Citations
- 212 F. Supp. 3d 312
Full opinion text
OPINION AND ORDER
Delgado-Hernández, District Judge.
The Federal Deposit and Insurance Corporation (“FDIC”) as receiver of Euro-bank, initiated this action against Euro-bank’s former Directors, related spouses and conjugal partnerships to recover approximately $55 Million in losses that it attributes to the Directors’ gross negligence in approving twelve “obviously risky and deficiently underwritten” unpaid loans, “which they knew or should have known were extremely unlikely to be paid back” (Docket No. 1 at ¶ 81). As part of the same action, it sued Liberty Mutual Insurance Company, ACE Insurance Company, and XL Insurance Company, maintaining the insurers issued policies providing for coverage for the claims asserted against the Directors. Id. at ¶¶ 14,15,16.
Defendants -answered the complaint denying liability (Docket Nos. 29, 31, 45, 48, and 200). Liberty cross claimed against the Directors, and counterclaimed against the FDIC (Docket No. 29 at pp. 22^49). Discovery followed (Docket No. 104). In the meantime, the parties filed various motions seeking judgment on the pleadings or summary judgment, all of which have been opposed, and with respect to most of which the parties have replied and surreplied. The motions address (1) different aspects of FDIC’s gross negligence claim and corresponding affirmative defenses (Category I); and (2) insurance coverage (Category II). Motions to strike were filed under both categories. All relevant issues have been exhaustively briefed. The motions under Category I awaiting disposition are:
1. The FDIC’s “Motion of the Federal Deposit Insurance Corporation to Strike Certain Defenses Raised by the Director Defendants” (Docket No. 54), which the Directors except Arrillaga opposed (Docket No. 67). The FDIC replied (Docket No. 69), and the Directors surreplied (Docket No. 77-1). Later, Arrillaga opposed the FDIC-R’s motion (Docket No. 78), and the FDIC replied (Docket No. 80).
2. The FDIC’s “Motion for Partial Summary Judgment” (Docket No. 364), which Rafael Arrillaga opposed (Docket No. 419). The FDIC replied (Docket No. 455), and Arrillaga surreplied (Docket No. 485).
3. Rafael Arrillaga’s “Motion for Summary Judgment relating to the Statute of Limitations and Causation” (Docket No. 378), which the FDIC opposed (Docket No. 413). Arrillaga replied (Docket No. 438), and the FDIC surreplied (Docket No. 478).
4. Arrillaga’s “Motion for Partial Summary Judgment as to the Jo-car Loan” (Docket No. 367), which the FDIC opposed (Docket No. 397). Arrillaga replied (Docket No. 441), and the FDIC surreplied (Docket No. 486).
5. Arrillaga’s “Motion for Partial Summary Judgment based on the FDIC’s Admissions and Representations as to the Acor, Marat, and City Walk Loans” (Docket No. 369), which the FDIC opposed ‘(Docket No. 406). Arrillaga replied (Docket No. 448). The FDIC sur-replied (Docket No. 477).
6. The FDIC’s “Motion to Preclude Rafael Arrillaga-Torréns from using Certain Affidavits obtained in Lieu of Depositions” (Docket No. 354), which Arrillaga opposed (Docket No. 360), the FDIC replied (Docket No. 383) and Arrilla-ga submitted a surreply (Docket No.. 387).
In the same way, the following motions correspond to Category II:
1. “Liberty Mutual Insurance Company’s Motion for Judgment on the Pleadings” (Docket No. 73), which the FDIC-R and the Directors opposed (Docket Nos. 88 and 92, respectively). Arrillaga joined both responses (Docket No. 95). Liberty Mutual replied (Docket No. 102), and the FDIC and the Directors surreplied (Docket Nos. 117 and 119, respectively).
2. The FDIC’s “Motion for Partial Summary Judgment against Liberty Mutual Insurance Company and ACE Insurance Company” (Docket No. 358). ACE and Liberty opposed (Docket No. 427).
3. “XL Specialty Insurance Company’s Motion for Partial Summary Judgment” (Docket No. 365), which the FDIC opposed (Docket No. 399). XL replied (Docket No. 447), and the FDIC surreplied (Docket No. 476).
4. In addition, the FDIC filed “Federal Deposit Insurance Corporation as Receiver for Eurobank’s Opposition to Liberty Mutual Insurance Company and ACE Insurance Company’s Motion for Summary Judgment” (Docket No. 404), and the Directors a “Director Defendants’ Response in Opposition to Liberty-ACE’s Joint Motion for Summary Judgment (Docket No. 410). In response, Liberty and ACE filed “Liberty Mutual Insurance Company and ACE Insurance Company’s Joint Reply to FDIC-R’s and the Director Defendants’ Responses in Opposition to the Insurers’ Motion for Summary Judgment (Docket No. 457), to which the FDIC surreplied (Docket No. 482).
5.“Liberty Mutual Insurance Company and ACE Insurance Company’s Joint Motion to Strike” [the FDIC-R’s Sur-reply at Docket No. 482] (Docket No. 487), which the FDIC opposed (Docket No. 490).
Careful evaluation of these motions leads the court to conclude that the action cannot be dismissed at this stage on timeliness grounds; some of the affirmative defenses are not amenable to resolution through summary judgment; there are grounds to conclude that Liberty’s and ACE’s policies are ambiguous; and that XL’s policy should be considered an excess policy. The sworn statements under penalty of perjury procured—but not disclosed—will not be excluded, but must be produced for an in camera inspection. To facilitate review, the materials have been organized under the following topics:
I. BACKGROUND... 327
II. STANDARD OF REVIEW .. .329
III. DISCUSSION... 329
A. Timeliness... 337
B. Loans...337
1. Aeor/Marat Loans... 337
a. Acor Loan.. .337
b. Marat Loan.. .337
c. Contentions... 338
2. Jocar Loan.. .340
C. FDIC’s Role.... 343
a. Comparative Negligence/Mitigation ...345
b. Tortfeasors... 346
c. Genesis/Functions... 346
d. O’Melveny.. .347
e. FTCA. ..349
f. Setoff. ..349
g. Dividing Line.. .351
D. Great Recession... 353
E. Articles of Incorporation.. .355
F. Insurers...356
1. Background... 356
2. Legal Standard.. .357
3. Analysis.. .357
a. Insured v. Insured Exclusion. . .357
b. Professional Services Exclusion. . .362
c. Disposition.. .364
d. Excess Coverage... 364
G. Third-Party Affidavits/Depositions ...367
IV. CONCLUSION... 370
I. BACKGROUND
Eurobank was established in 1980 as an uninsured trust company named Española de Finanzas Trust Company (Docket No. 1 at ¶ 20). It became an FDIC-insured state nonmember bank in 1987, assuming its current name in 1993. Id. In 2001, it became a wholly-owned subsidiary of Euro-Baneshares, Inc., a one-bank holding company. Id.
According to the FDIC, in the early to mid-2000s, Eurobank began aggressively growing its commercial real estate (“CRE”) portfolio, including acquisition, development, and construction (“ADC”) loans, despite recognition that these loans carried a higher risk for the bank. From June 30, 2005 to June 30, 2009, the ADC portfolio grew by 240%, over six times the growth rate of its peer group for the same period. Id. at ¶ 21.
The growth of the CRE and ADC portfolios was largely responsible for the bank’s assets growing from $1.3 Million as of December 31, 2003, to $2.9 Billion by December 31, 2008. Id. Yet from 2004 to 2007, the bank’s income had plummeted 80%, with charge-offs increasing 250%. Id. at ¶ 28. From 2005 to 2008, various reports mentioned weaknesses in internal loan review, risk management, and lax underwriting and credit administration. In 2009, Eu-robank’s Directors consented to entry of a Cease and Desist Order, requiring the bank to cease and desist from certain unsafe and unsound banking practices, such as:
• operating with lax underwriting, poor credit administration practices, and ineffective loan review practices;
• operating with an excessive level of adversely classified loans and/or delinquent loans;
• operating with inadequate capital and reserves in relation to the kind and quality of assets held by the bank;
• operating with inadequate internal controls. Id. at ¶ 32.
On April 30, 2010, the Office of the Commissioner of Financial Institutions of Puerto Rico closed Eurobank and appointed the FDIC as Receiver. Id. at ¶ 1. For the FDIC, Eurobank’s desire for rapid growth caused the bank to abandon sound underwriting, resulting in numerous collateral-dependent loans with no alternative source of repayment to borrowers who had no equity in the projects and no demonstrated ability to repay the loans in the precarious lending environment in which the bank was operating. Id. at ¶ 22. It says such abandonment led to approval of the loans for which it seeks recovery here, namely:
BORROWER APPROVAL DATE LOSS (Millions)
1. Skylofts May 6,2006 $4.73*
2. Skylofts June 27, 2007
3. Ciudadela April 24, 2006 $19.51
4. Hills tone September 27, 2006 $4.13*
5. Histone September 29, 2006
6. Acor March 19, 2007 $6.22*
7. Acor March 25, 2008
8. Acor February 19, 2009
9. Jocar December 21, 2007 $4.69
10. City Walk December 28, 2007 $4.81
11. Marat November 24, 2008 $11.38*
12. Marat December 22, 2008
TOTAL $55.47
Id. at ¶ 34.
To justify recovery, the FDIC contends the Directors were grossly negligent in approving these loans, breaching their fiduciary duty of care to the bank in routinely overlooking extreme and obvious departures from sound underwriting practices while ignoring the obvious risks the loans posed. Id. at ¶ 35. The Directors deny liability, challenging the FDIC’s assertion of entitlement to recovery. Liberty and ACE deny any obligation to provide coverage, whereas XL questions the view that it should be considered a primary insurer here. The contentions- and challenges must be viewed in the context of a motion for judgment on the pleadings, and motions for summary judgment.
II. STANDARD OF REVIEW
The standard of review of a motion for judgment on the pleadings is the same as that for a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Frappier v. Countrywide Home Loans, Inc., 750 F.3d 91, 96 (1st Cir. 2014); Marrero-Gutiérrez v. Molina, 491 F.3d 1, 5 (1st Cir. 2007). To survive dismissal, a complaint must allege a plausible entitlement to relief. Rodríguez-Vives v. Puerto Rico Firefighters Corps., 743 F.3d 278, 283 (1st Cir. 2014); Rodríguez-Reyes v. Molina-Rodríguez, 711 F.3d 49, 53 (1st Cir. 2013); Rodríguez-Ortiz v. Margo Caribe, 490 F.3d 92, 95 (1st Cir. 2007).
Plausibility involves a context-specific task calling on courts to examine the complaint as a whole, separating factual allegations (which must be accepted as true) from eonelusory allegations (which need not be credited). García-Catalán v. United States, 734 F.3d 100, 103 (1st Cir. 2013); Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012). All reasonable inferences from well-pleaded facts must be drawn in the pleader’s favor. Foley v. Wells Fargo Bank, N.A., 772 F.3d 63, 68 (1st Cir. 2014); García-Catalán, 734 F.3d at 102-103. If, so construed, the combined allegations plead facts enough to nudge the claim across the line from conceivable to plausible, the case should not be dismissed under Fed.R.Civ.P. 12(c).
In turn, summary judgment is appropriate when the pleadings, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See, Fed. R. Civ. P. 56(c). A factual dispute is material “if it potentially affects the outcome of the case.” Vega-Rodríguez v. P.R.T.C., 110 F.3d 174, 178 (1st Cir. 1997). It is genuine “if the probative evidence on it conflicts.” Id. (citing Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990)).
The party moving for summary judgment bears the initial responsibility of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This burden may be discharged by “showing—that is, pointing out to the district court—that there is an absence of evidence to support the non-moving party’s case.” Id. at 325, 106 S.Ct. 2548. All reasonable factual inferences must be drawn in favor of the party against whom summary judgment is sought. Shafmaster v. United States, 707 F.3d 130, 135 (1st Cir. 2013).
To resist summary judgment, the non-movant must do more than “simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Inds. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A factual dispute must “be built on a solid foundation ... constructed from materials of evidentiary quality.” Nieves-Romero v. United States, 715 F.3d 375, 378 (1st Cir. 2013). For the same reason, eonelusory allegations, empty rhetoric, unsupported speculation, or evidence which, in the aggregate, is less than significantly probative will not suffice to ward off a properly supported motion for summary judgment. Id.
III. DISCUSSION
A. Timeliness
Rafael Arrillaga-Torréns, the former President of Eurobank’s Board of Directors, alleges the action is time-barred (Docket No. 378 at p. 1). The Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub. L. 101-78, 103 Stat. 183 (1989) (“FIRREA”)(codifled in scattered sections of 12 U.S.C.), provides a three-year federal repose period for the FDIC to bring claims after it takes over as receiver, provided those claims had not expired before the date of the receivership. 12 U.S.C. § 1821(d)(14)(A)(ii)(I). State law determines when claims accrue, and whether they have expired. FDIC v. James T. Barnes of Puerto Rico, Inc., 834 F.Supp. 543, 547 (D.P.R. 1993). Receivership does not revive time-barred claims. FDIC v. Torrefacción Café Cialitos, Inc., 62 F.3d 439, 442 (1st Cir. 1995). If the state limitations period has not yet run when the FDIC steps in, the federal limitations period will apply. Id.
Arrillaga asserts that all claims had expired before the FDIC was appointed receiver in April 2010 (Docket No. 438 at p. 21 n.18). He argues that (1) he is being sued for alleged “gross negligence;” (2) in Puerto Rico, claims arising from fault or negligence are subject to the one-year limitations period set in Article 1868(3) of the Civil Code, P.R. Laws Ann. tit. 31 § 5298(2); and (3) because the loans were approved between 2006 and 2009, the claims they correspond to had already expired by the time the FDIC was appointed receiver, and therefore, are time-barred (Docket No. 378 at p. 3).
The FDIC contends the action is not so barred, pointing out that Article 1868 does not apply (Docket No. 413 at pp'. 13-14). Instead, it directs the court’s attention to Article 47 of the Code of Civil Procedure (Código de Enjuiciamiento Civil) of Puerto Rico, P.R. Laws Ann. tit. 32 § 261, which applies to “actions against directors or stockholders of a corporation, to recover a penalty of forfeiture imposed,” or “to enforce a liability created by law.” Id. at p. 14. It claims it seeks to enforce a liability created by Article 4.03 of the General Corporations Act of Puerto Rico, Law No. 164 of December 16, 2009, P.R. Laws Ann. tit. 14 § 3563. And as Article 47 provides those actions “must be brought within three years after discovery by the aggrieved party of the facts upon which the penalty or forfeiture attached or the liability was created,” it reasons that there is no timeliness problem. Id.
Article 1868 of the Civil Code is a general statute, whereas Article 47 of the Code of Civil Procedure is a special statute, limited to actions against directors and stockholders of a corporation. A special law on a particular subject prevails over any other provision of a general nature. Córdova & Simonpietri v. Crown American, 112 D.P.R. 797, 800 (1982); Rosa Resto v. Rodríguez Solís, 111 D.P.R. 89, 94 (1981). Thus, Article 47 applies. But Arrillaga points out the article was adopted from California and Idaho, where the distinction between common law and statutory law precludes application of similar statutes to actions originating in common law, and a similar distinction should be drawn here to reach the same result because, in his view, this action originates in common law. (Docket No. 378 at pp. 4-5; Docket No. 438 at pp. 10-16).
Puerto Rico’s legal system arises out of and reflects, not traditional British common law, but a tradition stemming from European civil codes and Roman law. See, Puerto Rico v. Sánchez Valle, 576 U.S. -, 136 S.Ct. 1863, 1877, 195 L.Ed.2d 179 (2016)(Breyer, J., dissenting)(so noting). By extension, Puerto Rico’s laws are to be “governed ... by the civil law system,” with roots in the Spanish legal tradition, not by the “common-law principles” inherent in “American doctrines and theories” of law. Id. at 1884 (quoting Valle v. American Int’I Ins. Co., 8 P.R. Offic. Trans. 735, 736-738, 108 D.P.R. 692 (1979)).
In Spain, common law means the Civil Code, for it applies throughout the country as a whole, supplementing local law enacted for Spanish political communities and special legislation. José Puig Brutau, Fun-damentos de Derecho Civil, Tomo Preli-minar, 113-118 (Bosch 1989). The understanding originated in events dating back to the Roman Empire. At the end of the Empire, one law remained, that of the Romans, expanded and enlarged, which had effaced all others and become the universal law of the Empire. Marcel Pla-niol, Treatise on the Civil Law (Vol. 1), 17 (1939). The Empire fragmented into different political communities, each of which enacted local decrees or laws. However, in the ensuing dynamics the Romanes civile became jus commune or common law. Antonio Hernández Gil, Conceptos Jurídicos Fundamentales, 276-281 (Espasa-Calpe 1987); Marcel Planiol. cit. at pp. 16-17. In this way, the Civil Code developed into common law, and as such is considered in Puerto Rico. See, López v. Western Auto, 171 D.P.R. 185, 196 (2007)(pointing out that the common law’s norms of liability are those of the Civil Code)(quoting Cortijo Walker v. Fuentes Fluviales, 91 D.P.R. 574, 578 (1964)); San José Realty, S.E. v. El Fénix de P.R., 157 D.P.R. 427, 453 (2002)(referring to the Civil Code as common law).
In line with these developments, a sister court in this District found unpersuasive the attempt to distinguish between statutory law ahd common law in a similar context, concluding that, either way, the liability at issue arises under law. See, W. Holding Co., Inc. v. Chartis Ins. Co., 904 F.Supp.2d 169, 180 (D.P.R. 2012). And thus, it rejected the argument that the three-year period of Article 47 does not apply to an action brought by the FDIC against former directors and officers of a failed bank, because the definition of “create” includes “to bring about something,” including liability by a legislative act; in other words, a statute. W. Holding Co., Ins. v. Chartis Ins. Co., 2012 WL 6197037, *l-*2 (D.P.R. December 12, 2012). Such is the case here.
FIRREA imposes personal liability on directors or officers of insured depository institutions for gross negligence. See, 12 U.S.C. § 1821 (k). In turn, Article 4.03 of the General Corporation Act provides that:
[t]he directors and officers shall be bound to dedicate to the affairs of the corporation and to the exercise of their duties the attention and care which in a similar position and under analogous circumstances a responsible and competent director or officer would execute in applying his/her business judgment in good faith or his/her best judgment in the case of nonprofit corporations. Only gross negligence in the exercise of the duties and obligations mentioned above shall result in personal liability.
P.R. Laws Ann. tit. 14 § 3563 (emphasis added). The text is similar to that of Article 4.03 of the General Corporations Act of 1995, Law No. 144 of August 10,1995, with the exception of the term “best judgment,” which was adopted in 2009. See, Carlos Díaz-Olivo, Corporaciones: Tratado sobre Derecho Corporativo, 239-240 n.363 (2016)(so noting). It takes into account the duty of care—the degree of diligence— expected from directors and officers, Multinational Ins. v. Benítez, 193 D.P.R. 67, 78 (2015), and incorporates the Business Judgment Rule. Rivera Sanfeliz v. Junta, 193 D.P.R. 38, 53 n.13 (2015). See also; Félix J. Montañez-Miranda, Lealtad Fiduciaria de Directores y Oficiales, 95-96 (SITUM 2014)(discussing Business Judgment Rule as a component of Article 4.03); Luis M. Negrón-Portillo, Derecho Corporativo Puertorriqueño, 214 (2d ed. 1996)(pointing out that Business Judgment Rule underpins Article 4.03). No such provision existed in the general corporation statutes enacted in Puerto Rico prior to 1995, namely the General Corporation Act of 1902, Law of March 1, 1902; the General Corporation Act of 1911, Law No. 30 of March 9, 1911; and the General Corporation Act of 1956, Law No. 144 of August 10,1956.
The Business Judgment Rule serves as a tool for judicial review. Dennis J. Block et al., The Business Judgment Rule, Fiduciary Duties of Corporate Directors, 11 (2009). It shields directors from liability under certain circumstances, creating a presumption in their favor. Id. Its development as a principle of American jurisprudence has been traced back to the 1829 decision by the Louisiana Supreme Court in Percy v. Millaudan. Id. at 26. But its role as a component of corporate governance in Puerto Rico was unclear until 1995.
Prior to enactment of the General Corporations Act of 1995, the Puerto Rico Supreme Court had addressed corporate administrators’ fiduciary obligations in Turner v. Registrador, 22 D.P.R. 573 (1915), and in Epstein v. F & F Mortgage, Corp., 106 D.P.R. 211 (1977). In Turner, the president of the corporation purchased for himself the corporation’s real estate in a mortgage foreclosure action initiated by the creditor bank. The Registrar of Property refused to record the transaction, pointing out that it was prohibited by Article 1362 of the Civil Code of 1902 (corresponding to current Article 1348, P.R. Laws Ann. tit. 31 § 3773). As relevant, the article states that agents cannot purchase property, the administration or sale of which may have been entrusted to them. P.R. Laws Ann. tit. 31 § 3773(2). The Supreme Court held that the president of a corporation is not an agent per se of the corporation over which he presides, and that in general, the corporation could nullify the sale to board members, which had not occurred in the case. Therefore, it reversed the Registrar’s refusal to record the purchase.
In Epstein, a stockholder-director sought the liquidation of the corporation. The defendant, a stockholder-director, counterclaimed seeking damages based on violation of plaintiffs fiduciary duties arising from the creation of corporate entities that would be competing with the corporation whose liquidation he sought. The Supreme Court concluded that board directors owe fiduciary duties to the corporation, and relying on Delaware caselaw, held that those duties do not prevent a director from engaging in businesses similar to those of the corporation, provided she acts in good faith and does not interfere with the corporation’s business in absence of a covenant not to compete. Epstein, 106 D.P.R. at 224.
As one commentator observed, there was no clarity as to the diligence standard to be applied to corporate administrators. Carlos E. Diaz Olivo, La respon-sabilidad de los directores y oficiales de la corporación, un análisis comparado: Es-tados Unidos, España y Puerto Rico, 52 Rev.Col.Abog. 173, 208 (1991). Different alternatives existed, running from simple negligence to gross negligence or something else. See, Atherton v. FDIC, 519 U.S. 213, 227, 117 S.Ct. 666, 136 L.Ed.2d 656 (1997)(mentioning disparities in corporate governance standards). The enactment of Article 4.03 in 1995 established the standard to be relied on: gross negligence, the floor set in FIRREA. Iff (describing the “gross negligence” standard set in the federal statute). In consequence, the institutional decision underlying its adoption was made by the Legislature—not a court—laying the foundation for application of the three-year period set in Article 47 of the Code of Civil Procedure.
Arrillaga contends that the three-year period is one of caducity (Docket No. 378 at p. 6). He argues that the allegedly “grossly negligent” conduct occurred when he voted to approve the loans, and in consequence, asserts that because the Sky-lofts I Loan was approved on March 6, 2006, the La Ciudadela loan was approved on April 24, 2006, the Hillstone I loan was approved on September 27, 2006, and the Acor I loan was approved on March 19, 2006, any action to recover losses arising from those loans would be time-barred. Iff at pp. 6-7.
In Puerto Rico, limitation periods may be classified as periods of caducity and periods of prescription. Both create periods within which actions must be initiated. A period of caducity (1) extinguishes the obligation once the period has elapsed; (2) admits no interruption; (3) can be raised as a defense by the court ex-officio judicis; and (4) begins running irrespective of whether the potential plaintiff has discovered the facts needed to support the claim. Ruiz v. Ambush, 25 F.Supp.3d 211, 214 (D.P.R. 2014).
By contrast, lapse of a prescriptive period extinguishes the action rather than the obligation itself. It may be interrupted, running anew from interruption. Being an affirmative defense, it must be timely raised. Knowledge of relevant facts—and as more fully discussed below, discovery of those facts—marks the starting point for its operation. As the period set in Article 47 runs from discovery, it is one of prescription not of caducity. See, Díaz-Olivo, Corporaciones at p. 439 (characterizing the Article 47 period as a prescriptive period).
Arrillaga alleges that the discovery rule does not apply to a claim based on an alleged breach of duty of care in making a loan, for the rule was adopted for tort claims, and no Puerto Rico court has ever applied it to claims like the FDIC’s, or even to a claim whose timeliness might properly be controlled by Article 47 (Docket- No. 438 at pp. 18-19). That is not what the statute states. “If the language of a statute ... has a plain and ordinary meaning, we need look no further and should apply [the statute] as it is written.” United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241-242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). In the same way, the period starts running with knowledge— and by extension, discovery—of the facts upon which liability is based. See, Diaz-Olivo, Corporaciones at p. 439 (pointing out that the period runs from knowledge of the facts giving rise to liability).
Arrillaga claims the alleged negligence could have been discovered more than three years before the FDIC was appointed receiver (Docket No. 438 at p. 19). He maintains that improper loan approvals cause an immediate injury that is immediately discoverable. Id. The FDIC counters that pursuant to the adverse domination doctrine, the limitations period was tolled until it assumed receivership of Eurobank (Docket No. 413 at p. 23).
Adverse domination is an equitable doctrine which operates to toll the statute of limitations for a corporation’s claims against its officers or directors when the persons in charge of the corporation cannot be expected to pursue claims adverse to their own interests. W. Holding, 904 F.Supp.2d at 180. As a judicial doctrine, it seems to have originated in FDIC v. Bird, 516 F.Supp. 647 (D.P.R. 1981), where the court crafted the principle that control of the association by culpable directors and officers precludes the possibility of filing suit because these individuals can hardly be expected to sue themselves or to initiate any action contrary to their own interests. Id. at 652. But it was subsequently adopted by other courts, including the First Circuit. See, FDIC v. P.L.M. Intern., Inc., 834 F.2d 248 (1st Cir. 1987).
The FDIC states the corporate board was in control of Eurobank, and it was not until it was appointed receiver on April 30, 2010, that the board was stripped of control. To that end, it asks the court to apply the adverse domination doctrine to conclude that the statute of limitations was tolled until April 30 (Docket No. 413 at pp. 23-31). But Arrillaga alleges that reliance on the adverse domination doctrine is misplaced because no court in Puerto Rico has even mentioned this “purported doctrine,” let alone “purported to adopt it” (Docket No. 438 at p. 22). He argues that Puerto Rico looks to Delaware law in resolving open issues of corporate law, Delaware has not adopted this “purported doctrine,” and two district courts in Delaware have held it doubtful that Delaware ever would. Id at p. 23.
Be that as it may, in 1997 the United States Supreme Court limited the use of federal common law. O’Melveny & Myers v. FDIC, 512 U.S. 79, 83, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994). Bird does not cite to Puerto Rican statutes or cases, and uses the term “federal common law.” And so O’Melveny would appear to foreclose reliance on the adverse domination doctrine, at least to the extent the doctrine is informed by nothing but federal caselaw. Yet the Puerto Rico Civil Code independently recognizes knowledge as a predicate to proper application of prescriptive periods, and a corporate board’s behavior, albeit not the bare fact that it controls the corporation, may effectively operate to impede discovery of facts needed to trigger running of a limitations period. So the fundamental concerns underlying the adverse domination doctrine are not foreign to Puerto Rico law. See, FDIC v. Carlson, 698 F.Supp. 178, 179 (D. Minn. 1988)(stat-ing that underlying rationale for adverse domination doctrine is a belief that while in control of a bank, the directors and officers can effectively disguise any wrongdoing).
In Puerto Rico, limitation of actions is not a procedural but a substantive matter. Vera v. Dr. Bravo, 161 D.P.R. 308, 321 (2004); Olmo v. Young & Rubicam of P.R., Inc., 110 D.P.R. 740, 742-743 (1981). The clock to initiate an action subject to a prescriptive period starts ticking from the time the aggrieved person has knowledge of the existence of her claim. Rivera-Carrasquillo v. Centro Ecuestre Madrigal, Inc., 812 F.3d 213, 215 (1st Cir. 2016). The principle was enacted into the Spanish Civil Code of 1888, which as revised became effective in Puerto Rico in 1890, and was maintained in the Puerto Rico Civil Code, which as discussed above, is based on the Spanish Civil Code.
To have knowledge that he has a claim, a person needs to be aware not only that she has been injured, but also needs to know who is (or may be) responsible for that injury. Rivera-Carrasquillo, 812 F.3d at 215-216. The Puerto Rico Supreme Court recognizes two types of knowledge as sufficient to start the clock. First, a plaintiff may have actual knowledge of both the injury and of the identity of the person who caused it. In that case, the limitations period begins to run on the date a plaintiff obtains this knowledge. Id. at 216. Second, alternatively, a plaintiff is deemed to be on notice of her cause of action if she is aware of certain facts that, with the exercise of due diligence, should lead her to acquire actual knowledge of it.
The test for this so-called “deemed knowledge” is an objective one. Under Puerto Rico law, deemed knowledge is essentially parlance for the discovery rule, which stands for the proposition that the statute of limitations does not begin to run until the plaintiff possesses, or with due diligence would possess, information sufficient to permit suit. Id. With that in mind, the statute of limitations begins running at the time a reasonably diligent person would discover sufficient facts to allow her to realize that she had been injured and to identify the party responsible for that injury. Id The rationale being, that once a plaintiff comes into that knowledge she can file suit. Id.
Notice of the injury occurs when there exists some outward or physical signs through which the aggrieved party may become aware and realize that she has suffered an injurious after effect, which, when known, becomes a damage even if at the time its full scope and extent cannot be weighed. Torres v. E.I. Dupont de Nemours & Co., 219 F.3d 13, 18-19 (1st Cir. 2000). If the ignorance is due to lack of diligence of the injured party, the limitations period runs from the time she should have known through reasonable inquiry. Pan American Grain, Inc. v. De la Cruz, 2013 WL 496142, *2 (D.P.R. Jan. 31, 2013). If the ignorance is attributable to the defendant, the statute of limitations will be tolled. Rivera-Carrasquillo v. Centro Ecuestre Madrigal, Inc., 812 F.3d 213, 216 n.3 (1st Cir. 2016). It is not the label of an action that dictates which principle applies, but the facts underlying the action.
Arrillaga argues that by the FDIC-R’s assertions, the alleged wrongdoing and injury were simultaneous and readily apparent when the loans were approved and made (Docket No. 438 at p. 20). In like manner, he states, persons capable of bringing suit knew or should have known of Arrillaga’s gross negligence for “... [derivative actions are brought every day by shareholders of companies who claim that directors breached fiduciary duties...” Id. at p. 22. He maintains that this is not a case where a medical patient could not immediately know she had been injured, or could not immediately identify which doctor had injured her. Id. at p. 25. He adds that director approval of bad loans is not something that cannot be discovered until default occurs where nothing is done to conceal the circumstances surrounding loan approvals, and no concealment was alleged here. Id. Hence, he posits that “for limitations purposes,” this case “is analogous to the case of a patient who wakes up after surgery to discover that the wrong leg was amputated.” Id. But is it?
The FDIC points out that the only components of the losses sought which were manifested prior to the Bank’s failure were the pre-failure charge-offs of the Acor and Ciudadela loans (Docket No. 413 at p. 21). Those events took place on January 20 and September 30, 2009. Id. If so, the charge-offs occurred within three years of the FDIC’s appointment as Receiver. Otherwise, defendants did not report charge-offs in the publicly available call reports the Bank submitted to the FDIC. Id. at p. 22. Similarly, most of the loans on which the FDIC seeks recovery had interest reserves, which guaranteed they would not be reflected as current for certain periods. Id. Several of the loans had their interest reserves replenished, thus ensuring they would not fall into delinquency. Id. The loans were only adversely classified as “sub-standard” on the following dates:
Acor: May 15, 2003
Skylofts: November 23, 2008
Hills tone: November 24, 2008
Marat: December 31, 2008
Ciudadela: July 6, 2009
Jocar: . October 31, 2009
On this, record, the court need not announce that the claim accrues when the money leaves the bank; when the loans were adversely classified as substandard; when the loans went into default; or some other date effectively precluding dismissal or timeliness grounds. The question of when a diligent plaintiff should have been able to figure out if there had been a breach of fiduciary duties under the circumstances of this case is for the jury to decide. The parties’ positions must be tested at trial.
B. Loans
1. Acor/Marat Loans
The FDIC seeks to collect $28.25 Million in losses relating to the Acor and Marat loans. Part of the proceeds of these loans were used to pay-off different and older delinquent loans. Arrillaga alleges that approximately $15.95 Million was disbursed pursuant to the original approvals, and some $12.3 Million were disbursed pursuant to renewal decisions. He claims that any recovery must be limited to “new money” disbursed (Docket No. 399 at pp. 3-5; Docket No. 443 at pp. 3-5, 10-12). On that basis, he asks the court to enter summary judgment reducing the calculation of damages attributed to those two loans (Docket No. 443 at p. 10). The FDIC counters that viewing the record in the light most hospitable to it, and making every reasonable inference in its favor, a reasonable juror would hold for the FDIC. As such, the issue raises a question for the jury rather than for summary judgment (Docket No. 406 at p. 8).
a. Acor Loan
In 2000, Eurobank approved a $5.5 Million loan to Acor, SE, to be used to develop the Villas de Hato Tejas project, entailing construction of 192 walk up/walk down type apartment units (Docket No. 406 at p. 8). The project was scheduled for completion in two years. Id. In 2004, the bank’s internal auditor wrote- an audit report for the Board, pointing out that:
• The interest reserve that had been assigned to pay the interest of the loan was exhausted well before the project was completed. The bank then began diverting funds that were to be used exclusively for construction to pay the interest of the loan. The audit noted that the practice could result in the developer running out of money before finishing the project.
• The amount of the loan disbursed was higher than the amount authorized and secured by the mortgage note, an unsecured overdraft exposing the bank to a loss.
• The bank was supposed to receive 90% of each unit sold as repay: ment of its principal, but on the sale of three units the bank received less, and the amounts that were received were mostly allocated to pay interest.
(Docket No. 406 at p. 9). As of January 2007, Acor had exhausted its interest reserve, depleted its funds for construction, was overdrawn by $1.3 Million, and was over 30 days delinquent, owing the November, December and January interest payments (Docket No. 406 at p. 10). The same month, the head of the bank’s Construction Department requested that the old Acor loan of the year 2000, whose balance had increased to $7.8 Million, be refinanced while providing an additional $2 Million. Id. at pp. 10-11.
The Board approved the proposed deal. At the closing in March 2007, the transaction was booked as a new loan (Docket No. 406 at p. 11). The old Acor loan was paid off and canceled. Id. The past due interests were paid off and booked as earned (i.e. paid by the bank to itself but entered as earnings). Id. Increases of $2.56 Million and $.69 Million were approved in March 2008 and in January 2009 respectively. Acor never finished construction of the units, and never paid off the loan. Id. at pp. 12-13.
b. Marat Loan
Marat is linked to Cierna Development Corp., which intended to build a residential complex within a golf resort in Caguas, Puerto Rico (Docket No. 369 at p. 6). The principal of both Cierna and Marat is Cleofe Rubí. His partner was Zoila Levis. The project was to be developed in three stages: land acquisition, land development, and unit construction. Id. In 2004, the bank approved a $6 Million loan for land acquisition, along with a $1,528 Million interest reserve. Id. The Land Loan and the Interest Loan eventually matured, but were not paid back as agreed (Docket No. 406 at p. 12).. Instead of collecting the money, the bank renewed the Land Loan and increased the Interest Loan by $1,053 Million. Id. This would pay interest on the Land Loan and keep it current. Id In 2006, the bank granted Clema a $2,150,000.00 Land Development Loan (Docket No. 406 at p. 12; Docket No. 409 at ¶¶ 5, 55). By the end of 2007, however, the Clema Interest Loan had begun to run out (Docket No. 406 at p. 12; Docket No. 409 at ¶ 57).
. Both the Land Loan and the Interest Loan became delinquent (Docket No. 406 at p. 12; Docket No. 409 at ¶ 57). Rather than paying, Rubí requested a new $13.3 Million Construction Loan for Clema to restructure Clema’s prior loans and to increase the peak to include the cost of construction and development (Docket No. 369 at p. 6). The loan was conditioned on the injection of $3 Million in capital (Docket No. 406 at pp. 13-14; Docket No. 409 at ¶ 62). The proposed loan included $1,605,746.00 earmarked to pay interest (an interest reserve), ensuring that Rubí would not have to do so until construction was finished (Docket No. 409 at ¶ 62).
Rubfs credit score on file was “weak,” with a score making him unlikely to qualify for a non-subprime credit card (Docket No. 409 at ¶ 64). He was unable to raise the $3 Million in cash and therefore proposed to contribute $2 Million. Subsequently, he could not raise the $2 Million and the conditions were amended to require no equity injection. Id. at ¶ 66. Zoila Levis’ personal guaranty would only be retained on a “best effort” basis. Id. at ¶ 68. Moreover, the peak of the loan was increased to $15.2 Million. Id.
On December 22, 2008, the loan was amended to $15.2 Million; $8,014,551.00 was to restructure the pre-existing Land Loans that had been approved in 2004 and 2006, and $7,185,449.00 to finance the construction phase of the project (Docket No. 369 at p. 7). On December 30, 2008, the Credit Committee agreed to release Levis from her personal guarantees on all Clema loans (Docket No. 409 at ¶ 69). The same day, Rubí requested that the loan be made to a new entity: Marat LLC. Id at ¶ 70.
On December 31, 2008, the transaction closed. A new credit agreement was executed with Marat, describing a credit facility of up to $28,044,351.00 with a peak amount of $15.2 Million. The $15.2 Million included approximately $8,150,000.00 to refinance the Clema Land and Development Loans from 2004 and 2006. Id at ¶¶ 71-73.
c. Contentions
In the main, Arrillaga draws a distinction between new loans and renewals. He claims the FDIC never made any allegation putting at issue the Original Approvals, and that any such allegation would be untimely now (Docket No. 443 at p. 6). For the same reason, he argues that recovery should be limited to money disbursed over and beyond amounts disbursed when the loans were initially approved. Id. at p. 7. He maintains there is no authority for the proposition that by only attacking the renewal decisions the FDIC can reach back in time and collect money that the Original Approvals caused to be disbursed. Id. at pp. 7-8. And thus he would limit Acor recovery to no more than $5.25 Million instead of $6.22 Million (Docket No. 369 at p. 4; Docket No. 443 at p. 9), and Marat recovery to no more than $7.05 Million rather than approximately $11.38 Million (Docket No. 443 at p. 12).
The distinction between new loans and renewals along the terms that Arrillaga proposes to limit liability is not persuasive. As the FDIC points out, the loans were underwritten, closed, and booked as new loans. They were made to new entities (Marat), with new loan numbers (Marat, Acor), with new terms (Marat, Acor), with different guarantors (Marat), paid off other delinquent or overdrawn loans (Marat, Acor), gave new interest reserves to guarantee that the loan would be current for an additional time (Marat, Acor), gained origination commissions for the Bank (Marat), and paid off delinquent interest which was then booked as income for the bank (Marat, Acor) (Docket No. 406 at p. 7). The relation between the original and subsequent transactions come together through novation.
The Puerto Rico Civil Code recognizes two types of novation: extinc-tive and modificatory. P.R. Laws Ann. tit. 31 §§ 3241, 3142; Web Service Group, Ltd. v. Ramallo Bros. Printing, Inc., 336 F.Supp.2d 179, 182 (D.P.R. 2004); Nieves Domenech v. Dymax Corp., 952 F.Supp. 57, 63 (D.P.R. 1996). An extinctive novation extinguishes the old obligation and creates a new one. Web Service Group, 336 F.Supp.2d at 182. In contrast, a modifica-tory novation amends, but does not extinguish, the original agreement. Id.
Extinctive novation may occur in one of two ways. First, the parties may expressly state their intention to create a new agreement. Nieves Dómenech, 952 F.Supp. at 62. In those eases, extinction operates such that one contract is canceled and substituted by another, even if the only alteration in the prior contract involves a simple or slight modification of a secondary condition. Francisco Garratón, Inc. v. Lenman & Kemp-Barclay & Co., Inc., 559 F.Supp. 405, 407 (D.P.R. 1983). Second, the parties may enter into a new agreement that is incompatible with the original one. Nieves-Dómenech, 952 F.Supp. at 62. Incompatibility exists when there are essential changes in the obligation, that is, an alteration in the principal conditions of the contract. Miranda Soto v. Mena Ero, 109 D.P.R. 473, 479 (1980).
Modifications that are mainly quantitative in nature do not extinguish the original main obligation, which remains in effect with all its supplementary and accessory guarantees. Francisco Garratón, 559 F.Supp. at 407. For the same reason, extensions of the term to comply with an existing obligation are not considered incompatible with that obligation unless the term is considered a principal condition of the agreement. Miranda Soto, 109 D.P.R. at 479-480. Thus, rescheduling of debt the debtor is already obligated to pay does not generally carry extinctive effects. Litheda Apartments, S.E. v. Amador, 2002 WL 32090201, *5 (P.R. Court of Appeals Dec. 18, 2002).
How these principles play out rests on the particular facts underlying the transactions. See, Atocha Thom McAn, Inc. v. Registrador, 123 D.P.R. 571, 579-587 (1989)(holding that extensions of lease agreement in accordance with previously stipulated extension clauses did not create new obligations, but that subsequent renewal option based on a latter agreement configures a new obligation irrespective of whether the obligation incorporates some of the terms of the original agreement); García v. The Commonwealth Ins. Co., 118 D.P.R. 380, 383-384 (1987)(concluding that surety is not obligated to make payment required by settlement agreement because, even though it had guaranteed payment in the event plaintiff prevailed in the lawsuit, the litigation settled, and the settlement in effect extinguished the prior obligation by novation, creating a new obligation subject to different terms and conditions).
On that basis, the court agrees with the FDIC that a jury may reasonably conclude that the loans were new loans. Cf. In re Matthews, 724 F.2d 798, 800 (9th Cir. 1984)(refinancing considered new loan: it paid off net balance due of old loan rather than extend its payments, converting delinquent loan into a current loan on lender’s books with the effect of liberating original “purchase money” collateral)(collecting cases), with FDIC v. P.L.M. Intern., Inc., 834 F.2d 248, 251-252 (1st Cir. 1987)(substitution of debtor who assumed initial debtor’s obligations did not extinguish those obligations even though the debtor was allowed to borrow additional money to carry out original projects on already encumbered real estate).
Still, directors may be liable for breach of fiduciary duties irrespective of whether they approve a new loan or a renewal. See, FDIC v. Mijalis, 15 F.3d 1314, 1324-1325 (5th Cir. 1994)(sustaining liability arising out of loan renewals). If a “new” or “renewed” loan is taken to pay off an “old” loan, the money originally transferred to the borrower may be a bygone, but the amount to which it corresponds is not, for what remains of the old debt in effect becomes new debt. It does not become a sunk cost. The situation would be different if the proceeds of the latter transaction were used for a purpose other than to merge or subsume old debt into new debt to generate a new balance that has to be paid, in full. So it is up to the jury to evaluate whether the Directors fulfilled their duty of care in approving the 2007, 2008, and 2009 transactions.
2. Jocar Loan
Jocar is a subsidiary of HIMA-San Pablo Group (Docket No. 367 at p. 8). Nova Infusion & Compounding Pharmacy provided pharmaceutical services specializing in infusion therapies. Id. at p. 6. By 2004, it had outgrown its facilities, and borrowed $3.15 Million from Eurobank to purchase and build larger facilities. Id at p. 7. In late 2005, it borrowed another $10.3 Million from Eurobank to purchase a larger facility and to consolidate prior loans. Eu-robank granted an additional $1.9 Million loan to fund construction of the new facilities, increasing Nova’s total loan relationship with Eurobank to nearly $14 Million. Id.
In mid-2007, Nova began experiencing cash-flow problems. It had agreements with major suppliers including Borschow Hospital & Medical Supplies and Baxter Pharmaceuticals, which required payment on 45-day credit terms. Id. at p. 8. Nova paid those suppliers with receivables from major clients, including Triple S Salud, Blue Cross, Cigna, Humana, and Medicare. However, they were on 60-day payment terms. Id. The 15-day lag between accounts payable and accounts receivable constricted Nova’s cash flow, hampered its ability to timely pay its suppliers, and caused Nova to agree to disadvantageous financing terms. Id. The lag further impacted its operating margin, shrinking it to 8%, largely because of an approximately $4 Million debt to Borschow. Id.
In August 2007, Jocar purchased Nova’s outstanding stock and shortly thereafter requested a $5 Million line of credit from Eurobank to get back on reasonable terms with suppliers. Id at pp. 8-9. In exchange for the line of credit, the bank received a guaranty from HIMA securing the new line of credit and the pre-existing $14 Million in loans to Nova. Id. at p. 9. The loan made HIMA’s earnings the primary repayment source. Id. The $5 Million line of credit was executed in December 2007. Id. at p. 10. The FDIC alleges that Directors were grossly negligent in approving the line of credit (Docket No. 1 at ¶¶ 3, 56-61). Arrillaga counters that there is absolutely no evidence supporting such allegation, and that summary judgment should be entered against the FDIC-R as to the Jocar loan. He believes his decision is protected by the Business Judgment Rule (Docket No. 367 at p. 19).
The Business Judgment Rule creates a presumption that in making a business decision, directors acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. It assumes that not all decisions by directors will result in benefit to the corporation or will, with the benefit of 20/20 hindsight, appear to be prudent. William E. Knepper & Dan A. Bailey, Liability of Corporate Officers and Directors, 2-1 (8th Ed. 2010). Plaintiff must overcome the presumption with competent proof predicated on the substantive elements of the claim.
The presumption does not call for an evidentiary framework different than the one used in other cases in Puerto Rico, where the defendant is presumed to have complied with the duty of care established by law so as to avoid liability unless plaintiff proves otherwise. See, Arrieta v. De La Vega, 165 D.P.R. 538, 549 (2005)(noting that physicians are presumed to have exerted a reasonable degree of care and provided patients with adequate treatment). In the same way, the Business Judgment Rule does not shield directors against grossly negligent conduct under P.R. Laws Ann. tit. 14 § 3563. The FDIC must so establish by a preponderance of the evidence to prevail as a matter of law. See, Elías v. Chenet, 147 D.P.R. 507, 522 (1999)(holding that plaintiff must show physician was grossly negligent to prevail under Law No. 189 of June 3, 1976, which exempts from liability physicians that provide free treatment in the handling of an emergency so long as they do not incur in, inter alia, gross negligence).
Arrillaga claims he voted to approve the line of credit so that Nova could unlock the cashflow problems it was having with suppliers, which in turn, would improve the company’s profit margins and enable it to repay the debt. He maintains the alternative was to declare the loan in default and institute costly and time-consuming legal measures. Thus, he made a good faith, rational decision based on a legitimate business purpose (Docket No. 441 at p. 3).
When the loan was approved, Nova owed Eurobank $14 Million (Docket No. 397 at p. 2). At the time, the bank did not have current financial statements from either Nova or Jocar. Id. at pp. 2-3. The current financial statements of HIMA, the guarantor whose earnings were identified as the primary source of repayment, showed that HIMA’s working capital was negative $34 Million, and that out of $50 Million in available lines of credit, $46 Million was outstanding. Id. at pp. 2-3. Its net earnings for 2007 were projected to decrease by 21.6% compared to 2006. Id. at p. 3.
HIMA may have been subjected to a Loan and Security Agreement with another lender (Westernbank). Id. at pp. 3, 9-10, 13. If so, that lender had a superior lien position on the same collateral. Id. The bank did not seem to have performed any preliminary audit of collateral assets, and nothing would appear to confirm that the loan was being advanced against actual and verifiable receivables and inventory of the borrower on an ongoing basis. Id. at pp. 4-5.
The FDIC argues that the factual setting permits a reasonable jury to find that Arrillaga was grossly negligent in approving the line of credit. Id. at p. 17. In this way, it asserts that Arrillaga approved the $5 Million loan to a borrower (Jocar), whose financial statements were not analyzed, to be used on a subsidiary (Nova) that was on the brink of bankruptcy, on the strength of a guarantor (HIMA) that was both financially and contractually incapable of paying the debt (Docket No. 397 at p. 11).
Arrillaga responds with alternate explanations revolving around the sufficiency of financial statements; working capital and what it should have lead Arrillaga to conclude; credit lines and their relationship to credit risk; net and projected earnings; HIMA’s position in the medical industry, absence of indebtedness to another lender, and ability to back up the transaction (Docket No. 441 at pp. 6-12). The FDIC challenges Arrillaga’s explanations, pointing out, among other things, that the latest financial information on HIMA showed minimal capacity to service the debt (Docket No. 486 at pp. 6-8). Resolving a claim such as gross negligence involving fluid concepts like reasonableness and foreseeability in a setting like the one here is for the factfinder. See, Candelario Del Moral v. UBS Financial Services of Puerto Rico, 699 F.3d 93, 100 (1st Cir. 2012)(not-ing that summary judgment is “an improper vehicle for resolving questions of this sort”); Elías, 147 D.P.R. at 522 (reversing trial court for having dismissed through summary judgment gross negligence claim against physician under Law No. 139). On that basis, the evidence must be tested at trial.
C. FDIC’s Role
Arrillaga alleges the FDIC is responsible for the losses it seeks to recover. He asserts the FDIC destroyed Eurobank as part of a project—Project Thamis—to downsize Puerto Rico’s banking industry, which on this account, the FDIC had decided was “overbranched” and “overbloat-ed” (Docket No. 419 at p. 3). He posits that like other Puerto Rico banks, Eurobank had reacted to the loss of commercial deposits resulting from a ten-year phase-out of depositor tax incentives after 1996, by taking on brokered deposits, and that by 2008, the Bank had attracted over a billion dollars in brokered deposits that it used for typical lending activities, funding community projects on the Island that on his account, fostered economic growth and provided jobs. Id. But, he asserts, the FDIC drew up a plan to “rightsize” Puerto Rico’s banking industry (which meant shrinking it to a size the FDIC thought the Island deserved), featuring the elimination of Eurobank and two other banks. Id. at 3-4. He expresses the FDIC stripped the Bank of liquidity by forcing it to use up valuable cash to shrink its brokered deposit base, which predictably forced the Bank into a liquidity crisis (Docket No. 485 at p. 8).
Arrillaga avers that but for the FDIC’s manipulation of Puerto Rico’s banking industry, there would have been (1) no Project Thamis; (2) no coordinated takeover of Puerto Rico banks by the FDIC; and (3) no $647 million payout by the FDIC from the Deposit Insurance Fund, and no losses (Docket No. 485 at p. 6). Along the same line, he claims the FDIC breached its duty to protect depositors and the Deposit Insurance Fund because it “turned what could have been a zero-cost resolution into a $647 million mess, for the purpose of satisfying Project Thamis’ express goal of drastically reducing brokered deposits in Puerto Rico banks” (Docket No. 419 at p. 14). He argues that from this wealth of evidence, reasonable jurors could conclude that the FDIC caused some or all of its alleged damages. And for the same reason, given that Puerto Rico is a comparative-fault jurisdiction, he states that defendants are entitled to apportion fault as to all parties contributing to the damage including the FDIC, which in this view, breached a duty to mitigate alleged losses to itself, to depositors, and the Deposit Insurance Fund (Docket No. 419 at pp. 6, 14; Docket No. 485 at pp. 15-16). The FDIC counters this case is about loans, not about who is responsible for the bank’s insolvency and closure (Docket No. 455).
a. Comparative Negligence and Mitigation of Damages
It is true that Puerto Rico is a comparative negligence jurisdiction. See, Rodríguez v. Señor Frog’s de la Isla, Inc., 642 F.3d 28, 37 (1st Cir. 2011)(so recognizing); Ruiz-Troche v. Pepsi Cola of Puerto Rico Bottling Co., 161 F.3d 77, 87 (1st Cir. 1998)(same). The comparative negligence standard was adopted in 1956 to replace the common-law doctrine of contributory negligence. Candelario Del Moral v. UBS, 2016 WL 1275038, *25 (D.P.R. March 31, 2016); Carlos J. Irizarry Yunque, Respon-sabilidad Civil Extracontractual, 259 (7th ed. 2009). It abolishes doctrines that give all-or-nothing effect to certain types of plaintiff’s negligence to adjust recovery. Candelario Del Moral, 2016 WL 1275038 at *25.
Hence, the amount of damages otherwise recoverable is diminished, in the proportion which culpable conduct attributable to the claimant bears to the culpable conduct which caused the damages. If a plaintiffs own conduct is one of the adequate causes of his harm, his award is reduced in proportion to the percentage of the harm that he caused. Baerga v. Autoridad de Energía Eléctrica, 2001 WL 1763251, *9 (P.R. Court of Appeals Nov. 28, 2001); Herminio M. Brau Del Toro, Los daños y perjuicios extracontractuales en Puerto Rico, 414 (2d ed. 1986). As an award-adjustment mechanism, comparative negligence is related to mitigation.
The mitigation doctrine requires the injured party to take advantage of reasonable opportunities to minimize damages after these occur. Gener-Villar v. Adcom Group, Inc., 560 F.Supp.2d 112, 133-134 (D.P.R. 2008). An injured party with an otherwise valid cause of action who fails to mitigate her damages may not recover damages shown to have resulted from her failure to use reasonable efforts to mitigate the loss. Id. at 134. Defendants bear the burden of proving that the injured party was negligent or failed to take reasonable steps to hold down her loss. Id. at 135.
b. Tortfeasors
Every tortfeasor is ultimately responsible solely for its proportionate allotment of the total damages. Zurich American v. Lord Electric Co. of Puerto Rico, 828 F.Supp.2d 462, 471 (D.P.R. 2011). To the extent the defendant tortfea-sor proves another tortfeasor’s proportionate share of the overall damages, her contribution is reduced accordingly. Those calculation may be made even when that tortfeasor is immune from liability and the immunity is established prior to the incident that has produced the injury. Id.
The FDIC contends that apportionment would be improper because even though the Directors blame the FDIC for destroying the bank, such would be the FDIC Corporate, which is not a party to this case (Docket No. 455 at p. 4). On that basis, it states the Directors may not bring in evidence of the FDIC Corpo