Court Opinion

ID: 2963569
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Date Created: 2015-09-21 21:12:10.959013+00
Date Added: 2024-06-11T08:37:24.021326
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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,  Director,  Federal   Litigation
                    _____________________
          Division,  Dep't  of Justice,  Richard  L.  Brusca, Matthew  W.S.
                                         ___________________  _____________
          Estes,  Laura A. Ingraham,  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,  Miguel P.
          ____   ______________________  ______________________   _________
          Cancio Bigas, and  Sanchez Betances  & Sifre were  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,  Circuit  Judge.    In  1986,  the  Puerto  Rico
                    SELYA,  Circuit  Judge.
                            ______________

          Department  of Consumer  Affairs (DACO)  took a  small, tentative

          step   toward   regulating  the   profit   margins   of  gasoline

          wholesalers.  The  wholesalers treated this move as a declaration

          of war.  They mounted a courtroom  counteroffensive and succeeded

          in  obtaining an  injunction  against the  enforcement of  DACO's

          embryonic regulation.  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  had  been  vacated,  DACO

          purposed to exact tribute from  the vanquished.  Specifically, it

          sought  restitution from  the wholesalers  based on  the "excess"

          profits  that  they  allegedly   earned  while  shielded  by  the

          injunction.  The district court declined to  grant the envisioned

          spoils.  We affirm.

          I.  BACKGROUND
          I.  BACKGROUND

                    This is presumably the  final skirmish in a decade-long

          conflict.  Other jousts  are chronicled in a series  of published

          opinions.   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  1013 (1st Cir.
          ___     _______________________________

          1989);  Isla Petroleum  Corp. v.  Puerto Rico  Dep't  of Consumer
                  _____________________     _______________________________

          Affairs, 811 F.2d  1511 (Temp.  Emer. Ct. App.  1986) (Isla  II);
          _______                                                ________

          Texaco  Puerto Rico, Inc. v.  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
          _________                                  _____   ______________

                                          2

          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.  See 15
                                                                     ___

          U.S.C.     751-760h (as amended).   At the  time federal controls

          ended in  early 1981, the regulatory  scheme limited wholesalers'

          gross profit margins (GPMs) on the sale of gasoline to  8.6 cents

          per  gallon.1  See Tenoco,  876 F.2d at  1015 (recounting history
                         ___ ______

          of federal regulatory policy).   Although bureaucrats are reputed

          to abhor  a vacuum,  DACO   an  arm of  Puerto Rico's  government

          empowered by local law  to regulate prices and profit  margins in

          order  to protect consumers,  see P.R. Laws  Ann. tit.  3,   341b
                                        ___

          (1982)   did not immediately impose its own controls.

                    By  1985, the  GPMs of  gasoline wholesalers  in Puerto

          Rico ranged from 6.9  to 16.76  per gallon.  In early 1986, world

          oil prices plummeted   but  the price of gasoline in  Puerto Rico

          (both  wholesale and retail) failed  to follow suit.   The Puerto

          Rico legislature,  ostensibly concerned  that  the oil  companies

          were  taking unfair advantage, imposed an excise tax on crude oil

          and  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  cost.   The  latter cost  includes the
          price of the  gasoline plus excise taxes, but  excludes operating
          costs. See Tenoco, 876 F.2d at 1015.
                 ___ ______

                                          3

          1986.   The order  prohibited  wholesalers from  passing the  tax

          through  to  retailers.    It also  froze  wholesale  and  retail

          gasoline prices at their March 31, 1986 levels.

                    When,  thereafter, world oil  prices soared,  the price

          freeze  forced several  wholesalers  to sell  gasoline at  prices

          below their acquisition costs.  Since large oil companies are not

          in business to  lose money, a  coterie of wholesalers  (including

          the trio that  appear as  appellees here) wasted  little time  in

          asking the  federal district court  to enjoin enforcement  of the

          April 23 order.   Moving with equal celerity, the  district court

          scheduled a trial on  the merits for May 21,  1986.  See Fed.  R.
                                                               ___

          Civ. P.  65(a)(2) (authorizing the  district court to  "order the

          trial  on the  merits to  be advanced  and consolidated  with the

          hearing on  the application  [for preliminary injunction]").   On

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

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

          the former,  federally inspired ceiling and  established, in lieu

          of  the  thawed  freeze, maximum  GPMs  of  8.6   per gallon  for

          petroleum  wholesalers.  The May 20 order also scheduled a public

          hearing  for June  2  to "receive  comments  from all  interested

          persons  on the  adequacy  of this  Temporary  Order and  on  any

          modifications that  should be  made to  attain a situation  where

          primary  reliance can be  placed on competitive  market forces to

          maintain fair  margins at  all levels  of  distribution and  fair

          prices for the consumer."

                    This  maneuver  did not  derail  the  litigation.   The

                                          4

          district court merely switched tracks, trained its sights on  the

          May 20  edict, and went forward with a three-day bench trial.  On

          June  4    roughly ten  days after  the trial  ended    the court

          enjoined enforcement of  the May 20  order on federal  preemption

          and other  constitutional grounds.  See  Isla I, 640 F.  Supp. at
                                              ___  ______

          515.

                    DACO appealed  the preemption  ruling to the  Temporary

          Emergency  Court of  Appeals (TECA),  see  15 U.S.C.    754(a)(1)
                                                ___

          (granting  TECA   exclusive  jurisdiction  over   claims  arising

          directly under  the Emergency Petroleum Allocation  Act of 1973),

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

          order on  due process  and takings grounds)  to this  court.   We

          stayed   proceedings  pending  consideration  of  the  preemption

          ruling.   TECA affirmed  that ruling,  see Isla  II, 811  F.2d at
                                                 ___ ________

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

          forbid  state regulation of gasoline  prices.  See  Isla III, 485
                                                         ___  ________

          U.S.  at  499-501.   This court  then  took up  DACO's concurrent

          appeal and vacated the  district court's injunction as premature.

          See Tenoco, 876 F.2d at 1024.
          ___ ______

                    On June 27, 1989  (the day after we issued  our mandate

          incinerating the  district court's injunction),  DACO promulgated

          an  interim order establishing a  maximum GPM of  11  per gallon,

          effective  forthwith.  Its  final order,  issued on  November 30,

          1989, adopted a ceiling  of 13  per gallon.  That order withstood

          a vigorous constitutional challenge by the  wholesalers.  See TPR
                                                                    ___ ___

          I, 749 F. Supp. 348.
          _

                                          5

                    An  ensuing  period of  unaccustomed  tranquility ended

          abruptly in mid-1992  when DACO  again took up  the cudgels.   It

          issued  a so-called remedial order  in which it  sought to recoup

          almost  $250,000,000 in profits exceeding  an 8.6  per gallon GPM

          that it estimated three wholesalers    Texaco Puerto Rico,  Inc.,

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

          Ltd. (appellees here)    had  earned during  the three-year  life

          (June  1986 to  June  1989)  of  the  errant  injunction.2    The

          wholesalers quickly repaired to  the district court and requested

          protection  from the remedial order.  Before the court could act,

          DACO  issued  a  revised remedial  order.    Under  its terms,  a

          wholesaler could  choose  between  paying  a refund  based  on  a

          retrospective  GPM of 13  per gallon for the injunction period or

          paying  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  front.  It  revivified the court

          action originally  instituted by  the oil  companies and filed  a

          motion for  restitution  seeking an  award  equal to  the  excess

          profits that the wholesalers  would have been forced to  disgorge

                              
          ____________________

               2We  refer to the  three oil companies  collectively as "the
          wholesalers," and individually as "Texaco," "Esso," and "Shell."

                                          6

          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.  THE MERITS
          II.  THE MERITS

                    Our  analysis of  the merits  is partitioned  into four

          segments.    We discuss  the  nature  of  restitution, parse  the

          decision  below,  limn  the  standard of  review,  and,  finally,

          examine the record to determine whether the denial of restitution

          can be upheld.

                            A.  The Nature of Restitution.
                            A.  The Nature of Restitution.
                                _________________________

                    In its  motion, DACO sought restitution  based upon the

          hoary adage "that a  party against whom an erroneous  judgment or

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

          a reversal, to be restored by his adversary to that  which he has

          lost thereby."   Arkadelphia Milling  Co. v. St.  Louis S.W.  Ry.
                           ________________________    ____________________

          Co., 249  U.S. 134, 145  (1919).  We  agree with this  tenet, but
          ___

          caution  that it tells only half the  tale.  Restitution is not a

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

          Atlantic  Coast Line  R.R.  Co. v.  Florida,  295 U.S.  301,  310
          _______________________________     _______

          (1935);  Democratic  Central  Comm.  v.  Washington  Metro.  Area
                   __________________________      ________________________

          Transit Comm'n, 485 F.2d 786,  825 (D.C. Cir. 1973);  Restatement
          ______________

          of Restitution   142, cmt. a, at 568 (1937).  Because restitution

          is a creature of equity,  a claimant can prevail only by  showing

          that it will  offend "equity  and good conscience"  if the  other

                                          7

          party  is permitted to retain the disputed funds.  Atlantic Coast
                                                             ______________

          Line, 295  U.S. at 309.  Put another way, restitution is a remedy
          ____

          ex  gratia that a  court will withhold  when "the  justice of the
          __  ______

          case does not call for  it . . . ."  Id. at  310; accord Williams
                                               ___          ______ ________

          v.  Washington Metro. Area  Transit Comm'n, 415  F.2d 922, 941-47
              ______________________________________

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

                    This  emphasis on  the particulars  of  each individual

          case   is  consistent   with  the   central  feature   of  equity

          jurisdiction:   "the  ability to  assess all  relevant facts  and

          circumstances  and tailor  appropriate relief on  a case  by case

          basis."   Rosario-Torres  v. Hernandez-Colon,  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  each decree  to  the necessities  of the

          particular case.");  Lussier v. Runyon,  50 F.3d 1103,  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  as other

          claims for restitution.  See Atlantic Coast Line, 295 U.S.at 310;
                                   ___ ___________________

          see also Restatement, supra,    74, at 302-03 ("A person  who has
          ___ ____              _____

          conferred a benefit upon another  in compliance with a  judgment,

          or  whose property  has  been taken  thereunder,  is entitled  to

          restitution  if  the judgment  is reversed  or set  aside, unless

          restitution  would be  inequitable  . .  .  .").   This  approach

                                          8

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

          applies when, as  now, a  restitutionary claim arises  out of  an

          errant   injunction  barring   enforcement   of  a   governmental

          regulation.  See,  e.g., Arkadelphia, 249  U.S. at 145  (ordering
                       ___   ____  ___________

          restitution  by a regulated  company that charged  more during an

          injunction  period  than  the  rate  ultimately  deemed  lawful);

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

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

                               B.  The Decision Below.
                               B.  The Decision Below.
                                   __________________

                    The  district  court predicated  its  denial  of DACO's

          motion  for restitution  on alternative  grounds.   In the  first

          place,  the  court determined  that there  was  no benefit  to be

          restored as the wholesalers had not profited from the injunction.

          See  TPR II, 862  F. Supp. at 705-06.   This determination rested
          ___  ______

          upon  a finding  that  DACO failed  to  show that  it  would have

          regulated wholesalers'  GPMs during  the relevant period  but for

          the improvidently issued injunction.  See id. at 702-06.   In the
                                                ___ ___

          second place, the  court determined that, even  assuming that the

          injunction  conferred  an  economic  benefit,  "the  balance   of

          equities" did not  require "a disgorgement of  profits earned six

          to eight years ago."  Id. at 706.
                                ___

                    This latter  determination rested  upon an  analysis of

          five equitable factors.  First,  based on evidence regarding  the

          competitiveness  of the  gasoline  market and  earnings in  other

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

          disproportionately from  the lack  of regulation."   Id. at  707.
                                                               ___

                                          9

          Next, the  court found  DACO  guilty of  "unreasonable delay"  in

          seeking restitution.  Id.   Third, the court concluded  that DACO
                                ___

          exhibited bad faith with regard to Texaco, Esso,  and Shell.  See
                                                                        ___

          id.   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.  Finally, the
                                              ___ ___

          court  thought  that  the   public  interest  did  not   favor  a

          restitutionary order.  See id.
                                 ___ ___

                               C.  Standard of Review.
                               C.  Standard of Review.
                                   __________________

                    Appellate  review  often calls  into  play  a blend  of

          rules.   So  it is  here.   We review  the factual  findings that

          undergird the trial court's ultimate determination only for clear

          error.  See Lussier,  50 F.3d at 1111;  Reilly v. United  States,
                  ___ _______                     ______    ______________

          863 F.2d  149,  163 (1st  Cir.  1988).   In contrast,  the  trial

          court's  articulation  and  application of  legal  principles  is

          scrutinized de novo.   See Cumpiano v. Banco Santander  P.R., 902
                      __ ____    ___ ________    _____________________

          F.2d  148, 152  (1st  Cir. 1990).    Thus,  "to the  extent  that

          findings of  fact can be shown  to have been  predicated upon, or

          induced  by,  errors of  law,  they will  be  accorded diminished

          respect  on appeal."  Dedham Water Co. v. Cumberland Farms Dairy,
                                ________________    _______________________

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

                    The main event evokes a different criterion.  We review

          a district  court's  ultimate decision  to grant  or withhold  an

          equitable remedy for abuse of discretion.  See, e.g., Lussier, 50
                                                     ___  ____  _______

          F.3d  at 1111;  Rosario-Torres, 889  F.2d at  323.   Overall, the
                          ______________

          abuse-of-discretion standard  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  a  considerably  better  position to  bring  the  scales into

          balance than an appellate tribunal."  Rosario-Torres, 889 F.2d at
                                                ______________

          323.  For this reason,  the court of appeals ordinarily  will not

          find  an abuse of  discretion unless perscrutation  of the record

          provides strong evidence that the  trial judge indulged a serious

          lapse in judgment.  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.  Discussion.
                                   D.  Discussion.
                                       __________

                    The court below began with the question of benefit, and

          treated that question as a discrete inquiry.  See TPR  II, 862 F.
                                                        ___ _______

          Supp. at 700.  But this approach tends to put the cart before the

          horse.   A  court  mulling a  restitutionary  remedy must  almost

          always  perform an  equitable assay.   Rather than  isolating the

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

          so, the likely  extent thereof), we think it is preferable in the

          first  instance  to  incorporate  that question  into  the  assay

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

          the  court can conclude with  minimal effort that  no benefit has

          been received.  If, however, the factual situation is more cloudy

          and  speculative, it ordinarily will prove a more fruitful use of

                                          11

          judicial energies to  fold the  issue of benefit  into the  wider

          issue  of equity.    Thus, the  probability  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  to the  incidence  and effect  of  any  benefit can  then  be

          pinpointed as part of a calculation  anent damages if restitution

          is  ultimately found  to  be a  condign  remedy in  a  particular

          situation.

                    With  this preface,  we turn to  an examination  of the

          judgment below.   For ease in reference,  we treat each group  of

          factual findings as a separate integer in the equitable equation.

          The methodologic innovation that  we have described   introducing

          the  question  of whether  the  wholesalers  benefitted from  the

          injunction  (and if so, to  what extent) into  the assay proper  

          does not require remand.   The lower court made  detailed factual

          findings  on the  question of  benefit, and  we can  easily align

          those findings along the preferred legal matrix.  See Societe des
                                                            ___ ___________

          Produits  Nestle v. Casa Helvetia,  Inc., 982 F.2d  633, 642 (1st
          ________________    ____________________

          Cir. 1992); United  States v. Mora,  821 F.2d 860, 869  (1st Cir.
                      ______________    ____

          1987).

                    1.   Benefit.   Because restitution  is founded on  the
                    1.   Benefit.
                         _______

          concept of unjust enrichment, a  court considering a request  for

          restitution  must  investigate the  extent  to  which the  target

          "received  a benefit."   Restatement, supra,   1,  cmt. a, at 12.
                                                _____

          In a  case  such  as this,  the  problems of  proof  are  readily

                                          12

          evident.   The  regulation that the  district court  enjoined was

          clearly  labelled   as  temporary   when  promulgated,   and  the

          injunction prevented further regulation (temporary or permanent).

          Thus,  DACO  found  itself,   at  trial,  in  an  epistemological

          quandary:   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  have capped GPMs at a  level below

          what the wholesalers  actually earned during the pendency  of the

          injunction.

                    The district court found DACO's strivings inadequate to

          this  daunting task.   In  the court's  view, DACO's  adoption of

          temporary  margin controls in 1986 did  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.  The court
                                    ______

          stressed that the unique  combination of exigent circumstances to

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

          thereafter  made  an  in-depth   study  of  the  desirability  of

          regulation,  see id.  at 704;  and that,  upon completion  of the
                       ___ ___

          study, DACO  decided not to regulate, see id.  On this basis, the
                                                ___ ___

          district court concluded that the stopgap measure would have been

          abandoned  when the  exigency abated;  that DACO  would  not have

          implemented  other GPM regulations  during the  June 1986  - June

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

          monetary advantage from the injunction.  See id. at 707.
                                                   ___ ___

                    For  the  most  part,  this  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  n.5 (1st Cir.  1991) (similar);  see also
          ____                                                     ___ ____

          Dedham  Water,  972  F.2d  at  460  n.4  (applying  principle  in
          _____________

          affirming district court's findings in  analogous circumstances),

          and  DACO's actions  when freed  from the  specter of  preemption

          indicatequiteplainly thatlong-term regulationwasnot onthe agenda.

                    The  United States  Supreme Court  decided Isla  III on
                                                               _________

          April 19, 1988.   Within days, DACO disseminated a  press release

          in which its  Secretary, Pedro Ortiz Alvarez (Ortiz), crowed that

          the  Court had  "restored to  Puerto Rico  the historic  power to

          regulate gasoline prices."  Shortly thereafter, DACO commenced an

          administrative proceeding to determine whether controls should be

          introduced.  To  this end, it requested (and  received) financial

          data  and other information from the wholesalers.  It also sought

          industry input  as to whether the commonwealth  should set either

          price or  margin controls on  gasoline, and held  public hearings

          beginning in the  fall of  1988 to consider  the desirability  of

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

          reasonableness of existing profit margins in the industry.

                    In  December, as  the  administrative proceeding  wound

          down,   Esso's  general  manager,   Charles  Griffith,  met  with

          Secretary  Ortiz.  According to Griffith, Ortiz informed him that

                                          14

          DACO  had  completed  its  study  and  decided  against  imposing

          controls  because "the market was behaving."  Later that month, a

          daily newspaper, El Nuevo  Dia, published an article based  on an
                           _____________

          interview  with Secretary Ortiz.   The article reported that DACO

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

          `close  supervision'  of the  industry."    The newspaper  quoted

          Secretary Ortiz as conceding that the  wholesalers had not earned

          "excessive profits."

                    In January of 1989, Ortiz resigned.  The new Secretary,

          Jorge  R. Ocasio  Rodriguez (Ocasio), told  Griffith that  he was

          aware of the earlier study  and of his predecessor's conclusions,

          and that  he "intend[ed] to follow  [Secretary Ortiz's] policies"

          in regard to petroleum  wholesalers.  In fact, DACO did not adopt

          controls until June 27, 1989   the day after the district court's

          injunction had been lifted    and then attributed the  about-face

          to newly  emergent "erratic  and unstable" price  fluctuations in

          the Puerto Rico market.

                    Noting   this  chronology   of   inaction  laced   with

          reassurances,  and  remarking bits  of  trial  testimony such  as

          Secretary Ortiz' oft-stated preference  for a free market system,

          the district  court concluded that  DACO's failure to  impose any

          controls  for over a year  after the Supreme  Court's decision in

          Isla III cleared the regulatory path demonstrated  that it lacked
          ________

          long-term regulatory  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 district  court's finding  that, during

          the injunction  period, DACO would  not have adopted  a permanent

          regulation limiting  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  convictive

          force  in  one  respect.    The  district  court  focused  almost

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

          the  Supreme Court  overruled TECA  and gave  the green  light to

          state  regulation)  in  attempting to  divine  DACO's  regulatory

          intent  dating  back  to   mid-1986.    This  strikes  us   as  a

          sufficiently  accurate barometer of  long-term regulatory intent,
                                               _________

          but fails to deal satisfactorily with the near term.  The stopgap

          order that DACO promulgated  on May 20, 1986 would  have remained

          in effect  for some period but for the injunction.  Thus, even if
                         ____

          the district  court's finding is accepted, some benefit   however

          small   still might have accrued  to the wholesalers by reason of

          the district court's abrupt suspension of this order.

                    That said, DACO's proof does  not permit us to quantify

          that  presumed  benefit.    Because  DACO,  as  the  claimant for

          restitution, bears the burden of proving the conferral and extent

          of  a benefit,  see Atlantic  Coast Line,  295 U.S. at  309, this
                          ___ ____________________

          failure   of  proof  looms  large.3    We  do  not  suggest  that
                              
          ____________________

               3DACO's  estimate of the benefit received   it says that the
          wholesalers charged their customers anywhere  from $64,500,000 to
          $250,000,000 more  during the  injunction period than  DACO would
          have  permitted   is  not only unproven  but also  deserves to be
          taken with a good deal of salt.  DACO whips up the lower of these
          frothy  figures by  suggesting  that, absent  the injunction,  it
          would have limited  the wholesalers'  GPMs to a  level no  higher

                                          16

          uncertainty as to the extent of the benefit acts as an  automatic

          bar  to  DACO's  claim  for  restitution,  but  for  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.  The Wholesalers' GPMs.  The district court analyzed
                    2.  The Wholesalers' GPMs.
                        _____________________

          the  wholesalers'  profit  margins  during the  pendency  of  the

          injunction   and   concluded   that   they   "did   not   benefit

          disproportionately  from the lack of regulation."  TPR II, 862 F.
                                                             ______

          Supp. at  707.  DACO disputes  the relevancy of this  factor.  It

          argues   that   equity  does   not   require   there  to   be   a

          disproportionate  benefit,  but,   rather,  that  restitution  is

          appropriate  so long as the targeted party benefitted at all from
                                                                __ ___

          the  erroneous injunction.   In  this view  of the  universe, the

          reasonableness of the wholesalers' earnings is beside the point.

                    Once  again,   DACO's  conception  of  equity   is  too

          inelastic.  "The mere fact that a person benefits  another is not

          of itself  sufficient to  require the  other to  make restitution

          therefor."   Restatement,  supra,    1, cmt.  c, at  13.   As the
                                     _____

          district  court noted,  a  finding that  the wholesalers'  actual

          profit  margins were  unreasonably high  would assist  in showing

          that  "the  money was  received  in such  circumstances  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  ceiling imposed  in the May  20, 1986  temporary
          order)  for the entire three-year span.  These gaudy claims enjoy
          little or no record support.

                                          17

          possessor will  give offense  to  equity and  good conscience  if

          permitted to  retain it."  TPR  II, 862 F. Supp.  at 701 (quoting
                                     _______

          Atlantic Coast Line, 295 U.S.  at 309).  The converse is  equally
          ___________________

          true:  the fact that the wholesalers' profits were reasonable (or

          unreasonably low, for that  matter), tends to make the  denial of

          restitution more  in keeping  with equitable principles.   Either

          way,  the reasonableness vel non of the wholesalers' profits is a
                                   ___ ___

          concinnous  factor   for  inclusion  in  the   court's  equitable

          balancing.   See  Restatement,  supra,     74,  cmt.  c,  at  305
                       ___                _____

          (suggesting that a  party who receives a benefit is not liable to

          make  restitution therefor unless  the circumstances attendant to

          receipt  or  retention  of   the  benefit  render  its  enjoyment

          inequitable).

                    The  district  court  based  its  assessment  that  the

          wholesalers' earnings during the  relevant period were reasonable

          on  a series of subsidiary findings.   It gave weight to the fact

          that the wholesalers'  profits "were in line with  profits earned

          during  the  unregulated  period  after  federal   controls  were

          terminated, and before the 1986 regulation was enacted."  TPR II,
                                                                    ______

          862 F.  Supp. at 706.  It  then performed a comparative analysis4

          and verified  that the wholesalers'  returns "were  in line  with

          various  competitive  industries  and   investment  alternatives"

          during the injunction period.  Id.  Last but not least, the court
                                         ___

                              
          ____________________

               4The court used as  congeners such benchmarks as  returns on
          assets in  the electric  utility industry, returns  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   the  wholesale   market   remained  competitive

          throughout the  period, thus ensuring  that margins were  held to

          acceptable levels.  See id.
                              ___ ___

                    DACO suggests that these  findings have a tenuous basis

          in  fact    but this  is a  fairly typical  rejoinder of  a party

          seeking to surmount the  high hurdle of clear-error review.   The

          district court relied mainly on the  testimony of four economists

          presented  as  expert witnesses  by  the  wholesalers.   We  have

          studied  their   testimony  (including  the   plethoric  exhibits

          associated  therewith), and  we are  fully persuaded  that, given

          this evidence, the district  court had a solid basis  for finding

          that,  during  the injunction  period,  the  wholesale market  in

          Puerto  Rico  was staunchly  competitive,  and  that the  profits

          earned by  Texaco,  Esso, and  Shell were  reasonable.   Although

          DACO's  expert  testified  in   a  diametrically  opposite  vein,

          choosing between  experts in  a jury-waived trial  is principally

          the business of  the district  court, not the  court of  appeals.

          See, e.g.,  Keller v.  United States,  38 F.3d 16,  25 (1st  Cir.
          ___  ____   ______     _____________

          1994).   Consequently,  we decline  DACO's invitation  to second-

          guess  the   trial  court's  scorecard  in   respect  to  dueling

          experts.5  See Anderson v. City  of Bessemer City, 470 U.S.  564,
                     ___ ________    ______________________
                              
          ____________________

               5The court below  offered sound reasons for  siding with the
          wholesalers'  experts.    Equally  as important,  it  viewed  the
          testimony of appellant's expert, Dr. Logan, "with some skepticism
          in  light of  his  intimate involvement  with  DACO," his  former
          employment by  DACO's counsel,  and his  status as  "the putative
          author of the 13-cent regulation."  TPR II, 862 F.  Supp. at 706.
                                              ______
          Though DACO cries foul  due to the court's "gratuitous  swipe" at
          Dr. Logan's  bona fides, such credibility  determinations are the
          prerogative   indeed, the duty   of the district judge in a bench

                                          19

          575  (1985) (explaining  the  virtual impregnability  of a  trial

          judge's  finding  based on  a  reasoned  decision to  credit  the

          testimony of one witness over another).

                    3.  Delay.   In weighing the equities, the  lower court
                    3.  Delay.
                        _____

          found  that  "DACO's actions  in  seeking  restitution have  been

          marked by  unreasonable delay."   TPR II,  862 F.  Supp. at  707.
                                            ______

          DACO  asserts  that  the  court's  inclusion of  this  factor  is

          improper  as a  matter  of  law  because  it  is  the  functional

          equivalent of  raising a  laches defense against  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  or protect  a public  interest.   See  Illinois v.
                                                           ___  ________

          Kentucky, 500  U.S.  380, 388  (1991)  (noting that  "the  laches
          ________

          defense  is generally  inapplicable against  a state");  Block v.
                                                                   _____

          North Dakota  ex rel Bd. of  Univ. and Sch. Lands,  461 U.S. 273,
          _________________________________________________

          294  (1983) (O'Connor, J.,  dissenting) (collecting authorities).

          But the  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.  We explain briefly.

                    An  equitable  defense  and  an  equitable  factor  are

          conceptually and practically distinct.  The divagation is subtle,

          but significant.    An equitable  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  "ought not to disturb
          supportable  findings, based  on witness  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."  1 Dan B.

          Dobbs, Law  of Remedies   2.4(1), at 91 (2d ed. 1993).  Moreover,
                 ________________

          in evaluating an equitable defense, the court considers  only the

          plaintiff's  conduct and  is free  to "deny  all remedies  if the

          plaintiff  does not meet equity's  standards."  Id.    2.4(5), at
                                                          ___

          108-09.   In contrast, an equitable factor must always be weighed

          in  concert with  other  relevant  factors.    See  id.  at  109.
                                                         ___  ___

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

          the  conduct of  both parties  and the  potential hardships  that

          might  result from a judicial decision either  way."  Id.  From a
                                                                ___

          practical standpoint,  then,  "[e]ven when  an equitable  defense

          does  not  bar  the claim,  the  total  balance  of equities  and

          hardships might do so."  Id.,   2.4(1), at 91.
                                   ___

                    Here,  the  district  court  explicitly  disclaimed any

          intent  to apply  the equitable  doctrine of laches  as a  bar to

          DACO's motion.   See TPR  II, 862  F. Supp. at  702 n.8.   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  outcome.   This is  precisely what  Judge Fuste  did, and

          there  is  no principled  basis  for  DACO's suggestion  that  he

          mouthed  the vocabulary  of  equitable balancing  as  a means  of

          surreptitiously injecting a barred  laches defense into the case.

          Indeed, in  considering  DACO's delay  as part  of the  equitable

          balance,  the   judge  merely   honored  the  precept   that  the

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

          to the  general principles  of equity than  any other  litigant."

                                          21

          United States v.  Second Nat'l Bank, 502 F.2d  535, 548 (5th Cir.
          _____________     _________________

          1974).

                    DACO  also  contends that  the  district  court clearly

          erred  in   finding  prejudicial  delay.     This  contention  is

          unpersuasive.   The  evidence shows  that DACO  first raised  the

          refund issue  in its June  1989 interim order.   DACO did nothing

          further  on this  score  until ten  months  later, when  it  sent

          letters to  the wholesalers conveying its  "preliminary views" on

          the suitability of refunds.   DACO then dropped the  refund issue

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

          when the  then-Secretary,  Guillermo Mojica  Maldonado  (Mojica),

          announced at a press  conference that he planned to  seek refunds

          from  the wholesalers.  All  told, DACO waited  three years after

          this court vacated the injunction to commit itself to the pursuit

          of restitution.

                    DACO does not dispute  the accuracy of this chronology,

          but  takes  vigorous exception  to  the  court's conclusion  that

          "[t]his  type  of  stopping   and  starting,  delaying  and  then

          proceeding[,] must be considered prejudicial to the  wholesalers,

          who had to  run their  business with the  threat of  multimillion

          dollar refunds  occasionally flaring  up and then  disappearing."

          TPR II, 862 F. Supp. at 707.  DACO offers a myriad of excuses for
          ______

          its procrastination;  it intimates that, as  a government agency,

          torpor  is to be expected;  it claims to  have undergone numerous

          changes  in staff and leadership  during the period;  and it says

          that  its attention  was diverted  because of  ongoing litigation

                                          22

          over  its proposed 13  GPM that lasted  until March of 1991.  The

          district  court dismissed these excuses  as lame.   We, too, find

          them insufficient.

                    Government agencies, like private corporations, have an

          obligation  to conduct  their affairs  in a  reasonably efficient

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

          (D.C. Cir. 1983) (warning  that "excessive delay saps  the public

          confidence   in   an   agency's    ability   to   discharge   its

          responsibilities").     An   entity  that   chooses  to   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.  See, e.g., United States v.
                                                ___  ____  _____________

          Baus,  834  F.2d 1114,  1123 (1st  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  its defenses");   Cutler v.  Hayes, 818
                                                      ______     _____

          F.2d  879,  896  (D.C.  Cir.  1987)  (explaining  that,  when  an

          administrative  agency loiters, "the consequences of dilatoriness

          may be great").   By like token, neither government  agencies nor

          private employers  can escape responsibility for  the exercise of

          due diligence  merely because  of employee turnover.   Department

          heads   and  other  key  personnel  may  come  and  go,  but  the

          institution  must endure.    See  Cutler,  818  F.2d  at  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.  1990) (district court did not  abuse discretion

          in  failing to grant extension  of time based  on attorney's busy

          trial  calendar);  Pinero  Schroeder  v. Federal  Nat'l  Mortgage
                             _________________     ________________________

          Ass'n, 574  F.2d 1117, 1118 (1st  Cir. 1978) (same).   And in all
          _____

          events, litigation  ending in early 1991  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  to the  vigilant, not to  those who  sleep

          upon their rights.   See, e.g., Sandstrom v. Chemlawn  Corp., 904
                               ___  ____  _________    _______________

          F.2d  83, 87 (1st Cir. 1990).  Given the uncontradicted evidence,

          we  believe that the district court acted lawfully in ruling that

          unreasonable delay on DACO's part militates against relief.

                    4.  Bad Faith.  It is  old hat that a court called upon
                    4.  Bad Faith.
                        _________

          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  that the doctrine  of unclean hands

          "closes the  doors of  a  court of  equity  to one  tainted  with

          inequitableness or bad faith  relative to the matter in  which he

          seeks relief"); see also  Dobbs, supra, at 109; see  generally K-
                          ___ ____  _____  _____          ___  _________ __

          Mart Corp. v.  Oriental Plaza,  Inc., 875 F.2d  907, 910-12  (1st
          __________     _____________________

          Cir. 1989)  (discussing "unclean  hands" doctrine in  relation to

          the equitable maxim that  "he who seeks equity must  do equity").

          But  even  though  equitable  doctrines are  renowned  for  their

          elasticity, they are  not without  all limits.   The doctrine  of

          unclean  hands only  applies  when the  claimant's misconduct  is

                                          24

          directly  related to  the merits of  the controversy  between the

          parties,  that is, when the  tawdry acts "in  some measure affect

          the  equitable  relations  between  the  parties  in  respect  of

          something brought  before the court for  adjudication."  Keystone
                                                                   ________

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

                    In the  case at bar,  the test was  met.   The district

          court  found  pervasive evidence  of  bad faith  on  DACO's part,

          directly  related to the core elements of the dispute sub judice.
                                                                ___ ______

          See  TPR II,  862 F.  Supp. at  707.   Although DACO  brands this
          ___  ______

          finding clearly erroneous and worse   for instance, DACO  claims,

          without  a shred of record  support, that the  finding is "tinged

          with political,  rather than legal,  analysis," Appellants' Brief

          at 37   we believe that there  is ample evidence in the record to

          support the district court's perspective.

                    In  making its  finding of  bad faith, the  lower court

          relied heavily on two occurrences.   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  were  warned that  they  should  cooperate with  the

          government  in the implementation  of the  new tax  by refraining

          from further  lowering gas prices,  so that the  government could

          achieve revenue from the  tax . . . ."   TPR II, 862 F.  Supp. at
                                                   ______

          695.  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  acquiesce in  the government's

          strategy, the company's continued  existence in Puerto Rico would

          be "very difficult."

                    DACO claims  that these thinly veiled  minations had no

          bearing on margin regulations  imposed well after the  excise tax

          was enacted.  This claim is  disingenuous.  Past is prologue, and

          the district  court plausibly could find    as it did    that the

          1986 meetings were  part of  the same overall  course of  conduct

          that led to the push for restitution six years later.  After all,

          the meetings  involved the same  principals and the  same subject

          matter, and, with the  benefit of hindsight, can  be viewed as  a

          harbinger of things to come.   On this basis, the district  court

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

          DACO's good faith (or  lack thereof) in seeking  restitution some

          years thereafter.   This  is particularly true  in that,  shortly

          after the  government  "suggested" that  the wholesalers  refrain

          from  lowering gasoline  prices,  DACO attempted  to justify  its

          regulation of  GPMs on  the ground  that the  wholesalers' prices

          were  too  high.    Thus,  in  effect,  DACO  bore  a  degree  of

          responsibility for  creating the  "excess profits" that  it later

          attempted to recapture,  first via  the excise tax,  and then  by

          dint of the motion for restitution.     The second  pillar of the

          court's conclusion lacks the  dramatic impact of these strong-arm

          tactics, but affords a  closer temporal link.  The  court thought

                                          26

          that the actions of Secretary Mojica in and around 1992 betokened

          bad faith.   See TPR II, 862  F. Supp. at 707.   At trial, Mojica
                       ___ ______

          admitted  that he had  chosen the  8.6  figure  based not  on any

          economic  rationale,  but  as   a  stratagem  to  enhance  DACO's

          negotiating  position.   The district  court found  this behavior

          "irresponsible."   Id.  And Secretary Mojica made a bad situation
                             ___

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

          and Shell, whilst leaving unscathed a number of other wholesalers

          who had exceeded  the 8.6  margin.   The lower  court found  that

          these  efforts to exact restitution from the appellees   and from

          no other similarly  situated wholesalers   smacked  of bad faith,

          see  id., and  DACO can  point  to no  evidence that  refutes the
          ___  ___

          implication   of  selective  targeting  in  retaliation  for  the

          appellees' active opposition to the government's desires.

                    We think  that the record  as a whole  corroborates the

          district court's determination that the 8.6  figure was chosen as

          a crude  club  to bludgeon  the  wholesalers into  a  settlement,

          without  regard  for  the  economic realities  of  the  petroleum

          industry.  Indeed, the  nisi prius roll is replete  with evidence

          suggesting this unhappy conclusion.   For one thing, DACO's chief

          economist,  Carlos Lasanta,  testified  that he  had advised  his

          superiors that  the 8.6  margin was  economically inadequate, yet

          DACO  persisted in its plan.  For another thing, Secretary Mojica

          testified that he issued  the remedial order and set  the ceiling

                                          27

          without even pausing to review the administrative record.6

                    In sum, the  grounds relied upon by  the district court

          pass  muster.  Because the  remedy of restitution  is premised on

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

          in 1992 sabotage its present attempt  to seize the high ground by

          asserting  that  the wholesalers  took  unfair  advantage of  the

          erroneous injunction.   Hence, we  are unwilling  to disturb  the

          court's determination  that DACO's  actions were tinged  with bad

          faith.

                    5.   Reliance.   A  court considering  a restitutionary
                    5.   Reliance.
                         ________

          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).  In doing so here,
                      _____ ______

          the court found that the statements of  two different Secretaries

          (Ortiz  and Ocasio)  led  the wholesalers  to  believe that  DACO

          regarded  their margins  "to be  reasonable, and  therefore, that

          restitution  of  such  reasonable  profits  would  not  later  be

          demanded."   TPR  II,  862  F.  Supp.  at  708.    Moreover,  the
                       _______

          wholesalers convinced  the court that they  justifiably relied on

                              
          ____________________

               6DACO asserts that, because the remedial order "was only the
          starting point  for [its] consideration of  the appropriate level
          of  refunds,"  the terms  of  the  order  "cannot  rationally  be
          considered evidence of  bad faith."  Appellants'  Brief at 38-39.
          This ipse  dixit  does not  withstand scrutiny.   When  Secretary
               ____  _____
          Mojica  announced  the promulgation  of  the  remedial order,  he
          presented the 8.6  figure  not as a guidepost to  a determination
          of the eventual  measure, but as a fait accompli.   Moreover, the
          order  itself described "a maximum profit margin of 8.6 cents per
          gallon"  as "conclusive  and undebatable."   DACO  retreated from
          this   figure  only   after   the  wholesalers   sought  judicial
          protection.

                                          28

          those statements in formulating their business plans.  See id.
                                                                 ___ ___

                    The record  is consistent with  these findings.   It is

          not farfetched  to think that Secretary  Ortiz's statements, see,
                                                                       ___

          e.g.,  supra p.14, could have lulled the wholesalers into a false
          ____   _____

          sense of  security.  See, e.g.,  Insurance Co. v. Mowry,  96 U.S.
                               ___  ____   _____________    _____

          544,  547 (1877) ("A representation as  to the future can be held

          to operate  as an estoppel . . . where  it relates to an intended

          abandonment  of  an existing  right,  and  is  made to  influence

          others, and by  which they have  been induced to  act.").   Then,

          too,  the  wholesalers  adduced  explicit evidence  of  reliance,

          credited by the  trier.   A number of  executives testified  that

          they took the Secretary's statements regarding the reasonableness

          of  their firms'  profit margins  at face  value,  and authorized

          investments  in Puerto Rico  that they  would not  otherwise have

          approved.    We  cannot hold  that  the  court  clearly erred  in

          detecting  detrimental  reliance  on  these facts.    See,  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   court's  finding   of  detrimental   reliance  is

          bolstered  by another circumstance.  When  Judge Fuste issued the

          injunction, DACO could have   but did  not   ask him to require a

          bond or  an  escrow account.    See Inland  Steel  Co. v.  United
                                          ___ __________________     ______

          States,  306 U.S.  153, 156-57  (1939) (holding that  court acted
          ______

          lawfully in conditioning injunction against ICC  on establishment

          of escrow account to defray possible restitutionary obligations).

                                          29

          Although  a bond  or  escrow  fund  is  not  a  prerequisite  for

          restitution in cases involving  injunctions,  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  need for a[n  injunction] bond is

          limited to  the recovery of damages  and has no application  to a

          claim of restitution of  amounts subsequently found to have  been

          undue"),  cert. denied, 454 U.S. 1114 (1981), a court called upon
                    _____ ______

          to perform equitable balancing  may nonetheless weigh the absence

          of a bond or other fund as  a factor in its equitable assay.  See
                                                                        ___

          Moss, 521 F.2d  at 314; see also Thompson v. Washington, 551 F.2d
          ____                    ___ ____ ________    __________

          1316, 1321  (D.C. Cir. 1977).   This  is the music  to which  the

          district court marched.  See TPR II,  862 F. Supp. at 708.   Just
                                   ___ ______

          as the existence of a bond or other fund would  have undercut any

          claim  of  detrimental reliance,  so,  too,  their absence  lends

          credence to the wholesalers' lament.

                    6.   Public  Interest.   It cannot  be gainsaid  that a
                    6.   Public  Interest.
                         ________________

          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  of moulding

          its remedies may be affected by the public  interest involved.");

          Rosario-Torres, 889 F.2d  at 323 (similar).   Here, the  district
          ______________

          court  found  that  the  public interest  would  be  disserved by

          granting  restitution.   The court  reasoned "that  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   a   possible  loss   of  jobs   and

          competitiveness in the wholesaling market."  TPR II, 862 F. Supp.
                                                       ______

          at 708.

                    At  trial,  DACO  made  no  effort  to  contradict  the

          wholesalers' testimony on this point.  In this venue, it likewise

          abjures  any challenge  to the  testimony's relevance.   Instead,

          DACO complains about the  district court's related statement that

          DACO had "failed  to propose a cogent plan to  restore losses" to

          the  Puerto  Rico motorists  who bore  the  brunt of  the alleged

          overcharges.  Id.   In DACO's  eyes, depositing a  restitutionary
                        ___

          award into the commonwealth's  general fund comprises an entirely

          satisfactory trickle-down  substitute for the  court's envisioned

          plan of direct payments to motorists.

                    Once  again, DACO's  fascination  with  a  single  tree

          obscures  its view of the forest.  The district court's rescript,

          properly read, does  not hold  that depositing  refunds into  the

          commonwealth's  coffers is repugnant to the public interest in an

          absolute sense.   The court's  point is quite  different.   Judge

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

          economy that would  result from levying a  huge restitution award

          outweighed  the  benefit accruing  from  refunds  that would  not

          directly compensate the  injured victims.  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.  Recapitulation.  We have fashioned a tried-and-true
                    7.  Recapitulation.
                        ______________

          framework for gauging claimed abuses of discretion:

                    In making discretionary judgments, a district
                    court abuses  its discretion when  a relevant
                    factor  deserving  of  significant weight  is
                    overlooked,  or  when an  improper  factor is
                    accorded  significant  weight,  or  when  the
                    court  considers  the   appropriate  mix   of
                    factors,  but commits  a  palpable  error  of
                    judgment   in   calibrating  the   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  this tested framework.  DACO  has failed to show

          that  the court, in performing this appraisal and arriving at its

          judgment,    overlooked     appropriate    factors,    considered

          inappropriate factors,  or made a detectable  mistake in weighing

          the  evidence.  Mindful, as we are,  that "[t]he very nature of a

          trial judge's interactive  role assures  an intimate  familiarity

          with  the nuances  of  ongoing litigation     a familiarity  that

          appellate judges,  handicapped by  the sterility of  an impassive

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

          to place  a heavy  appellate thumb on  the scales of  justice and

          thereby  upset the  trier's delicate  balancing of  the competing

          equities in this unusual situation.

          III.  OTHER ISSUES
          III.  OTHER ISSUES

                    In addition  to its  assault upon the  district court's

          equitable  determination, DACO  mounts  a more  narrowly targeted

                                          32

          offensive on a second front.  In this regard, DACO assigns  error

          to  a  series  of  discovery rulings  that  together  forced  the

          disclosure of eighteen agency documents, mostly in the  nature of

          correspondence between DACO (or other government representatives)

          and DACO's outside counsel.  This  attempt to open a second front

          is little more than  a diversionary sortie, poorly outfitted  and

          easily repulsed.

                    We set the stage.   In ordering disclosure as  a subset

          of  a   broader  order   that  DACO   turn  over   the  "complete

          administrative file" in  the case to  the wholesalers, the  court

          determined that  these writings  were not entitled  to protection

          under either  the attorney-client privilege  or the  deliberative

          process privilege.   We  consider the district  court's privilege

          rulings cognizant that, "[b]ecause we  regard the existence of  a

          privilege  as a factual determination  for the trial  court . . .

          the district court's  finding of no  privilege can be  overturned

          only  if clearly erroneous."   United States v.  Wilson, 798 F.2d
                                         _____________     ______

          509,  512  (1st Cir.  1986); accord  United  States v.  Bay State
                                       ______  ______________     _________

          Ambulance & Hosp.  Rental Serv., Inc., 874 F.2d 20,  27 (1st Cir.
          _____________________________________

          1989).   Since  local law does  not supply  the rule  of decision

          anent DACO's  claim for  restitution, federal common  law governs

          our analysis of the wrangling over privileges.  See Fed. R. Evid.
                                                          ___

          501.

                            A.  Attorney-Client Privilege.
                            A.  Attorney-Client Privilege.
                                _________________________

                    The  Supreme  Court has  described  the attorney-client

          privilege  as  "the oldest  of  the  privileges for  confidential

                                          33

          communications  known to the common  law."  Upjohn  Co. v. United
                                                      ___________    ______

          States,  449 U.S. 383, 389  (1981).  The  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."  Id. at 390.  The purpose of the
                                            ___

          privilege is "to encourage  full and frank communications between

          attorneys and  their clients  and thereby promote  broader public

          interests  in  the  observance   of  law  and  administration  of

          justice."  Id. at 389.
                     ___

                    In its unpublished  order requiring  revelation of  the

          eighteen documents,  the district court rejected  DACO's claim of

          attorney-client privilege on two grounds.  First, the court found

          that DACO waived any such privilege because four of the documents

          "were  inadvertently  shown  to  Texaco's  legal representatives"

          during their  initial review  of the  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.  See, e.g., In re Sealed
                                                    ___  ____  ____________

          Case, 877  F.2d 976, 979-80  (D.C. Cir.  1989); In re  Grand Jury
          ____                                            _________________

          Proceedings,  727  F.2d 1352,  1356  (4th  Cir. 1984);  see  also
          ___________                                             ___  ____

                              
          ____________________

               7At  trial,  the district  court  described  how this  bevue
          occurred:

                    You   people   [DACO]  told   them  [Texaco's
                    representatives],  here  is  a room  full  of
                    papers, you  can take a  look at them.   They
                    looked at them, they found them and then when
                    you discovered  that they  had seen  them and
                    that they  wanted copies of  those, then  you
                    came running here seeking an order.

                                          34

          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.  Apart from

          that  fairly  obvious  conclusion,   however,  it  also  must  be

          recognized that inadvertent  disclosures can have  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."  Weil  v. Investment/Indicators, Research & Mgmt.,
                          ____     ________________________________________

          Inc.,  647 F.2d 18,  24-25 & n.13  (9th Cir. 1981);  accord In re
          ____                                                 ______ _____

          Sealed Case,  877 F.2d at  980-81; see also  4 J.M. Moore  & J.D.
          ___________                        ___ ____

          Lucas,  Moore's Federal  Practice    26.11[2], at  26-185 (1994).
                  _________________________

          Since  DACO does not  contend that  the four  carelessly unveiled

          documents  concerned a  different topic  than the  other fourteen

          documents  in  the group,  we think  that, under  the deferential

          standard  of  review  applicable  to   privilege  questions,  the

          district  court  had  an  adequate  basis  for  disregarding  the

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

                    The  district court's  alternative ground  for ordering

          disclosure is equally solid.  The court found as a fact, after in

          camera inspection of the disputed documents, that outside counsel

          had become  an integral  part of the  adjudicative decisionmaking

          process.  Based on this factual finding, the court ruled that the

          attorney-client   privilege  did  not   apply  because,  when  an

          administrative   agency  engaged  in   an  adjudicative  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  this analysis, pontificating  that such a

          doctrine "would render  the attorney-client privilege meaningless

          where state or local governments employ counsel and rely on their

          advice."     Appellants'  Brief  at  47.    But  this  trumpeting

          misapprehends  the tenor  of the  district court's  ruling.   The

          attorney-client privilege attaches only when the attorney acts in

          that  capacity.   See  Bay State  Ambulance,  874 F.2d  at 27-28;
                            ___  ____________________

          Wilson,  798  F.2d at  512; United  States  v. United  Shoe Mach.
          ______                      ______________     __________________

          Corp.,  89  F. Supp.  357, 358-59  (D.  Mass. 1950).    Here, the
          _____

          district  court   found,  in   substance,  that  DACO   delegated

          policymaking authority to its  outside counsel to such an  extent

          that  counsel ceased to function as lawyers and began to function

          as  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  of the [1989]  13-cent

          regulation," TPR II, 862  F. Supp. at  706; and that counsel  had
                       ______

          developed adjudicative data that the agency later reissued as its

          own.  Nor can we term the finding unsupported in  law.  See Mobil
                                                                  ___ _____

          Oil Corp. v. Department  of Energy, 102 F.R.D. 1,  9-10 (N.D.N.Y.
          _________    _____________________

                                          36

          1983)  (rejecting  claim   of  attorney-client  privilege   where

          proponent  failed  to show  that  lawyers  were acting  in  their

          capacities  as  attorney  advisors  rather   than  as  regulatory

          decisionmakers); Coastal Corp.  v. Duncan, 86 F.R.D. 514, 521 (D.
                           _____________     ______

          Del.   1980)  (similar;   observing  that   such  a   showing  is

          particularly   important  in  a  situation  in  which  "attorneys

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

                         B.  Deliberative Process Privilege.
                         B.  Deliberative Process Privilege.
                             ______________________________

                    DACO  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  from public  disclosure confidential

          inter-agency memoranda on  matters of law  or policy."   National
                                                                   ________

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

          (9th  Cir. 1988).  The  privilege rests on  a policy of affording

          reasonable  security  to  the  decisionmaking  process  within  a

          government agency.   See NLRB  v. Sears, Roebuck &  Co., 421 U.S.
                               ___ ____     _____________________

          132, 150 (1975).

                    The  Supreme  Court  has  restricted  the  deliberative

          process privilege  to materials  that are both  predecisional and

          deliberative.  See EPA v. Mink, 410 U.S. 73, 88 (1973).  In other
                         ___ ___    ____

          words,  to  qualify for  the privilege,  a  document must  be (1)

          predecisional,  that is,  "antecedent to  the adoption  of agency

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

          process by  which policies  are formulated."   National Wildlife,
                                                         _________________

          861  F.2d at 1117  (citation omitted).   Because the deliberative

                                          37

          process  privilege  is   restricted  to  the   intra-governmental

          exchange  of thoughts  that actively  contribute to  the agency's

          decisionmaking  process,  factual  statements or  post-decisional

          documents explaining  or justifying  a decision already  made are

          not shielded.  See Sears, Roebuck,  421 U.S. at 151-52; Mink, 410
                         ___ ______________                       ____

          U.S.  at  88;  see also  Developments  in  the  Law    Privileged
                         ___ ____  ________________________________________

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

                    Even  if   a  document   satisfies  the   criteria  for

          protection    under    the   deliberative    process   privilege,

          nondisclosure is not  automatic.  The  privilege "is a  qualified

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

          Cir.  1984), and  "is  not absolute."    First Eastern  Corp.  v.
                                                   ____________________

          Mainwaring, 21  F.3d 465,  468 n.5  (D.C. Cir.  1994).  Thus,  in
          __________

          determining  whether to honor  an assertion  of the  privilege, a

          court  must  weigh  competing  interests.    See  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  is

          "a  discretionary one."  In  re Franklin Nat'l  Bank Sec. Litig.,
                                   _______________________________________

          478  F. Supp.  577, 582  (E.D.N.Y.  1979).   In  deciding how  to

          exercise  its discretion,  an  inquiring  court should  consider,

          among  other things,  the interests  of the  litigants, society's

          interest in  the accuracy and  integrity of factfinding,  and the

          public's interest  in honest,  effective government.   See Warner
                                                                 ___ ______

          Communications,  742  F.2d at  1162.    Consequently, "where  the
          ______________

                                          38

          documents   sought  may   shed   light   on  alleged   government

          malfeasance," the  privilege is routinely denied.   Franklin, 478
                                                              ________

          F. Supp. at 582; see also Bank of Dearborn v. Saxon, 244 F. Supp.
                           ___ ____ ________________    _____

          394, 401-03 (E.D.  Mich. 1965) ("the  real public interest  under

          such  circumstances   is  not   the  agency's  interest   in  its

          administration but  the  citizen's  interest  in  due  process"),

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

                    Assuming,  arguendo, that  the documents  at issue  are

          both predecisional and deliberative    a matter on which  we need

          not opine    the district court's  rejection of the  deliberative

          process  privilege is nevertheless  impervious to  DACO's attack.

          The  court supportably  found  that the  wholesalers  had made  a

          "strong showing" of  arbitrariness and discriminatory  motives on

          DACO's part.  Given the discretionary nature  of the deliberative

          process privilege, and the  district court's warranted conclusion

          that  DACO acted in bad faith over  a lengthy period of time, see
                                                                        ___

          supra  Part II(D)(4),  we  resist the  urge  to tinker  with  the
          _____

          court's  determination  that  the  wholesalers'  interest in  due

          process and fairness outweighed  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  Part  III(A),  arguably  applies  to  the
                      ___  _____
          deliberative process  privilege as  well.  Because  the privilege
          lacks  vitality here, we will  not pursue the  question of waiver
          beyond noting  that it is  apparently unsettled.   Compare, e.g.,
                                                             _______  ____
          Clark v. Township of Falls, 124  F.R.D. 91, 93-94 (E.D. Pa. 1988)
          _____    _________________
          (holding  that  a  municipality  waived any  claim  of  executive
          privilege by  prior disclosure) with, e.g.,  Redland Soccer Club,
                                          ____  ____   ____________________
          Inc.  v. Department  of Army,  ___ F.3d ___,  ___ (3d  Cir. 1995)
          ____     ___________________
          [1995  WL 289681 at *25]  (holding that inadvertent disclosure of

                                          39

                                 C.  Harmless Error.
                                 C.  Harmless Error.
                                     ______________

                    We add a  postscript to our discussion  of the district

          court's discovery rulings.  In all events, we do not believe that

          the  district  court's  rejection  of  DACO's   privilege  claims

          affected DACO's  substantial rights.   Any error  was, therefore,

          harmless.  See Fed. R. Civ.  P. 61 (explaining that a court "must
                     ___

          disregard  any error or defect  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  (a

          June  1989 memorandum  from  DACO's outside  counsel to  Governor

          Hernandez  Colon).  See TPR II,  862 F. Supp. at  705.  The court
                              ___ ______

          cited  this  memorandum as  additional  support  for its  factual

          finding  that  contemporaneous  events, rather  than  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.   See supra
                                                                  ___ _____

          Part II(D)(1) (limning other  evidence).  It is axiomatic  that a

          litigant's substantial  rights are not offended  by the admission

          of  cumulative evidence.   See,  e.g., Doty  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.  CONCLUSION
          IV.  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.   Where, as here, the

          customary deference accorded  to the trial court as factfinder is

          augmented by  due respect for that  court's equitable discretion,

          appellate courts  should hesitate to  meddle.  In  this instance,

          the judge, who had  handled the case from its  inception, weighed

          and  balanced the  equities, and  juxtaposed the  parties' rights

          with painstaking care.  Thus, whether  or not we, if writing on a

          pristine page,  might have concluded otherwise, we  are unable to

          tease  an abuse of discretion  out of what  is quintessentially a

          judgment call.

          Affirmed.
          Affirmed.
          ________

                                          41