Texaco Puerto Rico, Inc. v. Ocasio Rodriguez

• Decision Date: 03 October 1990
• Docket Number: 89-1143 (JAF) and 89-1144 (JAF).,Civ. No. 89-1142 (JAF)
• Parties: TEXACO PUERTO RICO, INC.; Shell Company (Puerto Rico) Limited, and Esso Standard Oil Co. (PR), Plaintiffs, v. Jorge OCASIO RODRIGUEZ, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

749 F. Supp. 348

TEXACO PUERTO RICO, INC.; Shell Company (Puerto Rico) Limited, and Esso Standard Oil Co. (PR), Plaintiffs, v. Jorge OCASIO RODRIGUEZ, et al., Defendants.

Civ. Nos. 89-1142 (JAF), 89-1143 (JAF) and 89-1144 (JAF).

United States District Court, D. Puerto Rico.

October 3, 1990.

COPYRIGHT MATERIAL OMITTED

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William Estrella, San Juan, P.R., for Texaco.

Samuel T. Céspedes, McConnell Valdes Kelley Sifre Griggs & Ruiz-Suria, San Juan, P.R., for Shell.

Jaime Sifre, Sanchez-Betances & Sifre, San Juan, P.R., for Esso.

Jorge Pérez-Diaz, Sol. Gen., Com. of Puerto Rico, San Juan, P.R., Lynn R. Coleman, Mathew W.S. Estes, Washington, D.C., for defendants.

OPINION AND ORDER

FUSTE, District Judge.

The plaintiffs in these consolidated cases are three corporations engaged in the gasoline wholesaling business in Puerto Rico. They brought this suit pursuant to 42 U.S.C. section 1983 contesting the regulation of wholesale gasoline prices by Puerto Rico's Department of Consumer Affairs ("DACO"). The case is submitted on crossmotions for summary judgment. We dispose of all pending motions herein.¹

I. General Background

A. Prior Litigation

This action is but the latest episode in an ongoing saga matching gasoline wholesalers in Puerto Rico against DACO. We presently revisit only the highlights of prior installments. Anyone thirsting for the unabridged version of this drama is referred to the following related decisions: 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); 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 (TECA 1986); Isla Petroleum Corp. v. Dept. of Consumer Affairs, 640 F.Supp. 474 (D.P. R.1986).

From 1973 to 1981, gasoline prices in the United States and in Puerto Rico were regulated by the federal government. Due to the active federal role, Puerto Rico and the States were preempted from adopting their own price controls. The federal price controls took the form of a limitation on the "gross profit margin" obtained from gasoline sales. "Gross profit margin" refers to the difference between a seller's sales price and the seller's "acquisition cost." "Acquisition cost" under the federal scheme included the price the seller paid for gasoline plus excise taxes, but did not include the seller's transportation costs and other operating costs. At the time gasoline prices were deregulated in 1981, the wholesale gross profit margin set by the federal government was 8.6 cents per gallon.

Although given authority to act under Puerto Rico law, DACO did not immediately step in when the federal government got out of the price setting business in 1981.² Instead, from 1981 through 1985, DACO and the wholesalers informally agreed that gross margins could stay within levels formerly existing under federal law. This state of affairs prevailed until the first quarter of 1986, at which time the wholesalers, taking advantage of a drop in world oil prices, managed to achieve gross profit margins greater than 8.6 cents. In March 1986, concluding that gasoline prices on the island were too high, the Puerto Rico Legislature increased an already existing excise tax on gasoline in order to recoup part of the oil companies' "excessive profits." At the same time, DACO issued a series of orders pursuant to its power under Price Regulation 45 forbidding wholesalers from passing the new tax through to retailers and freezing wholesale and retail prices at their March 31, 1986 levels.

These orders were resisted by most if not all wholesalers, sparking various administrative skirmishes. By May 1986 these skirmishes escalated into war when world oil prices increased and the wholesalers, their prices frozen, were forced to sell gasoline below acquisition cost. Eight wholesalers filed complaints in federal district court in Puerto Rico seeking relief from DACO's regulations, which they claimed violated the due process and takings clauses of the federal constitution, as well as local law. This court consolidated the eight actions and immediately scheduled a hearing.

On May 20, 1986, just before trial, DACO revised its previous regulations by issuing an entirely new order. This order divided gasoline wholesalers into two groups, established an 8.6 cent per gallon profit margin for one group and a 3.6 cent margin for the other, allowed members of the 3.6 cent group to petition for special relief, and required DACO's Secretary to grant a hearing within five days of such a petition.³ At the pretrial conference, this court deemed the complaints amended so that the focus of plaintiffs' attack now fell on the new order. After a three-day trial on the merits, the court: (1) rejected DACO's contention that it should abstain from adjudicating plaintiffs' claims; (2) held that the price regulations adopted in the new order were violative of the due process and takings clauses of the United States Constitution; and (3) held that DACO's regulation was preempted by a federal policy favoring deregulation of gasoline prices. See Isla Petroleum Corp. v. Department of Consumer Affairs, 640 F.Supp. 474 (D.P.R. 1986). In accordance with the above, the court issued a permanent injunction invalidating DACO's gasoline price regulations.

A dicotyledon appellate process followed, with one stalk shooting up to the Temporary Emergency Court of Appeals ("TECA") and another to the First Circuit. The appeal to TECA concerned only the question of whether a federal policy favoring deregulation preempted DACO's power to regulate gasoline prices. TECA affirmed that it did in Isla Petroleum Corp. v. Puerto Rico Dep't of Consumer Affairs, 811 F.2d 1511 (TECA 1986). On certiorari, however, the Supreme Court reversed both TECA and the district court, unanimously holding that Puerto Rico's authority to control gasoline prices was not preempted by any federal policy. Puerto Rico Department of Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495, 108 S.Ct. 1350, 99 L.Ed.2d 582 (1988).

At this point the First Circuit, which had stayed its hand until the Supreme Court disposed of the preemption question, entertained DACO's appeal of the due process and takings clause issues. In Tenoco Oil Co. v. Dept. of Consumer Affairs, 876 F.2d 1013 (1st Cir.1989), the circuit's first step was to disentangle what it found to be this court's improper amalgamation of substantive due process and takings clause analyses. Id. at 1020-21. Under the substantive due process heading the court limited its analysis to whether the establishment of maximum gross profit margins for gasoline was rationally related to a legitimate governmental objective. Id. at 1021, citing Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940 (1934). The court concluded that the May 20 order met this standard, finding, first, that it is "beyond dispute that Puerto Rico may legitimately regulate the prices of staples like gasoline," and, second, that DACO's method of regulation — using maximum gross profit margins — was rationally related to this end. Id. at 1022. Thus, the court "perceived no due process problem." Id. at 1021.

The court then turned to the adequacy and fairness of the 3.6 and 8.6 cent margins imposed by DACO, addressing this issue under the rubric of takings clause analysis.⁴ Under this analysis, the court observed, "plaintiffs may not constitutionally be subjected to controls which depress the prices they may charge below just and reasonable levels, at least in the absence of an adequate remedy under Puerto Rico law to secure to them just compensation for the `taking' which such a regulation would impose." Id. at 1023, citing Duquesne Light Co. v. Barasch, 488 U.S. 299, 109 S.Ct. 609, 615-16, 102 L.Ed.2d 646 (1989). The First Circuit did not apply this standard to the case before it, however, noting that a takings claim "is not ripe until the government entity charged with implementing the regulations has reached a final decision regarding the application of the regulations to the property at issue." Id. at 1024, quoting Williamson Planning Commission v. Hamilton Bank, 473 U.S. 172, 186, 105 S.Ct. 3108, 3116, 87 L.Ed.2d 126 (1985). Because the disputed order, which was entitled "Temporary Order," expressly contemplated further administrative adjustments and review procedures, and because the court found that "DACO had not yet definitively limited plaintiffs to a specified gross profit margin," Id. at 1026, the First Circuit held that judicial intervention was premature — "that given the opportunity for almost immediate administrative review, the May 20, 1986 price order did not yet amount to a taking and was not yet ripe for constitutional adjudication." Id. at 1028. Thus, the injunction invalidating the price order was vacated and the controversy brought to a close — for the time being.

B. Post-Tenoco Developments: The Present Controversy

1. The "Interim Order"

Shortly after Tenoco was handed down, DACO again set about stoking the regulatory furnace. On June 27, 1989, DACO issued an "Interim Order," effective immediately, whereby gasoline wholesalers were limited to an 11 cent gross profit margin over their acquisition costs. (This time "acquisition cost" was defined as the price paid to the supplier plus applicable excise taxes and transportation costs.) The Interim Order also announced that DACO would conduct a rulemaking proceeding on August 7 to consider (a) whether it should continue to regulate gasoline prices; (b) what form that regulation should take; and (c) whether it should require wholesalers to refund amounts charged in excess of DACO's previous regulations for a time period beginning January 1, 1986. DACO further stated that wholesalers disadvantaged by the Interim Order could petition for special relief from the established price margins. The Interim Order did not,...