Industria Lechera de PR v. Flores

United States Court of Appeals
For the First Circuit
No. 18-1347
INDUSTRIA LECHERA DE PUERTO RICO, INC.,
Plaintiff-Appellant,
v.
RAMÓN GONZÁLEZ BEIRÓ in his official capacity as ACTING
SECRETARY OF THE PUERTO RICO DEPARTMENT OF AGRICULTURE;* JORGE
CAMPOS MERCED, in his official capacity as ADMINISTRATOR OF THE
PUERTO RICO MILK INDUSTRY REGULATORY OFFICE,**
Defendants-Appellees, and
SUIZA DAIRY, CORP.; VAQUERÍA TRES MONJITAS, INC.,
Intervenor-Defendants, Intervenor-Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Daniel R. Domínguez, U.S. District Judge]
Before
Howard, Chief Judge
Torruella*** and Thompson, Circuit Judges.
* Pursuant to Fed R. App. P. 43(c)(2), Acting Secretary of the
Puerto Rico Department of Agriculture Ramón González Beiró has
been substituted for former Secretary of the Puerto Rico Department
of Agriculture Carlos Flores Ortega.
** Pursuant to Fed R. App. P. 43(c)(2), Administrator of the Puerto
Rico Milk Industry Regulatory Office Jorge Campos Merced has been
substituted for former Interim Administrator of the Puerto Rico
Milk Industry Regulatory Office María del Carmen Martínez Campos.
*** Judge Torruella heard oral argument in this matter and
participated in the semble, but he did not participate in the
Rafael M. Santiago-Rosa, with whom José R. Negrón-Fernández,
and Marichal, Hernández, Santiago & Juarbe, LLC were on brief, for
appellant.
Edward W. Hill, with whom The Law Offices of Edward W. Hill
was on brief, for appellees.
Rafael Escalera Rodríguez, with whom Viviana M. Berríos-
González, and Reichard & Escalera, LLC were on brief, for
intervenor-appellee, Suiza Dairy Corp.
Enrique Nassar Rizek, with whom Enrique Nassar Rizek, Esq.
ENR & Associates appeared, for intervenor-appellee Vaquería Tres
Monjitas, Inc.
March 1, 2021
issuance of the panel's decision. The remaining two panelists
therefore issued the opinion pursuant to 28 U.S.C. § 46(d).
HOWARD, Chief Judge. This case is the latest episode in
the long-running litigation over milk price regulation in Puerto
Rico. Although this Court has spent much ink recounting the
history of this dispute -- see Vaquería Tres Monjitas, Inc. v.
Comas-Pagán, 772 F.3d 956 (1st Cir. 2014); Vaquería Tres Monjitas,
Inc. v. Comas-Pagán, 748 F.3d 21 (1st Cir. 2014); P.R. Dairy
Farmers Ass'n v. Comas-Pagán, 748 F.3d 13 (1st Cir. 2014); Vaquería
Tres Monjitas, Inc. v. Irizarry, 587 F.3d 464 (1st Cir. 2009),
reh'g and reh'g en banc denied, 600 F.3d 1 (1st Cir. 2010) -- we
briefly lay out the relevant facts that have led us here and assume
familiarity with our past decisions. We ultimately hold that
neither we, nor the district court, have federal subject matter
jurisdiction over the instant dispute and therefore remand with
instructions to send the case back to the Puerto Rico Court of
First Instance.
I. Background
The relevant parties are familiar to us. Appellant
Industria Lechera de Puerto Rico, Inc. ("Indulac") is owned and
operated by Fondo de Fomento de la Industria Lechera, a statutorily
created entity whose purpose is to promote Puerto Rico's milk
industry. See Irizarry, 587 F.3d at 468. Indulac is the only
entity in Puerto Rico authorized to process ultra-high temperature
milk ("UHT milk"), which does not need to be refrigerated before
it is opened. Id. at 468.
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Appellees include Ramón González Beiró, in his official
capacity as the acting Secretary of the Puerto Rico Department of
Agriculture, and Jorge Campos Merced, the administrator of the
Milk Industry Regulation Administration for the Commonwealth of
Puerto Rico (Spanish acronym "ORIL"). ORIL, a subdivision of
Puerto Rico's Department of Agriculture, regulates Puerto Rico's
milk industry and has the power to set milk and milk-product
prices. Id. at 469.
The appellees also include Puerto Rico dairy producers,
Suiza Dairy, Inc. ("Suiza") and Vaquería Tres Monjitas ("VTM").
Id. at 467-68. Suiza and VTM purchase raw milk from local dairy
farmers and process the milk into drinkable fresh milk. Id. at
468. Their fresh milk product is a direct competitor to Indulac's
UHT milk. Id.
Suiza and VTM brought a lawsuit in 2004 in which they
asserted that Puerto Rico's milk pricing regulations violated
their rights under the Commerce Clause and the Fifth and Fourteenth
Amendments of the United States Constitution, as well as under
Puerto Rico law. Id. at 471-72. In 2007, the district court
issued a preliminary injunction and ordered ORIL to adopt a
mechanism to compensate retroactively Suiza and VTM at a "fair
rate of return" from the year 2003 until ORIL could implement a
new pricing regime. Id. at 472. To comply with the preliminary
injunction, ORIL implemented a "regulatory accrual" mechanism that
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placed a small surcharge on every quart of milk sold to consumers.
The surcharge amount then went into an account to benefit Suiza
and VTM. Id. at 477.
In 2013, "after almost a decade of litigation -- complete
with various evidentiary hearings, three appeals, and the onset of
contempt proceedings -- the principal parties settled" and ORIL
agreed to promulgate an industry-shaping price regulation. Comas-
Pagán, 772 F.3d at 957. The parties to the Agreement were the
Secretary of Agriculture of Puerto Rico on behalf of the Government
of Puerto Rico, ORIL, VTM, and Suiza. The Agreement required ORIL
to promulgate a new regulatory scheme and enact a Milk Price Order
effective November 7, 2013. The Agreement further provided that,
once the November 2013 Price Order came into effect, "the
regulatory accrual charge . . . will be deferred until January 1,
2017."
On November 7, 2013, the district court entered an order
approving the Agreement and incorporating it as a consent decree.
The district court retained jurisdiction of the case "for
compliance purposes of all the covenants of the Settlement
Agreement of October 29, 2013, or any other related matter and/or
remedy related to the full compliance of the Settlement Agreement
of October 29, 2013." Indulac, which had been an intervenor in
that case -- but not a signatory to the Agreement -- moved to alter
or amend the judgment. The district court denied Indulac's motion
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on the basis that, as an intervenor, Indulac did not have standing
to request that the judgment adopting and entering the Agreement
as a consent decree be amended or modified. See Vaquería Tres
Monjitas, Inc. v. Comas, 992 F. Supp. 2d 39, 41 n.1 (D.P.R. 2013).
On December 29, 2016, ORIL issued a Price Order that
reestablished the regulatory accrual surcharge on fresh milk
products, effective January 1, 2017. And on May 31, 2017, ORIL
issued another Price Order extending the regulatory accrual
surcharge over all fluid milk, including UHT milk, effective June
1, 2017. The latter Price Order, which affects Indulac's UHT milk
product, is the focus of this appeal.
II. Procedural History
On June 9, 2017, Indulac filed a challenge to ORIL's May
31, 2017 Price Order in the Puerto Rico Court of First Instance.
Indulac argued that ORIL had failed to comply with three different
procedural administrative requirements before issuing the May 2017
Price Order. Specifically, Indulac alleged that ORIL failed to:
(1) give Indulac proper notice of the proposed Price Order; (2)
abide by a statutory requirement to hold public hearings and
require the attendance of specific government officials, consider
certain factors prescribed by statute, including a recommendation
by the Secretary of Consumer Affairs, and conduct a market study
before issuing the Price Order; and (3) publish the rule in three
consecutive editions of a newspaper of general circulation as
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required by statute. Because ORIL allegedly failed to comply with
the applicable procedural rules, Indulac argued that the Price
Order was void under Puerto Rico law and that its issuance violated
Indulac's due process rights under the Constitution of the
Commonwealth of Puerto Rico.
ORIL filed a notice of removal on June 27, 2017 and
asserted federal jurisdiction based on 28 U.S.C. § 1331 and
§ 1441(a) and (c). ORIL contended that federal question
jurisdiction existed because Indulac's lawsuit would "frustrate"
the 2013 consent decree and cited "the All Writs Act (28 U.S.C.
§ 1651) and the Anti-Injunction Act (28 U.S.C. § 2283) in order to
protect or effectuate [the Court's] judgment" (internal quotations
omitted). ORIL also cited the district court's retention of
jurisdiction to enforce the Agreement as supporting removal.
In addition, ORIL sought a preliminary and permanent
injunction under the All Writs Act to enjoin the Puerto Rico Court
proceedings in the event Indulac succeeded on a motion to remand
the case back to the Puerto Rico Court. But Indulac did not oppose
removal. Instead, Indulac acquiesced to the removal, stating that
it would not seek remand if the district court found it had federal
subject matter jurisdiction over the dispute.
The district court found that it had jurisdiction and
denied ORIL's motion for injunctive relief as moot. Having found
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jurisdiction, the district court granted ORIL's motion to dismiss
for failure to state a claim. Indulac appeals that dismissal.
III. Jurisdiction
Federal courts "have an independent obligation to
determine whether subject-matter jurisdiction exists, even when no
party challenges it." Hertz Corp. v. Friend, 559 U.S. 77, 94
(2010); see also Lawless v. Steward Health Care Sys., LLC, 894
F.3d 9, 16 (1st Cir. 2018) ("[F]ederal subject-matter jurisdiction
can never be presumed, nor can it be conferred by acquiescence or
consent.") Therefore, we must "raise and decide jurisdictional
questions that the parties either overlook or elect not to press."
Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011).
Mindful of these principles, our review of the district court's
"retention of subject-matter jurisdiction over a removed case [is]
de novo." Lawless, 894 F.3d at 16-17.
Federal courts have jurisdiction "over two general types
of cases: cases that 'aris[e] under' federal law" and "cases in
which the amount in controversy exceeds $75,000 and there is
diversity of citizenship among the parties." Home Depot U.S.A.,
Inc. v. Jackson, 139 S. Ct. 1743, 1746 (2019) (citing 28 U.S.C. §§
1331, 1332(a)). Defendants may remove a "state-court action over
which the federal courts would have original jurisdiction . . . to
federal court" under the general removal statute, 28 U.S.C. § 1441.
Id. All the parties before us are citizens of Puerto Rico, which
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precludes the existence of diversity jurisdiction, and ORIL did
not claim diversity jurisdiction supported removal. Therefore, if
federal jurisdiction exists, it must be supported by an issue that
arises under federal law; this type of jurisdiction is often
referred to as federal question jurisdiction. See, e.g., Ortiz-
Bonilla v. Federación de Ajedrez de P.R., Inc., 734 F.3d 28, 34
(1st Cir. 2013) ("For cases, like this one, where there is no
diversity of citizenship between parties, removal jurisdiction
turns on whether the case falls within 'federal question'
jurisdiction.").
Two types of actions may come within federal question
jurisdiction: those involving a direct federal question (for
example, an action premised on a federal statute or the United
States Constitution), and those involving an "embedded federal
question." Id. There is no direct federal question in Indulac's
petition, as no "federal law creates the cause of action asserted."
Gunn v. Minton, 568 U.S. 251, 257 (2013). To the contrary, only
Puerto Rico law creates the cause of action. As to jurisdiction
under the second type of action, often referred to as federal
ingredient jurisdiction, such jurisdiction lies only in a "special
and small category" of cases in which a "state-law claim
necessarily raise[s] a stated federal issue, actually disputed and
substantial, which a federal forum may entertain without
disturbing any congressionally approved balance of federal and
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state judicial responsibilities." Id. at 258 (first quoting Empire
HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 699 (2006);
then quoting Grable & Sons Metal Prods. v. Darue Eng'g & Mfg., 545
U.S. 308, 314 (2005)). Because Indulac's petition sounds only in
Puerto law and not in federal law, and because its Puerto Rico
claims cannot be said to raise any stated, disputed, and
substantial federal issues, this action does not fall within
federal ingredient jurisdiction either.
Nonetheless, in its order finding jurisdiction, the
district court reasoned that the "instant controversy is
intrinsically related to the [Agreement]" and that it had federal
question jurisdiction over this case because it "retained
jurisdiction to enforce the covenants of the [Agreement]."
Consequently, we read the district court's order finding
jurisdiction and the amended opinion on which this appeal is based
to reflect the district court's view that its power to decide this
dispute stems from its jurisdiction to enforce the 2013 consent
decree. This was error.
Metheny v. Becker, 352 F.3d 458 (1st Cir. 2003), is our
controlling precedent. There, the plaintiff filed a lawsuit in
state court arguing, in part, that a local zoning board "had abused
its discretion and thus violated Commonwealth law in failing to
follow certain procedures in connection with its decision making."
Id. at 459. The defendant removed the case to federal district
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court on the basis of federal question jurisdiction because the
case "ar[ose] directly from, and constitute[d] a collateral
challenge to," an earlier settlement incorporated into a federal
judgment. Id. And, like here, the defendant cited the All Writs
Act in support of its removal argument. Id.We found that removal was improper for reasons that are
relevant here. Id. at 460-61. First, "[t]hat the case might be
regarded as an improper attack on a prior federal judgment does
not provide grounds for removal." Id. at 460 (citing Rivet v.
Regions Bank of La., 522 U.S. 470, 474-77 (1998)). Further, the
complaint in Metheny "sound[ed] only in Commonwealth law." Id.And finally, "[t]he existence of the consent decree in the prior
judgment [did] not authorize removal under the All Writs Act."
Id. (citing Syngenta Crop Prot., Inc. v. Henson, 537 U.S. 28, 31-
34 (2002)).
The principles underlying our Metheny decision apply
here with equal force. Most obviously -- and similar to the
complaint in Metheny -- Indulac's petition is based on a failure
to comply with Puerto Rico law, not federal law. Id. Second, the
existence of the prior federal consent decree is a potential
defense that cannot independently grant federal jurisdiction. See
Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987) ("[I]t is
now settled law that a case may not be removed to federal court on
the basis of a federal defense"); see also Rivet, 522 U.S. at 477
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("[C]laim preclusion by reason of a prior federal judgment is a
defensive plea that provides no basis for [federal question]
removal."). And the fact that Indulac's petition for review may
disrupt ORIL's ability to comply with the consent decree is not
grounds for removal jurisdiction. See City of Warren v. City of
Detroit, 495 F.3d 282, 288-89 (6th Cir. 2007) (defendant could not
remove on basis that plaintiff's claim could impact ability of one
party to comply with a federal consent judgment).
As to appellees' arguments that the All Writs Act and
the Anti-Injunction Act give the federal courts jurisdiction to
hear this case, they are wrong. The Supreme Court foreclosed these
arguments almost two decades ago in Syngenta Crop Protection, Inc.
v. Henson, 537 U.S. 28 (2002) (overruling Xiong v. Minnesota, 195
F.3d 424 (8th Cir. 1999), cited by appellees). The Court clarified
that the removal requirements in 28 U.S.C. § 1441 are "to be
strictly construed" and that the All Writs Act does not give
parties free reign to "avoid complying with the statutory
requirements for removal." 537 U.S. at 32-33. The "All Writs Act
does not confer jurisdiction on the federal courts" and so "cannot
confer the original jurisdiction required to support removal
pursuant to § 1441." Id. at 33. We recognized the same in Metheny
and do so again here. See 352 F.3d at 460.
To the extent appellees or the district court relied on
the doctrine of ancillary jurisdiction -- sometimes referred to as
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"enforcement jurisdiction," see U.S.I. Props. Corp. v. M.D.
Constr. Co., 230 F.3d 489, 496 (1st Cir. 2000) -- to support
removal, such reliance was also in error. Ancillary jurisdiction
"recognizes federal courts' jurisdiction over some matters
(otherwise beyond their competence) that are incidental to other
matters properly before them." Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375, 378 (1994). The Supreme Court has approved
the exercise of ancillary jurisdiction in a "broad range of
supplementary proceedings involving third parties to assist in the
protection and enforcement of federal judgments -- including
attachment, mandamus, garnishment, and the prejudgment avoidance
of fraudulent conveyances." Peacock v. Thomas, 516 U.S. 349, 356-
57 (1996) (collecting cases). However, the Supreme Court has
squarely rejected the notion that ancillary jurisdiction can
support removal under § 1441 absent an independent basis for
original jurisdiction. Syngenta, 537 U.S. at 34 ("Removal is
governed by statute, and invocation of ancillary jurisdiction
. . . does not dispense with the need for compliance with statutory
requirements."). As such, ancillary jurisdiction cannot support
removal here.
We note, as we noted in Metheny and as the Supreme Court
observed in Syngenta, that a federal court, under the All Writs
Act and the relitigation exception of the Anti-Injunction Act,
"may enjoin state-court proceedings 'where necessary . . . to
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protect or effectuate its judgment.'" Metheny, 352 F.3d at 462(quoting Rivet, 522 U.S. at 478 n.3); see also Syngenta, 537 U.S.
at 34 n.* ("One in petitioners' position may apply to the court
that approved a settlement for an injunction requiring dismissal
of a rival action."). ORIL sought such injunctive relief below to
enjoin the Puerto Rico proceeding, which the district court denied
as moot based on its finding of removal jurisdiction. That avenue
still remains a possibility for relief, and its potential
availability reveals one reason why our jurisdictional ruling does
not exalt form over substance: there are material differences
between what a court considers in the context of a removed case
and what it considers before entering an injunction.
In the event that ORIL later renews its request for
injunctive relief to the district court under the All Writs Act
and Anti-Injunction Act, some issues that might confront the
district court include the scope of a potential injunction, how it
might be crafted to respect the sovereign interests of Puerto Rico,
and ultimately whether an injunction would be a proper exercise of
the court's equitable power. See, e.g., Fernández-Vargas v. Pfizer
Pharm., Inc., No. 04-2236 (JAF), 2006 WL 3254463, at *5-8 (D.P.R.
Nov. 8, 2006) (considering, inter alia, the "wasteful expense of
relitigating"), aff'd, 522 F.3d 55 (1st Cir. 2008); see also
Mitchum v. Foster, 407 U.S. 225, 243 (1972) (noting the "principles
of equity, comity, and federalism that must restrain a federal
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court when asked to enjoin a state court proceeding"). We
emphasize, however, that we take no view as to the merits of any
such effort to enjoin the Puerto Rico proceedings.
IV. Conclusion
Finding no federal jurisdiction, we vacate and remand to
the district court with instructions to return this case to the
Puerto Rico Court of First Instance. No costs are awarded.
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