# Opposition Brief — Aquino v. Suiza Dairy, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2010
- **Citation:** 562 U.S. 959

## Text

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
[he decisi 4 Ul] I \ Le i

j . 17 & \
(Jild ;
)\ 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

. , , } lj
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 *)

—

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)

A-10

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

A-15

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_2215%3A2. Public record. Not legal advice.