In Re San Juan Dupont Plaza Hotel Fire Litigation Plaintiffs' Steering Committee v. Tourism Company of Puerto Rico

Citations: 888 F.2d 940; 1989 U.S. App. LEXIS 16908; 1989 WL 133614Docket: 89-1552

Court: Court of Appeals for the First Circuit; November 7, 1989; Federal Appellate Court

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An appeal was filed by the Plaintiffs' Steering Committee (PSC) against the Tourism Company of Puerto Rico following the dismissal of damage claims related to the December 31, 1986, San Juan Dupont Plaza Hotel fire, which resulted in 96 deaths and significant injuries and property damage. The central issue was the Tourism Company's claim of immunity from suit under the Eleventh Amendment, as it is considered an arm of the Commonwealth of Puerto Rico. The district court had determined this immunity after extensive discovery, leading to the dismissal of claims against the company.

The PSC's initial notice of appeal, filed on March 15, 1989, was deemed insufficient because it did not specify the individual appellants among the over 2,000 original plaintiffs, a requirement outlined in Federal Rule of Appellate Procedure 3(c). The court referenced the Supreme Court's strict interpretation of this requirement in Torres v. Oakland Scavenger Co., reinforcing the need for specificity in naming parties to maintain jurisdiction over the appeal. The district court had previously denied PSC's motion to amend the judgment, and the appeal followed this denial.

On April 19, 1989, the court ordered the Plaintiffs' Steering Committee (PSC) to clarify why its appeal should not be dismissed for failing to specify all appellants. Following the court's recommendation, PSC sought an extension of time in the district court, explaining the omission was due to a belief that listing all plaintiffs was unnecessary based on prior practices. The district court granted the extension, finding the oversight to be excusable neglect linked to PSC's understanding of their role and prior appeal experiences. Subsequently, on May 22, PSC submitted a second notice of appeal that included a comprehensive list of all plaintiffs.

The Tourism Company challenged the extension, asserting that Rule 4(a)(5) permits extensions only when the failure to file a timely appeal is due to third-party actions or extraordinary circumstances. The court upheld the extension, noting that the original appeal, which indicated all plaintiffs were appealing "through the Plaintiffs' Steering Committee," may have been sufficient under procedural rules. The court referenced the Supreme Court's guidance that a technically non-compliant action can still meet procedural requirements if it effectively communicates the intent to appeal. Additionally, the circumstances—such as PSC's representative role, the large number of plaintiffs, and the reasonableness of the initial notice—justified the district court's conclusion that the initial error was excusable. The court reinforced the flexibility intended under amended Rule 4(a) for granting extensions.

The Eleventh Amendment provides states with immunity from damage suits in federal court unless Congress abrogates this immunity or the state waives it. The Commonwealth of Puerto Rico is treated as a state under the Eleventh Amendment. Determining whether a state-created entity, such as the Tourism Company, qualifies as an "arm of the state" for this protection involves assessing several factors: the entity's performance of governmental functions, its autonomy, its financial independence from the state treasury, and whether any judgment against it would be paid from state funds. Additional considerations include the entity's incorporation status, its capacity to sue or be sued, its property tax immunity, and whether the state has limited its liability for the entity's actions.

In a previous case, Ainsworth Aristocrat International Party v. Tourism Co., the court found that the district court had not properly applied these factors to determine the Tourism Company's status. However, it did not finalize this determination due to an incomplete record regarding the Governor's control and the funding of the Tourism Company. In the current case, with a substantial record and relevant findings from the district court, the court affirms that the Tourism Company is indeed an arm of the Commonwealth of Puerto Rico for Eleventh Amendment purposes.

The district court established that the Governor's administration maintains significant control over the Tourism Company, including constant communication with its Director, who is part of the Governor's cabinet. The Governor appoints the Tourism Company's board members, and although the Board selects its Executive Director, the Governor effectively influences this decision. While the Governor does not control daily operations, they oversee the planning and policy administration of the Tourism Company. Additionally, the Tourism Company is obligated to provide financial and progress reports to the Governor and the Legislature at the start of each legislative session.

The district court determined that the Tourism Company operates as a non-profit entity, with 72.9% of its 1987-88 budget funded by Puerto Rico's general funds. Executive Director Miguel A. Domenech confirmed that any judgments against the Company would be paid by the Commonwealth, highlighting that approximately three-fourths of its revenue is sourced from the Commonwealth's general fund through annual legislative appropriations. The court noted that the Company's annual expenses directly influence future legislative subsidies. 

While PSC did not contest the factual findings, it argued that the district court underestimated the Tourism Company's operational independence from the Governor and claimed that the Eleventh Amendment should not apply due to Puerto Rican law stating the Commonwealth is not liable for the Company's debts. However, the court found that since 70-75% of the Company's funding comes from taxpayer money, any judgment against it effectively represents a liability for the Commonwealth. 

Despite the Tourism Company exercising some operational autonomy, it is governed by a board appointed by the Governor, who retains significant supervisory authority. Consequently, the court upheld the lower court's ruling that the Tourism Company is an arm of the Commonwealth and entitled to Eleventh Amendment immunity. The court referenced similar cases to support its conclusion that the Company, as a governmental instrumentality, is not independent but integral to the Commonwealth's functions, enjoying tax exemptions and the power of eminent domain, while fulfilling vital governmental roles in tourism promotion and casino oversight.

The governing statutes indicate that the Tourism Company operates as an autonomous entity with legal existence separate from the Commonwealth Government, granting it powers such as controlling properties, entering contracts, and issuing bonds. However, the Company's financial and political dependence on the Commonwealth undermines its independence under the Eleventh Amendment. The ability of the Tourism Company to sue and be sued does not negate its immunity, as legislative intent to waive this immunity must be clearly established, which is not evident in this case. The argument that potential judgments would be covered by insurance does not waive Eleventh Amendment immunity, as such a precedent would lead to higher insurance costs for states, contradicting the Amendment's purpose. The decision is affirmed by the court.