Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.P.R: Further discovery by wholesalers denied in gas station business limitation law challenge, (Mar 6, 2024)

By Kenneth H. Ryesky, M.B.A., J.D.

Gasoline wholesalers had previously stalled the case for almost a year with numerous discovery requests, including some which the current judge viewed as "facially preposterous."

The federal district court in San Juan, Puerto Rico has denied the discovery requests of two gasoline wholesalers who sought to overturn Puerto Rico statute that they claimed was preempted by the federal the Petroleum Marketing Practices Act (PMPA). The discovery motions were made after several extensions of the discovery period, during which the wholesalers stalled the case by advancing extensive and unwarranted discovery tactics. The court found that the discovery sought by the motions was abusive, exceeded the limits of the renewed discovery order, and impinged upon the legislative privilege of the Puerto Rican legislators (Puerto Rico Energy, LLC v. Commonwealth Of Puerto Rico, February 28, 2024, Colon, A.).

In 1978, the Legislative Assembly of Puerto Rico enacted the so-called "Gasoline Law", which bars gasoline wholesalers from controlling business operations of gasoline service stations.

On June 27, 2020, the Assembly enacted what effectively constitutes an amendment to the Gasoline Law (Law 60), which restricts gasoline wholesalers from wielding any control over any non-gasoline service station business that is located on the premises of a gasoline service station.

There are ten gasoline wholesalers that supply gasoline to Puerto Rico, four of the top five being owned by off-island entities and the other six being under local Puerto Rico ownership. Consistent with the Gasoline Law as initially acted, none of the approximately 1,100 gasoline service station businesses in Puerto Rico are owned by a gasoline wholesaler (although a significant number of the real properties upon which such businesses are situated are owned or leased by gasoline wholesalers).

The business climate for gasoline service stations in Puerto Rico (and elsewhere) has changed following the 1978 enactment of the Gasoline Law, whereby a gasoline service station often needs to operate in symbiotic conjunction with another co-located business in order to be viable; such other businesses include but are not limited to convenience stores, automobile repair shops, car washes, restaurants (fast food or otherwise), display advertising billboard signs, or automatic teller machines (ATMs). Some gasoline wholesalers had facilitated and/or planned to facilitate such collateral businesses on the real properties the wholesalers own or lease; this would contravene many restrictions imposed by Law 60.

Two off-island wholesalers each brought suit against the Commonwealth of Puerto Rico and some of its officials, alleging that Law 60 conflicts with and is preempted by the Petroleum Marketing Practices Act (PMPA), and that the enforcement of Law 60 constituted an unconstitutional taking of their property rights. The two actions, which were consolidated together, seek declaratory and injunctive relief, plus damages from the taking.

The initial case management order set February 2023 as the close of discovery. During a period in which reassignment of the case to another judge and several discovery deadline extensions occurred, the plaintiffs persisted in extensive and far-reaching discovery requests. Discovery issues in the case remain open, and the court had three discovery motions to dispose of.

Discovery-extent of discovery order. The court denied the plaintiffs' request for further discovery because the scope of the request exceeded the bounds of the operative discovery order. Here, the extended order regarding the commerce clause discrimination issue allowed evidence of statements made by a Puerto Rico senator on the Senate floor; it did not extend to statements the senator made elsewhere, much less to reports and memoranda that were not part of the legislative process or text messages between legislators and private parties. The extended order regarding the federal preemption issue was limited to franchisor-franchisee agreements. For the regulatory taking issue, the plaintiffs did not need two of the three Penn Central factors mentioned in the discovery order.

Abuse of the process. The court denied the plaintiffs' request for further discovery because the frequency and extent of the discovery requested throughout the litigation constituted abuse of the discovery process. The plaintiffs have made numerous and repeated requests for exacting factual information, sought depositions by and served subpoenas upon non-parties, and otherwise delayed a case that the plaintiffs themselves have conceded presents "a purely legal question" of federal preemption.

Legislative privilege. The court alternatively denied the plaintiffs' request for further discovery based upon the doctrine of legislative privilege of state officials. The day before the court's operative discovery order, the First Circuit had handed down an opinion that addressed the application of federal legislative privilege to states (and territories such as Puerto Rico) [American Trucking Associations, Inc. v. Alviti, 14 F.4th 76 (1st Cir. 2021)], finding that federal common law on the matter extends to the states, and extensively covers communications between legislators and their staff personnel, and also local officials. The privilege can be invoked during discovery, and not only at trial. In determining the intent of the legislature as a whole, there is little probative value of individual legislators' personal motives for voting on enacting a statute. Accordingly, even if discovery motions did not overstep the bounds of the discovery order and even if the plaintiffs had not previously delayed the litigation with their overly-copious discovery practices, the further discovery sought by the plaintiffs could be denied on the basis of legislative privilege.

The Case is No. 3:20-cv-01591-ADC.

Attorneys: Jose R. Davila-Acevedo (JRD Law Offices) for Puerto Rico Energy LLC. Idza Diaz-Rivera, P. R. Department of Justice, for Commonwealth of Puerto Rico. Juan C. Ramirez-Ortiz (Juan C. Ramirez-Ortiz, Attorney at Law) for Wanda Vazquez-Garced.

Companies: Puerto Rico Energy LLC

Cases: FranchisingDistribution PuertoRicoNews