Opposition Brief — Aquino v. Suiza Dairy, Inc.

No. 10-74

Jn The Supreme Court of The United States

JAVIER RIVERA AQUINO, SECRETARY,

PUERTO RICO DEPARTMENT OF AGRICULTURE, ET Al

Petitioners,

Vv.

SUIZA DAIRY, INC., ET AL

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

BRIEF IN OPPOSITION

RAFAEL ESCALERA RODRIGUEZ

COUNSEL OF RECORD

PEDRO SANTIAGO RIVERA

AMELIA CAICEDO SANTIAGO

REICHARD & ESCALERA

255 Ponce De Leon Ave.

MCS Plaza, 10th Floor

San Juan, PR 00917-1913

(787) 777-8888

escalera@reichardescalera.com

LEGAL PRINTERS LLC, Washington DC e 202-747-2400 e legalprinters com

QUESTIONS PRESENTED

The petition before this Court seeks review of a

judgment by the Court of Appeals for the First

Circuit affirming a preliminary injunction in a stil]

ongoing case. The portion of the remedy to which

petitioner objects has not been yet — fully

implemented In that context, the substantive

questions presented are

|. Whether the Kleventh Amendment applies to

the unincorporated territory of Puerto Rico a

it does to any State of the Union

2 Whether a federal court can order a territory

that has decided to regulate its milk market.

to provide, in the rates to be set prospectively

for payment of milk by consumers, a charge to

reconstruct the regulated entity’s capital that

was depleted by the unconstitutional actions

of the territory, without violating the Eleventh

Amendment

TABLE OF CONTENTS

QUESTIONS PRESENTED

CORPORATE DISCLOSURE STATEMENT

TABLE OF AUTHORITIES

| STATEMENT OF THE CASE

REASONS FOR DENYING THE PETITION .. |

j

\. There are no reasons justifying review

this interlocutory decision

This case 1s not suited for this Court 1

decide now the narrow and local issue of

whether’ the Kleventh \mendment

applies to Puerto Rico

Che decision of the Court of Appeals |

consistent with the Mleventh

Amendment precedents of this Court

since the injunction imposes no actual o1

‘t

potential monetary lability upon Puerto

Rico

UW. ‘The decision of the Court of Appeals 1s not

1 conflict with those of other circuits

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Statutes and Constitutional Provisions:

Kleventh Amendment. passim

26 U.S.C. §§3301-3311 15-16

Miscellanous:

C. Burnett and B. Marshall (eds.), Foreign in a

Domestic Sense: Puerto Rico, American

Expansion and the Constitution (2001)............... 8

Fallon, R. H. & Meltzer, D. J.. New Law, Non-

Retroactivity, and Constitutional Remedies.

104 Harv. L. Rev. 1731 (1991).................00........ 21

Grant, E., A Revolutionary View of the Seventh

Amendment and the Just Compensation

Clause, 91 NW. U. L. Rev. 144 (1991).......... 21-22

Ki. Gressman et al., Supreme Court Practice (9th

Jackson, V. C., Seductions of Coherence. State

Sovereign Immunity and the

Denationalization of Federal Law, 31 Rutgers

j

LJ. 691 (2000) .... | ) eee i.

Jackson, V. C., The Supreme Court, the Eleventh

) ¥ ’ 2

Amendment, and State Sovereign framunity.

OS Yale Lid. 1 (1908) «qn... ..cccccccccccccocecesecc. rey

Katz, The Jurisprudence of Legitimacy:

Applying the Constitution to US Territories, 59

U. Omi. £.. Rev. 779 (1962) o.oo. oan. ne 8

J. Kerr, The Insular Cases: The Role of the

Judiciary in American Expanstonism (1982) ..... 8

Merrill. T.W.. The Landscape oO] Constitutional

Property, 86 Va. L. Rev. 885 (2000).

EK. Rivera Ramos, The Legal Construction of

Identity: The Judicial and Social Legacy of

American Colonialism in Puerto Rico (2001)...... 8

Terrasa, The United States, Puerto Rico, and the

Territorial Incorporation Doctrine: Reaching a

Century of Constituttonal Authoritarianism

31d. Marshall L. Rev. 55 (1997)....... Ser 8

J. Torruella, The Supreme Court and Puerto

Rico: The Doctrine of Separate and Unequal

ot a a . eo:

J. Trias Monje, Puerto Rico: The Trials of the

Oldest Colony in the World (1997) -

l. STATEMENT OF THE CASE

This complicated regulated market case 1s still

pending final resolution before the U.S. District

Court for the District of Puerto Rico. As of today, the

case 18 nearly six years old, and it continues in its

preliminary injunction phase, despite a _ docket

consisting of more than 1600 entries. Many

preliminary injunction issues remain unresolved. In

particular, the remedy that petitioners submit is

offensive to the Eleventh Amendment has not been

fully implemented. See Pet. App. at 50a f/n 3

Neither the amount of the regulatory accrual

remedy, nor its precise mode of calculation or the

recovery schedule have been set. See U.S.D.C. Dkt

Nos. 1512, 1547, 1577, 1619, and 1662 See also

Suiza’s App. at A-2, A-13 to A-15

This case arises out of the decision made by the

Government of Puerto Rico to regulate the Puerto

Rico milk market. The Puerto Rico Milk Regulatory

Agency (“ORIL”) forces the fresh milk processors to

operate within a range controlled by ORIL. ORIL

determines the price at which processors can

purchase raw milk and the price at which they can

sell finished product to their clients. See Pet. App. at

5a. Because of the de facto control of the daury farmers

over ORIL, the price of raw milk was kept high while

the price of processed fresh milk was kept low. See

Pet. App. at 5a-6a, 9la, and 93a-94a.!

Acting on respondents’ petition for a preliminary

injunction, the District Court held 51 intensive

evidentiary hearings over the course of one and a

half years. On July 13, 2007 the District Court

granted a preliminary injunction. See Pet. App. at

12a. The Court found that ORIL had committed

numerous constitutional violations that are

painstakingly detailed in the Court’s ninety-five

page Opinion and Order. The same contains 239

footnotes with specific references to the factual

record developed.

In relation to the issues raised by the petition for

certiorari, the District Court concluded:

The regulatory system of ORIL has created

for the fresh milk processors yearly losses

that have consistently diminished their

capital base. The normal regulatory way of

dealing with this issue 1s by creating a

capital account of “regulatory accrual” that

would add to the capital base the erosion

experienced because of this regulatory system.

By providing in future rates a rate of return

over the capital plus the capital losses, the

companies could be made whole and be

! Not a single factual determination of the District Court was

ever challenged by petitioners See Opimon of the Court of

Appeals, Pet. App at 3a f/n. 1.

¢}

a)

provided the necessary recovery of cost and

reasonable profit. (Emphasis added,

footnotes referring the record omitted),

See Pet. App. at 118a.

The District Court also found that:

ORIL has failed to follow these principles

and has intentionally squeezed plaintiffs

between the gap of a fixed regulated price

and an irrational high price for raw milk.

ORIL has _ intentionally issued this

administrative measure 1n order to protect

Indulac[?] in the competition with the local

fresh milk industry and the continental

importers. The evidence shows, from

admissions of the farmers, that ORIL’s price

fixing scheme is designed to fulfill these

goals.

See Pet. App. at 168a.

Moreover, the Court found that ORIL

continuously and arbitrarily changed its regulatory

position in order to allow and disallow costs to

manipulate figures and squeeze _ respondents

between a high price for raw milk and an artificially

low price for processed milk. See Pet. App. at 123a.

The “lack of regulatory rules has been the

2 A mulk processor controlled by the dairy farmers. See Pet

App. at 8la-82a

3

instrument through which plaintiffs have been

denied the recovery of their costs, as well as a ‘fair

profit’ in the fresh milk business”. See Pet. App. at

167a.

In order to address that’ situation, the

preliminary injunction in essence orders ORIL to

establish any further regulation and milk prices on

the basis of scientific, non-discriminatory, rational

and fair standards. Presumably, those standards

will result in a fair evaluation of respondents’

operational costs for purposes of cost recovery.

But as the District Court recognized, in a

regulated market respondents also have the

constitutional right to be allowed to receive a

reasonable profit over the recovery of operational

costs. That profit 1s calculated by ORIL by applying

a rate of return percentage figure to the capital base

of respondent. The undisputed evidence presented

during the compliance hearings of this preliminary

injunction is that respondents’ combined capital

stood at minus $5 million. See Pet. App. at 24a. This

negative figure is the result of the capital base

diminution arising out of ORIL’s unconstitutional

actions. See Pet. App. at 118a.

In order to reconstruct respondent’s capital base

and provide a rate of return over equity in prices

going forward (“reasonable profit”), ORIL was

ordered to adopt the customary method of capital

reconstruction in regulated markets known as

“regulatory accrual”. This regulatory accrual takes

4

the form of an additional amount that respondents

are allowed to charge their customers for processed

milk during a set period of time. The capitalized

total figure is added to the base of capital for

purposes of applying the adopted return on equity

percentage going forward. The outcome of those

operations 1s the final price to be paid for processed

fresh milk by the clients of respondents. After a

certain period, the regulatory accrual remedy

disappears from the milk price.

The preliminary injunction does not mandate

ORIL “to allow respondents to recover a higher rate

of return going forward.” Pet. Brief at 4. The

injunction does not set any particular rate of return

Rather, the injunction simply orders the adoption of

adequate standards that will allow ORIL to

“determine cost and fair profit return for all the

participants in the Puerto Rico regulated mulk

market”, Pet. App. at 197a, whatever those are.

The regulation promulgated by ORIL imposing a

1.5¢ surcharge over the price of milk but ordering

respondents to deposit said portion of the price

collected from their clients in a segregated account

at ORIL is not a provision “[iJn comphance with the

district court’s order.” Pet. Brief at 4. The District

Court never ordered ORIL to become custodian of a

portion of the milk price collected by respondents

from their chents. ORIL decided to do so on its own

thus precluding respondents’ immediate access to a

portion of the preliminary injunction remedy. See

Suiza’s App. A-4 to A-8&.

As the Court of Appeals correctly indicated,

according to the District Court’s order, the price paid

by the milk chents would be neither collected by

government entities nor deposited in the

Commonwealth's treasury. “Apart from the initial

price order, no state action is required to implement

this remedial scheme, which would, in no way, reach

the coffers of the Commonwealth.” See Pet. App. at

26a.

Petitioners requested the Court of Appeals to

retain the mandate. Suiza filed its opposition,

Suiza’s App. A-1 to A-15, and the Court returned the

mandate by a unanimous vote.

Il. REASONS FOR DENYING THE PETITION

A. There are no reasons justifying review of

this interlocutory decision.

Ordinarily, this Court does not issue a writ of

certiorari to review a decree of a circuit court of

appeals on appeal from an interlocutory order.

American Construction Co, v. Jacksonville, Tampa

and Key, W. R. Ry. Co., 148 U.S. 372, 384 (1893).

This case presents no extraordinary circumstances

that would justify issuing the writ before the final

decree. Hamilton-Brown Shoe Co. v. Wolff Brothers

3 [tis simply to misconstrue the remedy to say, as the Amucr

Brief does, that the Court of Appeals approved of an order

;

“compelling [Puerto Rico] to collect and deposit funds into a

specific account earmarked for retrospective monetary rehef”

See Amici Brief at 3 and 8

6

& Co., 240 U.S. 251, 258 (1916); Denver v. New York

Trust Co., 229 U.S. 123, 133 (1913). See also

Virginia Military Institute, et al. v. United States,

508 U.S. 946 (1993). The petition does not even

address this issue.

That finalty rule is of particular importance in

this case since the District Court 1s still in the

process of implementing the preliminary injunction

issued more than three years ago. As we have said

before, the regulatory accrual remedy under attack

by petitioners here has not been implemented in full,

and key decisions regarding its operation remain to

be made. An additional record is in the process of

development. The Court should not enter into the

issues raised by the petition on the basis of an

incomplete record and without allowing the District

Court to finish its business in connection with the

remedy in question. Issuing the writ at this time

will induce the inconvenience, litigation costs and

delay in achieving ultimate justice that frequently

accom any interlocutory appeals. See Johnson uv.

Jones, 515 U.S. 304, 309-310 (1995). See also E.

Gressman et al., Supreme Court Practice 82 (9 ed.

2007).

B. This case is not suited for this Court to

decide now the narrow and local issue of

whether the Eleventh Amendment

applies to Puerto Rico.

This Court has never decided whether the

Kleventh Amendment apphes to the unincorporated

territory of Puerto Rico to the same extent that it

does to the States of the Union. That is an issue

that goes to the core of the relationship between

Puerto Rico and the United States. See Downes v.

Bidwell, 182 U.S. 244 (1901); Dooley v. United

States, 183 U.S. 151 (1901): E. Rivera Ramos, The

Legal Construction of Identity: The Judicial and

Social Legacy of American Colonialism in Puerto

Rico (2001); J. Torruella, The Supreme Court and

Puerto Rico: The Doctrine of Separate and Unequal

(1985); J. Trias Monje, Puerto Rico: The Trials of the

Oldest Colony in the World 36-51 (1997): C. Burnett

and B. Marshall (eds.), Foreign in a Domestic Sense:

Puerto Rico, American Expansion and __ the

Constitution (2001); J. Kerr, The Insular Cases: The

Role of the Judiciary in American Expansionism

(1982): Katz, The Jurisprudence of Legitimacy:

Applying the Constitution to US Territories, 59 U.

Chi. L. Rev. 779 (1992); Terrasa, The United States,

Puerto Rico, and the Territorial Incorporation

Doctrine: Reaching a Century of Constituttonal

Authoritarianism, 31 J. Marshall L. Rev. 55 (1997).

This was not an issue in the Court of Appeals

because, as petitioners correctly recognize, the Court

of Appeals for the First Circuit has consistently

5

decided, for over a quarter century, that che

Eleventh Amendment apples in full force to Puerto

Rico. See Pet. Brief at 7-8, f/n 1. As demonstrated

by the case petitioners themselves cite, Ezratty v.

The Commonwealth of Puerto Rico, 648 F.2d 770 (1s

Cir. 1981), that conclusion was reached with

practically no explanation. 7d. at f/n 7. But if this

Court 1s to impose such a serious limitation to the

power of Congress over Puerto Rico under the

Territorial Clause of the U.S. Constitution, a

thorough analysis of the unique political status of

Puerto Rico will certainly be required. Cf. Calero

Toledo v. Pearson Yacht Leasing C’o., 416 U.S. 663

(1974) (discussing the evolution in Puerto Rico's

status since the end of the Spanish-American War in

1898)

To provide the remedy that petitioners seek, this

Court cannot operate under the “assumption” that

the Eleventh Amendment apples to Puerto Rico as

petitioners invite it to do. See Pet. Brief at 7-8, f/n 1.

This Court operated under that assumption in

Puerto Rico Aqueduct and Sewer Authority v. Metcalf

& Eddy, Inc., 506 U.S. 139, 141 n.1 (1993). But the

question there was entirely different. The only

matter that this Court had to decide, and decided in

that case, was whether an order denying a motion by

a state or a state entity to dismiss a civil action on

srounds of immunity from suit in federal court,

under the Eleventh Amendment, was immediately

appealable under the collateral order doctrine. The

Court of Appeals had responded in the negative and

had dismissed that appeal on jurisdictional grounds.

Q

This Court reversed, holding that there was no

jurisdictional impediment to the consideration of the

Eleventh Amendment claim of Puerto Rico in that

context. But the Court of Appeals had not reached

the merits of the Eleventh Amendment claim and

this Court had no need to do so 1n order to resolve

the jurisdictional issue before it

That is certainly not a way out of this ease. If, as

petitioners submit, a portion of the preliminary

injunctive remedy affirmed by the Court of Appeals

should be annulled on the basis of the Eleventh

Amendment defense of Puerto Rico, a holding that

said amendment limits the power of Congress under

the Territorial Clause of the Constitution needs to be

made first. For reasons already stated, this is

hardly the case for such a narrow but difficult

question to be entertained. Cf. Harris v. Rosario, 446

U.S. 651 (1980) (holding that Congress may treat

Consistent with its long standing position, the Court of

} “Uy svar ~ +h ae fF ORTT'c yen

Appeals here ruled on the ments ot ORIL’s Eleventh

Amendment claim construing the same as it would have had

: j }

the claim been made by a state In that context, it is irrelevant

that “[rJjespondents have not disputed the proposition that

»

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Puerto Rico is entitled to sovereign Immunity at any stage ol

‘

Ps ; 5 arf 2 pen nt Vy } > f ¢ » } T }

this htigation. “(Pet Bnmef at t/n 1) since that determination is

t = ° ‘ | ‘ ’ *) a | , ‘ ] 1 lees = . - at 5 y

the cornerstone of the decision appealed Furthermore, even

if this were a claim not raised. .below, we would ordinarily feel

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tree to address it. since it was addressed by the court below

y > ) » } . 4 » -o,970 Fe ’ y* > = \ hers Pi

Lebron v. Nattonal Railroad Passenger Corp , 513 US. 374. 379

(1995) There is no wavy ot escaping the reach of what

petitioners want this Court to rule in the context of this

ae) . .

interlocutory appeal

Puerto Rico differently than it does a state in public

welfare programs because of the Territorial Clause).

C. The decision of the Court of Appeals is

consistent with the Eleventh Amendment

precedents of this Court, since the

injunction imposes no actual or potential

monetary liability upon Puerto Rico.

The Court of Appeals explained very clearly why

its decision was consistent with the Eleventh

Amendment precedents of this Court. For the sake

ot brevity we abstain from repeating’ those

arguments here and invite the Court to examine the

analysis contained in the Court of Appeals’ Opinion,

Pet. App. at 24a-28a, and the Opinion of Judge

Torruella concurring in the denial of en banc review,

Pet. App. at 46a to 54a. The key element is that the

momies of the remedy are strictly private in nature

and that petitioners never argued that they are in

any way public funds. See Pet. App. at 49a.

As the Court of Appeals correctly indicated:

}

[Petitioners] provide no support for their

contention that retrospective rehef that does

not reach the state treasury is barred by

sovereign immunity. Rather, the cases cited

by defendants, including Edelman, involve

requests for retroactive compensation that

would invariably come out of — state

treasuries. See, e.g., td., at 667 (‘[Rehef

sought] requires payment of state funds, not

11

as a necessary consequence of comphance in

the future with a= substantive federal-

question determination, but as a form of

compensation...."); Papasan v. Allain, 478

U.S. 265, 279 (1986) (plaintiffs sought funds

directly from the state to fund = school

districts).

See Pet. App. at 25a. Emphasis in the original

Petitioners rely heavily on Regents of the

University of California v. Doe, 519 U.S. 425 (1997).

That case provides no support for petitioners’

position. In Doe, plaintiff sought to obtain payment

of damages from the State fisc of Calfornia. The

disbursement for payment would have come from

State coffers but for an indemnity agreement with

the federal government that made the latter

responsible for said payment. Doe stands for the

proposition that if the State is obligated to pay

retroactive damages from its own coffers, the fact

that a subsidiary source of funds, such as an

indemnity agreement or an insurance policy exists,

does not defeat the Eleventh Amendment defense.

But that is not the situation’ here. The

Government of Puerte Rico has not been ordered to

pay one single cent, be it from its coffers or

anywhere else, to respondents. This preliminary

injunction simply provides that if the Government of

Puerto Rico decides to continue regulating milk

prices on the island (a choice Puerto Rico ts free to

make either way), then it has to regulate prices

.

prospectively providing for the reconstruction of

respondents’ depleted capital in order to allow them

to recover costs and make a reasonable profit. There

is absolutely no indication in the injunction that the

price for milk that the consumers would be paying 1s

in liew of a payment that otherwise would come from

State coffers. That is clearly distinguishable from

the situation in Doe in which but for the indemnity

agreement with the federal government, the State of

California would have been responsible for the

judgment sought by plaintiff. See Pet. App. at 49a-

o0a.°

It 1s precisely by looking “... to the substance

rather than to the form of the relief sought,”

Papasan v. Allatn, 478 U.S. 265, 279 (1986), as

petitioners invite this Court to do (Pet. Brief at 9),

that the Court of Appeals correctly reached the

conclusion that its holding was not in opposition to

this Court’s holding in Doe.

Green v. Mansour, 474 U.S. 64 (1985) does not

support the position of petitioners. Relying on Quern

uv. Jordan, 440 U.S. 332 (1979) plaintiffs in Green

° To say, as Doe holds, that a state doesn't lose its immunity

because the federal government pays in Jreu of the state does

not imply, as the Amic: Brief suggests at p. 17, that the State

can transfer its 1mmunity to a private entity by agreeing

voluntarily to pay ir its place <A federal indemnity is not a

transfer of federal immunity to the State. Similarly, a

voluntary payment by the State on behalf of a third party may

be a waiver of its immunity but not a transfer of the same to a

non-sovereign. That argument by the Amici is a non-sequitur

13

were seeking declaratory judgment that past actions

of State officials violated federal law. But. at the

time this remedy was sought, there was indisputably

no ongoing violation of federal law. Without an

ongoing violation of federal law no_ prospective

remedy was possible. In that context, the declaratory

judgment would only have served:

. as res judicata on the issue of lability,

leaving to the State courts only a form of

‘ccounting proceeding whereby damages or

restitution would be computed. But the

issuance of a declaratory judgment in these

circumstances would have much the same

effect as a full fledged award of damages or

restitution [against the State] by the federal

court, the latter kind of relief being, of

course, prohibited by the Eleventh

Amendment.

Green at 73. At the time of the issuance of the

preiminary judgment and as of today, there is a

continuing violation of federal constitutional law in

this case.

Puerto Rico's treasury 1s not compromised by this

preliminary injunction now or in the future. If

Puerto Rico were to deregulate the prices of milk, a

decision that only Puerto Rico can take. the

obligation to provide for a recapitalization remedy in

the prospective rate would disappear. Whatever

capital or revenue requirements respondents may

then have, would be satisfied from the price they

14

charge for their product as determined by market

forces. But even if Puerto Rico were to continue

regulating the market and the increase in price

would lead the consumers to reduce their purchases

of milk, that would prolong the period the

recapitalization of respondents’ would take, but

would not in any way compromise Puerto Rico’s

coffers. The preliminary injunction required Puerto

Rico to prospectively set the price of milk, which it

has decided to regulate, by the method customarily

used to redress depleted c.pital problems in

regulated markets. It does not require Puerto Rico to

force consumers to buy milk, much less pay for milk

with public funds if the consumers refuse to do so

with their own.

D. The decision of the Court of Appeals is

not in conflict with those of other

circuits.

Petitioners submit that the interlocutory decision

of the Court of Appeals here is in conflict with

decisions from several other circuits. That

contention 1s incorrect.

Esparza v. Valdez, 862 F.2d 788 (10% Cir. 1988)

deals with a claim for unemployment benefits to the

State of Colorado. Colorado, as many other states,

operated its unemployment benefits program under

the Federal Unemployment Tax Act (“FUTA”), 26

U.S.C. §§3301-3311. That is a scheme by which the

federal and state governments cooperate to provide

15

assistance to unemployed workers. As the Court

correctly indicates:

Under FUTA, the federal government helps

States fund the cost of administering

unemployment compensation programs

while leaving most of the actual raising and

all of the paying out of benefit monies to the

States.

Id. at 789.

After recognizing that “... some district courts and

one circuit have allowed plaintiffs to sue a State in

federal court for recovery of past unemployment

claims, principally on the grounds that the State’s

unemployment compensation fund 1s a_ special,

segregated fund as distinguished from a general

revenue fund’, the Tenth Circuit rejected the

operational validity of the distinction between one

fund and the other. The Court held that said

distinction between “general” or “special revenue”

fund (both holding public monies), from which the

State would have to pay unemployment benefits,

does not preclude application of the Eleventh

Amendment.

Paschal v. Jackson, 936 F.2d 940 (7th Cir. 1991) is

a very similar case dealing also with a claim for

retrospective unemployment benefits. Again,

plaintiffs were seeking disbursement of public funds

segregated in a special account. The consideration

for which public funds would be disbursed was the

16

past unemployment status of claimants. Since

public funds were to be disbursed, the Seventh

Circuit, like the Tenth, found irrelevant for Eleventh

Amendment purposes the particular account in

which the state kept these public funds. The Court

found irrelevant “the source of State funds” provided

that the disbursement was of “state funds”, which

unemployment benefits always are.

Cronen v. Texas Department of Human Services,

977 F.2d 934 (5t Cir. 1992) is also a similar case

which deals with a claim for retrospective welfare,

instead of unemployment, benefits. In this case,

Cronen sought restoration of past food stamp

benefits that, according to him, were denied

improperly. In short, Cronen’s claim was based on

his legal right to have State funds paid to him, on

account of meeting certain poverty related criteria.

As it is pertinent here, the Court sumply upheld an

Eleventh Amendment defense against the

disbursement to plaintiff of State funds although

those were of federal origin. Interestingly, the Court

intimates that plaintiffs argument may have been

successful had it filed suit, not against the State

itself but as respondents here, against the State

officials in their official capacity. See Cronen, supra

at 938.

In Florida Association of Rehabilitation

Facilities, Inc. v. Florida Department of Health and

Rehabilitative Services, 225 F.3d 1208 (11 Cir.

2000) a claim on behalf of disabled people was made

against State officials. The District Court directed

L/

defendants to correct their Medicaid reimbursement

plan prospectively and retrospectively. The Court of

Appeals reversed the part of the judgment that

required the State to pay money for pre-judgment

violations, Again, these Medicaid funds were

undoubtedly State funds that had to be disbursed by

the State to redress pre-judgment claims. As the

Court itself said, “... we note that the judgment

clearly does contemplate the payment of State funds

to redress prior inadequate reimbursements.” /d. at

1220.

Finally, in Ernst v. Rising, 427 F.3d 351 (6 Cir.

2005) the Court was dealing with a claim by certain

state court judges that the State of Michigan was

violating the Federal Equal Protection Clause by

giving more favorable retirement benefits to other

state court judges. The retirement system of the

State was a product of State legislation, run by State

officials and funded by the State treasury. The

Court upheld the Eleventh Amendment defense

finding irrelevant the fact that the State retirement

funds in question were kept in a State “pocket”

different than that of the State’s general funds.

These cases are clearly distinguishable from the

case at bar. Unemployment, weifare, Medicaid,

disability and retirement pensions are all obligations

of the State payable with State funds regardless of

the origin of said funds or the particular account in

which they are kept. All of the above cases reject

those origin and fiscal deposit distinctions when it

comes to the Eleventh Amendment.

18

But that is not at all the situation of this casi

Before Puerto Rico decided to regulate milk price

retailers and consumers would pay respondents for

processed milk at a price set by market forces. The

money paid did not constitute State funds but money

paid by a private citizen to a private entity in

exchange for goods After Puerto Rico decided t

regulate the price to be paid, in the exercise of

Puerto Rico's police power, that money continued to

be paid in exchange for the processed milk of

respondents and did not alter its strictly private

character at all. I[t continued to be money paid for

milk belonging to private parties and not State fund

of any sort. Petitioners nor Amici cite any authority

for the proposition that whenever the State engage

in rate making, the nature of the payment for the

regulated commodity changes from private money t

State funds’. See Amici Bnef at 18

in essence, for yea the milk consuming publi

received the benefit of the unduly low price of fresh

milk caused by ORIL’s unconstitutional action

Now, it is that public's private money that will b

used to procure constitutionally valid prospective

rates through recapitalization In a deregulated

market that result would be achieved through a

price hike freely determined by respondent But

ince Puerto Rico continue committed to price

regulation, the regulatory accrual remedy becom«

nec arv. But the hability for that remedy does 1

fall upon the government but upon the milk buyers,

as it would in a deregulated market.®

Kk. The decision of the Court of Appeals is

correct,

As Suiza has shown above, the Court of Appeals

did not rule as it did because the monies in question

here did not come “directly from the general

treasury’. Pet. Brief at 16 and Amict Brief at 2. It

ruled as it did because the funds in question do not

come directly nor indirectly from the general

treasury since they are strictly private monies paid

to private parties in order to buy from them a

particular commodity.’ But there are other reasons

why this petition should be demed. In comphance

* The preliminary imyjunction does not require ORI, to do

anything other than take into consideration tne regulatory

accrual elements in setting the new price going forward, ORIL,

is not required by the preliminary injunction to interfere or

participate in the collection of monies, nor deposit them in a

government account or distribute the same The money

continues to be collected by respondents ORII, on its own has

ordered respondents to send back to ORIL for “deposit” the

regulatory accrual mommies. See ante at 13-15 and Suiza’'s

Motion in Opposition to Motion for a Stay of Mandate, Suiza's

App at A-4 to A-10 The 1 5¢ surcharge was not “judicially

imposed”, Amict Bnef at 12, but umlaterally determined by

ORIL in that same administrative order

7 There is no basis for the statement by Amuce at 18 that“. the

reason the milk surcharge would not reach the public fise is

that the injunction itself directs the funds elsewhere in

advance.” The price of milk always goes from the consumer

through the retailer to the processors, not to the government

with injunction or without it

20

with Rule 15(2) of this Court we mention them

briefly.

1. The regulatory accrual remedy is not

barred by the Eleventh Amendment

under First English Evangelical

Lutheran Church v. County of Los

Angeles, 482 U.S. 304 (1987).

The District Court held that the February 2006

price order issued by ORIL in the middle of this

litigation constituted an unconstitutional taking of

Suiza’s property. See Pet. App. at 17la. The Court

ordered that unconstitutional regulatory taking to

cease by. among other things, reconstructing the

erosion that the same had caused on Suiza’s capital

from the year 2003 which was the base year of the

order in question. Suiza submits that compensatory

remedies for temporary takings, even if they are

(unlike here) paid with State monies present no

Eleventh Amendment problem in light of the holding

of First English Evangelical Lutheran Church v.

County of Los Angeles, 482 U.S. 304 (1987). That is

the reading afforded to that case by many including

§ See for example. Fallon. R H & Meltzer, D Jd. New Law,

Non-Retroactivity, and Constitutional Remedies. 104 Harv. L

Rev. 1731, 1825 & n. 536 (1991) (refermng to First English by

saying “ the Court rejected the United States’ position that.

in hght of sovereign immunity, the just compensation clause

should not be interpreted to require a monetary remedy );

Grant, E , A Revolutionary View of the Seventh Amendment and

the Just Compensation Clause, 91 NW U.L Rev 144. 201

(1991) (asserting that in First English “The Court thus

21

the Court of Appeals for the First Circuit. See

Parella v. Retirement Board, 173 F.3d 46, 57 (1st Cir

1999) (Lynch. Cir. Judge) (recognizing while

discussing the prospective— retrospective conundrum

of the Eleventh Amendment that in First Lutheran

the Supreme Court “firmly established” that “the

Takings Clause also requires just compensation for

temporary takings (which would seem to be

irreducibly retrospective)’).2 See Tenoco Oil Co. v.

DACO, 876 F.2d 1013, 1027 n.20 (1st Cir. 1989).

See Supreme Court... has held that damages are

etrospectively available for the period of ‘temporary

Bit 1.e.. regulatory takings’ ultimately

‘recognized our first reformulated postulate associated with

sovereign immunity independent of congressional action

citizens have a judicially enforceable mght to yust compensation

from the government, by virtue of the Constitution”). Merrill.

TW. The Landscape of Constitutional Property, 86 Va LL Rev

885, 981 & n.351 (2000) (citing First English for the proposition

that “ .the Takings Clause has been held to incorporate a self.

executing waiver of state and federal sovereign immunit

against claims for monetary compensation’), Jackson, V. C

~

Y ? q ~~ 7 | ,

< on ee Ahar gus on ; _ = - nae

Seductions of Coherence, State Sovereign Immunity and the

4 tafe

Denationalizatro f Federal Law, 31 Rutgers L.’ 691. 724

n 126 (2000) peel First English for the proposition that

“notwithstanding sovereign immunity, the Constitution

‘dictates’ a remedy for takings il eipghs aewstien V C, The

Supreme Court, the Eleventh Amendment,

Immunity, 98 Yale LJ 1. 115 & n.454 (199 8) (stating that Fir

English palinced suggests that States lack sovereign enacts

from just-compensation claims in federal court)

nd State Sovereign

st

This categorical statement by Judge Lynch on behalf of

unamimous Court of Appeals in Pareila is difficult to reconcile

with her dissent in the case before this Court

*>*)

—

invalidated as unconstitutional by the courts.’). See

also. Lucas v. So. Carolina Coastal Council, 505 U.S

1003, 1011-1012 (1992): Tahoe-Sterra Preservation

Tahoe Reg. Planning, 535 U.S. 302, 347

~- > Ta

Council v. 7

(2002), (Rehnquist, CJ. dissenting) and Stop the

Beach v. Florida, 130 S. Ct. 2592, (2010) (Kennedy

J.. concurring)

2. The remedy objected to by petitioners is

indispensable to set prospective rates.

As such it is not a retrospective remedy.

Without the regulatory accrual to reconstruct

depleted capital any prospective rate will be

insufficient to provide a reasonable profit to

respondents. The remedy is thus prospective.

In a free milk market. respondents’ revenue and

resulting profit would come from charging for their

products as high a price as the market would bear.

Whatever revenue requirements respondents may

have, would come directly from the amount they get

from the consumer according to the laws of offer and

demand

But in Puerto Rico’s regulated milk market the

laws of offer and demand have been displaced. The

margin between cost and price to the consumer 1s

determined by the government. The government 1s

constitutionally required to set a margin that

provides the regulated entity an opportunity to make

a “reasonable” profit. See Pet. App. at 164a-l7la

and authorities therein cited

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solution available to respondents in Puerto Rico's

regulated milk market.

It is easy to understand what would happen with

the Distrnct Court’s prospective regulated market

remedy if the regulatory accrual starting with the

depleted base vear 2003 1s not allowed. Not even

ORIL demies that in a regulated market, Suiza is

entitled to prospectively recover costs and make a

reasonable profit. The first step in the latter

direction is to determine the percentage of ROE that

Suiza should receive for a milk production facility

operating under the economic conditions of Puerto

Rico. But, as we have seen. the percentage figure is

only half the story. The actual prospective profit to

be received by Suiza varies enormously with the

same return on equity percentage figure depending

on the capital base to which that figure is going to be

apphed. Suiza’s present capital base has been

eroded so severely that a negative capital number

results.!°) In other words, for Suiza to actually

recover prospectively a reasonable profit in addition

to its costs, its regulatory equity base has to be

positive and real, that is, reconstructed to what it

would have been today but for the imtentional.

unconstitutional confiscatory actions of ORIL. If

© Pet App at 24a. Even ORIL’s expert witness, Dr Ronald W

Cottenll, recognized that “ .and on the other hand of the

balance sheet they had total habiltties plus equity equal. by

defimtion, equal to those total assets. and at that tme a net

worth was a negative $5 milhon, so that was part of that side of

the balance sheet” (Transempt of February 17. 2009 hearing, p

S. lines 24-25 top 9. hnes 1-4)

Suiza is to recover the necessary percentage of ROE

over an unconstitutionally eroded regulatory equity

base, Suiza would not be recovering prospectively its

constitutionally mandated revenue requwrement.

The regulatory accrual remedy of the District Court

is thus prospective inasmuch as it 1s indispensable to

pro_pectively remedy ORIL’s — unconstitutional

actions.

If *...relief that serves directly to bring an end to

a present violation of federal law is not barred by the

Eleventh Amendment even though accompanied by a

substantial ancillary effect on the state treasury’,

Papasan v. Allain, 478 U.S. 265, 278 (1986), then

such a relief when, the state treasury 1s in no way

compromised, 1s unobjectionable.

The contention that this relief is prospective

because it is necessary to rebuild respondents’

capital base is not, as petitioners suggest, one that

could almost always be made when a court awards

retrospective monetary relief. See Pet. Brief at 16.

The reconstruction of the capital base is an issue

here simply because respondents operate within a

regulated market. It is in a regulated market that

the “reasonable profit” results directly from having

an adeguate capital base allowed by the Regulator as

a necessary investment for the regulated activity. In

a free market, the concept of “reasonable profit’

plays no role since every entity seeks to maximize its

profit and charge for its product as much as the

market will bear. In a free market environment,

?6

whatever revenue requirements for capital

reconstruction, or otherwise, respondents may have,

would be satisfied from the maximum price for their

product they can extract from the consumer. In

short, the argument that the remedy is prospective

because without it no reasonable profit is possible

prospectively, 1s one that can be made only by the

very smal] number of entities that operate within

regulated markets of this same sort.

3. ORIL is’ precluded by waiver’ from

raising any Eleventh Amendment

defense.

The agreement entered into between ORIL's

expert and the experts for respondents constitutes a

waiver by ORIL of its Eleventh Amendment defense.

During the month of August 2008, comphance

hearings on this preliminary injunction were to be

held before the District Court. At the behest of the

Court the expert working for ORIL and the experts

working for Suiza met with the purpose of narrowing

the differences between the parties in connection

with the last price order and proposed regulation.

See U.S.D.C. Dkt. No. 1002 and U.S.D.C. Dkt. No.

1004. Also, see U.S.D.C. Dkt. No. 1164.)

'! The District Court stated in an order, denying the request to

stay the comphance hearings, U.S.D.C Dkt. No 1164, p. 3

on August 25 and on August 26, 2008 the experts after a long

conference signed an agreement which simplified the

comphance hearings as to rate of return. (Docket No 1002,

Minute, Docket 10[0]3, Experts Agreement).”

>”?

— f

As expected by the District Court, a meeting

between the experts produced agreements in several

crucial issues substantially narrowing the

differences between the parties. That agreement

was reduced to writing and delivered to the District

Court with the signatures of the experts. The Court

entered the agreement into the docket. U-.S.D.C.

Dkt. No. 1003. (Transempt of August 26, 2008

hearing, p. 17, lines 14-25 to p. 18, lines 1-3).

Although the actual percentage value of the return

on equity to be used for each of the operating vears

between 2003 and 2007 was not agreed to, the

parties did agree on the methodology for the

calculation of the regulatory accrual and most

importantly for the use of that result for the

reconstruction of the present capital base of Suiza,

over which a return on equity going forward would

be applied. U.S.D.C. Dkt. No. 1003, Experts’

Agreement, par. 1 (c), incorporating a table entitled

“Estimated Regulation Accruals and Adjusted

Capital base: 2003-2007". After the agreement, all

the experts have used that methodology to

reconstruct Suiza’s capital. Transcript of February

17, 2009 comphance hearing, p. 11, lines 9-13

ORIL’s expert witness admitted:

Q. And if I look at the reconstruction of

capital that you have done in this

document, you're still - or as you

always did - using the regulatory

accrual to reconstruct captain [sic],

right”?

py @)

ra

A Yes.!*

Q. Now, going to capital, we need to

reconstruct capital by capitalizing the

regulatory accrual at the end of the

exercise, right?

A. At some point in the exercise, yes.'"

During a hearing held on January 12, 2009 the

District Court indicated to the parties that the

remaining controversies would be limited to those

not already resolved in the experts’ agreement.!4

Lastly, durng yet another post injunction

evidentiary hearing, ORIL’s counsel accepted that

the use of the regulatory accrual as the correct

method to calculate Suiza’s present capital base was

agreed to. Transcript of complhance hearings of

February 16, 2009, p. 11, lines 9-13. (“...but during

the course of the discussions between the experts, I

conceded on. when was it, Thursday that the capital

base issue was. and the methodology to get to the

capital base, was agreed’).

2 Transcript of heammng held on February 18, 2009, p 25, lines

22-25top 26, lne 1

13 Transcript of hearing held on February 18, 2009, p 45, lnes

14-15, andp 69, lines 3-6

14 Transcript of hearing held on January 12, 2009, p 41, lhnes

23-25 to p. 42, lines 1-4

YQ

ORIL cannot now come and raise an Eleventh

Amendment defense against the regulatory accrual.

ORIL has already accepted that, without the

regulatory accrual, Suiza’s present capital base cannot

be correctly recalculated and thus Suiza cannot obtain

the constitutionally mandated revenue requirement

going forward. ORIL stipulated almost all of the

regulatory accrual calculation elements. ORIL’s action

constitutes a recognition that the regulatory accrual

remedy 1s prospective in nature and its acceptance of

the same in the expert’s agreement constitutes a

waiver of any Eleventh Amendment defense it may

have had in connection with the same.

A waiver of immunity can occur (1) when there is

a clear declaration by the State that it intends to

submit itself to the jurisdiction of a federal court; (2)

by consent to or participation in a federal program

for which waiver of immunity is an express

condition; or (3) by affirmative conduct in htigation.

Clark v. Barnard, 108 U.S. 436 (1883): Lapides v.

Board of Regents, 535 U.S. 613 (2002); Welch v.

Texas Department of Highways and Public

Transport, 483 U.S. 468 (1987); Nevada Department

of Human Resources v. Hibbs, 538 U.S. 721 (2008).

Consent by conduct in htigation may occur when the

state affirmatively comphes with a= court's

implementation order. Garrity v. Sununu, 752 F.2d

727 (1st Cir. 1984). Voluntary entry into an

agreement may also have the effect of waiving

immunity through conduct. New York State Ass'n. v.

Carey, 596 F.2d 27 (2d Cir. 1979); Kozlowski v.

Coughlin, 871 F.2d 241, 244 (2d Cir. 1989).

30

4. ORIL created absolutely no record for its

contention that it is an “arm of the State”

for Eleventh Amendment purposes.

As demonstrated by f/n. 22 of Suiza’s Bnef before

the Court of Appeals, Suiza specifically preserved

the argument that ORIL had created no record

before the District Court to support the contention

that it was an arm of the State. ORIL had to

develop a record on that issue. See Ainstworth

Aristocrat International Party v. Tourism Company,

818 F.2d 1034, 1038 (1% Cir. 1987); Figueroa uv.

Aquino, 863 F.2d 10387, 1044 (1st Cir. 1988);

Fresenius Med. Care v. Puerto Rico & Caribbean

Vascular Center Corp., 322 F.3d 56, 61 (1% Cir. 2003)

cert. den. 540 U.S. 878 (2003). Failure to develop this

record is fatal to ORIL’s’ belated Eleventh

Amendment argument.

Other circuits have expressly stated the need to

develop a record on the arm-of-the-state issue. See

Gray v. Laws, 51 F.3d 426 (46 Cir. 1995); Pikulin v.

CUNY, 176 F.3d 598 (2d Cir. 1999) (remanding

because “defendant should develop a_ record

sufficient to allow the district court to consider fully

[defendant’s] relationship to the state.”); Gragg v.

Kentucky Cabinet for Workforce Development, et al.,

289 F.3d 958 (6t Cir. 2002) (‘defendants have

pointed to nothing on the record, and we have been

unable to find anything on the record that would

establish that they are arms of the state entitled to

the protection of the Eleventh Amendment”); East

Central Health District v. Brown, 752 F.2d 615 (11%

3]

Cir. 1985) (District Court’s denial of dispositive

motion affirmed since the record did not establish an

adequate factual basis to determine that defendant

was an arm of the state).

5. This is not a matter of exceptional

importance’ requiring this Court’s

intervention especially at this stage of

the proceedings.

The principles embodied in the _ Eleventh

Amendment are certainly important. But the

Eleventh Amendment is not compromised in any

way by the decision of the Court of Appeals.

Petitioners have cited no authority for’ the

proposition that a monetary award coming in the

form of an increase in the price of goods paid for by

the consumer to a private entity in the context of a

regulated market compromises’ “directly — or

indirectly” public funds.

Petitioners and Amici are mistaken in alleging

that this remedy equals a federal court ordering the

imposition of a tax on citizens to pay damages. As

recognized by the Court of Appeals, “...whether

Puerto Rico could levy a special tax to compensate

Tres Monjitas and Suiza 1s not the issue before this

court”. See Pet. App. at 27a. Monies collected by the

government on account of a tax are State funds no

matter the nature of the public purpose for which

they are going to be used. But the regulated price of

milk goes up and down for many reasons and those

price changes cannot be qualified as tax imposition

32

or tax relief measures. ‘They are changes in the

amount paid by the public to a private entity

whenever the public buys a commodity. Simply, rate

making and tax imposition and collection are two

entirely different government activities. The

analogy does not work.

Finally, the impact of this decision 1s limited to

the narrow realm of regulated markets. All the

obligations of the Commonwealth of Puerto Rico

under the injunction would disappear if Puerto Rico

were to deregulate the prices of milk today. The

decision to regulate or not to regulate the market is

Puerto Rico’s alone. But deregulation means that

revenue will depend on the vagaries of the free

market, reconstruction of regulatory capital would

be meaningless and respondents would be obligated

to fend on their own for their revenue needs. That ts

the case for all claimants outside the narrow realm

of regulated markets. The decision of the Court of

Appeals has no impact in free market situations

where most of the Eleventh Amendment issues arise.

V. CONCLUSION

There are no valid reasons for this Court to issue

the writ of certiorari to review an interlocutory

decision of the Court of Appeals in a still ongoing

case particularly where the remedy under attack has

not even been fully implemented. It is not even clear

that petitioners here are covered by the Eleventh

Amendment. The Eleventh Amendment does not

apply because no government monies are implicated

33

here in any way and any “retrospective liability” falls

upon the private resources of the milk buying public.

The remedy is consistent with the rulings of this

Court and there are no conflicts with decisions from

other circuits. This case has no impact outside the

limited realm of regulated markets.

The petition for certiorari should be denied,

Respectfully Submitted,

RAFAEL ESCALERA RODRIGUEZ

Counsel of Record

PEDRO SANTIAGO RIVERA

AMELIA CAICEDO SANTIAGO

REICHARD & ESCALERA

255 Ponce De Leén Ave.

MCS Plaza, 10th Floor

San Juan, PR 00917-1913

(787) 777-8888

escalera@reichardescalera.com

August 26, 2010

34

Interlocutory Appeal No. 07-2240;

Interlocutory Appeal No. 07-2369

United States Court of Appeals

For the First Circuit

Interlocutory Appeal No. 07-2240

VAQUERIA TREES MONJITAS, INC.

SUIZA DAIRY, INC.

Plaintiffs-Appellees

JUAN R. PEDRO-GORDIAN, in his official capacity

as Administrator of the Office of the Milk Industry

Regulatory Administration for the Commonwealth of

Puerto Rico

Defendant-Appellant

[Interlocutory Appeal No. 07-2369

VAQUERIA TRIES MONJITAS, INC.

SUIZA DAIRY, INC.

Plaintaffs-Appellees

SALVADOR RAMAIREZ, as Secretary of the

Department of Agriculture for the Commonwealth of

Puerto Rico

Defendant-Appcllant

Av

MOTION IN OPPOSITION

TO MOTION FOR STAY OF MANDATE

RAFAEL KSCALERA- RODRIGUEZ, KSQ.

CARMEN M. ALFONSO-RODRIGUEZ, ESQ.

AMELIA CAICEDO SANTIAGO, ESQ.

REICHARD & ESCALERA

MCS Plaza, 255 Ponce de Leén Ave Ste 1000, San

Juan PR 00917-1913

P.O. Box 364148, San Juan, PR 00936-4148

Tel. 787 777-8888, Fax. 787 765-4225

MOTION IN OPPOSITION

TO MOTION FOR STAY OF MANDATE

Plaintiff/Appelle Suiza Dairy, Ine. (Suiza”)

opposes the petition to stay the mandate filed by the

Milk Industry Regulatory Administration of the

Commonwealth of Puerto Rico and the Secretary of

Agriculture of the Commonwealth of Puerto Rico

(hereinafter jointly “ORIL” by the Spanish acronym of

the Administration). The inyunction ORIL appealed

was issued in the summer of 2007. ORIL's brief on

appeal was not filed until September of 2008. The

preliminary injunction of the District’ Court) was

affirmed unanimously by a panel of this court. ORIL’s

re-hearing petition was also denied unanimously.

ORIL’s re-hearing en bane petition was denied with

only one dissent. As of today, the preliminary

Injunction remains unenforced and ORIL’s effort. to

keep it that way continues. The petition to stay the

mandate should be demed for the reasons outlined

A-2

below.

I —- ORIL’s petition for a writ of certiorari before the

Supreme Court does not present a substantial

question within the meaning of FRAP

41(d)(2)(A).

A. There is no substantial llth amendment

wsue.

There is no possibility of an 1lIth Amendment

problem here because, as the panel recognized, the

district court's preliminary injunction does not require

the payment of any money let alone any

retrospective damages — from the public fise of Puerto

Rico. The district. court's preliminary injunction 1s

directed at ORIL, the Commonwealth's milk regulator,

and it ordered ORIL to create a new pricing structure

for the processing and sale of milk that affords the

plaintiff milk processors a reasonable rate of return to

be obtained from the milk buying public. After trial

hearings lasting for more than three years, the district

court found that the old ORIL pricing structure was

confiscatory — it violated the processors’ rights under

the ‘Takings, Due Process, and Equal Protection

Clauses, as this Court affirmed.

The imjunction requires no payment of money

out of the treasury of Puerto Rico. Rather, the

Injunction mandates the setting by ORIL, the milk

industry regulator, of a new pricing structure that

does not violate the plaintiffs’ constitutional nght toa

reasonable rate of return. One element of the new

price structure created by ORIL is the addition to the

retail and wholesale prices of 1.5 cents the

“regulatory accrual” — per quart of milk to make up to

the processors the multasmilhon dollar loss in capital

experienced since 2008 on account of ORIL's

confiscatory, unconstitutional pricing regime. ‘The

deficit in the plaintiff processors’ capital wall thus be

made up over time, going forward, by the payments of

Puerto Rico’s milk consumers: every time they buy a

quart of milk, they will be paying a price, 1.5 cents (or

whatever amount ts finally determined as part of the

payout schedule) of which is repayment to the

processors of the artificially low price of milk that the

consumers enjoyed for years under ORIL’s previous,

unconstitutional price structure. This 1.5 cents per

quart is paid by the consumer to the retailer (e.g., a

supermarket) at the cash register; that money is in

turn passed in the normal course of business by the

retarler to the plaintiff milk processors. ORITL has no

intervention in this collection process. This money part

of the price of milk, has never and does not now,

belong to the government, but to Suiza

The only reason that some of the regulatory

accrual funds is currently in the control of the

rovernment of Puerto Rico, 1s because ORIL has on its

own and under no federal compulsion, intervened in

the regular flow of money in the milk trade.

ORIL was required by the injunction to put a

constitutionally consistent set of price regulations in

place in 30 days. ORIL took over a year to enact and

file with the court a new set. of again constitutionally

deficient regulations. Without calculating the amount

of the regulatory accrual, much less determining a

payout period, ORIL decided to allocate for regulatory

accrual purposes the amount of 1.5 cents per quart, an

amount added to the price of milk to be paid by

consumers and retailers. But ORIL then proceeded on

its own to intentionally obstruct the district court’s

order by issuing an administrative directive to the

plaintiff milk processors, requiring them to turn over

the 1.5 cents per quart to ORIL. See Dkt. No. 1190

2,pags. 17°18.CSince the total sum of the

compensation has not been determined by the court,

we hereby create, by virtue of the regulations herein,

a fund for the eventual payment of such losses ... The

contribution for the abovementioned compensation

shall be determined by the Administrator through an

Administrative Order and shall be withheld and

deposited in a special account in complhiance with the

orders it receives from the administrator of this agency

in this regard.”.(Emphasis added). ORIL deposited

these funds in a separate, dedicated account, and is

apparently holding them hoping toindefinitely prevent

enforcement of this year’s old preliminary injunction.

That is, ORIL has itself effectively stayed the

enforcement of the district court's preliminary

Injunction by seizing from the plaintiffs some of the

fruits of the same, fruits to which plaintiffs are

constitutionally entitled by the now affirmed order of

the district court.

But what iscrucial here is that the money ORIL

is ordering plaintiffs to deposit with ORIL 1s money

that comes from the retailers and consumers that buy

A-5

the milk Suiza produces and goes to Suiza directly

Furthermore, ORIL is” requesting from Suiza

remittance of that money not because the district court

required ORIL to do so but because ORIL decided on

its own to prevent Suiza’s access to the money, as a

way of defeating the immediate relief sought by the

district court.

In order to support its Eleventh Amendment

argument, ORIL intentionally created the impression

in oral argument that the federal injunction issued by

this court required ORIL to go out and collect money

for regulatory accrual purposes, keep it in a fund and

pay Suiza from it. (Mr. Hill: “The nature of the bar is

whether the District Court can say to the state go,

whether 1t comes from your coffers or not, go and

collect a certain amount of money and pay back in a

equitable relief claim.” Transcript p. 5:5 Mr. Hill:

“However, to go back and say, and to tailor the remedy

and say “go back and collect it from your, from the

people, from the consumer, that your Honor I believe

violates the Eleventh (11th Amendment).” Transcript,

p. 6.) In describing the remedy Mr. Hull said: “Well

here 1t would be collected by ORIL, be placed in an

account and then delivered to the plants.” Transcript,

p. 6. At p. 10 of the Transcript, Mr. Hill said:

“However, the tailoring of the equitable remedy is you,

a state official, must go to the consumer and collect

this money and pay it.”

A transcript of the oral argument before this Court was

made and filed with the District Court at Dkt No 1512-1

A-6

Those misrepresentations continue today. See

ORIL’s motion to stay the mandate at p. 8. (..the

District Court’s Opinion and Order forces the state to

collect money in order to pay the plaintiffs their

purported profits.”)

An exchange between Judge Howard and

counsel for Suiza during oral arguments clarified this

issue.

JUDGE HOWARD:

Counsel, can I just ask you one factual

question. | want to make sure that |

understand what you said. The District

Court did not order the agency to collect

the regulatory accrual? It was the agency

that told you to submit it to them?

MR. ESCALERA:

Yes.

JUDGE HOWARD:

After the District Court order was issued.

MR. ESCALERA:

Yes. Because, —

JUDGE HOWARD:

Ok. | thought that’s what you said. I just

want to be sure.

In short, the core of ORJL’s 11th Amendment

argument (although insufficient) is a money handling

mechanism created by ORIL itself and not by the

preliminary injunction of the district court.

When the district court eventually enforces its

preliminary injunction, this money 1n the regulatory

accrual account will be returned by ORIL to the

plaintiff milk processors from whom ORIL seized it.

Suiza will continue to collect from rts clients (as it does

now) the milk money and retain all of it, including the

rest of the regulatory accrual money to which it 1s

entitled, ifany. Those actions will have no effect on the

public fisc of Puerto Rico, because the money in the

account as well as that collected in the future is not

Puerto Rico’s money — it is the property of the milk

processors from whom ORIL seized it. That money is

no more the property of the state than was the money

deposited in a state court's interpleader registry in

Webb's Fabulous Pharmacies Inc. v. Beckwith, 449

U.S. 155, 160-61 (1980). Thus neither the preliminary

injunction, nor this Court's decision sustaining it,

imphcates the 11th Amendment because the money 1n

ORIL's regulatory accrual account is not part of Puerto

Rico’s fisc, but is instead money ORIL seized from the

plaintiff milk processors — money they received, at 1.5

cents per quart, from retailers to whom they sold

processed milk under the new ORIL pricing regime

mandated by the decision of the district court.

A-8

The dissent at p. 25 erroneously says:

Under the regulatory accrual mechanism,

the money collected from consumers goes

into a special account in the FFIL that 1s

controlled and administered by ORIL for

eventual disbursal to plaintiffs. And all

monies stored in the FFIL are, as a

matter of Puerto Rican law, considered

depositories of the Commonwealth. This

is plainly relief that reaches the state

fisc.

First, the “regulatory accrual mechanism” described by

the dissent was created by ORIL not by the federal

order. Second, ORIL could have ordered all the

revenues of Suiza’s milk sales to be deposited in an

ORIL’s fund “for eventual disbursal” to Suiza and no

one would argue that such order had the effect of

turning those moneys into Commonwealth’s money.

Furthermore, the dissenting opinion mistakenly

speculates that the Commonwealth of Puerto Rico may

at some point be hable for the regulatory accrual

moneys. See dissenting opinion at p. 23-24 (“And if this

mechanism failed —1f, for instance, consumers bought

less fresh milk in response to the raised prices and the

regulatory accrual failed to accumulate’ the

significance sums needed to repay plaintiff — there is

no indication ORIL would not stil be on the hock for

plaintiffs’ loss profit.”) Not only there is no indication

whatsoever in the preliminary injunction to support

this speculation but the same is plainly wrong. The

A’9

only way that the regulatory accrual money would stop

flowing to plaintiffs is ifevery consumer in Puerto Rico

were to stop buying milk. A decrease 1n the amount of

milk consumers only entails a tonger period for

regulatory accrual recovery or price accommodations

every time the price fluctuates because of changes in

the cost structure. But even if all consumers were to

stop buying milk that simply means that there are no

more milk revenues of any kind, regulatory accrual

included, coming to plaintiffs. The government would

not have to pay plaintiffs for the revenue they now

have ceased to receive for milk nobody 1s buying. The

eovernment will not have a milk market to further

regulate. The Puerto Rico milk industry would have

simply disappeared. But the point is that the

government is not “on the hook” for the regulatory

accrual moneys coming only from milk sales even in

such a doomsday scenario.

B. There is no substantial Widamson question.

At p. 9 of its motion to stay the mandate ORIL

Says:

Under Williamson” and its progeny, a

federal court, in takings cases, would

have to wait until the claimant ran the

state court gamut to seek just

compensation for the losses from the

state courts, 1n the first instance 1n order

’ Wulhamson County v. Hamulton Bank, 473 US 172 (1985)

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to determine whether the federal court

should grant just compensation, in the

last instance. (Emphasis added.)

This Court itself has recognized that that is not

atallthe Williamson mandate. In Tenoco O1/ Company

v. DACO, 876 F.2d 103 (1st Cir. 1989) this court said:

The Supreme Court has ruled that “a

claim that the application of government

regulations effects a taking of a property

interest 1s 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.

Wihamson Planning Commission v.

Hamilton Bank, 473 US at 186.

(Emphasis added)

Subsequently, the Zenoco court went on to

discuss the difference between finality at the

administrative level (not at all an issue here) and the

requirement to exhaust state judicial remedies. See

Tenocoat p. 1025. Under Williamson, whats required

is finality in the administrative decision not

exhaustion of state judicial remedies.

Lastly, the remedies granted to Suiza are not

exclusively the result of confiscation but also the result

of Due Process of Law, Equal Protection and Dormant

Commerce Clause violations.

A-1]

Il — This is an appeal from a preliminary injunction

that has never been stayed but remains

unenforced. This situation damages Suiza, the

party that has prevailed at all stages in this

litigation.

A preliminary injunction has immediate effect

unless stayed at some point. This Court of Appeals has

authority to stay the effects of a _ preliminary

injunction. See USCS Fed Rules Civ Proc R 62. That

remedy was never requested by ORIL. The reason is

simple. ORIL has been successful in delaying

enforcement of the injunction without having to

prevail in a petition for stay. The District Court’s

opinion documented in detail ORIL’s discriminatory

animus against Suiza. See Dkt. No. 480.That animus

has not changed and 1s causing substantial harm to

Suiza.

The regulatory accrual remedy that should have

been in place since the summer of 2007 is

indispensable to grant Suiza a constitutional remedy

going forward. The undisputed finding of fact number

54 of the District Court says:

The regulatory system of ORIL has

created for the fresh milk processors

yearly loses that have consistently

diminished their capital base. The

normal regulatory way of dealing with

this issue 1s by creating a capital account

of “regulatory accrual” that would add to

the capital base the erosion experienced

because of this regulatory system. By

providing in future rates a rate of return

over the capital plus the capital loses,

the companies could be made hold and be

provided the necessary recovery of cost

and reasonable profit. (Emphasis added,

footnotes omitted). See Appellant’s

Addendum, pp. 140-141.

As found by the District Court and as explained

at p. 32°33 and 45-50 of our brief, Suiza’s capital has to

be reconstructed in order for a reasonable rate of

return to be applied and be capable of producing a

reasonable profit. The calculation of the regulatory

accrual has not been done and presently Suiza receives

a rate of return over a depleted capital, an operation

which 1s incapable of producing the constitutionally

mandated reasonable profit. This capital

reconstruction 1s a mathematical calculation the

elements of which were agreed to by the experts for

the parties. That agreement was reduced to writing

and delivered to the District Court with the signatures

of the experts. The court entered the agreement into

the docket. See Appelle’s Appendix, pp24-26

(transcript of August 26, 2008 hearing pp17, lines 14-

25 to p. 18, lines 1-3). But Suiza’s capital for the

application of any rate going forward continues

undermined.

Ir, short, although the injunction continues in

full force and effect, ORIL’s petition for retention of the

mandate will be used before the District Court as an

excuse to continue postponing the urgently needed

A-13

recapitalization of Suiza and even consideration of

many other pending issues. There ts no reason to allow

ORIL that opportunity in connection with the

preliminary injunction that should have been fully

enforced in 30 days and 1s still pending enforcement

almost 3 years later.

II] — Under 28USC1254()) certiorari review by the

Supreme Court of a non-final judgment of a

Court of Appeals is particularly unhkely.

[t has been well settled for years that although

the Supreme Court has jurisdiction to do so under 28

US Code §1254(1), ordinarily the Supreme Court

“should not issue a writ of certiorari to review a

decree of the Circuit Court of Appeals on appeal from

an interlocutory order, unless it 1s necessary to

prevent extraordinary inconvenience” and

embarrassment in the conduct of the cause.” American

construction Company v. Jacksonville, Tampa and

Key, W.RY., 148 US 372, 384 (1893). Except in

extraordinary cases, “...the writ is not issued until

final decree.” /Jamilton-Brown Shoe Company v. Wolff

Brothers and Company, 240 US 251, 258 (1916). As

indicated by Justice Scalia in Virginia Military

Institute et al v. United States, 508 US 946:

We generally await final judgment in the

lower courts before exercising our

certiorari jurisdiction. |Citations omitted]

See also Brotherhood of Locomotive Firemen

and EHnginemen v. Bangor, 389 US 237, 328 (1967)

A-14

Since this court 1s going to remand this case to the

District Court for further proceedings, review by the

Supreme Court at this stage is highly unhkely. No

legitimate purpose will be served by a stay of the

mandate.

In San Juan, Puerto Rico, this 19th day of

March, 2010.

CERTIFICATE OF SERVICE

| hereby certify that on this same date, |

electronically filed the foregoing with the Clerk of the

Court using the CM/ECF system which will send

notification of such filing to all attorneys of record.

REICHARD & ESCALERA

MCS Plaza, 255 Ponce de Leon Ave, Ste. LOOO

San Juan PR 00917-1913

P.O. Box 364148, San Juan, PR 00936-4148

Tel. 787 777-8888, Fax. 787 765-4225

s/Rafael Escalera Rodriguez

RAFAEL ESCALERA- RODRIGUEZ

escalera@reichardescalera.com

U.S.C.A. No. 10,282

s/Amelha Caicedo Santiago

AMELIA CAICEDO SANTIAGO

caicedo@reichardescalera.com

U.S.C.A. No. 121,015

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