Vaqueria Tres Monjitas, Inc. v. Irizarry

• Decision Date: 11 March 2010
• Docket Number: 07-2369.,No. 07-2240,07-2240
• Citation: 600 F.3d 1
• Parties: VAQUERÍA TRES MONJITAS, INC.; Suiza Dairy, Inc., Plaintiffs, Appellees, v. Cyndia E. IRIZARRY, in her official capacity as Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico, Defendant, Appellant, José O. Fabre-Laboy, in his official capacity as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico; Industria Lechera De Puerto Rico, Inc. (INDULAC), Puerto Rico Dairy Farmers Association, Defendants. Vaquería Tres Monjitas, Inc.; Suiza Dairy, Inc., Plaintiffs, Appellees, v. Jaime Rivera-Aquino, in his official capacity as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico; Defendant, Appellant, Industria Lechera De Puerto Rico, Inc. (INDULAC); Puerto Rico Dairy Farmers Association; Cyndia E. Irizarry, in her official capacity as Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico, Defendants.
• Court: U.S. Court of Appeals — First Circuit

600 F.3d 1

VAQUERÍA TRES MONJITAS, INC.; Suiza Dairy, Inc., Plaintiffs, Appellees, v. Cyndia E. IRIZARRY, in her official capacity as Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico, Defendant, Appellant, José O. Fabre-Laboy, in his official capacity as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico; Industria Lechera De Puerto Rico, Inc. (INDULAC), Puerto Rico Dairy Farmers Association, Defendants.

Vaquería Tres Monjitas, Inc.; Suiza Dairy, Inc., Plaintiffs, Appellees, v. Jaime Rivera-Aquino, in his official capacity as Secretary of the Department of Agriculture of the Commonwealth of Puerto Rico; Defendant, Appellant, Industria Lechera De Puerto Rico, Inc. (INDULAC); Puerto Rico Dairy Farmers Association; Cyndia E. Irizarry, in her official capacity as Administrator of the Office of the Milk Industry Regulatory Administration for the Commonwealth of Puerto Rico, Defendants.

Nos. 07-2240, 07-2369.

United States Court of Appeals, First Circuit.

Heard June 5, 2009.

Decided March 11, 2010.

Before LYNCH, Chief Judge, TORRUELLA, BOUDIN, LIPEZ, and HOWARD, Circuit Judges.

ORDER OF COURT

Although "the difference between the type of relief barred by the Eleventh Amendment and that permitted under Ex parte Young will not in many instances be that between day and night," Edelman v. Jordan, 415 U.S. 651, 667, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974), I believe that the panel opinion in this case is eminently correct in holding that the Eleventh Amendment does not bar the relief afforded by the district court. This ruling is correct because it is consistent with well-established precedent that places decisive weight on the impact a judgment has on the state treasury. See Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 49, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994) ("The vast majority of Circuits ... have concluded that the state treasury factor is the most important factor to be considered ... and, in practice, have generally accorded this factor dispositive weight") (first alteration in the original) (internal quotation marks omitted); Libby v. Marshall, 833 F.2d 402, 406 (1st Cir.1987)(stating that "the damage the Eleventh Amendment seeks to forestall is that of the state's fisc being subjected to a judgment for compensatory relief"). In this case the Eleventh Amendment poses no bar to relief because there is simply no impact on the state fisc, at present or in the future.

The petition for rehearing having been denied by the panel of judges who decided the case, and the petition for rehearing en banc having been submitted to the active judges of this court and a majority of the judges not having voted that the case be heard en banc, it is ordered that the petition for rehearing and the petition for rehearing en banc be denied.

TORRUELLA, Circuit Judge (Concurring in the denial of en banc review).

In our November 23, 2009 opinion, we affirmed the district court's grant of a preliminary injunction against the Milk Industry Regulation Administration for the Commonwealth of Puerto Rico ("ORIL" by its Spanish acronym). In its opinion and order, the district court found that Plaintiffs had shown a likelihood of success on the merits of their claim that ORIL put into place an arbitrary and discriminatory regulatory scheme that violated the Due Process, Equal Protection and Takings clauses of the United States Constitution. As part of the preliminary injunction, the district court directed ORIL to adopt a regulatory mechanism to compensate Plaintiffs for the deficient rate of return that was imposed by ORIL's regulatory scheme from the year 2003. In compliance with the district court's injunctive order, ORIL adopted an administrative order which directed that 1.5 cents from the sale of each quart of milk be earmarked for the purpose of complying with the regulatory accrual mechanism. That is, the money used to comply with the district court's injunction would be paid by the consumers of milk in Puerto Rico. ORIL also adopted Regulation No. 12, which established that the monies raised from the sale of milk be deposited in a special account within the Milk Industry Development Fund.¹

The dissent from denial of en banc review argues that the injunction issued by the district court contravenes the strictures of the Eleventh Amendment because it makes the Commonwealth liable for payment of monetary relief. There is no basis in the record for this conclusion. The dissent bases this conclusion on two mistaken assumptions: (1) that the monies raised by the regulatory accrual are public funds and (2) that the Commonwealth is or would be required to expend public funds or resources to compensate Plaintiffs. I write separately to dispel these assumptions and to clarify that the Commonwealth's dignitary and fiscal interests are not implicated in this case as to require this court to conclude that sovereign immunity poses a bar to relief.

The dissent suggests that funds deposited in the Milk Industry Development Fund are considered public funds of the Commonwealth, and that therefore, the monies deposited in the special account should be considered public funds. However, we are dealing in this case with monies paid by consumers of milk which can only be used for the purposes designated by the injunction. There is no indication that the funds deposited in the special account would be or can be commingled with the Commonwealth's general revenues, or with the monies deposited in the Milk Industry Development Fund according to the law. More importantly, the Defendants have not argued on appeal that the monies raised by the regulatory accrual are public in nature. On the basis of the record before us, it is therefore impermissible to suggest, as the dissent does, that the injunction reaches the Commonwealth's funds.

Secondly, there is simply no indication in the record or in the Regulations adopted by ORIL that an eventual judgment ordering disbursal of the monies raised pursuant to the regulatory accrual would be satisfied by public funds or that the Commonwealth's resources would be affected if in due course the Plaintiffs are found entitled to the monies raised by the regulatory accrual.²Neither the Commonwealth nor ORIL have been adjudged responsible for contributing funds to the special account, and the contributions made to the account are kept separate from the Commonwealth's general revenues and from the Milk Industry Development Fund's monies. Thus, the revenues raised by the regulatory accrual are special funds that do not make the Commonwealth the real party in interest for Eleventh Amendment purposes. See Hudson v. City of New Orleans, 174 F.3d 677, 689 (5th Cir.1999) (reasoning that, for Eleventh Amendment purposes, the fact that an entity receives state funds which are earmarked for specific or special purposes counsels against finding that the state would be responsible for the entity's debts and obligations); Brown v. Porcher, 660 F.2d 1001, 1006-07 (4th Cir.1981) (holding that the Eleventh Amendment posed no bar to compensation payable from South Carolina's unemployment compensation fund which was a special fund "insulated" from public monies and separately financed). Cf. Austin v. Berryman, 862 F.2d 1050, 1056 (4th Cir. 1988) (holding that the Eleventh Amendment barred monetary relief against Virginia's unemployment compensation fund which was "integrated" into the state's treasury).

The fact that the special account was created within the Milk Industry Development Fund is insufficient to conclude that the Commonwealth would be required to expend state funds to comply with the injunction. The Commonwealth simply has not been required to appropriate its funds to comply with the regulatory accrual, and given that the funds deposited in the special account are earmarked to comply with the regulatory mechanism, there is no basis to conclude that a final judgment in favor of Plaintiffs would amount to a judgment against the Commonwealth.³

The dissent rightly cautions that the analysis of an entity's entitlement to sovereign immunity should not be transformed into a formalistic inquiry. However, the dissent mistakenly criticizes the panel for engaging in this type of inquiry. Far from adopting a formalistic approach towards Eleventh Amendment analysis, the panel's decision considers, from a practical perspective, the Commonwealth's immediate and ultimate liability and holds that sovereign immunity poses no bar to the relief ordered by the district court, precisely because the Commonwealth was not adjudged liable for payment of a monetary judgment, or held in any fashion subsidiarily responsible for providing the funds that nurture the special account.

Likewise, the dissent errs in asserting that the panel's decision is inconsistent with the Supreme Court's decision in Regents of the University of California v. Doe, 519 U.S. 425, 117 S.Ct. 900, 137 L.Ed.2d 55 (1997). In Doe, the Supreme Court held that the Eleventh Amendment barred a claim for monetary relief against the State of California, even though the damages would be paid by a third party. For Eleventh Amendment purposes, the Supreme Court found it irrelevant that the State of California had been relieved of its obligation to pay a judgment because a third party would cover the state's liability. In Doe, the State of California assumed an obligation upon a finding of liability. In contrast, the district court has never adjudged the Commonwealth liable for monetary relief in this case. Thus, while the Supreme Court clarified in Doe that the state's potential legal liability was the relevant factor in the Eleventh Amendment question regardless of the possibility of third-party indemnification, in this case the Commonwealth has not been held legally or potentially liable for compensatory damages. That is, the consumers of milk in Puerto Rico are not relieving the...