USCA1 Opinion
February 9, 1996
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 95-1870
A.M. CAPEN'S CO., INC.,
Plaintiff, Appellee,
v.
AMERICAN TRADING AND PRODUCTION CORPORATION
AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,
Defendants, Appellants.
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ERRATA SHEET
The opinion of this court issued on January 18, 1996, is
amended as follows:
Page 14, line 6: Change "P.R. Laws Ann. tit. 13" to "P.R.
Laws Ann. tit. 14".
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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No. 95-1870
A.M. CAPEN'S CO., INC.,
Plaintiff, Appellee,
v.
AMERICAN TRADING AND PRODUCTION CORPORATION
AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Daniel R. Dominguez, U.S. District Judge]
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Before
Selya, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Jos Enrique Colon Santana for appellant.
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Philip E. Roberts for appellee.
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January 18, 1996
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BOWNES, Senior Circuit Judge. This is an appeal
BOWNES, Senior Circuit Judge.
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from a preliminary injunction issued by the district court
barring defendant-appellant American Trading and Production
Corp. ("ATAPCO") from terminating plaintiff-appellee A.M.
Capen's Co., Inc. ("Capen's") as an exclusive distributor for
Puerto Rico of ATAPCO's products. Capen's had filed an
action in the United States District Court for the District
of Puerto Rico alleging that ATAPCO violated P.R. Laws Ann.
tit. 10, 278, et seq. (1976 and Supp. 1989)(a.k.a. Law 75,
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the Puerto Rico Dealer's Act) by terminating the exclusivity
of the distributorship. Section 278a of title 10 provides:
Notwithstanding the existence in a
dealer's contract of a clause reserving
to the parties the unilateral right to
terminate the existing relationship, no
principal or grantor may directly or
indirectly perform any act detrimental to
the established relationship or refuse to
renew said contract on its normal
expiration, except for just cause.
The injunction was issued pursuant to the provisional remedy
provision, Section 278b.1 of the Act, which provides:
In any litigation in which there is
directly or indirectly involved the
termination of a dealer's contract or any
act in prejudice of the relation
established between the principal or
grantor and the dealer, the Court may
grant, during the time the litigation is
pending solution, any provisional remedy
or measure of an interdictory nature to
do or to desist from doing, ordering any
of the parties, or both, to continue, in
all its terms, the relation established
by the dealer's contract, and/or to
abstain from performing any act or any
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omission in prejudice thereof. In any
case in which the provisional remedy
herein provided is requested, the Court
shall consider the interests of all
parties concerned and the purposes of the
public policy contained in this chapter.
There is no dispute as to the basic facts. In
1978, Capen's entered into an agreement with ATAPCO's
predecessor, Sheller-Globe, to be the exclusive distributor
of Globe-Weiss and Steelmaster office products in Puerto
Rico, the Caribbean, the Dominican Republic, and Central and
South America. The agreement did not contain an expiration
date. Although confirmed in a written letter, the parties
did not sign a formal contract because they could not agree
on the law that would apply to the contract. When ATAPCO
took over, the arrangement with Capen's continued, as did the
disagreement as to choice-of-law and forum selection clauses.
ATAPCO, with its principal place of business in
Missouri, wanted Missouri law to apply to the contract.
Capen's, a New Jersey corporation with its principal place of
business in that state, wanted Puerto Rico law to apply. As
a result, ATAPCO and Capen's never signed a formal contract.
In December 1993, ATAPCO wrote a letter to Capen's in which
it terminated the exclusive aspect of the dealership. ATAPCO
did not end the Capen's dealership; it reserved the right to
sell to others. ATAPCO made Blas Rossy Asencio a sales
representative for the area for which Capen's originally had
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the exclusive rights. This lawsuit ensued.1
Proceedings of the District Court
Proceedings of the District Court
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The district court adopted the recommendation of
the Magistrate Judge that the provisional remedy in the
Puerto Rico Dealer's Act be granted. The court then issued a
full-blown opinion giving the reasons for its action. It
found that Capen's "has exhibited a likelihood of success on
the merits." A.M. Capens Co., Inc. v. American Trading and
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Prod. Corp., 892 F. Supp. 36, 38 (D.P.R. 1995). It then
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held:
Capens has also shown that his
business will suffer irreparable injury
if the injunction is not granted because
Mr. Rossy Asencio will continue to sell
the products in the areas wherein Capens
had the exclusivity with the added
competitive advantage for Asencio of
freight charges assumed by ATAPCO. The
above will obviously mean that Capens'
business market will be significantly
irreparably diminished.
The harm that Capens will suffer most
certainly outweighs ATAPCO's possible
harm: the business area will remain
unchanged (the Caribbean and Central and
South America) and ATAPCO will continue
receiving benefits, either through Mr.
Rossy Asencio or through A.M. Capens;
however, the harm is for Capens who will
lose business market should Mr. Rossy
Asencio continue to interfere with the
customers.
Id. at 38-39. Finally, the court held that the public
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1. Capen's has sued Blas Rossy Asencio for tortious
inference with contractual relations.
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interest
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would not be adversely affected by the preliminary
injunction. Id. at 39.
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It is obvious that what we are reviewing is not
only a provisional remedy under the Puerto Rico Dealer's Act,
but a preliminary injunction that meets, at least prima
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facie, all federal requisites. The appropriate standard for
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reviewing a preliminary injunction is abuse of discretion.
Jiminez Fuentes v. Torres Gaztambide, 807 F.2d 236, 239 (1st
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Cir. 1986)(en banc), cert. denied, 481 U.S. 1014 (1987).
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Analysis
Analysis
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We start our analysis with the only finding of the
district court to which defendant has objected -- probability
of success on the merits. Defendant's appeal is posited on
two contentions: that Puerto Rico law does not apply; and
that plaintiff is not a dealer under the Puerto Rico Dealer's
statute. As the district court noted, this is "a close
matter." Id.
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That is because Capen's does not fit the mold of a
typical Puerto Rican dealer. It does not advertise in Puerto
Rico and has neither a warehouse nor a showroom on the
Island. It sells exclusively to retailers and wholesalers.
Though Capen's sometimes sends an agent to Puerto Rico, it
does not have a resident agent on the Island and is not
qualified to do business in Puerto Rico on a regular basis.
On the other hand, the annual sales made by Capen's in Puerto
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Rico under its exclusive distributorship increased from about
$30,000 in 1978 to $423,000 in 1993. Total Puerto Rico sales
of ATAPCO products for the five-year period spanning from
1989 to 1993 came to about $1,976,000.
The first issue is what law applies. This
necessitates an examination of the conflict of law principles
governing contract and tort law.
Contract Factors
Contract Factors
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ATAPCO contends that the district court incorrectly
applied Puerto Rico choice of law rules to the facts. It
stresses that none of the acts -- negotiation of the
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contract, performance of the contract obligations, or breach
of the contract -- took place in Puerto Rico. It points out
that neither it nor Capen's has offices or employees located
in Puerto Rico.
The Supreme Court of Puerto Rico has approved the
"dominant or significant contacts" test for contract and tort
actions. In re San Juan Dupont Plaza Hotel Fire Litig., 745
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F. Supp. 79, 82 (D.P.R. 1990). Thus, "the laws of the
jurisdiction with the most significant contacts with respect
to the disputed issue should apply." Id. In determining
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this question, recourse to the Restatement (Second) of
Conflict of Laws is appropriate. Id. (citing Sections 6 and
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188).
Under Section 188 of the Restatement, absent a
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contractual choice of law, the contacts to be taken into
account in a contract action include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter
of
the contract, and
(e) the domicil, residence, nationality,
place of corporation and place of
business of the parties.
Restatement (Second) of Conflict of Laws 188 (1971).
The places of contracting and negotiating the
contract in question occurred in the continental United
States. ATAPCO and Capen's met in St. Louis, Missouri, to
discuss the contract; they also spoke by phone. However,
"[s]tanding alone, the place of contracting is a relatively
insignificant contact." Id. 188 cmt. e.
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The performance of the contract takes place, in
part, in the continental United States. When Capen's wishes
to purchase products from ATAPCO, it places an order with
ATAPCO's customer service offices in Pennsylvania or
Missouri. The goods are then sent to Capen's in New Jersey
or to the point of embarkation. Sometimes Capen's sends a
trailer to the Pennsylvania office to pick up the
merchandise. But performance also occurs in Puerto Rico --
where the market is
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-- because the contract granted Capen's the exclusive right
to sell ATAPCO's products there. See Id. 188 cmt. c ("[A]
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state where a contract provides that a given business
practice is to be pursued has an obvious interest in the
application of its rule designed to regulate or to deter that
business practice.").
The location of the subject matter of the contract
similarly varies, depending on one's view. If the products
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sold by ATAPCO, and then by Capen's, are considered the
subject matter, they start out in Pennsylvania or Missouri
(and Kentucky according to ATAPCO) and end up in New Jersey.
Arguably, this is the end of the line because when the goods
are shipped to Puerto Rico, they become the subject of
contracts between Capen's and its customers in Puerto Rico.
ATAPCO, not surprisingly, takes this position, pointing out
that it has no direct contacts in Puerto Rico.
The other subject matter of the contract is the
status of Capen's as the exclusive distributor of ATAPCO's
merchandise. This, it seems clear, is located in Puerto
Rico. It is this subject matter which is in dispute, rather
than, say, the price of the goods or the manner of their
delivery to Capen's. The essential purpose of the exclusive
distributor-ship was to enable Capen's to sell the products
it purchased from ATAPCO in Puerto Rico without competition.
The last factor -- the location of the parties --
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does not point to Puerto Rico. ATAPCO, a Missouri
corporation, has main offices in Pennsylvania and Missouri
and also apparently conducts business in Maryland and
Kentucky. Capen's is a New Jersey corporation with its place
of business there. Capen's does not have any offices,
warehouses or permanent employees in Puerto Rico; it does not
have a Puerto Rico address or phone number. Capen's does,
however, regularly send employees to Puerto Rico to take
orders from customers.
Tort Factors
Tort Factors
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A breach of Law 75 is considered a "tortious act."
Telenetworks, Inc. v. Motorola Universal Data Sys., Inc., ___
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F. Supp. ___, ___ 1995 WL 707412, at 2 (D.P.R. Nov. 28,
1995). Section 278b of the Dealer's Act provides: "[i]f no
just cause exists for the termination . . . the principal
shall have executed a tortious act against the dealer and
shall indemnify it."
The Restatement of Conflict of Laws provides that
in a tort action the law of the state with the most
significant relationship to "the occurrence and the parties"
controls. Restatement (Second) of Conflict of Laws 145
(1971). The following contacts should be taken into
consideration:
(a) the place where the injury occurred,
(b) the place where the conduct causing
the injury occurred,
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(c) the domicil, residence, nationality,
place of incorporation and place of
business of the parties, and
(d) the place where the relationship, if
any, between the parties is
centered.
Id.
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The injury occurred in Puerto Rico because that is
where the exclusive Capen's dealership was terminated. The
termination directly impacts the position Capen's held in the
Puerto Rico market. See Colletti v. Ovaltine Food Products,
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274 F. Supp. 719, 722 (D.P.R. 1967) (where an Illinois
corporation terminated the distributorship of a Puerto Rican
dealer, its failure to "place the goods in Puerto Rico at the
disposal of the . . . dealer" is a tortious act which "did
not take place anywhere but in Puerto Rico"). Additionally,
because Law 75 is aimed at compensating victims for wrongful
terminations, Puerto Rico, the site of the injury, has a
greater interest in applying its laws. See Restatement 145
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cmt. c; Colletti, 274 F. Supp. at 722 ("[R]egardless of the
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manner in which the defendant . . . allegedly notified the
plaintiff" of the termination of its distributorship, the
defendant executed the tortious act within Puerto Rico.).
Viewing all of the relevant factors as a whole, we find they
cut in favor of applying Puerto Rico law.
General Considerations
General Considerations
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Section 6 of the Restatement (Second) of Conflict
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of Laws sets forth general choice of law principles. Where
there is no statute on point, the following factors should be
considered:
(a) the needs of the interstate and
international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other
interested states and the relative
interests of those states in the
determination of the particular issue,
(d) the protection of justified expecta-
tions,
(e) the basic policies underlying the
particular field of law,
(f) certainty, predictability and
uniformity of result, and
(g) ease in the determination and
application of the law to be applied.
Restatement (Second) of Conflict of Laws 6 (1971).
Taking the policy issues first, courts have
recognized that Law 75 "was passed to protect the interests
of commercial distributors working in Puerto Rico."
Ballester Hermanos, Inc. v. Campbell Soup Co., 797 F. Supp.
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103, 106 (D.P.R. 1992). Law 75 is "'directed to level the
contractual conditions between two groups financially unequal
in their strength.'" Draft-Line Corp. v. Hon Co., 781 F.
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Supp 841, 844 (D.P.R. 1991) (quoting Walborg Corp v. Tribunal
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Superior, 140 D.P.R. 184, 189 (1975)), aff'd, 983 F.2d 1046
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(1st Cir. 1993).
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The Dealer's Act was enacted by the
Puerto Rico Legislature to prevent the
economic exploitation of local dealers.
The Legislature had observed that dealers
in Puerto Rico were particularly
vulnerable to summary termination once
they had established a favorable market
for a principal's products.
Id. at 843-44.
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The Puerto Rico Dealer's Act has been described as
embodying a "strong public policy." Medina & Medina v.
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Country Pride Foods, Ltd., 858 F.2d 817, 820 (1st Cir. 1988)
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(response of Puerto Rico Supreme Court to a certified
question concerning Law 75). The case law establishes that
Puerto Rico has a substantial interest in seeing that
distributorships are not arbitrarily terminated or, if they
are, that "due reparation" is provided to them. Bonn v.
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Puerto Rico Int'l Airlines, Inc., 518 F.2d 89, 91 (1st Cir.
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1975).
As the district court pointed out, there is nothing
in the statute that requires a dealer to be a resident of
Puerto Rico, to be authorized to do business in the
Commonwealth, or to have a place of business such as an
office, showroom or warehouse on the Island. Section 278 of
the Act defines "Dealer" and "Dealer's Contract":
(a) Dealer: person actually inter-
ested in a dealer's contract because of
his having effectively in his charge in
Puerto Rico the distribution, agency,
concession or representation of a given
merchandise or service;
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(b) Dealer's contract: relationship
established between a dealer and a
principal or grantor whereby and
irrespectively of the manner in which the
parties may call, characterize or execute
such relationship, the former actually
and effectively takes charge of the
distribution of a merchandise, or of the
rendering of a service, by concession or
franchise, on the market of Puerto Rico.
P.R. Laws Ann. tit. 10, 278 (1976 and Supp. 1989).
Accordingly, Capen's appears to satisfy the definition of
dealer within the Dealer's Act.
Although both Missouri and New Jersey have statutes
protecting dealers, we do not think that either state has an
interest in protecting Capen's in the instant circumstances.
Missouri provides that a franchisor must give ninety days'
notice to a franchisee of a termination of a franchise
agreement and that, in the absence of such notice, a
franchisee may recover damages. Mo. Rev. Stat. 407.405,
407.410 (1974 and Supp. 1975). The law, however, only
applies to distributors with a place of business in Missouri.
Mo. Rev. Stat. 407.400(1) (1974 and Supp. 1975) (definition
of "franchise"). It is plain that Capen's has no franchise
presence in Missouri.
New Jersey has a Franchise Practices Act which
provides that notice (60 days) must be given prior to the
termination of a franchise agreement and that such a
termination only can be based on "good cause." N.J. Rev.
Stat. 56:10-5 (1971). As in Missouri, the Act applies only
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to a franchisee who establishes a "place of business" in New
Jersey. Id. 56:10-4. Thus, even though Capen's is located
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in New Jersey, it does not qualify for the Act's protection.
Because all three jurisdictions evince a general
policy of protecting distributors, we can fairly infer that
the application of Puerto Rico law would not offend Missouri
or New Jersey. By restricting protection to only those
dealers who service customers within the state, Missouri and
New Jersey are concerned with dealers who have established
markets within their borders. Thus, it makes sense, in this
case, to apply the law of the jurisdiction in which Capen's
maintains its market.
In this context, ATAPCO argues that under P.R. Laws
Ann. tit. 14, 2403 (1989), Capen's is not required to file
informational documents (certificate of incorporation,
statement of assets and liabilities) with the Puerto Rico
Department of State to qualify as doing business in Puerto
Rico. Section 2403 exempts from filing those corporations
which only receive, outside Puerto Rico, orders by mail or
otherwise and fill the orders by shipping the goods into
Puerto Rico from the outside. ATAPCO argues that because
Section 2403 exempts Capen's from having to qualify to do
business in Puerto Rico, Puerto Rico can have no interest in
protecting the status of Capen's as a distributor. ATAPCO
presents no cases in support of this contention and, as
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already noted, there is nothing in the Dealer's Act giving
rise to such a requirement.
This is an appeal from a grant of preliminary
injunctive relief. When an appeal comes to us in that
posture, the appellate court's "conclusions as to the merits
of the issues presented on preliminary injunction are to be
understood as statements of probable outcomes," rather than
as comprising the ultimate law of the case. Narragansett
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Indian Tribe v. Guilbert, 934 F.2d 4, 6 (1st Cir. 1991);
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accord Jimeniz Fuentes v. Torres Gatzambide, 807 F.2d at 238.
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In this case, we conclude that, bringing all the factors into
consideration, the law of Puerto Rico most probably applies
to this hybrid contract/tort action and, perforce, the
district court properly made reference to the Puerto Rico
Dealer's Act for the purpose of the motion to impose a
provisional remedy.
Because ATAPCO has neither briefed nor argued the
other factors that the district court considered in issuing
the preliminary injunction, we need not consider them. We
must note, however, after reviewing the record carefully,
that we agree with the district court's findings: that
Capen's would suffer irreparable harm unless a preliminary
injunction issued; that no appreciable harm would be incurred
by ATAPCO by reason of such relief; and that the public
interest would not be adversely affected by a preliminary
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injunction.
Affirmed.
Affirmed.
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