Esso Standard Oil Co. v. López-Freytes

United States Court of Appeals
For the First Circuit

No. 07-1218

ESSO STANDARD OIL CO. (PUERTO RICO),

Plaintiff, Appellee,

v.

CARLOS W. LÓPEZ-FREYTES, in his personal and
official capacities as President of the Puerto Rico
Environmental Quality Board; FLOR DEL VALLE-LÓPEZ, in her
official capacity as Associate Member of the Puerto Rico
Environmental Quality Board; ANGEL BERRÍOS-SILVESTRE, in his
official capacity as Associate Member of the Puerto Rico
Environmental Quality Board; NORMAN VELÁZQUEZ-TORRES, in his
official capacity as Attorney of the Puerto Rico
Environmental Quality Board,

Defendants, Appellants.

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

[Hon. Justo Arenas, U.S. Magistrate Judge]

Before

Torruella, Circuit Judge,
Baldock,* Senior Circuit Judge,
and Lipez, Circuit Judge.

Salvador J. Antonetti-Stutts, Solicitor General, Department of
Justice, with whom Luis José Torres-Asencio, Assistant Solicitor
General, Eduardo A. Vera-Ramírez, Eileen Landrón-Guardiola, Luis A.
Rodríguez-Muñoz, and Landrón & Vera, LLP were on brief, for
appellants.
Charles G. Cole, with whom Alice E. Loughran, Steptoe &

*
Of the Tenth Circuit, sitting by designation.
Johnson LLP, Lawrence P. Riff, Jason Levin, John F. Nevares, and
John F. Nevares & Assoc., PSC were on brief, for appellee.

April 10, 2008

-2-
 TORRUELLA, Circuit Judge. This is an appeal from the

district court's issuance of an order permanently enjoining the

defendants –- several members and officials of the Puerto Rico

Environmental Quality Board ("EQB") -- from imposing a $76 million

fine on the plaintiff, Esso Standard Oil Company ("Esso"). On

appeal, the defendants argue that the district court should have

abstained from exercising jurisdiction pursuant to the Younger

abstention doctrine and, in any event, the court erred in

concluding that there existed bias necessitating the imposition of

the injunction. After careful consideration, we affirm the

district court's order.

I. Background

This case comes to us on appeal for the second time.1

Given that the background facts are outlined extensively in our

prior opinion, see Esso Standard Oil Co. v. Cotto, 389 F.3d 212,

213-18 (1st Cir. 2004) ("Esso I"), we need not repeat them here in

great detail. In brief, the case involves an underground fuel

storage system at a service station in Barranquitas, Puerto Rico.

Beginning in 1979, Esso had leased storage tanks and other fuel

supplies to the station and in 1991 replaced the entire underground

storage system. Between August 1998 and October 1999, the EQB

issued three orders directing Esso to test the fuel storage system.

1
Between these two appeals, Esso filed for panel rehearing. We
denied the motion and directed Esso to renew its request for
injunctive relief with the district court.

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Those investigations revealed and recovered about 550 gallons of

spilled fuel.

Despite Esso's efforts to comply with the EQB's

directives, the EQB issued a show cause order on May 21, 2001,

proposing a $76 million fine against Esso for its failure to notify

the EQB upon initial discovery of the fuel leakage and its failure

to timely investigate, clean up, and remedy the harm.2 In

September 2002, the EQB initiated hearings on this proposed penalty

against Esso. The hearings were marked by contentious debates and

allegations of severe bias. See Esso I, 389 F.3d at 215. Esso

filed numerous motions, including two motions seeking dismissal of

the proceedings.3

In March 2004, Esso filed suit in federal court, seeking

a preliminary injunction to prevent the EQB from imposing the

massive fine on the ground that the proceedings were so plagued by

conflict and bias that they violated Esso's due process rights.

2
Pursuant to statute, all fines collected by the EQB are
deposited into a discretionary fund administered by the EQB. P.R.
Laws Ann. tit. 12, § 1136(f).
3
Esso immediately filed an appeal in the Puerto Rico Court of
Appeals seeking dismissal of the hearings on statute of limitations
grounds. The court dismissed the appeal, asserting that in the
absence of a final judgment, it had no authority to review the
appeal of an agency order. Esso Standard Oil Co. v. Junta de
Calidad Ambiental, Nos. OA-01-AG-26 & OA-99-AG-109, 2002 WL
1438761, at *4 (P.R. Cir. May 1, 2002) (citing P.R. Laws Ann. tit.
3, § 2172). In November 2003, Esso moved the EQB Hearing Examiner
for expedited recommendation of dismissal alleging constitutional
due process violations. Neither the Hearing Examiner nor the EQB
Governing Board has ruled on the motion.

-4-
Although the district court made several findings of bias, it

dismissed the case for lack of jurisdiction pursuant to the Younger

abstention doctrine. On appeal, we expressed serious concern with

the undisputed evidence of structural and actual bias in the case.

Esso I, 389 F.3d at 218-19. We concluded, however, that despite

this evidence of bias, federal intervention was inappropriate under

the abstention exception recognized in Gibson v. Berryhill, 411

U.S. 564 (1973), because Esso had not yet demonstrated irreparable

harm. Esso I, 389 F.3d at 221-25. Specifically, we found that

Esso could seek interlocutory relief from the Puerto Rico courts,4

and we affirmed the district court's decision to abstain.

A. Interlocutory Appeals

Soon after the issuance of our opinion, Esso filed a

petition for interlocutory review with the Puerto Rico Court of

Appeals, asserting jurisdiction pursuant to MCS Insurer and arguing

that the EQB administrative proceedings are fatally biased and

4
In 2002, Esso had filed an interlocutory appeal before the
Puerto Rico Court of Appeals alleging that the suit was barred by
the statute of limitations. The court denied the appeal on the
basis of P.R. Laws Ann. tit. 3, § 2171, which requires a final
order and exhaustion of administrative process before judicial
review. See Esso I, 389 F.3d at 223. We noted, however, that an
intervening decision by the Puerto Rico Supreme Court had cast
doubt on that prior ruling: the Puerto Rico Supreme Court had
recognized an exception to § 2172 for alleged constitutional
violations that rose to the level of an "intense grievance" that
was supported by "specific, well defined facts." Id. at 224
(citing Oficina de la Procuradora del Paciente v. Aseguradora MCS,
2004 T.S.P.R. at ___, 162 D.P.R. at ___, 2004 WL 2212782 ("MCS
Insurer")). We concluded that "Esso's claim might well meet th[at]
standard." Id.

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violate its due process rights. The following day, the Puerto Rico

Court of Appeals dismissed the appeal and denied the accompanying

request to stay the EQB's administrative proceedings. It rejected

the contention that MCS Insurer created an exception to the

statutory administrative exhaustion requirements applicable in this

case: "We resolve that insofar as the administrative process has

not concluded and the 'total denial' object of this appeal is not

a final decision of the agency, but an 'implicit' interlocutory

resolution, we are barred from addressing the same." Esso Standard

Oil Co. v. Junta de Calidad Ambiental, Case No. OA-99-AG-26 & OA-

99-AG-109, 2004 WL 3199104, at *5 (P.R. Cir. Dec. 3, 2004) ("Esso,

P.R. Court of Appeals"); see also P.R. Laws Ann. tit. 3, § 2172.

The appeal was dismissed for lack of jurisdiction. Id.

Three days later, Esso petitioned for writ of certiorari

to the Puerto Rico Supreme Court, asserting that the Puerto Rico

Court of Appeals had erroneously declared that it lacked

jurisdiction to review Esso's due process allegations. The

following day, the Puerto Rico Supreme Court summarily denied the

requested writ, stating: "As to the petition for certiorari and the

motion in aid of jurisdiction, [it is] denied at this stage of the

proceedings." Esso Standard Oil Co. v. P.R. Env't Quality Bd.,

Case No. CC-2004-1155 (P.R. Dec. 7, 2004) ("Esso, P.R. Supreme

Court").

-6-
 Esso then returned here and filed for panel rehearing,

arguing that it was now able to demonstrate irreparable harm

because the Supreme Court of Puerto Rico had held that

interlocutory appeal was unavailable to Esso. Although we agreed

that the intervening developments had a significant impact upon a

determination of the appropriateness of federal intervention, we

concluded that the appropriate procedure was for Esso to renew its

request for a preliminary injunction in federal district court.

B. Renewed Motion for Preliminary Injunction

On February 4, 2005, Esso filed a renewed and unopposed

motion for preliminary injunction in the district court. In

accordance with our decision in Esso I, the district court focused

on the issue of whether Esso was able to show irreparable harm in

the absence of federal intervention. The court concluded that the

denials by the Puerto Rico Court of Appeals and Supreme Court

provided "unquestionable proof that as a matter of both fact and

law, the only element preventing federal intervention in this case

has been removed from the picture." Esso Standard Oil Co. v.

López-Freytes, No. 03-2319 (D.P.R. Mar. 11, 2005) (order granting

preliminary injunction). The court granted Esso's request for a

preliminary injunction and ordered the defendants to show cause as

to why the preliminary injunction should not be converted to a

permanent injunction. The defendants opposed such a conversion on

the ground that they had not received notice of the consolidation

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of the preliminary injunction hearing and the trial on the merits

and thus had not presented any witnesses or evidence. The district

court concluded that it was premature to convert the preliminary

injunction into a permanent injunction without giving the

defendants an opportunity to controvert the allegations of bias.

Soon thereafter, Esso filed a motion for summary

judgment, opposed by the defendants, contending that there were no

disputed issues of material fact. In November 2006, the district

court entered summary judgment for Esso and issued a permanent

injunction. See Esso Standard Oil Co. v. López-Freytes, 467 F.

Supp. 2d 156 (D.P.R. 2006). In a separate order, the court stated:

[D]efendants are permanently enjoined from
conducting any and all administrative hearings
and proceedings against Esso related to the
penalty provision of the order to show cause
issued on May 21, 2001 in In re Esso Standard
Oil Company, Case No. OA-99-TE-102. It is
further ordered that the defendants are
permanently enjoined from issuing any
judgments or resolutions, final or
interlocutory, in said matter, and from
instituting, conducting and/or prosecuting any
administrative penalty proceedings against
Esso based on or arising from the facts and
events described in said order to show cause.

Esso Standard Oil Co. v. López-Freytes, No. 03-2319 (D.P.R. Nov. 7,

2006) (order granting permanent injunction). Defendants appeal

this order.

II. Discussion

The defendants make three separate challenges: (1) the

district court was required to abstain pursuant to the Younger

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doctrine; (2) the evidence does not support a finding of bias; and

(3) the scope of the permanent injunction is impermissibly broad.

A district court's decision to grant a permanent

injunction involves factual, legal, and discretionary components.

We therefore apply different standards of review: questions of law

are reviewed de novo and the scope of the injunction is reviewed

for abuse of discretion. Aponte v. Calderón, 284 F.3d 184, 191

(1st Cir. 2002). In this case, the injunction was issued following

a grant of summary judgment and, accordingly, we view the facts in

the light most favorable to the nonmoving parties, drawing all

reasonable inferences in their favor. See Ramírez-Carlo v. United

States, 496 F.3d 41, 46 (1st Cir. 2007). Insofar as the threshold

issue involves the application of the Younger abstention doctrine,

this is a legal question that we review de novo. See Brooks v.

N.H. Sup. Ct., 80 F.3d 633, 637 (1st Cir. 1996) ("[W]e must review

de novo the essentially legal determination of whether the

requirements for abstention have been met.").

A. Younger Abstention

In the absence of extraordinary circumstances, interests

of comity and the respect for state processes demand that federal

courts should abstain from interfering with ongoing state judicial

proceedings. See, e.g., Younger v. Harris, 401 U.S. 37 (1971);

Middlesex Co. Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423

(1982). Although initially applied to state criminal actions, the

-9-
abstention doctrine has been extended to other proceedings that

implicate important state interests, including the state-level,

quasi-judicial, administrative proceeding at issue here. See

Maymó-Meléndez v. Alvarez-Ramírez, 364 F.3d 27, 31 n.3 (1st Cir.

2004) (enumerating the various applications of the Younger

doctrine). Generally, insofar as the state proceedings evince "no

showing of bad faith, harassment, or some other extraordinary

circumstance that would make abstention inappropriate, the federal

courts should abstain." Middlesex Co. Ethics Comm., 457 U.S. at

435. Extraordinary circumstances include those situations in which

"core constitutional values are threatened during an ongoing state

proceeding and there is a showing of irreparable harm that is both

great and immediate." Maymó-Meléndez, 364 F.3d at 37 (internal

quotation marks omitted). Among those extraordinary circumstances

are cases in which extreme bias completely renders a state

adjudicator incompetent and inflicts irreparable harm upon the

petitioner. Gibson v. Berryhill, 411 U.S. at 577; accord Kugler v.

Helfant, 421 U.S. 117, 125 n.4 (1975) (recognizing Gibson bias as

an example of the "exceptional circumstances" which warrant federal

intervention).

In our prior opinion, we held that this case "lies

squarely within Younger's domain" and that Esso had clearly

established the presence of bias which raised the kind of concerns

permitting interim federal intervention pursuant to Gibson. Esso

-10-
I, 389 F.3d at 219-20. We rejected the argument that the eventual

availability of judicial review at the conclusion of the

administrative proceedings was sufficient to ameliorate any

constitutional injury inflicted upon Esso because it is currently

in the midst of those allegedly infirm proceedings. Id., at 220-21

("[T]he availability of judicial review of a final agency decision

is insufficient to avoid the irreparable harm that inheres in the

biased administrative proceeding itself."). In the intervening

time, nothing has altered those conclusions and we have neither

occasion nor need to revisit those rulings. See United States v.

Moran, 393 F.3d 1, 7 (1st Cir. 2004) ("The law of the case doctrine

'posits that when a court decides upon a rule of law, that decision

should continue to govern the same issues in subsequent stages in

the same case.'" (quoting Arizona v. California, 460 U.S. 605, 618

(1983))).

In the last appeal, we also concluded, however, that Esso

was unable to demonstrate irreparable harm because of the

availability of immediate interlocutory relief through the Puerto

Rico courts. Esso now returns to us with evidence that such relief

is unavailable: Esso avers that it has sought, and been denied,

interlocutory relief in the Puerto Rico Court of Appeals and the

Puerto Rico Supreme Court. We, therefore, revisit our analysis

under Gibson with respect to the irreparable harm issue.

-11-
 The defendants assert that Esso still fails to

demonstrate irreparable harm because: (1) the Puerto Rico courts'

denial of Esso's appeals was a merits determination, not

jurisdictional; and (2) Esso is not without relief as it has

several other options, such as filing for mandamus or submitting a

new claim in Puerto Rico Superior Court. We find neither argument

to be availing here.

With respect to the first argument, the defendants

contend that the Puerto Rico Court of Appeals rejected Esso's

petition for interlocutory appeal because Esso had failed to

demonstrate that the alleged violations were still ongoing. In

essence, the defendants argue that Esso was not denied the option

of interlocutory review; rather, Esso failed on the merits. Given

the clear language of the opinion of the Puerto Rico Court of

Appeals, we cannot agree.

The day after Esso submitted its forty-four page petition

for interlocutory review the court of appeals issued an opinion

denying the request. The opinion expressly states that the basis

for the denial was jurisdictional:

We resolve that insofar as the administrative
process has not concluded that the 'total
denial' object of this appeal is not a final
decision of the agency, but an 'implicit'
interlocutory resolution, we are barred from
addressing the same. Pursuant to the legal
system prevailing in our jurisdiction, this
appellate forum should not intervene,
prematurely, in the administrative process
. . . . On the basis of the foregoing, we

-12-
 dismiss the appeal . . . for lack of
jurisdiction and as premature.

Esso, P.R. Court of Appeals, 2004 WL 3199104, at *5. It is clear

that the court denied the motion for interlocutory relief on the

basis of jurisdiction; there is no discussion of any merits in the

opinion. Furthermore, the one-line denial of certiorari by the

Puerto Rico Supreme Court similarly provides no evidence that it

contemplated the merits of this case.

The defendants also urge us to conclude that Esso has

still failed to demonstrate irreparable harm because there are

other avenues available, i.e., mandamus relief or initiation of

state action. In November 2003, during the course of the EQB

hearings, Esso filed a motion for expedited recommendation of

dismissal, alleging constitutional due process claims. At the time

of this appeal, neither the Hearing Examiner nor the EQB Governing

Board had ruled on the motion. The defendants contend that rather

than interpret the failure to act as a denial and seek

interlocutory review by the Puerto Rico Court of Appeals, Esso

should have filed for mandamus relief to order the agency to rule

on the motion.

We expressly discussed a similar scenario in our prior

opinion. We noted the possibility that interlocutory relief might

be precluded by EQB's failure to rule on Esso's motion to dismiss.

In such an event, we observed that "we might take a different view

of the applicability of the Gibson exception . . . . However,

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general principles of administrative law provide that . . . an

agency's failure to act on a pending matter is treated as a denial

of the relief sought." Esso I, 389 F.3d at 224 n.12 (citing

Hernández v. Reno, 238 F.3d 50, 55 (1st Cir. 2001)). Likewise, we

reject the defendants' argument that Esso's failure to seek

mandamus relief precludes review. Esso's motion to dismiss was

filed in November 2003 and, four years later, the agency still had

not issued a decision. Esso was entitled to treat the failure to

act as a denial. See P.R. Laws Ann. tit. 3, § 2173 (waiving the

exhaustion requirement "when it is useless to exhaust the

administrative remedies due to an excessive delay in the

procedures"). Furthermore, review of Puerto Rico law does not

appear to indicate that mandamus is available in a case such as

this one. See P.R. Laws Ann. tit. 12, § 1139 (2004) (recodified as

P.R. Laws Ann. 12, § 8002m (2007)) (provision allowing mandamus

relief only to order the EQB to comply with the environmental

statute); cf. Nieves-Márquez v. Puerto Rico, 353 F.3d 108 (1st Cir.

2003) ("It is far from clear from the defendants' summary

presentation, without briefing, that mandamus would be available in

the Puerto Rico courts to enforce an administrative order.").

The defendants' argument that Esso should have initiated

a proceeding in Puerto Rico Superior Court is equally unavailing.

The underlying principle of the court-made Younger abstention

doctrine is rooted in a sense of comity and respect for those state

-14-
proceedings already in progress. See, e.g., Rossi v. Gemma, 489

F.3d 26, 34 (1st Cir. 2007). Indeed, in Maymó-Meléndez, we focused

the applicability of the Younger doctrine on whether the particular

proceedings were in fact still "ongoing" during the break between

trial and appellate review. 364 F.3d at 34-35 (deeming that a

"proceeding [is] 'ongoing' for Younger purposes until the state

appellate process [i]s complete" (citing Huffman v. Pursue, Ltd.,

420 U.S. 592, 607-11 (1975))). Thus, Younger precludes a litigant

in a state administrative proceeding from circumventing review by

a state court in favor of federal relief. There is no requirement,

however, that a litigant file a new, independent claim in state

court prior to obtaining federal relief. See Habich v. City of

Dearborn, 331 F.3d 524, 531-32 (6th Cir. 2003) ("We are aware of no

case in which a federal plaintiff is deemed to have the

'opportunity' to have his or her federal claim heard in a state

proceeding solely because the plaintiff could have amended an

existing complaint or filed a new complaint in state court.").

Given Esso's failed attempts to obtain interlocutory

relief in this ongoing administrative proceeding, we conclude that

Esso has clearly demonstrated the irreparable harm which it will

suffer in the absence of federal intervention. Accordingly, we

conclude that the district court properly found that the need for

federal intervention in this case falls clearly within the

abstention exception carved out by Gibson.

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 B. Bias

The merits of this case involve allegations that the

defendants violated Esso's constitutional due process rights as a

result of the bias infecting the penalty proceedings. The

allegations of bias fall into three categories: (1) the statutory

structure which provides that the proposed penalty of $76 million

would go directly into an account administered by the EQB; (2) the

procedures for the selection of and payment to Hearing Examiners;

and (3) the prejudice resulting from the Puerto Rico Senate's

premature conclusion that Esso had violated the environmental

regulations and the accusation that the EQB had been too lax. The

first two allegations raise structural concerns that create the

appearance of bias in the proceedings; the third allegation raises

concerns of actual bias. The district court concluded that the

defendants had failed to raise any genuine issues of material fact

as to the appearance of a biased adjudicative process.

1. EQB Governing Board

The EQB is an administrative body comprised of three

members appointed for a four-year term by the Governor of Puerto

Rico with the advice and consent of the Puerto Rico Senate. P.R.

Laws Ann. tit. 12, § 1129(a). The agency is tasked with the

responsibility of adopting and enforcing Puerto Rico's

environmental statutes and regulations, and is empowered to impose

sanctions and administrative fines on violators, id. at § 1136(c),

-16-
as well as issue orders mandating the cessation of harmful

activities, id. at § 1131(22). Those administrative fines –- the

crux of this case –- are then deposited into the "Special Account

of the Board on Environmental Quality." Id. at § 1136(f), (k);

§ 1131(16)(A) ("All monies received by the [EQB] in the fulfillment

of its duty to implement [environmental regulations] . . . shall be

deposited in a special account to be known as the 'Environmental

Quality Board Special Account.'"). That money is then "place[d] at

the disposal of the [EQB] . . . through payment orders authorized

or signed by the Chairperson of the [EQB]." Id. at § 1131(16)(A).

Esso asserts that it was denied a fair hearing because of

the EQB's structural bias. Specifically, Esso contends that the

EQB has an institutional interest in imposing hefty fines because

the collected monies are deposited into an EQB Special Account over

which the EQB has limitless discretion. Moreover, in this case,

the proposed fine –- $76 million -- is more than double the EQB's

annual budget. In response, the defendants attempt to focus the

inquiry on the individual members of the EQB, rather than the

agency as a whole; the EQB Governing Board members are salaried and

thus have no personal pecuniary interest in the fines imposed and

collected by the agency.

Not only is the defendants' argument utterly unsupported

by the law, but we have already rejected it. See Esso I, 389 F.3d

at 219. On last appeal, we expressly stated,

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 [T]he adjudicative body stands to
benefit financially from the proceeding
because any fine imposed will flow directly to
the EQB's budget. Although members of the EQB
Governing Board may not stand to gain
personally . . . a pecuniary interest need not
be personal to compromise an adjudicator's
neutrality.

Id. at 218-19. Although the law of the case doctrine has been

refined over time and we have identified several instances in which

reconsideration of a past decision may be appropriate, see Ellis v.

United States, 313 F.3d 636, 647-48 (1st Cir. 2002); this is not

such an instance. This court's prior rejection of the defendants'

argument is neither "unreasonable [n]or obviously wrong." Id. at

648 & n.5.

Last time, we properly concluded that the bias stems from

the potential financial benefit to the EQB's budget as a result of

an imposed fine. Esso I, 389 F.3d at 219; cf. Ward v. Vill. of

Monroeville, 409 U.S. 57, 59-60 (1972) (invalidating the mayor's

court because a substantial portion of the village funds were

comprised of the fines he imposed for traffic violations). In

Ward, the Supreme Court expressed concerns that the funding

structure would "offer a possible temptation to the average man" to

the extent that there is a "situation in which an official perforce

occupies two practically and seriously inconsistent positions, one

partisan and the other judicial [and] necessarily involves a lack

of due process of law." Ward, 409 U.S. at 60 (quoting Tumey v.

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Ohio, 273 U.S. 510, 532, 534 (1927)). This is not a situation in

which the EQB Governing Board is so removed from the financial

policy of the Special Account that such a presumption of bias is

inapplicable. Cf. Dugan v. Ohio, 277 U.S. 61 (1928). Rather, this

is a case in which the EQB has complete discretion over the usage

of those funds which are supplied, at least in part, by fines which

it imposes. In this particular case, the possibility of temptation

is undeniable and evident in the fact that the size of the proposed

fine in this case is so unprecedented and extraordinarily large.

The $76 million proposed fine -- a sum twice the EQB's annual

operating budget and 5,000 times greater than the largest fine ever

imposed by the EQB -- only intensifies the appearance of bias

infecting the proceedings.

2. EQB Hearing Examiner

Hearing Examiners are independent contractors who sign a

one-year contract for employment with the EQB and are paid a fixed

hourly rate. They preside over the administrative hearing and make

recommendations to the Governing Board of the EQB as to whether a

fine should be levied. They are assigned cases pursuant to the

discretion of the EQB; those cases include administrative

investigative proceedings, quasi-judicial proceedings, and

legislative proceedings.

The district court concluded that the contractual

relationship between the EQB and the Hearing Examiners exhibited

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structural bias on account of both the method by which the Hearing

Examiners receive assignments and because of the particularities

within the pay structure. We agree. Hearing Examiners are not

protected from the pressures of political appointments and their

employment is entirely dependent on the EQB's willingness to assign

cases to them. Furthermore, the evidence on the record indicates

that the Hearing Examiner's contract in this case provides an

hourly salary rate with a set maximum number of hours for work.

Notably, there is no provision for a minimum number of hours.

Given that a Hearing Examiner's pay is entirely dependent upon the

discretionary assignment of cases from the EQB, the examiner is

vulnerable to the temptation to make recommendations favorable to

the EQB.5

In addition to the pressure felt by the Hearing Examiners

with respect to their case assignments from the EQB, we are

particularly concerned by the evidence that they are paid out of

the same Special Account into which the fines are deposited. The

Hearing Examiner's contract states that "in the eventuality of

there not existing or being assigned funds for the payment of

contracted services[,] the contract shall be deemed rescinded

without any further right to collect." While there is some

question as to whether the Hearing Examiner may have an

5
Esso asserts that two prior Hearing Examiners were dismissed
after various disagreements with the EQB regarding the proceedings
against Esso.

-20-
independent, contractual right to challenge a nonpayment of his

salary by the EQB, it is irrefutable that such a provision -- one

that expressly links personal salary and the fund into which the

fines are deposited -- creates the appearance of and an incentive

for bias.6

3. Puerto Rico Senate Report

The claim of bias is further substantiated by evidence

that the Puerto Rico Senate improperly exerted pressure on the EQB

with respect to the assessment of this penalty against Esso.7

Specifically, the Puerto Rico Senate Commission on Agriculture,

Natural Resources, and Energy issued a partial report in which it

directed the Commission on Government Integrity to "identify those

public officials [in the EQB] who permitted the slowness with which

the gasoline spill was dealt with . . . and refer them to both the

Department of Justice as well as to the Office of Government Ethics

to determine whether any crime was committed or violation of the

laws and regulations of the Commonwealth of Puerto Rico." Partial

6
With respect to the Special Account, the defendants contend that
the account's funds are not supplied solely on the basis of fines,
but are also funded through the issuance of permits. The
defendants argue that this fact severely undercuts the conclusion
that the hearing examiners are biased. We are unpersuaded. The
defendants' argument does nothing to alter the funding structure of
the Special Account nor does it negate the fact that in this case,
the EQB proposed a fine of $76 million.
7
On appeal, the defendants make no challenge to the district
court's findings regarding the impact of the Puerto Rico Senate
report on the EQB's proceedings against Esso.

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Report on S.R. 1047, at 14 (P.R. Senate July 10, 2003) (certified

translation). This threat of criminal prosecution of EQB officials

strongly suggests that the Senate was threatening the EQB and is

therefore evidence of actual bias in the proceedings. See

Pillsbury Co. v. F.T.C., 354 F.2d 952, 964 (5th Cir. 1966) (noting

that a legislative body's "improper intrusion into the adjudicatory

process" deprives "the right of private litigants to a fair trial

and, equally important[ly] . . . their right to the appearance of

impartiality, which cannot be maintained unless those who exercise

the judicial function are free from powerful external influences"

(citing In re Murchison, 349 U.S. 133, 136 (1955))). The fact that

the appointment of EQB members requires Senate consent further

intensifies the incentives felt by the EQB to impose an unduly

heavy fine on Esso.

After review of the evidence submitted by the parties, we

re-affirm our conclusion that there is a strong appearance of bias

and, additionally, undisputed evidence of actual bias in these

proceedings.

C. Permanent Injunction

The issuance of a permanent injunction requires the

application of a familiar four-step framework in which Esso, as the

plaintiff:

must demonstrate: (1) that it has suffered an
irreparable injury; (2) that remedies
available at law, such as monetary damages,
are inadequate to compensate for that injury;

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 (3) that, considering the balance of the
hardships between the [parties], a remedy in
equity is warranted; and (4) that the public
interest will not be disserved by a permanent
injunction.

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 390 (2006).

As we have already discussed above, Esso has already

succeeded in demonstrating that EQB's internal structure is

severely biased and that continuation of the proceedings in such a

fatally biased decisionmaking process violates its due process

rights.8 Likewise, we have already concluded that Esso faces

irreparable harm in the absence of injunctive relief given the

unavailability of avenues for interlocutory relief in the Puerto

Rico courts. Thus, we move to the balancing of the harms and the

inquiry into the public interest.

The district court issued the following permanent

injunction:

It is further ORDERED that the defendants are
permanently enjoined from conducting any and
all administrative hearings and proceedings
against Esso related to the penalty provision
of the order to show cause . . . . It is
further ORDERED that the defendants are

8
On appeal, the defendants also argue that the court is required
to inquire into whether the process is still biased, given the
intervening personnel changes. The defendants concede that this
argument was not raised below. See Figueroa v. Rivera, 147 F.3d
77, 81 (1st Cir. 1998) ("[A]ppellants did not raise these
contentions below, and they are thus foreclosed from unveiling them
for the first time on appeal."). Moreover, given the allegations
of structural bias, evidence of personnel substitution is
insufficient to cure the constitutional infirmity. See Ward, 409
U.S. at 61.

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 permanently enjoined from issuing any
judgments or resolutions, final or
interlocutory, in said matter, and from
instituting, conducting and/or prosecuting any
administrative penalty proceedings against
Esso based on or arising from the facts and
events described in said order to show cause.

Esso Standard Oil Co. v. López-Freytes, No. 03-2319 (D.P.R. Nov. 7,

2006) (order granting permanent injunction).

In this case, the district court's injunction is tailored

specifically to Esso: the injunction makes no mention of

administrative actions against other persons or entities and, in

fact, leaves unhampered the ongoing clean up efforts at the gas

station itself. There is little to no harm wrought upon the agency

or the public. The injunction takes aim only at the fine to be

imposed upon Esso. The defendants do not challenge the narrow

focus of the injunction itself, but argue that the injunction will

have a "considerable impact . . . on general compliance with EQB

environmental law policies in Puerto Rico." In essence, they

contend that Esso's success in obtaining an injunction in this case

will encourage other companies to do the same, and thereby severely

weaken the power of the agency to enforce environmental

regulations. They argue that the injunction imposed upon the

penalty phase in this case has "effectively allowed the release of

thousands of gallons of gasoline to the environment, potentially

affecting the health of nearby residents and contaminating the

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area's soil, as well as its ground waters, to go forever

unpunished."

We think the defendants grossly exaggerate the impact of

the injunction and ignore the seriousness of the bias plaguing

these proceedings. This case involves evidence that the EQB's

decisionmaking process with respect to Esso is constitutionally

infirm. The serious harm inflicted upon Esso is not outweighed by

the EQB's concern that this injunction may alter the perceived

strength of the EQB's governance. It is clear from the district

court's thoughtful opinion that the injunction was crafted to

target the biased penalty proceedings against Esso. The injunction

specifically exempted the remediation efforts and expressly stated

that it applied only to the case at hand. We are unconvinced by

the defendants assertions, and conclude that the district court did

not abuse its discretion in issuing a permanent injunction.

Lastly, the defendants argue that an injunction should

"be no more burdensome to the defendant than necessary to provide

complete relief to the plaintiffs." Califano v. Yamasaki, 442 U.S.

682, 702 (1979). They also contend that the scope of this

injunction was overly broad because it lacks an express provision

for termination of the injunction in the event that the EQB makes

the required institutional changes to ensure a constitutional

proceeding. We are unconvinced by this argument; the defendants

exaggerate the permanence of the injunction. If the defendants are

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able to cure the impermissible sources of bias, they are free to

move the district court to modify or dissolve the permanent

injunction. See Fed. R. Civ. P. 60(b)(5) (providing relief from a

judgment order when "applying it prospectively is no longer

equitable"); see also Mackin v. City of Boston, 969 F.2d 1273,

1276-77 (1st Cir. 1992) (observing that with respect to those

"decrees which were initially established to bring about needed

institutional reforms . . . [the] intrusion by a federal court into

the affairs of local government should . . . not be allowed to

continue after the violation has abated and its pernicious effects

have been cured"). It seems clear that the district court tailored

an injunction specifically to Esso and in response to the volume of

evidence exhibiting unconstitutional bias in the penalty

proceedings against Esso. The injunction leaves the EQB free to

continue its important remediation work and to continue pursuing

claims against other violators. Upon evidence that the

constitutional infirmities have been cured, the EQB may move to

amend the injunction which removes the EQB's concerns that Esso is

somehow permanently beyond the reach of its administrative

oversight.

III. Conclusion

For the reasons stated above, the judgment of the

district court is affirmed.

Affirmed.

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