United States Court of Appeals

For the First Circuit

 

No. 07-2240

VAQUERÍA TRES MONJITAS, INC.; SUIZA DAIRY, INC.,

Plaintiffs, Appellees,

v.

CYNDIA E. IRIZARRY, in her official capacity as

Administrator of the Office of the Milk Industry Regulatory

Administration for the Commonwealth of Puerto Rico,

Defendant, Appellant,

JOSÉ O. FABRE-LABOY, in his official capacity as Secretary

of the Department of Agriculture of the Commonwealth of

Puerto Rico; INDUSTRIA LECHERA DE PUERTO RICO, INC. (INDULAC),

PUERTO RICO DAIRY FARMERS ASSOCIATION,

Defendants.

No. 07-2369

VAQUERÍA TRES MONJITAS, INC.; SUIZA DAIRY, INC.,

Plaintiffs, Appellees,

v.

JAIME RIVERA-AQUINO, in his official capacity as Secretary

of the Department of Agriculture of the Commonwealth of

Puerto Rico;

Defendant, Appellant,

INDUSTRIA LECHERA DE PUERTO RICO, INC. (INDULAC);

PUERTO RICO DAIRY FARMERS ASSOCIATION; CYNDIA E. IRIZARRY,

in her official capacity as Administrator of the Office

of the Milk Industry Regulatory Administration for the

Commonwealth of Puerto Rico,

Defendants.

 
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Before

Lynch, Chief Judge,

Torruella, Boudin, Lipez, and Howard,

Circuit Judges.

ORDER OF COURT

Entered: March 11, 2010

The petition for rehearing having been denied by the panel of judges who decided the

case, and the petition for rehearing en banc having been submitted to the active judges of this

court and a majority of the judges not having voted that the case be heard en banc, it is ordered

that the petition for rehearing and the petition for rehearing en banc be denied.

-Concurrence and Dissent Follow-
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TORRUELLA, Circuit Judge (Concurring in the denial of

en banc review). Although "the difference between the type of

relief barred by the Eleventh Amendment and that permitted under

Ex parte Young will not in many instances be that between day and

night," Edelman v. Jordan, 415 U.S. 651, 667 (1974), I believe

that the panel opinion in this case is eminently correct in

holding that the Eleventh Amendment does not bar the relief

afforded by the district court. This ruling is correct because

it is consistent with well-established precedent that places

decisive weight on the impact a judgment has on the state

treasury. See Hess v. Port Auth. Trans-Hudson Corp., 513 U.S.

30, 49 (1994) ("[T]he vast majority of Circuits . . . have

concluded that the state treasury factor is the most important

factor to be considered . . . and, in practice, have generally

accorded this factor dispositive weight") (first alteration in

the original) (internal quotation marks omitted); Libby v.

Marshall, 833 F.2d 402, 406 (1st Cir. 1987)(stating that "[t]he

damage the Eleventh Amendment seeks to forestall is that of the

state's fisc being subjected to a judgment for compensatory

relief"). In this case the Eleventh Amendment poses no bar to

relief because there is simply no impact on the state fisc, at

present or in the future.

In our November 23, 2009 opinion, we affirmed the

district court's grant of a preliminary injunction against the
The Fund was created to "promot[e] the production, sale, 1

processing and consumption of fresh milk and its byproducts, and

. . . any other activity necessary for the advancement of the milk

industry." P.R. Laws Ann. tit. 5, § 1099. It is "supported by

contributions from milk producers at the rate of one-half (1/2)

cent for each quart of milk produced and accepted by the processors

for pasteurizing." Id.

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Milk Industry Regulation Administration for the Commonwealth of

Puerto Rico ("ORIL" by its Spanish acronym). In its opinion and

order, the district court found that Plaintiffs had shown a

likelihood of success on the merits of their claim that ORIL put

into place an arbitrary and discriminatory regulatory scheme that

violated the Due Process, Equal Protection and Takings clauses of

the United States Constitution. As part of the preliminary

injunction, the district court directed ORIL to adopt a

regulatory mechanism to compensate Plaintiffs for the deficient

rate of return that was imposed by ORIL's regulatory scheme from

the year 2003. In compliance with the district court's

injunctive order, ORIL adopted an administrative order which

directed that 1.5 cents from the sale of each quart of milk be

earmarked for the purpose of complying with the regulatory

accrual mechanism. That is, the money used to comply with the

district court's injunction would be paid by the consumers of

milk in Puerto Rico. ORIL also adopted Regulation No. 12, which

established that the monies raised from the sale of milk be

deposited in a special account within the Milk Industry

Development Fund.1
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The dissent from denial of en banc review argues that

the injunction issued by the district court contravenes the

strictures of the Eleventh Amendment because it makes the

Commonwealth liable for payment of monetary relief. There is no

basis in the record for this conclusion. The dissent bases this

conclusion on two mistaken assumptions: (1) that the monies

raised by the regulatory accrual are public funds and (2) that

the Commonwealth is or would be required to expend public funds

or resources to compensate Plaintiffs. I write separately to

dispel these assumptions and to clarify that the Commonwealth's

dignitary and fiscal interests are not implicated in this case as

to require this court to conclude that sovereign immunity poses a

bar to relief.

The dissent suggests that funds deposited in the Milk

Industry Development Fund are considered public funds of the

Commonwealth, and that therefore, the monies deposited in the

special account should be considered public funds. However, we

are dealing in this case with monies paid by consumers of milk

which can only be used for the purposes designated by the

injunction. There is no indication that the funds deposited in

the special account would be or can be commingled with the

Commonwealth's general revenues, or with the monies deposited in

the Milk Industry Development Fund according to the law. More

importantly, the Defendants have not argued on appeal that the
 The intricacies of the regulatory mechanism that Defendants 2

adopted have not been challenged by the parties. Defendants have

not argued on appeal or in their petition for rehearing en banc,

that the regulatory mechanism forces the Commonwealth to expend

public funds or resources in violation of the Eleventh Amendment.

Therefore, any arguments raised by the dissent sua sponte regarding

the details of the regulatory accrual are insufficient to justify

rehearing in this case.

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monies raised by the regulatory accrual are public in nature. On

the basis of the record before us, it is therefore impermissible

to suggest, as the dissent does, that the injunction reaches the

Commonwealth's funds.

Secondly, there is simply no indication in the record

or in the Regulations adopted by ORIL that an eventual judgment

ordering disbursal of the monies raised pursuant to the

regulatory accrual would be satisfied by public funds or that the

Commonwealth's resources would be affected if in due course the

Plaintiffs are found entitled to the monies raised by the

regulatory accrual. Neither the Commonwealth nor ORIL have been 2

adjudged responsible for contributing funds to the special

account, and the contributions made to the account are kept

separate from the Commonwealth's general revenues and from the

Milk Industry Development Fund's monies. Thus, the revenues

raised by the regulatory accrual are special funds that do not

make the Commonwealth the real party in interest for Eleventh

Amendment purposes. See Hudson v. City of New Orleans, 174 F.3d

677, 689 (5th Cir. 1999) (reasoning that, for Eleventh Amendment
In fact, the precise compensation that Plaintiffs will be 3

entitled to receive has not been determined as of yet, nor can it

be gleaned from the record that the Commonwealth will bear any type

of subsidiary monetary liability in this case. Thus, any

contention that such an impermissible outcome is within the realm

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purposes, the fact that an entity receives state funds which are

earmarked for specific or special purposes counsels against

finding that the state would be responsible for the entity's

debts and obligations); Brown v. Porcher, 660 F.2d 1001, 1006-07

(4th Cir. 1981) (holding that the Eleventh Amendment posed no bar

to compensation payable from South Carolina's unemployment

compensation fund which was a special fund "insulated" from

public monies and separately financed). Cf. Austin v. Berryman,

862 F.2d 1050, 1056 (4th Cir. 1988) (holding that the Eleventh

Amendment barred monetary relief against Virginia's unemployment

compensation fund which was "integrated" into the state's

treasury).

The fact that the special account was created within

the Milk Industry Development Fund is insufficient to conclude

that the Commonwealth would be required to expend state funds to

comply with the injunction. The Commonwealth simply has not been

required to appropriate its funds to comply with the regulatory

accrual, and given that the funds deposited in the special

account are earmarked to comply with the regulatory mechanism,

there is no basis to conclude that a final judgment in favor of

Plaintiffs would amount to a judgment against the Commonwealth.3
of possibility on the present record, is beyond speculation.

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The dissent rightly cautions that the analysis of an

entity's entitlement to sovereign immunity should not be

transformed into a formalistic inquiry. However, the dissent

mistakenly criticizes the panel for engaging in this type of

inquiry. Far from adopting a formalistic approach towards

Eleventh Amendment analysis, the panel's decision considers, from

a practical perspective, the Commonwealth's immediate and

ultimate liability and holds that sovereign immunity poses no bar

to the relief ordered by the district court, precisely because

the Commonwealth was not adjudged liable for payment of a

monetary judgment, or held in any fashion subsidiarily

responsible for providing the funds that nurture the special

account.

Likewise, the dissent errs in asserting that the

panel's decision is inconsistent with the Supreme Court's

decision in Regents of the University of California v. Doe, 519

U.S. 425 (1997). In Doe, the Supreme Court held that the

Eleventh Amendment barred a claim for monetary relief against the

State of California, even though the damages would be paid by a

third party. For Eleventh Amendment purposes, the Supreme Court

found it irrelevant that the State of California had been

relieved of its obligation to pay a judgment because a third

party would cover the state's liability. In Doe, the State of
 The Supreme Court's decision in Doe is distinguishable because 4

it dealt with an indemnification agreement between the State and a

third party. This contractual relationship had nothing to do with

the relationship between the state and the plaintiff who sought

relief against the state in federal court. That is, the presence

of third-party indemnitor in Doe failed to alter the state's

liability towards the plaintiff.

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California assumed an obligation upon a finding of liability. In

contrast, the district court has never adjudged the Commonwealth

liable for monetary relief in this case. Thus, while the Supreme

Court clarified in Doe that the state's potential legal liability

was the relevant factor in the Eleventh Amendment question

regardless of the possibility of third-party indemnification, in

this case the Commonwealth has not been held legally or

potentially liable for compensatory damages. That is, the

consumers of milk in Puerto Rico are not relieving the

Commonwealth of its liability, since the Commonwealth has not

been adjudged liable for the type of compensatory damages that

the State of California was potentially liable for in Doe.4

Rather than contravening our panel decision, the Supreme Court's

decision in Doe supports the conclusion that where there is no

basis to find that the state is potentially liable for monetary

compensation, the Eleventh Amendment poses no bar to relief, such

as the one ordered by the district court in this case.

Doe established that the state's legal liability is a

crucial consideration in Eleventh Amendment analysis. But that

liability is inextricably bound to the overriding question of
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whether the state would be "legally and practically" required to

pay a monetary judgment. See Hess, 513 U.S. at 51 (stating, that

where "legally and practically" the state would not be required

to cover the entity's indebtedness, "the Eleventh Amendment's

core concern is not implicated"). In this case, however, it is

pure speculation to state that the Commonwealth is legally,

practically or potentially bound to expend funds in the event

that the monies raised from milk sales prove insufficient to

compensate the milk producers. Unlike Doe where the State of

California was considered to be potentially liable to plaintiffs,

the Commonwealth's liability in this case is speculative in

nature. As I have stated, the funds used to comply with the

district court's injunction are raised from the price consumers

pay for milk and the revenues are kept in a special account which

is segregated from the Commonwealth's funds. Rather than

imposing potential liability on the Commonwealth or its agencies,

this regulatory mechanism imposes an obligation on the consumers

of milk and carefully shields the Commonwealth's funds and

resources from potential liability. Therefore, the dissent's

claim that the Commonwealth would be required to pay a monetary

judgment is speculative and is insufficient to conclude that the

district court's order violates the Eleventh Amendment.

Pursuant to the Supreme Court's decision in Doe, the

issue of whether a monetary judgment against a state official is
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enforceable against the state is still a crucial consideration in

Eleventh Amendment analysis. 519 U.S. at 430 (explaining that

the Court in Hess "focused particular attention" on the fact that

the states would not have been obligated to pay the judgment). 

See, e.g., Fresenius Med. Care Cardiovascular Res. Inc. v. P.R. &

Caribbean Cardiovascular Ctr. Corp., 322 F.3d 56, 65 (1st Cir.

2003)(explaining that the vulnerability of the state's purse is a

salient factor in Eleventh Amendment arm-of-the-state analysis

and stating that where it is clear that the state's treasury is

not at risk, the control exerted by the state over the entity

does not entitle the state to immunity); Metcalf & Eddy, Inc. v.

Puerto Rico Aqueduct & Sewer Auth., 991 F.2d 935, 939 (1st Cir.

1993)("The Eleventh Amendment's primary concern is to minimize

federal courts' involvement in disbursal of the state fisc."). 

Thus, the panel's opinion is consistent with settled precedent

that examines an entity's entitlement to sovereign immunity

through the prism of the financial burden actually or potentially

imposed on the state.

Finally, the dissent mistakenly contends that the

panel's decision ignores the Commonwealth's dignitary interests,

which are protected by the Eleventh Amendment. In examining the

contours of the state's sovereign immunity, the Supreme Court has

explained that the Eleventh Amendment confirms the very essence

of the principle of dual sovereignty embedded in the nation's
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constitutional structure. Blatchford v. Native Vill. of Noatak &

Circle Vill., 501 U.S. 775, 779 (1991). Though the injunction

requires ORIL to adopt the regulatory mechanism, ORIL was not

stripped of its power to set the price of milk and to regulate

the Milk Industry. Given that ORIL retains control over the milk

industry, the panel rightly concluded that the regulatory accrual

has not burdened the Commonwealth's entitlement to respect as a

sovereign entity in a manner that contravenes the Eleventh

Amendment.

In sum, the panel's decision in this case evaluates the

substance of the relief afforded by the district court and draws

the line against the application of sovereign immunity. This

case simply does not involve a monetary award against the state

that burdens the state's treasury, nor does it implicate the

Commonwealth's dignitary interests in a manner offensive to the

Eleventh Amendment. I therefore concur with the majority in

denying en banc review.
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LYNCH, Chief Judge, dissenting from the denial of en

banc review. With the greatest respect for my colleagues, I

disagree with the decision to deny en banc review and think the

serious issues raised deserve greater attention from this court

and, failing that, from the Supreme Court.

Review en banc is sought by defendant state officials

from Puerto Rico's Milk Regulatory Board (Spanish acronym

"ORIL"), and the Commonwealth's Secretary of Agriculture, on the

ground that the Eleventh Amendment prohibits the remedy ordered

by the district court and affirmed by the panel. That remedy was

an injunction that forces the Administrator of ORIL, a state

administrative agency, to retroactively compensate plaintiffs for

the profits they say ORIL deprived them of from 2003 to the time

the injunction went into effect in 2007. Under that compulsion

the defendant state officials imposed a new surcharge on

consumers, the funds from which go into a state-administered

public fund and are to be used for the sole purpose of paying

plaintiffs for their compensatory damages. Surely this raises

significant Eleventh Amendment immunity concerns.

The panel held that there is no Eleventh Amendment bar

because the relief took the form of an injunction and the

injunction did not force the Commonwealth to satisfy the judgment

with funds directly paid from or funneled through the state

treasury. That is not, in my view, the appropriate test under
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the Supreme Court's Eleventh Amendment jurisprudence, and it will

lead to federal court orders designed to evade the requirements

of the Eleventh Amendment. 

I believe the panel has misread Hess v. Port Authority

Trans-Hudson Corp., 513 U.S. 30 (1994), and has done so in a way

which is inconsistent with more than a decade's worth of

subsequent Supreme Court precedents, including Regents of the

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

Maritime Commission v. South Carolina State Ports Authority, 535

U.S. 743 (2002), as well as our circuit precedent in Fresenius

Medical Care Cardiovascular Resources, Inc. v. Puerto Rico and

the Caribbean Cardiovascular Center Corp., 322 F.3d 56 (2003),

and precedent from other circuits. The importance of this issue

and its stakes for the states in the many cases in which

individuals seek compensation for past constitutional violations

make this, in my view, a case warranting en banc review. The

issues raised are admittedly difficult, and there is no Supreme

Court case directly on point.

I. Facts

Like many states in the United States, the Commonwealth

of Puerto Rico extensively regulates its dairy industry. ORIL, a

division of the Puerto Rican Department of Agriculture, is the

relevant administrative agency performing this function. Through

its regulations, ORIL controls all aspects of the Puerto Rican
Specifically, plaintiffs claimed that since 2003, ORIL had 5

used outdated economic data and had unfairly favored dairy farmers

and other entities at the expense of fresh milk processors when

formulating the annual pricing schemes for the milk industry.

Plaintiffs claimed they were therefore unable to obtain reasonable

profits. They alleged violations of, inter alia, the Due Process

Clause, the Equal Protection Clause, and the Takings Clause.

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milk industry. See generally J.W. Gruebele and L.F.C. Barahona,

Growth of the Dairy Industry in Puerto Rico, 14 Illinois Agric.

Econ. 32 (1974). Among the ways it does so are by setting the

price Puerto Rican consumers pay for processed fresh milk, the

margins that all domestic dairy farmers, milk processors,

retailers, and distributors receive from the consumer price, and

the internal price that milk processors pay to buy raw milk from

dairy farmers. See P.R. Laws Ann. tit. 5, §§ 1096, 1107.

The plaintiffs, Puerto Rico's two fresh milk

processors, brought a civil rights suit under 42 U.S.C. § 1983

against the Administrator of ORIL and the Secretary of

Agriculture in their official capacities, claiming that ORIL's

pricing scheme was unconstitutionally arbitrary and had, since

2003, deprived them of profits to which they were entitled.5

Plaintiffs' requested relief included "a temporary mechanism for

plaintiffs to recover the losses they have experienced on account

of the unconstitutional regulation herein under attack."

On July 13, 2007, the federal district court of Puerto

Rico held that since 2003, ORIL's price scheme had been violating

the Due Process Clause, the Equal Protection Clause, the dormant
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Commerce Clause, and the Takings Clause of the United States

Constitution. See Vaquería Tres Monjitas v. Fabré Laboy, No. 04-

1840 (D.P.R. July 13, 2007). It issued a preliminary injunction

which provided in relevant part:

The Administrator [of ORIL] is ordered to

adopt a temporary mechanism that will allow

the processors to recover the new rate of

return they are entitled to (whatever that

may be) for the year 2003 (base cost year of

the present [price] structure) and up to the

day when they begin to recover said rate

based on the new regulatory standards and

corresponding order. The Administrator may

so act through regulatory accruals, special

temporary rates of return or any other

available mechanism of his choosing. The

period for this special recovery shall be

reasonably determined by the Administrator. 

The Administrator will hold hearings for this

purpose with the participation of plaintiffs,

and all parties within the milk industry,

within a period of thirty (30) days of this

Opinion and Order. A decision of the

Administrator shall follow promptly.

Id. at 102 (emphasis added).

The panel depicts the regulatory accrual mechanism ORIL

adopted pursuant to this injunction as an informal remedy that

would not require any state action beyond the initial price order

and would not be collected or retained by the Commonwealth. See

Vaquería Tres Monjitas, 587 F.3d at 479. The facts do not

support that characterization. ORIL promulgated the regulatory

accrual mechanism through a formal regulation and administrative

order subject to Puerto Rico's Uniform Administrative Procedure

Act, P.R. Laws Ann. tit. 3, § 2121 et seq. Like a tax, the
The Milk Industry Development Fund (Spanish acronym "FFIL") 6

was established to promote the fresh milk industry. It is

administered by an Administrative Board chaired by the

Administrator of ORIL, and by law, "[a]ll monies in the Fund . . .

shall be acknowledged as depositories of funds of the Commonwealth

of Puerto Rico, but they shall be kept in an account or accounts

under the name of the Fund." P.R. Gen. Laws. Ann. tit. 5,

§ 1099(e). Thus, Puerto Rican law characterizes the funds in the

account as funds of the Commonwealth of Puerto Rico.

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mechanism raises revenue through a method available only to

sovereigns. It also entails extensive state involvement well

beyond the promulgation of the initial price order.

The regulatory accrual mechanism works as follows. On

April 17, 2008, after nine months and 375 docket entries' worth

of further litigation over the terms of the injunction, ORIL

issued a regulation and administrative order setting forth the

details of the mechanism. The regulation created a special fund

(called "the reserve for the eventual compensation for losses

caused to the processing plants by the previous regulations") out

of which plaintiffs' past losses were to be paid. ORIL did this

by adding the regulatory accrual as one of the costs to be

included in determining the new price of milk that consumers

would pay in Puerto Rico. "This contribution for the

abovementioned compensation," the regulation continued, "shall be

retained and deposited in a special account in the Milk Industry

Development Fund, which will keep and manage the special account

in compliance with the orders it receives from the administrator

of [ORIL]."6
 Specifically, the new price structure set the consumer price 7

of fresh milk in Puerto Rico ($1.32) and divided the revenues per

quart among retailers ($0.09), distributors ($0.02), fresh milk

processors ($0.39), dairy farmers ($0.805), the new cost to ORIL of

"future audits and regulatory activities" ($0.0025), and the

special account contribution for regulatory accrual ($0.0125).

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In an accompanying administrative order, ORIL also set

a new price structure for the consumer price of fresh milk in

Puerto Rico. Originally, ORIL, pursuant to an agreement with 7

plaintiffs, determined that 1.25 cents from every quart of milk

sold to consumers would go into the special account for

plaintiffs' compensation. A July 22, 2008 ORIL regulation

increased that amount to 1.50 cents per quart. Under compulsion

of the injunction, in August 2008, ORIL and plaintiffs also

agreed that plaintiffs would be compensated out of the fund for

their past damages from December 31, 2002 to December 31, 2007,

but did not reach the issue of prospective compensation for 2008. 

These regulations and administrative orders were subject to the

formal requirements of Puerto Rico's Uniform Administrative

Procedure Act, including a notice and comment period.

II. Legal Analysis

When a state official is sued in his or her official

capacity but the state is the true party in interest, the suit is

barred under the Eleventh Amendment and the state cannot be

subject to such a suit without its consent. See Edelman v.

Jordan, 415 U.S. 651, 663 (1974). "Relief that in essence serves
The district court clearly erred when it characterized the 8

relief as "prospective injunctive relief against the Defendants to

avoid insolvency" as opposed to retrospective compensatory relief.

See Vaquería Tres Monjitas, No. 04-1840, slip op. at 13-14 (D.P.R.

Oct. 2, 2006) (order denying motions to dismiss). Plaintiffs say

the regulatory accrual is really prospective because its purpose is

to rebuild plaintiffs' capital base and no pricing structure, going

forward, would be effective without this step. But that argument

would open the floodgates to retrospective compensation in almost

any situation. The panel opinion assumed this relief was

retrospective and rested its holding on the theory that retroactive

compensatory relief that does not come directly from the state

treasury does not violate the Eleventh Amendment. Vaquería Tres

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to compensate a party injured in the past by an action of a state

official in his official capacity that was illegal under federal

law" is a classic example of what the Eleventh Amendment

prohibits. Papasan v. Allain, 478 U.S. 265, 278 (1986). This is

so irrespective of whether "the relief is expressly denominated

as damages." Id. "[I]f the relief is tantamount to an award of

damages for a past violation of federal law, even though styled

as something else," the Eleventh Amendment prohibits it. Id. 

There can be no doubt that the injunction at issue

makes the Commonwealth, through one of its administrative

agencies, liable for retrospective monetary relief. By its

terms, the injunction is directed against the Administrator of

ORIL, an administrative agency within the Department of

Agriculture that Puerto Rico has clearly structured as an arm of

the state. See Fresenius, 322 F.3d at 65. It is equally clear

that the regulatory accrual compelled by the injunction is

retrospective, not prospective. Plaintiffs, the district court, 8
Monjitas, 587 F.3d at 478.

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and subsequent ORIL regulations implementing the injunction have

all characterized the regulatory accrual as a way to allow

plaintiffs to recover the past profits they say they lost between

2003 and the time of the injunction. It appears

indistinguishable from "the award, as continuing income rather

than as a lump sum, of an accrued monetary liability," which the

Supreme Court has long characterized as retrospective monetary

relief barred by the Eleventh Amendment. Papasan, 478 U.S. at

281 (internal quotation marks and emphasis omitted); Edelman, 415

U.S. at 668 (holding that payment of state funds as compensation

to plaintiffs whose benefits were delayed by slow processing

times was "indistinguishable in many aspects from an award of

damages against the State"); see also Whalen v. Mass. Trial

Court, 397 F.3d 19, 29-30 (1st Cir. 2005) (holding that the

restoration of service credit following past termination is

impermissible retrospective compensation); Fla. Ass'n of Rehab.

Facilities, Inc. v. Fla. Dep't of Health & Rehab. Servs., 225

F.3d 1208, 1220-21 (11th Cir. 2000) (holding that an injunction

"to prescribe a set of standards upon which Defendants are to

provide reimbursement for inadequate past and future payments" is

barred).

The panel opinion nonetheless held that the Eleventh

Amendment is not an issue because the "state treasury" is not
 Plaintiffs suggest in the alternative that First English 9

Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304

(1987), held, and our caselaw supports, the proposition that

retroactive compensation for a Takings Clause claim is an exception

to the Eleventh Amendment's usual bar on retrospective relief. The

panel opinion rests instead on the ground that the regulatory

accrual was an equitable remedy because there was no formal award

of damages. Vaquería Tres Monjitas, 587 F.3d at 479-80. 

Plaintiffs' position misinterprets the holdings of Parella v.

Retirement Board of Rhode Island Employees' Retirement System, 173

F.3d 46 (1st Cir. 1999), and Tenoco Oil Co., Inc. v. Department of

Consumer Affairs, 876 F.2d 1013 (1st Cir. 1989). Parella did not

hold that the Eleventh Amendment allows the recovery of just

compensation for temporary takings despite its retrospective

nature. It was instead concerned with the complications such a

position could pose for courts if Steel Co. v. Citizens for a

Better Environment, 523 U.S. 83 (1998), were interpreted to require

courts to reach Eleventh Amendment questions before other

dispositive issues. 173 F.3d at 56-57. Tenoco mentioned First

English only in passing and disposed of the case on the ground that

permanent injunctions should not be imposed prior to final

administrative actions. 876 F.2d at 1028-29. 

In any event, First English did not squarely present an

Eleventh Amendment question, since it involved a suit against a

county, which cannot invoke Eleventh Amendment immunity. 482 U.S.

at 308. And in the analogous context of compensation for reverse

condemnation claims, we have stated that the Eleventh Amendment

bars federal courts from granting this relief. See Citadel Corp.

v. P.R. Highway Auth., 695 F.2d 31, 33 n.4 (1st Cir. 1982); see

also Seven Up Pete Venture v. Schweitzer, 523 F.3d 948, 954-56 (9th

Cir. 2008) (holding that the Eleventh Amendment bars retroactive

compensation both under the Takings Clause and for reverse

condemnation claims under the Due Process Clause).

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involved. That conclusion, to my mind, is doubtful. First, the 9

conclusion assumes that if third parties--here, consumers--

provide the funds the Commonwealth uses to compensate plaintiffs

and the payments are not made directly out of the state treasury,

the state's Eleventh Amendment interests are not involved. 

Second, the conclusion assumes that payments from an
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administrative fund created and maintained as public funds do not

involve the state's fisc.

Third, the panel opinion, in my view, most likely

departs from precedent when it holds that the Eleventh Amendment

is not involved when the Commonwealth is ordered to raise money

from individuals through mechanisms other than a general tax that

produces funds for the state treasury. This provides an easy

mechanism for evasion of the Eleventh Amendment. A key purpose

of the Eleventh Amendment is to protect the state's dignitary

interests in how it chooses to impose surcharges, fees, and

alternatives to taxation to provide funds for public purposes.

Whether an action in practice aims to recover money

from a state, in violation of the Eleventh Amendment, is a

functional question, and Regents of the University of California

v. Doe, 519 U.S. 425 (1997), expressly rejected the argument that

Eleventh Amendment immunity turns upon "a formalistic question of

ultimate financial liability." Id. at 431. Instead, "it is the

entity's potential legal liability, rather than its ability or

inability to require a third party to reimburse it, or to

discharge the liability in the first instance, that is relevant." 

Id. 

Thus, Doe held that the Eleventh Amendment barred a

suit against the University of California, an arm of the state,

that made the entity legally liable for compensatory relief even
 Another circuit, applying Doe, has rejected the claim that the 10

Eleventh Amendment is not implicated so long as a judgment against

a state does not require any new expenditures from the state

treasury. "[T]he proper inquiry is not whether the state treasury

would be liable in this case, but whether, hypothetically speaking,

the state treasury would be subject to 'potential legal liability'

if the [source in question] did not have the money to cover the

judgment." Ernst v. Rising, 427 F.3d 351, 362 (6th Cir. 2005) (en

banc). The panel opinion puts our circuit in conflict with the

Sixth Circuit.

-23-

though the judgment would not, in practice, be paid by the state

because of an indemnity arrangement. Id. at 426. Perhaps Doe 10

is no more than a variation on the usual collateral source rule,

but I am doubtful it is so limited.

The injunction orders the Administrator of ORIL to use

the state's regulatory, revenue-raising powers to satisfy

plaintiffs' demand for compensation for lost profits from 2003 to

the time of the injunction, and ORIL adopted the regulatory

accrual mechanism to comply with the injunction. The only reason

this mechanism exists is to recover enough money so that

plaintiffs get four years' worth of past lost profits. The

mechanism is an option ORIL can use to satisfy the judgment only

because the Commonwealth's powers over the milk industry in

Puerto Rico are so extensive. The fact that the payments may not

already have been made is irrelevant. And if this mechanism

failed--if, for instance, consumers bought less fresh milk in

response to the raised prices and the regulatory accrual failed

to accumulate the significant sums needed to repay plaintiffs--
Indeed, the regulatory accrual mechanism here functions 11

similarly to the pricing scheme Massachusetts imposed to charge

milk dealers additional money for the benefit of in-state dairy

farmers in West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994).

Under that mechanism, Massachusetts, which at the time exercised

considerable regulatory control over in-state milk prices, ordered

every milk dealer operating in Massachusetts to make a monthly

payment into the "Massachusetts Dairy Equalization Fund," a special

account, which was then distributed to Massachusetts producers

-24-

there is no indication ORIL would not still be on the hook for

plaintiffs' lost profits. The prospect of such liability may

well be enough to make the Eleventh Amendment a shield. See Doe,

519 U.S. at 431; see also Fed. Maritime Comm'n., 535 U.S. at 766-

67. 

When a state raises revenues through the methods

available to it as a sovereign--including taxation and regulatory

orders--rather than by withdrawing existing funds in the state

treasury, this surely does not remove the Eleventh Amendment's

protections. Either way, the state fisc is affected because the

state is being required "to use its own resources" to replace the

original source of the plaintiffs' profits. Papasan, 478 U.S. at

281. The regulatory accrual ORIL has adopted under compulsion by

the district court essentially imposes a tax on Puerto Rican

consumers: it increases the overall price of milk to consumers

and channels 1.50 cents from every quart to compensate the

plaintiffs for their lost profits. ORIL then sequesters this

money in an account in the FFIL, not unlike the way tax revenues

are collected. The fact that the special account in the FFIL 11
every month. Id. at 190-91. The Supreme Court described this

pricing scheme as "effectively a tax." Id. at 194.

 Defendants' Eleventh Amendment argument on appeal rested on 12

the theory that the regulatory accrual effectively made ORIL, an

arm of the state, liable for retroactive compensation. Under

defendants' theory, these funds were by definition state funds, and

the issue of whether the regulatory accrual implicates the state

treasury is therefore before us. In any event, questions of

Eleventh Amendment immunity can be raised by this court sua sponte,

see Parella, 173 F.3d at 55. 

-25-

was created to comply with the injunction and that the money in

the account was never previously held by the state is irrelevant.

"Where [the state] gets the money to satisfy a judgment is no

concern of the plaintiff or the court; what matters is that the

judgment runs against the state." Paschal v. Jackson, 936 F.3d

940, 944 (7th Cir. 1991) (internal quotation marks omitted).

Moreover, the injunction does force the Commonwealth to

expend funds from its own public funds to pay plaintiffs' lost

profits. Under the regulatory accrual mechanism, the money 12

collected from consumers goes into a special account in the FFIL

that is 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.

The fact that this is a special fund and not

intermingled with the Commonwealth's general revenues does not

remove Eleventh Amendment scrutiny. Reliance on this fact again
-26-

elevates form over substantive reality. Doe certainly suggests

that this kind of distinction is irrelevant. Even before Doe,

the Supreme Court had long suggested that the definition of a

state "treasury" includes segregated funds held in special

accounts, not just the state's general revenue accounts. See,

e.g., Kennecott Copper Corp. v. State Tax Comm'n, 327 U.S. 573,

576 (1946); Great N. Life Ins. Co. v. Read, 322 U.S. 47, 52-53

(1944); see also Esparza v. Valdez, 862 F.2d 788, 794 (10th Cir.

1988). This is so even if the source of the funds came from

third parties like the federal government and not from an

existing pool of state money. See, e.g., Paschal, 936 F.2d at

944. Practical considerations also favor this approach. 

Defining the state's "treasury" to mean money in a state's

general revenues account and not elsewhere would turn the

Eleventh Amendment into an exercise in forensic accounting. I

admit that this case may be viewed as another example of a

"spectrum" problem. What is involved is not a tax but an

administrative surcharge. But the Court, understandably, has

preferred harder, bright line rules.

The panel's legal analysis of the Eleventh Amendment

issue also seems to me to ignore another state interest the

Supreme Court has identified. The Court has held that a singleminded focus on whether relief comes directly from the state

treasury or otherwise threatens states' financial welfare
 This is not to say that our inquiry must swing to a single- 13

minded focus only on whether a given suit offends a state's

dignitary interests. As the Supreme Court clarified in Verizon

Maryland, Inc. v. Public Service Commission of Maryland, 535 U.S.

635 (2002), whether a suit can proceed under Ex Parte Young turns

on "a straightforward inquiry into whether [the] complaint alleges

an ongoing violation of federal law and seeks relief properly

characterized as prospective." Id. at 645 (alteration in original)

(internal quotation marks omitted). But as other circuits have

concluded, the state's sovereign interests are still relevant to

the analysis and should not be ignored. See, e.g., Virginia v.

Reinhard, 568 F.3d 110, 119-21 (4th Cir. 2009) (considering whether

the state's "special sovereign interests" would be implicated in an

Ex Parte Young action by a state administrative agency against

state officials); Union Elec. Co. v. Mo. Dep't of Conservation, 366

F.3d 655, 658 (8th Cir. 2004).

-27-

"reflects a fundamental misunderstanding of the purposes of

sovereign immunity." Fed. Maritime Comm'n, 535 U.S. at 765. The

Eleventh Amendment "serves the important function of shielding

state treasuries," but "the doctrine's central purpose is to

accord the States the respect owed them as joint sovereigns," and

that broader concern must inform the analysis. Id. (internal 13

quotation marks omitted); see also id. at 760. 

My concern is not with some collection of vague

interests which might be labeled "dignitary" interests. It is

plain that the power to tax--and presumably analogous regulatory

means of raising revenue--is "central to state sovereignty." See

Dep't of Revenue v. ACF Indus., Inc., 510 U.S. 332, 345 (1994). 

Surely we must consider whether these interests are offended when

a district court orders state officials to enact an elaborate

regulatory scheme that imposes surcharges, special fees, or user
-28-

fees in order to raise and pay out money in damages rather than

simply withdrawing plaintiffs' retroactive compensation from the

state treasury. If courts can evade Eleventh Amendment

constraints by dictating to states that they find ways in which

state officials can use the state's regulatory money-raising

powers to satisfy a money judgment, the Eleventh Amendment's bar

against retrospective monetary relief becomes a nullity.

My concerns are raised against the backdrop that the

Court's refashioning of the interests at stake under the Eleventh

Amendment has, in the wake of Doe and Federal Maritime

Commission, reshaped the test for when an entity is an arm of the

state. See Fresenius, 322 F.3d at 63, 67-68 (holding that the

arm-of-the-state inquiry depends on a multi-factor test beginning

with the way the state structures an entity and does not rely

exclusively on whether damages against the entity would be paid

from the state treasury); see also Cooper v. Se. Penn. Transp.

Auth., 548 F.3d 296, 301 (3d Cir. 2008) ("In light of Doe and

FMC, we held that we can no longer ascribe primary to the [statetreasury] factor in our sovereign immunity analysis") (internal

quotation marks omitted). We must face up to the way these

transformations in Eleventh Amendment doctrine also affect the

underlying immunity question. 

For these reasons, I respectfully dissent from the

denial of en banc review.
-29-

By the Court:

/s/ Margaret Carter, Clerk

cc: Ms. Bertolez-Elvira, Mr. Lopez, Ms. Caicedo-Santiago, Mr.

Peirats, Mr. Blasini-Gonzalez, Mr. Asencio, Mr. Berrios Perez,

Mr. Nadal-Colon, Mr. Escalera-Rodriguez, Ms. Oliver-Falero, Mr.

Lazaro-Paoli, Mr. Nassar-Rizek, Mr. Hill-Tollinche, Ms. BrownVazquez, Ms. Pineiro-Soler, Mr. Carlos Deliz, Mr. Ortiz-Morales,

Ms. Menendez-Calero, Mr. Longo Quinones, Ms. Rivera Ruiz, Mr.

Hernandez Sanchez, Mr. Graffam, Ms. Oronoz-Rodriguez, Mr. MendezGomez, Mr. Rivera-Vicente, Ms. Gonzalez-Velez, Mr. RamirezRamos, Mr. Alfonso-Rodriguez, & Mr. Colon-Alicea.