Johnson & Johnson International v. Puerto Rico Hospital Supply, Inc.

258 F. Supp. 3d 255
CourtDistrict Court, D. Puerto Rico
DecidedJuly 10, 2017
DocketCivil No. 17-1405 (FAB)
StatusPublished
Cited by8 cases

This text of 258 F. Supp. 3d 255 (Johnson & Johnson International v. Puerto Rico Hospital Supply, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Puerto Rico primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Johnson & Johnson International v. Puerto Rico Hospital Supply, Inc., 258 F. Supp. 3d 255 (prd 2017).

Opinion

OPINION AND ORDER1

BESOSA, District Judge.

Before the Court is defendants Puerto Rico Hospital Supply, Inc. (“PRHS”)’s and Customed, Inc. (“Customed”)’s motion to dismiss or stay proceedings and compel arbitration pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 3 and 4. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART defendants’ motion to compel arbitration and stays all claims pending the completion of arbitration.

I. BACKGROUND AND PROCEDURAL HISTORY

Plaintiffs Johnson & Johnson International (“J <& JI”) and Ethicon, Inc. (“Ethi-con”) are wholly owned subsidiaries of Johnson & Johnson, a US-based multinational: supplier of healthcare products, medical devices, and • consumer goods. (Docket No. I at pp. 2-3.) Defendants PRHS and Customed are Puerto Rico corporations that distribute J & JI and Ethi-con branded .products on an exclusive and non-exclusive basis in Puerto Rico and the U.S. Virgin Islands. Id. at pp. 4-5. The parties have a number of distribution agreements between them. Id.

Defendant PRHS and its corporate predecessors have been distributing Ethicon-branded products since 1958. Id. at p. 4. PRHS has been an exclusive distributor of the Ethicon Endo-Surgery product line since the 1980s without a written agreement. Id. In April 1987, Ethicon and PRHS signed a statement of policy summarizing the exclusive distribution of the Ethicon wound closure product line. Id. In December. 1990, Johnson & Johnson Medical, Inc.,2 an affiliate of Johnson & [258]*258Johnson, signed an exclusive written distribution agreement with PRHS for the distribution of a limited category of products including disinfectants, topical ab-sorbable hemostats, and closed wound drainages.3 Id. PRHS has also distributed on a non-exclusive basis, hemostatic products from the Biosurgery line without a written agreement. Id. More recently, in September 2005, PRHS and J & JI entered into a non-exclusive distribution agreement regarding a limited selection of Ethicon, Ethicon Endo-Surgery, LifeS-can, and Codman branded products which J & JI and Ethicon contend is not part of the present litigation. Id. at p. 5. The 2005 Non-Exclusive Distribution Agreement (“2005 Agreement”) contains an arbitration clause, the scope of which is in dispute.

Customed is a Puerto Rico corporation that manufactures healthcare products and assembles customized healthcare packs with products from various suppliers. Id. at p. 3. PRHS and Customed share common ownership. Id Customed has been purchasing Ethicon Endo-Surgery products and Women’s Health and Urology products from J & JI for the past several years. Id. at p. 5. J & JI has never executed a distribution agreement with Cus-tomed. Id.

On March 28, 2017, J & JI and Ethicon filed a complaint alleging PRHS and Cus-tomed breached their payment obligations. Id. at p. 1. Plaintiffs contend that both PRHS and Customed have failed to pay invoices in full since the beginning of 2016. Id. Plaintiffs worked with defendants to develop a payment plan, signed on September 2, 2016, to bring the accounts current. Id. at p. 6. PRHS and Customed agreed to bring their accounts current by January 2017 through a series of payments made throughout the year. Id. at p. 7. Defendants did not meet the payment plan, whereupon J & JI notified them of the' contractual breach, canceled the payment plan, accelerated the amount due by requesting full payment on December 6, 2016, and issued a warning that the material breach could result in termination of the distribution relationship. Id

As of the filing of the complaint, J & JI and Ethicon contend that defendants owe a total of $4,244,725.81 for products sold and delivered.4 Id. They also obtained copies of PRHS’ 2014 and 2015 financial statements which reveal PRHS made cash advances to Customed totaling over $9 million. Id. at p. 8. J & JI and Ethicon assert that according to Customed’s most recent audited financial statement, their cash balance at the end of 2015 was only $350 despite the multiple cash advances. Id. Plaintiffs continue to communicate with PRHS and Customed directing them to pay the total amount due as soon as possible. Id. at 7.

[259]*259As a result of the contractual breach, J & JI and Ethicon request a declaratory judgment that (1) orders PRHS and Cus-tomed to pay immediately the amounts owed plus legal interests, (2) declares that J & JI and Ethicon have just cause to terminate all commercial , relationships with PRHS and Customed pursuant to Puerto. Rico Civil Code and Law 75, (3) declares that PRHS and Customed have acted with bad faith by dissipating assets to pay their debts, (4) grants injunctive relief requiring defendants to cease and desist from using trademarks and corporate logos or promoting themselves as rep: resentatives of J & JI, and (5) grants attorneys’ fees and costs. Id. at pp. 14-15.

■On April 20, 2017, defendants PRHS.and Customed filed a motion to dismiss or stay the action and compel arbitration pursuant to Section 3 and 4 of the FAA. (Docket No. 19.) Defendants contend that the 2005 Agreement requires that- • all claims brought forth by plaintiffs must first be submitted to arbitration. Id. at p. 1.

J & JI and Ethicon responded on May 18, 2017 contesting arbitration and re-emphasizing that the 2005 Agreement is not a part of their current litigation and that the arbitration clause does not apply retroactively to the agreements apd commercial relationship between the parties predating 2005. (Docket No. 39.) They attached á copy of the 2005 Agreement with an updated and detailed exhibit of the product list covéred by it.5 (Docket No. 39-1.) For the purpose of evaluating the scope of the arbitration clause the Court will be using this updated copy of the 2005 Agreement.

II. STANDARD OF REVIEW

Defendants PRHS and Customed have moved to compel arbitration pursuant to either Federal Rules of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”) or 56 (“Rule 56”), favoring the Rule 56 standard. (Docket No. 19 at p. 6.) Plaintiffs J & JI and Ethicon assert that a Rule 12(b)(6) standard of review is appropriate. (Docket No. 39 at p. 3.) The First Circuit Court of Appeals has yet to address the precise standard of review for a motion to compel arbitration. See, Pla-Fit Franchise, LLC v. Patricko, Inc., No. 13-cv-489-PB, 2014 WL 2106555, at *3 (D.N.H. May 20, 2014); Boulet v. Bangor Sec. Inc., 324 F.Supp.2d 120, 123 (D. Me 2004). Other circuits have discussed whether to apply' a Rule 12(b)(6) motion to dismiss standard or a Rule 56 summary judgment standard when reviewing a motion to compel arbitration. When it is apparent on the face of the complaint that certain daims are subject to arbitration the court should generally apply a Rule 12(b)(6) standard. See Nicosia v. Amazon.com, Inc., 834 F.3d 220, 231 (2d Cir. 2016); Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 776 (3d Cir. 2013).

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Bluebook (online)
258 F. Supp. 3d 255, Counsel Stack Legal Research, https://law.counselstack.com/opinion/johnson-johnson-international-v-puerto-rico-hospital-supply-inc-prd-2017.