USCA1 Opinion

UNITED STATES COURT OF APPEALS

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

_________________________

No. 94-2076

TEXACO PUERTO RICO, INC., ET AL.,

Plaintiffs, Appellees,

v.

DEPARTMENT OF CONSUMER AFFAIRS, ET AL.,

Defendants, Appellants.

__________________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Jose Antonio Fuste, U.S. District Judge]

___________________

__________________________

Before

Selya, Circuit Judge,

_____________
Coffin, Senior Circuit Judge,
____________________
and Cyr, Circuit Judge.
_____________

__________________________

Lynn R. Coleman, with whom Pedro R. Pierluisi, Secretary of

________________
__________________
Justice,

Roberto Ruiz
Comas,
_____________________

Division,
Estes,
_____

Dep't

of Justice,

Laura A. Ingraham,
_________________

Director,

Federal

Litigation

Richard L. Brusca, Matthew W.S.

___________________ _____________

and Skadden, Arps, Slate, Meagher &

_________________________________

Flom were on brief, for appellants.

____

Alan M. Grimaldi, with whom Jerrold J. Ganzfried, Patricia

_________________
_____________________ ________

G. Butler, Howrey & Simon, William Estrella, and Ricks P. Frazier

_________ ______________ ________________
________________
were on brief, for appellee Texaco Puerto Rico, Inc.

Donald B. Craven,
_________________

with

whom James P. Tuite, Anthony F.

________________ ___________

Shelley, James R. Lovelace, Alvaro I. Anillo, Miller & Chevalier,

_______ _________________ ________________ ___________________
Chtd,
____

Luis Sanchez Betances, Jaime Sifre Rodriguez,

______________________ ______________________

Cancio Bigas, and

____________

Sanchez Betances & Sifre were

_________________________

Miguel P.
_________

on brief,

for

appellee Esso Standard Oil Co. (P.R.).

Ana Matilde Nin, with whom Rafael Perez-Bachs, Gilberto J.

________________
___________________ ___________

Marxuach-Torros, and McConnell Valdes were on brief, for appellee

_______________
________________
Shell Co. (P.R.) Ltd.

_________________________
July 19, 1995
_________________________

SELYA,
SELYA,

Department

step

of Consumer

toward

wholesalers.

of war.

in

Circuit Judge.
Circuit Judge.
______________

the

the

took a

profit

Puerto

Rico

small, tentative

margins

of

gasoline

wholesalers treated this move as a declaration

They mounted a courtroom

obtaining an

1986,

Affairs (DACO)

regulating

The

In

injunction

embryonic regulation.

counteroffensive and succeeded

against the

enforcement of

DACO's

Following a series of pitched battles that

stretched from San Juan to Boston to the banks of the Potomac and

back again, DACO emerged victorious.

Long

after

the

injunction

purposed to exact tribute from

sought

restitution from

had

been

the vanquished.

the wholesalers

vacated,

DACO

Specifically, it

based on

the "excess"

profits

that

injunction.

spoils.

I.
I.

they

allegedly

earned

while

The district court declined to

shielded

by

the

grant the envisioned

We affirm.

BACKGROUND
BACKGROUND

This is presumably the

conflict.

opinions.

Other jousts

final skirmish in a decade-long

are chronicled in a series

of published

See, e.g., Puerto Rico Dep't of Consumer Affairs v.

___ ____ _______________________________________

Isla Petroleum Corp., 485 U.S. 495 (1988) (Isla III); Tenoco Oil
_____________________
________
__________

Co.
___

v. Department of Consumer Affairs, 876 F.2d

_______________________________

1989);

Isla Petroleum Corp. v.

_____________________

Affairs, 811 F.2d

_______

Texaco

1511 (Temp.

Puerto Rico, Inc. v.

1013 (1st Cir.

Puerto Rico Dep't of Consumer

_______________________________

Emer. Ct. App.

1986) (Isla II);

________

Mojica Maldonado, 862

F. Supp. 692

_________________________

(D.P.R.

1994)

________________

(TPR II); Texaco Puerto Rico, Inc. v.

_______
___________________________

Ocasio
______

Rodriguez, 749 F. Supp. 348 (D.P.R. 1990) (TPR I); Isla Petroleum
_________
_____
______________

Corp. v. Department of Consumer Affairs, 640 F. Supp. 474 (D.P.R.

_____
______________________________

1986)

(Isla I).
______

Given

the detail

contained in

these earlier

opinions, we believe that a condensed summary of

the hostilities

will suffice for the nonce.

From 1973 forward, the federal government imposed price

controls on the sale of petroleum and petroleum products.

U.S.C.

751-760h (as amended).

ended in

At the

early 1981, the regulatory

time federal controls

scheme limited wholesalers'

gross profit margins (GPMs) on the sale of gasoline to

per

gallon.1

See Tenoco,
___ ______

876 F.2d at

of federal regulatory policy).

to abhor

a vacuum,

DACO

empowered by local law

order

(1982)

8.6 cents

1015 (recounting history

Although bureaucrats are reputed

Puerto Rico's

government

to regulate prices and profit

margins in

to protect consumers,

an

See 15
___

arm of

see P.R. Laws

___

Ann. tit.

did not immediately impose its own controls.

3,

341b

By

1985, the

Rico ranged from 6.9

oil prices plummeted

(both

and

to 16.76

but

gasoline wholesalers

per gallon.

Puerto Rico

to follow suit.

ostensibly concerned

that

in Puerto

In early 1986, world

the price of gasoline in

wholesale and retail) failed

Rico legislature,

were

GPMs of

The Puerto

the oil

companies

taking unfair advantage, imposed an excise tax on crude oil

refined petroleum products.

In connection with the new tax,

DACO promulgated an administrative order under date

of April 23,

____________________

1A GPM represents the difference between the sales price and

the

seller's acquisition

price of the

cost.

The

latter cost

gasoline plus excise taxes, but

costs. See Tenoco, 876 F.2d at 1015.

___ ______

includes the

excludes operating

1986.

through

The order

to

prohibited

retailers.

wholesalers from

It also

froze

passing the

wholesale

and

tax

retail

gasoline prices at their March 31, 1986 levels.

When,

freeze

thereafter, world oil

forced several

wholesalers

below their acquisition costs.

in business to

the trio that

lose money, a

appear as

prices soared,

to sell

the price

gasoline at

prices

Since large oil companies are not

coterie of wholesalers

appellees here) wasted

(including

little time

in

asking the

federal district court

April 23 order.

Moving with equal celerity, the

scheduled a trial on

Civ. P.

trial

hearing on

May

the merits for May 21,

65(a)(2) (authorizing the

on the

to enjoin enforcement

merits to

the application

district court

1986.

See Fed.
___

district court to

be advanced

of the

R.

"order the

and consolidated

with the

[for preliminary injunction]").

On

20, DACO reshuffled the cards; it rescinded the price freeze

and issued what it called a "temporary" order that harked back to

the former,

of

the

petroleum

federally inspired ceiling and

thawed

freeze, maximum

wholesalers.

hearing

for June

persons

on the

of

8.6

per gallon

for

The May 20 order also scheduled a public

to "receive

adequacy

GPMs

established, in lieu

of this

comments

Temporary

from all

interested

Order and

on

any

modifications that

primary

should be

reliance can be

maintain fair

margins at

made to

attain a situation

placed on competitive

all levels

of

where

market forces to

distribution and

fair

prices for the consumer."

This

maneuver

did not

derail

the

litigation.

The

district court merely switched tracks, trained its sights on

the

May 20

June

edict, and went forward with a three-day bench trial.

roughly ten

days after

enjoined enforcement of

and other

the trial

the May 20

constitutional grounds.

ended

the court

order on federal

See
___

On

preemption

Isla I, 640 F.
______

Supp. at

ruling to the

Temporary

15 U.S.C.

754(a)(1)

515.

DACO appealed

Emergency

Court of

(granting

TECA

directly under

the preemption

Appeals (TECA),

exclusive

see
___

jurisdiction

over

claims

the Emergency Petroleum Allocation

arising

Act of 1973),

and appealed the remaining rulings (e.g., the invalidation of the

____

order on

stayed

ruling.

due process

proceedings

and takings grounds)

pending

TECA affirmed

consideration

that ruling,

to this

of

the

court.

We

preemption

see Isla II, 811

___ ________

F.2d at

1519, but the Justices reversed, holding that federal law did not

forbid

U.S.

state regulation of gasoline

at

499-501.

This court

appeal and vacated the

then

prices.

See
___

took up

Isla III, 485

________

DACO's concurrent

district court's injunction as premature.

See Tenoco, 876 F.2d at 1024.

___ ______

On June 27, 1989

incinerating the

an

(the day after we issued

district court's injunction),

interim order establishing a

effective

forthwith.

1989, adopted a ceiling

Its

maximum GPM of

final order,

of 13

a vigorous constitutional challenge by the

I, 749 F. Supp. 348.

_

DACO promulgated

11

issued on

per gallon.

our mandate

per gallon,

November 30,

That order withstood

wholesalers.

See TPR
___ ___

An

ensuing

abruptly in mid-1992

period of

when DACO

unaccustomed

again took up

issued

a so-called remedial order

almost

$250,000,000 in profits exceeding

that it estimated three wholesalers

tranquility ended

the cudgels.

in which it

an 8.6

It

sought to recoup

per gallon GPM

Texaco Puerto Rico,

Inc.,

Esso Standard Oil Co. (P.R.), and the Shell Company (Puerto Rico)

Ltd. (appellees here)

(June

1986 to

June

had

1989)

earned during

of

wholesalers quickly repaired to

protection

DACO

revised remedial

wholesaler could

retrospective

choose

GPM of 13

errant

life

injunction.2

The

the district court and requested

from the remedial order.

issued

paying

the

the three-year

between

Before the court could act,

order.

Under

its terms,

paying

a refund

based

on

per gallon for the injunction period or

one based on whatever profit margin would have allowed it

to achieve an annual return on assets equal to the average return

on assets for

the electric utility

industry, plus one

percent,

during the same period.

The

wholesalers were not

mollified.

They challenged

the

revised remedial order and, on April 1, 1993, DACO rescinded

it.

This hasty retreat did not restore the peace, for the agency

simply

attacked on a different

action originally

motion for

front.

instituted by

restitution

the oil

seeking an

profits that the wholesalers

It

award

revivified the court

companies and filed

equal to

the

would have been forced to

excess

disgorge

____________________

2We

refer to the

three oil companies

collectively as "the

wholesalers," and individually as "Texaco," "Esso," and "Shell."

but

for the

pendency

of the

improvidently issued

injunction.

Following a tumultuous period of discovery, see, e.g., infra Part

___ ____ _____

III (discussing certain disputed discovery rulings), and a three-

week

bench trial, the court denied the motion for restitution on

September 9, 1994. SeeTPR II, 862F. Supp.at 709. DACO nowappeals.

_________

II.
II.

THE MERITS
THE MERITS

Our

segments.

decision

analysis of

We discuss

below,

limn

the

the

the merits

nature

is partitioned

of

standard of

into four

restitution, parse

review,

and,

the

finally,

examine the record to determine whether the denial of restitution

can be upheld.

A.
A.

The Nature of Restitution.

The Nature of Restitution.
_________________________

In its

motion, DACO sought restitution

hoary adage "that a

decree

based upon the

party against whom an erroneous

has been carried into effect is entitled, in the event of

a reversal, to be restored by his adversary to that

lost thereby."

Co., 249
___

caution

judgment or

which he has

Arkadelphia Milling Co. v. St. Louis S.W. Ry.

________________________
____________________

U.S. 134, 145

(1919).

We

that it tells only half the

agree with this

tale.

tenet, but

Restitution is not a

matter of right, but a matter of sound equitable discretion.

See
___

Atlantic Coast Line R.R. Co. v.

_______________________________

310

(1935);

Democratic Central Comm.

__________________________

Transit Comm'n, 485 F.2d 786,

______________

of Restitution

Florida,
_______

v.

295 U.S.

301,

Washington Metro. Area

________________________

825 (D.C. Cir. 1973);

142, cmt. a, at 568 (1937).

Restatement

Because restitution

is a creature of equity,

that it will

a claimant can prevail only by

offend "equity

and good conscience"

if the

showing

other

party

is permitted to retain the disputed funds.

Line, 295
____

ex
__

U.S. at 309.

gratia that a
______

Atlantic Coast
______________

Put another way, restitution is a remedy

court will withhold

when "the

justice of the

case does not call for

v.

it . . . ."

Id. at
___

310; accord Williams

______ ________

Washington Metro. Area Transit Comm'n, 415

______________________________________

F.2d 922, 941-47

(D.C. Cir. 1968), cert. denied, 393 U.S. 1081 (1969).

_____ ______

This

case

is

consistent

jurisdiction:

circumstances

basis."

emphasis on

"the

the particulars

with

the

ability to

and tailor

Rosario-Torres
______________

central

assess all

of

feature

of

equity

relevant facts

appropriate relief on

v. Hernandez-Colon,
_______________

each individual

a case

and

by case

889 F.2d

314, 321

(1st Cir. 1989) (en banc); see also Hecht Co. v. Bowles, 321 U.S.
___ ____ _________
______

321, 329 (1944) ("The essence of equity jurisdiction has been the

power

. .

to mould

particular case.");

each decree

to

Lussier v. Runyon,
_______
______

the necessities

50 F.3d 1103,

of the

1110 (1st

Cir.

1995) (stating that "the hallmarks of equity have long been

flexibility and particularity"),

petition for cert. filed

________ ___ _____ _____

(U.S.

June 5, 1995) (No. 94-1979).

Claims for

restitution arising out of

the vacation or

reversal of a judgment are tested by the same standards

claims for restitution.

See Atlantic Coast Line, 295 U.S.at 310;

___ ___________________

see also Restatement, supra,

___ ____
_____

74, at 302-03 ("A person

conferred a benefit upon another

or

whose property

has

restitution

if

restitution

would be

as other

in compliance with a

been taken

the judgment

thereunder,

is reversed

inequitable

. .

or set

.").

who has

judgment,

is entitled

to

aside, unless

This

approach

obtains in respect to both public and private actions, and, thus,

applies when, as

errant

now, a

injunction

restitutionary claim arises

barring

regulation.

See,
___

restitution

by a regulated

injunction

period

enforcement

e.g., Arkadelphia, 249

____ ___________

than

the

of

ultimately

an

governmental

U.S. at 145

company that charged

rate

out of

(ordering

more during an

deemed

lawful);

Williams, 415 F.2d at 941-47 (similar); see also United States v.

________
___ ____ _____________

Morgan, 307 U.S. 183, 197-98 (1939).

______

B.
B.

The

The Decision Below.

The Decision Below.
__________________

district

motion

for restitution

place,

the

court predicated

on alternative

court determined

its

denial

grounds.

that there

was

of DACO's

In the

first

no benefit

to be

restored as the wholesalers had not profited from the injunction.

See
___

TPR II, 862

______

upon

a finding

F. Supp. at 705-06.

that

regulated wholesalers'

DACO failed

GPMs during

the improvidently issued injunction.

second place, the

injunction

to

show that

an

economic

it

would have

the relevant period

but for

See id. at 702-06.

___ ___

In the

court determined that, even

conferred

equities" did not

This determination rested

benefit,

require "a disgorgement of

assuming that the

"the

balance

of

profits earned six

to eight years ago."

Id. at 706.
___

This latter

determination rested

five equitable factors.

First,

competitiveness

gasoline

of the

upon an

analysis of

based on evidence regarding

market and

earnings in

the

other

industries, the court found that the wholesalers "did not benefit

disproportionately from

the lack

of regulation."

Id. at
___

707.

Next, the

court found

seeking restitution.

DACO

Id.
___

guilty of

"unreasonable delay"

Third, the court concluded

exhibited bad faith with regard to Texaco, Esso,

id.
___

that DACO

and Shell.

See
___

Fourth, the court determined that DACO's actions during the

injunction period had lulled

the wholesalers into believing that

DACO would not demand restitution.

See id. at 708.

___ ___

court

interest

thought

that

the

restitutionary order.

Appellate

So

it is

public

did

Finally, the

not

favor

See id.
___ ___

C.
C.

rules.

in

Standard of Review.
Standard of Review.
__________________

review

here.

often calls

We review

into

play

the factual

a blend

of

findings that

undergird the trial court's ultimate determination only for clear

error.

See Lussier,
___ _______

863 F.2d

court's

149,

50 F.3d at 1111;

163 (1st

articulation

and

scrutinized de novo.
__ ____

F.2d

148, 152

findings of

(1st

Cir.

by,

respect

on appeal."

In contrast,

application of

legal

the

trial

principles

is

See Cumpiano v. Banco Santander P.R., 902

___ ________
_____________________

Cir. 1990).

fact can be shown

induced

1988).

Reilly v. United States,

______
______________

errors of

law,

Thus,

"to the

to have been

they will

be

extent

that

predicated upon, or

accorded diminished

Dedham Water Co. v. Cumberland Farms Dairy,

________________
_______________________

Inc., 972 F.2d 453, 457 (1st Cir. 1992).

____

The main event evokes a different criterion.

a district

court's

ultimate decision

to grant

We review

or withhold

an

equitable remedy for abuse of discretion.

F.3d

at 1111;

Rosario-Torres, 889
______________

abuse-of-discretion standard

See, e.g., Lussier, 50

___ ____ _______

F.2d at

323.

Overall, the

is deferential, see,
___

e.g., Dopp v.
____ ____

10

Pritzker, 38 F.3d 1239, 1253 (1st Cir. 1994), and "not appellant________

friendly,"

Lussier, 50 F.3d at 1111.

_______

The solicitude extended by

a reviewing court takes

into account that the trial

judge, "who

has had first-hand exposure to the litigants and the evidence, is

in

considerably

better

position to

balance than an appellate tribunal."

323.

For this reason,

find

an abuse of

the

scales into

Rosario-Torres, 889 F.2d at

______________

the court of appeals ordinarily

discretion unless perscrutation

provides strong evidence that the

lapse in judgment.

bring

will not

of the record

trial judge indulged a serious

See id.
___ ___

We inspect the voluminous record with these precepts in

mind

to

ascertain

whether

the

denial

of

DACO's motion

for

restitution is sustainable.

D.
D.

Discussion.
Discussion.
__________

The court below began with the question of benefit, and

treated that question as a discrete inquiry.

Supp. at 700.

horse.

always

See TPR II, 862 F.

___ _______

But this approach tends to put the cart before the

court

mulling a

perform an

restitutionary

equitable assay.

remedy must

Rather than

almost

isolating the

question of whether the targeted party received a benefit (and if

so, the likely

first

instance

extent thereof), we think it is preferable in the

to

incorporate

that question

into

the

assay

proper, unless, of course, the state of the evidence is such that

the

court can conclude with

been received.

and

minimal effort that

no benefit has

If, however, the factual situation is more cloudy

speculative, it ordinarily will prove a more fruitful use of

11

judicial energies to

issue

fold the

of equity.

Thus, the

issue of benefit

probability

into the

wider

or improbability

of

whether DACO would have regulated wholesalers' profits during the

injunction

period

can initially

be

conceived

as a

relevant,

though not dispositive, equitable

factor.

More precise findings

as

of

benefit can

to the

incidence

and effect

pinpointed as part of a calculation

is

ultimately found

to

be a

any

then

be

anent damages if restitution

condign

remedy in

particular

situation.

With

this preface,

judgment below.

we turn to

For ease in reference,

an examination

of the

we treat each group

of

factual findings as a separate integer in the equitable equation.

The methodologic innovation that

the

question

injunction

of whether

(and if so, to

does not require remand.

findings

on the

the

we have described

wholesalers

benefitted from

what extent) into

benefit, and

detailed factual

we can

those findings along the preferred legal matrix.

Produits Nestle v. Casa Helvetia, Inc., 982 F.2d

________________
____________________

Cir. 1992); United States v. Mora,

______________
____

1987).

the

the assay proper

The lower court made

question of

introducing

easily align

See Societe des

___ ___________

633, 642 (1st

821 F.2d 860, 869

(1st Cir.

1.
1.

Benefit.
Benefit.
_______

Because restitution

concept of unjust enrichment, a

restitution

"received

In a

case

must

the

court considering a request

for

investigate the

a benefit."

such

is founded on

extent

Restatement, supra,
_____

as this,

the

problems of

12

to

which the

1,

proof

target

cmt. a, at 12.

are

readily

evident.

The

regulation that the

clearly

labelled

as

temporary

district court

when

enjoined was

promulgated,

and

the

injunction prevented further regulation (temporary or permanent).

Thus,

DACO

quandary:

found

itself,

at

trial,

in

an

epistemological

it had to prove that, had the district court sent the

wholesalers

packing, it (DACO) would have put into effect a more

durable regulation that would

what the wholesalers

have capped GPMs at a

level below

actually earned during the pendency

of the

injunction.

The district court found DACO's strivings inadequate to

this

daunting task.

temporary

In

the court's

margin controls in 1986 did

view, DACO's

adoption of

not "evidence[] an intent

to implement a long-term regulatory plan" to curb profit margins,

but, instead,

constituted "a short-term erratic

response" to an

unprecedented situation.

TPR II, 862 F. Supp. at 702.

______

stressed that the unique

combination of exigent circumstances to

which

The court

DACO reacted soon dissipated, see id. at 702-03; that DACO

___ ___

thereafter

made

an

in-depth

study

of

at 704;

and that,

the

regulation,

see id.
___ ___

study, DACO

decided not to regulate, see id.

___ ___

desirability

upon completion

of

of the

On this basis, the

district court concluded that the stopgap measure would have been

abandoned

when the

implemented

exigency abated;

other GPM regulations

that DACO

during the

would

not have

June 1986

- June

1989 time frame; and that, therefore, the wholesalers received no

monetary advantage from the injunction.

For

the

most

part,

this

See id. at 707.

___ ___

conclusion

is

adequately

13

anchored

in the

record. Later actions

are often

revelatory of

earlier intentions, see, e.g., United States v. Sutton, 970 F.2d

___ ____ ______________
______

1001, 1007

(1st Cir. 1992) (holding

that "challenged testimony,

though it centered around later-occurring events, was relevant to

show

appellant's intent at

an earlier date");

United States v.
_____________

Mena, 933
____

F.2d 19, 25

Dedham Water,
_____________

972

n.5 (1st Cir.

F.2d

at

460

n.4

affirming district court's findings in

and

DACO's actions

when freed

1991) (similar);

(applying

see also
___ ____

principle

in

analogous circumstances),

from the

specter of

preemption

indicatequiteplainly thatlong-term regulationwasnot onthe agenda.

The

United States

April 19, 1988.

in which its

the

Supreme Court

decided Isla III on

_________

Within days, DACO disseminated a

press release

Secretary, Pedro Ortiz Alvarez (Ortiz), crowed that

Court had

"restored to

regulate gasoline prices."

Puerto Rico

the historic

power to

Shortly thereafter, DACO commenced an

administrative proceeding to determine whether controls should be

introduced.

data

To

this end, it requested (and

received) financial

and other information from the wholesalers.

It also sought

industry input

price or

as to whether the commonwealth

margin controls on

beginning in the

fall of

gasoline, and held

1988 to consider

should set either

public hearings

the desirability

of

controls, the problems that might arise incident to them, and the

reasonableness of existing profit margins in the industry.

down,

In

December, as

Esso's

general

Secretary

Ortiz.

the

administrative proceeding

manager,

Charles

Griffith,

met

wound

with

According to Griffith, Ortiz informed him that

14

DACO

had

controls

completed

its

study

and

decided

because "the market was behaving."

against

imposing

Later that month, a

daily newspaper, El Nuevo Dia, published an article based

_____________

interview

with Secretary Ortiz.

on an

The article reported that DACO

had elected "not to regulate gasoline prices and to instead adopt

`close

supervision'

of the

industry."

Secretary Ortiz as conceding that the

The newspaper

quoted

wholesalers had not earned

"excessive profits."

In January of 1989, Ortiz resigned.

Jorge

R. Ocasio

Rodriguez (Ocasio), told

aware of the earlier study

The new Secretary,

Griffith that

he was

and of his predecessor's conclusions,

and that

he "intend[ed] to follow

in regard to petroleum

wholesalers.

controls until June 27, 1989

injunction had been lifted

to newly

[Secretary Ortiz's] policies"

emergent "erratic

In fact, DACO did not adopt

the day after the district court's

and then attributed the

and unstable" price

about-face

fluctuations in

the Puerto Rico market.

Noting

reassurances,

this

and

chronology

remarking bits

of

of

Secretary Ortiz' oft-stated preference

the district

controls

court concluded that

for over a year

inaction

trial

testimony such

with

as

for a free market system,

DACO's failure to

after the Supreme

impose any

Court's decision in

Isla III cleared the regulatory path demonstrated

________

long-term regulatory

laced

that it lacked

intent, and that in all likelihood it would

not have regulated

wholesalers' profits during

the June 1986

June 1989 time frame even if the injunction had never issued.

15

We believe

the injunction

the district

period, DACO would

regulation limiting

court's finding

that, during

not have adopted

a permanent

profit margins to

a level lower

than those

actually earned by the wholesalers is sustainable on this record.

Still, DACO's assault on this determination possesses

force

in

one

exclusively

the

respect.

intent

district

court

focused

regulation)

dating

sufficiently

back

overruled TECA

in

and gave

attempting to

to

mid-1986.

accurate barometer of

the green

divine

DACO's

This

strikes

order that DACO promulgated

regulatory

us

as

The stopgap

on May 20, 1986 would

have remained

for some period but for the injunction.

____

Thus, even if

the district

small

light to

long-term regulatory intent,

_________

but fails to deal satisfactorily with the near term.

in effect

almost

on DACO's actions from and after April of 1988 (when

Supreme Court

state

The

convictive

court's finding is accepted, some benefit

still might have accrued

however

to the wholesalers by reason of

the district court's abrupt suspension of this order.

That said, DACO's proof does

that

presumed

benefit.

Because

not permit us to quantify

DACO,

as

the

claimant for

restitution, bears the burden of proving the conferral and extent

of

a benefit,

failure

of

see Atlantic Coast Line,

___ ____________________

proof

looms

large.3

We

295 U.S. at

do

not

309, this

suggest

that

____________________

3DACO's

estimate of the benefit received

wholesalers charged their customers anywhere

$250,000,000 more
have

permitted

during the
is

frothy

figures by

would have limited

suggesting

from $64,500,000 to

injunction period than

not only unproven

taken with a good deal of salt.

it says that the

but also

DACO would

deserves to be

DACO whips up the lower of these

that, absent

the wholesalers'

16

the injunction,

GPMs to a

level no

it

higher

uncertainty as to the extent of the benefit acts as an

bar

to

DACO's

claim

for

restitution,

but

for

automatic

purposes

of

equitable balancing, it neutralizes any advantage that DACO might

otherwise

achieve on

the

question of

benefit.

In

the

last

analysis, then, this factor is a wash.

2.
2.

the

The Wholesalers' GPMs.

The Wholesalers' GPMs.
_____________________

wholesalers'

injunction

and

707.

margins

concluded

disproportionately

Supp. at

profit

that

The district court analyzed

during the

they

pendency

"did

from the lack of regulation."

DACO disputes

not

of

the

benefit

TPR II, 862 F.

______

the relevancy of this

factor.

It

argues

that

equity

disproportionate

appropriate

the

does

benefit,

not

but,

require

rather,

there

that

to

be

restitution

is

so long as the targeted party benefitted at all from

__ ___

erroneous injunction.

In

this view

of the

universe, the

reasonableness of the wholesalers' earnings is beside the point.

Once

inelastic.

of itself

therefor."

district

profit

that

again,

conception

of

equity

"The mere fact that a person benefits

sufficient to

require the

Restatement,

court noted,

margins were

"the

DACO's

money was

____________________

supra,
_____

other to

1, cmt.

finding that

unreasonably high

received

in such

is

too

another is not

make restitution

c, at

13.

the wholesalers'

would assist

circumstances

As the

actual

in showing

that the

than

13

per

gallon

throughout

the

relevant

period,

and,

therefore, that any earnings above that plateau are the fruits of
the errant injunction.

The higher figure

is presumably derived

in the same way, but using a projected regulatory ceiling of 8.6

per gallon (the
order)

ceiling imposed

in the May

for the entire three-year span.

20, 1986

temporary

These gaudy claims enjoy

little or no record support.

17

possessor will

permitted to

give offense

retain it."

to

equity and

good conscience

TPR II, 862 F. Supp.

_______

if

at 701 (quoting

Atlantic Coast Line, 295 U.S.

___________________

true:

restitution more

equally

matter), tends to make the

in keeping

denial of

with equitable principles.

Either

the reasonableness vel non of the wholesalers' profits is a

___ ___

concinnous

factor

balancing.

See
___

(suggesting that a

make

The converse is

the fact that the wholesalers' profits were reasonable (or

unreasonably low, for that

way,

at 309).

for

inclusion

Restatement,

or

the

supra,
_____

court's

74,

cmt.

equitable

c,

at

305

party who receives a benefit is not liable to

restitution therefor unless

receipt

in

retention

of

the

the circumstances attendant to

benefit

render

its

enjoyment

inequitable).

The

district

court

wholesalers' earnings during the

based

its

assessment

that

the

relevant period were reasonable

on

a series of subsidiary findings.

that the wholesalers'

during

the

It gave weight to the fact

profits "were in line with

unregulated

period

after

federal

profits earned

controls

terminated, and before the 1986 regulation was enacted."

862 F.

Supp. at 706.

and verified

various

It

TPR II,
______

then performed a comparative analysis4

that the wholesalers'

competitive

were

industries

during the injunction period.

returns "were

and

Id.
___

investment

in line

with

alternatives"

Last but not least, the court

____________________

4The court used as

assets in

the electric

congeners such benchmarks as

utility industry, returns

returns on

on government

bonds, and returns on investments in the industrial distribution,

services, and fuel industries.

See TPR II, 862 F. Supp. at 706.

___ ______

18

observed

that

throughout the

the

wholesale

period, thus ensuring

acceptable levels.

fact

but this

remained

competitive

that margins were

held to

See id.
___ ___

DACO suggests that these

in

market

is a

seeking to surmount the

findings have a tenuous basis

fairly typical

rejoinder of

a party

high hurdle of clear-error review.

district court relied mainly on the

The

testimony of four economists

presented

studied

as

expert witnesses

their

associated

testimony

we are

this evidence, the district

during

Puerto

Rico

earned by

DACO's

the injunction

was staunchly

Texaco,

expert

in

choosing between

experts in

the business of

the district

See, e.g.,
___ ____

1994).

guess

Keller v.
______

Consequently,

the

trial

the

We

plethoric

have

exhibits

fully persuaded

that, given

court had a solid basis

for finding

period,

the

Shell were

wholesale market

and

that the

reasonable.

diametrically

a jury-waived trial

court, not the

United States,
_____________

we decline

court's

wholesalers.

competitive,

Esso, and

testified

the

(including

therewith), and

that,

by

Although

vein,

is principally

court of

38 F.3d 16,

in

profits

opposite

respect

appeals.

25 (1st

DACO's invitation

scorecard

in

Cir.

to second-

to

dueling

experts.5

See Anderson v. City of Bessemer City, 470 U.S.

___ ________
______________________

564,

____________________

5The court below

wholesalers'

experts.

offered sound reasons for

Equally

as important,

siding with the

it

viewed

the

testimony of appellant's expert, Dr. Logan, "with some skepticism

in

light of

employment by

his

intimate involvement

DACO's counsel,

and his

author of the 13-cent regulation."

Though DACO cries foul
Dr. Logan's
prerogative

with

DACO," his

status as

"the putative

TPR II, 862 F.

______

Supp. at 706.

due to the court's "gratuitous

bona fides, such credibility

indeed, the duty

former

swipe" at

determinations are the

of the district judge in a bench

19

575

(1985) (explaining

judge's

finding

the

based on

virtual impregnability

reasoned

decision to

of a

trial

credit

the

testimony of one witness over another).

3.
3.

found

that

marked by

DACO

Delay.
Delay.
_____

"DACO's actions

in

unreasonable delay."

asserts

improper

In weighing the equities, the

that

as a

equivalent of

the

matter

raising a

court's

of

law

lower court

seeking

restitution have

been

TPR II,
______

862 F.

707.

inclusion of

because

it

is

laches defense against

Supp. at

this

the

factor

is

functional

the government.

We do not agree.

It is true that laches ordinarily cannot be raised as a

defense

against the government in an action brought to enforce a

public

right

Kentucky, 500
________

defense

or protect

U.S.

a public

380, 388

is generally

interest.

(1991)

See
___

(noting that

inapplicable against

(1983) (O'Connor, J.,

But the

"the

a state");

North Dakota ex rel Bd. of Univ. and Sch. Lands,

_________________________________________________

294

Illinois v.
________

laches

Block v.
_____

461 U.S. 273,

dissenting) (collecting authorities).

unavailability of laches as a defense does not mean that

the sovereign's dilatoriness in

seeking an equitable remedy must

be totally disregarded by a chancery court.

An

equitable

defense

and

an

conceptually and practically distinct.

but significant.

An equitable

We explain briefly.

equitable

factor

are

The divagation is subtle,

defense

"bar[s] the

cause

of

____________________

trial.

See, e.g.,

Anthony v. Sundlun,

952 F.2d

603, 606 (1st

___
Cir.

____

_______

_______

1991) (stating that appellate courts

supportable

findings, based

on witness

"ought not to disturb

credibility, made

by a

trial judge who has seen and heard the witnesses at first hand").

20

action entirely, or bar[s] . . . the equitable remedy."

Dobbs, Law of Remedies

________________

2.4(1), at 91 (2d ed. 1993).

1 Dan B.

Moreover,

in evaluating an equitable defense, the court considers

plaintiff's

conduct and

is free

to "deny

all remedies

only the

if the

plaintiff

108-09.

in

does not meet equity's

Moreover,

other

factors.

See
___

and the

not

id.
___

at

109.

potential hardships

result from a judicial decision either

bar

then,

the claim,

hardships might do so."

Here,

intent

relevant

both parties

practical standpoint,

does

2.4(5), at

as part of balancing the equities, the court "looks at

conduct of

might

Id.
___

In contrast, an equitable factor must always be weighed

concert with

the

standards."

to apply

DACO's motion.

the

"[e]ven when

the

Id.,
___

district

total

way."

Id.
___

an equitable

balance

that

From a

defense

of equities

and

2.4(1), at 91.

court

the equitable

See TPR II, 862

___ _______

explicitly

doctrine of laches

F. Supp. at

disclaimed any

as a

702 n.8.

bar to

In its

search for the case's equitable epicenter, however, the court was

fully entitled to use delay as one of a number of factors bearing

on the

there

outcome.

is

mouthed

This is

no principled

the vocabulary

precisely what

basis

of

for

balance,

considering

the

judge

DACO's suggestion

equitable balancing

surreptitiously injecting a barred

Indeed, in

Judge Fuste

that

he

a means

of

laches defense into the case.

DACO's delay

merely

as

did, and

honored

as part

the

of the

precept

equitable

that

the

government, when it seeks an equitable remedy, "is no more immune

to the

general principles

of equity than

21

any other

litigant."

United States v.
_____________

Second Nat'l Bank, 502 F.2d

_________________

535, 548 (5th Cir.

1974).

DACO

erred

in

also

finding

unpersuasive.

refund issue

further

The

prejudicial

score

the

delay.

evidence shows

in its June

on this

letters to

contends that

district

This

that DACO

1989 interim order.

until ten

months

the wholesalers conveying its

the suitability of refunds.

court clearly

contention

first raised

is

the

DACO did nothing

later, when

it

sent

"preliminary views" on

DACO then dropped the

refund issue

like a hot potato and did not resurrect it until August 20, 1992,

when the

then-Secretary,

announced at a press

from

the wholesalers.

Guillermo Mojica

Maldonado

conference that he planned to

All

told, DACO waited

(Mojica),

seek refunds

three years after

this court vacated the injunction to commit itself to the pursuit

of restitution.

DACO does not dispute

but

takes

"[t]his

vigorous exception

type

of

stopping

the accuracy of this chronology,

to

and

the

court's conclusion

starting,

delaying

and

that

then

proceeding[,] must be considered prejudicial to the

wholesalers,

who had to

multimillion

run their

dollar refunds

business with the

occasionally flaring

TPR II, 862 F. Supp. at 707.

______

its procrastination;

threat of

up and then

disappearing."

DACO offers a myriad of excuses for

it intimates that, as

a government agency,

torpor

is to be expected;

changes

that

it claims to

in staff and leadership

its attention

have undergone numerous

during the period;

was diverted

because of

and it says

ongoing litigation

22

over

its proposed 13

district

GPM that lasted

court dismissed these excuses

them insufficient.

until March of 1991.

as lame.

The

We, too, find

Government agencies, like private corporations, have an

obligation

manner.

to conduct

their affairs

in a

reasonably efficient

See Potomac Elec. Power Co. v. ICC, 702 F.2d 1026, 1034
___ ________________________
___

(D.C. Cir. 1983) (warning

confidence

in

an

responsibilities").

that "excessive delay saps

agency's

An

ability

entity

that

to

the public

discharge

chooses

to

its

indulge

inefficiencies cannot expect to be granted special dispensations.

If

"[t]he mills of the bureaucrats grind slow," United States v.

_____________

Meyer, 808 F.2d 912, 913 (1st Cir. 1987), then the agency, having
_____

called the tune, must pay the piper.

Baus,
____

834

F.2d 1114,

1123 (1st

See, e.g., United States v.

___ ____ _____________

Cir.

1987) (holding

that the

government "should not be allowed by words and inaction to lull a

party into a false sense of security and then by an abrupt volte-

face strip

the party of

F.2d

896

879,

administrative

(D.C.

and

institution

1987)

(explaining

Hayes, 818
_____

that,

By like token, neither government

private employers

heads

Cir.

Cutler v.
______

when

an

agency loiters, "the consequences of dilatoriness

may be great").

due diligence

its defenses");

can escape responsibility for

merely because

other

key

must endure.

agencies nor

the exercise of

of employee turnover.

personnel

See
___

may

Cutler,
______

come

818

and

F.2d

Department

go,

at

but

the

896-97.

Similarly, preoccupation with other litigation is hardly a reason

for

extreme delay.

See, e.g., Mendez v. Banco Popular, 900 F.2d

___ ____ ______
_____________

23

4, 6-7 (1st Cir.

in

1990) (district court did not

failing to grant extension

trial

calendar);

Ass'n, 574
_____

Pinero Schroeder
_________________

F.2d 1117, 1118 (1st

events, litigation

of time based

abuse discretion

on attorney's busy

v. Federal Nat'l Mortgage

________________________

Cir. 1978) (same).

ending in early 1991

__________

And in all

cannot credibly explain

why DACO took no firm position until August 1992.

___________

We will not wax

longiloquent.

It is trite,

but true,

that equity ministers

upon their rights.

F.2d

we

to the

vigilant, not to

those who

sleep

See, e.g., Sandstrom v. Chemlawn Corp., 904

___ ____ _________
_______________

83, 87 (1st Cir. 1990).

Given the uncontradicted evidence,

believe that the district court acted lawfully in ruling that

unreasonable delay on DACO's part militates against relief.

4.
4.

Bad Faith.
Bad Faith.
_________

It is

old hat that a court called upon

to do equity should always consider whether the petitioning party

has

acted in

bad faith

or with unclean

hands.

See Precision
___ _________

Instrument Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S.

___________________
________________________________

806,

814 (1945) (explaining

"closes the

doors of

that the doctrine

court of

inequitableness or bad faith

equity

of unclean hands

to one

tainted

relative to the matter in

with

which he

seeks relief"); see also

___ ____

Mart Corp. v.
__________

Cir. 1989)

Oriental Plaza, Inc., 875 F.2d

_____________________

(discussing "unclean

the equitable maxim that

But

even

though

hands only

hands" doctrine in

doctrines are

not without

applies

when the

24

renowned

all limits.

generally K_________ __

907, 910-12

"he who seeks equity must

equitable

elasticity, they are

unclean

Dobbs, supra, at 109; see

_____ _____
___

(1st

relation to

do equity").

for

their

The doctrine

of

claimant's misconduct

is

directly

related to

parties,

that is, when the

the

equitable

the merits of

relations

something brought

the controversy

tawdry acts "in

between

the

before the court for

between the

some measure affect

parties

in

respect

adjudication."

of

Keystone
________

Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933).
___________
_____________________

In the

court

found

directly

See
___

case at bar,

pervasive evidence

the test was

of

bad faith

on

The district

DACO's part,

related to the core elements of the dispute sub judice.

___ ______

TPR II,
______

862 F.

Supp. at

707.

finding clearly erroneous and worse

without

met.

a shred of record

Although DACO

brands this

for instance, DACO

support, that the

claims,

finding is "tinged

with political,

at 37

rather than legal,

we believe that there

analysis," Appellants' Brief

is ample evidence in the record to

support the district court's perspective.

In

making its

finding of

bad faith, the

relied heavily on two occurrences.

lower court

The court found that, in the

spring of 1986, while the government of Puerto Rico was pondering

the

advisability of an excise tax, see supra pp. 3-4, high-level

___ _____

officials,

including

the

President

of

the

Senate

and

the

Secretary of State, summoned executives of the three appellees to

a series of private audiences.

The court further found that "the

wholesalers

they

government

from further

were

warned that

in the implementation

lowering gas prices,

should

of the

cooperate with

new tax

so that the

the

by refraining

government could

achieve revenue from the

695.

tax . . . ."

TPR II, 862 F.

______

Supp. at

The discussions were blunt. To offer one illustration, Jose

25

Luis

Blanco, Esso's

operations manager

at the

time, testified

that the Secretary of State uttered "a very strong threat" to the

effect

that, if

Esso

failed to

strategy, the company's continued

acquiesce in

the government's

existence in Puerto Rico would

be "very difficult."

DACO claims

that these thinly veiled

bearing on margin regulations

imposed well after the

was enacted.

This claim is

the district

court plausibly could find

1986 meetings were

part of

minations had no

disingenuous.

Past is prologue, and

as it did

the same overall

involved the same

matter, and, with the

principals and the

benefit of hindsight, can

harbinger of things to come.

that the

course of

that led to the push for restitution six years later.

the meetings

excise tax

conduct

After all,

same subject

be viewed as

On this basis, the district

court

did not err in concluding that the 1986 meetings were relevant to

DACO's good faith (or

years thereafter.

after the

lack thereof) in seeking

This

government

is particularly true

"suggested" that

restitution some

in that,

shortly

the wholesalers

refrain

from

lowering gasoline

regulation of

were

too

GPMs on

high.

responsibility for

prices,

DACO attempted

the ground

Thus,

in

effect,

creating the

attempted to recapture,

that the

dint of the motion for restitution.

tactics, but affords a

its

wholesalers' prices

bore

degree

"excess profits" that

first via

court's conclusion lacks the

DACO

to justify

the excise tax,

The second

of

it later

and then

by

pillar of the

dramatic impact of these strong-arm

closer temporal link.

26

The

court thought

that the actions of Secretary Mojica in and around 1992 betokened

bad faith.

See TPR II, 862

___ ______

admitted

that he had

economic

rationale,

negotiating

worse

chosen the

but

position.

"irresponsible."

Id.
___

F. Supp. at 707.

as

8.6

figure

stratagem

The district

At trial, Mojica

based not

on any

enhance

DACO's

to

court found

this behavior

And Secretary Mojica made a bad situation

by issuing a remedial order that singled out Texaco, Esso,

and Shell, whilst leaving unscathed a number of other wholesalers

who had exceeded

these

the 8.6

margin.

The lower

court found

efforts to exact restitution from the appellees

no other similarly

situated wholesalers

smacked

that

and from

of bad faith,

see
___

id., and
___

implication

DACO can

of

point

selective

to no

evidence that

targeting

in

refutes the

retaliation

for

the

appellees' active opposition to the government's desires.

We think

that the record

as a whole

district court's determination that the 8.6

a crude

club

without

regard

industry.

to bludgeon

for

the

the

Indeed, the

economic realities

DACO

the 8.6

of

settlement,

the

petroleum

with evidence

For one thing, DACO's chief

testified

margin was

persisted in its plan.

testified that he issued

nisi prius roll is replete

Carlos Lasanta,

superiors that

figure was chosen as

wholesalers into

suggesting this unhappy conclusion.

economist,

corroborates the

that he

had advised

his

economically inadequate, yet

For another thing, Secretary Mojica

the remedial order and set

the ceiling

27

without even pausing to review the administrative record.6

In sum, the

pass

muster.

grounds relied upon by

Because the

the district court

remedy of restitution

is premised on

the concept of unjust enrichment, DACO's actions both in 1986 and

in 1992 sabotage its present attempt

asserting

that

the wholesalers

to seize the high ground by

took

erroneous injunction.

Hence, we

court's determination

that DACO's

unfair

are unwilling

advantage of

the

to disturb

the

actions were tinged

with bad

faith.

5.
5.

Reliance.
Reliance.
________

court considering

a restitutionary

remedy may properly weigh the factor of reliance in its equitable

balancing.

See Moss v. Civil Aeronautics Bd., 521 F.2d 298 (D.C.

___ ____
_____________________

Cir. 1975), cert. denied, 424 U.S. 966 (1976).

_____ ______

the court found that the statements of

(Ortiz

regarded

and Ocasio)

led

their margins

two different Secretaries

the wholesalers

"to be

In doing so here,

to

believe that

reasonable, and

DACO

therefore, that

restitution

of

such

demanded."

TPR II,
_______

reasonable

862

wholesalers convinced

F.

profits

Supp.

at

would

708.

the court that they

not

later

Moreover,

be

the

justifiably relied on

____________________

6DACO asserts that, because the remedial order "was only the
starting point
of

refunds,"

for [its] consideration of

the terms

considered evidence of
This ipse
____
Mojica

dixit
_____

gallon"
this

figure

order

"cannot

Appellants'

withstand scrutiny.

the promulgation

presented the 8.6

order

the

bad faith."

does not

announced

of the eventual

of

the appropriate level

of

the

rationally

Brief at 38-39.
When

Secretary

remedial order,

not as a guidepost to

measure, but as a fait accompli.

be

he

a determination

Moreover, the

itself described "a maximum profit margin of 8.6 cents per

as "conclusive
figure

only

and undebatable."

after

the

protection.

28

DACO

wholesalers

retreated from
sought

judicial

those statements in formulating their business plans.

The record

not farfetched

e.g.,
____

these findings.

to think that Secretary

It is

Ortiz's statements, see,

___

supra p.14, could have lulled the wholesalers into a false

_____

sense of

544,

is consistent with

See id.
___ ___

security.

See, e.g.,
___ ____

Insurance Co. v. Mowry,

_____________
_____

547 (1877) ("A representation as

to operate

abandonment

as an estoppel . . . where

of

an existing

right,

96 U.S.

to the future can be held

it relates to an intended

and

is

made to

influence

others, and by

too,

the

which they have

wholesalers

credited by the

trier.

adduced

been induced to

act.").

explicit evidence

A number of

of

Then,

reliance,

executives testified

that

they took the Secretary's statements regarding the reasonableness

of

their firms'

profit margins

investments

in Puerto Rico

approved.

We

detecting

cannot hold

detrimental

at face

that they

that

reliance

value,

and authorized

would not

otherwise have

the

on

court

clearly erred

these facts.

See,
___

in

e.g.,
____

Cumpiano, 902 F.3d at 152 ("Where there are two permissible views
________

of the evidence,

the factfinder's choice between

them cannot be

clearly erroneous.") (quoting Anderson, 470 U.S. at 573-74).

________

The

bolstered

court's

finding

by another circumstance.

of

detrimental

When

reliance

is

Judge Fuste issued the

injunction, DACO could have

bond or

an

escrow account.

States,
______

306 U.S.

153, 156-57

but did

not

ask him to require a

See Inland Steel Co. v.

___ __________________

(1939) (holding that

lawfully in conditioning injunction against ICC

United
______

court acted

on establishment

of escrow account to defray possible restitutionary obligations).

29

Although

a bond

or

escrow

fund

restitution in cases involving

is

not

injunctions,

prerequisite

for

see, e.g., Newfield

___ ____ ________

House, Inc. v. Mass. Dep't of Pub. Welfare, 651 F.2d 32, 39 n.12
___________
____________________________

(1st

Cir.) (holding that "the

limited to

the recovery of damages

claim of restitution of

undue"),

injunction] bond is

and has no application

to a

amounts subsequently found to have

been

cert. denied, 454 U.S. 1114 (1981), a court called upon

_____ ______

to perform equitable balancing

of a bond or other fund as

Moss, 521 F.2d

____

1316, 1321

need for a[n

may nonetheless weigh the absence

a factor in its equitable assay.

See
___

at 314; see also Thompson v. Washington, 551 F.2d

___ ____ ________
__________

(D.C. Cir. 1977).

district court marched.

This

See TPR II,

___ ______

is the music

to which

862 F. Supp. at 708.

the

Just

as the existence of a bond or other fund would

claim

of

detrimental reliance,

so,

too,

have undercut any

their absence

lends

be gainsaid

that a

credence to the wholesalers' lament.

6.
6.

Public Interest.
Public Interest.
________________

It cannot

court asked to dispense equitable remediation should give serious

consideration

to the public interest.

See Morgan,
___ ______

307 U.S. at

194 ("It is familiar doctrine that the extent to which a court of

equity may grant or withhold its aid, and the manner

its remedies may be affected by the public

Rosario-Torres, 889 F.2d

______________

court

found

granting

that

the

restitution.

interest involved.");

at 323 (similar).

public interest

The court

of moulding

Here, the

would

be

reasoned "that

district

disserved by

investment in

Puerto Rico by the gasoline companies would be curtailed, or that

Esso,

Texaco

and/or

Shell

[might]

even

leave

the

island

30

completely,

resulting

in

possible

competitiveness in the wholesaling market."

loss

of

jobs

and

TPR II, 862 F. Supp.

______

at 708.

At

trial,

DACO

made

no

wholesalers' testimony on this point.

effort

to

contradict

the

In this venue, it likewise

abjures

any challenge

to the

DACO complains about the

DACO had "failed

the

Puerto

to propose a cogent plan to

Id.
___

who bore

In DACO's

award into the commonwealth's

satisfactory trickle-down

Instead,

district court's related statement that

Rico motorists

overcharges.

testimony's relevance.

the

restore losses" to

brunt of

eyes, depositing a

the alleged

restitutionary

general fund comprises an entirely

substitute for the

court's envisioned

plan of direct payments to motorists.

Once

obscures

again, DACO's

fascination

its view of the forest.

properly read, does

commonwealth's

absolute sense.

not hold

with

single

tree

The district court's rescript,

that depositing

refunds into

the

coffers is repugnant to the public interest in an

The court's

point is quite

different.

Judge

Fuste expressed the belief that the clear harm to the Puerto Rico

economy that would

outweighed

the

result from levying a

benefit accruing

directly compensate the

from

injured victims.

huge restitution award

refunds

that would

not

Though such a judgment

call may be arguable, we are unprepared to say that it represents

a clearly erroneous assessment of the evidence.

Cf., e.g., Moss,

___ ____ ____

521 F.2d at 308 ("The bite which is effectively taken from future

earnings by

a recovery fund may in turn impair the health of the

31

industry, to the disadvantage of the fare-payers themselves.").

7.
7.

Recapitulation.
Recapitulation.
______________

We have fashioned a tried-and-true

framework for gauging claimed abuses of discretion:

In making discretionary judgments, a district

court abuses
factor

deserving

overlooked,
accorded
court

its discretion when

or

judgment

improper

weight,

the

but commits
in

significant weight

when an

significant

considers

factors,

of

a relevant

is

factor is
when

the

appropriate

mix

of

palpable

error

of

calibrating

the

or

decisional

scales.

United States v. Roberts, 978 F.2d 17, 21 (1st Cir. 1992); accord
_____________
_______
______

Dopp, 38 F.3d
____

at 1253 (listing other

cases).

Here,

the record

discloses that the district court made a careful appraisal within

the contours of

that

this tested framework.

overlooked

inappropriate factors,

evidence.

appropriate

Mindful, as we are,

the nuances

appellate judges,

of

factors,

or made a detectable

trial judge's interactive

with

has failed to show

the court, in performing this appraisal and arriving at its

judgment,

the

DACO

mistake in weighing

that "[t]he very nature of a

role assures

an intimate

ongoing litigation

handicapped by

considered

familiarity

a familiarity

the sterility of

an impassive

record, cannot hope to match," Dopp, 38 F.3d at 1253,

____

to place

a heavy

appellate thumb on

thereby

upset the

trier's delicate

equities in this unusual situation.

the scales of

balancing of

that

we decline

justice and

the competing

III.
III.

OTHER ISSUES
OTHER ISSUES

In addition

equitable

to its

determination, DACO

assault upon the

mounts

a more

district court's

narrowly targeted

32

offensive on a second front.

to

series

of

In this regard, DACO assigns

discovery rulings

that

together

disclosure of eighteen agency documents, mostly in the

forced

error

the

nature of

correspondence between DACO (or other government representatives)

and DACO's outside counsel.

is little more than

This

attempt to open a second front

a diversionary sortie, poorly outfitted

and

easily repulsed.

We set the stage.

of

broader

order

that

administrative file" in

determined that

under either

In ordering disclosure as

DACO

the case to

these writings

turn

We

the

"complete

the wholesalers, the

were not entitled

the attorney-client privilege

process privilege.

over

a subset

to protection

or the

consider the district

court

deliberative

court's privilege

rulings cognizant that, "[b]ecause we

regard the existence of

privilege

for the trial

court . . .

privilege can be

overturned

as a factual determination

the district court's

only

finding of no

if clearly erroneous."

United States v.

Wilson, 798 F.2d

_____________

509,

512

(1st Cir.

1986); accord
______

______

United States v.
______________

Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20,

_____________________________________

1989).

Since

anent DACO's

local law does

claim for

not supply

Bay State
_________

27 (1st Cir.

the rule

of decision

restitution, federal common

law governs

our analysis of the wrangling over privileges.

See Fed. R. Evid.

___

501.

A.
A.

The

privilege

as

Supreme

Attorney-Client Privilege.
Attorney-Client Privilege.
_________________________

Court has

"the oldest

of

the

33

described

the attorney-client

privileges for

confidential

communications

States,
______

known to the common

449 U.S. 383, 389

(1981).

law."

The

Upjohn Co. v. United

___________
______

privilege protects "not

only the giving of professional advice to those who can act on it

but also the giving of information to the lawyer to enable him to

give sound and informed advice."

privilege is "to encourage

attorneys and

their clients

interests

the

in

Id. at 390.
___

The purpose of the

full and frank communications between

observance

and thereby promote

of

law

and

broader public

administration

of

justice."

Id. at 389.
___

In its unpublished

eighteen documents,

order requiring

revelation of

the district court rejected

attorney-client privilege on two grounds.

the

DACO's claim of

First, the court found

that DACO waived any such privilege because four of the documents

"were

inadvertently

during their

shown

initial review

to

Texaco's

of the

legal representatives"

administrative

file.7

We

examine the underpinnings of this ruling.

It is apodictic that inadvertent disclosures may work a

waiver of the attorney-client privilege.

Case, 877
____

F.2d 976, 979-80

Proceedings,
___________

727

F.2d 1352,

(D.C. Cir.

1356

(4th

See, e.g., In re Sealed

___ ____ ____________

1989); In re Grand Jury

_________________

Cir. 1984);

see
___

also
____

____________________

7At

trial,

the district

court

described

how this

occurred:

You

people

[DACO]

representatives],
papers, you

told

here

can take a

is

them
a room

[Texaco's
full

look at them.

of
They

looked at them, they found them and then when

you discovered
that they

that they

wanted copies of

had seen

those, then

came running here seeking an order.

34

them and
you

bevue

Allread v. City of Grenada, 988 F.2d 1425, 1434 (5th Cir.

_______
_______________

1993).

Thus, it beggars credulity to argue that the district court erred

in

entering a turnover order

anent the four

documents to which

Texaco's representatives previously had been exposed.

that

fairly

obvious

conclusion,

recognized that inadvertent

however,

it

disclosures can have

Apart from

also

must

be

a significance

that transcends the documents actually disclosed.

In general, a waiver premised on inadvertent disclosure

will be deemed to encompass "all other such communications on the

same subject."

Inc.,
____

647 F.2d 18,

Sealed Case,
___________

Lucas,

Weil
____

v. Investment/Indicators, Research & Mgmt.,

________________________________________

24-25 & n.13

877 F.2d at

Moore's Federal

(9th Cir. 1981);

980-81; see also

___ ____

Practice

accord In re
______ _____

4 J.M. Moore

26.11[2], at

& J.D.

26-185 (1994).

_________________________

Since

DACO does not

documents

concerned a

documents

in

contend that

different topic

the group,

standard

of

review

district

court

had

the four

we think

applicable

an

than the

that, under

to

adequate

carelessly unveiled

privilege

basis

for

other fourteen

the deferential

questions,

the

disregarding

the

attorney-client privilege vis-a-vis all eighteen documents.

The

district court's

disclosure is equally solid.

alternative ground

for ordering

The court found as a fact, after in

camera inspection of the disputed documents, that outside counsel

had become

process.

an integral

part of the

adjudicative decisionmaking

Based on this factual finding, the court ruled that the

attorney-client

administrative

privilege

agency

did

engaged

not

in

apply

an

because,

adjudicative

when

an

function

35

delegates its responsibilities to

outside counsel, then the work

product generated by the firm is part of the adjudicative process

itself

and,

hence,

beyond

the reach

of

the

attorney-client

privilege.

DACO resists

doctrine "would render

this analysis, pontificating

that such a

the attorney-client privilege meaningless

where state or local governments employ counsel and rely on their

advice."

Appellants'

misapprehends

the tenor

Brief

at

of the

47.

But

this

district court's

trumpeting

ruling.

The

attorney-client privilege attaches only when the attorney acts in

that

capacity.

Wilson,
______

Corp.,
_____

798

89

district

See
___

F.2d at

F. Supp.

court

Bay State Ambulance,

____________________

512; United States

______________

357, 358-59

found,

in

policymaking authority to its

that

as

(D.

874 F.2d

v. United Shoe Mach.

__________________

Mass. 1950).

substance,

at 27-28;

that

DACO

Here, the

delegated

outside counsel to such an

extent

counsel ceased to function as lawyers and began to function

regulators.

Therefore,

DACO could not

invoke the attorney-

client privilege in connection with the documents at issue.

We

cannot term

this finding

clearly erroneous.

The

record shows that

DACO's counsel had, in

fact, drafted remedial

orders that DACO adopted verbatim; that Dr. Logan, an employee of

DACO's counsel, was

the "putative author

regulation," TPR II, 862

______

F. Supp. at

of the [1989]

13-cent

706; and that counsel

had

developed adjudicative data that the agency later reissued as its

own.

Nor can we term the finding unsupported in

Oil Corp. v. Department of Energy, 102 F.R.D. 1,

_________
_____________________

36

law.

See Mobil
___ _____

9-10 (N.D.N.Y.

1983)

(rejecting

proponent

failed

capacities

as

claim

of

to show

attorney

attorney-client

that

advisors

decisionmakers); Coastal Corp.

_____________

Del.

1980)

(similar;

particularly

important

lawyers

were acting

rather

than

as

in

where

their

regulatory

v. Duncan, 86 F.R.D. 514, 521 (D.

______

observing

in

privilege

that

such

situation

in

which

showing

is

"attorneys

function primarily as policy-makers rather than as lawyers").

B.
B.

DACO

Deliberative Process Privilege.

Deliberative Process Privilege.
______________________________

also

takes

exception to

the

district

court's

ruling that the deliberative process privilege did not exempt the

same

cache

of

documents

from production.

The

deliberative

process

privilege "shields

inter-agency memoranda on

from public

disclosure confidential

matters of law

or policy."

National
________

Wildlife Fed'n v. United States Forest Serv., 861 F.2d 1114, 1116
______________
__________________________

(9th

Cir. 1988).

reasonable

The

security

government agency.

privilege rests on

to

the

See NLRB
___ ____

a policy of affording

decisionmaking

process

within

v. Sears, Roebuck & Co., 421 U.S.

_____________________

132, 150 (1975).

The

Supreme

process privilege

deliberative.

words,

to

to materials

has

restricted

that are both

the

deliberative

predecisional and

See EPA v. Mink, 410 U.S. 73, 88 (1973).

___ ___
____

qualify for

predecisional,

Court

that is,

the privilege,

"antecedent to

In other

document must

the adoption

be (1)

of agency

policy," and

process by

861

(2) deliberative, that is, actually "related to the

which policies

F.2d at 1117

are formulated."

(citation omitted).

National Wildlife,
_________________

Because the deliberative

37

process

exchange

privilege

is

of thoughts

decisionmaking

restricted

to

that actively

process,

factual

the

intra-governmental

contribute to

statements or

the agency's

post-decisional

documents explaining

or justifying

not shielded.

See Sears, Roebuck,

___ ______________

U.S.

see also
___ ____

at

88;

a decision already

made are

421 U.S. at 151-52; Mink, 410

____

Developments in the Law

Privileged
________________________________________

Communications, 98 Harv. L. Rev. 1450, 1620-21 (1985).

______________

Even

protection

if

under

document

the

nondisclosure is not

satisfies

deliberative

automatic.

The

the

criteria

process

for

privilege,

privilege "is a

qualified

one," FTC v. Warner Communications Inc., 742 F.2d 1156, 1161 (9th
___
__________________________

Cir.

1984), and

Mainwaring, 21
__________

"is

not absolute."

F.3d 465,

468 n.5

First Eastern Corp.

____________________

(D.C. Cir.

1994).

determining

whether to honor

an assertion

of the

court

weigh

interests.

See
___

must

competing

Thus,

v.

in

privilege, a

id.;
___

see
___

also
____

Developments, supra, at 1621

____________ _____

(noting that courts asked

to apply

the privilege must engage in "ad hoc balancing of the evidentiary

need against the harm that may result from disclosure").

At bottom, then, the deliberative process privilege

"a

discretionary one."

478

F. Supp.

exercise

among

577, 582

its discretion,

other things,

interest in

In re Franklin Nat'l Bank Sec. Litig.,

_______________________________________

(E.D.N.Y.

an

Communications,
______________

in honest,

742

F.2d at

1979).

inquiring

the interests

the accuracy and

public's interest

is

In

deciding how

court should

of the

consider,

litigants, society's

integrity of factfinding,

effective government.

1162.

38

to

and the

See Warner
___ ______

Consequently, "where

the

documents

sought

malfeasance," the

may

shed

light

on

alleged

privilege is routinely denied.

government

Franklin, 478
________

F. Supp. at 582; see also Bank of Dearborn v. Saxon, 244 F. Supp.

___ ____ ________________
_____

394, 401-03 (E.D.

such

circumstances

administration but

Mich. 1965) ("the

is

the

not

the

citizen's

aff'd, 377 F.2d 496 (6th Cir. 1967).

real public interest

agency's

interest

interest

in

due

under

in

its

process"),

_____

Assuming,

arguendo, that

the documents

both predecisional and deliberative

not opine

process

The

the district court's

"strong showing" of

DACO's part.

found

that the

court's

Part II(D)(4),

determination

we

we need

DACO's attack.

wholesalers

Given the discretionary nature

had made

motives on

of the deliberative

district court's warranted conclusion

DACO acted in bad faith over

supra
_____

impervious to

are

deliberative

arbitrariness and discriminatory

process privilege, and the

that

a matter on which

rejection of the

privilege is nevertheless

court supportably

at issue

a lengthy period of time, see

___

resist the

that

the

process and fairness outweighed

urge

to tinker

wholesalers'

with

the

interest in

due

DACO's interest in shielding its

deliberations from public view.8

____________________

8We

note

in

passing

that

the

district

court's

waiver

analysis, made in connection with DACO's claim of attorney-client

privilege,

see
___

supra
_____

deliberative process
lacks

Part

III(A),

privilege as

vitality here, we will

beyond noting

that it is

arguably

well.

applies

Because

not pursue the

to

the

the privilege

question of waiver

apparently unsettled.

Compare, e.g.,
_______ ____

Clark v. Township of Falls, 124

_____
_________________

F.R.D. 91, 93-94 (E.D. Pa. 1988)

(holding

waived any

that

privilege by
Inc.
____
[1995

municipality

prior disclosure) with, e.g.,

____ ____

v. Department of Army,
___________________
WL 289681 at *25]

___ F.3d ___,

claim

of

executive

Redland Soccer Club,

____________________
___ (3d

Cir. 1995)

(holding that inadvertent disclosure of

39

C.
C.

We add a

postscript to our discussion

court's discovery rulings.

the

district

affected DACO's

Harmless Error.
Harmless Error.
______________

court's

of the district

In all events, we do not believe that

rejection

of

substantial rights.

harmless.

See Fed. R. Civ.

___

disregard

any error or defect

DACO's

privilege

Any error

claims

was, therefore,

P. 61 (explaining that a court "must

in the proceeding

which does not

affect the substantial rights of the parties").

In denying

DACO's claim for restitution,

the district

court mentioned only one of the eighteen challenged documents

June

1989 memorandum

from

DACO's outside

counsel to

(a

Governor

Hernandez

cited

Colon).

this

finding

that

See TPR II,

___ ______

memorandum as

862 F. Supp. at

additional

contemporaneous

support

events, rather

705.

The court

for its

than

factual

a long-term

commitment to regulation, spurred DACO's actions in June of 1989.

The memorandum comprised only a small fraction of the evidence on

which

the court relied in

reaching this conclusion.

Part II(D)(1) (limning other

litigant's substantial

of

cumulative evidence.

evidence).

It is axiomatic

rights are not offended

See,
___

See supra
___ _____

e.g., Doty
____ ____

that a

by the admission

v. Sewall,
______

908 F.2d

1053,

1056 (1st Cir. 1990); Garbincius v. Boston Edison Co., 621

__________
_________________

F.2d

1171, 1175 (1st Cir. 1980); deMars v. Equitable Life Assur.

______
_____________________

Soc'y, 610 F.2d 55, 62 (1st Cir. 1979).

_____

IV.
IV.

CONCLUSION
CONCLUSION

____________________

documents did

not give

rise to waiver

of deliberative

process

privilege).

40

We

need

go no

further.

There

are

neither precise

answers nor perfect solutions when a court is forced to deal with

the shadowy world

of what might have been.

customary deference accorded

augmented by

balanced the

tease

equities, and

Affirmed.
Affirmed.
________

In

this instance,

inception, weighed

juxtaposed the

Thus, whether

parties' rights

or not we, if writing on a

might have concluded otherwise, we

an abuse of discretion

judgment call.

meddle.

handled the case from its

with painstaking care.

pristine page,

court's equitable discretion,

should hesitate to

the judge, who had

and

to the trial court as factfinder is

due respect for that

appellate courts

Where, as here, the

out of what

are unable to

is quintessentially a

41