Texaco Puerto Rico, Inc. v. Department of Consumer Affairs

• Decision Date: 08 March 1995
• Docket Number: No. 94-2076,94-2076
• Parties: TEXACO PUERTO RICO, INC., et al., Plaintiffs, Appellees, v. DEPARTMENT OF CONSUMER AFFAIRS, et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 867

60 F.3d 867

32 Fed.R.Serv.3d 121

TEXACO PUERTO RICO, INC., et al., Plaintiffs, Appellees, v. DEPARTMENT OF CONSUMER AFFAIRS, et al., Defendants, Appellants.

No. 94-2076.

United States Court of Appeals, First Circuit.

Heard March 8, 1995.

Decided July 19, 1995.

Lynn R. Coleman, with whom Pedro R. Pierluisi, Secretary of Justice, Roberto Ruiz Comas, Director, Federal Litigation Div., Dep't. of Justice, Richard L. Brusca, Matthew W.S. Estes, Laura A. Ingraham, and Skadden, Arps, Slate, Meagher & Flom, Washington, DC, were on brief, for appellants.

Alan M. Grimaldi, with whom Jerrold J. Ganzfried, Patricia G. Butler, Howrey & Simon, Washington, DC, William Estrella, San Juan, PR, and Ricks P. Frazier, Coral Gables, FL, were on brief, for appellee Texaco Puerto Rico, Inc.

Donald B. Craven, with whom James P. Tuite, Anthony F. Shelley, James R. Lovelace, Alvaro I. Anillo, Miller & Chevalier, Chtd, Washington, DC, Luis Sanchez Betances, Jaime Sifre Rodriguez, Miguel P. Cancio Bigas, and Sanchez Betances & Sifre, Hato Rey, PR, were on brief, for appellee Esso Standard Oil Co. (P.R.).

Ana Matilde Nin, with whom Rafael Perez-Bachs, Gilberto J. Marxuach-Torros, and McConnell Valdes, Hato Rey, PR, were on brief, for appellee Shell Co. (P.R.) Ltd.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and CYR, Circuit Judge.

SELYA, Circuit Judge.

In 1986, the Puerto Rico Department of Consumer Affairs (DACO) took a small, tentative step toward regulating the profit margins of gasoline wholesalers. The wholesalers treated this move as a declaration of war. They mounted a courtroom counteroffensive and succeeded in obtaining an injunction against the enforcement of DACO's embryonic regulation. Following a series of pitched battles that stretched from San Juan to Boston to the banks of the Potomac and back again, DACO emerged victorious.

Long after the injunction had been vacated, DACO purposed to exact tribute from the vanquished. Specifically, it sought restitution from the wholesalers based on the "excess" profits that they allegedly earned while shielded by the injunction. The district court declined to grant the envisioned spoils. We affirm.

I. BACKGROUND

This is presumably the final skirmish in a decade-long conflict. Other jousts are chronicled in a series of published opinions. See, e.g., Puerto Rico Dep't of Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495, 108 S.Ct. 1350, 99 L.Ed.2d 582 (1988) (Isla III ); Tenoco Oil Co. v. Department of Consumer Affairs, 876 F.2d 1013 (1st Cir.1989); Isla Petroleum Corp. v. Puerto Rico Dep't of Consumer Affairs, 811 F.2d 1511 (Temp.Emer.Ct.App.1986) (Isla II ); Texaco Puerto Rico, Inc. v. Mojica Maldonado, 862 F.Supp. 692 (D.P.R.1994) (TPR II ); Texaco Puerto Rico, Inc. v. Ocasio Rodriguez, 749 F.Supp. 348 (D.P.R.1990) (TPR I ); Isla Petroleum Corp. v. Department of Consumer Affairs, 640 F.Supp. 474 (D.P.R.1986) (Isla I ). Given the detail contained in these earlier opinions, we believe that a condensed summary of the hostilities will suffice for the nonce.

From 1973 forward, the federal government imposed price controls on the sale of petroleum and petroleum products. See 15 U.S.C. Secs. 751-760h (as amended). At the time federal controls ended in early 1981, the regulatory scheme limited wholesalers' gross profit margins (GPMs) on the sale of gasoline to 8.6 cents per gallon. ¹ See Tenoco, 876 F.2d at 1015 (recounting history of federal regulatory policy). Although bureaucrats are reputed to abhor a vacuum, DACO--an arm of Puerto Rico's government empowered by local law to regulate prices and profit margins in order to protect consumers, see P.R. Laws Ann. tit. 3, Sec. 341b (1982)--did not immediately impose its own controls.

By 1985, the GPMs of gasoline wholesalers in Puerto Rico ranged from 6.9cents to 16.76cents per gallon. In early 1986, world oil prices plummeted--but the price of gasoline in Puerto Rico (both wholesale and retail) failed to follow suit. The Puerto Rico legislature, ostensibly concerned that the oil companies were taking unfair advantage, imposed an excise tax on crude oil and refined petroleum products. In connection with the new tax, DACO promulgated an administrative order under date of April 23, 1986. The order prohibited wholesalers from passing the tax through to retailers. It also froze wholesale and retail gasoline prices at their March 31, 1986 levels.

When, thereafter, world oil prices soared, the price freeze forced several wholesalers to sell gasoline at prices below their acquisition costs. Since large oil companies are not in business to lose money, a coterie of wholesalers (including the trio that appear as appellees here) wasted little time in asking the federal district court to enjoin enforcement of the April 23 order. Moving with equal celerity, the district court scheduled a trial on the merits for May 21, 1986. See Fed.R.Civ.P. 65(a)(2) (authorizing the district court to "order the trial on the merits to be advanced and consolidated with the hearing on the application [for preliminary injunction]"). On May 20, DACO reshuffled the cards; it rescinded the price freeze and issued what it called a "temporary" order that harked back to the former, federally inspired ceiling and established, in lieu of the thawed freeze, maximum GPMs of 8.6cents per gallon for petroleum wholesalers. The May 20 order also scheduled a public hearing for June 2 to "receive comments from all interested persons on the adequacy of this Temporary Order and on any modifications that should be made to attain a situation where primary reliance can be placed on competitive market forces to maintain fair margins at all levels of distribution and fair prices for the consumer."

This maneuver did not derail the litigation. The district court merely switched tracks, trained its sights on the May 20 edict, and went forward with a three-day bench trial. On June 4--roughly ten days after the trial ended--the court enjoined enforcement of the May 20 order on federal preemption and other constitutional grounds. See Isla I, 640 F.Supp. at 515.

DACO appealed the preemption ruling to the Temporary Emergency Court of Appeals (TECA), see 15 U.S.C. Sec. 754(a)(1) (granting TECA exclusive jurisdiction over claims arising directly under the Emergency Petroleum Allocation Act of 1973), and appealed the remaining rulings (e.g., the invalidation of the order on due process and takings grounds) to this court. We stayed proceedings pending consideration of the preemption ruling. TECA affirmed that ruling, see Isla II, 811 F.2d at 1519, but the Justices reversed, holding that federal law did not forbid state regulation of gasoline prices. See Isla III, 485 U.S. at 499-501, 108 S.Ct. at 1352-1354. This court then took up DACO's concurrent appeal and vacated the district court's injunction as premature. See Tenoco, 876 F.2d at 1024.

On June 27, 1989 (the day after we issued our mandate incinerating the district court's injunction), DACO promulgated an interim order establishing a maximum GPM of 11cents per gallon, effective forthwith. Its final order, issued on November 30, 1989, adopted a ceiling of 13cents per gallon. That order withstood a vigorous constitutional challenge by the wholesalers. See TPR I, 749 F.Supp. 348.

An ensuing period of unaccustomed tranquility ended abruptly in mid-1992 when DACO again took up the cudgels. It issued a so-called remedial order in which it sought to recoup almost $250,000,000 in profits exceeding an 8.6cents per gallon GPM that it estimated three wholesalers--Texaco Puerto Rico, Inc., Esso Standard Oil Co. (P.R.), and the Shell Company (Puerto Rico) Ltd. (appellees here)--had earned during the three-year life (June 1986 to June 1989) of the errant injunction. ² The wholesalers quickly repaired to the district court and requested protection from the remedial order. Before the court could act, DACO issued a revised remedial order. Under its terms, a wholesaler could choose between paying a refund based on a retrospective GPM of 13cents per gallon for the injunction period or paying one based on whatever profit margin would have allowed it to achieve an annual return on assets equal to the average return on assets for the electric utility industry, plus one percent, during the same period.

The wholesalers were not mollified. They challenged the revised remedial order and, on April 1, 1993, DACO rescinded it. This hasty retreat did not restore the peace, for the agency simply attacked on a different front. It revivified the court action originally instituted by the oil companies and filed a motion for restitution seeking an award equal to the excess profits that the wholesalers would have been forced to disgorge but for the pendency of the improvidently issued injunction. Following a tumultuous period of discovery, see, e.g., infra Part III (discussing certain disputed discovery rulings), and a three-week bench trial, the court denied the motion for restitution on September 9, 1994. See TPR II, 862 F.Supp. at 709. DACO now appeals.

II. THE MERITS

Our analysis of the merits is partitioned into four segments. We discuss the nature of restitution, parse the decision below, limn the standard of review, and, finally, examine the record to determine whether the denial of restitution can be upheld.

A. The Nature of Restitution.

In its motion, DACO sought restitution based upon the hoary adage "that a party against whom an erroneous judgment or decree has been carried into effect is entitled, in the event of a reversal, to be restored by his adversary to that which he has lost thereby." Arkadelphia Milling Co. v. St. Louis S.W. Ry. Co., 249 U.S. 134, 145, 39 S.Ct. 237, 242, 63 L.Ed. 517 (1919). We agree with this tenet, but caution that it tells only half the tale. Restitution is not a matter of right, but a matter of sound equitable discretion. See Atlantic Coast Line R.R. Co. v. Florida, 295 U.S. 301, 310, 55 S.Ct. 713,...