Starlight Sugar Inc. v. Soto

• Decision Date: 21 December 1995
• Docket Number: Civil No. 95-2078.
• Citation: 909 F. Supp. 853
• Parties: STARLIGHT SUGAR INC., Pan American Grain Mfg. Co., Inc., Plaintiffs, v. Neftali SOTO, individually and as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico, Defendant.
• Court: U.S. District Court — District of Puerto Rico

909 F. Supp. 853

STARLIGHT SUGAR INC., Pan American Grain Mfg. Co., Inc., Plaintiffs, v. Neftali SOTO, individually and as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico, Defendant.

Civil No. 95-2078.

United States District Court, D. Puerto Rico.

December 21, 1995.

COPYRIGHT MATERIAL OMITTED

Antonio Moreda, San Juan, P.R., Marcos A. Ramírez, Old San Juan, P.R., for Plaintiffs.

Anita Hill-Adames, Federal Litigation Division, Dept. of Justice, San Juan, P.R., for Defendant.

OPINION AND ORDER

PEREZ-GIMENEZ, District Judge.

Through the random operation of our district's case assignment system, this is the second time in seven years that this Court has presided over a constitutional challenge to Puerto Rico's government-operated sugar industry. See Garcia v. Bauzá Salas, 686 F.Supp. 965 (D.P.R.), rev'd on other grounds, 862 F.2d 905 (1st Cir.1988).¹ In Bauzá Salas, the Court found that the Puerto Rico Department of Agriculture's ("the Department's") Market Regulation 13, which limits the importation of sugar to Puerto Rico, violated the Commerce Clause "in its dormant state," Art. I, § 8, cl. 3, of the United States Constitution. Id. at 973.

The same regulation is challenged in this case, and the Court reaches the same conclusion it did seven years ago. Regulation 13 imposes unconstitutional restrictions on inter-state commerce. Moreover, Regulation 13 is not rationally related to a legitimate government objective and, therefore, violates the equal protection guarantees of the Fourteenth Amendment. Accordingly, plaintiff's request for injunctive relief from the Secretary's enforcement of Regulation 13 is GRANTED.

I. Background

Like cotton in the southern United States, sugar occupies a unique place in the cultural and economic history of Puerto Rico. From the late 1800s through the 1940s, sugar cane was far and away the most important agricultural commodity produced on the Island. Raymond Carr, Puerto Rico: A Colonial Experiment 222. The industry's political influence was even greater, as "King Sugar" exerted a disproportionate influence on the United States' early governance of Puerto Rico. Arturo Morales Carrión, Puerto Rico: A Political and Cultural History 137-38, 174. Further, much of the Island's rural heritage is closely linked to life in the sugar cane fields.

For the past forty years, however, the sugar industry has been in a continual state of decline.² By the early 1970s, private industry had abandoned sugar production in Puerto Rico altogether because it was no longer profitable. Bauzá Salas, 686 F.Supp. at 974 (appendix). In 1973, the Commonwealth government established the Sugar Corporation of Puerto Rico to fill the void left by the flight of private industry.³

Despite the Puerto Rico government's direct subsidization of the industry, sugar cane production on the island has continued to decline. In 1973, approximately 150,000 acres of land were devoted to sugar production, and 12 to 14 sugar mills were in operation on the island. Transcript at 162 (Vélez Ramos Testimony); see also footnote 2. By 1988, only 50,000 acres were devoted to sugar production. Bauzá Salas, 686 F.Supp. at 974. This figure has declined to 25,000 acres today, with only three mills remaining in operation. Further, whereas the industry employed some 14,000 workers in 1988, it now only employs between 8,000-10,000 persons.⁴ Transcript at 163-66 (Vélez Ramos Testimony).

This history provides the context for the Department's amendment in 1984 of Regulation 13. See Bauzá Salas, 686 F.Supp. at 966, 972-73. The amended regulation restricts the importation of refined sugar by prohibiting the repackaging of bulk shipments into two and five pound bags (hereafter referred to as "table sugar") for subsequent direct sale to Puerto Rico's consumers. Specifically, section 6 of Market Regulation 13 provides, in pertinent part:

A. Refined sugar to be imported in Puerto Rico shall come in consumer size packages inside the corresponding shipping containers. For the purposes of this Regulation a consumer size package is that one whose net content does not exceed five (5) pounds.

B. . . . Imported refined sugar for industrial use shall not be repacked in consumer-size packages for direct sales to the consumers.

Regulation 13 is, concededly, not an absolute prohibition on the importation of table sugar. Theoretically, sugar could still be imported pre-packed in two and five pound bags. However, such importation is not economically feasible. Transcript at 233-36 (López Gómez Testimony). Also, bulk raw sugar could be imported for subsequent refinement. However, the Sugar Corporation owns and operates the only sugar refinery in Puerto Rico, and economic considerations make it unlikely that a new refinery could be built to process imported raw sugar. As the Acting Executive Director of the Sugar Corporation admitted, Regulation 13 effectively prohibits the importation of table sugar to the Island. Transcript at 142 (Vélez Ramos Testimony).

The events precipitating the instant challenge occurred in the fall of 1994, when the government forecasted an impending shortage of Puerto Rico-produced sugar. The Department solicited bids from private industry to help make-up the deficit. Transcript at 240-42 (Defendant Soto's Testimony). The subsequent events are disputed by the parties, but are frankly not germane to the question before the Court. Suffice it to say that co-plaintiff Pan American Grain imported approximately 80 thousand pounds of sugar so that its wholly-owned subsidiary, co-plaintiff Starlight Sugar, could repackage it for consumer sales. The government emphatically denies ever seriously considering granting plaintiffs a waiver to Regulation 13. Id.

After media coverage of plaintiffs' intention to sell table sugar to grocery stores on the Island, the Department issued an administrative detention order, pursuant to Regulation 13, prohibiting plaintiffs from doing so. Plaintiffs subsequently initiated this litigation. They seek declaratory and injunctive relief, asserting the constitutional invalidity of Regulation 13. In addition to the Commerce Clause challenge, plaintiffs allege that the Regulation violates the Equal Protection clause of the U.S. Constitution.⁵ From September 27, 1995 until October 10, 1995, the Court held a hearing to consider the plaintiffs' contention that Regulation 13 should be declared invalid, and that continued enforcement of it should be enjoined.

II. Jurisdictional Prerequisites

The Court has jurisdiction over the subject matter of this action under 28 U.S.C. § 1331 and § 1343. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b). Plaintiffs seek relief under 42 U.S.C. § 1983 and 28 U.S.C. § 2201 and § 2202.

In passing, the Court notes that a large portion of plaintiffs' brief is devoted to arguing why the Court should not abstain from deciding this case. Plaintiff undoubtedly anticipated that the Secretary would urge abstention. However, he has not done so. (The Court ordered simultaneous briefings so the parties had to anticipate each other's arguments.) Therefore, there is no reason on the record why the Court should abstain from considering and resolving the issues before it.

III. Discussion

The standard for granting a preliminary injunction is well-known. A district court must undertake a four-part analysis that takes into account the following considerations: (1) the movant's likelihood of success on the merits, (2) the potential for irreparable injury, (3) a balancing of the relevant equities, and (4) the effect on the public interest. Sunshine Development, Inc. v. F.D.I.C., 33 F.3d 106, 110 (1st Cir.1994). Of these four factors, the probability-of-success component is regarded by the First Circuit "as critical in determining the propriety of injunctive relief." Lancor v. Lebanon Housing Authority, 760 F.2d 361, 362 (1985).

a. Likelihood of Success on the Merits⁶

1. The Commerce Clause Challenge

i. Governing Law

Supreme Court doctrine holds that the negative implications of Congress' power to regulate interstate commerce under the Commerce Clause implicitly limits the power of the states. West Lynn Creamery, Inc. v. Healy, ___ U.S. ___, 114 S.Ct. 2205, 2211, 129 L.Ed.2d 157 (1994). The Court has characterized its dormant commerce clause jurisprudence as follows:

This "negative" aspect of the Commerce Clause prohibits economic protectionism — that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.... Thus, state statutes that clearly discriminate against interstate commerce are routinely struck down ... unless the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism.

West Lynn Creamery, Inc., at ___, 114 S.Ct. at 2211 (quoting New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273-74, 108 S.Ct. 1803, 1807-08, 100 L.Ed.2d 302 (1988)). The constraints of the dormant Commerce Clause apply equally to Puerto Rico. Trailer Marine Transport Corp. v. Rivera Vázquez, 977 F.2d 1, 8 (1st Cir.1992) (noting that "full economic integration is as important to Puerto Rico as to any state in the Union") (emphasis added).

The Court has adopted a "two-tiered approach to analyzing state economic regulation under the Commerce Clause." Healy v. Beer Institute, 491 U.S. 324, 337 n. 14, 109 S.Ct. 2491, 2500 n. 14, 105 L.Ed.2d 275 (1989). Under this approach, courts must first determine if a state's regulation discriminates on its face by giving economic protection to in-state entities at the expense of out-of-state entities. If so, the statute is deemed per se invalid, justifiable only by a compelling state interest. City of Philadelphia v. New Jersey, 437 U.S. 617, 623-24, 98 S.Ct. 2531, 2535, 57 L.Ed.2d 475 (1978).

If the statute is not facially discriminatory, the Court will proceed to the second tier and balance the incidental burdens imposed on interstate...