PUERTO RICO: An Introduction to Dispute Resolution

Puerto Rico has seen some substantial changes in 2025 which will affect the dispute resolution and restructuring landscape as the island grapples with the economic trends facing the US as well as its own challenges. The cost of debt, mortgages and interest rates remains elevated; rising geopolitical tensions and the prospect of a global trade war that could disrupt supply chains also weigh on companies and investors. The recent implementation of additional economic policies by the US presidential administration, such as the termination of or changes to federal grants and disbursements, upon which Puerto Rico is heavily reliant, has also created substantial uncertainty affecting sectors such as education and energy, and services such as disaster recovery. Finally, while Puerto Rico continues its efforts to stabilise and rebuild its electric power grid and complete the restructuring of its public power utility (PREPA), power outages, rising electricity costs and the lack of a reliable and efficient energy system continue to put pressure on companies and residents alike.

These developments and policies have affected the Puerto Rico dispute resolution and restructuring landscape. Economic uncertainty, shifting trends and the rise in operational expenses and the cost of living have driven an increase in bankruptcy filings for 2025 and in out-of-court restructurings on more complex transactions. For the first half of 2025, bankruptcy filings rose 4% versus the same period last year; Chapter 11 filings were up 66% and Chapter 7 filings rose 15.1%. This general increase in bankruptcy filings is consistent with the overall 13.1% increase reflected in the United States.

In addition, the effects of the federal policies of the new US presidential administration and potential cuts in federal programmes continue to generate litigation related to breach of contracts, payment and performance bonds and similar controversies. And with the recent increased federal enforcement on immigration, ICE has begun large-scale raids in Puerto Rico, targeting illegal immigrants. Immigration-related prosecutions are steadily rising, along with disputes on mistaken detentions and due-process concerns, causing higher wait times for disposition at the Immigration Court and backlogs that are exacerbated by resource and staffing limitations. 

Along with the rest of the world, Puerto Rico has seen an increase in the use of technology, particularly AI, in commercial operations. AI legal concerns are becoming increasingly focused on overall ethical implications and corporate governance, including regulation, transparency and accountability. A rising percentage of local companies, including law firms, have started applying AI to various business functionalities, including legal research and case analysis, due diligence, e-discovery, document management and client services, while also implementing guidelines to regulate AI use within their businesses. As a result, the government of Puerto Rico has started taking significant steps to develop a legal framework for the use of AI – and process remains ongoing. 

These technological developments, as has been the global trend, have also resulted in a higher risk of cyber-attacks and privacy data breaches. The government of Puerto Rico has continued enacting regulations to prevent and reduce the impact of such attacks, centralising leadership and incident oversight within the government, establishing cross-agency partnerships, including with federal entities and first responders, and implementing regular training and assessment across sectors. Private entities have also continued to develop policies and mechanisms to mitigate perceived cybersecurity threats and develop efficient post-incident responses, generally with the advice and assistance of legal counsel. Rising cyber risks and legislative mandates are pushing Puerto Rico’s insurance market toward robust cyber-risk issuance. Trends in other US jurisdictions suggest that Puerto Rico may soon see more litigation, including disputes over denials of claims by insurers, assertion of damages and claims by individuals or entities whose data may have been breached, and related litigation.

To stimulate its economy, Puerto Rico has continued to implement tax and other incentives aimed at attracting non-residents and foreign corporations to relocate to the island, as well as initiatives aimed at re-shoring and strengthening Puerto Rico’s manufacturing to position the island as a key player in the US industrial sector. As part of these efforts, Puerto Rico has also tried to establish itself as an international banking hub, granting tax and other benefits to international financial entities that set themselves up in Puerto Rico and provide banking and financial services to persons and entities outside the territory. This has led to an increase in international banks establishing operations in Puerto Rico, and has created additional needs for oversight and enforcement of this particular industry. It has also resulted in a higher number of administrative enforcement actions taken by the government against banking entities that are not compliant with applicable regulations. This has driven up the number of dispute resolution cases brought by the customers of these entities in the Puerto Rico courts in an effort to recoup their investments and deposits, as well as by the owners of the financial entities in question in an attempt to prevent the enforcement actions. Similarly, efforts to attract fresh investment have resulted in increased legal work on shareholder disputes, private credit litigation, and restructuring work.

Overall, Puerto Rico’s legal landscape reflects a blend of federal and state systems, influenced by its unique political status as a US territory. By early 2025, combined federal civil and criminal filings rose due to a surge in civil cases, and particularly Multidistrict Litigation. Puerto Rico remains a moderate-volume federal court, averaging approximately 2,000 filings annually. Although the US District Court for the District of Puerto Rico historically shows slower disposition times compared to its mainland counterparts, district court cases there still have a shorter medium disposition time (18 months to two years) than state court cases (three to five years). Both the federal and state courts face challenges, such as docket congestion, leading to slower rulings and delays in civil matters. Some cases, particularly those involving commercial property insurance claims filed after Hurricane María, have remained unresolved for several years, many of them even without trial dates set. As a result, the island has seen significant shifts in dispute resolution mechanisms. In the federal courts, alternative dispute resolution methods have gained prominence. Mediation, in particular, has been effectively utilised in commercial, bankruptcy, and personal injury cases. Federal Magistrate Judges often oversee these mediations in Federal Courts, leading to efficient resolutions. While mediation in state court cases is less common, mainly because of the need to appoint private mediators and the costs associated with this, it is nevertheless accessible and can also prove productive and more efficient than trying a case all the way through trial. Similarly, arbitration remains a preferred method for resolving commercial disputes. The Federal Arbitration Act applies and supersedes any section of the Puerto Rico Arbitration statute that is inconsistent. Corporate entities or businesspersons doing business in Puerto Rico may want to enter into contracts that carry well-thought-out arbitration clauses that protect against unnecessary delay and strive for cost efficiency. Private arbitration forums, such as the American Arbitration Association and JAMS, are available and usually included in arbitration agreements for contracts in Puerto Rico.