Puerto Rico Dairy Farmers Ass'n v. Pagan

• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Citation: 748 F.3d 13
• Decision Date: 03 April 2014
• Docket Number: No. 13–2412.,13–2412.
• Parties: PUERTO RICO DAIRY FARMERS ASSOCIATION, Intervenor, Appellant, Suiza Dairy, Inc.; Vaquería Tres Monjitas, Inc., Plaintiffs, Appellees, v. Myrna Comas PAGAN, Secretary of the Department of Agriculture for the Commonwealth of Puerto Rico; Edmundo Rosaly, Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico, Defendants.

748 F.3d 13

PUERTO RICO DAIRY FARMERS ASSOCIATION, Intervenor, Appellant, Suiza Dairy, Inc.; Vaquería Tres Monjitas, Inc., Plaintiffs, Appellees,
v.
Myrna Comas PAGAN, Secretary of the Department of Agriculture for the Commonwealth of Puerto Rico; Edmundo Rosaly, Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico, Defendants.

No. 13–2412.

United States Court of Appeals,
First Circuit.

April 3, 2014.

[748 F.3d 15]

William A. Graffam, with whom Alejandro Mendez Roman and Jiménez Graffam & Lausell were on brief, for appellant.

Rafael Escalera Rodríguez, with whom Amelia Caicedo Santiago, Carlos M. Hernández Burgos, and Reichard & Escalera were on brief, for appellee Suiza Dairy, Inc.

Jose R. Lazaro Paoli, Enrique Nassar Rizek and ENR & Associates on brief for appellee Vaquería Tres Monjitas, Inc.

Before LYNCH, Chief Judge, SELYA and HOWARD, Circuit Judges.

LYNCH, Chief Judge.

This appeal arises from the settlement of the decade-long litigation concerning the regulation of Puerto Rico's milk industry. The intervenor Puerto Rico Dairy Farmers Association (“PRDFA”) appeals from the district court's approval of a comprehensive Settlement Agreement (“the Agreement”) reached by the original parties: the government defendants, including the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico (Spanish acronym “ORIL”), and the plaintiff milk processors, Vaquería Tres Monjitas, Inc. (“VTM”) and Suiza Dairy, Inc. (“Suiza”).

PRDFA argues that the district court denied it an appropriate hearing to object to the approval of the Agreement, and attacks the merits of the Agreement itself. Because PRDFA had an adequate hearing to air its grievances while the Agreement was stayed from going into effect, and because the district court held that PRDFA remains free to challenge in its still-pending companion case the constitutionality of the Agreement as implemented, we reject PRDFA's due process arguments. We also find there was no abuse of discretion in the district court's approval of the Agreement, and affirm.

I.

An account of the litigation's origins is found in our previous opinion in this case. See Vaquería Tres Monjitas, Inc. v. Irizarry, 587 F.3d 464 (1st Cir.2009), reh'g en banc denied,600 F.3d 1 (1st Cir.2010), cert. denied,––– U.S. ––––, 131 S.Ct. 2441, 179 L.Ed.2d 1235 (2011).

The milk industry is heavily regulated in Puerto Rico, and is under the purview of ORIL, a subdivision of the Department of Agriculture. Id. at 467. Before this case began, ORIL set both a maximum price for milk sold to consumers and a minimum

[748 F.3d 16]

price for the processors' purchase of raw milk from the dairy farmers, effectively squeezing the processors' profit margins between the two ends of the market. Id. at 469.

VTM and Suiza are the only private fresh milk processors in Puerto Rico. They purchase “raw milk” from local dairy farmers, convert it to drinkable “fresh milk,” and sell it to consumers. Id. at 468. The only other milk processor is Industria Lechera de Puerto Rico, Inc. (“Indulac”), an entity created by statute to promote the Commonwealth's milk industry. Indulac is currently the only entity authorized to process ultra-high temperature milk (“UHT milk”), a product that does not need to be refrigerated before it is opened. Id. Appellant PRDFA is an organization that represents Puerto Rico's dairy farmers, who sell their milk to all three processing entities. It initially intervened in 2005 in order to support the government defendants.

A. Procedural Background

In 2004, Suiza and VTM brought a constitutional challenge to the then-existing regulatory structure of the milk industry. Id. at 471. Suiza and VTM contended that ORIL's regulatory structure “precluded them from making a reasonable profit in their milk business” and constituted a confiscation of property in violation of the Takings Clause. Id.; seeU.S. Const. amend. V. PRDFA entered the milk litigation in 2005 as a defendant-intervenor alongside ORIL. Indulac also entered the litigation as a defendant-intervenor.

On July 13, 2007, the district court issued a preliminary injunction ordering remedies in favor of Suiza and VTM. Vaquería Tres Monjitas, Inc. v. Laboy, No. 04–1840, 2007 WL 7733665, at *48 (D.P.R. July 13, 2007). That preliminary injunction ordered, among other things, that the Administrator of ORIL develop and implement “nondiscriminatory, rational and scientific regulatory standards that will allow him to determine costs and fair profits return for all the participants in the Puerto Rico regulated milk market.” ¹Id. (emphasis added). In its initial attempt to satisfy this portion of the injunction, ORIL filed Price Order and Regulation No. 12 (“Regulation 12”) with the court on July 23, 2008.

The filing of Regulation 12 started a new chapter. On one track, Suiza and VTM both filed prompt objections to Regulation 12, arguing that it did not constitute full compliance with the preliminary injunction. Those objections led to a series of post-injunction compliance hearings that focused on the substance of ORIL's calculations underlying Regulation 12.

Immediately after ORIL filed Regulation 12 in July 2008, PRDFA also objected to the Regulation, though on different grounds than Suiza and VTM. In doing so it altered its posture and no longer supported ORIL's position. Specifically, PRDFA argued that Regulation 12 was “arbitrary and capricious” in that it forced the dairy farmers to sell their raw milk at an unfairly low price, and that it discriminated against the dairy farmers in favor of other players in the milk industry. In light of Suiza and VTM's then-pending objections, the government asked the district court to stay its consideration of PRDFA's objections.² The district court granted the

[748 F.3d 17]

government's motion and instructed PRDFA to “file their own constitutional claims as to the proposed Regulation No. 12” in a separate case.

As proposed, PRDFA filed a separate complaint as a plaintiff against ORIL in October 2008, alleging that Regulation 12 constituted a violation of its rights under both the Due Process and the Takings Clause. On May 20, 2010, the district court ruled that it would proceed with PRDFA's case only after the original case, this case, was in the permanent injunction phase. PRDFA has amended its complaint twice, adapting its allegations as Regulation 12 was amended following various court actions and committee recommendations. The PRDFA's First Amended Complaint was filed on December 21, 2009 and the second on December 26, 2013. That case, No. 08–2191, remains pending before the district court.

B. Settlement Agreement and Related Events

For several years after ORIL first filed Regulation 12, the parties continued to dispute whether the Regulation complied with the preliminary injunction. The district court held dozens of hearings on the matter, considering a variety of technical regulatory issues, and ultimately rejected a total of nineteen calculation proposals offered by ORIL. At several points, the district court evinced frustration with what it believed were the government's efforts “to evade compliance” with the previously ordered injunctive relief.

In September 2013, the long period of compliance hearings and filings regarding Regulation 12 came to a head. On September 23, the district court issued an Opinion and Order which, among other things, held the government defendants in contempt for continued attempts to evade compliance with the 2007 preliminary injunction. Vaquería Tres Monjitas, Inc. v. Comas, 980 F.Supp.2d 65, 2013 WL 5913114 (D.P.R. Sept. 23, 2013). The Order set a date for a hearing on the matter of a contempt fine and related matters, as well as a date for a Permanent Injunction Hearing. Id. at *54, *56. In a footnote, the court “strongly recommend[ed] that the parties utilize the time between the instant Opinion and Order and the Permanent Injunction Hearing to reach an extrajudicial resolution to the instant controversy.” Id. at *48 n. 35.

At the scheduled contempt hearing on October 28, 2013, counsel for Suiza announced...