-
USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
_________________________
No. 94-2076
TEXACO PUERTO RICO, INC., ET AL.,
Plaintiffs, Appellees,
v.
DEPARTMENT OF CONSUMER AFFAIRS, ET AL.,
Defendants, Appellants.
__________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jose Antonio Fuste, U.S. District Judge] ___________________
__________________________
Before
Selya, Circuit Judge, _____________
Coffin, Senior Circuit Judge, ____________________
and Cyr, Circuit Judge. _____________
__________________________
Lynn R. Coleman, with whom Pedro R. Pierluisi, Secretary of ________________ __________________
Justice, Roberto Ruiz Comas, Director, Federal Litigation _____________________
Division, Dep't of Justice, Richard L. Brusca, Matthew W.S. ___________________ _____________
Estes, Laura A. Ingraham, and Skadden, Arps, Slate, Meagher & _____ _________________ _________________________________
Flom were on brief, for appellants. ____
Alan M. Grimaldi, with whom Jerrold J. Ganzfried, Patricia _________________ _____________________ ________
G. Butler, Howrey & Simon, William Estrella, and Ricks P. Frazier _________ ______________ ________________ ________________
were on brief, for appellee Texaco Puerto Rico, Inc.
Donald B. Craven, with whom James P. Tuite, Anthony F. _________________ ________________ ___________
Shelley, James R. Lovelace, Alvaro I. Anillo, Miller & Chevalier, _______ _________________ ________________ ___________________
Chtd, Luis Sanchez Betances, Jaime Sifre Rodriguez, Miguel P. ____ ______________________ ______________________ _________
Cancio Bigas, and Sanchez Betances & Sifre were on brief, for ____________ _________________________
appellee Esso Standard Oil Co. (P.R.).
Ana Matilde Nin, with whom Rafael Perez-Bachs, Gilberto J. ________________ ___________________ ___________
Marxuach-Torros, and McConnell Valdes were on brief, for appellee _______________ ________________
Shell Co. (P.R.) Ltd.
_________________________
July 19, 1995
_________________________
SELYA, Circuit Judge. In 1986, the Puerto Rico SELYA, Circuit Judge. ______________
Department of Consumer Affairs (DACO) took a small, tentative
step toward regulating the profit margins of gasoline
wholesalers. The wholesalers treated this move as a declaration
of war. They mounted a courtroom counteroffensive and succeeded
in obtaining an injunction against the enforcement of DACO's
embryonic regulation. Following a series of pitched battles that
stretched from San Juan to Boston to the banks of the Potomac and
back again, DACO emerged victorious.
Long after the injunction had been vacated, DACO
purposed to exact tribute from the vanquished. Specifically, it
sought restitution from the wholesalers based on the "excess"
profits that they allegedly earned while shielded by the
injunction. The district court declined to grant the envisioned
spoils. We affirm.
I. BACKGROUND I. BACKGROUND
This is presumably the final skirmish in a decade-long
conflict. Other jousts are chronicled in a series of published
opinions. See, e.g., Puerto Rico Dep't of Consumer Affairs v. ___ ____ _______________________________________
Isla Petroleum Corp., 485 U.S. 495 (1988) (Isla III); 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 (Temp. Emer. Ct. App. 1986) (Isla II); _______ ________
Texaco Puerto Rico, Inc. v. Mojica Maldonado, 862 F. Supp. 692 _________________________ ________________
(D.P.R. 1994) (TPR II); Texaco Puerto Rico, Inc. v. Ocasio _______ ___________________________ ______
Rodriguez, 749 F. Supp. 348 (D.P.R. 1990) (TPR I); Isla Petroleum _________ _____ ______________
2
Corp. v. Department of Consumer Affairs, 640 F. Supp. 474 (D.P.R. _____ ______________________________
1986) (Isla I). Given the detail contained in these earlier ______
opinions, we believe that a condensed summary of the hostilities
will suffice for the nonce.
From 1973 forward, the federal government imposed price
controls on the sale of petroleum and petroleum products. See 15 ___
U.S.C. 751-760h (as amended). At the time federal controls
ended in early 1981, the regulatory scheme limited wholesalers'
gross profit margins (GPMs) on the sale of gasoline to 8.6 cents
per gallon.1 See Tenoco, 876 F.2d at 1015 (recounting history ___ ______
of federal regulatory policy). Although bureaucrats are reputed
to abhor a vacuum, DACO an arm of Puerto Rico's government
empowered by local law to regulate prices and profit margins in
order to protect consumers, see P.R. Laws Ann. tit. 3, 341b ___
(1982) did not immediately impose its own controls.
By 1985, the GPMs of gasoline wholesalers in Puerto
Rico ranged from 6.9 to 16.76 per gallon. In early 1986, world
oil prices plummeted but the price of gasoline in Puerto Rico
(both wholesale and retail) failed to follow suit. The Puerto
Rico legislature, ostensibly concerned that the oil companies
were taking unfair advantage, imposed an excise tax on crude oil
and refined petroleum products. In connection with the new tax,
DACO promulgated an administrative order under date of April 23,
____________________
1A GPM represents the difference between the sales price and
the seller's acquisition cost. The latter cost includes the
price of the gasoline plus excise taxes, but excludes operating
costs. See Tenoco, 876 F.2d at 1015. ___ ______
3
1986. The order prohibited wholesalers from passing the tax
through to retailers. It also froze wholesale and retail
gasoline prices at their March 31, 1986 levels.
When, thereafter, world oil prices soared, the price
freeze forced several wholesalers to sell gasoline at prices
below their acquisition costs. Since large oil companies are not
in business to lose money, a coterie of wholesalers (including
the trio that appear as appellees here) wasted little time in
asking the federal district court to enjoin enforcement of the
April 23 order. Moving with equal celerity, the district court
scheduled a trial on the merits for May 21, 1986. See Fed. R. ___
Civ. P. 65(a)(2) (authorizing the district court to "order the
trial on the merits to be advanced and consolidated with the
hearing on the application [for preliminary injunction]"). On
May 20, DACO reshuffled the cards; it rescinded the price freeze
and issued what it called a "temporary" order that harked back to
the former, federally inspired ceiling and established, in lieu
of the thawed freeze, maximum GPMs of 8.6 per gallon for
petroleum wholesalers. The May 20 order also scheduled a public
hearing for June 2 to "receive comments from all interested
persons on the adequacy of this Temporary Order and on any
modifications that should be made to attain a situation where
primary reliance can be placed on competitive market forces to
maintain fair margins at all levels of distribution and fair
prices for the consumer."
This maneuver did not derail the litigation. The
4
district court merely switched tracks, trained its sights on the
May 20 edict, and went forward with a three-day bench trial. On
June 4 roughly ten days after the trial ended the court
enjoined enforcement of the May 20 order on federal preemption
and other constitutional grounds. See Isla I, 640 F. Supp. at ___ ______
515.
DACO appealed the preemption ruling to the Temporary
Emergency Court of Appeals (TECA), see 15 U.S.C. 754(a)(1) ___
(granting TECA exclusive jurisdiction over claims arising
directly under the Emergency Petroleum Allocation Act of 1973),
and appealed the remaining rulings (e.g., the invalidation of the ____
order on due process and takings grounds) to this court. We
stayed proceedings pending consideration of the preemption
ruling. TECA affirmed that ruling, see Isla II, 811 F.2d at ___ ________
1519, but the Justices reversed, holding that federal law did not
forbid state regulation of gasoline prices. See Isla III, 485 ___ ________
U.S. at 499-501. This court then took up DACO's concurrent
appeal and vacated the district court's injunction as premature.
See Tenoco, 876 F.2d at 1024. ___ ______
On June 27, 1989 (the day after we issued our mandate
incinerating the district court's injunction), DACO promulgated
an interim order establishing a maximum GPM of 11 per gallon,
effective forthwith. Its final order, issued on November 30,
1989, adopted a ceiling of 13 per gallon. That order withstood
a vigorous constitutional challenge by the wholesalers. See TPR ___ ___
I, 749 F. Supp. 348. _
5
An ensuing period of unaccustomed tranquility ended
abruptly in mid-1992 when DACO again took up the cudgels. It
issued a so-called remedial order in which it sought to recoup
almost $250,000,000 in profits exceeding an 8.6 per gallon GPM
that it estimated three wholesalers Texaco Puerto Rico, Inc.,
Esso Standard Oil Co. (P.R.), and the Shell Company (Puerto Rico)
Ltd. (appellees here) had earned during the three-year life
(June 1986 to June 1989) of the errant injunction.2 The
wholesalers quickly repaired to the district court and requested
protection from the remedial order. Before the court could act,
DACO issued a revised remedial order. Under its terms, a
wholesaler could choose between paying a refund based on a
retrospective GPM of 13 per gallon for the injunction period or
paying one based on whatever profit margin would have allowed it
to achieve an annual return on assets equal to the average return
on assets for the electric utility industry, plus one percent,
during the same period.
The wholesalers were not mollified. They challenged
the revised remedial order and, on April 1, 1993, DACO rescinded
it. This hasty retreat did not restore the peace, for the agency
simply attacked on a different front. It revivified the court
action originally instituted by the oil companies and filed a
motion for restitution seeking an award equal to the excess
profits that the wholesalers would have been forced to disgorge
____________________
2We refer to the three oil companies collectively as "the
wholesalers," and individually as "Texaco," "Esso," and "Shell."
6
but for the pendency of the improvidently issued injunction.
Following a tumultuous period of discovery, see, e.g., infra Part ___ ____ _____
III (discussing certain disputed discovery rulings), and a three-
week bench trial, the court denied the motion for restitution on
September 9, 1994. SeeTPR II, 862F. Supp.at 709. DACO nowappeals. _________
II. THE MERITS II. THE MERITS
Our analysis of the merits is partitioned into four
segments. We discuss the nature of restitution, parse the
decision below, limn the standard of review, and, finally,
examine the record to determine whether the denial of restitution
can be upheld.
A. The Nature of Restitution. A. The Nature of Restitution. _________________________
In its motion, DACO sought restitution based upon the
hoary adage "that a party against whom an erroneous judgment or
decree has been carried into effect is entitled, in the event of
a reversal, to be restored by his adversary to that which he has
lost thereby." Arkadelphia Milling Co. v. St. Louis S.W. Ry. ________________________ ____________________
Co., 249 U.S. 134, 145 (1919). We agree with this tenet, but ___
caution that it tells only half the tale. Restitution is not a
matter of right, but a matter of sound equitable discretion. See ___
Atlantic Coast Line R.R. Co. v. Florida, 295 U.S. 301, 310 _______________________________ _______
(1935); Democratic Central Comm. v. Washington Metro. Area __________________________ ________________________
Transit Comm'n, 485 F.2d 786, 825 (D.C. Cir. 1973); Restatement ______________
of Restitution 142, cmt. a, at 568 (1937). Because restitution
is a creature of equity, a claimant can prevail only by showing
that it will offend "equity and good conscience" if the other
7
party is permitted to retain the disputed funds. Atlantic Coast ______________
Line, 295 U.S. at 309. Put another way, restitution is a remedy ____
ex gratia that a court will withhold when "the justice of the __ ______
case does not call for it . . . ." Id. at 310; accord Williams ___ ______ ________
v. Washington Metro. Area Transit Comm'n, 415 F.2d 922, 941-47 ______________________________________
(D.C. Cir. 1968), cert. denied, 393 U.S. 1081 (1969). _____ ______
This emphasis on the particulars of each individual
case is consistent with the central feature of equity
jurisdiction: "the ability to assess all relevant facts and
circumstances and tailor appropriate relief on a case by case
basis." Rosario-Torres v. Hernandez-Colon, 889 F.2d 314, 321 ______________ _______________
(1st Cir. 1989) (en banc); see also Hecht Co. v. Bowles, 321 U.S. ___ ____ _________ ______
321, 329 (1944) ("The essence of equity jurisdiction has been the
power . . . to mould each decree to the necessities of the
particular case."); Lussier v. Runyon, 50 F.3d 1103, 1110 (1st _______ ______
Cir. 1995) (stating that "the hallmarks of equity have long been
flexibility and particularity"), petition for cert. filed (U.S. ________ ___ _____ _____
June 5, 1995) (No. 94-1979).
Claims for restitution arising out of the vacation or
reversal of a judgment are tested by the same standards as other
claims for restitution. See Atlantic Coast Line, 295 U.S.at 310; ___ ___________________
see also Restatement, supra, 74, at 302-03 ("A person who has ___ ____ _____
conferred a benefit upon another in compliance with a judgment,
or whose property has been taken thereunder, is entitled to
restitution if the judgment is reversed or set aside, unless
restitution would be inequitable . . . ."). This approach
8
obtains in respect to both public and private actions, and, thus,
applies when, as now, a restitutionary claim arises out of an
errant injunction barring enforcement of a governmental
regulation. See, e.g., Arkadelphia, 249 U.S. at 145 (ordering ___ ____ ___________
restitution by a regulated company that charged more during an
injunction period than the rate ultimately deemed lawful);
Williams, 415 F.2d at 941-47 (similar); see also United States v. ________ ___ ____ _____________
Morgan, 307 U.S. 183, 197-98 (1939). ______
B. The Decision Below. B. The Decision Below. __________________
The district court predicated its denial of DACO's
motion for restitution on alternative grounds. In the first
place, the court determined that there was no benefit to be
restored as the wholesalers had not profited from the injunction.
See TPR II, 862 F. Supp. at 705-06. This determination rested ___ ______
upon a finding that DACO failed to show that it would have
regulated wholesalers' GPMs during the relevant period but for
the improvidently issued injunction. See id. at 702-06. In the ___ ___
second place, the court determined that, even assuming that the
injunction conferred an economic benefit, "the balance of
equities" did not require "a disgorgement of profits earned six
to eight years ago." Id. at 706. ___
This latter determination rested upon an analysis of
five equitable factors. First, based on evidence regarding the
competitiveness of the gasoline market and earnings in other
industries, the court found that the wholesalers "did not benefit
disproportionately from the lack of regulation." Id. at 707. ___
9
Next, the court found DACO guilty of "unreasonable delay" in
seeking restitution. Id. Third, the court concluded that DACO ___
exhibited bad faith with regard to Texaco, Esso, and Shell. See ___
id. Fourth, the court determined that DACO's actions during the ___
injunction period had lulled the wholesalers into believing that
DACO would not demand restitution. See id. at 708. Finally, the ___ ___
court thought that the public interest did not favor a
restitutionary order. See id. ___ ___
C. Standard of Review. C. Standard of Review. __________________
Appellate review often calls into play a blend of
rules. So it is here. We review the factual findings that
undergird the trial court's ultimate determination only for clear
error. See Lussier, 50 F.3d at 1111; Reilly v. United States, ___ _______ ______ ______________
863 F.2d 149, 163 (1st Cir. 1988). In contrast, the trial
court's articulation and application of legal principles is
scrutinized de novo. See Cumpiano v. Banco Santander P.R., 902 __ ____ ___ ________ _____________________
F.2d 148, 152 (1st Cir. 1990). Thus, "to the extent that
findings of fact can be shown to have been predicated upon, or
induced by, errors of law, they will be accorded diminished
respect on appeal." Dedham Water Co. v. Cumberland Farms Dairy, ________________ _______________________
Inc., 972 F.2d 453, 457 (1st Cir. 1992). ____
The main event evokes a different criterion. We review
a district court's ultimate decision to grant or withhold an
equitable remedy for abuse of discretion. See, e.g., Lussier, 50 ___ ____ _______
F.3d at 1111; Rosario-Torres, 889 F.2d at 323. Overall, the ______________
abuse-of-discretion standard is deferential, see, e.g., Dopp v. ___ ____ ____
10
Pritzker, 38 F.3d 1239, 1253 (1st Cir. 1994), and "not appellant- ________
friendly," Lussier, 50 F.3d at 1111. The solicitude extended by _______
a reviewing court takes into account that the trial judge, "who
has had first-hand exposure to the litigants and the evidence, is
in a considerably better position to bring the scales into
balance than an appellate tribunal." Rosario-Torres, 889 F.2d at ______________
323. For this reason, the court of appeals ordinarily will not
find an abuse of discretion unless perscrutation of the record
provides strong evidence that the trial judge indulged a serious
lapse in judgment. See id. ___ ___
We inspect the voluminous record with these precepts in
mind to ascertain whether the denial of DACO's motion for
restitution is sustainable.
D. Discussion. D. Discussion. __________
The court below began with the question of benefit, and
treated that question as a discrete inquiry. See TPR II, 862 F. ___ _______
Supp. at 700. But this approach tends to put the cart before the
horse. A court mulling a restitutionary remedy must almost
always perform an equitable assay. Rather than isolating the
question of whether the targeted party received a benefit (and if
so, the likely extent thereof), we think it is preferable in the
first instance to incorporate that question into the assay
proper, unless, of course, the state of the evidence is such that
the court can conclude with minimal effort that no benefit has
been received. If, however, the factual situation is more cloudy
and speculative, it ordinarily will prove a more fruitful use of
11
judicial energies to fold the issue of benefit into the wider
issue of equity. Thus, the probability or improbability of
whether DACO would have regulated wholesalers' profits during the
injunction period can initially be conceived as a relevant,
though not dispositive, equitable factor. More precise findings
as to the incidence and effect of any benefit can then be
pinpointed as part of a calculation anent damages if restitution
is ultimately found to be a condign remedy in a particular
situation.
With this preface, we turn to an examination of the
judgment below. For ease in reference, we treat each group of
factual findings as a separate integer in the equitable equation.
The methodologic innovation that we have described introducing
the question of whether the wholesalers benefitted from the
injunction (and if so, to what extent) into the assay proper
does not require remand. The lower court made detailed factual
findings on the question of benefit, and we can easily align
those findings along the preferred legal matrix. See Societe des ___ ___________
Produits Nestle v. Casa Helvetia, Inc., 982 F.2d 633, 642 (1st ________________ ____________________
Cir. 1992); United States v. Mora, 821 F.2d 860, 869 (1st Cir. ______________ ____
1987).
1. Benefit. Because restitution is founded on the 1. Benefit. _______
concept of unjust enrichment, a court considering a request for
restitution must investigate the extent to which the target
"received a benefit." Restatement, supra, 1, cmt. a, at 12. _____
In a case such as this, the problems of proof are readily
12
evident. The regulation that the district court enjoined was
clearly labelled as temporary when promulgated, and the
injunction prevented further regulation (temporary or permanent).
Thus, DACO found itself, at trial, in an epistemological
quandary: it had to prove that, had the district court sent the
wholesalers packing, it (DACO) would have put into effect a more
durable regulation that would have capped GPMs at a level below
what the wholesalers actually earned during the pendency of the
injunction.
The district court found DACO's strivings inadequate to
this daunting task. In the court's view, DACO's adoption of
temporary margin controls in 1986 did not "evidence[] an intent
to implement a long-term regulatory plan" to curb profit margins,
but, instead, constituted "a short-term erratic response" to an
unprecedented situation. TPR II, 862 F. Supp. at 702. The court ______
stressed that the unique combination of exigent circumstances to
which DACO reacted soon dissipated, see id. at 702-03; that DACO ___ ___
thereafter made an in-depth study of the desirability of
regulation, see id. at 704; and that, upon completion of the ___ ___
study, DACO decided not to regulate, see id. On this basis, the ___ ___
district court concluded that the stopgap measure would have been
abandoned when the exigency abated; that DACO would not have
implemented other GPM regulations during the June 1986 - June
1989 time frame; and that, therefore, the wholesalers received no
monetary advantage from the injunction. See id. at 707. ___ ___
For the most part, this conclusion is adequately
13
anchored in the record. Later actions are often revelatory of
earlier intentions, see, e.g., United States v. Sutton, 970 F.2d ___ ____ ______________ ______
1001, 1007 (1st Cir. 1992) (holding that "challenged testimony,
though it centered around later-occurring events, was relevant to
show appellant's intent at an earlier date"); United States v. _____________
Mena, 933 F.2d 19, 25 n.5 (1st Cir. 1991) (similar); see also ____ ___ ____
Dedham Water, 972 F.2d at 460 n.4 (applying principle in _____________
affirming district court's findings in analogous circumstances),
and DACO's actions when freed from the specter of preemption
indicatequiteplainly thatlong-term regulationwasnot onthe agenda.
The United States Supreme Court decided Isla III on _________
April 19, 1988. Within days, DACO disseminated a press release
in which its Secretary, Pedro Ortiz Alvarez (Ortiz), crowed that
the Court had "restored to Puerto Rico the historic power to
regulate gasoline prices." Shortly thereafter, DACO commenced an
administrative proceeding to determine whether controls should be
introduced. To this end, it requested (and received) financial
data and other information from the wholesalers. It also sought
industry input as to whether the commonwealth should set either
price or margin controls on gasoline, and held public hearings
beginning in the fall of 1988 to consider the desirability of
controls, the problems that might arise incident to them, and the
reasonableness of existing profit margins in the industry.
In December, as the administrative proceeding wound
down, Esso's general manager, Charles Griffith, met with
Secretary Ortiz. According to Griffith, Ortiz informed him that
14
DACO had completed its study and decided against imposing
controls because "the market was behaving." Later that month, a
daily newspaper, El Nuevo Dia, published an article based on an _____________
interview with Secretary Ortiz. The article reported that DACO
had elected "not to regulate gasoline prices and to instead adopt
`close supervision' of the industry." The newspaper quoted
Secretary Ortiz as conceding that the wholesalers had not earned
"excessive profits."
In January of 1989, Ortiz resigned. The new Secretary,
Jorge R. Ocasio Rodriguez (Ocasio), told Griffith that he was
aware of the earlier study and of his predecessor's conclusions,
and that he "intend[ed] to follow [Secretary Ortiz's] policies"
in regard to petroleum wholesalers. In fact, DACO did not adopt
controls until June 27, 1989 the day after the district court's
injunction had been lifted and then attributed the about-face
to newly emergent "erratic and unstable" price fluctuations in
the Puerto Rico market.
Noting this chronology of inaction laced with
reassurances, and remarking bits of trial testimony such as
Secretary Ortiz' oft-stated preference for a free market system,
the district court concluded that DACO's failure to impose any
controls for over a year after the Supreme Court's decision in
Isla III cleared the regulatory path demonstrated that it lacked ________
long-term regulatory intent, and that in all likelihood it would
not have regulated wholesalers' profits during the June 1986 -
June 1989 time frame even if the injunction had never issued.
15
We believe the district court's finding that, during
the injunction period, DACO would not have adopted a permanent
regulation limiting profit margins to a level lower than those
actually earned by the wholesalers is sustainable on this record.
Still, DACO's assault on this determination possesses convictive
force in one respect. The district court focused almost
exclusively on DACO's actions from and after April of 1988 (when
the Supreme Court overruled TECA and gave the green light to
state regulation) in attempting to divine DACO's regulatory
intent dating back to mid-1986. This strikes us as a
sufficiently accurate barometer of long-term regulatory intent, _________
but fails to deal satisfactorily with the near term. The stopgap
order that DACO promulgated on May 20, 1986 would have remained
in effect for some period but for the injunction. Thus, even if ____
the district court's finding is accepted, some benefit however
small still might have accrued to the wholesalers by reason of
the district court's abrupt suspension of this order.
That said, DACO's proof does not permit us to quantify
that presumed benefit. Because DACO, as the claimant for
restitution, bears the burden of proving the conferral and extent
of a benefit, see Atlantic Coast Line, 295 U.S. at 309, this ___ ____________________
failure of proof looms large.3 We do not suggest that
____________________
3DACO's estimate of the benefit received it says that the
wholesalers charged their customers anywhere from $64,500,000 to
$250,000,000 more during the injunction period than DACO would
have permitted is not only unproven but also deserves to be
taken with a good deal of salt. DACO whips up the lower of these
frothy figures by suggesting that, absent the injunction, it
would have limited the wholesalers' GPMs to a level no higher
16
uncertainty as to the extent of the benefit acts as an automatic
bar to DACO's claim for restitution, but for purposes of
equitable balancing, it neutralizes any advantage that DACO might
otherwise achieve on the question of benefit. In the last
analysis, then, this factor is a wash.
2. The Wholesalers' GPMs. The district court analyzed 2. The Wholesalers' GPMs. _____________________
the wholesalers' profit margins during the pendency of the
injunction and concluded that they "did not benefit
disproportionately from the lack of regulation." TPR II, 862 F. ______
Supp. at 707. DACO disputes the relevancy of this factor. It
argues that equity does not require there to be a
disproportionate benefit, but, rather, that restitution is
appropriate so long as the targeted party benefitted at all from __ ___
the erroneous injunction. In this view of the universe, the
reasonableness of the wholesalers' earnings is beside the point.
Once again, DACO's conception of equity is too
inelastic. "The mere fact that a person benefits another is not
of itself sufficient to require the other to make restitution
therefor." Restatement, supra, 1, cmt. c, at 13. As the _____
district court noted, a finding that the wholesalers' actual
profit margins were unreasonably high would assist in showing
that "the money was received in such circumstances that the
____________________
than 13 per gallon throughout the relevant period, and,
therefore, that any earnings above that plateau are the fruits of
the errant injunction. The higher figure is presumably derived
in the same way, but using a projected regulatory ceiling of 8.6
per gallon (the ceiling imposed in the May 20, 1986 temporary
order) for the entire three-year span. These gaudy claims enjoy
little or no record support.
17
possessor will give offense to equity and good conscience if
permitted to retain it." TPR II, 862 F. Supp. at 701 (quoting _______
Atlantic Coast Line, 295 U.S. at 309). The converse is equally ___________________
true: the fact that the wholesalers' profits were reasonable (or
unreasonably low, for that matter), tends to make the denial of
restitution more in keeping with equitable principles. Either
way, the reasonableness vel non of the wholesalers' profits is a ___ ___
concinnous factor for inclusion in the court's equitable
balancing. See Restatement, supra, 74, cmt. c, at 305 ___ _____
(suggesting that a party who receives a benefit is not liable to
make restitution therefor unless the circumstances attendant to
receipt or retention of the benefit render its enjoyment
inequitable).
The district court based its assessment that the
wholesalers' earnings during the relevant period were reasonable
on a series of subsidiary findings. It gave weight to the fact
that the wholesalers' profits "were in line with profits earned
during the unregulated period after federal controls were
terminated, and before the 1986 regulation was enacted." TPR II, ______
862 F. Supp. at 706. It then performed a comparative analysis4
and verified that the wholesalers' returns "were in line with
various competitive industries and investment alternatives"
during the injunction period. Id. Last but not least, the court ___
____________________
4The court used as congeners such benchmarks as returns on
assets in the electric utility industry, returns on government
bonds, and returns on investments in the industrial distribution,
services, and fuel industries. See TPR II, 862 F. Supp. at 706. ___ ______
18
observed that the wholesale market remained competitive
throughout the period, thus ensuring that margins were held to
acceptable levels. See id. ___ ___
DACO suggests that these findings have a tenuous basis
in fact but this is a fairly typical rejoinder of a party
seeking to surmount the high hurdle of clear-error review. The
district court relied mainly on the testimony of four economists
presented as expert witnesses by the wholesalers. We have
studied their testimony (including the plethoric exhibits
associated therewith), and we are fully persuaded that, given
this evidence, the district court had a solid basis for finding
that, during the injunction period, the wholesale market in
Puerto Rico was staunchly competitive, and that the profits
earned by Texaco, Esso, and Shell were reasonable. Although
DACO's expert testified in a diametrically opposite vein,
choosing between experts in a jury-waived trial is principally
the business of the district court, not the court of appeals.
See, e.g., Keller v. United States, 38 F.3d 16, 25 (1st Cir. ___ ____ ______ _____________
1994). Consequently, we decline DACO's invitation to second-
guess the trial court's scorecard in respect to dueling
experts.5 See Anderson v. City of Bessemer City, 470 U.S. 564, ___ ________ ______________________
____________________
5The court below offered sound reasons for siding with the
wholesalers' experts. Equally as important, it viewed the
testimony of appellant's expert, Dr. Logan, "with some skepticism
in light of his intimate involvement with DACO," his former
employment by DACO's counsel, and his status as "the putative
author of the 13-cent regulation." TPR II, 862 F. Supp. at 706. ______
Though DACO cries foul due to the court's "gratuitous swipe" at
Dr. Logan's bona fides, such credibility determinations are the
prerogative indeed, the duty of the district judge in a bench
19
575 (1985) (explaining the virtual impregnability of a trial
judge's finding based on a reasoned decision to credit the
testimony of one witness over another).
3. Delay. In weighing the equities, the lower court 3. Delay. _____
found that "DACO's actions in seeking restitution have been
marked by unreasonable delay." TPR II, 862 F. Supp. at 707. ______
DACO asserts that the court's inclusion of this factor is
improper as a matter of law because it is the functional
equivalent of raising a laches defense against the government.
We do not agree.
It is true that laches ordinarily cannot be raised as a
defense against the government in an action brought to enforce a
public right or protect a public interest. See Illinois v. ___ ________
Kentucky, 500 U.S. 380, 388 (1991) (noting that "the laches ________
defense is generally inapplicable against a state"); Block v. _____
North Dakota ex rel Bd. of Univ. and Sch. Lands, 461 U.S. 273, _________________________________________________
294 (1983) (O'Connor, J., dissenting) (collecting authorities).
But the unavailability of laches as a defense does not mean that
the sovereign's dilatoriness in seeking an equitable remedy must
be totally disregarded by a chancery court. We explain briefly.
An equitable defense and an equitable factor are
conceptually and practically distinct. The divagation is subtle,
but significant. An equitable defense "bar[s] the cause of
____________________
trial. See, e.g., Anthony v. Sundlun, 952 F.2d 603, 606 (1st ___ ____ _______ _______
Cir. 1991) (stating that appellate courts "ought not to disturb
supportable findings, based on witness credibility, made by a
trial judge who has seen and heard the witnesses at first hand").
20
action entirely, or bar[s] . . . the equitable remedy." 1 Dan B.
Dobbs, Law of Remedies 2.4(1), at 91 (2d ed. 1993). Moreover, ________________
in evaluating an equitable defense, the court considers only the
plaintiff's conduct and is free to "deny all remedies if the
plaintiff does not meet equity's standards." Id. 2.4(5), at ___
108-09. In contrast, an equitable factor must always be weighed
in concert with other relevant factors. See id. at 109. ___ ___
Moreover, as part of balancing the equities, the court "looks at
the conduct of both parties and the potential hardships that
might result from a judicial decision either way." Id. From a ___
practical standpoint, then, "[e]ven when an equitable defense
does not bar the claim, the total balance of equities and
hardships might do so." Id., 2.4(1), at 91. ___
Here, the district court explicitly disclaimed any
intent to apply the equitable doctrine of laches as a bar to
DACO's motion. See TPR II, 862 F. Supp. at 702 n.8. In its ___ _______
search for the case's equitable epicenter, however, the court was
fully entitled to use delay as one of a number of factors bearing
on the outcome. This is precisely what Judge Fuste did, and
there is no principled basis for DACO's suggestion that he
mouthed the vocabulary of equitable balancing as a means of
surreptitiously injecting a barred laches defense into the case.
Indeed, in considering DACO's delay as part of the equitable
balance, the judge merely honored the precept that the
government, when it seeks an equitable remedy, "is no more immune
to the general principles of equity than any other litigant."
21
United States v. Second Nat'l Bank, 502 F.2d 535, 548 (5th Cir. _____________ _________________
1974).
DACO also contends that the district court clearly
erred in finding prejudicial delay. This contention is
unpersuasive. The evidence shows that DACO first raised the
refund issue in its June 1989 interim order. DACO did nothing
further on this score until ten months later, when it sent
letters to the wholesalers conveying its "preliminary views" on
the suitability of refunds. DACO then dropped the refund issue
like a hot potato and did not resurrect it until August 20, 1992,
when the then-Secretary, Guillermo Mojica Maldonado (Mojica),
announced at a press conference that he planned to seek refunds
from the wholesalers. All told, DACO waited three years after
this court vacated the injunction to commit itself to the pursuit
of restitution.
DACO does not dispute the accuracy of this chronology,
but takes vigorous exception to the court's conclusion that
"[t]his type of stopping and starting, delaying and then
proceeding[,] must be considered prejudicial to the wholesalers,
who had to run their business with the threat of multimillion
dollar refunds occasionally flaring up and then disappearing."
TPR II, 862 F. Supp. at 707. DACO offers a myriad of excuses for ______
its procrastination; it intimates that, as a government agency,
torpor is to be expected; it claims to have undergone numerous
changes in staff and leadership during the period; and it says
that its attention was diverted because of ongoing litigation
22
over its proposed 13 GPM that lasted until March of 1991. The
district court dismissed these excuses as lame. We, too, find
them insufficient.
Government agencies, like private corporations, have an
obligation to conduct their affairs in a reasonably efficient
manner. See Potomac Elec. Power Co. v. ICC, 702 F.2d 1026, 1034 ___ ________________________ ___
(D.C. Cir. 1983) (warning that "excessive delay saps the public
confidence in an agency's ability to discharge its
responsibilities"). An entity that chooses to indulge
inefficiencies cannot expect to be granted special dispensations.
If "[t]he mills of the bureaucrats grind slow," United States v. _____________
Meyer, 808 F.2d 912, 913 (1st Cir. 1987), then the agency, having _____
called the tune, must pay the piper. See, e.g., United States v. ___ ____ _____________
Baus, 834 F.2d 1114, 1123 (1st Cir. 1987) (holding that the ____
government "should not be allowed by words and inaction to lull a
party into a false sense of security and then by an abrupt volte-
face strip the party of its defenses"); Cutler v. Hayes, 818 ______ _____
F.2d 879, 896 (D.C. Cir. 1987) (explaining that, when an
administrative agency loiters, "the consequences of dilatoriness
may be great"). By like token, neither government agencies nor
private employers can escape responsibility for the exercise of
due diligence merely because of employee turnover. Department
heads and other key personnel may come and go, but the
institution must endure. See Cutler, 818 F.2d at 896-97. ___ ______
Similarly, preoccupation with other litigation is hardly a reason
for extreme delay. See, e.g., Mendez v. Banco Popular, 900 F.2d ___ ____ ______ _____________
23
4, 6-7 (1st Cir. 1990) (district court did not abuse discretion
in failing to grant extension of time based on attorney's busy
trial calendar); Pinero Schroeder v. Federal Nat'l Mortgage _________________ ________________________
Ass'n, 574 F.2d 1117, 1118 (1st Cir. 1978) (same). And in all _____
events, litigation ending in early 1991 cannot credibly explain __________
why DACO took no firm position until August 1992. ___________
We will not wax longiloquent. It is trite, but true,
that equity ministers to the vigilant, not to those who sleep
upon their rights. See, e.g., Sandstrom v. Chemlawn Corp., 904 ___ ____ _________ _______________
F.2d 83, 87 (1st Cir. 1990). Given the uncontradicted evidence,
we believe that the district court acted lawfully in ruling that
unreasonable delay on DACO's part militates against relief.
4. Bad Faith. It is old hat that a court called upon 4. Bad Faith. _________
to do equity should always consider whether the petitioning party
has acted in bad faith or with unclean hands. See Precision ___ _________
Instrument Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. ___________________ ________________________________
806, 814 (1945) (explaining that the doctrine of unclean hands
"closes the doors of a court of equity to one tainted with
inequitableness or bad faith relative to the matter in which he
seeks relief"); see also Dobbs, supra, at 109; see generally K- ___ ____ _____ _____ ___ _________ __
Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 910-12 (1st __________ _____________________
Cir. 1989) (discussing "unclean hands" doctrine in relation to
the equitable maxim that "he who seeks equity must do equity").
But even though equitable doctrines are renowned for their
elasticity, they are not without all limits. The doctrine of
unclean hands only applies when the claimant's misconduct is
24
directly related to the merits of the controversy between the
parties, that is, when the tawdry acts "in some measure affect
the equitable relations between the parties in respect of
something brought before the court for adjudication." Keystone ________
Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933). ___________ _____________________
In the case at bar, the test was met. The district
court found pervasive evidence of bad faith on DACO's part,
directly related to the core elements of the dispute sub judice. ___ ______
See TPR II, 862 F. Supp. at 707. Although DACO brands this ___ ______
finding clearly erroneous and worse for instance, DACO claims,
without a shred of record support, that the finding is "tinged
with political, rather than legal, analysis," Appellants' Brief
at 37 we believe that there is ample evidence in the record to
support the district court's perspective.
In making its finding of bad faith, the lower court
relied heavily on two occurrences. The court found that, in the
spring of 1986, while the government of Puerto Rico was pondering
the advisability of an excise tax, see supra pp. 3-4, high-level ___ _____
officials, including the President of the Senate and the
Secretary of State, summoned executives of the three appellees to
a series of private audiences. The court further found that "the
wholesalers were warned that they should cooperate with the
government in the implementation of the new tax by refraining
from further lowering gas prices, so that the government could
achieve revenue from the tax . . . ." TPR II, 862 F. Supp. at ______
695. The discussions were blunt. To offer one illustration, Jose
25
Luis Blanco, Esso's operations manager at the time, testified
that the Secretary of State uttered "a very strong threat" to the
effect that, if Esso failed to acquiesce in the government's
strategy, the company's continued existence in Puerto Rico would
be "very difficult."
DACO claims that these thinly veiled minations had no
bearing on margin regulations imposed well after the excise tax
was enacted. This claim is disingenuous. Past is prologue, and
the district court plausibly could find as it did that the
1986 meetings were part of the same overall course of conduct
that led to the push for restitution six years later. After all,
the meetings involved the same principals and the same subject
matter, and, with the benefit of hindsight, can be viewed as a
harbinger of things to come. On this basis, the district court
did not err in concluding that the 1986 meetings were relevant to
DACO's good faith (or lack thereof) in seeking restitution some
years thereafter. This is particularly true in that, shortly
after the government "suggested" that the wholesalers refrain
from lowering gasoline prices, DACO attempted to justify its
regulation of GPMs on the ground that the wholesalers' prices
were too high. Thus, in effect, DACO bore a degree of
responsibility for creating the "excess profits" that it later
attempted to recapture, first via the excise tax, and then by
dint of the motion for restitution. The second pillar of the
court's conclusion lacks the dramatic impact of these strong-arm
tactics, but affords a closer temporal link. The court thought
26
that the actions of Secretary Mojica in and around 1992 betokened
bad faith. See TPR II, 862 F. Supp. at 707. At trial, Mojica ___ ______
admitted that he had chosen the 8.6 figure based not on any
economic rationale, but as a stratagem to enhance DACO's
negotiating position. The district court found this behavior
"irresponsible." Id. And Secretary Mojica made a bad situation ___
worse by issuing a remedial order that singled out Texaco, Esso,
and Shell, whilst leaving unscathed a number of other wholesalers
who had exceeded the 8.6 margin. The lower court found that
these efforts to exact restitution from the appellees and from
no other similarly situated wholesalers smacked of bad faith,
see id., and DACO can point to no evidence that refutes the ___ ___
implication of selective targeting in retaliation for the
appellees' active opposition to the government's desires.
We think that the record as a whole corroborates the
district court's determination that the 8.6 figure was chosen as
a crude club to bludgeon the wholesalers into a settlement,
without regard for the economic realities of the petroleum
industry. Indeed, the nisi prius roll is replete with evidence
suggesting this unhappy conclusion. For one thing, DACO's chief
economist, Carlos Lasanta, testified that he had advised his
superiors that the 8.6 margin was economically inadequate, yet
DACO persisted in its plan. For another thing, Secretary Mojica
testified that he issued the remedial order and set the ceiling
27
without even pausing to review the administrative record.6
In sum, the grounds relied upon by the district court
pass muster. Because the remedy of restitution is premised on
the concept of unjust enrichment, DACO's actions both in 1986 and
in 1992 sabotage its present attempt to seize the high ground by
asserting that the wholesalers took unfair advantage of the
erroneous injunction. Hence, we are unwilling to disturb the
court's determination that DACO's actions were tinged with bad
faith.
5. Reliance. A court considering a restitutionary 5. Reliance. ________
remedy may properly weigh the factor of reliance in its equitable
balancing. See Moss v. Civil Aeronautics Bd., 521 F.2d 298 (D.C. ___ ____ _____________________
Cir. 1975), cert. denied, 424 U.S. 966 (1976). In doing so here, _____ ______
the court found that the statements of two different Secretaries
(Ortiz and Ocasio) led the wholesalers to believe that DACO
regarded their margins "to be reasonable, and therefore, that
restitution of such reasonable profits would not later be
demanded." TPR II, 862 F. Supp. at 708. Moreover, the _______
wholesalers convinced the court that they justifiably relied on
____________________
6DACO asserts that, because the remedial order "was only the
starting point for [its] consideration of the appropriate level
of refunds," the terms of the order "cannot rationally be
considered evidence of bad faith." Appellants' Brief at 38-39.
This ipse dixit does not withstand scrutiny. When Secretary ____ _____
Mojica announced the promulgation of the remedial order, he
presented the 8.6 figure not as a guidepost to a determination
of the eventual measure, but as a fait accompli. Moreover, the
order itself described "a maximum profit margin of 8.6 cents per
gallon" as "conclusive and undebatable." DACO retreated from
this figure only after the wholesalers sought judicial
protection.
28
those statements in formulating their business plans. See id. ___ ___
The record is consistent with these findings. It is
not farfetched to think that Secretary Ortiz's statements, see, ___
e.g., supra p.14, could have lulled the wholesalers into a false ____ _____
sense of security. See, e.g., Insurance Co. v. Mowry, 96 U.S. ___ ____ _____________ _____
544, 547 (1877) ("A representation as to the future can be held
to operate as an estoppel . . . where it relates to an intended
abandonment of an existing right, and is made to influence
others, and by which they have been induced to act."). Then,
too, the wholesalers adduced explicit evidence of reliance,
credited by the trier. A number of executives testified that
they took the Secretary's statements regarding the reasonableness
of their firms' profit margins at face value, and authorized
investments in Puerto Rico that they would not otherwise have
approved. We cannot hold that the court clearly erred in
detecting detrimental reliance on these facts. See, e.g., ___ ____
Cumpiano, 902 F.3d at 152 ("Where there are two permissible views ________
of the evidence, the factfinder's choice between them cannot be
clearly erroneous.") (quoting Anderson, 470 U.S. at 573-74). ________
The court's finding of detrimental reliance is
bolstered by another circumstance. When Judge Fuste issued the
injunction, DACO could have but did not ask him to require a
bond or an escrow account. See Inland Steel Co. v. United ___ __________________ ______
States, 306 U.S. 153, 156-57 (1939) (holding that court acted ______
lawfully in conditioning injunction against ICC on establishment
of escrow account to defray possible restitutionary obligations).
29
Although a bond or escrow fund is not a prerequisite for
restitution in cases involving injunctions, see, e.g., Newfield ___ ____ ________
House, Inc. v. Mass. Dep't of Pub. Welfare, 651 F.2d 32, 39 n.12 ___________ ____________________________
(1st Cir.) (holding that "the need for a[n injunction] bond is
limited to the recovery of damages and has no application to a
claim of restitution of amounts subsequently found to have been
undue"), cert. denied, 454 U.S. 1114 (1981), a court called upon _____ ______
to perform equitable balancing may nonetheless weigh the absence
of a bond or other fund as a factor in its equitable assay. See ___
Moss, 521 F.2d at 314; see also Thompson v. Washington, 551 F.2d ____ ___ ____ ________ __________
1316, 1321 (D.C. Cir. 1977). This is the music to which the
district court marched. See TPR II, 862 F. Supp. at 708. Just ___ ______
as the existence of a bond or other fund would have undercut any
claim of detrimental reliance, so, too, their absence lends
credence to the wholesalers' lament.
6. Public Interest. It cannot be gainsaid that a 6. Public Interest. ________________
court asked to dispense equitable remediation should give serious
consideration to the public interest. See Morgan, 307 U.S. at ___ ______
194 ("It is familiar doctrine that the extent to which a court of
equity may grant or withhold its aid, and the manner of moulding
its remedies may be affected by the public interest involved.");
Rosario-Torres, 889 F.2d at 323 (similar). Here, the district ______________
court found that the public interest would be disserved by
granting restitution. The court reasoned "that investment in
Puerto Rico by the gasoline companies would be curtailed, or that
Esso, Texaco and/or Shell [might] even leave the island
30
completely, resulting in a possible loss of jobs and
competitiveness in the wholesaling market." TPR II, 862 F. Supp. ______
at 708.
At trial, DACO made no effort to contradict the
wholesalers' testimony on this point. In this venue, it likewise
abjures any challenge to the testimony's relevance. Instead,
DACO complains about the district court's related statement that
DACO had "failed to propose a cogent plan to restore losses" to
the Puerto Rico motorists who bore the brunt of the alleged
overcharges. Id. In DACO's eyes, depositing a restitutionary ___
award into the commonwealth's general fund comprises an entirely
satisfactory trickle-down substitute for the court's envisioned
plan of direct payments to motorists.
Once again, DACO's fascination with a single tree
obscures its view of the forest. The district court's rescript,
properly read, does not hold that depositing refunds into the
commonwealth's coffers is repugnant to the public interest in an
absolute sense. The court's point is quite different. Judge
Fuste expressed the belief that the clear harm to the Puerto Rico
economy that would result from levying a huge restitution award
outweighed the benefit accruing from refunds that would not
directly compensate the injured victims. Though such a judgment
call may be arguable, we are unprepared to say that it represents
a clearly erroneous assessment of the evidence. Cf., e.g., Moss, ___ ____ ____
521 F.2d at 308 ("The bite which is effectively taken from future
earnings by a recovery fund may in turn impair the health of the
31
industry, to the disadvantage of the fare-payers themselves.").
7. Recapitulation. We have fashioned a tried-and-true 7. Recapitulation. ______________
framework for gauging claimed abuses of discretion:
In making discretionary judgments, a district
court abuses its discretion when a relevant
factor deserving of significant weight is
overlooked, or when an improper factor is
accorded significant weight, or when the
court considers the appropriate mix of
factors, but commits a palpable error of
judgment in calibrating the decisional
scales.
United States v. Roberts, 978 F.2d 17, 21 (1st Cir. 1992); accord _____________ _______ ______
Dopp, 38 F.3d at 1253 (listing other cases). Here, the record ____
discloses that the district court made a careful appraisal within
the contours of this tested framework. DACO has failed to show
that the court, in performing this appraisal and arriving at its
judgment, overlooked appropriate factors, considered
inappropriate factors, or made a detectable mistake in weighing
the evidence. Mindful, as we are, that "[t]he very nature of a
trial judge's interactive role assures an intimate familiarity
with the nuances of ongoing litigation a familiarity that
appellate judges, handicapped by the sterility of an impassive
record, cannot hope to match," Dopp, 38 F.3d at 1253, we decline ____
to place a heavy appellate thumb on the scales of justice and
thereby upset the trier's delicate balancing of the competing
equities in this unusual situation.
III. OTHER ISSUES III. OTHER ISSUES
In addition to its assault upon the district court's
equitable determination, DACO mounts a more narrowly targeted
32
offensive on a second front. In this regard, DACO assigns error
to a series of discovery rulings that together forced the
disclosure of eighteen agency documents, mostly in the nature of
correspondence between DACO (or other government representatives)
and DACO's outside counsel. This attempt to open a second front
is little more than a diversionary sortie, poorly outfitted and
easily repulsed.
We set the stage. In ordering disclosure as a subset
of a broader order that DACO turn over the "complete
administrative file" in the case to the wholesalers, the court
determined that these writings were not entitled to protection
under either the attorney-client privilege or the deliberative
process privilege. We consider the district court's privilege
rulings cognizant that, "[b]ecause we regard the existence of a
privilege as a factual determination for the trial court . . .
the district court's finding of no privilege can be overturned
only if clearly erroneous." United States v. Wilson, 798 F.2d _____________ ______
509, 512 (1st Cir. 1986); accord United States v. Bay State ______ ______________ _________
Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20, 27 (1st Cir. _____________________________________
1989). Since local law does not supply the rule of decision
anent DACO's claim for restitution, federal common law governs
our analysis of the wrangling over privileges. See Fed. R. Evid. ___
501.
A. Attorney-Client Privilege. A. Attorney-Client Privilege. _________________________
The Supreme Court has described the attorney-client
privilege as "the oldest of the privileges for confidential
33
communications known to the common law." Upjohn Co. v. United ___________ ______
States, 449 U.S. 383, 389 (1981). The privilege protects "not ______
only the giving of professional advice to those who can act on it
but also the giving of information to the lawyer to enable him to
give sound and informed advice." Id. at 390. The purpose of the ___
privilege is "to encourage full and frank communications between
attorneys and their clients and thereby promote broader public
interests in the observance of law and administration of
justice." Id. at 389. ___
In its unpublished order requiring revelation of the
eighteen documents, the district court rejected DACO's claim of
attorney-client privilege on two grounds. First, the court found
that DACO waived any such privilege because four of the documents
"were inadvertently shown to Texaco's legal representatives"
during their initial review of the administrative file.7 We
examine the underpinnings of this ruling.
It is apodictic that inadvertent disclosures may work a
waiver of the attorney-client privilege. See, e.g., In re Sealed ___ ____ ____________
Case, 877 F.2d 976, 979-80 (D.C. Cir. 1989); In re Grand Jury ____ _________________
Proceedings, 727 F.2d 1352, 1356 (4th Cir. 1984); see also ___________ ___ ____
____________________
7At trial, the district court described how this bevue
occurred:
You people [DACO] told them [Texaco's
representatives], here is a room full of
papers, you can take a look at them. They
looked at them, they found them and then when
you discovered that they had seen them and
that they wanted copies of those, then you
came running here seeking an order.
34
Allread v. City of Grenada, 988 F.2d 1425, 1434 (5th Cir. 1993). _______ _______________
Thus, it beggars credulity to argue that the district court erred
in entering a turnover order anent the four documents to which
Texaco's representatives previously had been exposed. Apart from
that fairly obvious conclusion, however, it also must be
recognized that inadvertent disclosures can have a significance
that transcends the documents actually disclosed.
In general, a waiver premised on inadvertent disclosure
will be deemed to encompass "all other such communications on the
same subject." Weil v. Investment/Indicators, Research & Mgmt., ____ ________________________________________
Inc., 647 F.2d 18, 24-25 & n.13 (9th Cir. 1981); accord In re ____ ______ _____
Sealed Case, 877 F.2d at 980-81; see also 4 J.M. Moore & J.D. ___________ ___ ____
Lucas, Moore's Federal Practice 26.11[2], at 26-185 (1994). _________________________
Since DACO does not contend that the four carelessly unveiled
documents concerned a different topic than the other fourteen
documents in the group, we think that, under the deferential
standard of review applicable to privilege questions, the
district court had an adequate basis for disregarding the
attorney-client privilege vis-a-vis all eighteen documents.
The district court's alternative ground for ordering
disclosure is equally solid. The court found as a fact, after in
camera inspection of the disputed documents, that outside counsel
had become an integral part of the adjudicative decisionmaking
process. Based on this factual finding, the court ruled that the
attorney-client privilege did not apply because, when an
administrative agency engaged in an adjudicative function
35
delegates its responsibilities to outside counsel, then the work
product generated by the firm is part of the adjudicative process
itself and, hence, beyond the reach of the attorney-client
privilege.
DACO resists this analysis, pontificating that such a
doctrine "would render the attorney-client privilege meaningless
where state or local governments employ counsel and rely on their
advice." Appellants' Brief at 47. But this trumpeting
misapprehends the tenor of the district court's ruling. The
attorney-client privilege attaches only when the attorney acts in
that capacity. See Bay State Ambulance, 874 F.2d at 27-28; ___ ____________________
Wilson, 798 F.2d at 512; United States v. United Shoe Mach. ______ ______________ __________________
Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950). Here, the _____
district court found, in substance, that DACO delegated
policymaking authority to its outside counsel to such an extent
that counsel ceased to function as lawyers and began to function
as regulators. Therefore, DACO could not invoke the attorney-
client privilege in connection with the documents at issue.
We cannot term this finding clearly erroneous. The
record shows that DACO's counsel had, in fact, drafted remedial
orders that DACO adopted verbatim; that Dr. Logan, an employee of
DACO's counsel, was the "putative author of the [1989] 13-cent
regulation," TPR II, 862 F. Supp. at 706; and that counsel had ______
developed adjudicative data that the agency later reissued as its
own. Nor can we term the finding unsupported in law. See Mobil ___ _____
Oil Corp. v. Department of Energy, 102 F.R.D. 1, 9-10 (N.D.N.Y. _________ _____________________
36
1983) (rejecting claim of attorney-client privilege where
proponent failed to show that lawyers were acting in their
capacities as attorney advisors rather than as regulatory
decisionmakers); Coastal Corp. v. Duncan, 86 F.R.D. 514, 521 (D. _____________ ______
Del. 1980) (similar; observing that such a showing is
particularly important in a situation in which "attorneys
function primarily as policy-makers rather than as lawyers").
B. Deliberative Process Privilege. B. Deliberative Process Privilege. ______________________________
DACO also takes exception to the district court's
ruling that the deliberative process privilege did not exempt the
same cache of documents from production. The deliberative
process privilege "shields from public disclosure confidential
inter-agency memoranda on matters of law or policy." National ________
Wildlife Fed'n v. United States Forest Serv., 861 F.2d 1114, 1116 ______________ __________________________
(9th Cir. 1988). The privilege rests on a policy of affording
reasonable security to the decisionmaking process within a
government agency. See NLRB v. Sears, Roebuck & Co., 421 U.S. ___ ____ _____________________
132, 150 (1975).
The Supreme Court has restricted the deliberative
process privilege to materials that are both predecisional and
deliberative. See EPA v. Mink, 410 U.S. 73, 88 (1973). In other ___ ___ ____
words, to qualify for the privilege, a document must be (1)
predecisional, that is, "antecedent to the adoption of agency
policy," and (2) deliberative, that is, actually "related to the
process by which policies are formulated." National Wildlife, _________________
861 F.2d at 1117 (citation omitted). Because the deliberative
37
process privilege is restricted to the intra-governmental
exchange of thoughts that actively contribute to the agency's
decisionmaking process, factual statements or post-decisional
documents explaining or justifying a decision already made are
not shielded. See Sears, Roebuck, 421 U.S. at 151-52; Mink, 410 ___ ______________ ____
U.S. at 88; see also Developments in the Law Privileged ___ ____ ________________________________________
Communications, 98 Harv. L. Rev. 1450, 1620-21 (1985). ______________
Even if a document satisfies the criteria for
protection under the deliberative process privilege,
nondisclosure is not automatic. The privilege "is a qualified
one," FTC v. Warner Communications Inc., 742 F.2d 1156, 1161 (9th ___ __________________________
Cir. 1984), and "is not absolute." First Eastern Corp. v. ____________________
Mainwaring, 21 F.3d 465, 468 n.5 (D.C. Cir. 1994). Thus, in __________
determining whether to honor an assertion of the privilege, a
court must weigh competing interests. See id.; see also ___ ___ ___ ____
Developments, supra, at 1621 (noting that courts asked to apply ____________ _____
the privilege must engage in "ad hoc balancing of the evidentiary
need against the harm that may result from disclosure").
At bottom, then, the deliberative process privilege is
"a discretionary one." In re Franklin Nat'l Bank Sec. Litig., _______________________________________
478 F. Supp. 577, 582 (E.D.N.Y. 1979). In deciding how to
exercise its discretion, an inquiring court should consider,
among other things, the interests of the litigants, society's
interest in the accuracy and integrity of factfinding, and the
public's interest in honest, effective government. See Warner ___ ______
Communications, 742 F.2d at 1162. Consequently, "where the ______________
38
documents sought may shed light on alleged government
malfeasance," the privilege is routinely denied. Franklin, 478 ________
F. Supp. at 582; see also Bank of Dearborn v. Saxon, 244 F. Supp. ___ ____ ________________ _____
394, 401-03 (E.D. Mich. 1965) ("the real public interest under
such circumstances is not the agency's interest in its
administration but the citizen's interest in due process"),
aff'd, 377 F.2d 496 (6th Cir. 1967). _____
Assuming, arguendo, that the documents at issue are
both predecisional and deliberative a matter on which we need
not opine the district court's rejection of the deliberative
process privilege is nevertheless impervious to DACO's attack.
The court supportably found that the wholesalers had made a
"strong showing" of arbitrariness and discriminatory motives on
DACO's part. Given the discretionary nature of the deliberative
process privilege, and the district court's warranted conclusion
that DACO acted in bad faith over a lengthy period of time, see ___
supra Part II(D)(4), we resist the urge to tinker with the _____
court's determination that the wholesalers' interest in due
process and fairness outweighed DACO's interest in shielding its
deliberations from public view.8
____________________
8We note in passing that the district court's waiver
analysis, made in connection with DACO's claim of attorney-client
privilege, see supra Part III(A), arguably applies to the ___ _____
deliberative process privilege as well. Because the privilege
lacks vitality here, we will not pursue the question of waiver
beyond noting that it is apparently unsettled. Compare, e.g., _______ ____
Clark v. Township of Falls, 124 F.R.D. 91, 93-94 (E.D. Pa. 1988) _____ _________________
(holding that a municipality waived any claim of executive
privilege by prior disclosure) with, e.g., Redland Soccer Club, ____ ____ ____________________
Inc. v. Department of Army, ___ F.3d ___, ___ (3d Cir. 1995) ____ ___________________
[1995 WL 289681 at *25] (holding that inadvertent disclosure of
39
C. Harmless Error. C. Harmless Error. ______________
We add a postscript to our discussion of the district
court's discovery rulings. In all events, we do not believe that
the district court's rejection of DACO's privilege claims
affected DACO's substantial rights. Any error was, therefore,
harmless. See Fed. R. Civ. P. 61 (explaining that a court "must ___
disregard any error or defect in the proceeding which does not
affect the substantial rights of the parties").
In denying DACO's claim for restitution, the district
court mentioned only one of the eighteen challenged documents (a
June 1989 memorandum from DACO's outside counsel to Governor
Hernandez Colon). See TPR II, 862 F. Supp. at 705. The court ___ ______
cited this memorandum as additional support for its factual
finding that contemporaneous events, rather than a long-term
commitment to regulation, spurred DACO's actions in June of 1989.
The memorandum comprised only a small fraction of the evidence on
which the court relied in reaching this conclusion. See supra ___ _____
Part II(D)(1) (limning other evidence). It is axiomatic that a
litigant's substantial rights are not offended by the admission
of cumulative evidence. See, e.g., Doty v. Sewall, 908 F.2d ___ ____ ____ ______
1053, 1056 (1st Cir. 1990); Garbincius v. Boston Edison Co., 621 __________ _________________
F.2d 1171, 1175 (1st Cir. 1980); deMars v. Equitable Life Assur. ______ _____________________
Soc'y, 610 F.2d 55, 62 (1st Cir. 1979). _____
IV. CONCLUSION IV. CONCLUSION
____________________
documents did not give rise to waiver of deliberative process
privilege).
40
We need go no further. There are neither precise
answers nor perfect solutions when a court is forced to deal with
the shadowy world of what might have been. Where, as here, the
customary deference accorded to the trial court as factfinder is
augmented by due respect for that court's equitable discretion,
appellate courts should hesitate to meddle. In this instance,
the judge, who had handled the case from its inception, weighed
and balanced the equities, and juxtaposed the parties' rights
with painstaking care. Thus, whether or not we, if writing on a
pristine page, might have concluded otherwise, we are unable to
tease an abuse of discretion out of what is quintessentially a
judgment call.
Affirmed. Affirmed. ________
41
Document Info
Docket Number： 94-2076
Filed Date： 7/19/1995
Precedential Status： Precedential
Modified Date： 9/21/2015