60 F.

3d 867
32 Fed.R.Serv.3d 121

TEXACO PUERTO RICO, INC., et al., Plaintiffs, Appellees,

v.
DEPARTMENT OF CONSUMER AFFAIRS, et al.,
Defendants, Appellants.
No. 94-2076.

United States Court of Appeals,

First Circuit.
Heard March 8, 1995.
Decided July 19, 1995.

Lynn R. Coleman, with whom Pedro R. Pierluisi, Secretary of Justice,

Roberto Ruiz Comas, Director, Federal Litigation Div., Dep't. of Justice,
Richard L. Brusca, Matthew W.S. Estes, Laura A. Ingraham, and
Skadden, Arps, Slate, Meagher & Flom, Washington, DC, were on brief,
for appellants.
Alan M. Grimaldi, with whom Jerrold J. Ganzfried, Patricia G. Butler,
Howrey & Simon, Washington, DC, William Estrella, San Juan, PR, and
Ricks P. Frazier, Coral Gables, FL, were on brief, for appellee Texaco
Puerto Rico, Inc.
Donald B. Craven, with whom James P. Tuite, Anthony F. Shelley, James
R. Lovelace, Alvaro I. Anillo, Miller & Chevalier, Chtd, Washington, DC,
Luis Sanchez Betances, Jaime Sifre Rodriguez, Miguel P. Cancio Bigas,
and Sanchez Betances & Sifre, Hato Rey, PR, were on brief, for appellee
Esso Standard Oil Co. (P.R.).
Ana Matilde Nin, with whom Rafael Perez-Bachs, Gilberto J. MarxuachTorros, and McConnell Valdes, Hato Rey, PR, were on brief, for appellee
Shell Co. (P.R.) Ltd.
Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and CYR,
Circuit Judge.
SELYA, Circuit Judge.

In 1986, the Puerto Rico Department of Consumer Affairs (DACO) took a

small, tentative step toward regulating the profit margins of gasoline
wholesalers. The wholesalers treated this move as a declaration of war. They
mounted a courtroom counteroffensive and succeeded in obtaining an
injunction against the enforcement of DACO's embryonic regulation. Following
a series of pitched battles that stretched from San Juan to Boston to the banks of
the Potomac and back again, DACO emerged victorious.

Long after the injunction had been vacated, DACO purposed to exact tribute
from the vanquished. Specifically, it sought restitution from the wholesalers
based on the "excess" profits that they allegedly earned while shielded by the
injunction. The district court declined to grant the envisioned spoils. We affirm.

I. BACKGROUND
3

This is presumably the final skirmish in a decade-long conflict. Other jousts are
chronicled in a series of published opinions. See, e.g., Puerto Rico Dep't of
Consumer Affairs v. Isla Petroleum Corp., 485 U.S. 495, 108 S.Ct. 1350, 99
L.Ed.2d 582 (1988) (Isla III ); Tenoco Oil Co. v. Department of Consumer
Affairs, 876 F.2d 1013 (1st Cir.1989); Isla Petroleum Corp. v. Puerto Rico
Dep't of Consumer Affairs, 811 F.2d 1511 (Temp.Emer.Ct.App.1986) (Isla II );
Texaco Puerto Rico, Inc. v. Mojica Maldonado, 862 F.Supp. 692 (D.P.R.1994)
(TPR II ); Texaco Puerto Rico, Inc. v. Ocasio Rodriguez, 749 F.Supp. 348
(D.P.R.1990) (TPR I ); Isla Petroleum Corp. v. Department of Consumer
Affairs, 640 F.Supp. 474 (D.P.R.1986) (Isla I ). Given the detail contained in
these earlier opinions, we believe that a condensed summary of the hostilities
will suffice for the nonce.

From 1973 forward, the federal government imposed price controls on the sale
of petroleum and petroleum products. See 15 U.S.C. Secs. 751-760h (as
amended). At the time federal controls ended in early 1981, the regulatory
scheme limited wholesalers' gross profit margins (GPMs) on the sale of
gasoline to 8.6 cents per gallon.1 See Tenoco, 876 F.2d at 1015 (recounting
history of federal regulatory policy). Although bureaucrats are reputed to abhor
a vacuum, DACO--an arm of Puerto Rico's government empowered by local
law to regulate prices and profit margins in order to protect consumers, see P.R.
Laws Ann. tit. 3, Sec. 341b (1982)--did not immediately impose its own
controls.

By 1985, the GPMs of gasoline wholesalers in Puerto Rico ranged from

6.9cents to 16.76cents per gallon. In early 1986, world oil prices plummeted-but the price of gasoline in Puerto Rico (both wholesale and retail) failed to
follow suit. The Puerto Rico legislature, ostensibly concerned that the oil
companies were taking unfair advantage, imposed an excise tax on crude oil
and refined petroleum products. In connection with the new tax, DACO
promulgated an administrative order under date of April 23, 1986. The order
prohibited wholesalers from passing the tax through to retailers. It also froze
wholesale and retail gasoline prices at their March 31, 1986 levels.

When, thereafter, world oil prices soared, the price freeze forced several
wholesalers to sell gasoline at prices below their acquisition costs. Since large
oil companies are not in business to lose money, a coterie of wholesalers
(including the trio that appear as appellees here) wasted little time in asking the
federal district court to enjoin enforcement of the April 23 order. Moving with
equal celerity, the district court scheduled a trial on the merits for May 21,
1986. See Fed.R.Civ.P. 65(a)(2) (authorizing the district court to "order the trial
on the merits to be advanced and consolidated with the hearing on the
application [for preliminary injunction]"). On May 20, DACO reshuffled the
cards; it rescinded the price freeze and issued what it called a "temporary" order
that harked back to the former, federally inspired ceiling and established, in
lieu of the thawed freeze, maximum GPMs of 8.6cents per gallon for petroleum
wholesalers. The May 20 order also scheduled a public hearing for June 2 to
"receive comments from all interested persons on the adequacy of this
Temporary Order and on any modifications that should be made to attain a
situation where primary reliance can be placed on competitive market forces to
maintain fair margins at all levels of distribution and fair prices for the
consumer."

This maneuver did not derail the litigation. The district court merely switched
tracks, trained its sights on the May 20 edict, and went forward with a three-day
bench trial. On June 4--roughly ten days after the trial ended--the court
enjoined enforcement of the May 20 order on federal preemption and other
constitutional grounds. See Isla I, 640 F.Supp. at 515.

DACO appealed the preemption ruling to the Temporary Emergency Court of

Appeals (TECA), see 15 U.S.C. Sec. 754(a)(1) (granting TECA exclusive
jurisdiction over claims arising directly under the Emergency Petroleum
Allocation Act of 1973), and appealed the remaining rulings (e.g., the
invalidation of the order on due process and takings grounds) to this court. We
stayed proceedings pending consideration of the preemption ruling. TECA
affirmed that ruling, see Isla II, 811 F.2d at 1519, but the Justices reversed,
holding that federal law did not forbid state regulation of gasoline prices. See

Isla III, 485 U.S. at 499-501, 108 S.Ct. at 1352-1354. This court then took up
DACO's concurrent appeal and vacated the district court's injunction as
premature. See Tenoco, 876 F.2d at 1024.
9

On June 27, 1989 (the day after we issued our mandate incinerating the district
court's injunction), DACO promulgated an interim order establishing a
maximum GPM of 11cents per gallon, effective forthwith. Its final order,
issued on November 30, 1989, adopted a ceiling of 13cents per gallon. That
order withstood a vigorous constitutional challenge by the wholesalers. See
TPR I, 749 F.Supp. 348.

10

An ensuing period of unaccustomed tranquility ended abruptly in mid-1992

when DACO again took up the cudgels. It issued a so-called remedial order in
which it sought to recoup almost $250,000,000 in profits exceeding an 8.6cents
per gallon GPM that it estimated three wholesalers--Texaco Puerto Rico, Inc.,
Esso Standard Oil Co. (P.R.), and the Shell Company (Puerto Rico) Ltd.
(appellees here)--had earned during the three-year life (June 1986 to June 1989)
of the errant injunction.2 The wholesalers quickly repaired to the district court
and requested protection from the remedial order. Before the court could act,
DACO issued a revised remedial order. Under its terms, a wholesaler could
choose between paying a refund based on a retrospective GPM of 13cents per
gallon for the injunction period or paying one based on whatever profit margin
would have allowed it to achieve an annual return on assets equal to the
average return on assets for the electric utility industry, plus one percent, during
the same period.

11

The wholesalers were not mollified. They challenged the revised remedial order
and, on April 1, 1993, DACO rescinded it. This hasty retreat did not restore the
peace, for the agency simply attacked on a different front. It revivified the court
action originally instituted by the oil companies and filed a motion for
restitution seeking an award equal to the excess profits that the wholesalers
would have been forced to disgorge but for the pendency of the improvidently
issued injunction. Following a tumultuous period of discovery, see, e.g., infra
Part III (discussing certain disputed discovery rulings), and a three-week bench
trial, the court denied the motion for restitution on September 9, 1994. See TPR
II, 862 F.Supp. at 709. DACO now appeals.

II. THE MERITS

12

Our analysis of the merits is partitioned into four segments. We discuss the
nature of restitution, parse the decision below, limn the standard of review, and,
finally, examine the record to determine whether the denial of restitution can be

upheld.
A. The Nature of Restitution.
13
14

In its motion, DACO sought restitution based upon the hoary adage "that a
party against whom an erroneous judgment or decree has been carried into
effect is entitled, in the event of a reversal, to be restored by his adversary to
that which he has lost thereby." Arkadelphia Milling Co. v. St. Louis S.W. Ry.
Co., 249 U.S. 134, 145, 39 S.Ct. 237, 242, 63 L.Ed. 517 (1919). We agree with
this tenet, but caution that it tells only half the tale. Restitution is not a matter of
right, but a matter of sound equitable discretion. See Atlantic Coast Line R.R.
Co. v. Florida, 295 U.S. 301, 310, 55 S.Ct. 713, 716-717, 79 L.Ed. 1451
(1935); Democratic Central Comm. v. Washington Metro. Area Transit
Comm'n, 485 F.2d 786, 825 (D.C.Cir.1973); Restatement of Restitution Sec.
142, cmt. a, at 568 (1937). Because restitution is a creature of equity, a claimant
can prevail only by showing that it will offend "equity and good conscience" if
the other party is permitted to retain the disputed funds. Atlantic Coast Line,
295 U.S. at 309, 55 S.Ct. at 716. Put another way, restitution is a remedy ex
gratia that a court will withhold when "the justice of the case does not call for
it...." Id. at 310, 55 S.Ct. at 716-717; accord Williams v. Washington Metro.
Area Transit Comm'n, 415 F.2d 922, 941-47 (D.C.Cir.1968), cert. denied, 393
U.S. 1081, 89 S.Ct. 860, 21 L.Ed.2d 773 (1969).

15

This emphasis on the particulars of each individual case is consistent with the
central feature of equity jurisdiction: "the ability to assess all relevant facts and
circumstances and tailor appropriate relief on a case by case basis." RosarioTorres v. Hernandez-Colon, 889 F.2d 314, 321 (1st Cir.1989) (en banc); see
also Hecht Co. v. Bowles, 321 U.S. 321, 329, 64 S.Ct. 587, 591-592, 88 L.Ed.
754 (1944) ("The essence of equity jurisdiction has been the power ... to mould
each decree to the necessities of the particular case."); Lussier v. Runyon, 50
F.3d 1103, 1110 (1st Cir.1995) (stating that "the hallmarks of equity have long
been flexibility and particularity"), petition for cert. filed (U.S. June 5, 1995)
(No. 94-1979).

16

Claims for restitution arising out of the vacation or reversal of a judgment are
tested by the same standards as other claims for restitution. See Atlantic Coast
Line, 295 U.S. at 310, 55 S.Ct. at 716-717; see also Restatement, supra, Sec.
74, at 302-03 ("A person who has conferred a benefit upon another in
compliance with a judgment, or whose property has been taken thereunder, is
entitled to restitution if the judgment is reversed or set aside, unless restitution
would be inequitable...."). This approach obtains in respect to both public and
private actions, and, thus, applies when, as now, a restitutionary claim arises out

of an errant injunction barring enforcement of a governmental regulation. See,

e.g., Arkadelphia, 249 U.S. at 145, 39 S.Ct. at 241-242 (ordering restitution by
a regulated company that charged more during an injunction period than the
rate ultimately deemed lawful); Williams, 415 F.2d at 941-47 (similar); see also
United States v. Morgan, 307 U.S. 183, 197-98, 59 S.Ct. 795, 802-03, 83 L.Ed.
1211 (1939).
B. The Decision Below.
17
18

The district court predicated its denial of DACO's motion for restitution on
alternative grounds. In the first place, the court determined that there was no
benefit to be restored as the wholesalers had not profited from the injunction.
See TPR II, 862 F.Supp. at 705-06. This determination rested upon a finding
that DACO failed to show that it would have regulated wholesalers' GPMs
during the relevant period but for the improvidently issued injunction. See id. at
702-06. In the second place, the court determined that, even assuming that the
injunction conferred an economic benefit, "the balance of equities" did not
require "a disgorgement of profits earned six to eight years ago." Id. at 706.

19

This latter determination rested upon an analysis of five equitable factors. First,
based on evidence regarding the competitiveness of the gasoline market and
earnings in other industries, the court found that the wholesalers "did not
benefit disproportionately from the lack of regulation." Id. at 707. Next, the
court found DACO guilty of "unreasonable delay" in seeking restitution. Id.
Third, the court concluded that DACO exhibited bad faith with regard to
Texaco, Esso, and Shell. See id. Fourth, the court determined that DACO's
actions during the injunction period had lulled the wholesalers into believing
that DACO would not demand restitution. See id. at 708. Finally, the court
thought that the public interest did not favor a restitutionary order. See id.

C. Standard of Review.
20
21

Appellate review often calls into play a blend of rules. So it is here. We review
the factual findings that undergird the trial court's ultimate determination only
for clear error. See Lussier, 50 F.3d at 1111; Reilly v. United States, 863 F.2d
149, 163 (1st Cir.1988). In contrast, the trial court's articulation and application
of legal principles is scrutinized de novo. See Cumpiano v. Banco Santander
P.R., 902 F.2d 148, 152 (1st Cir.1990). Thus, "to the extent that findings of fact
can be shown to have been predicated upon, or induced by, errors of law, they
will be accorded diminished respect on appeal." Dedham Water Co. v.
Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir.1992).

22

The main event evokes a different criterion. We review a district court's

ultimate decision to grant or withhold an equitable remedy for abuse of
discretion. See, e.g., Lussier, 50 F.3d at 1111; Rosario-Torres, 889 F.2d at 323.
Overall, the abuse-of-discretion standard is deferential, see, e.g., Dopp v.
Pritzker, 38 F.3d 1239, 1253 (1st Cir.1994), and "not appellant-friendly,"
Lussier, 50 F.3d at 1111. The solicitude extended by a reviewing court takes
into account that the trial judge, "who has had first-hand exposure to the
litigants and the evidence, is in a considerably better position to bring the scales
into balance than an appellate tribunal." Rosario-Torres, 889 F.2d at 323. For
this reason, the court of appeals ordinarily will not find an abuse of discretion
unless perscrutation of the record provides strong evidence that the trial judge
indulged a serious lapse in judgment. See id.

23

We inspect the voluminous record with these precepts in mind to ascertain

whether the denial of DACO's motion for restitution is sustainable.

D. Discussion.
24
25

The court below began with the question of benefit, and treated that question as
a discrete inquiry. See TPR II, 862 F.Supp. at 700. But this approach tends to
put the cart before the horse. A court mulling a restitutionary remedy must
almost always perform an equitable assay. Rather than isolating the question of
whether the targeted party received a benefit (and if so, the likely extent
thereof), we think it is preferable in the first instance to incorporate that
question into the assay proper, unless, of course, the state of the evidence is
such that the court can conclude with minimal effort that no benefit has been
received. If, however, the factual situation is more cloudy and speculative, it
ordinarily will prove a more fruitful use of judicial energies to fold the issue of
benefit into the wider issue of equity. Thus, the probability or improbability of
whether DACO would have regulated wholesalers' profits during the injunction
period can initially be conceived as a relevant, though not dispositive, equitable
factor. More precise findings as to the incidence and effect of any benefit can
then be pinpointed as part of a calculation anent damages if restitution is
ultimately found to be a condign remedy in a particular situation.

26

With this preface, we turn to an examination of the judgment below. For ease in
reference, we treat each group of factual findings as a separate integer in the
equitable equation. The methodologic innovation that we have described-introducing the question of whether the wholesalers benefitted from the
injunction (and if so, to what extent) into the assay proper--does not require
remand. The lower court made detailed factual findings on the question of
benefit, and we can easily align those findings along the preferred legal matrix.

See Societe Des Produits Nestle v. Casa Helvetia, Inc., 982 F.2d 633, 642 (1st
Cir.1992); United States v. Mora, 821 F.2d 860, 869 (1st Cir.1987).
27

1. Benefit. Because restitution is founded on the concept of unjust enrichment,

a court considering a request for restitution must investigate the extent to which
the target "received a benefit." Restatement, supra, Sec. 1, cmt. a, at 12. In a
case such as this, the problems of proof are readily evident. The regulation that
the district court enjoined was clearly labelled as temporary when promulgated,
and the injunction prevented further regulation (temporary or permanent).
Thus, DACO found itself, at trial, in an epistemological quandary: it had to
prove that, had the district court sent the wholesalers packing, it (DACO)
would have put into effect a more durable regulation that would have capped
GPMs at a level below what the wholesalers actually earned during the
pendency of the injunction.

28

The district court found DACO's strivings inadequate to this daunting task. In
the court's view, DACO's adoption of temporary margin controls in 1986 did
not "evidence[ ] an intent to implement a long-term regulatory plan" to curb
profit margins, but, instead, constituted "a short-term erratic response" to an
unprecedented situation. TPR II, 862 F.Supp. at 702. The court stressed that the
unique combination of exigent circumstances to which DACO reacted soon
dissipated, see id. at 702-03; that DACO thereafter made an in-depth study of
the desirability of regulation, see id. at 704; and that, upon completion of the
study, DACO decided not to regulate, see id. On this basis, the district court
concluded that the stopgap measure would have been abandoned when the
exigency abated; that DACO would not have implemented other GPM
regulations during the June 1986-June 1989 time frame; and that, therefore, the
wholesalers received no monetary advantage from the injunction. See id. at
707.

29

For the most part, this conclusion is adequately anchored in the record. Later
actions are often revelatory of earlier intentions, see, e.g., United States v.
Sutton, 970 F.2d 1001, 1007 (1st Cir.1992) (holding that "challenged
testimony, though it centered around later-occurring events, was relevant to
show appellant's intent at an earlier date"); United States v. Mena, 933 F.2d 19,
25 n. 5 (1st Cir.1991) (similar); see also Dedham Water, 972 F.2d at 460 n. 4
(applying principle in affirming district court's findings in analogous
circumstances), and DACO's actions when freed from the specter of preemption
indicate quite plainly that long-term regulation was not on the agenda.

30

The United States Supreme Court decided Isla III on April 19, 1988. Within
days, DACO disseminated a press release in which its Secretary, Pedro Ortiz

Alvarez (Ortiz), crowed that the Court had "restored to Puerto Rico the historic
power to regulate gasoline prices." Shortly thereafter, DACO commenced an
administrative proceeding to determine whether controls should be introduced.
To this end, it requested (and received) financial data and other information
from the wholesalers. It also sought industry input as to whether the
commonwealth should set either price or margin controls on gasoline, and held
public hearings beginning in the fall of 1988 to consider the desirability of
controls, the problems that might arise incident to them, and the reasonableness
of existing profit margins in the industry.
31

In December, as the administrative proceeding wound down, Esso's general

manager, Charles Griffith, met with Secretary Ortiz. According to Griffith,
Ortiz informed him that DACO had completed its study and decided against
imposing controls because "the market was behaving." Later that month, a
daily newspaper, El Nuevo Dia, published an article based on an interview with
Secretary Ortiz. The article reported that DACO had elected "not to regulate
gasoline prices and to instead adopt 'close supervision' of the industry." The
newspaper quoted Secretary Ortiz as conceding that the wholesalers had not
earned "excessive profits."

32

In January of 1989, Ortiz resigned. The new Secretary, Jorge R. Ocasio

Rodriguez (Ocasio), told Griffith that he was aware of the earlier study and of
his predecessor's conclusions, and that he "intend[ed] to follow [Secretary
Ortiz's] policies" in regard to petroleum wholesalers. In fact, DACO did not
adopt controls until June 27, 1989--the day after the district court's injunction
had been lifted--and then attributed the about-face to newly emergent "erratic
and unstable" price fluctuations in the Puerto Rico market.

33

Noting this chronology of inaction laced with reassurances, and remarking bits
of trial testimony such as Secretary Ortiz' oft-stated preference for a free market
system, the district court concluded that DACO's failure to impose any controls
for over a year after the Supreme Court's decision in Isla III cleared the
regulatory path demonstrated that it lacked long-term regulatory intent, and that
in all likelihood it would not have regulated wholesalers' profits during the June
1986--June 1989 time frame even if the injunction had never issued.

34

We believe the district court's finding that, during the injunction period, DACO
would not have adopted a permanent regulation limiting profit margins to a
level lower than those actually earned by the wholesalers is sustainable on this
record. Still, DACO's assault on this determination possesses convictive force
in one respect. The district court focused almost exclusively on DACO's actions
from and after April of 1988 (when the Supreme Court overruled TECA and

gave the green light to state regulation) in attempting to divine DACO's

regulatory intent dating back to mid-1986. This strikes us as a sufficiently
accurate barometer of long-term regulatory intent, but fails to deal satisfactorily
with the near term. The stopgap order that DACO promulgated on May 20,
1986 would have remained in effect for some period but for the injunction.
Thus, even if the district court's finding is accepted, some benefit--however
small--still might have accrued to the wholesalers by reason of the district
court's abrupt suspension of this order.
35

That said, DACO's proof does not permit us to quantify that presumed benefit.
Because DACO, as the claimant for restitution, bears the burden of proving the
conferral and extent of a benefit, see Atlantic Coast Line, 295 U.S. at 309, 55
S.Ct. at 716, this failure of proof looms large.3 We do not suggest that
uncertainty as to the extent of the benefit acts as an automatic bar to DACO's
claim for restitution, but for purposes of equitable balancing, it neutralizes any
advantage that DACO might otherwise achieve on the question of benefit. In
the last analysis, then, this factor is a wash.

36

2. The Wholesalers' GPMs. The district court analyzed the wholesalers' profit
margins during the pendency of the injunction and concluded that they "did not
benefit disproportionately from the lack of regulation." TPR II, 862 F.Supp. at
707. DACO disputes the relevancy of this factor. It argues that equity does not
require there to be a disproportionate benefit, but, rather, that restitution is
appropriate so long as the targeted party benefitted at all from the erroneous
injunction. In this view of the universe, the reasonableness of the wholesalers'
earnings is beside the point.

37

Once again, DACO's conception of equity is too inelastic. "The mere fact that a
person benefits another is not of itself sufficient to require the other to make
restitution therefor." Restatement, supra, Sec. 1, cmt. c, at 13. As the district
court noted, a finding that the wholesalers' actual profit margins were
unreasonably high would assist in showing that "the money was received in
such circumstances that the possessor will give offense to equity and good
conscience if permitted to retain it." TPR II, 862 F.Supp. at 701 (quoting
Atlantic Coast Line, 295 U.S. at 309, 55 S.Ct. at 716). The converse is equally
true: the fact that the wholesalers' profits were reasonable (or unreasonably low,
for that matter), tends to make the denial of restitution more in keeping with
equitable principles. Either way, the reasonableness vel non of the wholesalers'
profits is a concinnous factor for inclusion in the court's equitable balancing.
See Restatement, supra, Sec. 74, cmt. c, at 305 (suggesting that a party who
receives a benefit is not liable to make restitution therefor unless the
circumstances attendant to receipt or retention of the benefit render its

enjoyment inequitable).
38

The district court based its assessment that the wholesalers' earnings during the
relevant period were reasonable on a series of subsidiary findings. It gave
weight to the fact that the wholesalers' profits "were in line with profits earned
during the unregulated period after federal controls were terminated, and before
the 1986 regulation was enacted." TPR II, 862 F.Supp. at 706. It then
performed a comparative analysis4 and verified that the wholesalers' returns
"were in line with various competitive industries and investment alternatives"
during the injunction period. Id. Last but not least, the court observed that the
wholesale market remained competitive throughout the period, thus ensuring
that margins were held to acceptable levels. See id.

39

DACO suggests that these findings have a tenuous basis in fact--but this is a
fairly typical rejoinder of a party seeking to surmount the high hurdle of clearerror review. The district court relied mainly on the testimony of four
economists presented as expert witnesses by the wholesalers. We have studied
their testimony (including the plethoric exhibits associated therewith), and we
are fully persuaded that, given this evidence, the district court had a solid basis
for finding that, during the injunction period, the wholesale market in Puerto
Rico was staunchly competitive, and that the profits earned by Texaco, Esso,
and Shell were reasonable. Although DACO's expert testified in a diametrically
opposite vein, choosing between experts in a jury-waived trial is principally the
business of the district court, not the court of appeals. See, e.g., Keller v. United
States, 38 F.3d 16, 25 (1st Cir.1994). Consequently, we decline DACO's
invitation to second-guess the trial court's scorecard in respect to dueling
experts.5 See Anderson v. City of Bessemer City, 470 U.S. 564, 575, 105 S.Ct.
1504, 1512, 84 L.Ed.2d 518 (1985) (explaining the virtual impregnability of a
trial judge's finding based on a reasoned decision to credit the testimony of one
witness over another).

40

3. Delay. In weighing the equities, the lower court found that "DACO's actions
in seeking restitution have been marked by unreasonable delay." TPR II, 862
F.Supp. at 707. DACO asserts that the court's inclusion of this factor is
improper as a matter of law because it is the functional equivalent of raising a
laches defense against the government. We do not agree.

41

It is true that laches ordinarily cannot be raised as a defense against the

government in an action brought to enforce a public right or protect a public
interest. See Illinois v. Kentucky, 500 U.S. 380, 388, 111 S.Ct. 1877, 1883, 114
L.Ed.2d 420 (1991) (noting that "the laches defense is generally inapplicable
against a state"); Block v. North Dakota ex rel. Bd. of Univ. and Sch. Lands,

461 U.S. 273, 294, 103 S.Ct. 1811, 1823-24, 75 L.Ed.2d 840 (1983) (O'Connor,
J., dissenting) (collecting authorities). But the unavailability of laches as a
defense does not mean that the sovereign's dilatoriness in seeking an equitable
remedy must be totally disregarded by a chancery court. We explain briefly.
42

An equitable defense and an equitable factor are conceptually and practically

distinct. The divagation is subtle, but significant. An equitable defense "bar[s]
the cause of action entirely, or bar[s] ... the equitable remedy." 1 Dan B. Dobbs,
Law of Remedies Sec. 2.4(1), at 91 (2d ed. 1993). Moreover, in evaluating an
equitable defense, the court considers only the plaintiff's conduct and is free to
"deny all remedies if the plaintiff does not meet equity's standards." Id. Sec.
2.4(5), at 108-09. In contrast, an equitable factor must always be weighed in
concert with other relevant factors. See id. at 109. Moreover, as part of
balancing the equities, the court "looks at the conduct of both parties and the
potential hardships that might result from a judicial decision either way." Id.
From a practical standpoint, then, "[e]ven when an equitable defense does not
bar the claim, the total balance of equities and hardships might do so." Id., Sec.
2.4(1), at 91.

43

Here, the district court explicitly disclaimed any intent to apply the equitable
doctrine of laches as a bar to DACO's motion. See TPR II, 862 F.Supp. at 702
n. 8. In its search for the case's equitable epicenter, however, the court was
fully entitled to use delay as one of a number of factors bearing on the outcome.
This is precisely what Judge Fuste did, and there is no principled basis for
DACO's suggestion that he mouthed the vocabulary of equitable balancing as a
means of surreptitiously injecting a barred laches defense into the case. Indeed,
in considering DACO's delay as part of the equitable balance, the judge merely
honored the precept that the government, when it seeks an equitable remedy,
"is no more immune to the general principles of equity than any other litigant."
United States v. Second Nat'l Bank, 502 F.2d 535, 548 (5th Cir.1974).

44

DACO also contends that the district court clearly erred in finding prejudicial
delay. This contention is unpersuasive. The evidence shows that DACO first
raised the refund issue in its June 1989 interim order. DACO did nothing
further on this score until ten months later, when it sent letters to the
wholesalers conveying its "preliminary views" on the suitability of refunds.
DACO then dropped the refund issue like a hot potato and did not resurrect it
until August 20, 1992, when the then-Secretary, Guillermo Mojica Maldonado
(Mojica), announced at a press conference that he planned to seek refunds from
the wholesalers. All told, DACO waited three years after this court vacated the
injunction to commit itself to the pursuit of restitution.

45

DACO does not dispute the accuracy of this chronology, but takes vigorous
exception to the court's conclusion that "[t]his type of stopping and starting,
delaying and then proceeding[,] must be considered prejudicial to the
wholesalers, who had to run their business with the threat of multimillion dollar
refunds occasionally flaring up and then disappearing." TPR II, 862 F.Supp. at
707. DACO offers a myriad of excuses for its procrastination; it intimates that,
as a government agency, torpor is to be expected; it claims to have undergone
numerous changes in staff and leadership during the period; and it says that its
attention was diverted because of ongoing litigation over its proposed 13cents
GPM that lasted until March of 1991. The district court dismissed these excuses
as lame. We, too, find them insufficient.

46

Government agencies, like private corporations, have an obligation to conduct

their affairs in a reasonably efficient manner. See Potomac Elec. Power Co. v.
ICC, 702 F.2d 1026, 1034 (D.C.Cir.1983) (warning that "excessive delay saps
the public confidence in an agency's ability to discharge its responsibilities").
An entity that chooses to indulge inefficiencies cannot expect to be granted
special dispensations. If "[t]he mills of the bureaucrats grind slow," United
States v. Meyer, 808 F.2d 912, 913 (1st Cir.1987), then the agency, having
called the tune, must pay the piper. See, e.g., United States v. Baus, 834 F.2d
1114, 1123 (1st Cir.1987) (holding that the government "should not be allowed
by words and inaction to lull a party into a false sense of security and then by
an abrupt volte-face strip the party of its defenses"); Cutler v. Hayes, 818 F.2d
879, 896 (D.C.Cir.1987) (explaining that, when an administrative agency
loiters, "the consequences of dilatoriness may be great"). By like token, neither
government agencies nor private employers can escape responsibility for the
exercise of due diligence merely because of employee turnover. Department
heads and other key personnel may come and go, but the institution must
endure. See Cutler, 818 F.2d at 896-97. Similarly, preoccupation with other
litigation is hardly a reason for extreme delay. See, e.g., Mendez v. Banco
Popular, 900 F.2d 4, 6-7 (1st Cir.1990) (district court did not abuse discretion in
failing to grant extension of time based on attorney's busy trial calendar); Pinero
Schroeder v. Federal Nat'l Mortgage Ass'n, 574 F.2d 1117, 1118 (1st Cir.1978)
(same). And in all events, litigation ending in early 1991 cannot credibly
explain why DACO took no firm position until August 1992.

47

We will not wax longiloquent. It is trite, but true, that equity ministers to the
vigilant, not to those who sleep upon their rights. See, e.g., Sandstrom v.
Chemlawn Corp., 904 F.2d 83, 87 (1st Cir.1990). Given the uncontradicted
evidence, we believe that the district court acted lawfully in ruling that
unreasonable delay on DACO's part militates against relief.

48

4. Bad Faith. It is old hat that a court called upon to do equity should always
consider whether the petitioning party has acted in bad faith or with unclean
hands. See Precision Instrument Mfg. Co. v. Automotive Maintenance Mach.
Co., 324 U.S. 806, 814, 65 S.Ct. 993, 997, 89 L.Ed. 1381 (1945) (explaining
that the doctrine of unclean hands "closes the doors of a court of equity to one
tainted with inequitableness or bad faith relative to the matter in which he seeks
relief"); see also Dobbs, supra, at 109; see generally K-Mart Corp. v. Oriental
Plaza, Inc., 875 F.2d 907, 910-12 (1st Cir.1989) (discussing "unclean hands"
doctrine in relation to the equitable maxim that "he who seeks equity must do
equity"). But even though equitable doctrines are renowned for their elasticity,
they are not without all limits. The doctrine of unclean hands only applies when
the claimant's misconduct is directly related to the merits of the controversy
between the parties, that is, when the tawdry acts "in some measure affect the
equitable relations between the parties in respect of something brought before
the court for adjudication." Keystone Driller Co. v. General Excavator Co., 290
U.S. 240, 245, 54 S.Ct. 146, 148, 78 L.Ed. 293 (1933).

49

In the case at bar, the test was met. The district court found pervasive evidence
of bad faith on DACO's part, directly related to the core elements of the dispute
sub judice. See TPR II, 862 F.Supp. at 707. Although DACO brands this
finding clearly erroneous and worse--for instance, DACO claims, without a
shred of record support, that the finding is "tinged with political, rather than
legal, analysis," Appellants' Brief at 37--we believe that there is ample evidence
in the record to support the district court's perspective.

50

In making its finding of bad faith, the lower court relied heavily on two
occurrences. The court found that, in the spring of 1986, while the government
of Puerto Rico was pondering the advisability of an excise tax, see supra p.
872, high-level officials, including the President of the Senate and the Secretary
of State, summoned executives of the three appellees to a series of private
audiences. The court further found that "the wholesalers were warned that they
should cooperate with the government in the implementation of the new tax by
refraining from further lowering gas prices, so that the government could
achieve revenue from the tax...." TPR II, 862 F.Supp. at 695. The discussions
were blunt. To offer one illustration, Jose Luis Blanco, Esso's operations
manager at the time, testified that the Secretary of State uttered "a very strong
threat" to the effect that, if Esso failed to acquiesce in the government's
strategy, the company's continued existence in Puerto Rico would be "very
difficult."

51

DACO claims that these thinly veiled minations had no bearing on margin
regulations imposed well after the excise tax was enacted. This claim is

disingenuous. Past is prologue, and the district court plausibly could find--as it
did--that the 1986 meetings were part of the same overall course of conduct
that led to the push for restitution six years later. After all, the meetings
involved the same principals and the same subject matter, and, with the benefit
of hindsight, can be viewed as a harbinger of things to come. On this basis, the
district court did not err in concluding that the 1986 meetings were relevant to
DACO's good faith (or lack thereof) in seeking restitution some years
thereafter. This is particularly true in that, shortly after the government
"suggested" that the wholesalers refrain from lowering gasoline prices, DACO
attempted to justify its regulation of GPMs on the ground that the wholesalers'
prices were too high. Thus, in effect, DACO bore a degree of responsibility for
creating the "excess profits" that it later attempted to recapture, first via the
excise tax, and then by dint of the motion for restitution.
52

The second pillar of the court's conclusion lacks the dramatic impact of these
strong-arm tactics, but affords a closer temporal link. The court thought that the
actions of Secretary Mojica in and around 1992 betokened bad faith. See TPR
II, 862 F.Supp. at 707. At trial, Mojica admitted that he had chosen the 8.6cents
figure based not on any economic rationale, but as a stratagem to enhance
DACO's negotiating position. The district court found this behavior
"irresponsible." Id. And Secretary Mojica made a bad situation worse by
issuing a remedial order that singled out Texaco, Esso, and Shell, whilst leaving
unscathed a number of other wholesalers who had exceeded the 8.6cents
margin. The lower court found that these efforts to exact restitution from the
appellees--and from no other similarly situated wholesalers--smacked of bad
faith, see id., and DACO can point to no evidence that refutes the implication of
selective targeting in retaliation for the appellees' active opposition to the
government's desires.

53

We think that the record as a whole corroborates the district court's

determination that the 8.6cents figure was chosen as a crude club to bludgeon
the wholesalers into a settlement, without regard for the economic realities of
the petroleum industry. Indeed, the nisi prius roll is replete with evidence
suggesting this unhappy conclusion. For one thing, DACO's chief economist,
Carlos Lasanta, testified that he had advised his superiors that the 8.6cents
margin was economically inadequate, yet DACO persisted in its plan. For
another thing, Secretary Mojica testified that he issued the remedial order and
set the ceiling without even pausing to review the administrative record.6

54

In sum, the grounds relied upon by the district court pass muster. Because the
remedy of restitution is premised on the concept of unjust enrichment, DACO's
actions both in 1986 and in 1992 sabotage its present attempt to seize the high

ground by asserting that the wholesalers took unfair advantage of the erroneous
injunction. Hence, we are unwilling to disturb the court's determination that
DACO's actions were tinged with bad faith.
55

5. Reliance. A court considering a restitutionary remedy may properly weigh

the factor of reliance in its equitable balancing. See Moss v. Civil Aeronautics
Bd., 521 F.2d 298 (D.C.Cir.1975), cert. denied, 424 U.S. 966, 96 S.Ct. 1460, 47
L.Ed.2d 732 (1976). In doing so here, the court found that the statements of two
different Secretaries (Ortiz and Ocasio) led the wholesalers to believe that
DACO regarded their margins "to be reasonable, and therefore, that restitution
of such reasonable profits would not later be demanded." TPR II, 862 F.Supp.
at 708. Moreover, the wholesalers convinced the court that they justifiably
relied on those statements in formulating their business plans. See id.

56

The record is consistent with these findings. It is not farfetched to think that
Secretary Ortiz's statements, see, e.g., supra p. 876, could have lulled the
wholesalers into a false sense of security. See, e.g., Insurance Co. v. Mowry, 96
U.S. 544, 547, 24 L.Ed. 674 (1877) ("A representation as to the future can be
held to operate as an estoppel ... where it relates to an intended abandonment of
an existing right, and is made to influence others, and by which they have been
induced to act."). Then, too, the wholesalers adduced explicit evidence of
reliance, credited by the trier. A number of executives testified that they took
the Secretary's statements regarding the reasonableness of their firms' profit
margins at face value, and authorized investments in Puerto Rico that they
would not otherwise have approved. We cannot hold that the court clearly erred
in detecting detrimental reliance on these facts. See, e.g., Cumpiano, 902 F.2d
at 152 ("Where there are two permissible views of the evidence, the factfinder's
choice between them cannot be clearly erroneous.") (quoting Anderson, 470
U.S. at 573-74, 105 S.Ct. at 1511-12).

57

The court's finding of detrimental reliance is bolstered by another circumstance.

When Judge Fuste issued the injunction, DACO could have--but did not--ask
him to require a bond or an escrow account. See Inland Steel Co. v. United
States, 306 U.S. 153, 156-57, 59 S.Ct. 415, 417-18, 83 L.Ed. 557 (1939)
(holding that court acted lawfully in conditioning injunction against ICC on
establishment of escrow account to defray possible restitutionary obligations).
Although a bond or escrow fund is not a prerequisite for restitution in cases
involving injunctions, see, e.g., Newfield House, Inc. v. Mass. Dep't of Pub.
Welfare, 651 F.2d 32, 39 n. 12 (1st Cir.) (holding that "the need for a[n
injunction] bond is limited to the recovery of damages and has no application to
a claim of restitution of amounts subsequently found to have been undue"), cert.
denied, 454 U.S. 1114, 102 S.Ct. 690, 70 L.Ed.2d 653 (1981), a court called

upon to perform equitable balancing may nonetheless weigh the absence of a

bond or other fund as a factor in its equitable assay. See Moss, 521 F.2d at 314;
see also Thompson v. Washington, 551 F.2d 1316, 1321 (D.C.Cir.1977). This is
the music to which the district court marched. See TPR II, 862 F.Supp. at 708.
Just as the existence of a bond or other fund would have undercut any claim of
detrimental reliance, so, too, their absence lends credence to the wholesalers'
lament.
58

6. Public Interest. It cannot be gainsaid that a court asked to dispense equitable

remediation should give serious consideration to the public interest. See
Morgan, 307 U.S. at 194, 59 S.Ct. at 801 ("It is familiar doctrine that the extent
to which a court of equity may grant or withhold its aid, and the manner of
moulding its remedies may be affected by the public interest involved.");
Rosario-Torres, 889 F.2d at 323 (similar). Here, the district court found that the
public interest would be disserved by granting restitution. The court reasoned
"that investment in Puerto Rico by the gasoline companies would be curtailed,
or that Esso, Texaco and/or Shell [might] even leave the island completely,
resulting in a possible loss of jobs and competitiveness in the wholesaling
market." TPR II, 862 F.Supp. at 708.

59

At trial, DACO made no effort to contradict the wholesalers' testimony on this

point. In this venue, it likewise abjures any challenge to the testimony's
relevance. Instead, DACO complains about the district court's related statement
that DACO had "failed to propose a cogent plan to restore losses" to the Puerto
Rico motorists who bore the brunt of the alleged overcharges. Id. In DACO's
eyes, depositing a restitutionary award into the commonwealth's general fund
comprises an entirely satisfactory trickle-down substitute for the court's
envisioned plan of direct payments to motorists.

60

Once again, DACO's fascination with a single tree obscures its view of the
forest. The district court's rescript, properly read, does not hold that depositing
refunds into the commonwealth's coffers is repugnant to the public interest in
an absolute sense. The court's point is quite different. Judge Fuste expressed the
belief that the clear harm to the Puerto Rico economy that would result from
levying a huge restitution award outweighed the benefit accruing from refunds
that would not directly compensate the injured victims. Though such a
judgment call may be arguable, we are unprepared to say that it represents a
clearly erroneous assessment of the evidence. Cf., e.g., Moss, 521 F.2d at 308
("The bite which is effectively taken from future earnings by a recovery fund
may in turn impair the health of the industry, to the disadvantage of the farepayers themselves.").

61

7. Recapitulation. We have fashioned a tried-and-true framework for gauging

claimed abuses of discretion:

62 making discretionary judgments, a district court abuses its discretion when a

In
relevant factor deserving of significant weight is overlooked, or when an improper
factor is accorded significant weight, or when the court considers the appropriate
mix of factors, but commits a palpable error of judgment in calibrating the decisional
scales.
63

United States v. Roberts, 978 F.2d 17, 21 (1st Cir.1992); accord Dopp, 38 F.3d
at 1253 (listing other cases). Here, the record discloses that the district court
made a careful appraisal within the contours of this tested framework. DACO
has failed to show that the court, in performing this appraisal and arriving at its
judgment, overlooked appropriate factors, considered inappropriate factors, or
made a detectable mistake in weighing the evidence. Mindful, as we are, that "
[t]he very nature of a trial judge's interactive role assures an intimate familiarity
with the nuances of ongoing litigation--a familiarity that appellate judges,
handicapped by the sterility of an impassive record, cannot hope to match,"
Dopp, 38 F.3d at 1253, we decline to place a heavy appellate thumb on the
scales of justice and thereby upset the trier's delicate balancing of the
competing equities in this unusual situation.

III. OTHER ISSUES

64

In addition to its assault upon the district court's equitable determination,

DACO mounts a more narrowly targeted offensive on a second front. In this
regard, DACO assigns error to a series of discovery rulings that together forced
the disclosure of eighteen agency documents, mostly in the nature of
correspondence between DACO (or other government representatives) and
DACO's outside counsel. This attempt to open a second front is little more than
a diversionary sortie, poorly outfitted and easily repulsed.

65

We set the stage. In ordering disclosure as a subset of a broader order that

DACO turn over the "complete administrative file" in the case to the
wholesalers, the court determined that these writings were not entitled to
protection under either the attorney-client privilege or the deliberative process
privilege. We consider the district court's privilege rulings cognizant that, "
[b]ecause we regard the existence of a privilege as a factual determination for
the trial court ... the district court's finding of no privilege can be overturned
only if clearly erroneous." United States v. Wilson, 798 F.2d 509, 512 (1st
Cir.1986); accord United States v. Bay State Ambulance & Hosp. Rental Serv.,
Inc., 874 F.2d 20, 27 (1st Cir.1989). Since local law does not supply the rule of

decision anent DACO's claim for restitution, federal common law governs our
analysis of the wrangling over privileges. See Fed.R.Evid. 501.
A. Attorney-Client Privilege.
66
67

The Supreme Court has described the attorney-client privilege as "the oldest of
the privileges for confidential communications known to the common law."
Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 682, 66
L.Ed.2d 584 (1981). The privilege protects "not only the giving of professional
advice to those who can act on it but also the giving of information to the
lawyer to enable him to give sound and informed advice." Id. at 390, 101 S.Ct.
at 683. The purpose of the privilege is "to encourage full and frank
communications between attorneys and their clients and thereby promote
broader public interests in the observance of law and administration of justice."
Id. at 389, 101 S.Ct. at 682.

68

In its unpublished order requiring revelation of the eighteen documents, the

district court rejected DACO's claim of attorney-client privilege on two
grounds. First, the court found that DACO waived any such privilege because
four of the documents "were inadvertently shown to Texaco's legal
representatives" during their initial review of the administrative file.7 We
examine the underpinnings of this ruling.

69

It is apodictic that inadvertent disclosures may work a waiver of the attorneyclient privilege. See, e.g., In re Sealed Case, 877 F.2d 976, 979-80
(D.C.Cir.1989); In re Grand Jury Proceedings, 727 F.2d 1352, 1356 (4th
Cir.1984); see also Alldread v. City of Grenada, 988 F.2d 1425, 1434 (5th
Cir.1993). Thus, it beggars credulity to argue that the district court erred in
entering a turnover order anent the four documents to which Texaco's
representatives previously had been exposed. Apart from that fairly obvious
conclusion, however, it also must be recognized that inadvertent disclosures can
have a significance that transcends the documents actually disclosed.

70

In general, a waiver premised on inadvertent disclosure will be deemed to

encompass "all other such communications on the same subject." Weil v.
Investment/Indicators, Research & Mgmt., Inc., 647 F.2d 18, 24-25 & n. 13
(9th Cir.1981); accord In re Sealed Case, 877 F.2d at 980-81; see also 4 J.M.
Moore & J.D. Lucas, Moore's Federal Practice p 26.11, at 26-185 (1994). Since
DACO does not contend that the four carelessly unveiled documents concerned
a different topic than the other fourteen documents in the group, we think that,
under the deferential standard of review applicable to privilege questions, the
district court had an adequate basis for disregarding the attorney-client

privilege vis-a-vis all eighteen documents.

71

The district court's alternative ground for ordering disclosure is equally solid.
The court found as a fact, after in camera inspection of the disputed documents,
that outside counsel had become an integral part of the adjudicative
decisionmaking process. Based on this factual finding, the court ruled that the
attorney-client privilege did not apply because, when an administrative agency
engaged in an adjudicative function delegates its responsibilities to outside
counsel, then the work product generated by the firm is part of the adjudicative
process itself and, hence, beyond the reach of the attorney-client privilege.

72

DACO resists this analysis, pontificating that such a doctrine "would render the
attorney-client privilege meaningless where state or local governments employ
counsel and rely on their advice." Appellants' Brief at 47. But this trumpeting
misapprehends the tenor of the district court's ruling. The attorney-client
privilege attaches only when the attorney acts in that capacity. See Bay State
Ambulance, 874 F.2d at 27-28; Wilson, 798 F.2d at 512; United States v.
United Shoe Mach. Corp., 89 F.Supp. 357, 358-59 (D.Mass.1950). Here, the
district court found, in substance, that DACO delegated policymaking authority
to its outside counsel to such an extent that counsel ceased to function as
lawyers and began to function as regulators. Therefore, DACO could not
invoke the attorney-client privilege in connection with the documents at issue.

73

We cannot term this finding clearly erroneous. The record shows that DACO's
counsel had, in fact, drafted remedial orders that DACO adopted verbatim; that
Dr. Logan, an employee of DACO's counsel, was the "putative author of the
[1989] 13-cent regulation," TPR II, 862 F.Supp. at 706; and that counsel had
developed adjudicative data that the agency later reissued as its own. Nor can
we term the finding unsupported in law. See Mobil Oil Corp. v. Department of
Energy, 102 F.R.D. 1, 9-10 (N.D.N.Y.1983) (rejecting claim of attorney-client
privilege where proponent failed to show that lawyers were acting in their
capacities as attorney advisors rather than as regulatory decisionmakers);
Coastal Corp. v. Duncan, 86 F.R.D. 514, 521 (D.Del.1980) (similar; observing
that such a showing is particularly important in a situation in which "attorneys
function primarily as policy-makers rather than as lawyers").

B. Deliberative Process Privilege.

74
75

DACO also takes exception to the district court's ruling that the deliberative
process privilege did not exempt the same cache of documents from production.
The deliberative process privilege "shields from public disclosure confidential
inter-agency memoranda on matters of law or policy." National Wildlife Fed'n

v. United States Forest Serv., 861 F.2d 1114, 1116 (9th Cir.1988). The
privilege rests on a policy of affording reasonable security to the
decisionmaking process within a government agency. See NLRB v. Sears,
Roebuck & Co., 421 U.S. 132, 150, 95 S.Ct. 1504, 1516, 44 L.Ed.2d 29 (1975).
76

The Supreme Court has restricted the deliberative process privilege to materials
that are both predecisional and deliberative. See EPA v. Mink, 410 U.S. 73, 88,
93 S.Ct. 827, 836, 35 L.Ed.2d 119 (1973). In other words, to qualify for the
privilege, a document must be (1) predecisional, that is, "antecedent to the
adoption of agency policy," and (2) deliberative, that is, actually "related to the
process by which policies are formulated." National Wildlife, 861 F.2d at 1117
(citation omitted). Because the deliberative process privilege is restricted to the
intra-governmental exchange of thoughts that actively contribute to the
agency's decisionmaking process, factual statements or post-decisional
documents explaining or justifying a decision already made are not shielded.
See Sears, Roebuck, 421 U.S. at 151-52, 95 S.Ct. at 1516-17; Mink, 410 U.S. at
88, 93 S.Ct. at 836; see also Developments in the Law--Privileged
Communications, 98 Harv.L.Rev. 1450, 1620-21 (1985).

77

Even if a document satisfies the criteria for protection under the deliberative
process privilege, nondisclosure is not automatic. The privilege "is a qualified
one," FTC v. Warner Communications Inc., 742 F.2d 1156, 1161 (9th
Cir.1984), and "is not absolute." First Eastern Corp. v. Mainwaring, 21 F.3d
465, 468 n. 5 (D.C.Cir.1994). Thus, in determining whether to honor an
assertion of the privilege, a court must weigh competing interests. See id.; see
also Developments, supra, at 1621 (noting that courts asked to apply the
privilege must engage in "ad hoc balancing of the evidentiary need against the
harm that may result from disclosure").

78

At bottom, then, the deliberative process privilege is "a discretionary one." In re

Franklin Nat'l Bank Sec. Litig., 478 F.Supp. 577, 582 (E.D.N.Y.1979). In
deciding how to exercise its discretion, an inquiring court should consider,
among other things, the interests of the litigants, society's interest in the
accuracy and integrity of factfinding, and the public's interest in honest,
effective government. See Warner Communications, 742 F.2d at 1162.
Consequently, "where the documents sought may shed light on alleged
government malfeasance," the privilege is routinely denied. Franklin, 478
F.Supp. at 582; see also Bank of Dearborn v. Saxon, 244 F.Supp. 394, 401-03
(E.D.Mich.1965) ("the real public interest under such circumstances is not the
agency's interest in its administration but the citizen's interest in due process"),
aff'd, 377 F.2d 496 (6th Cir.1967).

79

Assuming, arguendo, that the documents at issue are both predecisional and
deliberative--a matter on which we need not opine--the district court's rejection
of the deliberative process privilege is nevertheless impervious to DACO's
attack. The court supportably found that the wholesalers had made a "strong
showing" of arbitrariness and discriminatory motives on DACO's part. Given
the discretionary nature of the deliberative process privilege, and the district
court's warranted conclusion that DACO acted in bad faith over a lengthy
period of time, see supra Part II(D)(4), we resist the urge to tinker with the
court's determination that the wholesalers' interest in due process and fairness
outweighed DACO's interest in shielding its deliberations from public view.8

C. Harmless Error.
80
81

We add a postscript to our discussion of the district court's discovery rulings. In

all events, we do not believe that the district court's rejection of DACO's
privilege claims affected DACO's substantial rights. Any error was, therefore,
harmless. See Fed.R.Civ.P. 61 (explaining that a court "must disregard any
error or defect in the proceeding which does not affect the substantial rights of
the parties").

82

In denying DACO's claim for restitution, the district court mentioned only one
of the eighteen challenged documents (a June 1989 memorandum from DACO's
outside counsel to Governor Hernandez Colon). See TPR II, 862 F.Supp. at
705. The court cited this memorandum as additional support for its factual
finding that contemporaneous events, rather than a long-term commitment to
regulation, spurred DACO's actions in June of 1989. The memorandum
comprised only a small fraction of the evidence on which the court relied in
reaching this conclusion. See supra Part II(D)(1) (limning other evidence). It is
axiomatic that a litigant's substantial rights are not offended by the admission of
cumulative evidence. See, e.g., Doty v. Sewall, 908 F.2d 1053, 1056 (1st
Cir.1990); Garbincius v. Boston Edison Co., 621 F.2d 1171, 1175 (1st
Cir.1980); deMars v. Equitable Life Assur. Soc'y, 610 F.2d 55, 62 (1st
Cir.1979).

IV. CONCLUSION
83

We need go no further. There are neither precise answers nor perfect solutions
when a court is forced to deal with the shadowy world of what might have
been. Where, as here, the customary deference accorded to the trial court as
factfinder is augmented by due respect for that court's equitable discretion,
appellate courts should hesitate to meddle. In this instance, the judge, who had
handled the case from its inception, weighed and balanced the equities, and

juxtaposed the parties' rights with painstaking care. Thus, whether or not we, if
writing on a pristine page, might have concluded otherwise, we are unable to
tease an abuse of discretion out of what is quintessentially a judgment call.
84

Affirmed.

A GPM represents the difference between the sales price and the seller's
acquisition cost. The latter cost includes the price of the gasoline plus excise
taxes, but excludes operating costs. See Tenoco, 876 F.2d at 1015

We refer to the three oil companies collectively as "the wholesalers," and

individually as "Texaco," "Esso," and "Shell."

DACO's estimate of the benefit received--it says that the wholesalers charged
their customers anywhere from $64,500,000 to $250,000,000 more during the
injunction period than DACO would have permitted--is not only unproven but
also deserves to be taken with a good deal of salt. DACO whips up the lower of
these frothy figures by suggesting that, absent the injunction, it would have
limited the wholesalers' GPMs to a level no higher than 13cents per gallon
throughout the relevant period, and, therefore, that any earnings above that
plateau are the fruits of the errant injunction. The higher figure is presumably
derived in the same way, but using a projected regulatory ceiling of 8.6cents
per gallon (the ceiling imposed in the May 20, 1986 temporary order) for the
entire three-year span. These gaudy claims enjoy little or no record support

The court used as congeners such benchmarks as returns on assets in the electric
utility industry, returns on government bonds, and returns on investments in the
industrial distribution services, and fuel industries. See TPR II, 862 F.Supp. at
706

The court below offered sound reasons for siding with the wholesalers' experts.
Equally as important, it viewed the testimony of appellant's expert, Dr. Logan,
"with some skepticism in light of his intimate involvement with DACO," his
former employment by DACO's counsel, and his status as "the putative author
of the 13-cent regulation." TPR II, 862 F.Supp. at 706. Though DACO cries
foul due to the court's "gratuitous swipe" at Dr. Logan's bona fides, such
credibility determinations are the prerogative--indeed, the duty--of the district
judge in a bench trial. See, e.g., Anthony v. Sundlun, 952 F.2d 603, 606 (1st
Cir.1991) (stating that appellate courts "ought not to disturb supportable
findings, based on witness credibility, made by a trial judge who has seen and
heard the witnesses at first hand")

DACO asserts that, because the remedial order "was only the starting point for
[its] consideration of the appropriate level of refunds," the terms of the order
"cannot rationally be considered evidence of bad faith." Appellants' Brief at 3839. This ipse dixit does not withstand scrutiny. When Secretary Mojica
announced the promulgation of the remedial order, he presented the 8.6cents
figure not as a guidepost to a determination of the eventual measure, but as a
fait accompli. Moreover, the order itself described "a maximum profit margin
of 8.6 cents per gallon" as "conclusive and undebatable." DACO retreated from
this figure only after the wholesalers sought judicial protection

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

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

We note in passing that the district court's waiver analysis, made in connection
with DACO's claim of attorney-client privilege, see supra Part III(A), arguably
applies to the deliberative process privilege as well. Because the privilege lacks
vitality here, we will not pursue the question of waiver beyond noting that it is
apparently unsettled. Compare, e.g., Clark v. Township of Falls, 124 F.R.D. 91,
93-94 (E.D.Pa.1988) (holding that a municipality waived any claim of
executive privilege by prior disclosure) with, e.g., Redland Soccer Club, Inc. v.
Department of Army, 55 F.3d 827, 855-56 (3d Cir.1995) (holding that
inadvertent disclosure of documents did not give rise to waiver of deliberative
process privilege)