VAQUERÍA TRES MONJITAS, INC.; SUIZA DAIRY, INC. v. CYNDIA E. IRIZARRY, in hеr official capacity as Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico; JOSÉ O. FABRE-LABOY, in his official capacity as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico; INDUSTRIA LECHERA DE PUERTO RICO, INC. (INDULAC), PUERTO RICO DAIRY FARMERS ASSOCIATION; VAQUERÍA TRES MONJITAS, INC.; SUIZA DAIRY, INC. v. JAIME RIVERA-AQUINO, in his official capacity as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico; INDUSTRIA LECHERA DE PUERTO RICO, INC. (INDULAC); PUERTO RICO DAIRY FARMERS ASSOCIATION; CYNDIA E. IRIZARRY, in her official capacity as Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico
No. 07-2240, No. 07-2369
United States Court of Appeals For the First Circuit
November 23, 2009
Hon. Daniel R. Domínguez, U.S. District Judge
Edward W. Hill-Tollinche, with whom Quiñones & Sánchez, P.S.C., Yassmin González-Vélez, and Juan Carlos Ramírez-Ramos, were on brief for appellants.
Rafael Escalera-Rodríguez, with whom Reichard & Escalera, Carmen Alfonso-Rodríguez, and Amelia Caicedo-Santiago, were on brief for appellee Suiza Dairy, Inc.
José R. Lázaro-Paoli, José R. Lázaro-Paoli Law Offices, Enrique Nassar-Rizek, Maxine M. Brown-Vázquez, and ENR & Associates, on brief for appellee Vaquería Tres Monjitas, Inc.
On aрpeal, in addition to challenging the merits of the district court‘s preliminary injunction ruling, Defendants-Appellants argue that the district court‘s actions were barred by the Burford Abstention doctrine, the
After careful consideration, we affirm.
A. Factual Background1
1. Parties
Plaintiffs-Appellees Vaquería Tres Monjitas (“Tres Monjitas“) and Suiza Dairy, Inc. (“Suiza“) are fresh milk processors in the Commonwealth of Puerto Rico (collectively “the processors“). Their business consists of purchasing raw milk from local dairy farmers and converting it into drinkable fresh milk, which they then sell to consumers. Plaintiffs are the only fresh milk processors in Puerto Rico. Tres Monjitas holds a market share of 34.7%, and Suiza holds a 65.3% share. As milk processors, plaintiffs fall under Puerto Rico‘s regulatory structure for milk and milk products.
Defendant-Appellant Cyndia E. Irizarry2 (“Administrator“) is being sued in her official capacity as the current Administrator of ORIL, which is the entity responsible for creating and
Defendant Industria Lechera de Puerto Rico, Inc. (“Indulac“) was joined to the litigation after its inception. Indulac is owned and operated by Fondo de Fomento de la Industrial Lechera (“FFIL” or “the Fund“), an entity created pursuant to the Milk Industry Regulation Act, Act No. 34 of June 11, 1957 (“Act 34“) to promote Puerto Rico‘s milk industry.
The Administrator of ORIL, who is statutorily empowered to regulate the milk market, is also chairman of the board of FFIL, the government entity which owns Indulac.
Also joined as a defendant was the Puerto Rico Dairy Farmers Association (“PRDFA“), which represents 300 dairy farmers, who are the producers of the raw milk processed by Tres Monjitas, Suiza, and Indulac.
2. Background of this Litigation
This litigation arises out of a history of feuding between dairy farmers and milk processors in Puerto Rico. Milk production in the Commonwealth is seasonal and heavily dependent upon the changing temperature, leading to instability in the seasonal yield of milk and, consequently, waste during months of higher production. The strained relations between farmers and processors and the difficulty of maintaining a consistent supply led to a chaotic situation in an industry essential to the local economy and well-being of the population. To ease tensions between the farmers and processors and to stabilize the disparity between months of lean and fat milk production, Act 34, which was passed June 11, 1957, created ORIL as a regulatory agency to oversee the milk industry.
While processors were required to purchase all of the dairy farmers’ milk, Indulac purchased from the processors any raw milk left over after the market demand for fresh milk was met (referred to as “surplus milk“), in order to avoid waste. Under ORIL‘s pricing system, Indulac purchased this surplus raw milk from the processors at а price significantly below the price that the processors paid the dairy farmers for their non-surplus raw milk.4 At first, Indulac processed the surplus raw milk that it purchased from the processors to make butter, cream, cheese, and other dairy products that did not directly compete with the fresh milk produced by plaintiffs.
Moreover, unlike the other milk processors, the price at which Indulac may sell its milk to consumers is not regulated. This lack of regulation as to Indulac‘s retail рrice for milk, coupled with the relatively low price at which it could purchase surplus raw milk from plaintiffs, allowed Indulac‘s profit margin to soar, while the processors struggled. And, since Indulac was able to purchase its raw milk at a deflated price, UHT milk became significantly less expensive than fresh milk -- a phenomenon unique
Aside from enjoying a near-monopoly on UHT milk, Indulac also has broad influence over ORIL‘s regulatory decisions. When, in 2002, Indulac began to guarantee supplemental minimum payments to farmers for raw milk, it was the Board of Indulac, and not ORIL, which determined what were the dairy farmers’ costs and what constituted reasonable profits.6 And, since the Board of Indulac consisted entirely of dairy farmers,7 they were essentially setting their own cost of production and margin. Even as late as February 2006, during the course of this litigation, when ORIL raised the
In addition to being forced to subsidize Indulac, Tres Monjitas and Suiza found their financial situation changing from year to year with no fоrewarning. The district court extensively cataloged these regulatory shifts, of which we highlight but a few. Act 34 requires ORIL to reassess its price structure on a yearly basis and to make necessary adjustments based on the cost of milk production and market demand for milk products. See
To make matters worse, some of ORIL‘s estimates have been based on clearly outdated economic figures. For instance, the raw milk rate for fresh milk processors effective in May 2005 used cost numbers from 2003. These calculations failed to account for the tremendous increase in prices of essential production elements such as fuel, electricity, and resin that took place in 2004. Likewise, for its 2005 price order, ORIL used the milk production numbers from 2003, even though 2004‘s figures demonstrated a significant decline, evidencing a consistent trend of reduced production, which ORIL inexplicably failed to take into account.
Such determinations as to plaintiffs’ production costs, the price of raw milk, and the price at which they could sell fresh milk to consumers, allowed ORIL to control the milk processors’ rates of return. ORIL chose that this rate should be 10%,10 taking
The district court further found that, while defendants’ goals were to maintain stable milk production and pricing, their regulatory and market practices had the effect of creating a dire and unsustainable situation in Puerto Rico‘s milk industry. The low price of Indulac‘s UHT milk allowed it tо dominate the market, even though FFIL acknowledges that fresh milk consumption is preferable for health reasons. And, though the demand for fresh milk was dwindling, Tres Monjitas and Suiza were required to purchase all raw milk produced by dairy farmers at an inflated price, and to sell the ever-increasing surplus to Indulac at a deflated price. Plaintiffs claim that continued regulation in this manner would render them insolvent, leading to the collapse of Puerto Rico‘s milk industry, as they are the only two entities currently collecting raw milk from the dairy farmers, and are the only entities processing fresh milk for consumers.
On August 13, 2004, Tres Monjitas and Suiza filed a complaint in the United States District Court for the District of Puerto Rico. They sought a declaration under the Federal Declaratory Judgment Act,
Specifically, plaintiffs alleged that ORIL‘s regulatory structure, which precluded them from making a reasonable profit in their milk business, constituted a confiscation of property in violation of the Takings Clause. See
Pursuant to these claims, on August 20, 2004, plaintiffs moved for a preliminary injunction to preclude the Administrator of ORIL from continuing to implement the complained-of regulatory practices and orders. Plaintiffs claimed that irreparable injury would result if this scheme were kept in place much longer, as they would soon face insolvency. Their insolvency, plaintiffs argued, would have drastic consequences for the people of Puerto Rico, as Tres Monjitas and Suiza alone have the capacity to process the quantity of fresh milk required to supply the Commonwealth. They contrasted their dire outlooks with evidence of Indulaс‘s high profitability, arguing that preliminary injunctive relief would not harm defendants as much as its absence would harm plaintiffs.
After conducting 51 intensive evidentiary hearings over the course of one-and-a-half years, on July 13, 2007, the district court granted the preliminary injunction, ordering that (1) all milk processors pay the same amount for raw milk, (2) that the Administrator of ORIL develop and implement rational, non-discriminatory parameters for price regulation, and (3) that the Administrator adopt a temporary mechanism to allow plaintiffs to recover a fair rate of return from the year 200311 until the
Defendants timely appealed, arguing that (a) the district court should have abstained from hearing the case pursuant to the Burford abstention doctrine; (b) the portion of the district court‘s injunction order requiring ORIL, a state entity, to establish a regulatory accrual account constituted issuance of retroactive compensatory relief, in violation of defendant‘s sovereign immunity; (c) the district court erred in denying defendants’ equitable defenses, namely the clean hands doctrine, laches, and estoppel; and (d) the district court erred in applying the standard for issuance of a preliminary injunction.12
II. Discussion
A. Abstention
Defendants argue that the district court should have abstained from hearing this case under the doctrine set forth in Burford v. Sun Oil Co., 319 U.S. 315 (1943). The district court declined to do so, stating that Burford does not apply “when the effect of an entire regulatory scheme is challenged as unconstitutional.” Vaquería Tres Monjitas, No. 04-1840, at *56 (quoting Tenoco Oil Co. v. Dep‘t. of Consumer Affairs, 876 F.2d 1013, 1029 n.23 (1st Cir. 1989)). We agree.
In Burford, the Supreme Court upheld a federal court‘s decision to abstain from reviewing an order of the Texas Railroad Commission granting Burford a permit to drill oil wells in east Texas. Plaintiff, Sun Oil, had brought suit not to determine the constitutional validity of the state regulation, which had been settled in prior litigation, but to challenge whether the order was reasonable under a state statute. Burford, 319 U.S. at 328, 332. While the plaintiffs in Burford did allege that the commission order violated their right to due process, resolving the issues on appeal required interpreting state, not constitutional, law. Id. at 331. Since the constitutional validity of the commission‘s complex procedures was not at issue, the Supreme Court recognized that the federal court was simply being called upon to review the state agency‘s determination in light of the policy outlined by state law. Id. at 320-21, 331. On these facts, the Court held that, despite the existence of federal subject matter jurisdiction, abstention was proper to maintain the balance between state control over its own regulatory policies and federal oversight. Id. at 327, 332.
Later, in New Orleans Pub. Serv., Inc. v. Council of New Orleans (NOPSI), the Supreme Court clarified that a federal court should abstain from hearing a case that involved “difficult questions of state law bearing on policy problems of substantial
We believe that an expansive reading of NOPSI -- one that would require federal courts to abstain from hearing any case involving important state regulatory policies -- is not consistent with Supreme Court precedent or with our own. Indeed, it would fly in the face of the Supreme Court‘s repeated admonitions that Burford abstention be “the exception, not the rule.” Moses H. Cone Mem‘l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 14 (1983) (internal quotations and citation omitted). Moreover, cases since NOPSI have not treated Burford as severely curtailing federal courts’ jurisdiction. See, e.g., Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728 (1996) (stating that ”Burford represents an extraordinary and narrow exception to the duty of the District Court to adjudicate a controversy properly before it.“) (internal quotations omitted). While Burford recognizes that states should
A narrow reading of NOPSI, on the other hand, best comports with not only Supreme Court, but also this Circuit‘s precedent. In Bath Mem‘l Hosp. v. Maine Health Care Fin. Comm‘n, 853 F.2d 1007, 1012-13 (1st Cir. 1988), we recognized that Burford abstention must only apply in “unusual circumstances,” when federal review risks having the district court become the “regulatory decision-making center.” Thus, when a federal court‘s interference would effectively create a dual review structure for adjudicating a state‘s specific regulatory actions, abstention under Burford may be appropriate. Id. We observed in Patch, 167 F.3d at 24 (citing NOPSI, 491 U.S. at 361-64; Bath, 853 F.2d at 1014-15), that “[t]he fundamental concern in Burford [was] to prevent federal courts from bypassing a state administrative scheme and resolving issues of state law and policy that are committed in the first instance to expert administrative resolution.” Abstention is not warranted, however, when a claim requires the federal court to
With this background in mind, we review the district court‘s decision not to abstain from hearing plaintiffs’ claims. The district court‘s findings of law regarding the requirements of abstention doctrine in the abstract are reviewed de novo, while the application of particular facts to that law is reviewed for abuse of discretion. Sevigny v. Employers Ins. of Wausau, 411 F.3d 24, 26-27 (1st Cir. 2005).
2. Analysis
We believe that the district court properly declined to аbstain from hearing plaintiffs’ claims, as (1) the district court‘s participation does not disrupt ORIL‘S role as the regulatory decision-maker or interfere with the agency‘s ability to apply its expertise to local facts in establishing a coherent state policy; and (2) the heart of plaintiffs’ action lies in the constitutional challenge to ORIL‘s decision-making process as a whole, and not to the reasonableness of their particular determinations.
Defendants argue that plaintiffs’ claims require the district court to conduct an inquiry into the specifics of ORIL‘s orders, pursuant to its own construction of state law and policy, which is precisely the type of intrusion abstention doctrine seeks to avoid. We disagree.
The court does not question the established fee per se; the error is in not performing a reasonable, timely economic study setting the reasonable rate and the continuing usаge of stale data as to rate of return (1997), and further not considering currently doing business in the Puerto Rican market under current economic realities. The court does not hint at any figure as to reasonable rate of return. This rate belongs to the setting by the Administrator, not the court.
Id. at *37 (emphasis added). We do not believe that the decisions in the Burford line of cases prevent federal courts from undertaking such inquiries.
Furthermore, we refuse to treat, as defendants assert, the district court‘s review of the facts surrounding the dispute as evidencing the need for abstention. In Bath, we voiced our concern about having federal courts “conduct highly individualized review of particular, firm-specific regulatory decisions.” 853 F.2d at 1014 (interpreting the Supreme Court‘s reasoning in Burford). Yet, the fact that the district court peered into the substance of
ORIL‘s determinations does not run afoul of our warning in Bath. The district court did not examine ORIL‘s decisions to gauge the wisdom of their outcomes, but rather to determine whether or not they were arbitrary and discriminatory, pursuant to the constitutional questions posed by plaintiffs.Defendants next argue that, to survive Burford abstention, plaintiffs’ suit should have taken the form of a facial challenge to
In Burford, plaintiffs’ challenge centered on the reasonableness of a рarticular administrative order. Since they did not attack either the authority of the Texas Railroad Commission or its adjudicative methods, the constitutional issue was merely a gloss upon the challenge to the administrative decision, the wisdom of which was truly at the heart of the matter. See Burford, 319 U.S. at 328 n.24; see also Ala. Pub. Serv. Comm‘n v. S. Ry. Co., 341 U.S. 341, 343 (1951) (holding that abstention was proper when the plaintiff‘s claim consisted of a challenge to an administrative decision born out of a scheme already held constitutional by the Supreme Court).
That is plainly not the case here. Plaintiffs do not claim that ORIL violated their rights to due process, for instance,
Defendants further contend that, since Bath dealt with facial challenges to a state law, and given that Bath forms the basis for the above statement in Tenoco Oil, neither case applies to the case at hand. This is so, they argue, because plaintiffs do not challenge
A federal court need not abstain from hearing a constitutional claim аgainst an administrative scheme simply because the constitutionality of its originating statute is not contested. In Planned Parenthood League of Massachusetts v. Bellotti (Bellotti II), for instance, we held that it was irrelevant for the Burford abstention analysis that plaintiffs mounted an “as-applied” challenge to a statute, as opposed to a facial one. 868 F.2d 459 (1st Cir. 1989). Bellotti II dealt with a challenge to a Massachusetts statute requiring a minor seeking an abortion to obtain either parental consent or have the restriction
Like Bellotti II, the case at hand involves a challenge to a regulatory process, which places it squarely within the line
Finally, the nature of the injunctive order issued demonstrates that the question presented to the district court was not one as to which the court was required to abstain. The order does not second-guess the Administrator‘s determinations, nor does it set a new regulatory standard. While the order does set the
B. Eleventh Amendment
As part of the preliminary injunction granted by the district court, ORIL was ordered to develop and implement a mechanism to compensate Plaintiffs for the deficient rate of return that was mandated by ORIL from the year 2003 until the date of the district court‘s decision:
The Administrator is ordered to adopt a temporary mechanism that will allow the processors to recover the new rate of return they are entitled to (whatever that may be) for the year 2003 (base cost year of the present structure) and up to the day when they begin to recover said rate based on the new regulatory standards and corresponding order. The Administrator may so act through regulatory accruals, special temporary rates of return or any other available mechanism of his choosing.
Vaquería Tres Monjitas, No. 04-1840, at 95-96. The mechanism developed by the parties involved a small surcharge17 to be applied to every quart of milk sold in the Commonwealth, which would then be placed into an accrual account for the benefit of Tres Monjitas and Suiza.
On appeal, defendants contend that this order calls for retroactive compensatory relief, which is barred by the
1. Applicable Law
The
While a state may not be sued directly absent its own consent, the Ex Parte Young doctrine permits suits to proceed against state officers in their official capacities to compel them
2. Analysis
The issue here is whether or not the manner of relief ordered by the district court runs afoul of the
Plaintiffs urge this cоurt to reject these arguments on either of two possible grounds. First, plaintiffs maintain that the regulatory accrual is not meant to compensate Tres Monjitas and Suiza for the revenue lost under ORIL‘s scheme, but rather to rebuild their capital bases, which are, collectively, $5 million in the red. They claim that, even if the price of milk were raised to allow a reasonable rate of return, the processors could not make any profit until they rebuild their capital bases, meaning that the regulatory accrual is a necessary component of any prospective relief awarded. Plaintiffs alternatively argue that, even if the form of relief is deemed retroactive, sovereign immunity should present no bar, as none of the compensation would come from the state treasury.
We decline to rule on plaintiffs characterization of the regulatory accrual as prospective, as we believe that their second argument sufficiently supports their position.
Defendants argue that it is irrelevant whether or not the remedy ultimately is derived from the state treasury, citing Edelman for the proposition that prospective relief is available even if compliance therewith requires expenditures from the state
Defendants provide no support fоr their contention that retrospective relief that does not reach the state treasury is barred by sovereign immunity. Rather, the cases cited by defendants, including Edelman, involve requests for retroactive compensation that would invariably come out of state treasuries. See, e.g., id., at 667 (“[Relief sought] requires payment of state funds, not as a necessary consequence of compliance in the future with a substantive federal-question determination, but as a form of compensation . . . .“); Papasan v. Allain, 478 U.S. 265, 279 (1986) (plaintiffs sought funds directly from the state to fund school districts).
In fact, both the Supreme Court and this Circuit have consistently considered the source of relief as being of paramount importance to Eleventh Amendment considerations. In Hess v. Port Authority Trans-Hudson Corp., the Supreme Court noted that “the impetus for the
The damage the
Eleventh Amendment seeks to forestall is that of the state‘s fisc being subjected to a judgment for compensatory relief. Only if the state is fоrced to use funds from the state treasury to satisfy a compensatory judgment do the adverse consequences that theEleventh Amendment prohibits occur.
833 F.2d 402, 406 (1st Cir. 1987).
Here, the money in question would come directly from consumers of milk in Puerto Rico. Unlike a tax, it would be neither collected by government entities nor retained in the Commonwealth‘s treasury. Apart from the initial price order, no state action is required to implement this remedial scheme, which would, in no way, reach the coffers of the Commonwealth. Thus, because no state funds are implicated by the district court‘s order, we hold that the
Defendants alternatively argue that the regulatory accrual is impermissible by attempting to frame the relief as, in essence, ordering the payment of monetary damages in just compensation for a regulatory taking. They then argue that several circuits have dismissed Takings Clause actions against state officials in their official capacities, as the
We are not persuaded, however, that the present situation should be analyzed under defendants’ characterization. Unlike any of the cases relied upon by defendants, here there has been no award of damages that the state must pay. That an equitable remedy results in the payment of monies to plaintiff does not, in itself, render the relief monetary compensation for a taking. The district court‘s order does not require ORIL or the Department of Agriculture to provide just compensation, or any monetary award for that matter. As we have stated above, no measure of relief fashioned by the district court would come from the state treasury. Defendants have argued that this scheme is no different from a federal court ordering the levying of a tax to pay equitable
For the foregoing reasons, we hold that the
C. Equitable Defenses
Defendants contend that the district court erred in rejecting their equitable defenses of unclean hands, laches, and estoppel. We review the lower court‘s ruling for abuse of discretion. School Union No. 37 v. Ms. C., 518 F.3d 31, 35 (1st Cir. 2008); Ansin v. River Oaks Furniture, Inc., 105 F.3d 745, 757 (1st Cir. 1997).
1. Unclean Hands
Our courts have long held the view that “[h]e who comes into equity must come with clean hands.” Dr. José S. Belaval, Inc. v. Pérez-Perdomo, 488 F.3d 11, 15 (1st Cir. 2007) (quoting Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 241 (1933)). This is to say that we are skeptical of those who seek equitable relief
Defendants seek to invoke this defense, arguing that “plaintiffs directly participated and approved the decision to aggressively market Indulac‘s UHT milk and benefitted from the results thereof.” Whether or not this were true, this allegation does not implicate the unclean hands defense, as defendants fail to show -- or even explain -- how such actions constitute “misconduct” on the part of the plaintiffs.
As the district court could have reasonably concluded from the facts that plaintiffs were not complicit in any wrongdoing related to the merits of this controversy, we hold that it did not abuse its discretion in rejecting defendants’ unclean hands defense.
2. Laches
The doctrine of laches may bar a claim that was raised after an inexcusable delay. “In order for laches to apply, the district court must examine whether plaintiff‘s delay in bringing suit was unreasonable and whether defendant was prejudiced by the delay.” Puerto Rican-American Ins. Co. v. Benjamin Shipping Co. Ltd., 829 F.2d 281, 283 (1st Cir. 1987) (citing Costello v. United States, 365 U.S. 265, 282 (1961)).
Defendants, however, have not presented any evidence indicating that the delay was either unreasonable or prejudicial, nor have they made more than a half-hearted attempt to do so. As a result, their argument fails. First, as the district court found, “before the filing of this complaint, plaintiffs and the Administrator were still meeting to try to reach a solution . . . .” Vaquería Tres Monjitas, No. 04-1840, at *11. It would be unwise and inequitable to punish Tres Monjitas and Suiza for attempting to settle their grievances through administrative remedies and negotiations. Second, nowhere in their brief to this court do defendants even allude to the issue of prejudice. They do not allege that they have been in any way injured by the lapse of time, nor have they shown that the passage of time has eroded “the memory and life of witnesses, the muniments of evidence, and other means of proof.” Costello, 365 U.S. at 282 (quoting Brown v. Buena Vista County, 95 U.S. 157, 161 (1877)) (internal quotation marks omitted).
Considering that defendants have failed to satisfy the standard for the application of the laches doctrine, we hold that
3. Estoppel
Under
Defendants contend that, under Puerto Rican law, “an administrative decision not reviewed by the party adversely affected becomes final and firm as a commonwealth judgment.” Acevedo v. Western Digital Caribe, Inc., 140 P.R. Dec. 452, 465-66 (P.R. 1996) (internal citation omitted). They then argue that, as the facts found in the orders issued by ORIL from 1998 to 2002 were never challenged, they are “final and firm” and hold the same preclusive effect as the decisions of a court of Puerto Riсo, rendering them unassailable in subsequent court actions. Pastor-Ginorio v. R & G Mortg. Corp., Inc., 371 F. Supp. 2d 89, 92 (D.P.R. 2005).
This argument strains credibility. Under Puerto Rican law, a claim may be precluded under the doctrine of res judicata if there exists “the most perfect identity between the things, causes,
Tres Monjitas and Suiza frequently received inadequate notice and opportunity to challenge ORIL‘s regulatory decisions. For example, a 2007 order for the first time took into consideration plaintiff‘s income from unregulated non-milk products. This new parameter was imposed upon plaintiffs without prior notice or opportunity to be heard. ORIL similarly held no hearings of any sort when it readjusted the percentage of plaintiffs’ participation in school lunch programs, decreasing Suiza‘s share by 5.06% and giving it to Tres Monjitas. Time and time again, ORIL set and reset regulations relating to the measurement of the processors’ milk production and income without giving plaintiffs an explanation or a reasonable opportunity to challenge the decisions.
Overall, defendants’ argument assumes too much. Their construction of the law would have us hold that the decisions of ORIL‘s Administrator become unreviewable simply by his say-so. This we cannot do. We hold that the district court did not abuse its discretion in rejecting defendants estoppel defense.
D. Preliminary Injunction
The district court granted the preliminary injunction after finding that the plaintiffs’ claims met the traditional four-part test, which requires consideration of (1) the likelihood that the moving party will succeed on the merits; (2) the possibility that, without an injunction, the moving party will suffer irreparable harm; (3) the balance of relevant hardships as between the parties; and (4) the effect of the court‘s ruling on the public interest. Waldron v. George Weston Bakeries Inc., 570 F.3d 5, 9 (1st Cir. 2009).
On appeal, defendants contend that the court erred in its application of the four-part preliminary injunction standard. In
We review the district court‘s grant of the preliminary injunction for abuse of discretion. Waldron, 570 F.3d at 9. We will set aside the ruling “only if [we are] persuaded that the lower court mistook the law, clearly erred in its factual assessments, or otherwise abused its discretion in granting the interim relief.” McGuire v. Reilly, 260 F.3d 36, 42 (1st Cir. 2001). Within this assessment, findings of fact are reviewed for clear error, and conclusions of law are reviewed de novo, while “[j]udgment calls and issues that demand the balancing of conflicting factors are reviewed deferentially.” Wine & Spirits Retailers, Inc. v. Rhode Island, 418 F.3d 36, 46 (1st Cir. 2005) (internal citations omitted).
1. Likelihood of Success
After extensively analyzing the factual record and the claims put forth, the district court found that there existed a likelihood that Tres Monjitas and Suiza would succeed on the merits of their claims. In particular, the court found:
[V]iolations of Due Process, Equal Protection and the Takings Clause, a pattern of lack of standards, change in standards with unfettered discretion, use of stale figures, and lack of
an appropriate standard as to fair rate of return in the regulations set by the rеgulator all pointing to a taking “pursuant” to Duquesne Light Co. [v. Barasch, 488 U.S. 299, 307 (1989)] and Tenoco Oil, 876 F.2d at 1026-1027.
Vaquería Tres Monjitas, No. 04-1840, at *91. Defendants challenge this determination as to plaintiffs’ Takings Clause, Due Process, and Equal Protection Claims.
However, we need only find that one of the district court‘s bases for granting injunctive relief is proper to affirm the grant of the preliminary injunction. We believe that sufficient evidence exists in the record to support the district court‘s determination that Tres Monjitas and Suiza have a likelihood of success on the merits of their Due Process claims.18
Plaintiffs’ Due Process challenge arises out of their assertion that the regulatory structure of the Puerto Rican milk industry was beholden to the whims of the Administrator. In addition, they claim that the use of unscientific, stale, and clearly erroneous figures regarding production costs and rates of return nearly drove them out of business. These circumstances, plaintiffs argue, were made possible by the lack of operating standards, which gave the Administrator unchecked power to issue
arbitrary determinations. They cite as evidence numerous instances, recounted above, in which the standards ORIL utilized to calculate their income, milk production, or profits changed without warning or rationale.Defendants argue that allowing Indulac to process surplus milk into UHT and other milk by-products was a reasоnable way to support dairy farmers year-round, quell disputes between the farmers and processors, and avoid waste. They cite the difficulty of producing a reliable supply of milk in Puerto Rico as dictating a need for regulation and for the role played by Indulac in stabilizing milk production. Thus, they argue, since these regulations are rationally related to a legitimate government purpose, they meet the requirements of due process, and the district court therefore erred in finding that plaintiffs had a likelihood of success on the merits of their claims.
The Supreme Court has cautioned that courts should refrain from substituting their regulatory wisdom for that of the legislature, explaining that a court‘s Due Process inquiry should be satisfied “[i]f the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory.” Nebbia v. New York, 291 U.S. 502, 537 (1934). Likewise, in Tenoco Oil, we recognized that this inquiry should focus on “whether a program‘s procedures are inadequate or whether, overall, a program is arbitrary, discriminatory or irrelevant to a
First, while the district court agreed with dеfendants that Puerto Rico has a legitimate state interest in stabilizing milk production and protecting the livelihoods of dairy farmers, it found there was no rational nexus between the regulatory scheme established by ORIL and these goals. Vaquería Tres Monjitas, No. 04-1840, at *59-60. The regulations clearly benefit Indulac, a processor of UHT milk, to the detriment of Tres Monjitas and Suiza, the only fresh milk processors in Puerto Rico. As a result of plaintiffs’ forced subsidy, Indulac‘s market dominance depleted the fresh milk market and injured key components of the milk industry, the processors, to the point of near-insolvency. While the Administrator could have rationally decided that Indulac‘s operation would provide a stabilizing effect, the measures that it took appear to have been specifically engineered to achieve the opposite result - the benefit of Indulac to the detriment of the milk processors and, ultimately, the milk market. Thus, the district court reasonably concluded that the scheme created by ORIL cannot satisfy rational basis review, as “the elimination of one of the components of the industry is ‘demonstrably irrelevant to the
Second, the district court found that the means used to achieve ORIL‘s goals did not pass constitutional muster. The record is replete with examples of regulatory practices employed by ORIL that support the district court‘s finding that the regulatory scheme was arbitrary, and thus violated due process. See Nebbia, 291 U.S. at 537. The Administrator repeatedly altered -- without notice or explanation -- the standards for calculating plaintiffs’ incomes and production figures. Essential parameters for the adjustment of gross income based on customer returns and discounts to distributors, for instance, were capriciously applied or ignored. The shrinkage factor, a measurement of the fraction of milk lost in the processing phase, seems to have been set and adjusted at random. In fact, in many instances, the district court found that the Administrator had not performed any inquiries, studies, or anything resembling the diligent research one would expect from a rate-making agency before issuing orders. Accordingly, the court reasonably concluded that the standards and regulations set forth by ORIL, taken as a whole, likely violated plaintiffs’ due process.
Ultimately, the district court concluded that the record reasonably supported a finding that defendants failed to meet the standards for rate-making as set out by the Supreme Court and this
2. Irreparable Harm
The district court found that a denial of plaintiffs’ request for a preliminary injunction could lead to irreparable harm to Tres Monjitas and Suiza. More specifically, it stated that defendants’ actions, absent injunctive relief, “point to permanent loss in market and long-standing violations of constitutional rights for extensive protracted periods of time.” Vaquería Tres Monjitas, No. 04-1840, at *91.
Defendants argue that the alleged harm the district court ruled irreparable was, in fact, economic harm, which can be remedied through money damages, and thus does not warrant injunctive relief. The matter is a close one, but ultimately, we defer to the district court‘s decision.
While certain constitutional violations are more likely to bring about irreparable harm, we have generally reserved this status for “infringements of free speech, association, privacy or other rights as to which temporary deprivation is viewed of such qualitative importance as to be irremediable by any subsequent relief.” Pub. Serv. Co. of New Hampshire v. West Newbury, 835 F.2d 380, 382 (1st Cir. 1987). So, it cannot be said that violations of plaintiffs’ rights to due process and equal protection automatically result in irreparable harm.
Also, it has long been held that traditional economic damages can be remedied by compensatory awards, and thus do not rise to the level of being irreparable. Puerto Rico Hosp. Supply, Inc. v. Boston Scientific Corp., 426 F.3d 503, 507 (1st Cir. 2005). Yet, it has also been recognized that some economic losses can be deemed irreparable. For instance, “an exception exists where the potential economic loss is so great as to threaten the existence of the movant‘s business.” Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1382 (6th Cir. 1995) (citing Doran v. Salem Inn, Inc., 422 U.S. 922, 932 (1975) (finding no abuse of discretion in determination that “absent preliminary relief [movants] would suffer a substantial loss of business and perhaps even bankruptcy“)); see also Nat‘l Screen Serv. Corp. v. Poster Exchange, Inc., 305 F.2d 647 (5th Cir. 1962) (affirming grant of preliminary injunction where denial of injunctive relief would result in the destruction of movant‘s business).
In addition, we have held that the irreparable harm requirement may be met upon a showing that “absent a restraining order, [a party] would lose incalculable revenues and sustain harm to its goodwill.” Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 19 (1st Cir. 1996). In addition, in Automatic Radio Mfg. Co. v. Ford Motor Co., we suggested that the inability to supply a full line of products may irreparably harm a merchant by shifting purchasers to other suppliers. 390 F.2d 113, 116-17 (1st Cir. 1968).
Moreover, the measure of irreparable harm is not a rigid one; it has been referred to as a sliding scale, working in conjunction with a moving party‘s likelihood of success on the mеrits. See Ross-Simons, 102 F.3d at 19 (“[A]n attempt to show irreparable harm cannot be evaluated in a vacuum; the predicted harm and the likelihood of success on the merits must be juxtaposed and weighed in tandem.“); see also EEOC v. Astra USA, Inc., 94 F.3d 738, 743 (1st Cir. 1996) (“[W]hen the likelihood of success on the merits is great, a movant can show somewhat less in the way of irreparable harm and still garner preliminary injunctive relief.“); Gately v. Massachusetts, 2 F.3d 1221, 1232 (1st Cir. 1993) (“[I]rreparable harm is subject to a sliding scale analysis . . . .“).
Finally, we are mindful of the narrowness of our charge, recognizing that considerable deference is owed to the district court in evaluating this prong of the preliminary injunction standard. “District courts have broad discretion to evaluate the irreparability of alleged harm and to make determinations regarding the propriety of injunctive relief.” K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 915 (1st Cir. 1989) (internal quotations omitted).
With the guidance of precedent, we look to the district court‘s finding and do not see any abuse of discretion in applying the facts to the legal standard. Clearly, plaintiffs have suffered economic harm. But, that is not the full extent of their injury. As found by the district court, Tres Monjitas and Suiza have continued to subsidize Indulac‘s production of UHT milk, undercutting their own goodwill by propping up their competitors. As a result, they have suffered a steady decline in the market for fresh milk and are on the verge of losing their businesses. After suffering years of losses, their capital bases have been depleted by five million dollars, and the district court found both companies to be on the brink of insolvency.
Taking into account the rapidly eroding state of the Puerto Rican milk industry, the need for immediate relief, and the likelihood of plaintiffs’ success on the merits of their claims, we do not believe the district court abused its discretion in finding that the gravity of these dire circumstances, if allowed to run their course, would constitute irreparable harm, and that their imminence called for preliminary injunctive relief.
3. Balance of Equities
The district court found, in considering the balance of equities between plaintiffs and defendants, that “[t]he matter is
On appeal, defendants entreat us to overturn the district court‘s determination, arguing that the hardships caused by the preliminary injunction outweigh the alleged harm to Tres Monjitas and Suiza absent the оrder. In particular, they allude to the injury that will come to Indulac, the dairy farmers and their cattle, the stability of the milk supply, and the existing regulatory structure.
In reviewing the district court‘s judgment of this issue, we must refrain from second-guessing the district court‘s assessment, unless we find that the court abused its discretion. See George Weston Bakeries, 570 F.3d at 8 (“[W]e afford considerable deference to the trial court‘s balancing of equities.“); see also Wine & Spirits Retailers, 418 F.3d at 46 (“[J]udgment calls and issues that demand the balancing of conflicting factors are reviewed deferentially.“).
4. Public interest
The district сourt found that the “public interest lies in the granting of the injunctive relief.” Vaquería Tres Monjitas, No. 04-1840, at *92. It noted that the current situation is unsustainable for the Puerto Rican milk industry as a whole. The dominance of artificially underpriced UHT milk in the market has diminished the market for processors’ fresh milk to the point where Indulac‘s “surplus” has grown beyond its capacity. Ever-decreasing revenues from Tres Monjitas and Suiza mean lower subsidies to Indulac and FFIL, causing depletion of the Fund, which in turn is threatening the dairy farmers’ livelihoods. Id. at 39-41. In
Again, we must give deference to the district court‘s assessment of the situation. We find ample support in the factual record for its determination, and hold that it did not abuse its discretion in finding that the granting preliminary injunctive relief was in the public interest.
5. Scope of Relief
Lastly, defendants challenge the scope of the relief granted by the district court. They contend that the Court “erred in issuing injunctive relief that forever changed the status quo -- contrary to the purposes of the preliminary injunctive relief.” We disagree.
We first note that “[i]njunctions must be tailоred to the specific harm to be prevented.” Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 217 F.3d 8, 14 (1st Cir. 2000). Since the district court is in the best position to tailor the scope of injunctive relief to its factual findings, our review is for abuse of discretion only. Id.
The district court found that ORIL had subjected plaintiffs to ongoing constitutional violations as part of an
As to defendants’ argument, it cannot be said that the only purpose of a preliminary injunction is to preserve current conditions pending adjudication. That is not to say that defendants’ position lacks support. See CMM Cable Rep., Inc. v. Ocean Coast Properties, Inc., 48 F.3d 618, 620 (1st Cir. 1995) (“The court‘s interim injunctive decree attempts to prevent further injury by maintaining the status quo.“). But, taking steps necessary to assure the continued operations of the moving рarty is appropriate, if the non-moving party‘s actions threaten its destruction. Thus, in its injunctive order, the district court did not act improperly in requiring ORIL to take steps necessary to ensure the survival of Tres Monjitas and Suiza during the
Finally, the potential for a moving party‘s likelihood of success and showing of irreparable harm can guide the scope of preliminary injunctive relief. Having already found that Tres Monjitas and Suiza had a likelihood of success on the merits of their constitutional claims, the district court was well within its discretion and power to require ORIL to establish non-arbitrary and non-discriminatory regulations to preserve the solvency of the milk processors, which it found to be in imminent jeopardy.
III. Conclusion
In summation, we hold that the district court did not err in rejecting defendants’ Burford abstention and Eleventh Amendment immunity arguments, or in rejecting their equitable defenses. We also hold that the district court did not abuse its discretion in granting plaintiffs’ motion for a preliminary injunction. The order of the district court is affirmed.
Affirmed. Costs are assessed against appellants.
Notes
Vaquería Tres Monjitas, No. 04-1840, at *23.When the demand for fresh milk falls, less fresh milk is retained and less milk at the higher price went originally into the weighted average calculation . . . from which the farmer is paid for its raw milk. Stated differently, a decrease in the demand of fresh milk (made from retained milk) and an increase in the demand for UHT (made from surplus) affected negatively the farmer‘s average and now the possibility of paying the farmer at the established level.