Esso Standard Oil Co. v. Lopez-Freytes

Apr 10: In the U.S. Court of Appeals, First Circuit, Case No. 07-1218. The case is an appeal from the Puerto Rico 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, they say the court erred in concluding that there existed bias necessitating the imposition of the injunction. The Appeals Court affirmed the district court's order.

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. 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. 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.

The Appeals Court said, "Not only is the defendants' argument utterly unsupported by the law, but we have already rejected it. . . [in a previous appeal] 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. . . The district court concluded that the contractual relationship between the EQB and the Hearing Examiners exhibited 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. . . 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. . . "

Access the complete opinion (click here).