Court Opinion

ID: 2663268
Source: CourtListenerOpinion
Date Created: 2014-04-03 21:31:14.38696+00
Date Added: 2024-06-11T12:59:32.490587
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 13-2412

              PUERTO RICO DAIRY FARMERS ASSOCIATION,

                      Intervenor, Appellant,

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

                      Plaintiffs, Appellees,

                                v.

MYRNA COMAS PAGAN, Secretary of the Department of Agriculture for
the Commonwealth of Puerto Rico; EDMUNDO ROSALY, Administrator of
the Office of the Milk Industry Regulatory Administration for the
                   Commonwealth of Puerto Rico,

                           Defendants.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF PUERTO RICO

         [Hon. Daniel R. Domínguez, U.S. District Judge]

                              Before

                       Lynch, Chief Judge,
                Selya and Howard, Circuit Judges.

     William A. Graffam, with whom Alejandro Mendez Roman and
Jiménez Graffam & Lausell were on brief, for appellant.
     Rafael Escalera Rodríguez, with whom Amelia Caicedo Santiago,
Carlos M. Hernández Burgos, and Reichard & Escalera were on brief,
for appellee Suiza Dairy, Inc.
     Jose R. Lazaro Paoli, Enrique Nassar Rizek and ENR &
Associates on brief for appellee Vaquería Tres Monjitas, Inc.
April 3, 2014

     -2-
           LYNCH,     Chief   Judge.         This    appeal   arises   from    the

settlement of the decade-long litigation concerning the regulation

of Puerto Rico's milk industry.         The intervenor Puerto Rico Dairy

Farmers Association ("PRDFA") appeals from the district court's

approval of a comprehensive Settlement Agreement ("the Agreement")

reached   by   the   original   parties:       the    government   defendants,

including the Office of the Milk Industry Regulatory Administration

for the Commonwealth of Puerto Rico (Spanish acronym "ORIL"), and

the plaintiff milk processors, Vaquería Tres Monjitas, Inc. ("VTM")

and Suiza Dairy, Inc. ("Suiza").

           PRDFA     argues   that   the     district    court   denied   it   an

appropriate hearing to object to the approval of the Agreement, and

attacks the merits of the Agreement itself.              Because PRDFA had an

adequate hearing to air its grievances while the Agreement was

stayed from going into effect, and because the district court held

that PRDFA remains free to challenge in its still-pending companion

case the constitutionality of the Agreement as implemented, we

reject PRDFA's due process arguments.               We also find there was no

abuse of discretion in the district court's approval of the

Agreement, and affirm.

                                       I.

           An account of the litigation's origins is found in our

previous opinion in this case. See Vaquería Tres Monjitas, Inc. v.

                                       -3-
Irizarry, 587 F.3d 464 (1st Cir. 2009), reh'g en banc denied, 600
F.3d 1 (1st Cir. 2010), cert. denied, 131 S. Ct. 2441 (2011).

          The milk industry is heavily regulated in Puerto Rico,

and is under the purview of ORIL, a subdivision of the Department

of Agriculture.   Id. at 467.   Before this case began, ORIL set both

a maximum price for milk sold to consumers and a minimum price for

the processors' purchase of raw milk from the dairy farmers,

effectively squeezing the processors' profit margins between the

two ends of the market.   Id. at 469.

          VTM and Suiza are the only private fresh milk processors

in Puerto Rico. They purchase "raw milk" from local dairy farmers,

convert it to drinkable "fresh milk," and sell it to consumers.

Id. at 468.   The only other milk processor is Industria Lechera de

Puerto Rico, Inc. ("Indulac"), an entity created by statute to

promote the Commonwealth's milk industry. Indulac is currently the

only entity authorized to process ultra-high temperature milk ("UHT

milk"), a product that does not need to be refrigerated before it

is opened. Id. Appellant PRDFA is an organization that represents

Puerto Rico's dairy farmers, who sell their milk to all three

processing entities.   It initially intervened in 2005 in order to

support the government defendants.

A.        Procedural Background

          In 2004, Suiza and VTM brought a constitutional challenge

to the then-existing regulatory structure of the milk industry.

                                  -4-
Id. at 471.      Suiza and VTM contended that ORIL's regulatory

structure "precluded them from making a reasonable profit in their

milk business" and constituted a confiscation of property in

violation of the Takings Clause.        Id.; see U.S. Const. amend. V.

PRDFA entered the milk litigation in 2005 as a defendant-intervenor

alongside   ORIL.     Indulac   also    entered   the   litigation   as    a

defendant-intervenor.

            On July 13, 2007, the district court issued a preliminary

injunction ordering remedies in favor of Suiza and VTM.         Vaquería

Tres Monjitas, Inc. v. Laboy, No. 04-1840, 2007 WL 7733665, at *48

(D.P.R. July 13, 2007). That preliminary injunction ordered, among

other things, that the Administrator of ORIL develop and implement

"nondiscriminatory, rational and scientific regulatory standards

that will allow him to determine costs and fair profits return for

all the participants in the Puerto Rico regulated milk market."1

Id. (emphasis added).      In its initial attempt to satisfy this

portion of the injunction, ORIL filed Price Order and Regulation

No. 12 ("Regulation 12") with the court on July 23, 2008.

            The filing of Regulation 12 started a new chapter.            On

one track, Suiza and VTM both filed prompt objections to Regulation

12, arguing that it did not constitute full compliance with the

preliminary injunction.    Those objections led to a series of post-

     1
        Our 2009 decision upheld that injunction.           See Vaquería
Tres Monjitas, Inc., 587 F.3d at 488.

                                  -5-
injunction compliance hearings that focused on the substance of

ORIL's calculations underlying Regulation 12.

          Immediately after ORIL filed Regulation 12 in July 2008,

PRDFA also objected to the Regulation, though on different grounds

than Suiza and VTM.   In doing so it altered its posture and no

longer supported ORIL's position.     Specifically, PRDFA argued that

Regulation 12 was "arbitrary and capricious" in that it forced the

dairy farmers to sell their raw milk at an unfairly low price, and

that it discriminated against the dairy farmers in favor of other

players in the milk industry.    In light of Suiza and VTM's then-

pending objections, the government asked the district court to stay

its consideration of PRDFA's objections.2        The district court

granted the government's motion and instructed PRDFA to "file their

own constitutional claims as to the proposed Regulation No. 12" in

a separate case.

          As proposed, PRDFA filed a separate complaint as a

plaintiff against ORIL in October 2008, alleging that Regulation 12

constituted a violation of its rights under both the Due Process

and the Takings Clause.   On May 20, 2010, the district court ruled

that it would proceed with PRDFA's case only after the original

case, this case, was in the permanent injunction phase.    PRDFA has

     2
         In light of PRDFA's objections, the government also
convened a committee, comprised of representatives from PRDFA and
ORIL, tasked with designing and proposing various amendments to
Regulation 12.

                                -6-
amended its complaint twice, adapting its allegations as Regulation

12 was amended following various court actions and committee

recommendations.      The PRDFA's First Amended Complaint was filed on

December 21, 2009 and the second on December 26, 2013.            That case,

No. 08-2191, remains pending before the district court.

B.         Settlement Agreement and Related Events

           For several years after ORIL first filed Regulation 12,

the parties continued to dispute whether the Regulation complied

with the preliminary injunction. The district court held dozens of

hearings   on   the   matter,   considering   a    variety   of    technical

regulatory issues, and ultimately rejected a total of nineteen

calculation proposals offered by ORIL.            At several points, the

district court evinced frustration with what it believed were the

government's efforts "to evade compliance" with the previously

ordered injunctive relief.

           In September 2013, the long period of compliance hearings

and filings regarding Regulation 12 came to a head.          On September

23, the district court issued an Opinion and Order which, among

other things, held the government defendants in contempt for

continued attempts to evade compliance with the 2007 preliminary

injunction. Vaquería Tres Monjitas, Inc. v. Comas, ___ F. Supp. 2d

___, 2013 WL 5913114 (D.P.R. Sept. 23, 2013).        The Order set a date

for a hearing on the matter of a contempt fine and related matters,

as well as a date for a Permanent Injunction Hearing.             Id. at *54,

                                   -7-
*56.    In a footnote, the court "strongly recommend[ed] that the

parties utilize the time between the instant Opinion and Order and

the    Permanent    Injunction   Hearing       to     reach     an   extrajudicial

resolution to the instant controversy."               Id. at *48 n.35.

              At the scheduled contempt hearing on October 28, 2013,

counsel for Suiza announced that the parties had, in principle,

reached   a    settlement   agreement        late    the   night     before.   The

Agreement purported to resolve all of the pending disputes between

Suiza, VTM, and ORIL.       The parties requested that the hearing be

continued until the next day so that they could finalize and sign

the Agreement before filing it with the court for its review.                  The

court granted that request, and the very next day, October 29, the

court held a hearing at which ORIL, Suiza, and VTM filed the now-

executed Agreement in open court for the court's approval. At that

hearing, the district court noted that it "thought that the

solution [to the litigation] should have been made by the parties,"

and noted approvingly that "the parties have the agreement, and it

is not a Court-imposed agreement."

              PRDFA was not involved in the negotiations that led to

the Agreement, nor had PRDFA's counsel even seen it at the time it

was filed in the district court.             During the October 29 hearing,

PRDFA's   counsel    informed    the   court        that   he   believed   PRDFA's

companion case would move forward following the approval of the

Agreement, but that he could not take a full position until he had

                                       -8-
read the Agreement. The court instructed PRDFA's counsel to review

the Agreement to determine "to what extent" it affected PRDFA's

pending case, and to advise the court of "what [wa]s left" in that

case.   PRDFA's counsel agreed.

           The district court then stated: "This [Agreement] will be

filed tonight, and the Court will examine it, and potentially

produce a sentence based on all of the covenants stated herein.

All of them.   All.     This is my judgment. . . . [T]he Court will

incorporate as a judgment all the terms and conditions that are

stated herein."      The court then allowed both PRDFA and Indulac

fifteen days to advise the court as to how the Agreement would

affect them; it also expressly stated that those entities "cannot

nullify this agreement."

           On November 6, 2013, PRDFA filed a Motion to Reject the

Final   Settlement    Agreement,   raising   takings   and   due   process

objections.    That motion was never addressed directly by the

district court.

           On November 7, the district court issued an Amended Order

and Judgment, accepting and incorporating the entire Agreement into

a judgment. The Order expressly noted that the Agreement "does not

include" PRDFA, and that PRDFA accordingly "may proceed with their

litigation filed under Civil No. 08-2191."

           Later that same day, PRDFA filed a motion to stay the

judgment, which was granted in part.          Specifically, the court

                                   -9-
granted a stay only as to the portions of the Agreement that

altered the milk pricing formula, which altered the dairy farmers'

previous per-quart compensation.           The court ordered that the

pricing status quo -- which was at the heart of PRDFA's objections

-- would be preserved until PRDFA was granted a hearing on the

matter, and then scheduled that hearing for November 22, 2013.

While the stay was in place, PRDFA filed at least two motions

challenging the Agreement and opposing Suiza's arguments in favor

of lifting the stay.

          At the November 22 hearing, PRDFA voiced its objections

to the Agreement at length. Its primary argument, also advanced in

an earlier motion opposing the Agreement, was that the Agreement

would lower the dairy farmers' profit margins by at least $0.12 per

quart of milk, from $0.90 to $0.78 per quart, and that reduction

would constitute an unconstitutional taking and a violation of

procedural and substantive due process.

          Second, PRDFA argued that the way the Agreement was

structured would bar the district court from granting PRDFA relief

even if it prevailed as plaintiff on the merits in its pending

case, No. 08-2191.       More specifically, PRDFA's second argument

asserted three propositions.       First, the Agreement provides that

the price of milk paid by consumers will not increase for the next

four   years   "unless    the    present      market    conditions   change

substantially."    Second,      Suiza   and   VTM's    profit   margins   are

                                   -10-
inversely related to those of the dairy farmers; without a rise in

prices at the consumer level, PRDFA argued, it is unavoidable that

as Suiza and VTM's margins increase, the farmers' margins will

decrease.      Finally, the Agreement provides that any later changes

to Regulation 12 (and, accordingly, to Suiza and VTM's profit

margins)    require   "the   unanimous     vote   of   designated     industry

representatives from all industry sectors." (emphasis added).               The

combined effect of these three conditions, PRDFA argued, was that

even if PRDFA were able to show constitutional violations in its

companion case, the district court would be unable to grant it

relief   via    restored   higher   profit    margins    in   light    of   the

Agreement's restriction on amending Regulation 12 without unanimous

consent from industry actors.

            At the November 22 hearing, the district court flatly

rejected the contention that the Agreement so limited its power to

grant relief in the companion case. The court told PRDFA's counsel

that the companion case "is going to be heard on the merits, and if

the Court finds that you warrant a remedy, the Court gives you the

remedy, whether it is in [a] subsidy or whether it is in dollars

and cents."     After the hearing, the court lifted the partial stay,

having concluded that "the farmers will not be losing, at this

time, the egregious amounts alleged as a consequence of the

                                    -11-
Settlement Agreement."3      The court went on to note that it would

"provide expedited hearings as soon as the parties are ready" in

PRDFA's companion case.

            In the days and weeks following the hearing, PRDFA and

the other parties continued to submit informative motions as to the

actual    effects   of   certain   portions    of    the   Agreement.     In

particular, the district court ordered ORIL to provide additional

briefing to confirm that under the Agreement the dairy farmers

would in fact receive 80 cents per quart of milk.          This order arose

because PRDFA continued to allege to the court that under the

Agreement,    the   farmers'   per     quart   compensation    would    drop

precipitously.

            On December 30, 2013, the district court issued an Order

denying a series of pending motions; the Order specifically denied

Indulac's motion to amend or alter the judgment, and in a footnote,

it noted that Indulac "mirrors arguments also alleged by the

PRDFA."    The Order also noted that it would deal with PRDFA's

substantive objections separately in PRDFA's companion case.            The

district court did not disturb its approval of the Agreement.

            While this appeal was pending, PRDFA filed another motion

to stay the district court's judgment.              On February 28, 2014,

     3
        PRDFA filed an emergency motion for stay pending appeal in
this court. On November 26, 2013, we entered an order denying that
motion "[b]ecause the PRDFA has failed to elucidate clearly a
likelihood of success on the merits or looming irreparable harm."

                                     -12-
before the March 4 oral argument before this court, the district

court issued an order denying that motion.         In that order, the

district court referred back to the November 22, 2013 hearing, and

noted that the Agreement posed "no irreparable harm" to the dairy

farmers.   The court held:

           Because the Final Settlement Agreement ending
           the instant case guarantees a net payment of
           $0.80 per quart of milk to the farmers, and
           the Governor has agreed to finance any
           deficiency short of $0.80 per quart of milk,
           the   PRDFA   has  no   irreparable    damages
           warranting a stay pending appeal.
                  Finally, there is no likelihood of
           success as there are no damages.      Nken v.
           Holder, 556 U.S. [418,] 433-34 [(2009)].

The court went on to hold that the government's public policy

regarding the milk industry is "reasonable."

                                II.

           PRDFA's argument before us has two primary components.4

The first is procedural: PRDFA argues that the district court did

not grant it a fair opportunity to be heard on its objections to

the Agreement. Second, PRDFA reiterates its substantive objections

to the approval of the Agreement on takings and due process

grounds.

           To be clear, this is not a class action, and there are no

specific   rule-based   requirements   here   as   to   pre-settlement

     4
        We reject the separate line of argument presented by Suiza
that we lack jurisdiction to hear this appeal. See Indus. Commc'ns
& Elecs., Inc. v. Town of Alton, N.H., 646 F.3d 76, 79-80 (1st Cir.
2011).

                                -13-
hearings, as there are in Federal Rule of Civil Procedure 23(e).

Nonetheless, third party intervenors who object that they are

adversely affected by a settlement between a government entity and

a private party should be provided with adequate notice and an

opportunity to have these objections heard.   See United States v.

Comunidades Unidas Contra La Contaminacion (CUCCo), 204 F.3d 275,

278 (1st Cir. 2000).    An intervenor lacks the power to block a

consent decree merely by withholding its consent.    Local No. 93,

Int'l Ass'n of Firefighters, AFL-CIO v. City of Cleveland, 478 U.S.
501, 529 (1986).   An objecting intervenor is entitled "to present

evidence" and "have its objections heard."    Id.

          The key consideration in this type of process inquiry is

whether there has been "a fair opportunity to present relevant

facts and arguments to the court, and to counter the opponent's

submissions."   United States v. Cannons Eng'g Corp., 899 F.2d 79,

94 (1st Cir. 1990) (quoting Aoude v. Mobil Oil Corp., 862 F.2d 890,

894 (1st Cir. 1988)) (internal quotation mark omitted).           An

intervenor's right to be heard, however, does not translate into a

right to block a settlement.   Local 93, 478 U.S. at 529.

          It is true that the district court entered the Agreement

on November 7 without first hearing PRDFA's objections.     But it is

also true that the court immediately stayed its order in light of

the objections and gave PRDFA (and Indulac) ample opportunity to

review the Agreement and to be heard.   The court accepted filings

                               -14-
-- including an affidavit from PRDFA's expert -- and held a

hearing.    The November 22 hearing, along with the several motions

PRDFA   filed   in   the    district    court    in   the     weeks   before,   was

adequate.

            PRDFA argues to us it was entitled to a live hearing to

present witnesses, but it did not expressly request an evidentiary

hearing before the district court and the court had no obligation

to hold one in any event.        See CUCCo, 204 F.3d at 279 (concluding

that "there can be no unconditional right to an evidentiary

hearing" as to the merits of a settlement agreement demanded by a

third party intervenor, because to "allow evidentiary hearings on

the call of any party allowed to intervene would delay, complicate,

and perhaps jeopardize the timely resolution of the issues").                   The

district court was equipped with the evidence contained in PRDFA's

filings at the November 22 hearing.             PRDFA's procedural rights as

an objecting intervenor were not violated here.

            We turn to PRDFA's second argument, that the district

court erred in its approval of the Agreement.                     Approval of a

consent    decree    is    "committed   to    the     trial    court's   informed

discretion," Cannons Eng'g Corp., 899 F.2d at 84, and our review is

accordingly deferential:

            Unless the objectors can demonstrate that the
            trier made a harmful error of law or has
            lapsed into "a meaningful error in judgment,"
            Anderson v. Cryovac, Inc., 862 F.2d 910, 923
            (1st Cir. 1988), a reviewing tribunal must
            stay its hand. The doubly required deference

                                       -15-
             -- district court to agency and appellate
             court to district court -- places a heavy
             burden on those who purpose to upset a trial
             judge's approval of a consent decree.

Id.   Woven into the abuse of discretion standard here is a "strong

public policy in favor of settlements, particularly in very complex

and technical regulatory contexts."               CUCCo, 204 F.3d at 280.         We

cannot conclude that the district court abused its discretion in

approving the Agreement.

             As    to    the   actual   effects    of    the    Agreement   on   the

interests of the PRDFA, the court expressly noted that PRDFA was

not bound by the Agreement and allowed PRDFA's companion case to

move forward.           Cf. Local No. 93, 478 U.S. at 529 ("A court's

approval of a consent decree between some of the parties therefore

cannot dispose of the valid claims of nonconsenting intervenors; if

properly raised, these claims remain and may be litigated by the

intervenor.").

             In addition, the district court has retained jurisdiction

over this case and the Agreement for compliance purposes.                        We

understand        the    district   court's    order       as    a   retention   of

jurisdiction to modify the Agreement if the evidence in the

companion case later establishes the constitutional infirmity of

any of the Agreement's effects on PRDFA. Suiza conceded as much at

oral argument: it stated that in the event PRDFA prevailed on the

merits of its companion case, the structure of the Agreement did

not bar the court from granting relief.                 We agree.

                                        -16-
                    III.

The judgment of the district court is affirmed.

                    -17-