Marrero-Rolon et al v. Autoridad de Energia Electrica et al

Filing 214

REPORT AND RECOMMENDATION regarding the motions to dismiss filed at Docket Nos. 82, 102, 105, 106, 108, 110, 116, 121, 126, 130, 133, 135, 136, 137, 161, and 164. Furthermore, and consistent with the attached opinion, the motions at Docket Nos. 168, 186, 206, 209, and 211 are GRANTED; the motions at Docket No. 185, 193, and 213 are DENIED; the motion at Docket No. 187 is GRANTED IN PART and DENIED IN PART; and the Clerk is ORDERED to STRIKE the filing at Docket No. 190, along with its attachments. Objections to R&R due by 10/16/2015.Signed by US Magistrate Judge Silvia Carreno-Coll on 9/29/2015.(NBB)

IN THE UNITED STATES COURT
FOR THE DISTRICT OF PUERTO RICO

ISMAEL MARRERO-ROLÓN, ET
AL.,
Plaintiffs,
v.

CIV. NO.: 15-1167(JAG/SCC)

AUTORIDAD DE ENERGÍA
ELÉCTRICA DE P.R., ET AL.,
Defendants.

REPORT AND RECOMMENDATION
Alleging a RICO conspiracy aimed at defrauding Puerto
Rico’s electric ratepayers by procuring, selling, and burning
substandard fuels while passing along to the ratepayers the
costs of compliant fuel, the named plaintiffs and a putative
class of all electric ratepayers has sued the Autoridad de
Energía Eléctrica de Puerto Rico (“PREPA,” as it is known in
English) and numerous other individuals and corporations.
Docket No. 1 (“Compl.”). Collectively, the defendants have
filed fourteen motions to dismiss, Docket Nos. 82, 102, 108, 110,

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116, 121, 126, 130, 133, 135, 136, 137, 161, 164, which the
presiding district judge referred to the undersigned for a report
and recommendation, Docket No. 207. After carefully considering the defendants’ motions and the plaintiffs’ responses, I
recommend that the Complaint’s allegations be deemed
sufficient in most regards.1
1. Factual Background
The complaint in this case is eighty pages long and very
detailed. Thus, in this section I will provide a summary of
Plaintiffs’ allegations, taking up the more specific allegations
as necessary in the analysis that follows.
1.1 The Alleged Scheme
PREPA is a public company with a monopoly on power
generation and electricity distribution in Puerto Rico. Twothirds of the power PREPA generates comes from the burning
of petroleum or fuel oil, all of which is imported to the island.
Pursuant to a 1999 Consent Decree with the EPA, the fuel
burned by PREPA must meet certain minimum specifications;

1.

Vitol requests oral argument on its motion to dismiss. Docket No. 213.
But because of the huge number of parties and discrete legal issues, I
believe holding arguments would generate more heat than light and
would not assist me in my decision. I thus DENY Vitol’s request.

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Plaintiffs refer to this as Compliant Fuel Oil, and refer to oil
that fails to meet these specifications as Non-Compliant Fuel
Oil.
To purchase oil, PREPA is meant to request bids for
Compliant Fuel Oil and choose the lowest bidder. When the oil
arrives, it is tested by independent laboratories, which issue
Certrificates of Analysis. These and other tests performed by
laboratories hired by PREPA are meant to ensure that only
Compliant Fuel Oil is burned. PREPA’s costs for the purchase
of fuel are passed directly on to consumers. Between June 2013
and June 2014, more than $2.6 billion was charged to PREPA
clients as a pass-through cost for the purchase of fuel.
In essence, Plaintiffs allege that this system has been
hijacked by what it calls the Cartel de Petroleo. In Plaintiffs’
reckoning, the Cartel is made up of three branches: the PREPA

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Participants,2 the Fuel Oil Supplier Participants,3 and the
Laboratory Participants.4 At the behest of the PREPA Participants, the Laboratory Participants regularly falsified fuel test
reports such that it looked like PREPA was buying (and paying
full price for) Compliant Fuel Oil, when in fact it was purchasing Non-Compliant Fuel Oil, which was worth less. The
Laboratory Participants agreed to this arrangement to ensure
future work from PREPA, while the PREPA Participants
participated in exchange for kickbacks from the Fuel Oil

2.

Specifically, the PREPA Participants are made up of the following
defendants: PREPA; William Rodney Clark, the administrator of
PREPA’s Fuel Procurement Office from 1996 until May 2014; Edwin
Rodríguez, the manager of PREPA’s Fuel Procurement Office after May
2014; and Cesar Torres-Marrero, the Assistant Manager of PREPA’s
Fuel Procurement Office since May 2014.

3.

Specifically, this group is made up of the following Defendants:
Petrobras America Inc. and its parent company, Petroleo Brasileiro S.A.
(collectively referred to as “Petrobras”); Shell Trading (US) Co. (“Shell
Trading”); Trafigura A.G. and Trafigura Beheer B.V. (collectively,
“Trafigura”); PetroWest, Inc.; Vitol, S.A., and Vitol, Inc. (collectively,
“Vitol”); and Carlos Méndez & Associates (“Méndez”).

4.

Specifically, this group is made up of the following Defendants:
Inspectorate America Corp. (“Inspectorate”); Bureau Veritas Holding,
Inc. (“Bureau Veritas”); Core Laboratories N.V. d/b/a Saybolt
(“Saybolt”); and Altol Chemical Environmental Laboratory Inc. and
Altol Environmental Services, Inc. (collectively, “Alchem”).

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Supplier Participants. The Fuel Oil Supplier Participants, of
course, received an inflated price for discount oil.
2.2 Plaintiffs’ Discovery of the Alleged Scheme
According to Plaintiffs, the existence of the Cartel was
revealed to the public principally by a May 2014 television
program in which the president of Puerto Rico’s Senate,
Eduardo Bhatia, said that PREPA buys $3 billion of fuel a year,
and the people in charge of making those purchases are getting
a ten-percent commission, or as much as $300 million a year.
Bhatia futher implied that those individuals “would do the
unspeakable” to protect those commissions.
But long before the 2014 television report, there were
indications that something was wrong at PREPA. For instance,
in 2002, PREPA’s Office of the Comptroller released an audit
of PREPA’s Fuel Oil Office. This report disclosed that prior to
1999, employees at an outside laboratory had been pressured
to falsify hundreds of test results. In August 2002, PREPA then
sued that laboratory (but not any of the Fuel Oil Supplier
Participants) in federal court, accusing it of engaging in a
conspiracy to provide Non-Compliant Fuel Oil at Compliant
Fuel Oil prices. In the course of the lawsuit, PREPA denied
knowledge of the scheme (though some witnesses gave

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testimony to the contrary).
Much later, in October 2011, news reports emerged claiming that PREPA had on two occasions used Non-Compliant
Fuel Oil and that an internal audit had been shutdown before
it could be completed. As a result, PREPA hired an outside
auditor, Ivan Clark. His report showed that between December
8 and October 2011, just six of almost 700 samples revealed
Non-Compliant Fuel Oil.5
2. Analysis
I will begin by taking up several miscellaneous—and yet
case-dispositive—defenses that are raised by one or another of
the defendants. Sustaining none of them, I then turn to the
numerous arguments arrayed against Plaintiffs’ RICO claim.
And finally, I consider Plaintiffs’ state-law unjust enrichment
claim.
2.1 Miscellaneous Defenses
I will begin by considering several arguments that, if
sustained, would lead to the dismissal of one or two defen-

5.

Plaintiffs allege that because samples are only held for ninety days, it
would have been impossible for Ivan Clark to have tested so many.
Internal auditors allegedly concluded that Ivan Clark’s audit was
illegitimate.

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dants without wading into the RICO claims.
2.1.1

The claims against Bureau Veritas and Petróleo
Brasileiro, S.A., should not be dismissed for insufficient service of process

The Complaint in this case was filed on February 24, 2015.
Service had to be completed within 120 days of that date, Fed.
R. Civ. P. 4(m), which period elapsed on June 24, 2015. Bureau
Veritas and Petróleo Brasileiro were not served until June 29,
2015. Under such circumstances, the Court “must dismiss the
action without prejudice” unless the plaintiff “shows good
cause for the failure.” Id. Plaintiffs claim to have good cause:
when they filed the Complaint, the CM/ECF system automatically entered a service deadline of June 29, 2015. Docket No. 1.
I think it obvious that being told by the Court’s docketing
system that June 29, 2015, was the day by which Plaintiffs had
to serve the defendants is a sufficiently good reason for their
having waited until that date to do so. Moreover, as Plaintiffs
point out, the Court can change the Rule 4(m) deadline, and it
is plausible that the CM/ECF system’s automatic entry of June
29, 2015, constituted such a change. And even if it did not,
relying on that date would constitute good cause for a brief
five-day delay in service. Accordingly, I would deny the

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motions to dismiss for insufficient service of process.
2.1.2

The Court has personal jurisdiction over Bureau
Veritas Holdings, Inc.

Bureau Veritas Holdings, Inc., argues that it should be
dismissed from this action because it does not have contacts
with Puerto Rico sufficient to justify personal jurisdiction over
it. Bureau Veritas relies on general principles of personal
juridiction. In doing so, it forgets, as Plaintiffs point out, that
the RICO statute provides for nationwide service of process
“when it is shown that the ends of justice require.” 18 U.S.C.
§ 1965(b). A plurality of courts interpreting this provision have
held that it gives personal jurisdiction over an out-of-state
defendant so long as the Court has jurisdiction established by
the minimum contacts of at least one other defendant. FC Inv.
Grp. LC v. IFX Markets, Ltd., 529 F.3d 1087, 1099 (D.C. Cir.
2008); see also id. (collecting cases); Cory v. Aztec Steel Bldg., Inc.,
468 F.3d 1226, 1231 (10th Cir. 2006) (coming to the same
conclusion as IFX Markets). Here, the great majority of the facts
giving rise to this case occurred in Puerto Rico and relate to
Puerto Rico’s electricity market. The ends of justice thus
require that the entire case be heard by this court. Personal
jurisdiction over Bureau Veritas is thus appropriate.

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Page 9

Petróleo Brasileiro is not immune under the Foreign Sovereign Immunity Act.

Petróleo Brasileiro, S.A., argues that, pursuant to the
Foreign Sovereign Immunity Act, it is immune from suit in this
case. Plaintiffs admit that Petróleo Brasileiro is a foreign state
for FSIA purposes, but they argue that its immunity has been
waived by virtue of its direct economic activity in the United
States.
The FSIA waives the immunity of foreign states for, among
other things, actions “based upon a commercial activity carried
on in the United States” by that foreign state. 28 U.S.C.
§ 1605(a)(2). Petróleo Brasileiro’s only argument about why
this waiver does not apply is that it does not have any fuel
contracts with PREPA. Docket No. 164-1, at 14 & n.5. But
contracts with PREPA are not the sine qua non of commercial
activity, and the Complaint alleges that Petróleo Brasileiro
engaged in economic activity in the United States in other
ways. For example, it provided Shell Trading with low-sulfur
fuel specifically for the Puerto Rico market. Furthermore, a
Petróleo Brasiliero executive, Roberto Costa, was allegedly
involved in securing PREPA contracts for Petróleo Brasileiro’s

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American subsidiary, Petrobras America.6
Once a defendant establishes that it is a foreign state, the
plaintiff has an initial burden of producing evidence that
would support an exception to immunity. Universal Trading &
Inv. Co. v. Bureau for Representing Ukrainian Interests in Int'l &
Foreign Courts, 727 F.3d 10, 17 (1st Cir. 2013). In some cases, the
court may thereafter have to hold a hearing and resolve factual
disputes. Id. Here, however, Petróleo Brasileiro has not
challenged any of Plaintiffs' facts (and has not filed a reply
brief at all). Rather, Petróleo Brasileiro has argued that the facts
stated in the Complaint are legally deficient. It has done so,
moreover, by ignoring numerous facts bearing on its
participation in the alleged scheme. Given that Petróleo
Brasileiro bears the burden of persuading the Court of its
immunity, id., its arguments must be deemed deficient for this
reason. I would thus deny its motion to dismiss on FSIA
grounds, or, in the alternative, grant Plaintiffs leave to conduct
jurisdictional discovery.

6.

I consider these allegations—and the potential problems with them—in
more detail infra § 2.2.3.4.

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2.1.4

Page 11

Plaintiffs’ Complaint does not fail to satisfy Rule
8's “short and plain statement” requirement.

Federal Rule of Procedure 8(a)(2) requires a pleading to
contain “a short and plain statement of the claim.” Occasionally, courts have struck pleadings for their failure to satisfy this
frankly undemanding requirement. E.g., Kuehl v. F.D.I.C., 8
F.3d 905, 908 (1st Cir. 1993) (affirming dismissal where plaintiffs’ pleading was not only “excessively long and unnecessarily redundant,” but where the plaintiffs had otherwise engaged
in vexatious behavior). PetroWest argues that Plaintiffs’
Complaint should accordingly be dismissed, as it “includ[es]
an exorbitant amount of irrelevant and conclusory allegations.”
Docket No. 108, at 29.7
A quick review of the Complaint shows PetroWest’s
argument to be frivolous. On the whole, the Complaint is
thorough and well-organized. It may well include unnecessary

7.

Oddly, PetroWest also argues that the Complaint should be dismissed
because it contains “allegations that are evidently based on hearsay.”
Docket No. 108, at 29. Unsurprisingly, PetroWest fails to cite any
authority purporting to hold that allegations in a complaint may not be
based on hearsay. See, e.g., Muzaffarr v. Ross Dress For Less, Inc., Civ. No.
12-61996, 2013 WL 1890274, at *2 (S.D. Fla. May 7, 2013) (“[T]here is no
rule against hearsay statements in pleadings.”).

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facts or conclusory assertions, but they certainly do not
predominate over the facts that are relevant and properly pled.
Put simply, Plaintiffs’ Complaint is long because this case is
complex; it does not come close to deserving dismissal under
Rule 8(a)(2). PetroWest’s motion in this regard should be
denied.
2.1.5

The Complaint should not be dismissed for violations of Rule 11.

Alchem argues that the claims against it should be dismissed because Plaintiffs failed to conduct a pre-suit investigation as required by Rule 11. Fed. R. Civ. P. 11(b) (requiring a
reasonable inquiry into facts before including them in a
pleading). In essence, Alchem complains that it should not
have been sued because the claims against it are “objectively
baseless,” Docket No. 121, at 44, and that “the very Complaint
shows that Alchem is an innocent party,” id. at 42.8 In support

8.

In the course of making this argument, Alchem referred (but
accidentally did not attach) a settlement-negotiation letter from
Plaintiffs’ counsel. See Docket No. 182. Plaintiffs, quite correctly,
complained that this constituted a breach of their confidentiality
agreement. Docket No. 185. Alchem then gratuitously filed the letter
without any viewing restrictions, knowing full well of the
confidentiality agreement and Plaintiffs’ wish to enforce it. Docket No.
190. I GRANT IN PART Plaintiffs’ motion at Docket Nos. 186; GRANT

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of this claim, Alchem cites numerous paragraphs in the
Complaint that do in fact show that it tried to resist the Cartel.
Id. (citing Compl. ¶¶ 62, 63, 82, 109, 110, 123, 127–132, 168–71,
207, 226). But these citations are misleading, because while the
Complaint does say that, early on, Alchem resisted the Cartel,
it also specifically alleges that by late 2010, Alchem had joined
the Cartel’s operations and by changing its testing methodology and firing an employee who resisted. Comp. ¶¶ 208–22. Of
course, Alchem neglected to cite these paragraphs in making
its sweeping claim that the Complaint failed to allege wrongdoing on its part.
As for the claims that the Complaint does make against
Alchem, they are extremely specific and, on their surface, have
indicia of having come from a documentary or eye-witness
source. Alchem accuses Plaintiffs of basing the Complaint
primarily on a 2002 Comptroller report, a television interview,
and newspaper articles. But the allegations at issue date from
2010, not 2002, and were not apparently included in any

its motion at Docket No.187 and Alchem’s motions at Docket No. 206
and 2011; STRIKE the filing at Docket No. 190; and deny further
sanctions, with the caveat that I find the conduct of Alchem’s counsel,
Thomas Trebilcock-Horan, troubling. See also infra note 9.

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interview or newspaper articles (at least none that the Complaint or Alchem cite). Thus, the allegations against Alchem, at
least, do not come from these sources and, on the contrary,
appear to come from elsewhere. The allegations may well turn
out to be false, but there is nothing at all in the record from
which I could determine (or which makes me suspect) that
Plaintiffs have violated Rule 11. I would thus deny Alchem’s
request for Rule 11 sanctions.9
2.1.6

The EPA is not an indispensable party.

The requirement that PREPA burn Compliant Fuel Oil
comes from a 1999 Consent Decree with the EPA, which was
amended in 2004. According to PetroWest, the EPA is an
indispensable party to this action, and the case should therefore be dismissed. PetroWest is incorrect.

9.

In its reply, Alchem claims that it did not request sanctions against
Plaintiffs for a Rule 11 violation. Docket No. 182, at 5. This is false:
Alchem asked that the Complaint be dismissed as a consequence of a
Rule 11 violation; this would, obviously, constitute a sanction.
Ironically, in accusing Plaintiffs of violating Rule 11, Alchem
moreover appears to have violated the Rule itself. Rule 11(c)(2) requires
that before moving for Rule 11 sanctions, the aggrieved party must be
served on the adverse party but not filed until 21 days later or if the
adverse party withdraws the contention at issue. Alchem failed to abide
by this provision, and so its motion should be denied for that reason as
well.

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In relevant part, a person is a necessary party if it has “an
interest relating to the subject of the action” such that the
court’s disposing of the action without the person might “as a
practical matter impair or impede the person’s ability to
protect [its] interest.” Fed. R. Civ. P. 19(a)(1)(B)(i). PetroWest
argues that the EPA’s interest—enforcing the Consent
Decree—might be impeded because, should it try to enforce
the Consent Decree against PREPA, it would “be bound by the
Court’s final determination” as a matter of collateral estoppel.
Docket No. 108, at 31. Beyond citing a basic description of the
doctrine, though, PetroWest does not even attempt to argue
this point.
If this case is decided on its merits, speaking simply the
trier of fact could reach two conclusions: first, that PREPA did
burn Non-Compliant Fuel Oil (which would mean it violated
the Consent Decree); and second, that it did not burn NonCompliant Fuel Oil (in which case it did not violate the
Consent Decree). If the latter finding were made, PREPA could
not rely on it in a later proceeding for violating the Consent
Decree because such non-mutual defensive collateral estoppel
is appropriate only where it would bar a plaintiff—in this
scenario, the EPA—from relitigating a claim that it has already

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lost against a different defendant. Rodriguez-Garcia v. MirandaMarin, 610 F.3d 756, 770–71 (1st Cir. 2010). But because the EPA
is not a party to this suit (and much less a plaintiff in it), PREPA
could not seek protection under this doctrine. And if the Court
found PREPA did burn Non-Compliant Fuel Oil, the EPA
might be able to rely on that finding, id. (referring to nonmutual offensive collateral estoppel), but its interest would not
be harmed by that fact.
Further, even if this analysis were incorrect, and the EPA
were a necessary party to this litigation, that fact would not
warrant dismissal of Plaintiffs’ action. PetroWest fails to
understand that Rule 19's default is to require the joinder of the
necessary party, not the dismissal of the case. Fed. R. Civ. P.
19(a)(2). It is only where the necessary party cannot be joined
that dismissal might be appropriate. Fed. R. Civ. P. 19(b). But as
Plaintiffs point out, the EPA is amenable to this Court’s process
and its joinder would not destroy the Court’s jurisdiction. As
such, if the EPA were a necessary party, the Court would join
it, not dismiss the action. Accordingly, PetroWest’s motion
should be denied.

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2.2 RICO
I will now proceed to analyze the defendants’ RICO
arguments. I will begin with the statute of limitations argument that all of the defendants have joined. Then, I will discuss
whether Plaintiffs have pled standing, an enterprise, and a
pattern of racketeering activity. Finally, I will consider whether
Plaintiffs have pled a RICO conspiracy and whether their
claims are barred by the filed-rate doctrine.
2.2.1

Plaintiffs’ claims should not be dismissed as timebarred.

There is a four-year statute of limitations on RICO claims.
Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 438 U.S. 143,
156 (1987). A claim accrues at the time the plaintiff knew or
should have known about his injury. Lares Grp., II v. Tobin, 221
F.3d 41, 43–44 (1st Cir. 2000) (citing Rotella v. Wood, 528 U.S. 549
(2000)); see also Matthews v. Kidder, Peabody & Co., 260 F.3d 239,
251 (3d Cir. 2001) (“[A] RICO claim accrues when the plaintiffs
should have discovered their injuries.”). In this case, Plaintiffs
claim injuries beginning in 2002, well outside of the four-year
limitations period. The relevant question then is when plaintiffs knew or should have known of their injuries. And to
determine when Plaintiffs should have known, we look for

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what the First Circuit has called “storm warnings”: “telltale
warning signs [that] augur that fraud is afoot,” and which, “if
sufficiently portentous, may as a matter of law be deemed to
alert” the plaintiff to his injuries. Young v. Lepone, 305 F.3d 1, 8
(1st Cir. 2002) (securities fraud case).
Plaintiffs claim that they first learned of their injuries in
2014, when a television program about PREPA’s commissions
aired and a former PREPA auditor disclosed what had been
happening at PREPA. Compl. ¶ 265. Defendants, however,
argue that Plaintiffs were on inquiry notice at least ten years
earlier. Trafigura, for instance, points to “a publicly available
lawsuit from 2000,” PREPA’s 2002 suit against a laboratory for
falsifying test results, “internal PREPA audits,” a news report
from 2005, and a document made public by PREPA as part of
a 2010 bond offering. Docket No. 82, at 24–25.10 Additionally,
the defendants point to the 2002 Comptroller report, which

10. In writing this opinion, I rely frequently on Trafigura’s motion to
dismiss because it is the best-written and most comprehensive of the
motions pending before the Court. Because all of the motions make
many common arguments, it has served as something of an exemplar
in understanding the defendants’ positions. I note, however, that the
other motions are not more comprehensive in their accounting of the
putative “storm warnings”; most, in fact, cite precisely the same
information, including the same news article and bond offering.

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they assert was public, e.g., Docket No. 108, at 7, and an
additional 2005 news article, Docket No. 110-2.
First, with regard to the lawsuits, there is no reason to think
that they should have put Plaintiffs on inquiry notice. Nothing
in the Complaint—and nothing to which the defendants point
in their motion—suggests that any of these suits were the
subject of press coverage, much less substantial press coverage
of the type that knowledge of their subject matter might be
appropriately imputed to Plaintiffs. Cf. Staehr v. Hartford Fin.
Servs. Grp., Inc., 547 F.3d 406, 435 (3d Cir. 2008) (finding
knowledge of lawsuit could not be imputed to investor where,
among other things, it “received no publicity whatever” and
did not “result in published or broadly disseminated opinions”); see also Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 363
(2d Cir. 2013) (following Staehr); Holmes v. Parade Place, LLC,
Civ. No. 12-6299, 2013 WL 5405541, at *13 (S.D.N.Y. Sept. 26,
2013) (holding that knowledge of “well-publicized court
proceedings” could be imputed to an investor in a securities
fraud case).11 Similarly, the 2002 Comptroller report and the

11. Staehr, Cohen, and Holmes are all securities fraud cases. In that context,
there is substantial precedent establishing that investors should be
assumed to be aware of prospectuses, media, and other information

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internal audits—if they were even public12—are not documents
to which knowledge could be imputed to a reasonable electricity consumer in the absence of significant press coverage,
which has not been alleged or shown. Likewise for the 2010
bond offering.13

about their investments. See, e.g., Staehr v. Hartford Fin. Servs. Grp., Inc.,
547 F.3d 406, 431 (2d Cir. 2008). This seems to be based in part on the
“sophisticated” nature of such individuals. See, e.g., AIG Global Sec.
Lending Corp. v. Banc of Am. Sec. LLC, 646 F. Supp. 2d 385, 410 (S.D.N.Y.
2009), aff’d, 386 F. App’x 5 (2d Cir. 2010). This heightened standard of
knowledge probably does not apply in the non-securities fraud context,
especially where, as here, the plaintiffs are ordinary consumers. See
McIntyre v. United States, 367 F.3d 38, 60 (1st Cir. 2004) (asking simply
whether “a reasonable person” would have been aware of news
coverage). And in applying a reasonable person analysis to the class of
Puerto Rican electricity consumers it cannot be forgotten that Spanish
is the first language of the vast majority of Puerto Ricans and the only
language of many.
12. The Complaint is vague about whether the 2002 Comptroller report
was made public at the time, though at least one defendant asserts that
it was. As for the internal audits to which Trafigura points, I read the
Complaint to suggest they were not publicly disseminated, and neither
Trafigura or any other defendant has shown otherwise.
13. This is a nearly 200-page, English-language document directed at
investors considering investing in a particular PREPA bond offering,
not consumers of power. It includes one paragraph noting that Puerto
Rico’s Comptroller had found that PREPA had overcharged its
customers. The document does not explain the basis for this finding but

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That leaves the two news articles to which the defendants
have pointed. The 2005 article from the Puerto Rico Herald (an
English-language paper) simply mentions that in recent years
Puerto Rico’s Comptroller “ha[d] issued seven reports covering various areas of [PREPA]’s operations, including findings
regarding the acquisition of fuel and overcharges on the
electricity bill.” There is no greater detail regarding these fuel
acquisition findings or overbilling, and no reasonable reader of
the article could on this thin basis be on inquiry notice of fraud.
See Seippel v. Sidley, Austin, Brown & Wood, LLP, 399 F. Supp. 2d
283, 291 (S.D.N.Y. 2005) (“Available information must establish
a ‘probability, not a possibility’ of fraud to trigger inquiry
notice.” (quoting Newman v. Warnaco Grp., Inc., 335 F.3d 187,
193 (2d Cir. 2003))). Similarly, the 2005 article from El Nuevo
Día notes that PREPA had been charging its customers more
for the purchase of fuel than it was actually paying its suppliers. Docket No. 110-2, at 2. The article neither states nor implies

does strongly imply that it was because the Comptroller had
determined that PREPA had engaged in improper rate-setting (which
PREPA disputed). Nothing in the note even hints at fraud in the
purchase of fuel oil, which is the subject of this suit. I am thus doubtful
that actual knowledge of this document would have put Plaintiffs on
notice regarding the injuries they have asserted in this case.

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that this is the result of fraud or criminality—or that it is even
illegal. Rather, the article offers an explanation by PREPA’s
finance director to the effect that the money charged is used to
pay statutory subsidies that PREPA must offer to certain of its
customers. Id. at 3. Even if the reasonable consumer were
imputed knowledge of these articles,14 then, it would not
suffice to put her on inquiry notice regarding the injuries that
Plaintiffs now allege.
The bottom line is that the defendants’ arguments rely on
assumptions about what Plaintiffs knew or should have known
and when they knew or should have known it. On the record
before the Court, these questions cannot be resolved as a
matter of law in the defendants’ favor. At most, they are
questions that must be decided at a later point by the trier of

14. I am inclined to think that she should not be. The First Circuit has held
that knowledge of media coverage can be imputed to a person when it
is widespread. McIntyre v. United States, 367 F.3d 38, 60 (1st Cir. 2004).
On the record now before the Court, I could not find that these facts
were the subject of “widespread publicity,” which is more properly a
question for the finder of fact. Id. (internal quotations omitted); see also
Fisher v. Ciba Specialty Chems. Corp., Civ. No. 03-0566, 2007 WL 2995525,
at *19 (S.D. Ala. Oct. 11, 2007) (“[T]he record evidence that Ciba
contamination received substantial media attention during much of the
period of concern raises a question of fact as tow whether that
knowledge can be imputed to plaintiffs.”).

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Page 23

fact.15 McIntyre, 367 F.3d at 60 (referring to question of inquiry
notice as “a fact-intensive inquiry that can sometimes be
difficult to resolve on a motion to dismiss”); see also Morton’s
Mkt., Inc. v. Gustafson’s Dairy, Inc., 198 F.3d 823, 832 (11th Cir.
1999) (holding that “as a general rule, the issue of when a
plaintiff in the exercise of due diligence should have known the
basis for his claims is not an appropriate question for summary
judgment”); Mathews, 260 F.3d at 250 (citing Davis v.
Grusemeyer, 996 F.2d 617, 623 n.10 (3d Cir. 1993)); AIG Global
Sec. Lending Corp. v. Banc of Am. Sec. LLC, 646 F. Supp. 2d 385,
410 (S.D.N.Y. 2009) (“It was properly for the jury to determine
in view of all the evidence whether the single report placed the
plaintiffs on sufficient notice of the probability of fraud.”), aff’d,
386 F. App’x 5 (2d Cir. 2010); Fisher v. Civa Specialty Chems.
Corp., Civ. No. 03-0566, 2007 WL 2995525, at *19 (S.D. Ala. Oct.
11, 2007); In re Lupron Mktg. & Sales Practices Litig., 295 F.
Supp. 2d 148, 183–84 (D. Mass. 2003) (“Whether a plaintiff

15. I have not considered the articles filed for the first time with Petrobras’s
reply brief, see Docket No. 197, but if I did, it would not alter my
fundamental conclusion: that the question of whether the parties had
inquiry notice on the basis of news articles is a question for the finder
of fact. Moreover, the facts related by the two articles deal with the pre2002 fraud that Plaintiffs claim PREPA attempted to conceal.

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Page 24

knew or should have known of an injury so as to trigger the
running of a statute of limitations is, with rare exception, a jury
issue.”); cf. Abdallah v. Bain Capital LLC, 880 F. Supp. 2d 190,
198–99 (D. Mass. 2012) (Massachusetts law).
The Complaint should therefore not be dismissed as timebarred.
2.2.2

RICO Standing

The defendants allege that Plaintiffs have failed to show
RICO standing because they cannot point to a concrete injury,
cannot show but-for or proximate cause, and because their
damages are too difficult to ascertain. I discuss these arguments now.
2.2.2.1 Plaintiffs have alleged a concrete injury.
A RICO plaintiff must show an injury to “his business or
property.” 18 U.S.C. § 1964(c). The defendants argue that
Plaintiffs cannot do this. Their argument runs like this: Because
of the 1999 Consent Decree, PREPA was obliged to burn
Compliant Fuel Oil, which is more expensive than NonCompliant Fuel Oil. The Cartel’s scheme involved charging
Plaintiffs for Compliant Fuel Oil while burning Non-Compliant
Fuel Oil. But because PREPA was obligated to burn (and thus
charge for) the more expensive fuel, Plaintiffs would have paid

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Page 25

precisely the same price for electricity even in the absence of
the alleged fraud. For this reason, say the defendants, Plaintiffs
can show no injury. This is a clever argument, but it is telling
that the defendants have failed to cite any caselaw in its
support.16 See, e.g., Docket Nos. 82, at 13–15; 116-1, at 19–21;
133, at 6–7; 135, at 5–7.17 I am not convinced.
According to the Complaint, the costs PREPA pays for fuel
are passed on directly to its customers through a line-item on
their bill. Compl. ¶¶ 66–67. This is important because it means
that, in addition to providing (and charging for) electricity,

16. Though the defendants do not rely on them, I have considered and
rejected an analogy to cases rejecting benefit-of-the-bargain theories of
damages. See, e.g., In re Toyota Motor Corp. Hybrid Brake Mktg., Sales
Practices & Prods. Liability Litig., 915 F. Supp. 2d 1151, 1158 (C.D. Cal.
2013). In Toyota Motor Corp., for example, the plaintiff sued regarding
a nationwide problem in Toyota braking systems. See id. at 1157.
Although his own car functioned properly, the plaintiff alleged that he
would not have paid as much as he did if he had been aware of the
problem. See id. at 1157–58. The court rejected that argument because
the plaintiff received what he paid for: “a vehicle with a safe and
operable” braking system. Id. at 1159. Here, by contrast, Plaintiffs allege
that they paid more for a product than it was worth.
17. Disappointingly, Edwin Rodríguez’s and PREPA’s briefs on this point
are verbatim copies of Trafigura’s brief.

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Page 26

PREPA directly charges its customers for fuel.18 But, say
Plaintiffs, the prices they were charged for fuel were inflated as
a result of fraud: PREPA passed along the costs for Compliant
Fuel Oil while purchasing cheaper Non-Compliant Fuel Oil. As
Plaintiffs argue, this amounts to overcharging, and overcharging as a result of illegality is a concrete and compensable
economic injury. Chattanooga Foundry & Pipe Works v. City of
Altanta, 203 U.S. 390, 396 (1906) (holding that the plaintiff was
injured “in its property . . . by being led to pay more than the
worth of the pipe”). I fail to see the legal relevance in the fact
that the price to consumers would have been the same had
PREPA actually purchased Compliant Fuel Oil.19 What matters

18. Notably, in Kansas v. UtiliCorp United, Inc., the Supreme Court referred
to utility customers who paid passed-through fuel costs as purchasers
of fuel. 497 U.S. 199, 207 (1990) (explaining that the utility customers
“bought their gas from the utilities, not the suppliers” (emphasis
added)). For this reason, and because the Complaint specifically pleads
otherwise, I reject the argument made by some defendants that
Plaintiffs have not pled but-for causation. E.g., Docket No. 106, at 22
(“The problem with Plaintiffs’ causal theory is that the Plaintiffs were
purchasers of electricity, not fuel oil.” (emphasis omitted)).
19. In a similar line of cases, the Courts have soundly rejected the notion
that a business suffers no economic harm when it is able to pass an
overcharge along to its own customers. Hanover Shoe, Inc. v. United Shoe
Mach. Corp., 392 U.S. 481, 489 (1968) (“As long as the seller continues to

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Page 27

about that scenario is that there would have been no fraud, no
overcharge, and thus no injury.20 Cf. S. Pac. Co. v. DarnellTaenzer Lumber Co., 245 U.S. 531, 534 (1918) (“The carrier ought
not to be allowed to retain his illegal profit, and the only one
who can take it from him is the one that alone was in relation
with him, and from whom the carrier took the sum.”). Here,
the passed-through costs were inflated as the result of an
alleged fraud; Plaintiffs have thus alleged a concrete injury.
2.2.2.2 Plaintiffs have properly pled proximate cause.
Relying on Kansas v. UtiliCorp United, Inc., 497 U.S. 199
(1990), many of the defendants argue that Plaintiffs, as indirect

charge the illegal price, he takes from the buyer more than the law
allows.”); Cnty. of Oakland v. City of Detroit, 866 F.2d 839, 847 (6th Cir.
1989) (holding that an injury is not “eradicated for constitutional
standing purposes if the excessive charges were subsequently passed
on”).
20. One could view PREPA’s customers as paying a premium for electricity
as a result of the 1999 Consent Decree, which mandated the purchase
of more expensive fuel. In similar cases, courts have held that a
customer is injured when he pays that premium price but unwittingly
receives a less valuable product. In re Whirlpool Corporation FrontLoading Washer Prods. Liability Litig., 722 F.3d 838, 857 (6th Cir. 2013).
Likewise Plaintiffs in this case argue that they were charged for the
premium Compliant Fuel Oil but were in fact paying that premium
price for the cheaper Non-Compliant Fuel Oil.

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Page 28

purchasers of fuel, cannot show proximate cause. In UtiliCorp,
a group of natural gas suppliers were accused of illegally
inflating the price of fuel. See id. at 204. This fuel was bought by
a utility and the cost was passed on to consumers. See id. The
State of Kansas sued the suppliers on behalf of the consumers,
alleging antitrust violations. See id. at 204–05. In light of its
opinion in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the
Supreme Court rejected Kansas’s claim, explaining that the
consumers were “not the immediate buyers from the alleged
antitrust violators”; instead, they “bought their gas from the
utilities, not from the suppliers said to have conspired to fix the
price of gas.” UtiliCorp, 497 U.S. at 207. Essentially, the Court
held that it was the utility that had the right to sue the suppliers for antitrust violations, and allowing the utility’s customers
to also sue the suppliers would risk multiple recoveries and
create difficult apportionment problems. Id. at 207, 212.
UtiliCorp applies with equal force in the RICO context, e.g.,
Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 616 (6th Cir. 2004),
and so, calling Plaintiffs indirect purchasers of fuel, the
defendants argue UtiliCorp bars their claims.
The obvious difference between the facts of UtiliCorp and
this case, though, is that while the utility in that case was an

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Page 29

innocent victim of the suppliers’ price fixing, PREPA in this
case is a co-conspirator with responsibility for inflating the
fuel’s price.21 As the facts are alleged in the Complaint, neither
PREPA nor any other defendant is a victim of the conspiracy
and, rather, Plaintiffs, as the first payers of inflated fuel prices
outside the conspiracy, are the scheme’s most direct victims;
indeed, it is Plaintiffs who, according to the Complaint, are the
scheme’s intended victims. Trafigura actually offers a quote
from Judge Posner making precisely this point: “[I]n RICO as
in antitrust and in tort and contract law generally, liability
stops at the first victim.” Wooten v. Loshbough, 951 F.2d 768, 770
(7th Cir. 1991) (Posner, J.), quoted by, Docket No. 82, at 16.
It need begin there, too. So the question is who, if not
Plaintiffs, can sue for the overcharging alleged in the Com-

21. The closest the First Circuit has come to addressing this issue is In re
New Motor Vehicle Canadian Export Litigation, 533 F.3d 1 (1st Cir. 2008).
There, the plaintiffs, lessees of new cars, sued the car manufacturers for
restricting imports, which they said led to higher rental prices. See id.
at 2. After their claim was dismissed under Illinois Brick, the plaintiffs
tried to recast their complaint as having alleged a vertical, rather than
purely horizontal, conspiracy, so as to avoid the Illinois Brick rule. See
id. at 3. The court declined to decide whether it would follow the cases
holding that victims of a vertical conspiracy are not indirect purchasers,
instead holding that the plaintiffs’ new arguments were contradicted
by their pleadings. Id. at 4.

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Page 30

plaint? Some of the defendants would say PREPA, but this
makes no sense: PREPA is alleged to be a co-conspirator; surely
it cannot recover from itself for its own wrongdoing. Cf.
Sullivan v. Nat’l Football League, 34 F.3d 1091, 1108–09 (1st Cir.
1994) (holding that under the antitrust laws, a voluntary and
equal member of a conspiracy cannot recover damages from
the conspiracy).22 The defendants thus conveniently ignore the
fact that their interpretation of Illinois Brick and UtiliCorp
would leave to the conspirators “the fruits of their illegality.”
Hanover Shoe, 392 U.S. at 494, quoted by, Illinois Brick, 431 U.S. at
725–26. This is contrary to Illinois Brick’s purpose, and it cannot
be permitted.23 See 431 U.S. at 745 (explaining that the “long

22. Furthermore, because PREPA is a party to this case, if an adverse
judgment is entered against it, that judgment would be preclusive in a
suit by PREPA against the other defendants. Thus, the concerns about
double recovery that other courts have raised when the alleged coconspirator is not a party do not apply. E.g., In re New Motor Vehicles
Canadian Export Antitrust Litig., 307 F. Supp. 2d 136, 141 & n.5 (D. Me.
2004); see also In re New Motor Vehicles Canadian Export Antitrust Litig.,
533 F.3d 1, 4–5 (1st Cir. 2008) (raising same concerns).
23. The defendants rely principally on Dickson v. Microsoft Corp., 309 F.3d
193 (4th Cir. 2002), and In re ATM Fee Litigation, 686 F.3d 741 (9th Cir.
2012). Based on what I believe is a mis- or over-interpretation of
UtiliCorp’s and Illinois Brick’s caution against creating exceptions for
specific markets, e.g., UtiliCorp, 497 U.S. at 216–17, these cases have

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Page 31

standing policy of encouraging vigorous private enforcement
of the antitrust laws” would be furthered by its holding); see
also UtiliCorp, 497 U.S. at 214 (“We have maintained, throughout our cases, that our interpretation of § 4 [of the Clayton Act]
must promote the vigorous enforcement of the antitrust
laws.”); Blue Shield of Va. v. McCready, 457 U.S. 465, 473 n.10
(1982) (holding that “[o]nly by requiring violators to disgorge
the fruits of their illegality can the deterrent objectives of the
declined to one degree or another to make an “exception” to the Illinois
Brick rule for plaintiffs paying inflated prices due to a conspiracy
stretching vertically over a chain of distribution. Thus Dickson held that
the “exception” applied, at most, to price-fixing conspiracies, 309 F.3d
at 214–15, and In re ATM Fee held that it did not apply when the
overcharge was not paid directly by the plaintiffs, even if it was passed
to the plaintiffs through the conspiracy, 686 F.3d at 751–52.
Essentially, I disagree that this case presents an “exception” to
Illinois Brick rather than a fundamentally different factual scenario. Cf.
Blue Shield of Va. v. McCready, 457 U.S. 465, 474–75 (1982) (declining to
apply Illinois Brick where direct purchaser was not the injured party).
Moreover, neither In re ATM Fee or Dickson explain who, if anyone,
could sue for the overcharges alleged in each case. For these reasons, I
would not follow either case to the extent it conflicts with my analysis.
See Laumann v. Nat’l Hockey League, 907 F. Supp. 2d 465, 480–83
(S.D.N.Y. 2012) (declining to follow In re ATM Fee and holding that
where the “middlemen are alleged to be co-conspirators,” the first
purchasers outside of the conspiracy have standing to sue); see also
Paper Sys. Inc. v. Nippon Paper Indus. Co., Ltd., 281 F.3d 629, 631 (7th Cir.
2002); PHILIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 173,
¶ 346 (2005 supp.) (criticizing Dickson).

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Page 32

antitrust law be fully served” (internal quotations omitted)).
Having failed to explain why anyone other than Plaintiffs
are the “first victim,” the defendants’ UtiliCorp argument thus
fails on its own terms: there would be no one else with whom
to apportion damages, nor any possibility of double recovery;
UtiliCorp would therefore not apply.24 Paper Sys. Inc. v. Nippon
Paper Indus. Co., Ltd., 281 F.3d 629, 631–32 (7th Cir. 2002)
(Easterbrook, J.) (holding that where there is a conspiracy
among members of a distribution chain, “the first non-conspirator in the distribution chain” has “the right to collect 100% of
the damages”);25 see also Loeb Indus., Inc. v. Sumitomo Corp., 306

24. Trafigura and others argue that because they did not directly sell oil to
PREPA, but rather did so through intermediaries, Plaintiffs are even
more remote victims than were the consumers in UtiliCorp. E.g., Docket
No. 82, at 17 n.4. This argument fails because Plaintiffs were
nonetheless the first and intended victims of the overall conspiracy; in
any case, this boils down to a proximate cause argument, McCready, 457
U.S. at 476, which I discuss (and reject) below.
25. In Paper Systems the plaintiffs, resellers of fax paper, accused the
paper’s manufacturers and certain middlemen of conspiring to raise
prices. See 281 F.3d at 631. The plaintiffs lost in the district court, which
relied on UtiliCorp, but the Seventh Circuit reversed, holding that
because the plaintiffs were “the first purchasers from outside the
conspiracy,” they could sue and recover from “both the manufacturers
and their intermediaries” so long as the conspiracy allegations could be
proven. Id. at 631–32. I find Paper Systems, to which Plaintiffs cite in

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Page 33

F.3d 469, 481 (7th Cir. 2002); Lowell v. Am. Cyanamid Co., 177
F.3d 1228, 1231 (holding that Illinois Brick does not apply to
vertical conspiracies).26
As to the more basic argument that the causal chain is too
attenuated to support proximate cause, I disagree. The alleged
scheme, though complex in its particulars, is in fact rather
simple in its fundamental structure: PREPA and its fuel
suppliers decided, with the help of independent laboratories,

their brief, both analogous and persuasive. See also Howard Hess Dental
Labs. Inc. v. Dentsply Int’l, Inc., 424 F.3d 363, 376–78 (3d Cir. 2004)
(following Nippon); In re Auto. Parts Antitrust Litig., Civ. No. 12-501,
2014 WL 4272772, at *10 (E.D. Mich. Aug. 29, 2014) (same); Laumann,
907 F. Supp. 2d at 482–83 (same); Crane v. Int’l Paper Co., Civ. No. 023352-22, 2005 WL 3627139, at *7–8 (D.S.C. April 19, 2005) (same).
26.

Illinois Brick does not stand for the proposition, as the
defendants would seem to have it, that a defendant cannot be
sued under the antitrust laws by any plaintiff to whom it does
not sell (or from whom it does not purchase. . . . The reason the
plaintiffs’ suit in Illinois Brick failed was not because the
defendants did not sell to them. Rather, it was because the
defendants did sell to a third party who (after Hanover Shoe)
could recover for any injury they claimed.
Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 481–82 (7th Cir. 2002).
See also HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY 679–80,
§ 16.6b3 (4th ed. 2011) (opining that when a plaintiff buys from an
intermediary in a price-fixing conspiracy, “he is not really an indirect
purchaser, but a direct one”).

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Page 34

to falsify lab results such that a cheap fuel could be sold to its
customers at the price of a more expensive fuel. In such a
scheme, Plaintiffs’ injuries—overcharges—were easily foreseeable and, speaking generally, each player’s part was fundamental to the scheme. Plaintiffs cite the First Circuit’s decision
in In re Neurontin Marketing & Sales Practices Litigation (“Kaiser”), and I agree it is helpful: the causal mechanism in Kaiser
was more complicated than here, but the Kaiser court did not
understand it to present a difficult case. 721 F.3d 21, 38 (1st Cir.
2013) (referring to the “causal chain” as “anything but attenuated”); see also id. at 39 (referring to “the core proximate
causation principle of allowing compensation for those . . .
whose injury was plainly foreseeable and was in fact foreseen”).27

27. On the basis of the Complaint, I would not dismiss Plaintiffs’ claims
because of speculative and undeveloped arguments suggesting that
damages will be too difficult to prove. E.g., Docket No. 110, at 18–19.
The special damages problems presented in Illinois Brick and UtiliCorp
are not present here, and while damages calculations would no doubt
be complex, there is not at this time reason to think that this level of
complexity would be so great so as to deny recovery. See Loeb Indus.,
306 F.3d at 493 (holding that courts regularly handle time-consuming
and difficult damages calculations, and that they may do so where the
damages are not “inherently speculative” or take the form of certain
complex “econometric analys[e]s”).

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2.2.3

Page 35

The RICO Enterprise

The defendants argue that Plaintiffs have failed to allege a
distinct RICO enterprise, have failed to allege a common
purpose, and have not pointed to sufficient evidence that each
defendant was involved in the enterprise. These arguments are
discussed below.
2.2.3.1 Plaintiffs have alleged a distinct RICO enterprise.
There are two possible types of RICO enterprises: legal
entities and associations-in-fact. Libertad v. Welch, 53 F.3d 428,
441 (1st Cir. 1995). Here, the parties agree that because Plaintiffs are suing a diverse group of corporations and individuals,
Plaintiffs are alleging an association-in-fact. RICO furthermore
distinguishes between the “enterprise” and the “person”
through whom the enterprise carries out its racketeering
activity. 18 U.S.C. § 1962(c). The “person” and the “enterprise”
must be distinct; it is the “person” that RICO plaintiffs seek to
hold liable. E.g., Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439,
448 (1st Cir. 2000). The defendants argue that because “the
enterprise is composed of all the Defendants,” Plaintiffs have
“failed to adequately allege the existence of a separate enterprise.” Docket No. 82, at 18.
This argument is not persuasive. Though all of the defen-

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Page 36

dants are indeed named as members of the association-in-fact
enterprise, that enterprise is not sued as a defendant; rather,
defendants are the “persons” who have associated with the
“enterprise,” a distinct entity consisting of all of the defendants. This is all that is required. E.g., United States v. Goldin
Indus., Inc., 219 F.3d 1271, 1275 (11th Cir. 2000) (“The prohibition against the unity of person and enterprise applies only
when the singular person or entity is defined as both the
person and the only entity comprising the enterprise. . . . To
find that a defendant cannot be part of the enterprise would
undermine the purposes of the RICO statute.”); Atlas Pile
Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 995 (8th Cir. 1989)
(same); United States v. Perholtz, 842 F.2d 343, 353–54 (D.C. Cir.
1988) (same).
2.2.3.2 Plaintiffs have alleged a common purpose.
The members of an association-in-fact must have a common
purpose. United States v. Turkette, 452 U.S. 576, 583 (1981).
According to the defendants, Plaintiffs have failed to sufficiently plead such a common purpose among the members of
the association-in-fact. Trafigura argues that this is true
because the Complaint’s “allegations are at least equally
consistent with independent action being taken by it” given

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Page 37

that its supposed co-conspirators are competitors. Docket No.
82, at 19; see also Docket No. 135, at 17 (PREPA). Inspectorate,
meanwhile, argues that Plaintiffs have only argued a profit
motive, which is insufficient under RICO. Docket No. 105, at
26; see also Docket No. 116-1, at 29–30 (Petrobras). And Vitol
argues that Plaintiffs have improperly alleged hub-and-spoke
conspiracy. Docket No. 106, at 20.28 None of these arguments
are convincing.
To begin, the common purpose Plaintiffs allege is obvious
in the Complaint: the defendants conspired to falsify laboratory tests such that Non-Compliant Fuel Oil could be passed
off as Compliant Fuel Oil. These allegations are well-pled, and
the fact that some of the defendants or groups of defendants
might have also had other objective is not problematic. Cf.
Ingram v. United States, 360 U.S. 672, 679–80 (1959) (“A conspiracy . . . may have multiple objectives . . . .”); United States v.
Bobb, 471 F.3d 491, 495–96 (3d Cir. 2006) (holding that the
defendant was “part of a single conspiracy with multiple
objectives”). Thus it is irrelevant that the Laboratory Participants were motivated by profit—a belief that they would get
28. Other defendants simply generally argue that Plaintiffs failed to allege
a common purpose.

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Page 38

more work by participating in the conspiracy—because that
profit motive co-existed, according to the Complaint, with the
objective of falsifying lab reports.
As for the argument that a RICO enterprise cannot be made
up of competitors, it relies on a single treatise purporting to
state a rule that competitors cannot be members of a RICO
enterprise. Docket No. 82, at 19 (GREGORY P. JOHNSON, CIVIL
RICO: A DEFINITIVE GUIDE 93–94 (3d ed. 2010) (“If the constituents are competitors . . . this prong will not be satisfied.”)). The
only decision I can find citing to this particular claim in that
treatise rejected the argument; essentially, it held that where
there is evidence (or, in this case, allegations) that the competitors were in fact operating with a common purpose, the fact
that they are competitors is not problematic. Negrete v. Allianz
Life Ins. Co. of N. Am., Civ. No. 05-8908, 2011 WL 4852314, at *7
(C.D. Cal. Oct. 13, 2011) (following In re Nat. Western Life Ins.
Deferred Annuities Litig., 635 F. Supp. 2d 1170, 1174 (S.D. Cal.
2009)). I am persuaded by that holding, which applies with
equal force in this case.29

29. Similarly, I am unpersuaded by the argument that no common purpose
can be shown because PREPA, as a corporate entity, does not profit
from the scheme. The Complaint alleges PREPA's knowledge of and

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Page 39

As to the hub-and-spoke argument, it proceeds from an
incorrect premise. According to Vitol, the enterprise alleged by
Plaintiffs is a “classic ‘hub and spoke’ RICO enterprise.”
Docket No. 106, at 20. In this reckoning, the PREPA Participants are the hub, and the Laboratory Participants and the Fuel
Oil Supplier Participants are the two spokes. Vitol says that
while these spokes “may constitute their own RICO
enterprise[s],” the spokes and hub may not be considered a
single enterprise in the absence of “evidence suggesting
coordination between the spokes.” Id. (citing In re Pharm. Indus.
Average Wholesale Price Litig., 263 F. Supp. 2d 172, 184 (D. Mass.
2003) (“Most courts have found that complaints alleging huband-spoke enterprises fail to satisfy the RICO enterprise
requirement.”)). The problem is that the Complaint in no way
describes a hub-and-spoke or rimless-wheel conspiracy.
Rather, it alleges coordination among each of the three groups
of participants: the Fuel Oil Supplier Participants sell NonCompliant Fuel Oil to the PREPA Participants at the price of

participation in the Cartel, and its other reasons for participating are
thus not relevant. See Nat’l Org. for Women, Inc. v. Scheidler, 510 U.S. 249,
256–262 (1994) (holding that RICO does not require an economic
motive).

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Page 40

Compliant Fuel Oil; both the PREPA Participants and the Fuel
Oil Supplier Participants hire the Laboratory Participants to
falsify test results to make these transactions possible. An
organizational chart of this conspiracy would thus resemble a
triangle, not a rimless wheel.
I

would

reject

the

defendants

common-purpose

arguments.30
2.2.3.3 The defendants participated in the conduct of the
enterprise’s affairs.
Alchem and the Petrobras defendants argue that Plaintiffs
have insufficiently alleged their participation in the conduct of
the enterprise’s affairs. See 18 U.S.C. § 1962(c). The Supreme
Court has held that the term “‘conduct’ requires an element of
direction.” Reves v. Ernst & Young, 507 U.S. 170, 178 (1993). The
Court thus applied an “operation and management test” but it
explained that enterprises are operated not just by their leaders

30. In addition to a common purpose, an association-in-fact need also have
“longevity sufficient to permit the associates to pursue the enterprise’s
purpose” and “relationships among the associates.” Boyle v. United
States, 556 U.S. 938, 939 (2009). Though some of the defendants
perfunctorily argue that these elements are not satisfied, the Complaint
gives substantial detail about the relationships between the defendants
and the amount of time the scheme has been in operation.

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“but also by lower rung participants in the enterprise who are
under the direction of upper management.”31 Id. at 184. The
First Circuit understands this to cast a broad net, United States
v. Cianci, 378 F.3d 71, 95 (1st Cir. 2004), and has held that it
“suffices for this element that a defendant be ‘plainly integral
to carrying out the enterprise’s activities,’” United States v.
Ramirez-Rivera, No. 13-2285, — F.3d —, 2015 WL 5025225, at *8
(1st Cir. Aug. 26, 2015) (quoting United States v. Shifman, 124
F.3d 31, 35 (1st Cir. 1997)).
As I noted above, the Complaint alleges that Alchem began
falsifying tests so as to maintain its business with PREPA and
the Fuel Oil Suppliers. Compl. ¶¶ 211–15. Additionally, the
Complaint alleges that Alchem fired an employee for not

31. Without citing caselaw, Shell Trading argues that the Complaint must
be dismissed because it has failed to allege “the existence of a
hierarchical structure” within the enterprise or “any mechanisms for
decision-making.” Docket No. 110, at 27–28. But the Supreme
Court—in cases that Shell Trading cites, id. at 26, 28—has explicitly
rejected the argument that such features are necessary to an associationin-fact. Boyle v. United States, 556 U.S. 938, 948 (2009) (citing United
States v. Turkette, 452 U.S. 576 (1981)). It is thus difficult to believe that
Shell Trading made this argument in good faith. See id. (holding that an
association-in-fact “need not have a hierarchical structure or ‘chain of
command’” and that “decisions may be made on an ad hoc basis by any
number of methods”).

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falsifying test results. Id. ¶ 244. Given that the falsification of
test results was central to the conspiracy, Alchem’s participation in that aspect of the enterprise is sufficient under First
Circuit precedent. See Ramirez-Rivera, 2015 WL 5025225, at *8
(holding that ownership of drug points sufficed where control
of drug points was central to the conspiracy). As for the
Petrobras defendants, the Complaint is replete with specific
allegations of Petrobras seeking to have non-compliant test
results falsified. E.g., Complaint, ¶¶ 110–11, 160–165, 205, 207.
Indeed, Petrobras is alleged to now be in control of the
enterprise. Id. ¶¶ 227–44. And, as noted above, Petróleo
Brasileiro is alleged to have been involved, through one of its
executives, in securing contracts with PREPA. These allegations, too, suffice under Reves.
2.2.3

Pattern of Racketeering Activity

The RICO Act makes a defendant liable for participation in
an enterprise’s affairs “through a pattern of racketeering
activity.” 18 U.S.C. § 1962(c). Such a pattern consists of the
commission of two or more specified crimes (called RICO
predicates) in the space of ten years. United States v. Connolly,
341 F.3d 16, 29 (1st Cir. 2003). Here, the RICO predicates
alleged by Plaintiffs are mail and wire fraud. 18 U.S.C. §§ 1341,

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1343. The defendants have generally argued that, as to each of
them, Plaintiffs have failed to plead mail and wire fraud with
particularity. Many have also argued that the Complaint fails
to allege specific intent to defraud, and a few have questioned
whether the Complaint properly alleges use of wires or mail.
I take these issues up below.
Because Plaintiffs are alleging mail and wire fraud, their
allegations regarding these offenses must comply with Rule 9,
which requires that “the circumstances constituting fraud” be
“state[d] with particularity.” Fed. R. Civ. P. 9(b). Intent,
however, “may be alleged generally.” Id. In general, this
requires “specification of the time, place, and content of an
alleged false representation.” New England Data Servs., Inc. v.
Becher, 829 F.2d 286, 288 (1st Cir. 1987) (internal quotations
omitted). But because “the major purpose of Rule 9 is to give
adequate notice of the plaintiff’s claim of fraud,” id., some
courts have held that a plaintiff may also “inject precision or
some measure of substantiation into a fraud allegation” by
other means, e.g., Frederico v. Home Depot, 507 F.3d 188, 200 (3d
Cir. 2007); Corporación de Seguros v. Reyes-Muñoz, 826 F. Supp.
599, 609 (D.P.R. 1993) (sustaining complaint under Rule 9(b)
where the plaintiff “pled other important details which should

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serve to put defendants on notice of the claims being asserted
against them”). Likewise, the First Circuit has “relaxed Rule
9(b)’s pleading standards” in the context of mail and wire
fraud “‘because of the apparent difficulties in specifically
pleading mail and wire fraud as predicate acts.’” U.S. ex rel.
Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 229 (1st Cir.
2004). In such cases, the defendants are likely to have most of
the relevant information regarding fraud, and so discovery
may be appropriate to cure deficiencies in the pleading. Id. at
228–29. And at least one court in this circuit has reasonably
suggested that where “an alleged scheme of fraud” involves
“numerous transactions that occur over a long period of time,”
relaxing the Rule 9(b) standard may be appropriate because
“pleading the precise specifics with regard to every instance of
fraudulent conduct may be impractical.” In re Pharm. Indus.,
478 F. Supp. 2d at 171–72.
With these standards in mind, a plaintiff pleading mail and
wire fraud must allege: (1) a scheme to defraud, (2) the defendant’s knowing participation in that scheme, and (3) the use of
the mails or wires. United States v. Hebshie, 549 F.3d 30, 35 (1st
Cir. 2008). There is no element of reliance in the mail and wire
fraud statutes, though proof of “at least third-party reliance”

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may be necessary to prove causation. Bridge v. Phoenix Bond &
Indem. Co., 553 U.S. 639, 659 (2008).
In general, I find it unnecessary to discuss the Complaint’s
allegations in great detail. The Complaint alleges that the Fuel
Oil Supplier Participants—relevantly, Petrobras, Shell Trading,
Trafigura, PetroWest, and Vitol32—have entered into contracts
with PREPA to supply fuel oil and that in every case since 2002,
the oil delivered has been Non-Compliant Fuel Oil. Compl.
¶¶ 105, 154–55. The Laboratory Participants (Alchem excepted
for the moment), knowing this, nonetheless issued Certificates
of Analysis showing that the delivered oil was Compliant Fuel
Oil.33 Id. ¶ 108. The Laboratory Participants did this at the

32. By reference to a lawsuit where PREPA sued it to void certain contracts,
Vitol argues that it has not sold fuel to PREPA since 2012. Docket No.
106, at 12–13. But I cannot take judicial notice of any facts alleged or
proved in a separate lawsuit, and so I must treat the Complaint’s
contrary allegations as controlling. See Int’l Shipping Agency, Inc. v.
Unión de Trabajadores de Muelles Local 1740, Civ. No. 12-1996(SCC), 2015
WL 5022794, at *5 & n.4 (D.P.R. Aug. 21, 2015).
33. See, e.g., Compl. ¶ 207 (over a period of several months in 2010, every
Shell Trading shipment was shown non-compliant by Alchem and then
given to Saybolt, after which the oil was accepted by PREPA); ¶ 110 (on
October 22, 2010, Inspectorate said oil was compliant when it was not);
¶¶ 182–87 (after Inspectorate was decertified in 2007, PREPA continued
to accept shipments of Non-Compliant Fuel Oil that it had falsely

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direction of the PREPA Participants34 and with the knowledge
of the Fuel Oil Supplier Participants.35 Id. ¶ 73. Méndez assisted
Petrobras and Vitol in having their Non-Compliant Fuel Oil
accepted by PREPA. Id. ¶¶ 37, 109–12. It is reasonable to infer
that the Certificates of Analysis were sent—and payments for
the oil and testing services made—through the mails and
wires. See Reyes-Muñoz, 826 F. Supp. at 509 (inferring use of

certified as compliant).
34. See, e.g., Compl. ¶ 104 (PREPA would take work away from Alchem if
it repeatedly said shipments were Non-Compliant); ¶ 112 (in October
2010 PREPA accepted a shipment certified by Inspectorate despite a
contrary finding by Alchem and a finding by PREPA’s audit team that
Inspectorate’s results were invalid); ¶ 123 (similar). Regarding Clark,
see, e.g., id. ¶ 92 (Clark was in charge of fuel procurement for PREPA);
¶ 170 (Clark called an Alchem representative into his office when
Alchem repeatedly failed to certify a shipment). Regarding Rodríguez,
see, e.g., id. ¶ 14 (Rodríguez took over Clark’s duties when Clark
retired); id. ¶¶ 199–202 (Rodríguez harangued an employee for failure
to participate in the scheme). Regarding Torres, see, e.g., id. at 109–12
(Torres participated in the October 2010 acceptance of a Non-Compliant
shipment); id. ¶ 136 (Torres tried to halt an audit of the Fuel Office, an
effort that ultimately succeeded); ¶ 205 (Torres participated in a fake
audit of Inspectorate).
35. The fact that the various participants all knew about the fact of the
fraud—the falsified test results—is sufficient to impute to each of them
specific intent to defraud, which, in any case, may be (and is) generally
alleged.

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mails and wires). Thus, each time a shipment of Non-Compliant Fuel Oil was knowingly accepted by PREPA along with a
false Certificate of Analysis, the relevant PREPA, Fuel Oil
Supplier, and Laboratory Participants aided and abetted each
other in committing mail or wire fraud.36

36. The First Circuit has held that “aiding and abetting the commission of
mail fraud” may constitute a RICO predicate. Aetna Cas. & Sur. Co. v.
P&B Autobody, 43 F.3d 1456, at *12 (1st Cir. 1994) (unpublished).
Subsequently, it has declined to decide whether that remains the law
in light of Central Bank of Denver, N.A. v. First Int’l Bank of Denver, N.A.,
511 U.S. 164 (1994). Schultz v. R.I. Hosp. Trust Nat. Bank, N.A., 94 F.3d
721, 731 (1st Cir. 1996). But it has also subsequently said that aiding and
abetting a state law conspiracy did constitute a RICO predicate. United
States v. Marino, 277 F.3d 11, 29–31 (1st Cir. 2002).
Though not precedential, I must accord Aetna significant persuasive
value, especially in light of Marino. But even if I did not, I see nothing
in Central Bank suggesting that Aetna was wrongly decided. Looking
chiefly at the text of the statute, Central Bank held that no civil aidingand-abetting liability existed under § 10(b) of the Securities Exchange
Act. 511 U.S. at 177–78. The issue in Central Bank is thus more
analogous to whether civil aiding-and-abetting a RICO violation exists
than whether aiding and abetting mail fraud may be a predicate act.
Moreover, following Central Bank’s direction to look at the text, I note
that RICO defines “racketeering activity” to include conduct “indictable
under” the mail or wire fraud statutes. 18 U.S.C. § 1961(1). Aiding and
abetting mail or wire fraud is indictable under the substantive statute,
Aetna, 43 F.3d 1456, at *12; thus, it is a predicate under § 1961(1). See,
e.g., Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 270 (3d
Cir. 1995); Morin v. Trupin, 835 F. Supp. 126, 130 (S.D.N.Y. 1993);
Fireman’s Fund Ins. Co. v. Plaza Oldsmobile Ltd., 600 F. Supp. 1452, 1457

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To be sure, the Complaint does not say which participant(s)
from each group was involved in each of the thousands of
fraudulent oil deliveries that Plaintiffs say occurred, nor does
it allege their specific dates. But I am at a loss as to how
Plaintiffs could be expected to do so, as such information is
extremely voluminous, goes back over a decade, and would be
in the defendants’ exclusive control. It is thus not the type of
information that Plaintiffs can reasonably be expected to have
plead with the level of specificity the defendants demand.
Nonetheless, Plaintiffs have pled a great deal of specificity with
regard to several of these transactions, implicating most of the
defendants and illustrating their roles in the overall scheme.37
With regard to all but a few defendants, I would find that

n.2 (E.D.N.Y. 1985). But see Hayden v. Paul, Weiss, Rifkind, Wharton &
Garrison, 955 F. Supp. 248, 259 n.10 (S.D.N.Y. 1997).
37. For these reasons, I am not convinced by the defendants’ arguments
that Plaintiffs have made impermissible group allegations. Plaintiffs
have pled significant factual detail, including as to the defendants’
specific actions. Yet, the nature of the fraud claims prevents them from
making specific allegations as to which party was involved in each
fraudulent act. They have thus resorted to grouping the defendants
according to their particular roles in the overall conspiracy. In doing so,
they have not generally alleged that all of the defendants committed all
of the predicate acts. Rather, they have been more careful and precise
in their allegations.

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the Plaintiffs have satisfied Rule 9(b) by putting the defendants
on notice of the fraud allegations against them.38 In the
alternative, I would permit Plaintiffs discovery and leave to
amend to add the necessary detail.
2.2.3.1 The Complaint fails to make sufficient allegations
that Alchem participated in a pattern of racketeering activity.
Among the defendants, Alchem presents a special case.
With regard to most of the other alleged participants, Plaintiffs
make at least one and in most cases several specific allegations
regarding their participation in the scheme. As Alchem’s
counsel has pointed out with vehemence, however, the
allegations against Alchem by-and-large absolve it of participation in the scheme, and so it is difficult to let the more general
predicate-act allegations suffice with regard to it.
As described in the Complaint, Alchem resisted participating in the enterprise for years; indeed, it appears that Alchem’s

38. Given these findings, I do not believe that the defendants’ continuity
arguments warrant significant analysis. See generally Feinstein v.
Resolution Trust Corp., 942 F.2d 34, 45–46 (1st Cir. 1991) (explaining
RICO’s continuity requirement). Suffice it to say that the existence of
thousands of fraudulent transactions over a period lasting more than
a decade satisfies the statute.

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president reported some of the fraudulent activities to
PREPA’s auditors. E.g., Compl. ¶¶ 127, 206. Because of this,
PREPA did not give it much work. Id. ¶ 206. In late 2010,
Alchem needed that work, however, id. ¶ 208, it decided to
start producing the results that PREPA wanted, id. ¶ 211. It
thus switched to non-standard testing methodologies. Id. ¶ 215.
A PREPA audit team learned of this change and asked Alchem
not to persist in it. Id. ¶ 219. The Complaint alleges that the
audit team was subsequently shut down, id. ¶ 220, but it fails
to state whether Alchem actually performed any tests with the
new, non-standard methodology. And there is reason, even on
the face of the Complaint, to think that it did not. In 2014, for
instance, Alchem was the only Laboratory Participant to
properly calibrate its instruments. Id. ¶¶ 240–41. For this
reason, the Complaint implies, Petrobras refused to certify it
for testing its product. Id. ¶ 243. The employee responsible for
this correct testing was fired, id. ¶ 244, but the Complaint does
not say that Alchem subsequently returned to non-standard
methodologies, falsified data, or was even certified by
Petrobras.
In sum, while the allegations allege that Alchem intended to
join the enterprise, and while it is alleged to have taken steps

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(like firing an employee) for the enterprise’s benefit, nothing in
the Complaint can be read to allege Alchem’s actual participation in a pattern of racketeering activity. For that reason, I
would recommend that the § 1962(c) claim against it be
dismissed.
2.2.3.2 The Complaint fails to sufficiently allege that
Trafigura participated in a pattern of racketeering
activity.
Unlike Shell Trading, PetroWest, Vitol, and Petrobras, the
Complaint fails to allege that Trafigura actually entered into
contracts with PREPA to supply it with fuel oil.39 Instead, it
mentions that Trafigura was a minority share holder of Puma,
which Trafigura supplied with oil that was then sold to
PREPA. Compl. ¶ 32. The only other relevant allegation
against Trafigura is that on October 22, 2010 it “and/or”
Petrobras delivered a tank of oil to PREPA. Id. ¶ 109. When

39. Compare Compl. ¶ 19 (Petrobras supplied PREPA $2 billion in fuel);
¶ 25 (Shell Trading supplied PREPA with $3 billion in fuel); ¶ 28
(PetroWest provided at least $3.7 billion in fuel to PREPA); ¶ 35 (Vitol
paid provided at least $3.3 billion in fuel to PREPA), with id. ¶¶ 26–27
(failing to allege any relationship between Trafigura and PREPA); see
also id. ¶ 37 (alleging that Méndez helped Petrobras and Vitol ensure
that their Non-Compliant oil passed tests and was accepted by PREPA).

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Alchem said the fuel was Non-Compliant, a Trafigura representative, along with Méndez “on behalf of Petrobras,” “had
Inspectorate” re-test it. Id. ¶ 110 (emphasis added). Inspectorate did so and returned a Certificate of Analysis showing the
fuel as compliant. Id. After further intervention from Méndez,
who was apparently representing Petrobras rather than
Trafigura, id., PREPA accepted the shipment despite an
internal auditor’s opinion that Inspectorate’s results were
“technically invalid.” Id. ¶¶ 111–12.
At most this shows that on one occasion, Trafigura asked
that fuel be retested. But there is nothing inherently inculpatory about such a request, and given the dearth of specific
allegations regarding Trafigura, I am unwilling to infer that it
(as opposed to PREPA, Petrobras, and Méndez) did so knowing of the correctness of Alchem’s results, i.e., with any intent
to defraud. Moreover, given that Trafigura had no contracts
with PREPA, even if this incident constituted a predicate act,
I do not believe there are facts sufficient in the Complaint from
whcih to infer a second. That is, while I find the general
allegations against the Fuel Oil Supplier Participants to be
sufficient in light of the Complaint’s other detail about those
Participants’ activities, the specific factual allegations regarding

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Trafigura are just too thin. Without specific allegations regarding Trafigura delivering oil to PREPA, I do not think the
general allegations about every fuel shipment being out of
compliance (much less those about knowledge) can be imputed
to it. Accordingly, I recommend that the § 1962(c) count be
dismissed as to Trafigura.
2.2.3.3 The Complaint fails to sufficiently allege that
Bureau Veritas Holding participated in a pattern of
racketeering activity.
Bureau Veritas is the owner of one of the corporate defendants, Inspectorate. The sole allegations against it in the Complaint state that it is “integrating Inspectorate as a brand within
the company,” and it has “exercised pervasive and excessive
control over” Inspectorate so as to “control[] the subsidiary
business as a whole.” Compl. ¶¶ 39, 45. The latter of these are
simply restatements of basic corporate veil-piercing law; they
provide no factual detail whatsoever about how Bureau Veritas
exercises such control, and so they are little more than “bland
assertion[s]” that Inspectorate is an alter ego of or joint venture
with Bureau Veritas. Omni-Wave Electronics Corp. v. Marshall
Indus., 127 F.R.D. 644, 647 (D. Mass. 1989) (internal quotations
omitted). As such, they cannot suffice to withstand a motion to

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dismiss. Noonan v. Winston Co., 135 F.3d 85, 94 (1st Cir. 1998)
(following Omni-Wave). As for the allegation regarding the
“integrati[on]” of Inspectorate “as a brand within” Bureau
Veritas, it is almost meaningless. Taken as true, it would say
nothing about whether the corporate form was being respected. As such, I find that the allegations against Bureau
Veritas fail as a matter of law and that the claim should be
dismissed as to it.
2.2.3.4 Petróleo Brasileiro
Perhaps the most difficult case is what to do with Petróleo
Brasileiro. The Complaint refers to Petróleo Brasileiro and its
wholly-owned American subsidiary, Petrobras America Inc.,
as “Petrobras,” without ever making specific allegations
against either company. Thus the two companies together are
alleged to have sold $2 billion in fuel to PREPA between
August 2012 and November 2014, Compl. ¶ 19, but the
Complaint is (I must assume purposely) vague as to which
company held the contracts with PREPA. Petróleo vehemently
denies having ever entered into any such contract, Docket No.
164, at 15–16, which fact Plaintiffs essentially admit, Docket
No. 195, at 16. Plaintiffs maintain, though, that Petróleo
supplied oil to Shell Trading and others to fulfill those compa-

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nies’ contracts with PREPA, id. at 16, but the paragraphs in the
Complaint supporting those assertions suffer from the same
infirmity as do the rest of the Petrobras allegations: they are
nonspecific in referring to one of the two companies, see
Compl. ¶¶ 24–25. On this same point, Plaintiffs’ briefs mention
Costa, a Petróleo executive, who is said to have assisted in
negotiating contracts, something that, if true, could go some
way towards sustaining an alter ego claim against Petróleo, as
well as a § 1962(d) conspiracy claim. Docket No. 195, at 16–17.
Again, though, the Complaint does not specify that Costa is
associated with Petróleo specifically; it refers to him as an
executive of the collective “Petrobras.” Compl. ¶ 22.
What to do about this is problem is further complicated by
the fact that the allegations against the collective “Petrobras”
are more detailed and more damning than the allegations
against perhaps any defendant other than PREPA. To the
extent that the Complaint’s allegations against “Petrobras” can
be imputed to either Petrobras America or Petróleo Brasileiro,
they certainly suffice to state a pattern of racketeering activity.
But common sense and Plaintiffs’ and Petróleo’s briefs make
me suspect that the allegations are, by and large, about
Petrobras America alone. Nonetheless, given the claims that

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Petróleo supplied oil and that its executive was involved in
contract procurement, I would permit a period of discovery
and leave to amend Plaintiffs’ allegations against the Petrobras
defendants. In doing so, Plaintiffs must not treat the two
corporations interchangeably.
2.2.3

Filed-Rate Doctrine

The filed-rate doctrine provides that when a regulated
entity files a tariff with a regulatory body, the tariff may not be
“attack[ed] outside the regulatory process.”40 Town of Norwood,
Mass. v. New England Power Co., 202 F.3d 408, 416 (1st Cir.
2000). Trafigura thus argues that Plaintiffs’ claims must fail
because “their measure of damages will be ‘determined by
comparing the approved rate and the rate that allegedly would
have been approved absent wrongful conduct.’” Docket No.
82, at 27 (quoting H.J., Inc. v. Nw. Bell Tel. Co., 954 F.2d 485, 492
(8th Cir. 1992)).
As Plaintiffs point out, this argument fails for a very simple
reason: because it is an affirmative defense, e.g., Rivera-Muñiz

40. Though the First Circuit has not addressed the question, I am operating
under the assumption, with which the parties seem to agree, that the
doctrine also applies when an entity files its rate with a state regulatory
commission. See, e.g., Firstcom, Inc. v. Qwest Corp., 555 F.3d 669, 679–80
(7th Cir. 2009).

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v. Horizon Lines Inc., 737 F. Supp. 2d 57, 63 (D.P.R. 2010) (citing
E. & J. Gallo Winery v. Encana Corp., 503 F.3d 1027, 1039 n.11
(9th Cir. 2007)),41 the filed-rate doctrine will only require the
dismissal of the Complaint if its applicability is apparent on the
Complaint’s face, Jones v. Block, 549 U.S. 199, 215 (2007). But the
Complaint does not allege that PREPA has filed its rates, and,
in its opposition to the motions to dismiss, it says that this is
because the rates have not in fact been filed. Docket No. 154, at
66 & n.283. The defendants’ filed-rate defense must therefore
be rejected. Rivera-Muñiz, 737 F. Supp. 2d at 63.
In its reply brief, PREPA for the first time argues that it
didn’t file its rates with an independent regulatory agency
(because no such agency existed until 2014 at the earliest),42

41. It seems that relatively few courts have analyzed whether the filed-rate
defense is an affirmative defense, though I have found numerous cases
referring to it that way. In any case, there appears to be a consensus that
it is a merits defense rather than, for example, a jurisdictional one. See
Wilson v. EverBank, N.A., 77 F. Supp. 3d 1202, 1233 n.6 (S.D. Fla. 2015)
(collecting cases). But see In re Hawaiian & Guamanian Cabotage Antitrust
Litig., 647 F. Supp. 2d 1250, 1266–66 (W.D. Wash. 2009) (dismissing case
on basis of the filed-rate defense where plaintiffs had not pled its
inapplicability, but where the plaintiffs’ complaint acknowledged that
the industry at issue was regulated by tariffs).
42. The Energy and Transformation Relief Act, Law No. 57 of May 22, 2014,
established an independent regulatory agency with power over

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but, rather, was its own regulatory agency. Docket No. 172. For
this it relies on statutes that, before May 2014, gave to its Board
of Directors the power to set rates and required certain
procedures be followed before such action was taken. See id. at
3–4. On the basis of these statutes, PREPA argues that it “was
its own state regulatory body,” and so the filed-rate doctrine
should apply. Id. at 5.
Even if PREPA had raised this argument in its motion to
dismiss, I would not find it convincing. As Justice Stevens put
it, the filed-rate doctrine is meant to ensure that “courts respect
the public [regulatory] agency’s control over market prices and
industry practices.” Maislin Indus., U.S., Inc. v. Primary Steel,
Inc., 497 U.S. 116, 144–45 (1990) (Stevens, J., dissenting). Thus
the doctrine “protects the agency’s authority over tariffed
rates.” Town of Norwood, 202 F.3d at 416 (emphasis added); see
also Saunders v. Farmers Ins. Exchange, 440 F.3d 940, 944 (8th Cir.
2006) (holding that the doctrine’s “core” is the “allocat[ion]
between a regulatory agency and the courts the authority to
approve and enforce rates filed with the agency” (emphasis

PREPA’s rates. It is not clear whether PREPA has actually filed rates
with that agency yet, and certainly the Complaint does not state that it
has.

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added)). Importantly, it is “the filing of the tariffs” with a
regulatory agency that “triggers the filed rate doctrine”; if the
company does not file its rates, “the filed rate doctrine would
by its terms no longer operate.” Town of Norwood, 202 F.3d at
419.
This all matters because, at the end of the day, PREPA may
have to follow statutory processes in its rate-setting, but it sets
its own rates and does not file them with any regulatory body.
See In re Alcon (Puerto Rico) Inc., 70 P.U.R. 4th, at *8 (F.E.R.C.
Aug. 19, 1985) (Stalon, Commissioner, dissenting) (explaining
that PREPA is a “non-regulated utility” without oversight from
a state commission). The filed-rate doctrine was developed in
deference to the expertise of independent regulatory agencies;
it was not meant to protect utilities from suit based on their
own self-“regulation.” See H.J., Inc., 954 F.2d at 489 (“[T]he
focus for determining whether the filed rate doctrine applies is
the impact the court’s decision will have on agency procedures
and rate determinations.” (emphasis added)). PREPA has not
cited—and I have not found—any case where the filed-rate
doctrine has been applied to a non-regulated or self-regulated
entity; rather, the existence of a separate and independent
regulatory agency seems to be fundamental to the doctrine’s

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application. Without a much stronger showing, I would the
doctrine to PREPA based on the pre-May 2014 statutory
regime.
2.2.4

The RICO Conspiracy Claim

Thus far, I have discussed whether Plaintiffs have stated a
claim against the defendants for violations of RICO’s main
substantive provision, § 1962(c). Plaintiffs also allege violations
of § 1962(d), which provides for the liability of persons who
“conspire to violate” § 1962(c). In large part, the defendants’
arguments against the RICO conspiracy claim are premised on
Plaintiffs’ failure “to establish a substantive RICO violation.”
Docket No. 82, at 28 (citing Miranda v. Ponce Fed. Bank, 948 F.2d
41, 44–45 (1st Cir. 1991)). But because Plaintiffs have stated
such a violation, these arguments are unavailing.
The defendants’ other line of attack focuses on what they
claim is a requirement that, to be held liable under § 1962(d),
the Plaintiffs must allege that the defendant had to “involve
himself, directly or indirectly, in the commission of at least two
predicate offenses.” Feinstein v. Resolution Trust Corp., 942 F.2d
34, 41 (1st Cir. 1991), quoted by, Docket No. 82, at 29. These
citations are misleading because, while they correctly state the
law in this Circuit before 1997, they neglect to mention that

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those cases were explicitly overruled by the Supreme Court’s
opinion in Salinas v. United States. See 522 U.S. 52 (1997)
(identifying the First Circuit’s decision in United States v.
Winter, 663 F.2d 1120, 1135–36 (1st Cir. 1981), as among those
it was overruling). In Salinas, the Court rejected the very
arguments that the defendants make here, writing that “an
actor who does not himself commit or agree to commit the two
or more predicate acts requisite to a” § 1962(c) conviction may
nonetheless be liable under § 1962(d) if he “adopt[s] the goal of
furthering or facilitating the criminal endeavor.” Id. at 64. An
overt act is not even required for § 1962(d) liability; the
conspirator need only “agree[] to facilitate . . . some of the acts
leading to the substantive offense.” Id. 63, 65.
The question is whether the Complaint states sufficient facts
for a conspiracy count to be sustained against those defendants
against whom the substantive count was insufficient. As to
Alchem, I believe it does. Above, I concluded that the Complaint failed to plead that Alchem had participated in two
predicate acts; thus the substantive count failed. But the
Complaint does plead that Alchem agreed to participate in the
scheme, and to that end it changed the way its tests were
calibrated and fired an employee who resisted. Although the

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Complaint lacks facts suggesting that any tests were actually
performed under this altered calibration method, the fact of the
agreement suffices to state a claim under § 1962. Alchem’s
motion to dismiss the conspiracy account should therefore be
denied.
With regard to Bureau Veritas and Trafigura, however, I
would sustain the motion to dismiss the conspiracy count, and
for much the same reasons as I would the substantive count.
Simply put, the Complaint is wholly lacking in allegations that
Bureau Veritas was aware of the scheme, much less that it
agreed to join it; likewise, the Complaint’s veil-piercing
allegations are insufficient to attribute Inspectorate’s actions to
Bureau Veritas. I would therefore dismiss the conspiracy claim
against Bureau Veritas. Similarly, the only substantive allegation against Trafigura is that it sent an email on one occasion
asking that a sample be retested. Nothing in the Complaint
suggests that this constituted—or was the result of—an
agreement to participate in the RICO scheme. I therefore
recommend that the conspiracy count be dismissed as to both
of these defendants.

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2.3 Unjust Enrichment
Inspectorate argues that under Puerto Rico law, an unjust
enrichment claim must be dismissed when another statute
provides a remedy for the injury asserted. Docket No. 105, at
31–32 (citing El Toro Elec. Corp. v. Zayaz, 6 P.R. Offic. Trans. 133,
138 (1977) (holding that unjust enrichment claims cannot be
sustained where the plaintiff has another avenue of redress)).
Numerous courts in this district have held that this applies
even at the pleading stage and in spite of the federal courts’
general acceptance of alternative pleadings. E.g., Rivera-Muñiz,
737 F. Supp. 2d at 55–56; Westernbank P.R. v. Kachkar, Civ. No.
07-1606(ADC/BJM), 2009 WL 6337949, at *29 (D.P.R. Dec. 10,
2009), adopted, 2010 WL 1416521 (D.P.R. March 31, 2010); Ocaso,
S.A. v. P.R. Mar. Shipping Auth., 915 F. Supp. 1244, 1263 (D.P.R.
1996); Medina & Medina v. Country Pride Food Ltd., 631 F. Supp.
293, 302 (D.P.R. 1986); see also In re Methyl Tertiary Butyl Ether
Prods. Liability Litig., Civ. No. 00-1898, 2013 WL 5230814, at *11
(S.D.N.Y. July 17, 2013). And while these cases all arose in the
context of alternative remedies provided by other state
statutes, the First Circuit has applied a companion doctrine in
a federal-question suit (though on summary judgment). P.R.
Tel. Co., Inc. v. SprintCom, Inc., 662 F.3d 74, 97 (1st Cir. 2011)

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(holding that unjust enrichment does not apply where case
governed by a contract); accord Kachkar, 2009 WL 6337949, at
*29 (explaining the relevance of contracts to the unjust enrichment analysis).
Frankly, these cases leave me at a loss. I see nothing in the
doctrine as stated by the Supreme Court of Puerto Rico that
would unequivocally mandate dismissal at the pleading stage,
at least where the alternative remedy was, as here, a contingent
one. Moreover, the cases have tended to assert the doctrine’s
applicability rather than explain it, and they have done so only
in the context of alternative state law remedies. And yet, in light
of Plaintiffs’ half-hearted defense of their unjust enrichment
claim, which does nothing but cite the general rule that
alternative pleadings are allowed, I see no choice but to follow
the weight of the precedent. Accordingly, I recommend that
the unjust enrichment claim be dismissed.
3. Conclusion
For the reasons stated above, I RECOMMEND that the
presiding judge GRANT the motions to dismiss of Trafigura
and Bureau Veritas and dismiss the claims against each of
them. I further recommend that the Court GRANT IN PART
the motion of Alchem and dismiss the § 1962(c) and state-law

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unjust enrichment claims against it. Finally, I RECOMMEND
that the remaining defendants’ motions to dismiss be
GRANTED as to the unjust enrichment claims and DENIED in
all other respects.43
IT IS SO RECOMMENDED.
The parties have fourteen days to file any objections to this
report and recommendation. Failure to file the same within the
specified time waives the right to appeal this report and
recommendation. Henley Drilling Co. v. McGee, 36 F.3d 143, 15051 (1st Cir. 1994); United States v. Valencia-Copete, 792 F.2d 4 (1st
Cir. 1986).
In San Juan, Puerto Rico, this 28th day of September, 2015.
S/ SILVIA CARREÑO-COLL
UNITED STATES MAGISTRATE JUDGE

43. I also GRANT the motions at Docket Nos. 168, 209, and 211; and DENY
the motions at Docket Nos. 185 and 193.