is only a removal of an indi-
vidual in compliance with specified procedures that
are part of the state creation of a right and under
which the individual accepts his state-given right."
If the government activities merely stigmatize the
individual without denying him of any state given
right, then a defamation suit would be the appropriate
remedy.
In the case at bar, factual stigma was not present!”
or statutorily required. Since stigma was not found
here, only a mere conditional removal subject to spec-
ified procedures was involved.
There was no clear imputation of dishonesty flow-
ing from removal under this statute.
As in Bishop v. Wood, 426 U.S. 341 (1976) here
unsound banking practices or violation of fiduciary
duties do not measure up to the stigma required to
conjoin with a state given right or status in order that
a liberty interest be present.
The unsound banking practices were patently evi-
dent in the catastrophic economic condition in which
the Banco Cooperativo ailed when some of the Direc-
'' See Bishop v. Wood, 426 U.S. 341, 344 n 5 (1976).
'* The United States District Court so concluded. (See App. IV)
20
tors were removed. These reasons for dismissal are
quite different from those rather subjective, morally
charged reasons for dismissal given to the respond-
ents in Bishop v. Wood, supra.
CONCLUSION
For the foregoing reasons, the writ of certiorari
should be granted.
Respectfully submitted, San Juan, Puerto Rico,
June 14, 1979.
HECTOR A. COLON CRUZ
Solicitor General
LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
APPENDIX
(ee ae
APPENDICES
Appendix
Opinion of the United States Court of Appeals for the
First Circuit of March 30, 1979................. I
Judgment of United States Court of Appeals for the
First Circuit entered on March 30, 1979.......... I]
Magistrate's Report and Recommendation of April 27
Pcie ivivonkMavsss Khaebinesapekeeecuaess Ill
Opinion and Order of the United States District Court
for the District of Puerto Rico of June 20,1978... IV
Petition for Rehearing of Defendants-Appellees in the
United States Court of Appeals of April 10,1979.. V
Per Curiam Opinion of United States Court of Appeals
for the First Circuit on Petition for Rehearing of May
Wp BEE ADSM ERAKRER ECE SEA SO RCAER OC RKEES OW OSS VI
Order of United States Court of Appeal for the First
eo eg a, re ree) or er Vil
Motion for Stay of Mandate in United States Court of
Appeal for the First Circuit of May 15,1979 .... VIII
Order Granting Motion to Stay Manadate of May 18,
NTA 05 6 0S RE eee OC eRe PERS bee eehaees IX
Article 18A of Law 94 of May 31, 1976 (Title 7,
LWP athe ME da | DE RAE AN ia cas FAS én 9 0 X
Article 18A of Law 94 of May 31, 1976 as amended by
Law No. 16 of May 5, 1977(7 L.P.R.A. sec 768(a)). XI
Letters of Dismissal addressed to Plaintiffs by
Secretary of the Treasury of May 9, 1977........ XII
la
Appendix I
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296
JUDITH RODRIGUEZ de QUINONEZ, ET AL.,
PLAINTIFFS, APPELLANTS,
Vv.
HONORABLE JULIO CESAR PEREZ, ETC., ET AL.,
DEFENDANTS, APPELLEES
APPEAL FROM THE UNITED STATES
DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[HON. JOSE V. TOLEDO, U.S. District Judge]
Before
ALDRICH, CAMPBELL and BOWNES,
Circuit Judges.
A. J. Amadeo Murga, for appellants.
Lirio Bernal De Gonzalez, Assistant Solicitor General,
Department of Justice, with whom Hector A. Colon Cruz,
Solicitor General, was on brief, for appellees.
March 30, 1979
CAMPBELL, Circuit Judge. Plaintiffs, three former direc-
tors of Banco Cooperativo de Puerto Rico, bring this suit
under 42 U.S.C. § 1983 and 28 U.S.C. § 1343 against the
Secretary of the Treasury of Puerto Rico and the directors
2a
appointed to take their places. They contend that their
removal as directors by the defendant Secretary deprived
them of liberty and property without due process of law,
in violation of the fourteenth amendment to the Consti-
tution.
Banco Cooperativo was organized under is subject to
the provisions of title 7, chapter 66 of the laws of Puerto
Rico. Plaintiffs, three of the bank's twelve-member board
of directors, were elected to their positions for a three-year
term by the general assembly of the bank's shareholders.
Section 768a of chapter 66 authorizes the Secretary of the
Treasury of Puerto Rico to suspend or remove directors.
It provides,
‘‘When the Secretary of the Treasury determines
there is evidence that any director or officer of the
Cooperative Bank of Puerto Rico has violated this
chapter, the rules and bylaws promulgated hereunder
or a final cease and desist order, or has performed
acts contrary to sound banking practices in connec-
tion with the Bank, or has participated in them, or
has committed or participated in the commission of
any act, omission or practice constituting a violation
of his fiduciary duties as director or officer of the
Bank; and the Secretary determines that the Bank
has sustained or will probably sustain a substantial
financial loss of other prejudice on account of such
violation or practice or failure to carry out his fidu-
ciary responsibilities and that such violation or failure
is one involving personal dishonesty on the part of
the director or officer, the Secretary of the Treasury
may issue a.written order suspending or removing
him from his position in that Bank.”’
Acting pursuant thereto, the Secretary removed plaintiffs
prior to the expiration of their terms. A fourth director,
not a party to this action, was also dismissed; the other
five elected directors were not.
Arguing that removal without a prior or subsequent
hearing deprived them of liberty and property without due
ia
PU, ort
3a
process, plaintiffs seek a declaration that § 768a is uncon-
stitutional, reinstatement to their positions as directors,
damages, and attorneys’ fees. Because it determined that
no operty”’ or ‘“‘liberty’’ interest within the fourteenth
amendment was involved, the district court dismissed the
complaint.
Plaintiffs rely on Feinberg v. Federal Deposit Insurance
Corp., 522 F.2d 1335 (D.C. Cir. 1975) for the proposition
that a directorship may be a property interest within the
meaning of the fourteenth amendment. In that case, how-
ever, the plaintiff, who was president as well as director of
a bank, was receiving a substantial salary, and it was the
salary that the court specifically termed a a’’property”’ in-
terest. Jd. at 1340. In contrast, plaintiffs here do not re-
ceive a salary; a salary as such is forbidden by bank reg-
ulations although a “fixed sum”’ is allowed to be set to
compensate for attendance at meetings, and directors may
be compensated for outside services to the Board.' Plain-
tiffs’ sole monetary receipts for serving as directors were
$25 for each day’s attendance at board meetings plus trav-
elling expenses. The magistrate characterized this $25 per
diem as a reimbarsement for expenses and the district
court accepted the magistrate’s findings and determined
that as there was no expectation of deriving any property
interest from the position of director, no property interest
within the meaning of the fourteenth amendment was in-
volved. On this record, which fails to establish that a di-
rectorship of this nature carries with it collateral benefits
' Regulation 10.08G of the Banco Cooperativo states:
‘None of the Directors have as such a right to salary but
the Board can from time to time set a fixed sum as compen-
sation for the attendance of Board meeting or meetings of
any authorized committee. The Board can also authorize
payment for compensation which it considers reasonable for
any and all of its members for services rendered to the Board
that are not for assistance to the meetings of the Board of
Directors or such committees.”’
4a
capable of economic valuation, we uphold this determina-
tion.
There remains the question whether plaintiffs have a
liberty interest in serving as directors which is protected
by the fourteenth amendment. Apart from fundamental
rights and rights guaranteed dy one of he provisions of
the Bill of Rights which has been incorporated into the
fourteenth amendment (which is not involved here), inter-
ests comprehended within the meaning of fourteenth
amendment liberty or property attain their constitutional
status by virtue of the fact that they have been initially
recognized and protected by state law, Paul v. Davis, 424
U.S. 693, 710 (1976), and the dimensions of these interests
are shaped by state law. Bishop v. Wood, 426 U.S. 341
(1976). Arguably, plaintiffs are in a position somewhat
similar to that of the plaintiff in Bishop v. Wood, who
claimed that a city ordinance conferred upon him a suffi-
cient expectancy of continued employment to constitute a
protected property interest. The ordinance provided: ‘‘If a
permanent employee fails to perform work up to the stand-
ard of the classification held, or continues to be negligent,
inefficient, or unfit to perform his duties, he may be dis-
missed by the City Manager.” Jd. at 344 n.5. The Supreme
Court, noting that plaintiff's interpretation of the ordi-
nance was a possible one, stated it could also be read as
“merely conditioning an employee’s removal on compli-
ance with certain specified procedures,” Jd. at 345, and
deferred to the district court’s interpretation to theatter
effect. Thus, the ordinance in Bishop v. Wood, while set-
ting forth conditions for termination, committed the de-
termination of the existence of those conditions solely to
the City Manager. See also Moore v. Otero, 557 F.2d 435,
437 n.6 (5th Cir. 1977) (department's operating procedure
which set forth the conditions upon which police corporals
are appointed and retained did not confer a property in-
terest but merely informed the chief of police’s discretion).
Section 768a may be open to an interpretation, in line with
5a
that given the ordinance in Bishop v. Wood, negating the
existence of any fourteenth amendment interest in serving
as a director, although three factors not present in Bishop
v. Wood—the existence of a specific term (three years), the
exceptional grounds for removal (dishonesty), and the fact
that the appointing authority (the shareholders) differs
from the removing authority (the Secretary)—point
against such an interpretation. We do not pursue the mat-
ter further, however, because wholly apart from whether
a directorship itself is an interest protected by the four-
teenth amendment, we believe that adding the stigma of
a discharge for dishonesty gives rise to such an interest.
While defamation by a governmental official, standing
alone, does not work a deprivation of liberty protected by
the fourteenth amendment, Paul v. Davis, 424 U.S. 693
(1976), governmental action altering a right or status pre-
viously held under state law “combined with the injury
resulting from the defamation, justifie[s] the invocation of
procedural safeguards.” Id. at 765-06. See also V enietulo
v. Burke, No. 78-1305, slip op. (1st Cir. March 30, 1979).
The Fifth Circuit has capsulized the import of Paul v.
Davis into the following ‘‘stigma-plus’”’ test: ““To establish
a liberty interest sufficient to implicate fourteenth amend-
ment safeguards, the individual must be not only stigma-
tized but also stigmatized in connection with a denial of a
right or status previously recognized under state law.”’
Dennis v. S & S Consolidated Rural High School District,
577 F.2d 338, 341 (5th Cir. 1978), quoting Moore v. Otero,
557 F.2d at 437. We have said that “when a state holds
out a right to citizens to engage in an activity on equa.
terms with others, a state-recognized status exists.’’ Me-
dina v. Rudman, 545 F.2d 244, 250 (1st Cir. 1976), cert.
denied, 434 U.S. 891. Here, title 7, chapter 66 of the laws
of Puerto Rico sets forth general terms pursuant to which
an individual may serve as a director; hence, we think the
“plus” of the stigma-plus test is satisfied.
6a
Clearly, furthermore, there was serious “‘stigma’’ here.
The very act of removal under this statute necessarily
brings into question the directors’ integrity. The statutory
grounds for removal, phrased in the conjunctive, require
a determination by the Secretary that “there is evidence
... that such [statutorily enumerated] violations or failure
is one involving personal dishonesty.’”
It is true that, strictly read, the statute does not require
an official determination or charge of dishonesty, but only
a finding that there is sufficient ‘‘evidence’”’ of dishonesty
to warrant invoking the statute. This superfine distinction
would have little practical effect, however, in reducing the
clear imputation of dishonesty flowing from removal under
this statute.* We thus think that removal from bank di-
* The conjunctive phrasing of § 768a distinguishes it from the
disjunctive provision involved in Mitchell v. King, 537 F.2d 385
(10th Cir. 1976), a case upon which the district court relied.
There, removal was allowed ‘‘for incompetence, neglect of duty,
or malfeasance in office.’ (emphasis supplied). Jd. at 391.
* The Secretary sent the following notification of removal to
plaintiffs.
‘Pursuant to the authority conferred upon me by Article
18A of the Law No. 88, enacted June 21, 1976, as amended,
Law of the Banco Cooperativo de Puerto Rico, [7 L.P.R.A.
§ 768a] I hereby remove you from the position of member of
the Board of Directors of the Banco Cooperativo de Puerto
Rico for having participated in acts contrary to sound bank-
ing practices and having incurred in omissions or practices
that constitute a violation of your fiduciary duties as direc-
tors that has had as result that the Bank has suffered a
substantial financial loss."
Arguably, these allegations could be founded on exercises of poor
business judgment rather than upon acts of dishonesty. As there
is no indication in the record that this letter was published, we
need not decide whether these charges alone could form the basis
for a claim that plaintiffs’ ‘good name, reputation, honor, or
pry en have been impaired. Bishop v. Wood, 426 U.S. 341,
2 en nal
a Wie 6 ot
7a
rector status, as it is recognized by Puerto Rico law, on
the ground of dishonesty, actual or suspected, affects a
liberty interest requiring due process safeguards.
We turn next to the question of what process was due.
We disagree with plaintiffs’ contention that a pre-termi-
nation hearing was constitutionally required. There is par-
ticular justification for summary action in the banking
field. In Fahey v. Mallonee, 332 U.S. 245 (1947), a regula-
tion authorizing the Federal Home Loan Bank Board, with-
out prior hearing, to appoint a conservator to take posses-
sion of a bank’s assets was challenged. The Supreme Court
upheld the regulation stating that ‘“‘the delicate nature of
the [banking] institution and the impossibility of preserv-
ing credit during an investigation has made it an almost
invariable custom to apply supervisory authority in this
summary manner.” Jd. at 258. Similar reasons pertain to
the removal of a director under the conditions set forth in
Plaintiffs also claim they were stigmatized by the Governor's
speech televised approximately one week before their removal.
Apart from the question whether there exists a sufficient nexus
between the speech and plaintiffs’ termination to remove it from
the realm of simple governmental defamation which is not ac-
tionable under 42 U.S.C. § 1983, Paul v. Davis, 424 U.S. 692
(1976) (but see Owen v. City of Independence, 560 F.2d 925 (8th
Cir. 1977), vacated on other grounds, U.S. , 57 L.Ed.2d
1145 (absence of nexus between stigmatizing remark by one
official and discharge by second official)), the speech does not
stigmatize plaintiffs because it does not identify them as respon-
sible for what the Government termed the “serious economic
situation confronting the Banco Obrero and the Banco de Coop-
erativas."" The speech refers to the “deep professional uncon-
cern,”’ “irresponsibility,” and ‘‘immorality that has surrounded
the handling’’ of bank funds. Blame is placed, at one point or
another, on “‘the forces that rule a country’; the ruling class
“composed of a self-serving group of individuals’’; individuals
with close ties to officials, directors or persons in high govern-
ment spheres; and one person who treated the Banco Coopera-
tivas as ‘“‘his bank’ in the selfish and immoral sense of the
phrase.”’ Plaintiffs are neither named nor identified.
8a
§ 768a. Requiring retention of plaintiffs as directors pend-
ing a hearing would severely hamper, if not curtail, the
Commonwealth's ability to deal with a perceived economic
crisis. We have affirmed the denial of a pre-termination
hearing under circumstances where the intrasion into gov-
ernmental functioning, while substantial, was much less
obstructive than it would have been here. Levesque v.
Maine, 587 F.2d 78 (1st Cir. 1978).
While, therefore, a pre-termination hearing was not re-
quired, opportunity for a post-termination hearing afford-
ing plaintiffs an opportunity to clear their names was re-
quired. Section 768a is unconstitutional insofar as it is
construed to empower the Secretary to remove elected
directors on the stigmatizing ground set forth without
affording them notice of the charges against them and a
reasonably prompt post-termination hearing.
We turn next to the question of relief. As their primary
remedy, plaintiffs seek reinstatement to their positions as
directors; in the alternative they ask for damages. We need
not decide whether or not directors removed pursuant to
§ 768a would ever be entitled to reinstatement as that
remedy is not now appropriate. The terms to which plain-
tiffs were elected by the shareholders have long since ex-
pired, and other elected directors are now serving. It would
be an unwarranted interference with the bank’s internal
affairs to order plaintiffs’ reinstatement.
Neither party has briefed or argued the issue of dam-
ages, and at this stage we cannot determine whether or
not plaintiffs are entitled to more than nominal damages
Perez v. Rodriguez Bou, 575 F.2d 21 (1st Cir. 1978). We
therefore remand this issue to the district court but with
several observations. The significant due process violation
which occurred here was not the removal itself but the
failure to accord plaintiffs a more detailed notification of
charges and a reasonably prompt post-termination hearing
at which to clear their names. Hence, ‘‘the remedy man-
ey wren
LACE ae Ah ES ce RD Lee ec pi ard Fan Cee SY
isis
9a
dated by the Due Process Clause of the Fourteenth
Amendment is ‘an opportunity to refute the charge’”’ of
dishonesty. Codd v. Velger, 429 U.S. 624, 627 (1977) quot-
ing Roth v. Board of Regents, 408 U.S. 564, 573 (1972). See
also Cox v. Northern Virginia Transportation Commission,
551 F.2d 555, 559 (4th Cir. 1976) (compensatory damages
for injury to reputation denied). The record does not indi-
cate whether or not plaintiffs ever requested a post-ter-
mination hearing, and plaintiffs do not ask for one now. It
is very questionable whether plaintiffs may elect to bypass
this primary remedy, assuming the Commonwealth is now
willing to grant a hearing, and collect damages in the al-
ternative. If, however, the district court determines that
due to the Commonwealth’s continued refusal, lapse of
time, or other reason not due to plaintiffs’ volition, a hear-
ing now would be impossible or ineffectual, damages may
be proper. In that event, however, the court must carefully
ascertain whether any damage to plaintiffs’ reputations
stemmed from the failure to accord plaintiffs a hearing.
In the absence of proof of injury‘ resulting from the
procedural due process violation, damages other than nom-
‘On the present record it is not clear to what extent, if any,
plaintiffs have suffered any injury flowing from the denial of
procedural due process. The magistrate found and the plaintiffs
have not disputed that plaintiffs retained the same employment
after their removal as prior thereto. The magistrate further found
“that [plaintiffs’] standing in the community has remained in-
tact’’ and that ‘‘[t]here was no showing that defendant’s action
had impaired plaintiffs’ ability to earn their chosen profession’’;
hence, he reasoned plaintiffs had sustained no harm to their
reputations. As the district court concluded no liberty interest
was at stake, it did not pass upon the latter findings. Plaintiffs
argue that under Puerto Rico law there is a pres imption that
damage has been suffered as a result of the Secretary’s action.
Whether or not plaintiffs’ assertion is correct, it does not follow
that said damage was caused by the specific denial of procedural
due process which occurred here—the absence of a reasonably
prompt post termination hearing at which plaintiffs would have
been afforded an opportunity to meet the Secretary’s charges.
10a
inal damages are generally not appropriate. Carey v. Pi-
phus, 435 U.S. 247, 260 (1978). Thus, if the alleged tarnish
of plaintiffs’ reputations would have occurred even had
plaintiffs been afforded an appropriate hearing, plaintiffs’
reputations have not been damaged by the due process
violations.’ This would be the case, for example, if the
Secretary had sufficient evidence of plaintiffs’ dishonesty
at the time of discharge and if plaintiffs’ then available
rebuttals would have been ineffectual. We leave final de-
termination of these matters to the district court which
will have the benefit of the parties’ input on the subject.
The issue of attorneys’ fees is also remanded for deter-
mination by the district court in accordance with our
guidelines set forth in King v. Greenblatt, 560 F.2d 1024
(1st Cir. 1977), cert. denied, U.S.___, 98 S.Ct. 3146.
Reversed.
* Plaintiffs, however, may still recover for mental and emotion-
al distress actually caused by the denial of procedural due process
upon proof thereof. Carey v. Piphus, 435 U.S. at 263.64. See also
Perez v. Rodriguez Bou, 575 F.2d at 25 (general discussion of the
award of substantial compensatory damages for intangible loss
of civil rights or purely mental suffering).
is 200
WRN AAO he gt MG Ld La NSE A RTEA CRORE RABAT ba
lla
Appendix II
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296.
JUDITH RODRIGUEZ de QUINONEZ, ET AL.,
Plaintiffs, Appellants
v.
HONORABLE JULIO CESAR PEREZ, ETC., ET AL.,
Defendants, Appellees.
JUDGMENT
Entered: March 30, 1979
This cause came on to be heard on appeal from the
United States District Court for the District Court for the
District of Puerto Rico, and was argued by counsel.
Upon consideration whereof, It is now here ordered, ad-
judged and decreed as follows:
The judgement of the District Court is vacated and
the cause is remanded for further proceedings con-
sistent with the opinion filed this day.
By the Court:
/s) DANA H. GALLUP
/s/ Clerk.
12a
Appendix III
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO
IVIL NO. 77-908
JUDITH RODRIGUEZ QUINONEZ, et al,
Plaintiffs
v.
HONORABLE JULIO CEASAR PEREZ, etc.,
Defendants
MAGISTRATE’S REPORT AND
RECOMMENDATION
Plaintiffs Judith Rodriguez de Quinonez, Luis S. Parril-
la, and Antero Solis Lazu filed the instant complaint on
June 15, 1977. The action was brought under Title 42,
United States Code, Section 1983, and its jurisdictional
counterpart, Title 28, United States Code, Sections 2201
and 2202.
Plaintiffs allege that article 18(A) of Law 94 of May 31,
1976, (7 L.P.R.A. 768 (A)) utilized by the Secretary of the
Treasury of the Commonwealth of Puerto Rico to remove
them from their position as members of the Board of Di-
rectors of the Cooperative Bank of Puerto Rico, is null and
void because it enabled their removal as Directors without
prior hearing and without notification of the acts, omis-
sions and unsound banking practices warranting said re-
moval; that in so dismissing them, defendant accused and
determined that plaintiffs were guilty of violating Com-
monwealth laws. Said removal has resulted in a stigma of
ridicule and dishonor, while depriving them of property
and liberty in violation of their constitutional rights to due
process.
+ Btw EET. aS Le
wae. he Ri AT atl
oe Elen OS CNA tree el ET ne 0
13a
Defendant has submitted a motion for summary judg-
ment alleging that: 1) the complaint failed to state a claim
upon which relief may be granted because the statute in
question is constitutional; 2) that the plaintiffs do not have
standing to challenge the statute in question on grounds
of due process.
We must first bear in mind that the statute in question
deals with banking, and that the bank in question is one
created under special legislation enacted in furtherance of
the Commonwealth’s policy of aiding and strengthening
cooperative business activity. Thus, an inherent attribute
of government is the police power to regulate business
activity within the jurisdiction in protection of the public
interest and welfare. The Commonwealth of Puerto Rico
has exercised its police power in many areas such as zoning
restrictions, taxes and duties, professions through licen-
sing, promulgating health and safety standards, and other
such regulations concerning economic and social activity.
The exercise of the Commonwealth’s police power has been
valid and constitutional in accordance with the standards
laid down by the United States Supreme Court. North
Dakota Pharmacy Board v. Synder’s Stores, 414 U.S. 156
(1973); Ferguson v. Skrupa, 372 U.S. 726 (1962); Goldblatt
v. Hempstead, 369 U.S. 590 (1961).
It is clear that banking is an economic activity which
must be strictly regulated if governmental economic policy
is to be effective. It is an activity which must be carried
out in accordance with the public interest. K. C. Davis, in
his Administrative Law Treatise, Section 4.04, page 247,
states:
‘““... the regulation of banks and other such insti-
tutions bonded with a public trust have never been
treated as an ordinary case and rightfully so. The
banking business more than any other, has been sub-
ject yl the most careful scrutiny of regulatory agen-
cies. The unique character and tradition of banking
often justify the delegation of extremely broad dis-
l4a
cretionary powers to state banking commisioners
which, if attempted elsewhere, would like by violate
due process.” (Underlining ours)
As previously mentioned, we are dealing with a bank
created to fulfill a public need and which is subject to the
banking law as well as to the requirements of the law under
which it was organized. The Cooperative Bank was orga-
nized under the provisions of Law No. 88 of June 21, 1966,
7 L.P.R.A. 751, et seq. Its purpose is stated in Section 752
and reads as follows:
“The purpose of the Bank is to promote the general
welfare of the community by the proper canalization
of the resources of cooperative enterprises and their
members, in addition to other resources the institu-
tion may raise, in order to meet the credit require-
ments of the cooperative organizations, their mem-
bers, and the community in general; to facilitate the
creation of new cooperatives and other enterprises;
and to expand and improve those already existing.”
(Underlining ours)
On the basis of all of the above considerations the power,
of the Commonwealth of Puerto Rico to regulate banking
institutions in furtherance of the public good and welfare
is undeniable.
Given the special nature of the Cooperative Bank, the
Legislature of the Commonwealth of Puerto Rico deemed
it necessary that the Secretary of Treasury closely monitor
the operation of the bank. (Sec. 18 of Law 88, 7 L.P.R.A.
768). It was also provided in Section 19 (7 L.P.R.A. 769)
that the Secretary assume direction and management of
the bank should the bank’s economic condition appear
unstable.
Faced with the steadily deteriorating condition of the
Bank, the Legislature enacted Law No. 94 of +ay 31, 1966,
to amend Law 88 of June 21, 1966. This law established a
new section (7 L.P.R.A. 768(A() which allowed the Secre-
tary to remove the directors of the Bank. The statute
clearly promotes the general welfare by providing means
ee ee eee Se
leh NIN ik We hae as TE eae
~ i en li Ne we
l5a
whereby the existence and viability of the Bank may be
protected.
The statute in question is clearly an exercise of the
Commonwealth's police power. The right to be a director
of the Cooperative Bank is not a fundamental right found
in the Federal Constitution nor one based on an inherently
suspect criterion. The standard of review is not the strict
scrutiny test but the rationality test established in Mc-
Gowan v. Maryland, 366 U.S. 420 (1961), which states that
a statute's constitutionality will be upheld if any state of
facts can be conceived to uphold it. The present applica-
bility of the rationality test when no fundamental personal
rights are involved was established in Hughes v. Alexan-
dria Scrap Corp., 426 U.S. 794, 810-814 (1976); San Antonio
School District v. Rodriguez, 411 U.S. 1, 51 (1972).
In short, the questioned statute meets the rationality
test, enacted to provide the Secretary of the Treasury with
an efficient alternative to remedy the Bank’s undesirable
condition and thus protect the public welfare.
Defendant's second contention is that plaintiffs lack
standing to challenge the statute on due process grounds
because their constitutional rights to property and liberty
were not abridged or violated.
Plaintiffs were directors, not employees of the Bank and
did not earn their livelihood from their services as direc-
tors. Said positions are of a fiduciary nature, the main
factor being the element of trust. Plaintiffs cite Feinberg
v. Federal Deposit Insurance Corp., 522 F.2d 1335 (1975)
to support their argument that they were denied their
rights to property and liberty. A thorough reading of Lein-
berg reveals that Leinberg had a substantial annual salary;
owned 28% of the stock and managed another 23%, thus
making this case distinguishable due to Leinberg’s undis-
puted property right. Plaintiffs in the case at bar only
received a compesation of $25.00 per meeting which
amounts to a reimbursement of expenses. Their livelihood
16a
is derived from teaching and/or other employment for the
Commonwealth. One plaintiff is a retired accountant and
the other two plaintiffs retain the same employment as
prior to their removal as directors. “‘Property interests are
not created by the Constitution. Rather they are created
and their dimensions are defined by existing rules or un-
derstandings that stem from an independent source such
as state law, rules or understandings that secure certain
benefits and that support claims of entitlement to those
benefits.’’ Board of Regents of State Colleges v. Roth, 408
U.S. 564 (1972). It appears quite clear that plaintiffs have
no property right in relation to their position as directors
under the laws of the Commonwealth or the Federal Con-
stitution. The action taken by the Secretary of the Treas-
ury did not unconstitutionally violate plaintiff's property
right.
As to the alleged deprivation of liberty without due
process, it is defendant’s contention that plaintiffs’ con-
stitutional rights to liberty were not violated. Plaintiffs
presented no evidence sustaining their allegation ot harm
to their reputation, good name and integrity. Their chosen
professions and their standing in the community has re-
mained intact. There was no showing that defendant's
action had impaired plaintiffs’ ability to earn their chosen
profession. As stated in Paul v. Davis, 424 U.S. 693 (1976):
‘*... The words ‘liberty’ and ‘property’ as used in
the Fourteenth Amendment do not in terms single
out reputation as a candidate for special protection
over and above other interest that may be protected
by state law. While we have in a number of our prior
cases pointed out the ches ged drastic effect of the
‘stigma’ which may result from defamation by the
Pesan ae in a variety of contexts, this line of cases
oes not establish the proposition that reputation
alone, apart from some more tangible interests such
as employment, is either ‘liberty’ or ‘property’ by it-
self sufficient to invoke the procedural protection of
the Due Process Clause. ... We think that the weight
of our decisions establishes no constitutional doctrine
a. CO ween eee
ae as
Rte ner tees Bln Saha Rt
17a
converting every defamation by a public official into
a deprivation of liberty within the meaning of the Due
Process Clause of the Fifth of Fourteenth Amend-
ments. . .”’
In any case, should such harm exist, plaintiffs must
litigate their claims in the courts of the Commonwealth of
Puerto Rico, for redress in this Court under the Civil
Rights Act is improper.
THEREFORE, for the reasons previously stated, it is
recommended that plaintiffs’ complaint be dismissed. Par-
ties have 10 days to oppose to this Magistrate's recom-
mendation.
San Juan, Puerto Rico, April 27, 1978.
JUAN M. PEREZ-GIMENEZ
United States Magistrate
18a
Appendix IV
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
CIVIL NO. 77-908
JUDITH RODRIGUEZ DE QUISONEZ; LUIS S.
PARRILLA and ANTERO SOLIS LAZU
Plaintiffs
Vs.
HONORABLE JULIO CESAR PEREZ, officially as
Secretary of the Treasury of the Commonwealth of
Puerto Rico; ARTURO TORREGROSA; AIDA PEREZ;
ADALBERTO ORTIZ and CARLOS FIGUEROA
Defendants
OPINION AND ORDER
Plaintiffs herein filed the instant action under Title 42,
United States Code, Section 1983 invoking the jurisdiction
of this court under Title 28, United States Code, Sections
2201 and 2202.
In the complaint filed herein it is alleged that Article
18A of Law 94 of May 31, 1976 (Title 7, Laws of Puerto
Rico, Section 768A) used by the Secretary of the Treasury
of the Commonwealth of Puerto Rico to remove them from
their position as members of the Board of Directors of the
Cooperative Bank of Puerto Rico, is null and void and
unconstitutional because it allowed their removal as direc-
tors without prior hearing and without notification of the
acts, omissions and unsound practices warranting said re-
moval. It is further alleged that in so dismissing them,
defendant accused and adjudged plaintiffs guilty of vio-
lating Commonwealth laws and of being involved in per-
Deh on le ee he
ee ee
19a
sonal dishonesty; that said removal denied them their right
to serve on the Board of Directors and constituted punish-
ment without trial; that as a result of their removal they
received a stigma of ridicule, embarrassment and dishonor;
and, in short, that their removal had deprived them of
their property and liberty in violation of their constitu-
tional right to due process.
As remedy, plaintiffs requested that the Court declare
the statute unconstitutional and their removal null and
void, and that an injunction be issued reinstating them to
their positions as directors of the Cooperative Bank and
restraining defendants from preventing plaintiffs’ partici-
pation as such directors.
The matter was referred to the United States Magistrate
for his report and recommendation, and the record reveals
that after the filing of a Stipulation of Facts, a hearing
was held herein before the Magistrate as to the unstipu-
lated matters. Thereafter, on April 28, 1978, the Honorable
Magistrate filed his Report and Recommendation, to which
plaintiffs have filed a timely objection. The matter stands
thus submitted for our consideration.
In his report and recommendation the Magistrate sug-
gests that the questioned statute is constitutional. This
conclusion is based on two main grounds: 1) that said
statute is a permissible exercise of the Commonwealth’s
police power; 2) that piaintiffs’ constitutional rights to
property and liberty have not been violated.
In their objection plaintiffs accept that the statute here
in question is weil within the province of the police power
of the state. However, they press their claim by stating
that even when within the area of the police power of the
state to supervise banking institutions, said power is to be
subjected to the procedural safeguards of due process.
The constitutional guaranty invoked herein provides
that a person shall not be deprived of life, liberty or prop-
20a
erty without due process of law. Thus, in the present case
it was necessary to make a preliminary determination as
to whether plaintiffs have suffered a deprivation of liberty
or property in the constitutional sense.
The Magistrate correctly determined that plaintiffs were
not deprived of their property rights. The record reveals,
and the Magistrate so found, that plaintiffs did not earn
their livelihood from their services or directors. Nor did
any statute of the Commonwealth create an expectation of
deriving any property interest from their position as di-
rectors. Thus, there being no property right at stake, there
was no reason to invoke the Due Process Clause. See Board
of Regents v. Roth, 408 U.S. 564 (1972).
However, plaintiffs’ contention that they were deprived
of their liberty rights without due process because their
removal as directors subjected them to a loss of reputation,
presents a more complex issue.
The Magistrate concluded that plaintiffs failed to sus-
tain their allegations of harm to their reputation, good
name and integrity and that their chosen professions and
their standing in the community remained intact. In their
objections to the Magistrate's report plaintiffs allege that
in so removing them as directors of the bank, public im-
putations were made in regard to a dishonest and illegal
conduct on their part, a serious offense, and that they
suffered great embarrassment. They contend that there is
a presumption that damages have been suffered as a result
of the publication and utterance and rely on local case law
as to this point.
In Paul v. Davis, 424 U.S. 693 (1975) the Supreme Court
specifically rejected the notion that the infliction by state
officials of a ‘‘stigma’’ to one’s reputation, without more,
would constitute a violation of a federal constitutional
ee a i ey et leer
— ee es oe oe oe ec ie >
en ee
2la
right so as to make the Due Process Clause automatically
applicable:
‘... The words “‘liberty”’ and ‘‘property”’ as used in the
Fourteenth Amendment do not in terms single out
reputation as a candidate for special protection over
and above other interests that may be protected by
state law. While we have in a number of our prior
_ cases pointed out the frequently drastic effect of the
“stigma” which may result from defamation by the
deep in a variety of contexts, this line of cases
oes not establish the proportion that reputation
alone, apart from some more tangible interests such
as employment, is either “‘liberty’’ or “‘property”’ by
itself sufficient to invoke the procedural protection of
the Due Process Clause .. ."’ Id. at 701.
In their Memorandum before us, plaintiffs cite Wiscon-
sin v. Constantineau, 400 U.S. 433 (1971) in support of
their contention that the damage to reputation alleged here
is cognizable as a liberty interest within the protection of
the Due Process Clause. However, in Paul v. Davis, supra,
the Supreme Court specifically rejected said possible in-
terpretation of the Constantineau case by stating:
‘... As we have said, the Court of Appeals, in
reaching a contrary conclusion, relied primarily upon
Wisconsin v. Constantineau, 400 U.S. 433 (1971). We
think the correct import of that decision, however,
must be derived from an examination of the prece-
dents upon which it relied, as well as consideration of
the other decisions by this Court, before and after
Constantineau, which bear upon the relationship be-
tween srr ag defamation and the guarantees
of the Constitution. While not uniform in their treat-
ment of the subject, we think that the weight of our
decisions establishes no constituticnal doctrine con-
verting every defamation by a public official into a
deprivation of liberty within the meaning of the Due
Process Clause of the Fifth or Fourteenth Amend-
ment....’’ Id. at pps. 701-702. (Emphasis added).
The aftermath of the holding of the Supreme Court in
Paul v. Davis can be summarized into a phrase or thumb-
22a
rule: ‘‘loss of reputation plus loss of employment” present
a cognizable liberty-property claim under the appropriate
Due Process Clause.
Even in cases when the property right analysis led to a
finding that no such property right existed under state
law, as when plaintiff had a non-tenured position, when
the damage to reputation resulted in failure to rehire, or
affected the possibilities of obtaining future employment,
then a cognizable interest was found to exist under the
Due Process Clause. This rule was adopted by the Seventh
Circuit in Colaizzi v. Walker, 542 F.2d 969 (1976) at 973:
“In other words, infliction of a stigma to reputation
accompanied by a failure to rehire (or, a fortiori, by a
discharge) states a claim for deprivation of liberty
without due process within the meaning of the Four
teenth Amendment. Moreover, this combination of
stigma plus failure to rehire/discharge states a claim
even if the failure to rehire or discharge of itself de-
prives the eng of no property interest within the
meaning of the Fourteenth Amendment. We reach
this conclusion because on the facts of Roth itself the
Supreme Court found that the plaintiff responcent
had no claim of entitlement to or property interest in
his job. Roth, supra, 408 U.S. at 478, 92 S.Ct. 2701.
Since the Court in Paul v. Davis specifically approved
the Roth dictum concerning stigma to reputation, it
follows that stigma to reputation (not itself a depri-
vation of liberty as defined in the Fourteenth Amend-
ment) plus failure to rehire or discharge (not necessar-
ily involving deprivation of property as defined in the
Foubipaiih Amendment) may nevertheless when
found in conjunction state a claim under 42 U.S.C.
Section 1983 for deprivation of a Fourteenth Amena-
ment liberty interest without due process.”
See also: Edelberg v. Illinois Racing Board, 540 F.2d 279
(7 C.A., 1976); Ryan v. Aurora City Board of Education,
540 F.2d 222 (6 C.A., 1976 at fnt. 2).
In Stretten v. Wadsworth Veterans Hospital, 537 F.2d
361 (9 C.A., 1976) the Ninth Circuit did not find a liberty
interest at stake. Although Stretten contains a language
= es Goss
et >
23a
which could lead to a conclusion that when the stigma to
reputation is one that implies moral turpitude or dishon-
esty then a cognizable liberty interest would exist.' How-
ever, in Stretten plaintiff suffered a tangible loss of being
dismissed from his employment as a medical resident.
Nevertheless, the Court found that Dr. Stretten’s liberty
interest had not been infringed by a dismissal without
hearing because the charges leveled against him were not
the kind which were likely to preclude him from practicing
medicine. /d. at 366. The Fourth Circuit has also adhered
to this interpretation of Paul v. Davis, in the case of Cox
v. Northern Virginia Transportation Commission, 551 F.2d
555 (4th Cir., 1976) at 558.
We find that the case of Mitchell v. King, 537 F.2d 385
(10th Cir., 1976) is of utmost application to the facts pres-
ent herein. In Mitchell a former member of the Board of
Regents of the Museum of New Mexico brought an action
against the Governor of New Mexico, contending that by
revoking his appointment as a regent of the museum, the
Governor had deprived him of rights to property and lib-
erty without due process.
The Court of Appeals for the Tenth Circuit found that
Mitchell did not have a property interest as a Regent
entitling him to minimum standards of procedural due
process before he can be removed as a regent. Like in the
present case, the Regents of New Mexico Museum were
not compensated for their services as such, nor did the
New Mexico statute create any expectation akin to prop-
' At pps. 365-366 the Court stated:
‘‘... this Court has concluded that Roth’s notion of lib-
erty, while imprecise, distinguishes between a stigma of
moral turpitude, which infringes the liberty interest, and a
charge of incompetence or inability to get along with co-
workers which does not. Gray v. Unicon County Intermediate
Educ. Dist., 520 F.2d 803 (9th Cir., 1975); Jablon v. Trustees
of California State Colleges, 482 F.2d 997 (9th Cir., 1973).”’
24a
erty, because it did not provide for a pre-dismissal hearing.
Again, like in Section 768A challenged herein, possible
negative implications could result from the regents’ re-
moval because the New Mexico statute provided that the
Governor could remove the regent without a hearing ‘‘for
incompetency, neglect of duty or malfeasance in office.”
However, the Tenth Circuit refused to find that injury
to reputation alone constituted a deprivation of a federally
protected property or liberty right. See also: Adams v.
Walker, 492 F.2d 1003 (7th Cir., 1974).
We find that in the present case the Magistrate's con-
clusion that plaintiffs had no property interest at stake is
well founded. After such determination, plaintiffs’ liberty
claim has no merits, in the federal constitutional sense. We
must bear in mind that the “‘liberty’’ guaranteed by the
Due Process Clause of the Fourteenth Amendment is that
“to engage in any of the common occupations of life.’’ See
Meyer v. Nebraska, 262 U.S. 390 (1923). In the present
case, plaintiffs’ liberty to exercise their chosen profession
or to earn a livelihood has not been affected.
In the present case, if plaintiffs have a cause of action
their remedy is a suit for defamation in the Commonwealth
courts. This is consonant with the holding of the Supreme
Court in Paul v. Davis when it stated:
‘Respondent brought this action, however, not in
the state courts of Kentucky but in a United States
District Court for that state. He asserted not a claim
for defamation under the laws of Kentucky, but a
claim that he had been deprived of rights secured to
him by the Fourteenth Amendment of the United
States Constitution. Concededly, if the same allega-
tions had been made about respondent by a private
individual, he would have nothing more than a claim
for defamation under state law ... But, he contends,
since petitioners are respectively an official of the city
and of county government, his action is thereby trans-
muted into one for deprivation by the State of rights
secured under the Fourteenth Amendment.” [Id. at
697-698].
i. alee. Pa a RE
25a
The Court went on to add:
“It is apparent from our decisions that there exists
a variety of interests which are difficult of definition
but are nevertheless comprehended within the mean-
ing of either “‘liberty’’ or ‘“‘property’’ as meant in the
Due Process Clause. These interests attain this con-
stitutional status by virtue of the fact that they have
been initially recognized and protected by state law,
and we have repeatedly ruled that the procedural
guarantees of the Fourteenth Amendment apply
whenever the State seeks to remove or significantly
alter that protected status. In Bell v. Burson, 402
U.S. 535 (1971), for example, the State by issuing
drivers’ licenses recognized in its citizens a right to
—— a vehicle on the highways of the State. The
ourt held that the State could not withdraw this
right without giving petitioner due process. In Mor-
rissey v. Brewer, 408 U.S. 471 (1972), the State af-
forded parolees the right to remain at liberty as lon
as the conditions of their parole were not violated.
Before the State could alter the status of a parolee
because of alleged violations of these conditions we
held that the Fourteenth Amendment's guarantee of
due process of law required certain procedural safe-
guards.
In each of these cases, as a result of the state action
complained of, a right or status previously recognized
by state law was distinctly altered or extinguished. It
was this alteration, officially removing the interest
from the recognition and protection previously afford-
ed by the State, which we found sufficient to invoke
the procedural guarantees contained in the Due Pro-
cess Clause of the Fourteenth Amendment. But the
interest in reputation alone which respondent seeks
to vindicate in this action in federal court is quite
different from the “‘liberty”’ or ‘property’ recognized
in those decisions. Kentucky law does not extend to
respondent any legal guarantee of present enjoyment
of reputation which has been altered as a result of
petitioners’ actions. Rather his interest in reputation
is simply one of a number which the State may protect
against injury by virtue of its tort law, providing a
forum for vindication of those interests by means of
26a
damages ac:ions. And any harm or injury to that in-
terest, even where as here inflicted by an officer of the
State, does not result in a deprivation of any “liberty”
or “property"’ recognized by state or federal law, nor
has it worked any change of respondent’s status as
theretofore recognized under the State’s laws. For
these reasons we hold that the interest in reputation
asserted in this case is neither ‘“‘liberty’’ nor ‘‘prop-
erty’’ guaranteed against state deprivation without
due process of law.
Respondent in this case cannot assert denial of any
right vouchsafed to him by the State and thereby
protected under the Fourteenth Amendment. That
being the case, petitioners’ defamatory publications,
however seriously they may have harmed respond-
ent’s reputation, did not deprive him of any “‘liberty”’
or “property” interests protected by the Due Process
Clause.”’ [Id. at pps. 710-712, Emphasis added].
Wherefore, in view of all the above, the recommenda-
tions of the United States Magistrate are hereby adopted.
The complaint filed in the instant case shall be dismissed.
The Clerk shall enter judgment accordingly.
IT IS SO ORDERED.
San Juan, Puerto Rico, June 20, 1978.
JOSE V. TOLEDO
Chief U.S. District Judge
ja ml we th Bold
Cb A ata Nn BET Deakin Sete peat PY
27a
IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF PUERTO RICO
CIVIL NO. 77-908
JUDITH RODRIGUEZ DE QUINONEZ; LUIS S.
PARRILLA and ANTERO SOLIS LAZU
Plaintiffs
vs.
HONORABLE JULIO CESAR PEREZ, officially as
Secretary of the Treasury of the Commonwealth of
Puerto Rico; ARTURO TORREGROSA; AIDA PEREZ;
ADALBERTO ORTIZ and CARLOS FIGUEROA
Defendants
JUDGMENT
The Court having entered an Opinion and Order through
Honorable Jose V. Toledo dismissing this complaint
It is ORDERED AND ADJUDGED that the complaint
be dismissed.
IT IS SO ORDERED.
San Juan, Puerto Rico, June 22, 1978.
RAMON A. ALFARO
Clerk of the court
28a
Appendix V
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296
JUDITH RODRIGUEZ DE QUINONEZ, LUIS S.
PARRILLA and ANTERO SOLIS LAZU
Plaintiffs-Appellants
v.
HONORABLE JULIO CESAR PEREZ, officially as
Secretary of the Treasury of the Commonwealth of
Puerto Rico; ARTURO TORREGROSA; AIDA PEREZ;
ADALBERTO ORTIZ and CARLOS FIGUEROA
, Defendants-Appellees
On Appeal From A Judgment Of The United States
District Court For The District Of Puerto Rico
Petition For Rehearing Of Defendants-Appellees
HECTOR A. COLON CRUZ
Solicitor General
LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
Department of Justice
Box 192
San Juan, Puerto Rico 00902
Phone: (809) 723-5906
29a
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296
JUDITH RODRIGUEZ DE QUINONES, LUIS S.
PARRILLA and ANTERO SOLIS LAZU
Plaintiffs-Appellants
Vv.
HONORABLE JULIO CESAR PEREZ, officially as
Secretary of the Treasury of the Commonwealth of
Puerto Rico; ARTURO TORREGROSA; AIDA PEREZ;
ADALBERTO ORTIZ and CARLOS FIGUEROA
Defendants-Appellees
On Appeal From A Judgment Of The United States
District Court For The District Of Puerto Rico
Petition For Rehearing Of Defendants-Appellees
TO THE HONORABLE COURT:
Come now defendants, appellees, through their under-
signed attorney and pursuant to Rule 40 of the Rules of
Appellate Procedure and Rule 15 of this Honorable Court
respectfully aver and pray:
INTRODUCTORY STATEMENTS
This petition for rehearing is based on the fact that the
law which governs the case at bar is Law No. 16 of May
5, 1977 (7 LPRA sec. 768 (a)) and not Article 18 (a) of Law
94 of May 31st, 1976.
30a
In neither appellees’ nor appellants’ briefs is it made
clear that an amendment was present and this Honorable
Court has decided the issue under Article 18 (a) of Law 94,
which was amended by Law #16 of May 5, 1977, without
considering the latter.
Appellees inadvertenly cited and added as Addendum
Law #14 of May 5, 1977 instead of Law #16 of that same
date. Law #14 amended the law creating the Labor Savings
and Loan Bank of Puerto Rico and is almost exactly the
same as Law 416, herein at issue.
Due to the above, neither party on its brief argued the
significant differences between both laws and this Honor-
able Court was inadvertently led to confusion as to which
law governs the case.
GROUNDS FOR THE PETITION FOR REHEARING
I
THE LAW TO BE APPLIED IN THIS CASE
IS ARTICLE 18 (a) of LAW 94 ENACTED MAY
31st, 1976, AS AMENDED.
The amendment occurred on May 5, 1977 by virtue of
Law No. 16 which reads as follows:
‘‘When the Secretary of the Treasury determines
there is evidence that any director or officer of the
Cooperative Bank of Puerto Rico has violated this
act, the rules and bylaws promulgated hereunder or
a final cease and desist order, or has performed acts
contrary to sound banking practices in connection
with the Bank, or has participated in them, or has
committed or participated in the commission of any
act, omission or practice constituting a violation of
his fiduciary duties as director or officer of the Bank,
or the Secretary determines that the Bank has sus-
tained or will probably sustain a substantial financial
loss or other prejudice on account of such violation or
practice or failure to carry out his fiduciary respon-
sibilities or that such violation or failure is one in-
ee eee
teat kh
ee
ee ee
3la
volving personal dishonesty on the part of the director
or officer, the Secretary of the Treasury may issue a
written order suspending or removing him from his
position in that Bank. The Secretary is hereby em-
powered to appoint substitute directors for such term
that in his opinion and discretion he may deem con-
venient to assure a sound and safe management of
the business of the bank.”’ (See Addendum) (emphasis
supplied) .
The plaintiffs in this case were dismissed on May 9,
1977 by codefendant appellee Julio Cesar Perez who acted
pursuant to the amended law as above cited, that is, the
law to be applied in the case at bar. This law is clearly
distinguish from the law cited on page two of the Opinion
of March 30, 1979, of this Honorable Court, reading as
follows:
‘When the Secretary of the Treasury determines
there is evidence that any director or officer of the
Cooperative Bank of Puerto Rico has violated this
chapter, the rules and bylaws promulgated hereunder
or a final cease and desist order, or has performed
acts contrary to sound banking practices in connec-
tion with the Bank, or has participated in them, or
has committed or participated in the commission of
any act, omission or practice constituting a violation
of his fiduciary duties as director or officer of the
Bank, and the Secretary determines that the Bank
has sustained or will probably sustain a substantial
financial loss of other prejudice on account of such
violation or practice or failure to carry out his fidu-
ciary responsibilities and that such violation or failure
is one involving personal dishonesty on the part of
the director or officer, the Secretary of the Treasury
may issue a written order suspending or removing
me = his position in that Bank.” (emphasis sup-
p
The amendment makes it clear that no charge of dishon-
esty need be made in order that dismissal of the directors
occur.
32a
In this context it is significant to consider the clear
difference that is present in the concepts of the words
“and”, “or’’. Sutherland Statutory Construction, sec. 21.14
Vol. 1A (1972) reads in this respect as follows:
‘Where two or more requirements are provided in
a section and it is the legislative intent that all of the
requirements must be fulfilled in order to comply with
the statute the conjunctive ‘and’ should be used.
Where a failure to comply with any requirement im-
poses liability, the disjunctive ‘or’ should be used.”
There Is No Liberty Interest Involved In The
Case
A careful reading of the amended law whereby the word
“‘and”’ is substituted by “‘or’’ leads us to conclude that the
act ef removal under this statute did not bring into ques-
tion any of the Directors integrity.'
Yet, is must again be emphasized that sec. 768 (a) had
been amended when Julio Cesar Perez dismissed plaintiffs.
The amendment makes it clear that no charge of dishon-
esty need be made in order that dismissal be warranted.
‘This Honorable Court however, acting under the law before
its amendment, as cited by the defendants decided in its Opinion
of March 30, 1979 that:
‘*... removal from bank directors status, as it is recognized
by Puerto Rico law, on the ground of dishonesty, actual or
suspected, affects a liberty interest requir'ng due process
safeguards.’
This Court also considered that:
‘““. .. The statutory grounds for removal, phrased in the
conjunctive, require a determination by the Secretary that
‘there is evidence ... that such [statutorily enumerated]
violations or failure is one involving personal dishonesty’ "’.
an ai at OF it AEE onde A ital
Se ee ee ee ee ee ee eT es
33a
As a matter of fact this Honorable Court determined
that the letter sent to plaintiff by itself alone need not
form the basis for a claim that plaintiffs ‘“‘good name,
reputation, honor or integrity’’ had been impaired and
made it clear that it was in the statute itself that an
imputation of dishonesty was present.
We must bear in mind that the amended law leaves no
doubt as to the fact that dishonesty need not be present
for dismissal to occur. Yet, that is precisely what led this
Honorable, Court, under the law before being amended, to
intepret that stigma was present. But we must respectfully
argue that since no stigma is statutorily recognized in the
cited amended law, the thumb-rule of Paul v. Davis, 424
U.S. 693 (1975) “loss of employment”’ is not present, and
thus no cognizable liberty-property claim under the Due
Process Clause is present.
III
The Case Of Mitchell v. King Is Fully Applicable
In The Case At Bar
In Mitchell? a former member of the Board of Regents
of the Museum of New Mexico brought an action against
the Governor of New Mexico, for revoking his appointment
as a Regent of the Museum, alleging that the Governor
had deprived him of rights to property and liberty without
due process.
The Court of Appeals for the Tenth Circuit found that
Mitchell did not have a property interest as a Regent
entitling him to minimum standards of procedural due
process before he could be removed as a regent. It must
be observed that the members of the Board of Regents of
New Mexico Museum were not compensated for their serv-
ices as such, nor did the New Mexico statute create any
* 537 F. 2d 385 (1976)
34a
expectation akin to property, because it did not provide
for a pre-dismissal hearing. Again, as in the present case,
possible negative implications could result provided that
the Governor could remove the regent without a hearing
‘for incompetency, neglect of duty or malfeasance in of-
fice.”’
However, the Tenth Circuit refused to find that injury
to reputation alone constituted a deprivation of a federally
protected property or liberty right. Citing the case of Paul
v. Davis, supra, the Court said:
‘... The Court in Davis, supra, observed—and
uite pertinently in relation to the case at bar—that
the governmental action complained of must deprive
the petitioner of a right which has its genesis in state
law, and the protective shield of §1983 extends only
to those interests which attain this constitutional sta-
tus by virtue of the fact that they have been initially
recognized and protected by state laws, and we have
repeatedly ruled that procedural guarantees of the
Fourteenth Amendment apply whenever state seeks
to remove or significantly alter that protected sta-
tis...
This Honorable Court distinguishes the case of Mitchell
v. King, supra, from the case at bar precisely in that in
Mitchell the disjunctive provision made it clear that re-
moval was allowed for incompetence, neglect of duty, or
malfeasance in office. The same is true in this case if the
right law is applied. Under sec. 768(a) as amended (see
Addendum) the statute clearly establishes that removal is
allowed when the director has performed acts contrary to
sound banking practices, or has committed or participated
in the commission of any act, omission or practice consti-
tuting a violation of his fiduciary duties as director of the
bank, or the Secretary determines that the Bank has sus-
tained or will probably sustain financial loss or other prej-
udice on account of such violation or that such violation is
one involving personal dishonesty.
sss inanceisol
35a
With this in mind, clearly Mitchell v. King, supra, is
applicable. We must again emphasize the great similarity
between the case at bar and the Mitchell case.
CONCLUSION
Even though no mention of the amended law, applicable
in this case, was made either in appellant’s or appellees’
brief, the same was fully discussed at the hearing of the
case held on November 7, 1978 before this Honorable
Court.
Therefore, it is respectfully submitted that it is only fair
and just that the case be decided pursuant to Law No. 16
of May 5, 1977, that is, the only law governing at the time
of dismissal.
At San Juan, Puerto Rico, April 10, 1979
HECTOR A. COLON CRUZ
Solicitor General
LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
36a
PROOF OF SERVICE
I hereby certify that on this same date two copies of the
foregoing Motion have been served by certified mail on
A.J. Amadeo Murga, Attorney for Plaintiffs-Appellants,
to his address of record, 1105 Banco Popular Center, Hato
Rey, Puerto Rico - 00919.
At San Juan, Puerto Rico, April 10, 1979
~ LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
Department of Justice
Box 192, San Juan, Puerto
Rico - 00902
Phone: (809) 723-5906
37a
ADDENDUM
COMMONWEALTH OF PUERTO RICO
BUREAU OF TRANSLATIONS
SAN JUAN, PUERTO RICO
May 17, 1977
Vicente Corchado Colon, Director of the Bureau of Trans-
lations of the Legislature of Puerto Rico, hereby certifies
to the Secretary of State that he has duly compared the
English and Spanish texts of Act No. 16 (S. B. 375) of the
First Session of the 8th Legislature of the Commonwealth
of Puerto Rico, entitled:
AN ACT to amend Section 18A and Section 19 of Act
No. 88, rome June 21, 1966, as amended, ‘‘Co-
operative Bank Act of Puerto Rico”, :
and finds the same are full, true and correct versions of
each other.
Vicente Corchado Colon
Director, Bureau of Translations
38a
(S. B. 375)
(No. 16)
(Approved May 5, 1977)
AN ACT
To amend Section 18A and Section 19 of Act No. 88,
approved June 21, 1966, as amended, ‘Cooperative
Bank Act of Puerto Rico”’.
BE IT ENACTED BY THE LEGISLATURE OF PUER-
TO RICO:
Section 1.- Sections 18A and 19 of Act No. 83, approved
June 21, 1966, as amended, are hereby amended to read as
follows:
“Section 18A.- Suspension or Removal of Directors
or Officers.
When the Secretary of the Treasury determines there
is evidence that any director or officer of the Coop-
erative Bank of Puerto Rico has violated this act, the
rules and bylaws promulgated hereunder or a final
cease and desist order, or has performed acts contrary
to sound banking practices in connection with the
Bank, or has participated in them, or has committed
or participated in the commission of any act, omission
or practice constituting a violation of his fiduciary
duties as director or officer of the Bank, or the Sec-
retary determines that the Bank has sustained or will
probably sustain a substantial financial loss or other
rejudice on account of such violation or practice or
ailure to carry out his fiduciary responsibilities or
that such violation or failure is one involving personal
dishonesty on the part of the director or officer, the
Secretary of the Treasury may issue a written order
suspending or removing him from his Position in that
bank. The Secretary is hereby empowered to appoint
substitute directors for such term that in his opinion
and discretion he may deem convenient to assure a
—— and safe management of the business of the
yank.”
Saas
Saat 2 eae ae aa ives ol
tht aridy ett din oot
39a
“Section 19. If as a result of an examination made of
the Bank, the Secretary of the Treasury obtains evi-
dence that the Bank is not in sound economic condi-
tions to continue its business, or that it is being man-
aged 1n such mannner that its depositors are in jeop-
rt | of being defrauded, the Secretary of the Treasury
shall assume the direction and management of the
Bank avd shall Promptly appoint a receiver, which
may be the Federal Deposit bassiones Corporation.
The receiver thus appointed shall manage the Bank
according to the provisions of this act and the appli-
cable regulations.
Said receivership shall terminate with the total liqui-
dation of the Bank, if so necessary, or when the op-
erations thereof, as certified by the receiver, will per-
mit, in the opinion of the Secretary of the Treasury,
the return of the Bank’s management to its officials
and officers, duly elected and appointed under such
circumstances as the Secretary of the Treasury may
stipulate. The Secretary of the Treasury may fix a
reasonable compensation for the services of the re-
ceiver and his employees. The determination of the
Secretary of the Treasury to appoint a receiver shall
be reviewable by the Superior Court. The decision of
the Court shall be final and executory, and, once en-
.tered, the said Court shall forfeit all jurisdiction over
the case. In addition to the aforesaid provisions, the
Secretary of the Treasury may opt not to decree the
receivership and, in lieu of, to carry out the provisions
of Section 18A for the substitution of directors, with-
out prejudice to his opting for the receivership at any
time.”
Section 2.- This act shall take effect immediately after
its approval.
DEPARTMENT OF STATE
I DO HEREBY CERTIFY:
That this is a true and correct
copy of the originai approved
and signed by the Governor of
the Commonwealth of Puerto
Rico on May 5, 1977
As of date: April 5, 1979.
Assistant Secretary of State
ts
40a
Appendix VI
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296
JUDITH RODRIGUEZ de QUINONEZ et al.,
PLAINTIFFS, APPELLANTS,
Vv.
HONORABLE JULIO CESAR PEREZ et al.,
DEFENDANTS, APPELLEES.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF PUERTO RICO
{[Hon. JOSE V. TOLEDO, U.S. District Judge]
Before
ALDRICH, CAMPBELL AND BOWNES, Circuit Judges.
ON PETITION FOR REHEARING
A. J. Amadeo Murga, for appellants.
Lirio Bernal De Gonzalez, Assistant Solicitor General,
Department of Justice, with whom Hector A. Colon Cruz,
Solicitor General, was on brief, for appellees.
May 7, 1979
PER CURIAM. This case was brought, and heard, to
determine plaintiffs’ rights under 7 L.P.R.A. § 768(a) as
established by Article 18(a) of Law No. 94 of May 31, 1976.
Thereafter the case was briefed and argued on appeal on
Ne ae OT et te A Sn
ae ke
nee t
—
4la
the same basis. Defendants have now filed a petition for
rehearing on the ground that, four days before plaintiffs
were removed from office, section 768(a) had been amended
by Law No. 16 of May 5, 1977. This rewrote the statute,
in the disjunctive, instead of in the conjunctive, in a matter
that figured in our opinion.
It does not follow that we should grant the petition.
Even under the amended statute, it is a close question,
given the accompanying circumstances, whether there was
not such a stigma as to give rise to the due process rights
discussed in our opinion. In any event, we find defendants’
failure to call our attention to the amended language inex-
cusable.
Defendants, by virtue of their official positions, were no
strangers to the banking laws. Their counsel was not some
fly-by-night, but the Solicitor General of the Common-
wealth. After taking the time of a magistrate, a district
judge, and a court of appeals, they offer no explanation
why they were not familiar with their own statutes; not
even an apology. Instead, their petition concludes with the
extraordinary statement that “[e]ven though no mention
of the amended law, applicable in this case, was made
either in appellants’ or appellees’ brief, the same was fully
discussed at the hearing of the case held on November 7,
1978 before this Honorable Court.”’
The court has no such recollection. Rather, defendants’
counsel presented the court with individual copies of the
May, 1976 law, with no indication of any change. Black
does not become white with the stroke of a pen. Seldom,
if ever, do we grant petitions to rehear matters which were
not presented merely because of some counsel’s oversight.
By the same token, where so elementary an error is com-
mitted as the failure to acquaint the court with the text of
a controlling amendment, particularly one to which we
have no ready access except through the parties, this is
not excusable neglect. Cf. Spound v. denied, 429 U.S. 886.
42a
We find it an intolerable imposition on our time and limited
resources to grant a rehearing for the purpose of enter-
taining arguments addressed to that hitherto undisclosed
statute. The case stands on the statute prior to the amend-
ment and the district court is instructed so to regard it.
Petition denied.
43a
Appendix VII
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296.
JUDITH RODRIGUEZ DE QUINONEZ, ET AL.,
Plaintiffs, Appellants,
v.
HONORABLE JULIO CESAR PEREZ, ETC., ET AL..,
Defendants, Appellees.
ORDER OF COURT
Entered May 7, 1979
It is ordered that the petition for rehearing filed on April
11, 1979, be, and the same hereby is, denied.
/s) DANA H. GALLUP
Clerk.
[cc: Messrs. Amadeo Nurga and Bernal da Gonzalez. ]
44a
Appendix VIII
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296
JUDITH RODRIGUEZ DE QUINONEZ, ET AL.,
' Plaintiffs, Appellants,
v.
HONORABLE JULIO CESAR PREZ, ETC., ET AL.,
Defendants, Appellees
On Appeal from a Judgement of the United
States District Court for the District of
Puerto Rico
Motion For Stay Of Mandate Under The Provisions Of
Rule 41 Of Appellate Procedure
TO THE HONORABLE COURT:
Come now defendants-appellees and through their un-
dersigned attorneys respectfully aver and pray:
1. That being dissatisfied with both Judgment rendered
on March 30, 1979, and Order dated May 7, 1979 denying
their Petition for Rehearing,' defendants-appellees will file
' The Order of May 7, 1979 was received in this Office on April
14, 1979.
45a
a Petition for a Writ of Certiorari under Rules 19 to 23 of
the Rules of the Supreme Court of the U.S. and under 28
U.S.C. 1254 (1).
2. That Rule 41 of the Rules of Appellate Procedure
states as follows:
(a) Date of Issuance.—The mandate of the court shall
issue 21 days after the entry of judgment unless the
time is shortened or enlarged by order. A certified
copy of the judgment and a copy of the opinion of the
court, if any, and any direction as to the costs shall
constitute the mandate, unless the court directs that
a formal mandate issue. The timely filing of a petition
for rehearing will stay the mandate until disposition
of the petition unless otherwise ordered by the court.
If the petition is denied, the mandate shall issue 7
cae after entry of the order denying the petition
unless the time is shortened or enlarged by order.
(b) Stay of Mandate Pending Application for Certior-
ari. A stay of the mandate pending application to the
Supreme Court for a writ of certiorari may be granted
upon motion, reasonable notice of which shall be given
to all parties. The stay shall not exceed 30 days unless
the period is extended for cause shown. If during the
eriod of the stay there is filed with the clerk of the
ourt of Appeals a notice from the clerk of the Su-
plo Court that the party who has obtained the stay
as filed a petition for the writ in that court, the stay
shall continue until final disposition by the Supreme
Court. Upon filing of a copy of an order of the Su-
preme Court denying the petition for writ of certiorari
the madate shall issue immediately. A bond or other
security may be required as a condition to the grant
or continuance of a stay of the mandate.
3. As defendants appellees will seek review of the Judg-
ment and Order rendered by this High Court under 28
U.S.C. 1254 (1) through the Writ of Certiorari, they re-
spectfully pray that this Honorable Court retain its man-
date, or if already forwarded, order its del’ ery to the
Clerk’s Office, for a period of thirty (30) days in which
46a
herein appellees shall file the corresponding writ before the
Supreme Court of U.S.
RESPECTFULLY SUBMITTED, this 15th day of
May, 1979
HECTOR A. COLON CRUZ
Solicitor General
LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
PROOF OF SERVICE
I hereby certify that on this same date two copies of the
foregoing Motion have been served by certified mail on A.
J. Amadeo Murga, Attorney for Plaintiffs-Appellants, to
his address of record, 1105, Banco Popular Center, Hato
Rey, Puerto Rico, 00919.
San Juan, Puerto Rico, this 15th day of May, 1979
LIRIO BERNAL DE GONZALEZ
Assistant Solicitor General
Department of Justice
Box 192
San Juan, Puerto Rico 00902
(Phone: (809) 723-5906
47a
Appendix IX
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 78-1296.
JUDITH RODRIGUEZ DE QUINEZ ET AL.,
Plaintiffs, Appellants,
v.
HONORABLE JULIO CESAR PEREZ, ETC., ET AL..
Defendants, Appellees.
ORDER OF COURT
Entered May 18, 1979
Upon motion of appellees,
It is ordered that mandate be, and the same hereby is,
stayed pending the filing and disp: ition of a petition for
writ of certiorari in the Supreme Court of the United
States, the same to be filed by June 14, 1979, and notice
~ such filing to be filed promptly with the Clerk of this
ourt.
By the Court:
/s/ Dana H. Gallup
Clerk.
[cc: Messrs. Amadeo Murga and Bernal de Gonzalez. |
48a
Appendix X
§ 768a. Suspension or removal of directors or officers
When the Secretary of the Treasury determines there is
evidence that any director or officer of the Cooperative
Bank of Puerto Rico has violated this chapter, the rules
and bylaws promulgated hereunder or a final cease and
desist order, or has performed acts contrary to sound bank-
ing practices in connection with the Bank, or has partici-
pated in them, or has committed or participated in the
commission of any act, omission or practice constituting
a violation of his fiduciary duties as director or officer of
the Bank, and the Secretary determines that the Bank has
sustained or will probably sustain a substantial financial
loss or other prejudice on account of such violation or
practice or failure to carry out his fiduciary responsibilities
and that such violation or failure is one involving personal
dishonesty on the part of the director or officer, the Sec-
retary of the Treasury may issue a written order suspend-
ing or removing him from his position in that Bank.—June
21, 1966, No. 88, p. 257, § 18A, added May 31, 1976, No.
94, p. 277, § 2, eff. May 31, 1976.
49a
Appendix XI
COMMCNWEALTH OF PUERTO RICO
BUREAU OF TRANSLATIONS
May 17, 1977
Vicente Corchado Colon, Director of the Bureau of Trans-
lations of the Legislature of Puerto Rico, hereby certifies
to the Secretary of State that he has duly compared the
English and Spanish texts of Act No. 16 (S. B. 375) of the
First Session of the 8th Legislature of the Commonwealth
of Puerto Rico, entitled:
AN ACT to amend Section 18A and Section 19 of Act
No. 88, approved June 21, 1966, as amend-
ed, ‘Cooperative Bank Act of Puerto Rico”’,
and finds the same are full, true and correct versions of
each other.
Vicente Corchado Colon
Director, Bureau of Translations
50a
(S. B. 375)
(No. 16)
(Approved May 5, 1977)
AN ACT
To amend Section 18A and Section 19 of Act No. 88,
approved June 21, 1966, as amended, ‘Cooperative
Bank Act of Puerto Rico”.
BE IT ENACTED BY THE LEGISLATURE OF PUER-
TO RICO:
Section 1.—Sections 18A and 19 of Act No. 88, approved
June 21, 1966, as amended, are hereby amended to read as
follows: ‘Section 18A.—Suspension or Removal of Direc-
tors or Officers.
When the Secretary of the Treasury determines there
is evidence that any director or officer of the Coop-
erative Bank of Puerto Rico has violated this act, the
rules and bylaws promulgated hereunder or a final
cease and desist aide. or has performed acts contrary
to sound banking practices in connection with the
Bank, or has participated in them, or has committed
or participated in the commission of any act, omission
or practice constituting a violation of his fiduciary
duties as director or officer of the Bank, or the Sec-
retary determines that the Bank has sustained or will
probably sustain a substantial financial loss or other
rejudice on account of such violation or practice or
ailure to carry out his fiduciary responsibilities or
that such violation or failure is one involving personal
dishonesty on the part of the director or officer, the
Secretary of the Treasury may issue a written order
suspending or removing him from his position in that
Bank. The Secretary is hereby empowered to appoint
substitute directors for such term that in his opinion
and discretion he may deem convenient to assure a
sound and safe management of the business of the
bank.”’
5la
“Section 19.—If as a result of an examination made
of the Bank, the Secretary of the Treasury obtains
evidence that the Bank is not in sound economic con-
ditions to continue its business, or that it is being
managed in such manner that its depositors are in
jeopardy of being defrauded, the Secretary of the
Treasury shall assume the direction and management
of the Bank and shall promptly appoint a receiver,
which may be the Federal Deposit Insurance Corpo-
ration. The receiver thus appointed shall manage the
Bank according to the provisions of this act and the
applicable regulations.
Said receivership shall terminate with the total liqui-
dation of the Bank, if so necessary, or when the op-
erations thereof, as certified by the receiver, will per-
mit, in the opinion of the Secretary of the Treasury,
the return of the Bank's management to its officials
and officers, duly elected and appointed under such
circumstances as the Secretary of the Treasury may
stipulate. The Secretary of the Treasury may fix a
reasonable compensation for the services of the re-
ceiver and his employees. The determination of the
Secretary of the Treasury to appoint a receiver shall
be reviewable by the Superior Court. The decision of
the Court shall be final and executory, and, once en-
tered, the said Court shall forfeit all jurisdiction over
the case. In addition to the aforesaid Provisions, the
Secretary of the Treasury may opt not to decree the
receivership and, in lieu of, to carry out the provisions
of Section 18A for the substitution of directors, with-
out prejudice to his opting for the receivership at any
time.’’ Section 2.—This act shall take effect immedi-
ately after its approval.
DEPARTMENT OF STATE
I DO HEREBY CERTIFY: That
this is a true and correct copy of
the original approved and signed
by the Governor of the Common-
wealth of Puerto Rico on May 5,
1977. As of date: April 5, 1978.
52a
Appendix XII
COMMONWEALTH OF PUERTO RICO
SUPREME COURT
Office of the Secretary
San Juan, Puerto Rico
CLERK’S CERTIFICATE
I, Ernesto L. Chiesa, Clerk of the Supreme Court of
Puerto Rico, DO HEREBY CERTIFY:
That the annexed documents are a true, exact, and of-
ficial translation (said translation having been made under
the authority of Act No. 87 of May 31, 1972) of the letters
of May 9, 1977, sent by the Secretary of the Treasury to
Mr. Antero Solis Lazu, Mr. Luis S. Parrilla Castro, and
Mrs. Judith Rodriguez de Quinones, members of the Board
of Directors of the Cooperative Bank of Puerto Rico.
IN-WITNESS WHEREOF, at the request of the inter-
ested party, I issue these presents for official use, free of
charge, under my hand and the seal of this Court, in San
Juan, Puerto Rico, this 5th day of June 1979.
Ernesto L. Chiesa
Clerk
Supreme Court of
Puerto Rico
53a
May 9, 1977
Mr. Antero Solis Lazu
Calle Juan J. Jimenez 514-B
Urb. Parque Central
Hato Rey, Puerto Rico
Sir:
By virtue of the authority vested in me by Article 18A
of Act No. 88 of June 21, 1966, as amended, the Law of
the Cooperative Bank of Puerto Rico, | hereby remove you
from your position as a member of the Board of Directors
of the Cooperative Bank of Puerto Rico for having partic-
ipated in acts that are contrary to sound banking practices
and for having participated in omissions or practices con-
stituting a violation of your fiduciary duty as a director,
as a result of which the Bank has sustained a substantial
financial loss.
This removal shall take effect upon your receipt of this
communication.
Very truly yours,
/s/ Julio Cesar Perez
Secretary of the
Treasury
54a
May 9, 1977
Mr. Luis S. Parriila Castro
Calle 429, Blg. 156 #6
Urb. Villa Carolina
Carolina, Puerto Rico
Sir:
By virtue of the authority vested in me by Article 18A
of Act No. 88 of June 21, 1966, as amended, the Law of
the Cooperative Bank of Puerto Rico, | hereby remove you
from your position as a member of the Board of Directors
of the Cooperative Bank of Puerto Rico for having partic-
ipated in acts that are contrary to sound banking practices
and for having participated in omissions or practices con-
stituting a violation of your fiduciary duty as a director,
as a result of which the Bank has sustained a substantial
financial loss.
This removal shall take effect upon your receipt of this
communication.
Very truly yours,
/s/ Julio Cesar Perez
Secretary of the
Treasury
55a
May 9, 1977
Mrs. Judith Rodriquez de Quinones
Calle Rosich No. 13
Ponce, Puerto Rico
Madam:
By virtue of the authority vested in me by Article 18A
of Act No. 88 of June 21, 1966, as amended, the Law of
the Cooperative Bank of Puerto Rico, | hereby remove you
from your position as a member of the Board of Directors.
of the Cooperative Bank of Puerto Rico for having partic-
ipated in acts that are contrary to sound banking practices
and for having participated in omissions or practices con-
stituting a violation of your fiduciary duty as a director,
as a result of which the Bank has sustained a substantial
financial loss.
This removal shall take effect upon your receipt of this
communication. :
Very truly yours,
/s/ Julio Cesar Perez
Secretary of the
Treasury
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.