Esso Standard Oil Co. v. López-Freytes

United States Court of Appeals
For the First Circuit
No. 07-1218
ESSO STANDARD OIL CO. (PUERTO RICO),
Plaintiff, Appellee,
v.
CARLOS W. LÓPEZ-FREYTES, in his personal and
official capacities as President of the Puerto Rico
Environmental Quality Board; FLOR DEL VALLE-LÓPEZ, in her
official capacity as Associate Member of the Puerto Rico
Environmental Quality Board; ANGEL BERRÍOS-SILVESTRE, in his
official capacity as Associate Member of the Puerto Rico
Environmental Quality Board; NORMAN VELÁZQUEZ-TORRES, in his
official capacity as Attorney of the Puerto Rico
Environmental Quality Board,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Justo Arenas, U.S. Magistrate Judge]
Before
Torruella, Circuit Judge,
Baldock,* Senior Circuit Judge,
and Lipez, Circuit Judge.
Salvador J. Antonetti-Stutts, Solicitor General, Department of
Justice, with whom Luis José Torres-Asencio, Assistant Solicitor
General, Eduardo A. Vera-Ramírez, Eileen Landrón-Guardiola, Luis A.
Rodríguez-Muñoz, and Landrón & Vera, LLP were on brief, for
appellants.
Charles G. Cole, with whom Alice E. Loughran, Steptoe &
*
Of the Tenth Circuit, sitting by designation.
Johnson LLP, Lawrence P. Riff, Jason Levin, John F. Nevares, and
John F. Nevares & Assoc., PSC were on brief, for appellee.
April 10, 2008
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TORRUELLA, Circuit Judge. This is an appeal from the
district court's issuance of an order permanently enjoining the
defendants –- several members and officials of the Puerto Rico
Environmental Quality Board ("EQB") -- from imposing a $76 million
fine on the plaintiff, Esso Standard Oil Company ("Esso"). On
appeal, the defendants argue that the district court should have
abstained from exercising jurisdiction pursuant to the Younger
abstention doctrine and, in any event, the court erred in
concluding that there existed bias necessitating the imposition of
the injunction. After careful consideration, we affirm the
district court's order.
I. Background
This case comes to us on appeal for the second time.1
Given that the background facts are outlined extensively in our
prior opinion, see Esso Standard Oil Co. v. Cotto, 389 F.3d 212,
213-18 (1st Cir. 2004) ("Esso I"), we need not repeat them here in
great detail. In brief, the case involves an underground fuel
storage system at a service station in Barranquitas, Puerto Rico.
Beginning in 1979, Esso had leased storage tanks and other fuel
supplies to the station and in 1991 replaced the entire underground
storage system. Between August 1998 and October 1999, the EQB
issued three orders directing Esso to test the fuel storage system.
1
Between these two appeals, Esso filed for panel rehearing. We
denied the motion and directed Esso to renew its request for
injunctive relief with the district court.
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Those investigations revealed and recovered about 550 gallons of
spilled fuel.
Despite Esso's efforts to comply with the EQB's
directives, the EQB issued a show cause order on May 21, 2001,
proposing a $76 million fine against Esso for its failure to notify
the EQB upon initial discovery of the fuel leakage and its failure
to timely investigate, clean up, and remedy the harm.2 In
September 2002, the EQB initiated hearings on this proposed penalty
against Esso. The hearings were marked by contentious debates and
allegations of severe bias. See Esso I, 389 F.3d at 215. Esso
filed numerous motions, including two motions seeking dismissal of
the proceedings.3
In March 2004, Esso filed suit in federal court, seeking
a preliminary injunction to prevent the EQB from imposing the
massive fine on the ground that the proceedings were so plagued by
conflict and bias that they violated Esso's due process rights.
2
Pursuant to statute, all fines collected by the EQB are
deposited into a discretionary fund administered by the EQB. P.R.
Laws Ann. tit. 12, § 1136(f).
3
Esso immediately filed an appeal in the Puerto Rico Court of
Appeals seeking dismissal of the hearings on statute of limitations
grounds. The court dismissed the appeal, asserting that in the
absence of a final judgment, it had no authority to review the
appeal of an agency order. Esso Standard Oil Co. v. Junta de
Calidad Ambiental, Nos. OA-01-AG-26 & OA-99-AG-109, 2002 WL
1438761, at *4 (P.R. Cir. May 1, 2002) (citing P.R. Laws Ann. tit.
3, § 2172). In November 2003, Esso moved the EQB Hearing Examiner
for expedited recommendation of dismissal alleging constitutional
due process violations. Neither the Hearing Examiner nor the EQB
Governing Board has ruled on the motion.
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Although the district court made several findings of bias, it
dismissed the case for lack of jurisdiction pursuant to the Younger
abstention doctrine. On appeal, we expressed serious concern with
the undisputed evidence of structural and actual bias in the case.
Esso I, 389 F.3d at 218-19. We concluded, however, that despite
this evidence of bias, federal intervention was inappropriate under
the abstention exception recognized in Gibson v. Berryhill, 411
U.S. 564 (1973), because Esso had not yet demonstrated irreparable
harm. Esso I, 389 F.3d at 221-25. Specifically, we found that
Esso could seek interlocutory relief from the Puerto Rico courts,4
and we affirmed the district court's decision to abstain.
A. Interlocutory Appeals
Soon after the issuance of our opinion, Esso filed a
petition for interlocutory review with the Puerto Rico Court of
Appeals, asserting jurisdiction pursuant to MCS Insurer and arguing
that the EQB administrative proceedings are fatally biased and
4
In 2002, Esso had filed an interlocutory appeal before the
Puerto Rico Court of Appeals alleging that the suit was barred by
the statute of limitations. The court denied the appeal on the
basis of P.R. Laws Ann. tit. 3, § 2171, which requires a final
order and exhaustion of administrative process before judicial
review. See Esso I, 389 F.3d at 223. We noted, however, that an
intervening decision by the Puerto Rico Supreme Court had cast
doubt on that prior ruling: the Puerto Rico Supreme Court had
recognized an exception to § 2172 for alleged constitutional
violations that rose to the level of an "intense grievance" that
was supported by "specific, well defined facts." Id. at 224
(citing Oficina de la Procuradora del Paciente v. Aseguradora MCS,
2004 T.S.P.R. at ___, 162 D.P.R. at ___, 2004 WL 2212782 ("MCS
Insurer")). We concluded that "Esso's claim might well meet th[at]
standard." Id.-5-
violate its due process rights. The following day, the Puerto Rico
Court of Appeals dismissed the appeal and denied the accompanying
request to stay the EQB's administrative proceedings. It rejected
the contention that MCS Insurer created an exception to the
statutory administrative exhaustion requirements applicable in this
case: "We resolve that insofar as the administrative process has
not concluded and the 'total denial' object of this appeal is not
a final decision of the agency, but an 'implicit' interlocutory
resolution, we are barred from addressing the same." Esso Standard
Oil Co. v. Junta de Calidad Ambiental, Case No. OA-99-AG-26 & OA-
99-AG-109, 2004 WL 3199104, at *5 (P.R. Cir. Dec. 3, 2004) ("Esso,
P.R. Court of Appeals"); see also P.R. Laws Ann. tit. 3, § 2172.
The appeal was dismissed for lack of jurisdiction. Id.Three days later, Esso petitioned for writ of certiorari
to the Puerto Rico Supreme Court, asserting that the Puerto Rico
Court of Appeals had erroneously declared that it lacked
jurisdiction to review Esso's due process allegations. The
following day, the Puerto Rico Supreme Court summarily denied the
requested writ, stating: "As to the petition for certiorari and the
motion in aid of jurisdiction, [it is] denied at this stage of the
proceedings." Esso Standard Oil Co. v. P.R. Env't Quality Bd.,
Case No. CC-2004-1155 (P.R. Dec. 7, 2004) ("Esso, P.R. Supreme
Court").
-6-
Esso then returned here and filed for panel rehearing,
arguing that it was now able to demonstrate irreparable harm
because the Supreme Court of Puerto Rico had held that
interlocutory appeal was unavailable to Esso. Although we agreed
that the intervening developments had a significant impact upon a
determination of the appropriateness of federal intervention, we
concluded that the appropriate procedure was for Esso to renew its
request for a preliminary injunction in federal district court.
B. Renewed Motion for Preliminary Injunction
On February 4, 2005, Esso filed a renewed and unopposed
motion for preliminary injunction in the district court. In
accordance with our decision in Esso I, the district court focused
on the issue of whether Esso was able to show irreparable harm in
the absence of federal intervention. The court concluded that the
denials by the Puerto Rico Court of Appeals and Supreme Court
provided "unquestionable proof that as a matter of both fact and
law, the only element preventing federal intervention in this case
has been removed from the picture." Esso Standard Oil Co. v.
López-Freytes, No. 03-2319 (D.P.R. Mar. 11, 2005) (order granting
preliminary injunction). The court granted Esso's request for a
preliminary injunction and ordered the defendants to show cause as
to why the preliminary injunction should not be converted to a
permanent injunction. The defendants opposed such a conversion on
the ground that they had not received notice of the consolidation
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of the preliminary injunction hearing and the trial on the merits
and thus had not presented any witnesses or evidence. The district
court concluded that it was premature to convert the preliminary
injunction into a permanent injunction without giving the
defendants an opportunity to controvert the allegations of bias.
Soon thereafter, Esso filed a motion for summary
judgment, opposed by the defendants, contending that there were no
disputed issues of material fact. In November 2006, the district
court entered summary judgment for Esso and issued a permanent
injunction. See Esso Standard Oil Co. v. López-Freytes, 467 F.
Supp. 2d 156 (D.P.R. 2006). In a separate order, the court stated:
[D]efendants are permanently enjoined from
conducting any and all administrative hearings
and proceedings against Esso related to the
penalty provision of the order to show cause
issued on May 21, 2001 in In re Esso Standard
Oil Company, Case No. OA-99-TE-102. It is
further ordered that the defendants are
permanently enjoined from issuing any
judgments or resolutions, final or
interlocutory, in said matter, and from
instituting, conducting and/or prosecuting any
administrative penalty proceedings against
Esso based on or arising from the facts and
events described in said order to show cause.
Esso Standard Oil Co. v. López-Freytes, No. 03-2319 (D.P.R. Nov. 7,
2006) (order granting permanent injunction). Defendants appeal
this order.
II. Discussion
The defendants make three separate challenges: (1) the
district court was required to abstain pursuant to the Younger
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doctrine; (2) the evidence does not support a finding of bias; and
(3) the scope of the permanent injunction is impermissibly broad.
A district court's decision to grant a permanent
injunction involves factual, legal, and discretionary components.
We therefore apply different standards of review: questions of law
are reviewed de novo and the scope of the injunction is reviewed
for abuse of discretion. Aponte v. Calderón, 284 F.3d 184, 191
(1st Cir. 2002). In this case, the injunction was issued following
a grant of summary judgment and, accordingly, we view the facts in
the light most favorable to the nonmoving parties, drawing all
reasonable inferences in their favor. See Ramírez-Carlo v. United
States, 496 F.3d 41, 46 (1st Cir. 2007). Insofar as the threshold
issue involves the application of the Younger abstention doctrine,
this is a legal question that we review de novo. See Brooks v.
N.H. Sup. Ct., 80 F.3d 633, 637 (1st Cir. 1996) ("[W]e must review
de novo the essentially legal determination of whether the
requirements for abstention have been met.").
A. Younger Abstention
In the absence of extraordinary circumstances, interests
of comity and the respect for state processes demand that federal
courts should abstain from interfering with ongoing state judicial
proceedings. See, e.g., Younger v. Harris, 401 U.S. 37 (1971);
Middlesex Co. Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423(1982). Although initially applied to state criminal actions, the
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abstention doctrine has been extended to other proceedings that
implicate important state interests, including the state-level,
quasi-judicial, administrative proceeding at issue here. See
Maymó-Meléndez v. Alvarez-Ramírez, 364 F.3d 27, 31 n.3 (1st Cir.
2004) (enumerating the various applications of the Younger
doctrine). Generally, insofar as the state proceedings evince "no
showing of bad faith, harassment, or some other extraordinary
circumstance that would make abstention inappropriate, the federal
courts should abstain." Middlesex Co. Ethics Comm., 457 U.S. at
435. Extraordinary circumstances include those situations in which
"core constitutional values are threatened during an ongoing state
proceeding and there is a showing of irreparable harm that is both
great and immediate." Maymó-Meléndez, 364 F.3d at 37 (internal
quotation marks omitted). Among those extraordinary circumstances
are cases in which extreme bias completely renders a state
adjudicator incompetent and inflicts irreparable harm upon the
petitioner. Gibson v. Berryhill, 411 U.S. at 577; accord Kugler v.
Helfant, 421 U.S. 117, 125 n.4 (1975) (recognizing Gibson bias as
an example of the "exceptional circumstances" which warrant federal
intervention).
In our prior opinion, we held that this case "lies
squarely within Younger's domain" and that Esso had clearly
established the presence of bias which raised the kind of concerns
permitting interim federal intervention pursuant to Gibson. Esso
-10-
I, 389 F.3d at 219-20. We rejected the argument that the eventual
availability of judicial review at the conclusion of the
administrative proceedings was sufficient to ameliorate any
constitutional injury inflicted upon Esso because it is currently
in the midst of those allegedly infirm proceedings. Id., at 220-21("[T]he availability of judicial review of a final agency decision
is insufficient to avoid the irreparable harm that inheres in the
biased administrative proceeding itself."). In the intervening
time, nothing has altered those conclusions and we have neither
occasion nor need to revisit those rulings. See United States v.
Moran, 393 F.3d 1, 7 (1st Cir. 2004) ("The law of the case doctrine
'posits that when a court decides upon a rule of law, that decision
should continue to govern the same issues in subsequent stages in
the same case.'" (quoting Arizona v. California, 460 U.S. 605, 618
(1983))).
In the last appeal, we also concluded, however, that Esso
was unable to demonstrate irreparable harm because of the
availability of immediate interlocutory relief through the Puerto
Rico courts. Esso now returns to us with evidence that such relief
is unavailable: Esso avers that it has sought, and been denied,
interlocutory relief in the Puerto Rico Court of Appeals and the
Puerto Rico Supreme Court. We, therefore, revisit our analysis
under Gibson with respect to the irreparable harm issue.
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The defendants assert that Esso still fails to
demonstrate irreparable harm because: (1) the Puerto Rico courts'
denial of Esso's appeals was a merits determination, not
jurisdictional; and (2) Esso is not without relief as it has
several other options, such as filing for mandamus or submitting a
new claim in Puerto Rico Superior Court. We find neither argument
to be availing here.
With respect to the first argument, the defendants
contend that the Puerto Rico Court of Appeals rejected Esso's
petition for interlocutory appeal because Esso had failed to
demonstrate that the alleged violations were still ongoing. In
essence, the defendants argue that Esso was not denied the option
of interlocutory review; rather, Esso failed on the merits. Given
the clear language of the opinion of the Puerto Rico Court of
Appeals, we cannot agree.
The day after Esso submitted its forty-four page petition
for interlocutory review the court of appeals issued an opinion
denying the request. The opinion expressly states that the basis
for the denial was jurisdictional:
We resolve that insofar as the administrative
process has not concluded that the 'total
denial' object of this appeal is not a final
decision of the agency, but an 'implicit'
interlocutory resolution, we are barred from
addressing the same. Pursuant to the legal
system prevailing in our jurisdiction, this
appellate forum should not intervene,
prematurely, in the administrative process
. . . . On the basis of the foregoing, we
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dismiss the appeal . . . for lack of
jurisdiction and as premature.
Esso, P.R. Court of Appeals, 2004 WL 3199104, at *5. It is clear
that the court denied the motion for interlocutory relief on the
basis of jurisdiction; there is no discussion of any merits in the
opinion. Furthermore, the one-line denial of certiorari by the
Puerto Rico Supreme Court similarly provides no evidence that it
contemplated the merits of this case.
The defendants also urge us to conclude that Esso has
still failed to demonstrate irreparable harm because there are
other avenues available, i.e., mandamus relief or initiation of
state action. In November 2003, during the course of the EQB
hearings, Esso filed a motion for expedited recommendation of
dismissal, alleging constitutional due process claims. At the time
of this appeal, neither the Hearing Examiner nor the EQB Governing
Board had ruled on the motion. The defendants contend that rather
than interpret the failure to act as a denial and seek
interlocutory review by the Puerto Rico Court of Appeals, Esso
should have filed for mandamus relief to order the agency to rule
on the motion.
We expressly discussed a similar scenario in our prior
opinion. We noted the possibility that interlocutory relief might
be precluded by EQB's failure to rule on Esso's motion to dismiss.
In such an event, we observed that "we might take a different view
of the applicability of the Gibson exception . . . . However,
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general principles of administrative law provide that . . . an
agency's failure to act on a pending matter is treated as a denial
of the relief sought." Esso I, 389 F.3d at 224 n.12 (citing
Hernández v. Reno, 238 F.3d 50, 55 (1st Cir. 2001)). Likewise, we
reject the defendants' argument that Esso's failure to seek
mandamus relief precludes review. Esso's motion to dismiss was
filed in November 2003 and, four years later, the agency still had
not issued a decision. Esso was entitled to treat the failure to
act as a denial. See P.R. Laws Ann. tit. 3, § 2173 (waiving the
exhaustion requirement "when it is useless to exhaust the
administrative remedies due to an excessive delay in the
procedures"). Furthermore, review of Puerto Rico law does not
appear to indicate that mandamus is available in a case such as
this one. See P.R. Laws Ann. tit. 12, § 1139 (2004) (recodified as
P.R. Laws Ann. 12, § 8002m (2007)) (provision allowing mandamus
relief only to order the EQB to comply with the environmental
statute); cf. Nieves-Márquez v. Puerto Rico, 353 F.3d 108 (1st Cir.
2003) ("It is far from clear from the defendants' summary
presentation, without briefing, that mandamus would be available in
the Puerto Rico courts to enforce an administrative order.").
The defendants' argument that Esso should have initiated
a proceeding in Puerto Rico Superior Court is equally unavailing.
The underlying principle of the court-made Younger abstention
doctrine is rooted in a sense of comity and respect for those state
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proceedings already in progress. See, e.g., Rossi v. Gemma, 489
F.3d 26, 34 (1st Cir. 2007). Indeed, in Maymó-Meléndez, we focused
the applicability of the Younger doctrine on whether the particular
proceedings were in fact still "ongoing" during the break between
trial and appellate review. 364 F.3d at 34-35 (deeming that a
"proceeding [is] 'ongoing' for Younger purposes until the state
appellate process [i]s complete" (citing Huffman v. Pursue, Ltd.,
420 U.S. 592, 607-11 (1975))). Thus, Younger precludes a litigant
in a state administrative proceeding from circumventing review by
a state court in favor of federal relief. There is no requirement,
however, that a litigant file a new, independent claim in state
court prior to obtaining federal relief. See Habich v. City of
Dearborn, 331 F.3d 524, 531-32 (6th Cir. 2003) ("We are aware of no
case in which a federal plaintiff is deemed to have the
'opportunity' to have his or her federal claim heard in a state
proceeding solely because the plaintiff could have amended an
existing complaint or filed a new complaint in state court.").
Given Esso's failed attempts to obtain interlocutory
relief in this ongoing administrative proceeding, we conclude that
Esso has clearly demonstrated the irreparable harm which it will
suffer in the absence of federal intervention. Accordingly, we
conclude that the district court properly found that the need for
federal intervention in this case falls clearly within the
abstention exception carved out by Gibson.
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B. Bias
The merits of this case involve allegations that the
defendants violated Esso's constitutional due process rights as a
result of the bias infecting the penalty proceedings. The
allegations of bias fall into three categories: (1) the statutory
structure which provides that the proposed penalty of $76 million
would go directly into an account administered by the EQB; (2) the
procedures for the selection of and payment to Hearing Examiners;
and (3) the prejudice resulting from the Puerto Rico Senate's
premature conclusion that Esso had violated the environmental
regulations and the accusation that the EQB had been too lax. The
first two allegations raise structural concerns that create the
appearance of bias in the proceedings; the third allegation raises
concerns of actual bias. The district court concluded that the
defendants had failed to raise any genuine issues of material fact
as to the appearance of a biased adjudicative process.
1. EQB Governing Board
The EQB is an administrative body comprised of three
members appointed for a four-year term by the Governor of Puerto
Rico with the advice and consent of the Puerto Rico Senate. P.R.
Laws Ann. tit. 12, § 1129(a). The agency is tasked with the
responsibility of adopting and enforcing Puerto Rico's
environmental statutes and regulations, and is empowered to impose
sanctions and administrative fines on violators, id. at § 1136(c),
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as well as issue orders mandating the cessation of harmful
activities, id. at § 1131(22). Those administrative fines –- the
crux of this case –- are then deposited into the "Special Account
of the Board on Environmental Quality." Id. at § 1136(f), (k);
§ 1131(16)(A) ("All monies received by the [EQB] in the fulfillment
of its duty to implement [environmental regulations] . . . shall be
deposited in a special account to be known as the 'Environmental
Quality Board Special Account.'"). That money is then "place[d] at
the disposal of the [EQB] . . . through payment orders authorized
or signed by the Chairperson of the [EQB]." Id. at § 1131(16)(A).
Esso asserts that it was denied a fair hearing because of
the EQB's structural bias. Specifically, Esso contends that the
EQB has an institutional interest in imposing hefty fines because
the collected monies are deposited into an EQB Special Account over
which the EQB has limitless discretion. Moreover, in this case,
the proposed fine –- $76 million -- is more than double the EQB's
annual budget. In response, the defendants attempt to focus the
inquiry on the individual members of the EQB, rather than the
agency as a whole; the EQB Governing Board members are salaried and
thus have no personal pecuniary interest in the fines imposed and
collected by the agency.
Not only is the defendants' argument utterly unsupported
by the law, but we have already rejected it. See Esso I, 389 F.3d
at 219. On last appeal, we expressly stated,
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[T]he adjudicative body stands to
benefit financially from the proceeding
because any fine imposed will flow directly to
the EQB's budget. Although members of the EQB
Governing Board may not stand to gain
personally . . . a pecuniary interest need not
be personal to compromise an adjudicator's
neutrality.
Id. at 218-19. Although the law of the case doctrine has been
refined over time and we have identified several instances in which
reconsideration of a past decision may be appropriate, see Ellis v.
United States, 313 F.3d 636, 647-48 (1st Cir. 2002); this is not
such an instance. This court's prior rejection of the defendants'
argument is neither "unreasonable [n]or obviously wrong." Id. at
648 & n.5.
Last time, we properly concluded that the bias stems from
the potential financial benefit to the EQB's budget as a result of
an imposed fine. Esso I, 389 F.3d at 219; cf. Ward v. Vill. of
Monroeville, 409 U.S. 57, 59-60 (1972) (invalidating the mayor's
court because a substantial portion of the village funds were
comprised of the fines he imposed for traffic violations). In
Ward, the Supreme Court expressed concerns that the funding
structure would "offer a possible temptation to the average man" to
the extent that there is a "situation in which an official perforce
occupies two practically and seriously inconsistent positions, one
partisan and the other judicial [and] necessarily involves a lack
of due process of law." Ward, 409 U.S. at 60 (quoting Tumey v.
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Ohio, 273 U.S. 510, 532, 534 (1927)). This is not a situation in
which the EQB Governing Board is so removed from the financial
policy of the Special Account that such a presumption of bias is
inapplicable. Cf. Dugan v. Ohio, 277 U.S. 61 (1928). Rather, this
is a case in which the EQB has complete discretion over the usage
of those funds which are supplied, at least in part, by fines which
it imposes. In this particular case, the possibility of temptation
is undeniable and evident in the fact that the size of the proposed
fine in this case is so unprecedented and extraordinarily large.
The $76 million proposed fine -- a sum twice the EQB's annual
operating budget and 5,000 times greater than the largest fine ever
imposed by the EQB -- only intensifies the appearance of bias
infecting the proceedings.
2. EQB Hearing Examiner
Hearing Examiners are independent contractors who sign a
one-year contract for employment with the EQB and are paid a fixed
hourly rate. They preside over the administrative hearing and make
recommendations to the Governing Board of the EQB as to whether a
fine should be levied. They are assigned cases pursuant to the
discretion of the EQB; those cases include administrative
investigative proceedings, quasi-judicial proceedings, and
legislative proceedings.
The district court concluded that the contractual
relationship between the EQB and the Hearing Examiners exhibited
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structural bias on account of both the method by which the Hearing
Examiners receive assignments and because of the particularities
within the pay structure. We agree. Hearing Examiners are not
protected from the pressures of political appointments and their
employment is entirely dependent on the EQB's willingness to assign
cases to them. Furthermore, the evidence on the record indicates
that the Hearing Examiner's contract in this case provides an
hourly salary rate with a set maximum number of hours for work.
Notably, there is no provision for a minimum number of hours.
Given that a Hearing Examiner's pay is entirely dependent upon the
discretionary assignment of cases from the EQB, the examiner is
vulnerable to the temptation to make recommendations favorable to
the EQB.5
In addition to the pressure felt by the Hearing Examiners
with respect to their case assignments from the EQB, we are
particularly concerned by the evidence that they are paid out of
the same Special Account into which the fines are deposited. The
Hearing Examiner's contract states that "in the eventuality of
there not existing or being assigned funds for the payment of
contracted services[,] the contract shall be deemed rescinded
without any further right to collect." While there is some
question as to whether the Hearing Examiner may have an
5
Esso asserts that two prior Hearing Examiners were dismissed
after various disagreements with the EQB regarding the proceedings
against Esso.
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independent, contractual right to challenge a nonpayment of his
salary by the EQB, it is irrefutable that such a provision -- one
that expressly links personal salary and the fund into which the
fines are deposited -- creates the appearance of and an incentive
for bias.6
3. Puerto Rico Senate Report
The claim of bias is further substantiated by evidence
that the Puerto Rico Senate improperly exerted pressure on the EQB
with respect to the assessment of this penalty against Esso.7
Specifically, the Puerto Rico Senate Commission on Agriculture,
Natural Resources, and Energy issued a partial report in which it
directed the Commission on Government Integrity to "identify those
public officials [in the EQB] who permitted the slowness with which
the gasoline spill was dealt with . . . and refer them to both the
Department of Justice as well as to the Office of Government Ethics
to determine whether any crime was committed or violation of the
laws and regulations of the Commonwealth of Puerto Rico." Partial
6
With respect to the Special Account, the defendants contend that
the account's funds are not supplied solely on the basis of fines,
but are also funded through the issuance of permits. The
defendants argue that this fact severely undercuts the conclusion
that the hearing examiners are biased. We are unpersuaded. The
defendants' argument does nothing to alter the funding structure of
the Special Account nor does it negate the fact that in this case,
the EQB proposed a fine of $76 million.
7
On appeal, the defendants make no challenge to the district
court's findings regarding the impact of the Puerto Rico Senate
report on the EQB's proceedings against Esso.
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Report on S.R. 1047, at 14 (P.R. Senate July 10, 2003) (certified
translation). This threat of criminal prosecution of EQB officials
strongly suggests that the Senate was threatening the EQB and is
therefore evidence of actual bias in the proceedings. See
Pillsbury Co. v. F.T.C., 354 F.2d 952, 964 (5th Cir. 1966) (noting
that a legislative body's "improper intrusion into the adjudicatory
process" deprives "the right of private litigants to a fair trial
and, equally important[ly] . . . their right to the appearance of
impartiality, which cannot be maintained unless those who exercise
the judicial function are free from powerful external influences"
(citing In re Murchison, 349 U.S. 133, 136 (1955))). The fact that
the appointment of EQB members requires Senate consent further
intensifies the incentives felt by the EQB to impose an unduly
heavy fine on Esso.
After review of the evidence submitted by the parties, we
re-affirm our conclusion that there is a strong appearance of bias
and, additionally, undisputed evidence of actual bias in these
proceedings.
C. Permanent Injunction
The issuance of a permanent injunction requires the
application of a familiar four-step framework in which Esso, as the
plaintiff:
must demonstrate: (1) that it has suffered an
irreparable injury; (2) that remedies
available at law, such as monetary damages,
are inadequate to compensate for that injury;
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(3) that, considering the balance of the
hardships between the [parties], a remedy in
equity is warranted; and (4) that the public
interest will not be disserved by a permanent
injunction.
eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 390 (2006).
As we have already discussed above, Esso has already
succeeded in demonstrating that EQB's internal structure is
severely biased and that continuation of the proceedings in such a
fatally biased decisionmaking process violates its due process
rights.8 Likewise, we have already concluded that Esso faces
irreparable harm in the absence of injunctive relief given the
unavailability of avenues for interlocutory relief in the Puerto
Rico courts. Thus, we move to the balancing of the harms and the
inquiry into the public interest.
The district court issued the following permanent
injunction:
It is further ORDERED that the defendants are
permanently enjoined from conducting any and
all administrative hearings and proceedings
against Esso related to the penalty provision
of the order to show cause . . . . It is
further ORDERED that the defendants are
8
On appeal, the defendants also argue that the court is required
to inquire into whether the process is still biased, given the
intervening personnel changes. The defendants concede that this
argument was not raised below. See Figueroa v. Rivera, 147 F.3d
77, 81 (1st Cir. 1998) ("[A]ppellants did not raise these
contentions below, and they are thus foreclosed from unveiling them
for the first time on appeal."). Moreover, given the allegations
of structural bias, evidence of personnel substitution is
insufficient to cure the constitutional infirmity. See Ward, 409
U.S. at 61.
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permanently enjoined from issuing any
judgments or resolutions, final or
interlocutory, in said matter, and from
instituting, conducting and/or prosecuting any
administrative penalty proceedings against
Esso based on or arising from the facts and
events described in said order to show cause.
Esso Standard Oil Co. v. López-Freytes, No. 03-2319 (D.P.R. Nov. 7,
2006) (order granting permanent injunction).
In this case, the district court's injunction is tailored
specifically to Esso: the injunction makes no mention of
administrative actions against other persons or entities and, in
fact, leaves unhampered the ongoing clean up efforts at the gas
station itself. There is little to no harm wrought upon the agency
or the public. The injunction takes aim only at the fine to be
imposed upon Esso. The defendants do not challenge the narrow
focus of the injunction itself, but argue that the injunction will
have a "considerable impact . . . on general compliance with EQB
environmental law policies in Puerto Rico." In essence, they
contend that Esso's success in obtaining an injunction in this case
will encourage other companies to do the same, and thereby severely
weaken the power of the agency to enforce environmental
regulations. They argue that the injunction imposed upon the
penalty phase in this case has "effectively allowed the release of
thousands of gallons of gasoline to the environment, potentially
affecting the health of nearby residents and contaminating the
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area's soil, as well as its ground waters, to go forever
unpunished."
We think the defendants grossly exaggerate the impact of
the injunction and ignore the seriousness of the bias plaguing
these proceedings. This case involves evidence that the EQB's
decisionmaking process with respect to Esso is constitutionally
infirm. The serious harm inflicted upon Esso is not outweighed by
the EQB's concern that this injunction may alter the perceived
strength of the EQB's governance. It is clear from the district
court's thoughtful opinion that the injunction was crafted to
target the biased penalty proceedings against Esso. The injunction
specifically exempted the remediation efforts and expressly stated
that it applied only to the case at hand. We are unconvinced by
the defendants assertions, and conclude that the district court did
not abuse its discretion in issuing a permanent injunction.
Lastly, the defendants argue that an injunction should
"be no more burdensome to the defendant than necessary to provide
complete relief to the plaintiffs." Califano v. Yamasaki, 442 U.S.
682, 702 (1979). They also contend that the scope of this
injunction was overly broad because it lacks an express provision
for termination of the injunction in the event that the EQB makes
the required institutional changes to ensure a constitutional
proceeding. We are unconvinced by this argument; the defendants
exaggerate the permanence of the injunction. If the defendants are
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able to cure the impermissible sources of bias, they are free to
move the district court to modify or dissolve the permanent
injunction. See Fed. R. Civ. P. 60(b)(5) (providing relief from a
judgment order when "applying it prospectively is no longer
equitable"); see also Mackin v. City of Boston, 969 F.2d 1273,
1276-77 (1st Cir. 1992) (observing that with respect to those
"decrees which were initially established to bring about needed
institutional reforms . . . [the] intrusion by a federal court into
the affairs of local government should . . . not be allowed to
continue after the violation has abated and its pernicious effects
have been cured"). It seems clear that the district court tailored
an injunction specifically to Esso and in response to the volume of
evidence exhibiting unconstitutional bias in the penalty
proceedings against Esso. The injunction leaves the EQB free to
continue its important remediation work and to continue pursuing
claims against other violators. Upon evidence that the
constitutional infirmities have been cured, the EQB may move to
amend the injunction which removes the EQB's concerns that Esso is
somehow permanently beyond the reach of its administrative
oversight.
III. Conclusion
For the reasons stated above, the judgment of the
district court is affirmed.
Affirmed.
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