United States Court of Appeals
For the First Circuit
No. 07-2682
COORS BREWING COMPANY,
Plaintiff, Appellant,
v.
JUAN CARLOS MÉNDEZ-TORRES,
Secretary of the Treasury Department of the
Commonwealth of Puerto Rico,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Daniel R. Domínguez, U.S. District Judge]
Before
Torruella, Lipez, Circuit Judges,
and DiClerico,* District Judge.
Helgi C. Walker, with whom William S. Consovoy, Suzzette
Rodríguez-Hurley, Wiley Rein LLP, Pedro Jiménez, and Adsuar Muñiz
Goyco Seda & Pérez-Ochoa P.S.C., were on brief for appellant.
Irene S. Soroeta-Kodesh, Assistant Solicitor General, with
whom Mariana D. Negrón-Vargas, Acting Solicitor General, was on
brief for appellee.
March 30, 2009
*
Of the District of New Hampshire, sitting by designation.
TORRUELLA, Circuit Judge. Coors Brewing Company
("Coors") sued Juan Carlos Méndez-Torres, Puerto Rico's secretary
of the Treasury ("the Secretary"), challenging an exemption in
Puerto Rico's beer taxing scheme which specifies a lower tax rate
for small brewers. Coors alleges that the exemption is
impermissibly protectionist. Coors seeks declarations that the
exemption is unconstitutional under the Commerce Clause and illegal
under the Federal Relations Act, 48 U.S.C. § 741a. Coors also
seeks an injunction barring the Secretary "from allowing any
taxpayer to pay only the reduced rate of tax specified" in the
special exemption and requiring the Secretary to collect the full
tax rate from all brewers. The Secretary moved to dismiss,
asserting a number of procedural challenges to the action. The
district court granted the motion to dismiss. Coors appeals.
After careful consideration, we reverse and remand.
I. Background
We recount the facts leading up to this challenge by
"constru[ing] the complaint liberally, treating all well-pleaded
facts as true and indulging all reasonable inferences in favor of
the plaintiff." Aversa v. United States, 99 F.3d 1200, 1210 (1st
Cir. 1996). Since this is a motion to dismiss on jurisdictional
grounds, we also "may consider whatever evidence has been
submitted, such as the depositions and exhibits submitted in this
case." Id. In addition to jurisdiction, the legal defense of
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preclusion is also at issue, and "[p]reclusion, of course, is not
a jurisdictional matter." Exxon Mobil Corp. v. Saudi Basic Indus.
Corp., 544 U.S. 280, 293 (2005). Rather, it is an affirmative
defense, which "'can be adjudicated on a motion to dismiss so long
as (i) the facts establishing the defense are definitively
ascertainable from the complaint and the other allowable sources of
information, and (ii) those facts suffice to establish the
affirmative defense with certitude.'" SBT Holdings, LLC v. Town Of
Westminster, 547 F.3d 28, 36 (1st Cir. 2008) (footnote omitted).
Though we have remarked that it is unclear whether uncertified
copies of prior judgments are among these allowable sources of
information, id. at 36 n.5, where no party has either disputed the
authenticity of the record documents or challenged our
consideration of them on appeal, we rely on them to explain the
relevant background, specifically the long procedural history of
related cases that the Secretary alleges are preclusive. See
Andrew Robinson Int'l, Inc. v. Hartford Fire Ins. Co., 547 F.3d 48,
51 (1st Cir. 2008) ("Thus, where the motion to dismiss is premised
on a defense of res judicata -- as is true in the case at hand --
the court may take into account the record in the original
action.").
In 1978, Puerto Rico adjusted its excise tax on beer.
Under Act 37 of July 13, 1978, beer produced by small brewers
(those producing less than 31 million gallons annually) was taxed
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at $1.05 per gallon while large brewers were taxed at $1.60 a
gallon.
The United States Brewers Association ("USBA") and
several of its members quickly challenged this differential
treatment in federal court, seeking an injunction against
permitting the small brewers to pay less tax. The USBA contended
that the small brewer exemption was designed to protect Puerto
Rico's local brewers. At that time, Coors's predecessor company,
The Adolph Coors Company, was a member of the USBA, but was not
then distributing beer in Puerto Rico and was not a plaintiff in
that action. There is no evidence or allegation that The Adolph
Coors Company was itself involved in the action.
In defense of the USBA's action, the then Secretary of
the Treasury sought dismissal on the basis of the Butler Act, which
provides that "[n]o suit for the purpose of restraining the
assessment or collection of any tax imposed by the laws of Puerto
Rico shall be maintained in the United States District Court for
the District of Puerto Rico." 48 U.S.C. § 872. In response, the
district court abstained and directed the plaintiffs in that action
to seek a remedy in state court. U.S. Brewers Ass'n v. César
Pérez, 455 F. Supp. 1159, 1164 (D.P.R. 1978).
The USBA and its co-plaintiffs simultaneously appealed
that ruling and filed suit in the Puerto Rico courts. In its
appeal to this Court, the USBA raised the same argument Coors now
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advances -- that the Butler Act did not bar federal jurisdiction
over the challenge to the state tax law since the plaintiffs were
not seeking to prevent the collection of a tax. This Court did not
directly resolve the interpretation of the Butler Act, but ordered
the case dismissed after concluding that the claim was barred by
"considerations which underlie" the Butler Act, namely "'equity
practice, . . . principles of federalism . . . and the imperative
need of a State to administer its own fiscal operations.'" U.S.
Brewers Ass'n v. César Pérez, 592 F.2d 1212, 1214 (1st Cir. 1979)
[hereinafter "U.S. Brewers"] (quoting Tully v. Griffin, 429 U.S.
68, 73 (1976)) . Specifically, this Court held that "an order of
a federal court requiring Commonwealth officials to collect taxes
which its legislature has not seen fit to impose on its citizens
strikes us as a particularly inappropriate involvement in a state's
management of its fiscal operations." Id. at 1215. Meanwhile, the
Puerto Rico courts rejected the USBA's challenge on the merits.
U.S. Brewers Ass'n v. Secretary of the Treasury, 9 P.R. Offic.
Trans. 605 (P.R. 1980) [hereinafter "U.S. Brewers (P.R.)"].
In 1989, the tax rates were increased to $2.70 for large
brewers and $2.15 for small brewers, thus retaining the $0.55
differential. In 2002, Puerto Rico enacted Act 69 of May 30, 2002,
which increased the large brewer tax rate to $4.05. This law left
the $2.15 tax rate in place for brewers producing less than 9
million gallons annually, and created new intermediate rates for
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brewers producing between 9 and 31 million gallons. The
differential between the highest and lowest rate thus increased to
$1.90.
The Puerto Rico Association of Beer Importers, together
with several brewers, including Coors, challenged this taxing
regime in 2002 in Puerto Rico Superior Court. Shortly after
commencing the action, Coors withdrew its claims without prejudice.
Coors's exclusive distributor in Puerto Rico, V. Suárez, remained
in the action. The Puerto Rico Superior Court dismissed the
action, and the dismissal was upheld on appeal to the Puerto Rico
Supreme Court. P.R. Ass'n of Beer Imps. v. Puerto Rico, 2007 TSPR
92 (P.R. 2007), cert. denied, 128 S. Ct. 1649 (2008) [hereinafter
Beer Importers].1
Shortly after withdrawing from the Puerto Rico action,
Coors filed a separate challenge to the beer tax in the United
States District Court for the District of Columbia. The district
court dismissed that action for want of jurisdiction under the
Butler Act, citing this Court's earlier decision in U.S. Brewers.
Coors Brewing Co. v. Calderón, 225 F. Supp. 2d 22, 25-26 (D.D.C.
2002) [hereinafter Calderón]. Coors settled the case on appeal,
agreeing to a stipulation that the district court's judgment
"determines with finality the Court's lack of jurisdiction but is
1
An English translation of this case does not yet appear to have
been published, but the parties in the present action have provided
us with a certified translation.
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without prejudice to the substantive claims that the Court lacked
jurisdiction to address." The stipulation also provided that no
award of attorney's fees would be made.
Coors asserts that the market share of Puerto Rico's
leading brewer, Cervecería India, grew as a result of the 2002 tax
hike on large brewers. Coors further alleges that when Cervecería
India's production surpassed 9 million gallons, "Cervecería India
secured a statutory amendment using expedited procedures." Namely,
Act 108 of May 6, 2004, specified that brewers producing less than
31 million gallons annually could pay the lowest tax rate on their
first 9 million gallons, even if their total production exceeded 9
million gallons. Large producers producing more than 31 million
gallons continue to pay the higher rate on all of their sales. The
beer excise tax is presently codified at P.R. Laws. Ann. tit. 13,
§ 9521(c) (standard tax rate) and § 9574 (graduated exemption for
small brewers).
In 2006, Coors filed the present action in the United
States District Court for the District of Puerto Rico, again
attacking the beer tax exemption for small brewers as an
unconstitutional and illegal protection of local brewers. The
Secretary moved to dismiss, arguing that the Butler Act and related
principles of comity barred federal jurisdiction and that the
action was precluded by the prior decisions in Calderón, Beer
Importers, and the Puerto Rico Supreme Court's decision in U.S.
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Brewers (P.R.). After considering a magistrate's report and
recommendation, the district court issued a separate opinion
finding the action barred by several independent procedural
barriers, including the Rooker-Feldman doctrine, the Butler Act,
the preclusive effect of Calderón, and the fact that Coors
contractually bound itself to the Calderón judgment through the
stipulation that resolved that action. Coors appeals this
dismissal.
In its sur-reply to the motion to dismiss, Coors attached
a Treasury Opinion Letter in which the Secretary advised another
governmental official that "[i]n terms of revenues uncollected due
to the preferential treatment given to local beer, it is
approximately $11.8 and $14.6 million for the years 2003 and 2004,
respectively." The Secretary moved to strike, arguing the letter
was an unofficial internal communication. The district court
denied the motion to strike. As explained below, the Secretary has
not challenged this ruling on appeal.
II. Discussion
Our review is de novo. Ramallo Bros. Printing, Inc. v.
El Día, Inc., 490 F.3d 86, 89 (1st Cir. 2007) (specifying de novo
review of rulings regarding res judicata and collateral estoppel);
Murphy v. United States, 45 F.3d 520, 522 (1st Cir. 1995)
(specifying de novo review on motions to dismiss for lack of
jurisdiction).
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A. The Preclusive Effect of Calderón
The Secretary argues that the district court correctly
found that Coors's present action is precluded because of Coors's
prior involvement in the Calderón decision.
"Federal law determines the preclusive effect of a
judgment previously entered by a federal court." Pérez v. Volvo
Car Corp., 247 F.3d 303, 311 (1st Cir. 2001). Specifically, under
res judicata, or claim preclusion, "'a final judgment on the merits
of an action precludes the parties or their privies from
relitigating issues that were or could have been raised in that
action.'" Id. (quoting Allen v. McCurry, 449 U.S. 90, 94 (1980)).
To trigger claim preclusion, there must be "'(1) a final judgment
on the merits in an earlier suit, (2) sufficient identicality
between the causes of action asserted in the earlier and later
suits, and (3) sufficient identicality between the parties in the
two suits.'" Id. (quoting González v. Banco Cent. Corp., 27 F.3d
751, 755 (1st Cir. 1994)).
By contrast, collateral estoppel, or issue preclusion,
means that when a factual or legal issue "has once been determined
by a valid and final judgment, that issue cannot again be litigated
between the same parties in any future lawsuit." Ramallo Bros.,
490 F.3d at 89-90 (internal quotation marks omitted). Collateral
estoppel applies where "(1) the issue sought to be precluded in the
later action is the same as that involved in the earlier action;
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(2) the issue was actually litigated; (3) the issue was determined
by a valid and binding final judgment; and (4) the determination of
the issue was essential to the judgment." Id. at 90.
Neither the district court's opinion nor the parties'
arguments on appeal are consistent as to which preclusion doctrine
they rely upon. As it turns out, the distinction becomes important
in this case. A dismissal for lack of subject matter jurisdiction
does not trigger claim preclusion. Muñiz Cortés v. Intermedics,
Inc., 229 F.3d 12, 14 (1st Cir. 2000) ("[A] dismissal for lack of
subject matter jurisdiction is not considered to be 'on the
merits,' and therefore is without res judicata effect."); see also
Dávila v. Delta Air Lines, Inc., 326 F.3d 1183, 1188 (1st Cir.
2003) (stating that a dismissal for lack of subject matter
jurisdiction "plainly is not an adjudication on the merits that
would give rise to a viable res judicata defense"). But, as we
have said, "even assuming arguendo that res judicata does not bar
the federal district court from adjudicating appellants' claims,
the doctrine of collateral estoppel prevents the court from
rehearing the issue of preemption." Muñiz Cortés, 229 F.3d at 14
(emphasis in original) (responding to an argument analogizing
preclusion of preemption to preclusion of subject matter
jurisdiction). Accordingly, "[d]ismissal for lack of subject
matter jurisdiction precludes relitigation of the issues determined
in ruling on the jurisdictional question." Id. Thus, claim
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preclusion is of no effect with regard to the Calderón decision,
since there was no adjudication on the merits of any of Coors's
claims in that case. Rather, that judgment represents only a
determination on the issue of subject matter jurisdiction. For
these reasons, we conclude that the preclusive effect of the
Calderón judgment must be assessed through the lens of issue
preclusion rather than claim preclusion. See also 18A Charles Alan
Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and
Procedure § 4436 (2d ed. 2008) [hereinafter Federal Practice]
("Although a dismissal for lack of jurisdiction does not bar a
second action as a matter of claim preclusion, it does preclude
relitigation of the issues determined in ruling on the jurisdiction
question.").2
2
But see Dozier v. Ford Motor Co., 702 F.2d 1189, 1195 (D.C. Cir.
1983) (Scalia, J.) (agreeing that "the doctrine of res judicata has
application to questions of jurisdiction as well as to other
issues, that it ordinarily precludes subsequent challenge to a
finding that jurisdiction does exist, and that it precludes
subsequent challenge to a finding of non-jurisdiction" (citations
and internal quotation marks omitted) (emphasis in original));
Hadge v. Second Fed. Sav. & Loan Ass'n, 409 F.2d 1254, 1257 (1st
Cir. 1969) ("[T]he principle of res judicata applies to a finding
of lack of subject matter jurisdiction. We believe that, when the
underlying transaction is the same, collateral estoppel should also
apply." (citations omitted)).
These cases' references to the "doctrine of res judicata" and
"the principle of res judicata" should be read as broad terms that
encompass both the doctrine of claim preclusion and the doctrine of
issue preclusion. See Cutler v. Hayes, 818 F.2d 879, 888 and n.68
(D.C. Cir. 1987) (citing Dozier, then explaining that collateral
estoppel may preclude relitigation of the jurisdictional issue, and
noting "[t]he res judicata effects of jurisdictional judgments have
variously been discussed in terms of issue preclusion and
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With this clarification as to which preclusion doctrine
applies, we turn to the application of that doctrine. In light of
the evident fact that Coors is asserting essentially the same legal
challenge against essentially the same party as in Calderón, Coors
offers two specific arguments against preclusion. We address each
in turn.
1. The effect of the 2004 amendment to the
small brewer exemption
Coors first argues that this action presents a different
factual claim than the Calderón action by virtue of the changed
circumstances. Specifically, Coors argues that Calderón challenged
the validity of the 2002 beer excise tax, while this action
challenges the beer excise tax as amended in 2004. Coors contends
that the 2004 amendment had "an independently discriminatory
purpose" and "significantly aggravated the commercial injury of
Coors."
estoppel"); Restatement (Second) of Judgments § 20, cmt. b (1982).
In fact, the Supreme Court has recently expressed a preference for
the terms "claim preclusion" and "issue preclusion" to avoid the
"confusing lexicon" of res judicata. See Taylor v. Sturgell 128
S. Ct. 2161, 2171 n.5 (2008); see also id. at 2171 ("The preclusive
effect of a judgment is defined by claim preclusion and issue
preclusion, which are collectively referred to as 'res
judicata.'"). Having so clarified the ambiguity in the use of the
term "res judicata," there is no tension between Dozier and our
conclusion that a dismissal for lack of subject matter jurisdiction
must be analyzed under the doctrine of issue preclusion and not
claim preclusion. And to the extent that Hadge must be read as
stating that both apply, it has clearly been overruled by the
circuit precedent cited above.
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Though Coors cites some precedent to argue that a change
in statutory language can be enough to defeat claim preclusion,
here we apply only issue preclusion to the question of subject
matter jurisdiction. This makes sense as the Calderón decision was
without prejudice as to Coors's claims regarding the
"discriminatory purpose" of the statute. The change in the tax
statute in 2004, while perhaps relevant to the question of
"discriminatory purpose," is irrelevant to Coors's subject matter
jurisdiction arguments, which turn on the proper construction of
the Butler Act and related principles of comity. Thus, on this
issue, it is immaterial that Puerto Rico amended the beer excise
tax in 2004. An immaterial change is not sufficient to defeat
issue preclusion. See Ramallo Bros., 490 F.3d at 90 ("While we
acknowledge that changed circumstances may defeat collateral
estoppel, collateral estoppel remains appropriate where the changed
circumstances are not material."). Therefore, the 2004 amendment
is not a changed circumstance that would allow Coors to relitigate
the jurisdictional issue.
2. The effect caused by a subsequent change
in the controlling law
Coors next contends that a change in the legal landscape
since Calderón limits the preclusive effect of the earlier
judgment. Namely, Coors argues that the Supreme Court decision in
Hibbs v. Winn, 542 U.S. 88 (2004), changed the controlling
interpretation of the Butler Act. See infra Section II.B.1. The
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parties take competing positions regarding the effect of a change
in law on preclusion. Each side cites caselaw in support of its
position. As our discussion will show, the caselaw is not entirely
clear. We believe that (at least some of) the confusion regarding
this issue stems from conflation of claim and issue preclusion.
Though we have already ruled that claim preclusion does not apply
in this case, we will analyze the effect of a change in law on both
claim and issue preclusion in order to clarify the parties'
conflicting interpretations of the caselaw.
As the Secretary correctly argues, "the res judicata
consequences of a final, unappealed judgment on the merits" are not
"altered by the fact that the judgment may have been wrong or
rested on a legal principle subsequently overruled in another
case." Federated Dep't Stores v. Moitie, 452 U.S. 394, 398
(1981).3 And Coors correctly argues that issue preclusion "'may be
3
Coors disputes this proposition by citing to State Farm Mut.
Auto. Ins. Co. v. Duel for the proposition that "res judicata is no
defense where between the time of the first judgment and the second
there has been an intervening decision or a change in the law
creating an altered situation." 324 U.S. 154, 162 (1945). But
this decision appears to have been overruled by Federated. See
also Forsman v. Chater, No. 94-36029, 1996 WL 396718, at *1 (9th
Cir. July 12, 1996) (concluding that Federated overruled State
Farm).
It is also worth noting that some courts have recognized
exceptions to this doctrine for "moment[o]us changes in important,
fundamental constitutional rights." Precision Air Parts, Inc. v.
Avco Corp., 736 F.2d 1499, 1504 (11th Cir. 1984). Coors suggests
Hibbs may be such a change. But Hibbs only changed the
interpretation of the Butler Act, and not any of Coors substantive
constitutional rights. In any event, as we have explained above,
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defeated by showing . . . that there has been a substantial change
in the legal climate suggesting a new understanding of the
governing legal rules that may require a different application.'"
Global NAPs, Inc. v. Mass. Dep't of Telcoms. & Energy, 427 F.3d 34,
45 (1st Cir. 2005) (quoting 18 Federal Practice § 4425); see also
Commissioner v. Sunnen, 333 U.S. 591, 600 (1948) ("[A] judicial
declaration intervening between the two proceedings may so change
the legal atmosphere as to render the rule of collateral estoppel
inapplicable."). This position is supported by the Restatement,
which explains that relitigation of an issue in a subsequent action
is permitted where "[t]he issue is one of law" and "a new
determination is warranted in order to take account of an
intervening change in the applicable legal context." Restatement
(Second) of Judgments § 28(2) (1982); see also O'Leary v. Liberty
Mut. Ins. Co., 923 F.2d 1062, 1069 (3d Cir. 1991) (citing the above
Restatement section, but concluding it was inapplicable where a
plaintiff sought to relitigate the same dispute regarding the same
transaction, i.e. the same claim).4
we analyze this issue under the rubric of issue preclusion, not
claim preclusion.
4
Contra Precision Air Parts, 736 F.2d at 1503 ("The general rule
in this circuit, and throughout the nation, is that changes in the
law after a final judgment do not prevent the application of res
judicata and collateral estoppel, even though the grounds on which
the decision was based are subsequently overruled." (footnote
omitted)).
A review of the appeals court cases citing this case shows that
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Wright and Miller have observed the distinction between
claim preclusion and issue preclusion with regard to the effects of
a later change in controlling precedent. Compare 18 Federal
Practice § 4425 ("[Issue] [p]reclusion is most readily defeated by
specific Supreme Court overruling of precedent relied upon in
reaching the first decision.") with 18 Federal Practice § 4415
("Change in the controlling principles of law ordinarily does not
warrant denial of claim preclusion."). Those authors have
attempted to explain this distinction by noting that "[i]ssue
preclusion often serves more limited purposes than claim
preclusion," and explaining that there can be no reasonable
reliance or repose placed upon the resolution of the claim
presented in the first action when only issue preclusion applies.
Id. This rule makes sense here. Coors's claim was not
conclusively rejected in Calderón. The Secretary could not
reasonably rely on Calderón as a final adjudication of Coors's
substantive claims of infringement of its constitutional rights.
Rather, the ruling was simply that the court did not have
jurisdiction to address those claims. Since the governing
the case is mainly cited for the proposition that a change in law
does not prevent application of res judicata (i.e. claim
preclusion). E.g., North Ga. Elec. Membership Corp. v. City of
Calhoun, 989 F.2d 429, 433-34 (11th Cir. 1993) (citing Precision
Air Parts, while at the same time citing Sunnen for the proposition
that a change in the governing legal principles can prevent the
application of issue preclusion). Thus, we conclude that this
Precision Air Parts statement is not good law with respect to issue
preclusion.
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interpretation of the jurisdictional law has changed in the
interim, it makes little sense to use the Calderón ruling on
subject matter jurisdiction to collaterally estop a new inquiry
into that limited issue.
The Secretary and the district court do cite cases which
are clearly contrary to our conclusion that a change in law renders
inapplicable the preclusive effect of a prior dismissal for lack of
subject matter jurisdiction. See Stewart Sec. Corp. v. Guar. Trust
Co., 597 F.2d 240, 242 (10th Cir. 1979) (finding a prior dismissal
for lack of subject matter jurisdiction served to bar, under
principles of res judicata, a later action, despite an intervening
decision on the issue of jurisdiction); Barzin v. Selective Serv.
Local Bd. No. 14, 446 F.2d 1382, 1383 (3d Cir. 1971) (same). But
these cases' holdings were based on the idea that res judicata,
i.e. claim preclusion, is not affected by a change in the law. As
explained above, we agree with this proposition. Nonetheless, we
believe that these cases are simply incorrect insofar as they
discuss preclusion of the issue of subject matter jurisdiction
under the rubric of claim preclusion. See Matosantos Commer. Corp.
v. Applebee's Int'l, Inc., 245 F.3d 1203, 1209-10 and n.4 (10th
Cir. 2001) (collecting cases to support the proposition that a
jurisdictional dismissal is analyzed under collateral estoppel
rather than the "broader" res judicata, correcting Stewart
Securities mislabeling of the term, but not discussing the effect
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of intervening change in law). Wright and Miller have also
criticized Stewart Securities and Barzin:
Some decisions have precluded relitigation of
subject-matter jurisdiction even in face of
strong arguments that there had been changes
in controlling law between the time of the
first action and the second action. These
decisions seem to carry direct estoppel too
far. So long as the claim itself is not
precluded, the interest in allowing access to
a properly available federal forum suggests
that reconsideration should be freely
available whenever a cogent claim is made that
the law has changed. Principles of stare
decisis afford sufficient protection against
undue efforts to avoid preclusion on this
score.
18 Federal Practice § 4418 (footnote, which includes citation to
Stewart Securities and Barzin, omitted). Analyzed properly as a
matter of issue preclusion, we conclude that it is improper to
preclude relitigation of the issue of subject matter jurisdiction
where there has been a substantial intervening change in the
controlling law.
Considering this clarification of the controlling
principles of law, application to this case is straightforward.
Based on our analysis below, see infra Section II.B.1, it is clear
that Hibbs did effect a substantial change in the controlling
principles regarding interpretation of the Butler Act. Therefore,
Hibbs's change in the law defeats any issue-preclusive effect of
the Calderón decision. Since, as we have explained, the Calderón
ruling on subject matter jurisdiction has no claim preclusive
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effect, that action likewise does not claim-preclude this action.
Therefore, we conclude the district court erred in finding that the
decision of the jurisdictional issue in the Calderón action
precluded consideration of that issue in this suit.
3. The effect of the stipulation
Nonetheless, we cannot yet conclude our discussion of the
Calderón decision. The Secretary argues, and the district court
held, that Coors is also barred from relitigating the issue of
subject-matter jurisdiction by virtue of its stipulation to the
dismissal of the Calderón action. According to this argument,
Coors bargained away the right to bring another suit in exchange
for a concession that the Calderón defendants would not seek
attorney's fees. We disagree with this interpretation.
The stipulation is not a settlement agreement. Coors did
not promise never to bring another suit. A plain reading of the
stipulation's terms shows only that Coors agreed to have a
particular judgment entered against it. To the extent Coors was
contractually bound to do anything under the stipulation, it was
bound to accept the judgment and end its appeal. Coors did that,
and was left with the judgment of the district court dismissing the
action for lack of subject matter jurisdiction. We have already
analyzed the preclusive effect of that judgment and held that it
does not bar this action. There is nothing else in the stipulation
that has any greater effect.
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Accordingly, we conclude that neither the Calderón
stipulation nor judgment is a bar to this action.
B. Subject Matter Jurisdiction
1. The Butler Act
Having concluded that neither claim preclusion nor issue
preclusion bars consideration of the jurisdictional issue, we
proceed to analyze that issue. Of course, the district court would
have subject matter jurisdiction over the federal questions Coors
raises under 28 U.S.C. §§ 1331 and 1343. But, the Butler Act
places a limit on federal jurisdiction. Specifically, as we stated
above, the Butler Act provides, "[n]o suit for the purpose of
restraining the assessment or collection of any tax imposed by the
laws of Puerto Rico shall be maintained in the United States
District Court for the District of Puerto Rico." 48 U.S.C. § 872.
We have consistently read this act to be a close analogue to the
Tax Injunction Act ("TIA") applicable to Puerto Rico. UPS v.
Flores-Galarza, 318 F.3d 323, 330 n.11 (1st Cir. 2003) ("The two
statutes employ different language (i.e. the Tax Injunction Act
includes an express exception that the Butler Act lacks), but 'have
been construed in pari materia.'" (quoting Trailer Marine Transp.
Corp. v. Rivera-Vázquez, 977 F.2d 1, 5 (1st Cir. 1992))).5
5
The TIA states, "[t]he district courts shall not enjoin, suspend
or restrain the assessment, levy or collection of any tax under
State law where a plain, speedy and efficient remedy may be had in
the courts of such State." 28 U.S.C. § 1341.
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In the present action, Coors has asked a federal court to
invalidate the small brewer exemption and order Puerto Rico to
assess the higher tax rate against small brewers. Coors argues
that since it does not seek to decrease the tax it pays, the Butler
Act is no bar to the requested relief. This distinction between
restraining collection and ordering more collection was not well
received in the prior actions. U.S. Brewers, 592 F.2d at 1214;
Calderón, 225 F. Supp. 2d at 26-27. But, since those decisions,
the Supreme Court has accepted a similar argument in Hibbs, 542
U.S. at 104-07.
In that case, Arizona taxpayers sued the director of
Arizona's Department of Revenue seeking to enjoin provision of tax
credits for taxpayers who made donations to "school tuition
organizations," which were permitted to fund religious educational
organizations. Id. at 92. The director argued the suit was barred
by the TIA. Id. The Supreme Court found that the action was not
barred since the plaintiffs did not seek to challenge their own tax
liability, and thus did not endanger the collection of state tax
revenue. Id. at 104-05. The Court explained:
In short, in enacting the TIA, Congress
trained its attention on taxpayers who sought
to avoid paying their tax bill by pursuing a
challenge route other than the one specified
by the taxing authority. Nowhere does the
legislative history announce a sweeping
congressional direction to prevent
federal-court interference with all aspects of
state tax administration.
-21-
Id. (internal quotation marks omitted). The Court inventoried
prior TIA precedents and explained that they are "not fairly
portrayed cut loose from their secure, state-revenue-protective
moorings." Id. at 106. Specifically, the TIA has been applied
"only in cases Congress wrote the Act to address, i.e., cases in
which state taxpayers seek federal-court orders enabling them to
avoid paying state taxes." Id. at 107. The Court also cataloged
a number of historical cases of third-party challenges to tax
benefits that had proceeded without any party mentioning the TIA.
Id. at 110-12. This catalog led the Court to conclude that
"[c]onsistent with the decades-long understanding prevailing on
this issue, respondents' suit may proceed without any TIA
impediment." Id. at 112. Ultimately, since the plaintiffs in
Hibbs did not seek to avoid paying state taxes, their action was
not barred. Id.
Hibbs's holding regarding the proper understanding of the
TIA shows that the Butler Act is similarly no bar to Coors's
action. Coors does not seek to lower the tax rate on itself.
Rather, it alleges that a special exemption built into Puerto
Rico's tax code provides an illegal and unconstitutional benefit to
local brewers. If this claim succeeds on the merits and Coors
obtains the relief its requests, Coors's tax liability will be
unchanged. In this way, Coors's challenge to the small brewer
exemption is analogous to the plaintiffs' claim in Hibbs. Thus,
-22-
since the Butler Act is read in parallel to the TIA, and since it
similarly only restricts the district courts from entertaining
suits "for the purpose of restraining the assessment or collection"
of taxes of Puerto Rico, we read it, according to Hibbs, to only
apply where plaintiffs seek to challenge taxes in a way that would
reduce the flow of state tax revenue. See May Trucking Co. v.
Oregon Dep't of Transp., 388 F.3d 1261, 1267 (9th Cir. 2004)
("After Hibbs, the dispositive question in determining whether the
Act's jurisdictional bar applies is whether '[f]ederal-court relief
. . . would have operated to reduce the flow of state tax
revenue.'" (quoting Hibbs, 542 U.S. at 106)).
Against this conclusion, the Secretary contends that the
fact that Coors's tax liability will be unchanged is irrelevant
since federal court interference with the small brewer exemption
could have the effect of lowering tax revenue. Specifically, the
Secretary contends that a court-mandated increase of the tax rates
on small brewers could affect the market in such a way as to
ultimately reduce demand to the point where tax revenues suffer.
The Secretary points to a recent Tenth Circuit decision
interpreting Hibbs. See Hill v. Kemp, 478 F.3d 1236 (10th Cir.
2007). In that case, plaintiffs challenged a state law that
authorized the state Tax Commissioner to issue specialized license
plates and use the funds for certain designated causes. Id. at
1239-41. Specifically, the plaintiffs protested the inclusion of
-23-
license plates with a pro-life message when no pro-choice license
plates were available on similar terms. Id. The Hill plaintiffs
sought to enjoin the issuance of the challenged specialty license
plates. Id. at 1242 n.4. The plaintiffs contended that enjoining
license plates would not affect revenues as the state could issue
specialized license plates under a content-neutral approach. Id.
at 1250. In rejecting this argument, the court stated,
there is simply nothing in the TIA or Hibbs
suggesting that federal courts can entertain
challenges to state taxes on the basis of
predictive judgments that doing so will not
harm state coffers; rather our jurisdiction is
precluded by the plain language of the TIA in
all cases seeking to enjoin the levy or
collection of taxes under State law.
Id. This result was required, according to Hill, since otherwise
"judges might be free to become second rate, supply-side
economists, hazarding guesses that enjoining this or that revenue
raising measure would help rather than hurt overall tax
collections." Id. The Secretary thus argues that we should, like
the Hill court, refrain from making any economic speculation on the
effect of an injunction against the small brewer exemption.
We find this argument unpersuasive. First and foremost,
in this case we have record evidence that the Secretary has
admitted that $11.8 to $14.6 million in revenue goes "uncollected
due to the preferential treatment given to local beer."6 The
6
Except to say that he has "duly and consistently opposed
admission of the letter," the Secretary has not challenged the
-24-
Secretary argues that this statement was made under the assumption
that production would remain unchanged. But, earlier in the same
letter, the Secretary also estimated that a proposed tax increase
to $3.50 per gallon on small brewers would result in an increase in
revenue of $8.3 million, even accounting for a decrease in
production. Further, the Secretary's briefing to the district
court admitted that "Coors' injunctions sought here would, if
issued, have the effect of increasing revenue 'collection.'"
Second, even without these admissions, Hill is
distinguishable. In that case, plaintiffs sought to enjoin a tax
which generated revenue. Id. at 1245-46 (ruling that the license
plate regime was a "tax"). By contrast, Coors does not seek to
enjoin the operation of a revenue-generating mechanism. Unlike in
Hill, where the market response to the elimination of a certain
product (namely pro-life license plates) might be genuinely hard to
predict, the elimination of a special tax exemption is much more
likely to increase rather than decrease revenues. In other words,
it would require greater economic speculation on our part to reach
a conclusion that an injunction against the small brewer exemption
would hurt, rather than improve, tax revenues. Where the
admissibility of this letter on appeal. Accordingly, we deem any
argument that we should not now consider it to be waived. See
United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990)
(recognizing "settled appellate rule that issues adverted to in a
perfunctory manner, unaccompanied by some effort at developed
argumentation, are deemed waived").
-25-
plaintiffs challenge a provision affording lower tax treatment to
certain individuals, such a speculative possibility is not enough
to foreclose jurisdiction. See Commerce Energy, Inc. v. Levin,
554 F.3d 1094, 1097 (6th Cir. 2009) ("It is thus not enough that
there is some theoretical chance revenues might decrease due to a
hypothetical future lawsuit; Hibbs tells us the Act is more
straightforward: it applies only to 'cases in which state taxpayers
seek' to 'avoid paying state taxes' where success would 'operate[]
to reduce the flow of state tax revenue.'" (quoting Hibbs, 542 U.S.
at 106-07)).
The Secretary makes another argument based on Hill. The
Hill court observed that Hibbs involved the "somewhat unusual
circumstance . . . of citizens seeking to eliminate tax credits"
whereas Hill involved "an effort expressly aimed at preventing the
State from exercising its sovereign power to collect certain
revenues," which was more like the "traditional heartland of TIA
cases." Hill, 478 F.3d at 1250. The Secretary argues that since
Coors's action is not a challenge to a tax credit, but rather to a
tax exemption, it is also more similar to the kind of action
traditionally barred by the TIA. We fail to see the distinction in
this context between a tax credit and a tax exemption. The Hibbs
court did not rely on the mechanism through which the challenged
state tax relief was afforded, but rather on the fact that the
relief plaintiffs sought would not endanger state tax revenues.
-26-
Hibbs, 542 U.S. at 109 (noting that the TIA's legislative history
showed no concern "'about federal courts' flogging state and local
governments to collect additional taxes.'" (quoting Dunn v. Carey,
808 F.2d 555, 558 (7th Cir. 1986))). Thus, this case is more like
Hibbs than Hill; rather than eliminate a potential source of
revenue, the relief Coors requests would simply eliminate a tax law
affording preferential tax treatment to certain taxpayers.
Accordingly, we conclude that under Hibbs, Coors's action is not
barred by the Butler Act.
2. Related principles of comity
The Secretary contends that even if Coors's action is not
barred by the Butler Act, it is barred by the related principles of
comity7 that we relied upon in U.S. Brewers, 592 F.2d at 1214.
7
As has been explained in another context, comity can be defined
as
a proper respect for state functions, a
recognition of the fact that the entire
country is made up of a Union of separate
state governments, and a continuance of the
belief that the National Government will fare
best if the States and their institutions are
left free to perform their separate functions
in their separate ways. . . . What the
concept does represent is a system in which
there is sensitivity to the legitimate
interests of both State and National
Governments, and in which the National
Government, anxious though it may be to
vindicate and protect federal rights and
federal interests, always endeavors to do so
in ways that will not unduly interfere with
the legitimate activities of the States.
Younger v. Harris, 401 U.S. 37, 44 (1971). We hold, as described
-27-
Certainly that court rejected arguments very similar to those
raised now by Coors when it concluded that those principles would
be "ill-served" by the "technical distinction" between restraining
the imposition of a lower rate on small brewers and a direct
challenge to plaintiffs' higher rate. Id. at 1214-15. We further
stated that "an order of a federal court requiring Commonwealth
officials to collect taxes which its legislature has not seen fit
to impose on its citizens strikes us as a particularly
inappropriate involvement in a state's management of its fiscal
operations." Id. at 1215.
If not for Hibbs, U.S. Brewers would control the
resolution of this action. Whether the principles of comity
described in U.S. Brewers are intact after Hibbs is an open
question that has already engendered a circuit split. The Sixth
and Seventh Circuits have adopted a narrowed view of comity
principles in light of Hibbs. Commerce Energy, 554 F.3d at 1098-99
(describing the split and endorsing a narrow view of comity by
allowing an energy company to challenge alleged preferential tax
treatment of local natural gas distributors); Levy v. Pappas, 510
F.3d 755, 761-62 (7th Cir. 2007) (finding comity still alive after
in the text, infra, that comity is no bar to this action. This
holding is in no way a statement that state courts cannot vindicate
and protect federal rights. Rather, it is a recognition, based on
Hibbs, that federal court protection of federal rights through
orders that do not arrest and countermand state tax collection do
not constitute undue interference with the administration of the
state tax scheme.
-28-
Hibbs, but concluding that it is limited such that "[w]hen a
plaintiff alleges that the state tax collection or refund process
is giving unfair benefits to someone else, then according to Hibbs
the Act and comity are not in play"). The Ninth Circuit has also
suggested that Hibbs limited the reach of comity in this context.
Wilbur v. Locke, 423 F.3d 1101, 1110 (9th Cir. 2005) (finding no
comity bar where plaintiffs sought an injunction barring the state
from entering into cigarette tax contract with the Swinomish Indian
Tribe, since such relief was not countermanding state tax
collection).
On the other hand, the Fourth Circuit has relied on U.S.
Brewers, even after Hibbs, to refuse jurisdiction over a challenge
to a state tax regime's allegedly preferential treatment of cable
companies over satellite TV companies. DIRECTV, Inc. v. Tolson,
513 F.3d 119, 126-28 (4th Cir. 2008). In judging U.S. Brewers to
be good law, the Fourth Circuit recognized that Hibbs discussed the
Court's prior comity precedent. Id. at 127. The Fourth Circuit
saw this discussion as the Court's way of "underscor[ing] the
unusual claim before the Court in Hibbs." Id. The Fourth Circuit
also relied on earlier comity precedent for the proposition that
"the comity principle underlying the TIA is broader than the Act
itself, and its scope is not restricted by [the TIA]." Id. (citing
Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 110
(1981) (holding that principles of comity bar challenges to state
-29-
tax law which seek money damages under 42 U.S.C. § 1983)). The
Fourth Circuit also concluded that Hibbs itself saved U.S. Brewers
by distinguishing it on the grounds that U.S. Brewers was not a
case interpreting the TIA. Id. at 128 n.5.
The Fourth Circuit's position is not convincing. In
Hibbs, Arizona similarly advanced arguments based on principles of
comity. See Winn v. Killian, 307 F.3d 1011, 1018 (9th Cir. 2002)
(explicitly rejecting plaintiffs' comity arguments), aff'd by
Hibbs, 542 U.S. 88; see also Winn v. Killian, 321 F.3d 911, 913-914
(9th Cir. 2003) (Kleinfield, J., dissenting from denial of en banc
rehearing) (asserting that principles of comity barred the action).
The Supreme Court was not swayed, but instead announced that "this
Court has relied upon 'principles of comity,' to preclude original
federal-court jurisdiction only when plaintiffs have sought
district-court aid in order to arrest or countermand state tax
collection." Hibbs, 542 U.S. at 107 n.9 (citation omitted). The
Court's statements in this regard were not made in connection with
narrowly construing the facts of the case, but rather were made as
part of a survey of the state of the law. Id. at 106-07 ("Our
prior decisions are not fairly portrayed cut loose from their
secure, state-revenue-protective moorings.").
The Fourth Circuit and the Secretary both rely on the
fact that Hibbs cited U.S. Brewers in a footnote. See id. at 109-
10 n.11. In that footnote, the Court recognized that U.S. Brewers
-30-
was not based on the Butler Act, but on principles of comity, and
quoted U.S. Brewers's admonition against ordering a state to
collect a tax not authorized by its legislature. Id. But unlike
the Secretary, we do not read this footnote as condoning the result
in U.S. Brewers. Rather, the entire footnote is devoted to
discussing cases raised by Arizona which were in obvious tension
with the Court's holding. Id. While the Court made some effort at
distinguishing some of the cases, it made little attempt at
distinguishing others. Id. (recognizing and explaining, but not
explicitly abrogating, the contrary ruling in ACLU Foundation v.
Bridges, 334 F.3d 416 (5th Cir. 2003) and the arguably inconsistent
ruling in In re Gillis, 836 F.2d 1001 (6th Cir. 1988)). The Court
did observe that U.S. Brewers was based on principles of comity
related to the Butler Act, and not the TIA. Id. But this
observation cannot serve to save U.S. Brewers since the Butler Act
is read analogously to the TIA and since the Hibbs Court also
limited principles of comity under the TIA. In light of the
surrounding discussion, and considering the earlier footnote
limiting the scope of comity, we read the Court's citation to U.S.
Brewers simply as an acknowledgment of a related case, and not as
an endorsement of its result.
Our conclusion is supported by the Sixth Circuit. That
court recognized that reading earlier comity caselaw, including
Fair Assessment, to permit the broad use of comity in a situation
-31-
like this one, "runs squarely against Hibbs's instruction that
comity guts federal jurisdiction only when plaintiffs try to thwart
tax collection." Commerce Energy, 554 F.3d at 1099. Similarly, as
that court explained, "an unduly broad view of comity would render
an Act of Congress -- the Tax Injunction Act -- effectively
superfluous, as its contours would never be dispositive so long as
extant 'comity principles' uniformly barred challenges to state
taxation." Id. The Sixth Circuit also noted that the Hibbs Court
reasoned that the "decades-long understanding" that the TIA was no
bar was revealed by the fact that other challenges to state tax law
proceeded without reference to the TIA. Id.; see also Hibbs, 542
U.S. at 112. Using the same reasoning suggests that comity is no
bar as those same cases also proceeded without reference to comity.
Commerce Energy, 554 F.3d at 1099-1100. These reasons provided by
the Sixth Circuit, combined with our own analysis of Hibbs
described above, lead us to conclude that comity does not bar
federal courts from hearing suits seeking to invalidate state tax
laws that afford preferential tax treatment to third parties where
such challenge would not arrest state revenue generation.
This is not to say that principles of comity are of no
further effect. As recognized in Hibbs, Fair Assessment is still
good law; plaintiffs may not circumvent the TIA or the Butler Act
by challenging their tax liability through an action seeking money
damages. See id. at 1098 (discussing Fair Assessment). But,
-32-
properly read, Hibbs confined principles of comity to cases seeking
to arrest or countermand state tax collection.
It remains the case that Coors seeks "an order of a
federal court requiring Commonwealth officials to collect taxes
which its legislature has not seen fit to impose on its citizens."
U.S. Brewers, 592 F.2d at 1215. But, since Coors seeks an
injunction eliminating an exemption and therefore does not seek to
arrest state tax collection, comity is no bar to such a result.
See Hibbs, 542 U.S. at 93 (citing Griffin v. County Sch. Bd., 377
U.S. 218, 233 (1964) as a case where the Court acted without regard
to the TIA (or related comity concerns) since, when the Court was
"faced with unconstitutional closure of county public schools and
tuition grants and tax credits for contributions to private
segregated schools," it concluded that the "District Court could
require county to levy taxes to fund nondiscriminatory public
schools" (emphasis added)).
This conclusion means that our decision in U.S. Brewers
is no longer good law, which we are not bound to follow. United
States v. Rodríguez-Pacheco, 475 F.3d 434, 441 (1st Cir. 2007)
(recognizing an exception to stare decisis where "'[a]n existing
panel decision [is] undermined by controlling authority,
subsequently announced, such as an opinion of the Supreme Court'"
(quoting Williams v. Ashland Eng'g Co., 45 F.3d 588, 592 (1st Cir.
1995))).
-33-
In sum, Hibbs effected a change in the law such that
neither the Butler Act nor related principles of comity serve to
bar Coors's complaint.
C. The Preclusive Effect of U.S. Brewers (P.R.) and
the Applicability of the Rooker-Feldman Doctrine
We turn to another set of asserted bars to this action
based on the effects of the Puerto Rico Supreme Court's decision in
U.S. Brewers (P.R.).
1. The Rooker-Feldman doctrine
The district court reasoned that the Rooker-Feldman
doctrine served to bar this action as an impermissible attack on
the state court judgment in U.S. Brewers (P.R.). We disagree. The
Rooker-Feldman doctrine prevents federal district courts from
hearing "'cases brought by state-court losers complaining of
injuries caused by state-court judgments rendered before the
district court proceedings commenced and inviting district court
review and rejection of those judgments.'" Lance v. Dennis, 546
U.S. 459, 464 (2006) (quoting Exxon Mobil, 544 U.S. at 284).
Puerto Rico is treated as a state for these purposes. Puerto
Ricans for P.R. Party v. Dalmau, 544 F.3d 58, 68 (1st Cir. 2008).
But Coors was not a party to the action in U.S. Brewers (P.R.), and
so is not a "state-court loser." States Res. Corp. v. The
Architectural Team, Inc., 433 F.3d 73, 79 (1st Cir. 2005). The
district court nonetheless reasoned that Coors was legally
represented by the USBA, as Coors's legal predecessor was a member
-34-
of the USBA. But "[t]he Rooker-Feldman doctrine does not bar
actions by nonparties to the earlier state-court judgment simply
because, for purposes of preclusion law, they could be considered
in privity with a party to the judgment." Lance, 546 U.S. at 466
("Whatever the impact of privity principles on preclusion rules,
Rooker-Feldman is not simply preclusion by another name.").
Furthermore, Coors is not attacking the state court judgment, but
simply seeking to raise a challenge to the same exemption
previously upheld in U.S. Brewers (P.R.). The Rooker-Feldman
doctrine is no bar to such an independent claim. Exxon Mobil, 544
U.S. at 293; Davison v. Gov't of P.R.-P.R. Firefighters Corps., 471
F.3d 220, 222-23 (1st Cir. 2006). For each of these reasons, we
reject the application of the Rooker-Feldman doctrine to this case.
2. Preclusion
The Secretary argues that we may nonetheless affirm the
district court's dismissal of Coors's complaint on the ground that
it is precluded by U.S. Brewers (PR).
Whereas we applied federal law of preclusion in analyzing
the effect of a federal court judgment, we now turn to Puerto Rico
law to determine the preclusive effect of the judgment in U.S.
Brewers (P.R.) on the present case. See SBT Holdings, 547 F.3d at
36 ("Federal courts 'must give preclusive effect to state court
judgments in accordance with state law.'" (quoting Mulrain v. Bd.
of Selectmen, 944 F.2d 23, 25 (1st Cir. 1991))); Boateng v.
-35-
InterAmerican Univ., Inc., 210 F.3d 56, 61 (1st Cir. 2000) (stating
that "Puerto Rico is, for this purpose, the functional equivalent
of a state").
Under Puerto Rico law,
[i]n order that the presumption of res
adjudicata may be valid in another suit, it is
necessary that, between the case decided by
the sentence and that in which the same is
invoked, there be the most perfect identity
between the things, causes, and persons of the
litigants, and their capacity as such.
P.R. Laws Ann. tit. 31, § 3343. We have explained:
Although this statute speaks of "res
adjudicata," it encompasses both the doctrine
of res judicata (i.e., claim preclusion) and
the doctrine of collateral estoppel (i.e.,
issue preclusion), albeit with slightly
different requirements for each.
We previously have explained that a
party asserting a res judicata defense under
Puerto Rico law must establish three elements:
(i) the existence of a prior judgment on the
merits that is "final and unappealable"; (ii)
a perfect identity of thing or cause between
both actions; and (iii) a perfect identity of
the parties and the capacities in which they
acted.
R.G. Fin. Corp. v. Vergara-Núñez, 446 F.3d 178, 183 (1st Cir. 2006)
(citations omitted).
Coors argues that there is not perfect identity of cause
since the USBA action challenged the special brewer's exemption
prior to its amendment in 2002 and 2004. We need not reach this
argument since we accept Coors's other argument that there is no
sufficient identity of parties, since U.S. Brewers (PR) was
-36-
initiated by the USBA and several other off-island producers not
including Coors.
On the question of identity of parties, we have explained
Puerto Rico law as follows:
The purpose of the perfect identity of parties
requirement is to guarantee that the rights
and obligations of a particular litigant will
not be foreclosed without that litigant's
knowledge or opportunity to participate. In
harmony with this purpose, the Puerto Rico res
judicata statute directs that:
There is identity of persons
whenever the litigants of the
suit are legal representatives
of those who litigated in the
preceding suit, or when they are
jointly bound with them or by
the relations established by the
indivisibility of prestations8
among those having a right to
demand them, or the obligation
to satisfy the same.
P.R. Laws Ann. tit. 31, § 3343. This is a
privity requirement, and the Puerto Rico
Supreme Court has taken a "pragmatic stand" on
its construction.
Id. at 185-86 (case citations omitted and footnote added).
Our prior cases applying Puerto Rican law offer some
insight on the specific application of this rule to associations.
8
We have defined the term "prestations" to mean "'a performance
of something due upon an obligation.'" Báez-Cruz v. Municipality
of Comerío, 140 F.3d 24, 29 (1st Cir. 1998) (quoting Webster's New
International Dictionary 1796 (1971)).
-37-
We have found adequate privity9 where members of a political party
bring suit after the party lost an earlier suit that those members
admitted that they directly controlled. Cruz v. Melecio, 204 F.3d
14, 19 (1st Cir. 2000). But when another party member who
disclaimed participation in the first suit brought yet another
suit, we found no preclusion, even though the party and the new
plaintiff shared interests and attorneys. Pérez-Guzmán v. Gracia,
346 F.3d 229, 234-35 (1st Cir. 2003). The Pérez-Guzmán decision
distinguished Cruz specifically on the basis of the plaintiff's
control of the prior suit. Id. at 234 (stating that "Cruz required
proof of control as a building block in the showing of privity").
In the absence of an admission of control, the defendant asserting
the preclusion defense carries the burden of establishing the
defense. Id.
A trade association may arguably be more close knit than
a political association. In Pérez-Guzmán we opined that the result
might be different "if the appellants had proven that the Party, in
the manner, say, of certain labor unions or trade associations,
9
The term "privity" is used to refer to the "substantive legal
relationships justifying preclusion," and its use may be confusing.
Taylor, 128 S. Ct. at 2172 n.8. Here, we use the term to mean the
kind of representative or agency relationship, which, under Puerto
Rico law, is sufficient to establish identity of parties. R.G.
Fin. Corp., 446 F.3d at 187 ("Our prior cases establish the general
rule that where one party acts for or stands in the place of
another in relation to a particular subject matter, those parties
are in privity for purposes of the Puerto Rico preclusion
statute.").
-38-
served generally as the duly constituted representative of its
members in litigation affecting common interests." Id. at 235.
Though the USBA was a trade organization to which Coors's
predecessor corporation belonged, the Secretary has adduced no
evidence that Coors's predecessor either controlled the litigation
strategy of the association or duly approved the USBA to represent
its interests. To the contrary, Coors alleged that it was not even
distributing beer in Puerto Rico at that time and so argues that it
would not have had standing in the U.S. Brewers (PR) action, let
alone the ability to control the litigation. Cf. Gen. Foods Corp.
v. Mass. Dep't of Pub. Health, 648 F.2d 784, 787-88 (1st Cir. 1981)
(finding preclusion based on "implied authorization" since there
was more than "mere membership in a trade association," including
financial contributions to the costs of the litigation by the
member, together with the fact that the association's "standing to
sue depended on its claim to represent its members as the real
parties in interest"). Thus, on this factual record, it is proper
to reach the same result as in Pérez-Guzmán: in the absence of
evidence that Coors controlled the U.S. Brewers (P.R.) action, the
similarity of interests between Coors and the USBA is inadequate to
establish the representation or "indivisibility of prestations"
required to find sufficient identity of parties under Puerto Rico
law. Accord Taylor, 128 S. Ct. at 2174 (disapproving of, on due
process grounds, the doctrine of virtual representation based on
-39-
identity of interests absent "special procedures to protect the
nonparties' interests or an understanding by the concerned parties
that the first suit was brought in a representative capacity"); id.
at 2179 (suggesting that a finding that a plaintiff is the
"litigating agent for a party to the earlier case" requires more
than a "mere whiff of 'tactical maneuvering,'" but rather that "the
putative agent's conduct of the suit is subject to the control of
the party who is bound by the prior adjudication"); 18A Federal
Practice § 4456 (explaining that under federal preclusion law,
members of a trade association who participated in the earlier
litigation should be precluded, while those who did not participate
should not be precluded). Therefore, we conclude that the prior
judgment in U.S. Brewers (PR) does not provide a basis for granting
the Secretary's motion to dismiss.
D. The Preclusive Effect of Beer Importers
Finally, the Secretary contends that Coors's present
action is precluded by virtue of the now final judgment in the Beer
Importers action, which was initiated in the Puerto Rico courts in
2002.10 Since Coors was also not a party to Beer Importers, we face
10
The district court did not find preclusion here since the time
to file a certiorari petition in the United States Supreme Court
had not, at that time, expired. Since the certiorari petition has
now been denied, the Secretary argues that res judicata now
applies. We address the issue now since the Secretary raised the
issue both below and on appeal and since the issue is fully
briefed. See Ridley v. Mass. Bay Transp. Auth., 390 F.3d 65, 93
(1st Cir. 2004).
-40-
the same question as before. Namely, we must ask whether Coors was
sufficiently represented in the earlier action so as to be
precluded in this action. Though Coors was dismissed from that
action without prejudice, the Secretary contends that Coors is
bound by virtue of the participation of V. Suárez, Coors's
exclusive Puerto Rican distributor. The Secretary alleges that V.
Suárez pays the relevant taxes, though this fact is not established
in the record.11 In any event, as explained above, Coors is not
challenging the taxes assessed on it or on V. Suárez. Rather, it
asserts its market share was injured as a result of the
preferential treatment given to small brewers. To be sure, this is
a similar injury to the one that supplied the basis for V. Suárez's
participation in the Beer Importers case. But, as we have
explained, mere similarity of interests is not enough to establish
privity under Puerto Rico law. Just as the mere fact of membership
in an association does not change this result, neither does the
mere presence of a contractual relationship between Coors and V.
Suárez. See 18A Federal Practice § 4460 (explaining that
"[p]arties on opposite sides of a contract ordinarily do not have
authority to bind each other by litigation with third parties," but
noting that specific relationships may call for determinations
11
To support this fact, the Secretary directs us to a page from
their memorandum of law submitted in the district court. This
memorandum in turn cites to an attachment submitted in Spanish. We
have held repeatedly that we cannot consider such untranslated
evidence. Puerto Ricans for P.R. Party, 544 F.3d at 67.
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based on the consideration of the relevant substantive law). Here
the contractual relationship is an exclusive distributorship.
Undoubtedly, this fact does give V. Suárez and Coors very similar
interests in challenging preferential treatments for small brewers.
But other than point to this similarity in interests, the Secretary
offers no authority for the proposition that we must presume more
from the mere fact of the exclusive distributorship. To the
contrary, as Coors suggests, the applicable legal environment
suggests we should presume that Coors and its distributor were
arms-length contractors. See Bainbridge v. Turner, 311 F.3d 1104,
1106 (11th Cir. 2002) (explaining that most states regulate alcohol
distribution so as to "require[] three vertical layers of
distribution (manufacturer, distributor, and vendor) and mandate[]
that no layer in the vertical hierarchy act in the capacity of
another").
As explained above, absent some legal presumption based
on the nature of the contractual relationship, we would require
some record evidence that Coors actually controlled V. Suárez in
the Beer Importers litigation. Coors has argued that it in fact
had no coordination with V. Suárez after it withdrew from the case,
though it also fails to adequately support this contention.12 But,
12
For this point, Coors only cites to the memoranda of law that
it presented to the district court. This memorandum fails to cite
evidence or allegations which we may consider. See United States
v. Michaud, 925 F.2d 37, 41 (1st Cir. 1991) ("Ordinarily,
assertions made in briefs and memoranda are insufficient to raise
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as explained above, it is the Secretary's burden to show privity,
and he has not produced any evidence showing Coors's affirmative
control of, or collusion with, V. Suárez.
Thus, we find that the Secretary has failed to meet his
burden of showing sufficient privity between Coors and V. Suárez,
and so conclude that the prior judgment in Beer Importers cannot
support affirming the allowance of the motion to dismiss.13
III. Conclusion
For all of the foregoing reasons, we find that none of
the independent procedural bases for dismissal relied upon by the
Secretary are persuasive. We therefore reverse the district
court's allowance of the Secretary's motion to dismiss. The case
is remanded for further proceedings consistent with this opinion.
Reversed and Remanded.
a cognizable issue of fact.").
13
Coors again argues that the change in the small brewer exemption
in 2004 renders Beer Importers non-preclusive, since that action
challenged the statute as it stood in 2002. We need not reach this
argument because our finding regarding the insufficient identity of
parties bars preclusion.
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