Esso Standard Oil Co. v. Cotto

• Decision Date: 16 November 2004
• Docket Number: No. 04-2055.,04-2055.
• Citation: 389 F.3d 212
• Parties: ESSO STANDARD OIL CO. (Puerto Rico), Plaintiff, Appellant, v. Esteban Mujica COTTO, President of the Puerto Rico Environmental Quality Board; Flor L. Del Valle Lopez and Angel Berrios Silverstre, Associate Members of the Puerto Rico Environmental Quality Board; and Norman Velazquez Torres, Attorney for the Puerto Rico Environmental Quality Board, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

389 F.3d 212

ESSO STANDARD OIL CO. (Puerto Rico), Plaintiff, Appellant, v. Esteban Mujica COTTO, President of the Puerto Rico Environmental Quality Board; Flor L. Del Valle Lopez and Angel Berrios Silverstre, Associate Members of the Puerto Rico Environmental Quality Board; and Norman Velazquez Torres, Attorney for the Puerto Rico Environmental Quality Board, Defendants, Appellees.

No. 04-2055.

United States Court of Appeals, First Circuit.

Heard October 8, 2004.

Decided November 16, 2004.

James E. Tyrell, Jr., with whom John F. Nevares, John F. Nevares & Assocs., P.S.C., Richard P. Bress, Nathaniel A. Vitan, Matthew K. Roskoski, and Latham & Watkins, LLP were on brief, for appellant.

Gary H. Montilla, with whom Quinones & Sanchez, P.S.C. was on brief, for appellees.

Before TORRUELLA, LIPEZ, and HOWARD, Circuit Judges.

LIPEZ, Circuit Judge.

Esso Standard Oil Company sought a preliminary injunction from the federal district court to enjoin proceedings against it before the Puerto Rico Environmental Quality Board regarding the possible imposition of a $76 million fine. Esso contends that the Board is so biased that its adjudication of the case violates the Due Process Clause of the United States Constitution. The district court denied Esso's motion, ruling that the claim did not fall within the Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973), exception to the abstention doctrine set forth in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), and its progeny. Esso now appeals. For the reasons set forth below (which differ from the reasons set forth by the district court), we affirm the district court's decision to abstain.

I.

We draw on the district court's opinion for the factual background of this case, which involves a gasoline leak at a service station operated by Carlos Rodriguez Perez (Rodriguez) in Barranquitas, Puerto Rico. In 1979, Rodriguez began leasing storage tanks and purchasing fuel supplies for the station from Esso Standard Oil Company (Esso). In 1991, Esso replaced the existing underground storage tank (UST) system with a new UST system that approximately doubled the station's storage capacity. In 1992, Rodriguez alleged that Esso was responsible for the loss of between 65,000 and 100,000 gallons of fuel from the old UST system. Nevertheless, he continued to operate the station with the new tank system until 1998, when the local fire department ordered the station closed.

A. EQB Orders

The Puerto Rico Environmental Quality Board (EQB) issued an order in August 1998 instructing Esso to empty and test the station's fuel storage system for leaks, and Esso promptly complied. The EQB is an administrative agency created by the Environmental Public Policy Act 12 L.P.R.A. §§ 1121 — 1140a, to promote environmental and resource conservation. It has the authority to issue "Orders to Do," such as the one directed at Esso, mandating compliance with environmental statutes and regulations.

The EQB issued a second order in September 1998 directing Esso and Rodriguez to engage in additional testing and to submit a soil remediation plan for the land. Esso again complied. According to Esso, the special committee charged with enforcing the EQB's UST program did not respond to Esso's submission, hampering its ability to investigate environmental conditions at the station and to take corrective measures. Esso also alleges that Rodriguez and his consultant, Carlos Belgodere Pamies (Belgodere), further delayed the process by restricting its access to the station.

The EQB issued a third order in October 1999, superseding and expanding on the second order. Esso claims that it has substantially complied with the third order and, in the course of doing so, has recovered approximately 550 gallons of spilled fuel. That figure differs vastly from claims by Rodriguez and Belgodere of a 65,000 to 100,000 gallon spill.

Despite Esso's demonstrated willingness to comply with investigatory and remedial orders, the EQB issued a show cause order in May 2001 proposing a $75,960,000 fine against Esso. The fine, which is 5,000 times greater than the largest fine ever imposed by the EQB under its UST regulations, is based on Esso's alleged failure to promptly notify the EQB of a fuel release from the pre-1991 UST system and to remedy that release. Any fine that the EQB collects will be deposited into a discretionary account administered by the EQB and disbursed by its chairman. 12 L.P.R.A. § 1136(f), (k). The $76 million proposed fine is twice the EQB's annual operating budget.

The district court acknowledged testimony by Miguel Morales, a supervising attorney of the EQB's legal affairs office, that he was surprised by the amount of the proposed fine because the EQB imposed either no fine or a fine of less than $100,000 in other spill cases. Morales also noted that some of the information included in the show cause order appears to have been provided by Belgodere, Rodriguez's consultant. Esso contends that Belgodere has been granted undue influence throughout this matter. The show cause order did not propose to sanction Rodriguez, despite an EQB examiner's recommendation that it do so because he controlled the UST in his role as the station operator.

B. Senate Investigation

The Puerto Rico Senate began investigating the alleged fuel release in October 2001 allegedly at Belgodere's instigation. In March 2003, two Senate Commissions met in executive sessions, from which Esso was excluded, with Norman Velazquez Torres (Velazquez), the attorney presenting the case against Esso on behalf of the Public Interest.¹ Esso asserts that following these sessions, the Commissions concluded that there had been a spill at the station and that Esso had failed to address it, accused the EQB of not treating Esso harshly enough, urged a high fine to serve as a deterrent, and threatened EQB officials with criminal prosecution for their laxity.

C. EQB Hearings

Hearings on the proposed fine began in September 2002. The Public Interest finished presenting its affirmative case on February 12, 2004, and Esso began its defense on March 15, 2004. Following a recess to allow substitution of the attorney for the Public Interest, hearings resumed on August 10, 2004 and are ongoing as Esso continues to present its defense.

The hearing examiner (HE), Yolanda Torres-Roque, is paid by the EQB from the same fund into which a fine would be deposited; she can be terminated without cause. Her employment contract with the EQB states that she "acknowledges that in the performance of her professional function she has a complete duty of loyalty towards the agency, which includes not having adverse interest to said governmental entity." Her job is to preside over the hearings and to make recommendations to the Board, which can adopt or reject them.

The hearings have been contentious, generating a flurry of motions on such issues as discovery, scheduling, and evidentiary matters. The HE's ruling on two of these motions, one relating to the availability of discovery and the other to a statute of limitations claim, resulted in appeals to the courts of Puerto Rico, as discussed below. In November 2003, during the course of the proceedings, Esso also filed with the HE a motion for expedited recommendation of dismissal which raised constitutional claims similar to those now before us. The HE and EQB Governing Board (Board) have yet to rule on this motion.

D. Esso's appeals to the Puerto Rico Circuit Court

As noted, Esso filed two appeals in the Puerto Rico Circuit Court of Appeals during the course of the hearings, one in May 2002 dealing with a discovery matter and the other in September 2002 urging dismissal of the penalty hearings on statute of limitations grounds. The court dismissed both appeals, ruling that it did not have authority to review interlocutory decisions of an administrative agency. Esso Standard Oil Co. v. Junta De Calidad Ambiental, Nos. OA-01-AG-26 and OA-99-AG-109, 2002 WL 31122179 (P.R. Ct.App. Sept. 13, 2002); Esso Standard Oil Co. v. Junta De Calidad Ambiental, Nos. OA-01-AG-26 and OA-99-AG-109, 2002 WL 1438761 (P.R. Ct.App. May 1, 2002). Both decisions note that under 3 L.P.R.A. § 2172, the court may review only final agency orders, and may do so only after the petitioning party has exhausted all available administrative remedies. In both cases, the court concluded that the only recognized exception to the finality requirement, lack of agency jurisdiction to adjudicate a case, was inapplicable and thus it could not consider Esso's appeal.

E. Esso's lawsuit in the district court

In March 2004, Esso filed a lawsuit and companion motion in federal district court to preliminarily enjoin the EQB penalty proceedings against it. These pleadings, which do not challenge the EQB's authority to order remedial measures at the station, argued that the penalty proceedings violate the Due Process Clause because "the officials who decide whether this massive fine is assessed have severe and irremediable conflicts of interest." Esso asserted a number of specific examples of such conflicts and procedural irregularities, including that (1) EQB officials have a direct pecuniary interest in collecting a large fine, (2) the Puerto Rico Senate "has exerted undue influence" biasing the proceedings, (3) high-ranking EQB officials, including a member of the board, were not consulted in issuing the show cause order on the proposed fine despite being directly involved in the case, (4) the HEs lack independence to administer the hearings fairly,² (5) attorney Velazquez engaged in grossly unethical behavior before resigning from the case earlier this year, and (6) Belgodere has exerted undue influence throughout the proceedings.

In its written decision on the request for a preliminary injunction, the district court acknowledged that "[t]he undisputed evidence presented by Esso regarding the EQB's handling of the case...