R.W. International v. Welch Food
Opinion
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 93-1704
R. W. INTERNATIONAL CORP. AND T. H. WARD DE LA CRUZ, INC.,
Plaintiffs, Appellants,
v.
WELCH FOOD, INC., ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gilberto Gierbolini, U.S. District Judge]
___________________
____________________
Before
Breyer, Chief Judge,
___________
Coffin, Senior Circuit Judge,
____________________
and Boudin, Circuit Judge.
_____________
____________________
Jose A. Hernandez Mayoral with whom Rafael Hernandez Mayoral was
__________________________ ________________________
on brief for appellants.
Jaime E. Toro-Monserrate with whom Samuel T. Cespedes and Ana
_________________________ ___________________ ___
Matilde Nin were on brief for Welch Food, Inc.
___________
Jorge I. Peirats with whom Jacabed Rodriguez Coss was on brief
_________________ ______________________
for Magna Trading Corp.
____________________
January 20, 1994
____________________
COFFIN, Senior Circuit Judge. The parties in this action
_____________________
attempted to negotiate a long-term distribution relationship, but
after a year of haggling, defendant Welch Foods, Inc. (Welch)
notified plaintiffs R.W. International Corp. (R.W.) and T.H. Ward
de la Cruz, Inc.,1 that it was calling off the corporate
marriage because of irreconcilable differences. Plaintiffs
claimed that the dissolution of the relationship violated the
Puerto Rico Dealers' Contracts Act, P.R. Laws Ann. tit. 10, 278
(Law 75), and federal and state antitrust laws. Plaintiffs also
alleged a claim of tortious interference with contractual
relations against defendant Magna Trading Corp., supervisor of
Welch's operations in Puerto Rico.
The district court concluded that the association between
the parties had not yet matured into a relationship protected by
Law 75, and it consequently granted summary judgment for
defendants on the Dealers' Act and tort claims. It dismissed the
antitrust claims on the ground that plaintiffs had failed to make
the required showing of injury to competition. Our review of the
caselaw and circumstances persuades us that only the antitrust
claims properly were dismissed. We therefore reverse the summary
judgment on the other causes of action.
____________________
1 These two related corporations are both in the food
distribution business. According to answers to interrogatories,
R.W. does marketing for mainland corporations and accounting for
De la Cruz, Inc.. De la Cruz, in turn, distributes but does not
purchase products from producers. It makes purchases from Impex
Trading, another related company. See District Court opinion at
___
5 n.2. For convenience, we refer to these companies jointly as
either "plaintiffs" or "R.W.".
-2-
I. Factual Background
__________________
The facts underlying this dispute essentially are
undisputed, with the parties differing only with respect to their
legal significance. Our review of the district court's grant of
summary judgment is plenary. Cambridge Plating Co. v. Napco,
______________________ ______
Inc., 991 F.2d 21, 24 (1st Cir. 1993).
____
Welch, a producer of fruit juices and related products, has
sold its products through local distributors in Puerto Rico since
the 1930s. In 1987, Welch needed a new distributor for its
frozen concentrate line of products, and, with the help of its
local broker, Magna Trading, it identified R.W. as the most
suitable -- though not perfect -- candidate.
From the beginning of Welch's interest in R.W., company
executives had concerns about R.W.'s handling a competing line of
juice products under the "Donald Duck" label. Welch's
international marketing manager initially had suggested
internally that R.W. would have to drop the Donald Duck line "to
be a viable option," see App. at 213, but he later reported that
___
R.W.'s owner, Thomas Ward, had agreed to undertake several
measures to assure that the Welch frozen concentrates would
receive full support despite the continued presence of the Donald
Duck products. These included "[a] trial period with no
commitment by Welch's for a larger period of representation,"
App. at 219, and a financial contribution from R.W. for
advertising Welch's product.
-3-
Discussion among the parties took place through the early
months of 1988 and, on March 25, Welch's international marketing
manager wrote to Ward to announce his company's decision:
. . . I am pleased to inform you that Welch's has
reached a decision to continue the frozen concentrate
distribution and sales business begun by Ventura
Rodriguez in Puerto Rico by transferring our account to
R.W. International.
Confirming our conversation on Monday, Welch's
will proceed to draft an agreement calling for the
appointment of R.W. International in Puerto Rico for a
one-year trial period . . . .
App. at 364. Four days later, on March 29, Welch notified its
customers that it had
made the decision to appoint R.W. International and its
distributing affiliate T.H. Ward de la Cruz Inc. as its
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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 93-1704
R. W. INTERNATIONAL CORP. AND T. H. WARD DE LA CRUZ, INC.,
Plaintiffs, Appellants,
v.
WELCH FOOD, INC., ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gilberto Gierbolini, U.S. District Judge]
___________________
____________________
Before
Breyer, Chief Judge,
___________
Coffin, Senior Circuit Judge,
____________________
and Boudin, Circuit Judge.
_____________
____________________
Jose A. Hernandez Mayoral with whom Rafael Hernandez Mayoral was
__________________________ ________________________
on brief for appellants.
Jaime E. Toro-Monserrate with whom Samuel T. Cespedes and Ana
_________________________ ___________________ ___
Matilde Nin were on brief for Welch Food, Inc.
___________
Jorge I. Peirats with whom Jacabed Rodriguez Coss was on brief
_________________ ______________________
for Magna Trading Corp.
____________________
January 20, 1994
____________________
COFFIN, Senior Circuit Judge. The parties in this action
_____________________
attempted to negotiate a long-term distribution relationship, but
after a year of haggling, defendant Welch Foods, Inc. (Welch)
notified plaintiffs R.W. International Corp. (R.W.) and T.H. Ward
de la Cruz, Inc.,1 that it was calling off the corporate
marriage because of irreconcilable differences. Plaintiffs
claimed that the dissolution of the relationship violated the
Puerto Rico Dealers' Contracts Act, P.R. Laws Ann. tit. 10, 278
(Law 75), and federal and state antitrust laws. Plaintiffs also
alleged a claim of tortious interference with contractual
relations against defendant Magna Trading Corp., supervisor of
Welch's operations in Puerto Rico.
The district court concluded that the association between
the parties had not yet matured into a relationship protected by
Law 75, and it consequently granted summary judgment for
defendants on the Dealers' Act and tort claims. It dismissed the
antitrust claims on the ground that plaintiffs had failed to make
the required showing of injury to competition. Our review of the
caselaw and circumstances persuades us that only the antitrust
claims properly were dismissed. We therefore reverse the summary
judgment on the other causes of action.
____________________
1 These two related corporations are both in the food
distribution business. According to answers to interrogatories,
R.W. does marketing for mainland corporations and accounting for
De la Cruz, Inc.. De la Cruz, in turn, distributes but does not
purchase products from producers. It makes purchases from Impex
Trading, another related company. See District Court opinion at
___
5 n.2. For convenience, we refer to these companies jointly as
either "plaintiffs" or "R.W.".
-2-
I. Factual Background
__________________
The facts underlying this dispute essentially are
undisputed, with the parties differing only with respect to their
legal significance. Our review of the district court's grant of
summary judgment is plenary. Cambridge Plating Co. v. Napco,
______________________ ______
Inc., 991 F.2d 21, 24 (1st Cir. 1993).
____
Welch, a producer of fruit juices and related products, has
sold its products through local distributors in Puerto Rico since
the 1930s. In 1987, Welch needed a new distributor for its
frozen concentrate line of products, and, with the help of its
local broker, Magna Trading, it identified R.W. as the most
suitable -- though not perfect -- candidate.
From the beginning of Welch's interest in R.W., company
executives had concerns about R.W.'s handling a competing line of
juice products under the "Donald Duck" label. Welch's
international marketing manager initially had suggested
internally that R.W. would have to drop the Donald Duck line "to
be a viable option," see App. at 213, but he later reported that
___
R.W.'s owner, Thomas Ward, had agreed to undertake several
measures to assure that the Welch frozen concentrates would
receive full support despite the continued presence of the Donald
Duck products. These included "[a] trial period with no
commitment by Welch's for a larger period of representation,"
App. at 219, and a financial contribution from R.W. for
advertising Welch's product.
-3-
Discussion among the parties took place through the early
months of 1988 and, on March 25, Welch's international marketing
manager wrote to Ward to announce his company's decision:
. . . I am pleased to inform you that Welch's has
reached a decision to continue the frozen concentrate
distribution and sales business begun by Ventura
Rodriguez in Puerto Rico by transferring our account to
R.W. International.
Confirming our conversation on Monday, Welch's
will proceed to draft an agreement calling for the
appointment of R.W. International in Puerto Rico for a
one-year trial period . . . .
App. at 364. Four days later, on March 29, Welch notified its
customers that it had
made the decision to appoint R.W. International and its
distributing affiliate T.H. Ward de la Cruz Inc. as its
distributors in Puerto Rico for Welch's frozen product
line. This change will go into effect as of this date
and a written agreement is expected to be arrived at in
the near future.
App. at 366 (translation in appendix to appellant's brief).
The parties immediately began doing business, with
plaintiffs regularly submitting purchase orders and defendants
delivering the merchandise and billing plaintiffs. It was not
until three months later, however, in late June, that Welch
submitted a proposed contract to plaintiffs. Ward responded in
August with a counterproposal. Of particular concern to the
Puerto Rico company were provisions in the agreement that
appeared to reflect an effort by Welch to bypass Act 75, which
subjects companies to substantial damages if they terminate
dealership contracts for other than "just cause." The Welch
document, for example, characterized the relationship with R.W.
-4-
as a transfer of the contractual arrangement that had existed
between Welch and its prior distributors before the passage of
Act 75. Welch's draft also specified that New York law would
govern the agreement. R.W.'s revised draft, inter alia, deleted
_____ ____
the "transfer" language and specified that Puerto Rico law would
apply.
In mid-October, after a series of telephone conversations
between attorneys, Welch submitted a third proposed draft of the
agreement, which reinstated all of the language that had been of
primary concern to R.W. During a visit to Puerto Rico in early
December and in subsequent correspondence, Welch's international
marketing manager encouraged Ward to complete the contract
negotiations "as soon as possible." On January 30, 1989, Ward
responded by letter stating that he, too, was anxious to finalize
the agreement, but that there were a few items "that your lawyer
insists on and that we feel are not in the best interest of our
future relationship." In response to an inquiry about R.W.'s
investing $50,000 in a promotional campaign, Ward noted that the
commitment was not yet ripe because he had agreed to make this
expenditure "once we as a company[] held a working agreement with
Welch's." A follow-up letter sent by Ward on February 8 to the
president of Magna Trading reiterated concerns about the
"transfer" concept as a means of "avoid[ing] Law 75 constraints."
At this point, the applicability of Law 75 remained the only
significant point of contractual disagreement between the
-5-
parties. They had resolved earlier conflicts as to which of
Ward's entities would be named specifically in the contract (only
R.W.), and whether R.W. would have an exclusive distributorship
during the one-year trial period (no).
The companies had been continuing to do business throughout
the negotiation period. Late in 1988, the relationship appeared
to be working well; Magna Trading's president, Roberto Giro,
wrote to Ward in early December to commend him for exceeding by
11 percent the goal on a special product promotion. Early in
1989, however, Giro began to express concern about R.W.'s side-
by-side handling of the Welch and Donald Duck products. On
January 20, he wrote to Welch's marketing manager indicating
discomfort with Ward's involvement in a new line of Donald Duck
grape juice products. This concern escalated, and Giro wrote
again on March 22 suggesting that R.W. was not giving priority to
Welch products as it had promised to do.
On March 30, 1989, Welch's international vice president,
William Hewins, informed Ward in a letter of Welch's decision "to
discontinue the existing pre-trial relationship . . . and,
therefore, putting an end to the one-year trial or probationary
relationship for our frozen concentrate products." The letter
continued:
As you know, the idea of working together on a one-year
trial basis was, as per your recommendations, to
determine if Welch's frozen concentrates could be
handled to our satisfaction in spite of your handling a
competitive product. The pre-trial relationship proved
to us that the conflicts of interest of your
representing both competing lines are significant and
irreconcilable. . . . An increased level of conflict in
-6-
personal relations between our broker and R.W.
International has also been noted, tracing to conflicts
between the brands represented by the two firms. . . .
Instead of complementing one another, as was your
original premise, these brands represent conflicting
interests for you and us. . . .
Because Welch terminated the relationship before the parties
reached an agreement in writing, the one-year trial period
envisioned at the outset of their dealings never even commenced.
Plaintiffs filed this action in April 1989. Their amended
complaint alleges that Welch terminated their dealership
agreement without just cause in violation of Law 75; that Magna
Trading tortiously interfered with their contractual relationship
with Welch; and that defendants violated antitrust laws by
threatening, and then later actually terminating, plaintiffs'
dealership if R.W. did not agree to drop Donald Duck products,
and by seeking to monopolize the bottled grape juice market
through a price-cutting war. The case was dismissed once on
improper procedural grounds, see R.W. International Corp. v.
___ _________________________
Welch Foods, Inc., 937 F.2d 11 (1st Cir. 1991), and, following
__________________
remand, dismissed again on defendants' motions for summary
judgment.
In this appeal, plaintiffs maintain that all of their claims
are viable. They argue that, contrary to the district court's
ruling, precedent on Law 75 establishes that the statute does
____
govern the business relationship within which R.W. and Welch
operated for a year. They assert that this arrangement also
provides a basis for their tortious interference claim against
Magna. In addition, plaintiffs argue that their antitrust
-7-
allegations were sufficient to withstand defendants' summary
judgment motion and that, if their showing were deficient, the
court erred in dismissing the claims without first allowing
discovery.
II. Applicability of Law 75
_______________________
Law 75 provides that, notwithstanding any contractual
provision to the contrary, the supplier in a distribution
contract may terminate a dealership only for "just cause." P.R.
Laws Ann. tit. 10, 278a.2 The statute was intended to protect
Puerto Rico dealers from the harm caused when a supplier
arbitrarily terminates a distributorship once the dealer has
created a favorable market for the supplier's products, "thus
frustrating the legitimate expectations and interests of those
who so efficiently carried out their responsibilities," Medina &
________
Medina v. Country Pride Foods, Ltd., 858 F.2d 817, 820 (1st Cir.
______ __________________________
1988) (reproducing in full translation of Puerto Rico Supreme
Court's response to certified question, 122 P.R. Dec. 172 (1988)
(citing legislative reports)). The Act has been described as
"very much a `one-way street' designed to protect dealers from
the unwarranted acts of termination by suppliers," Nike Int'l
___________
____________________
2 The provision states in full:
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.
-8-
Ltd. v. Athletic Sales, Inc., 689 F. Supp. 1235, 1237 (D.P.R.
____ _____________________
1988).
For purposes of its summary judgment motion, Welch did not
dispute that R.W. and its affiliates were performing the
functions of a distributor within the meaning of Law 75 during
the twelve months the parties were doing business, see P.R. Laws
___
Ann. tit. 10, 278(a).3 Welch's position was, and is, that
these operations occurred during a kind of "twilight zone" period
while the parties attempted to negotiate in good faith the terms
that would govern their actual relationship. Because the
negotiations failed, the relationship never materialized, and so,
in Welch's view, Law 75 never was implicated.
The district court accepted this argument, concluding that
Law 75 was not meant to apply to a period of preliminary
negotiations preceding a completed working agreement between a
supplier and distributor. The court noted that keeping
operations in abeyance during a good-faith negotiating process
"would allow distributors to sit and wait while the principal
loses its market -- obtaining, literally without any effort, a
stronger bargaining position every day it waits." Applying Law
75 to dealings during that period, however, "would curtail the
autonomy required for arms-length negotiations." Neither
____________________
3 This provision defines a "dealer" as a "person actually
interested 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."
-9-
approach would serve the statute's purpose of "improving and
permitting a system of free competition."
Plaintiffs' challenge to this judgment is straightforward.
Law 75 makes no distinctions among distributorship arrangements,
they assert, be they described as pre-trial, preliminary,
temporary or tentative. The only relevant point of inquiry is
whether R.W. and its affiliates were performing as a dealer under
the statute; if so, Law 75 governs. R.W. thus contends that,
because Welch concedes dealer status, its decision to terminate
the relationship must be judged under the statute's "just cause"
test.
We are persuaded that plaintiffs' position is the correct
one. Their most compelling support is provided by the statutory
language, which defines a "dealer's contract" subject to Law 75
as: [a] 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(b) (emphasis added). The statute
clearly incorporates within its reach any arrangement between a
___
supplier and dealer in which the dealer is actually in the
process of distributing the supplier's merchandise in Puerto
Rico. The statute does not apply to suppliers' simple sales to
Puerto Rican wholesalers. It insists upon establishment of a
"supplier/dealer" relationship. But once that relationship is
established, the statute applies irrespective of the length of
-10-
time such an arrangement has been in existence, and it explicitly
rejects any efforts by the parties to foreclose coverage through
semantic niceties. Welch's concession that R.W. was acting as a
dealer (for purposes of summary judgment) thus seems dispositive.
Welch, however, asserts that the statute is not meant to be
as inclusive as its language suggests, and it offers several
reasons to support this position. In our view, each falters upon
close scrutiny.
First, Welch claims that the word "established" in the
provision indicates that Law 75 applies only once the parties
have achieved a certain level of stability. The parties in this
case may have been working with each other, Welch observes, but
their failure to reach agreement on essential terms meant that
their relationship was never "established" within the meaning of
Law 75. In support of this argument, Welch cites language from
cases describing the Law 75 relationship as "characterized by its
continuity, stability, mutual trust, coordination between both
parties as independent entrepreneurs," J. Soler Motors, Inc. v.
______________________
Kayser Jeep Int'l Corp., 108 P.R. Dec. 134, 145 (1978) (Official
_______________________
Translation); see also Roberco, Inc. v. Oxford Industries, Inc.,
___ ____ _____________ _______________________
122 P.R. Dec. 117 (1988), Official Translation of the Supreme
Court of Puerto Rico, slip op. at 5 (June 30, 1988); Medina &
________
Medina, 858 F.2d at 822.
______
We cannot agree that a relationship is "established" within
the meaning of Law 75 only after a supplier and dealer have
_____
reached the point at which their relationship might be described
-11-
as "stable" or "continuous." Although the statute was enacted to
protect from abrupt and arbitrary termination dealers whose
longstanding representation had provided substantial economic
benefit to the manufacturer, the law is drafted to govern
relationships from their inception to ensure that they will both
become and remain stable and continuous. See Medina & Medina,
___ ________________
858 F.2d at 820 (Act 75 levels bargaining power between
manufacturer and dealer "[i]n order to achieve reasonably stable
dealership relationships in Puerto Rico"). Although the
precedent cited by Welch describes the type of longstanding
commercial partnership that gave rise to Law 75, we do not read
the cases to exclude fledgling relationships from the act's
coverage. A well-established dealer may have more to lose -- and
may have provided more benefit to the supplier -- than a dealer
with less tenure, but the statute makes no distinction between
them.
Nor can it be said that a relationship is established within
the meaning of Law 75 only if it is committed to writing.
Indeed, Welch's counsel acknowledged at oral argument that a
relationship subject to the statute may be established through a
course of dealing, but argued that this was not such a case
because the parties continued to disagree over the essential
terms of their affiliation throughout their entire collaboration.
In other words, Welch contends that this relationship was not
established because its terms still were being negotiated.
-12-
While it is true that the parties had yet to agree on the
dimensions of their future relationship, the fact remains that
they were operating as business partners under some terms for a
____
full year. Plaintiffs sent purchase orders to Welch
approximately once a week between March 1988 and March 1989, and
Ward's companies were actively involved in distributing Welch
products throughout that time. As noted above, Ward received a
commendation from Magna Trading's president for its effort in a
successful special promotion. To be sure, the relationship
envisioned by the parties when they began to do business never
materialized; the relationship protected by Law 75, however, was
the one that actually existed.
Welch's second argument, that applying Law 75 during a
period of preliminary negotiations improperly burdens the
parties' liberty to contract, is the one the district court found
particularly convincing. When parties freely have agreed that a
trial period will precede establishment of the long-term
relationship Law 75 is intended to protect, the company asserts,
invoking the Act before conclusion of the trial period is
tantamount to coercing the parties into a contract neither agreed
to enter. This is particularly harmful to the supplier, Welch
maintains, because Law 75 is designed to empower dealers. Thus,
a supplier who is not allowed to step away from an unsuccessful
attempted relationship would be forced into accepting the
dealer's terms and conditions, with the consequent loss of its
financial and legal autonomy.
-13-
We detect several problems with this argument. In the first
place, as we have noted, the parties in this case were not simply
negotiating a relationship to be activated sometime in the
future. R.W. had been serving as Welch's Puerto Rico dealer for
twelve months. While we would have no difficulty in accepting
that a supplier could break off negotiations, no matter how long
they had been going on, the issue before us is whether Welch can
terminate an actual dealership relationship that existed
contemporaneously with the negotiations. Welch wants to insulate
those dealings from Law 75 because they were part of a longer-
term plan. The statute, however, plainly states that the
characterization of a relationship (e.g., calling it temporary or
preliminary) does not affect its status under Law 75. If the
parties are dealing, a dealership exists for purposes of the Act.
This bright line makes sense. Otherwise, suppliers could
insist on various types of contingency arrangements to avoid Law
75's restrictions for substantial periods of time. Although
Welch's concerns about R.W.'s capacity to perform in the face of
a potential conflict of interest seem legitimate, delaying Law
75's coverage until long after the dealership relationship began
would allow Welch to terminate for any reason whatsoever. Welch,
for example, could forsake R.W. without recourse and without
regard for any efforts taken by R.W. to gear up for Welch's
business, if another dealer willing to accept a smaller
commission suddenly became available. Moreover, there seems to
be no principled distinction between Welch's one-year trial
-14-
period and a supplier's effort to designate a three- or even
five-year "preliminary" distributorship before deciding on a
long-term relationship. To rule that a contingent relationship
is outside the scope of Law 75 is thus to allow a significant
loophole in the protection the Puerto Rico legislature sought to
provide.
In the second place, we fail to see how applying Law 75 in
the circumstances of this case necessarily would require Welch to
continue a relationship it does not want in a manner to which it
has serious objections. Law 75 simply requires a supplier to
justify its decision to terminate a dealership. If Welch's
conflict-of-interest concerns about R.W. are legitimate, we have
no doubt that this would constitute "just cause" under Law 75.
See Medina & Medina, 858 F.2d at 823-24.4 Thus, applying Law 75
___ ________________
here does not force a contract onto unwilling parties; it simply
imposes conditions on an existing relationship.
Finally, the liberty of contract argument stumbles insofar
as it presumes that only the supplier will suffer if, to avoid
____________________
4 Medina & Medina is not precisely on point because it
________________
involved a supplier's decision to totally withdraw from the
Puerto Rico market following good-faith negotiations that failed
to achieve agreement between the parties. There is no indication
here that Welch intended to leave the market rather than find a
new dealer. Nevertheless, we believe the principle underlying
Medina & Medina is equally applicable in these circumstances,
________________
i.e., that a supplier has just cause to terminate if it has
bargained in good faith but has not been able "to reach an
agreement as to price, credit, or some other essential element of
the dealership," 858 F.2d at 824. This would be true at least
where, as here, the supplier's market in Puerto Rico was well
established before the current dealer relationship and the
supplier's action therefore "is not aimed at reaping the good
will or clientele established by the dealer," id.
___
-15-
application of Law 75, the parties refrain from dealing until
they have reached final agreement on all terms to govern their
long-term relationship. The manufacturer and the dealer share an
interest in maximizing sales of the product, and it would be no
more to the dealer's advantage than to the manufacturer's for a
market to slip away while the parties are engaged in protracted
negotiations. We therefore disagree with the district court's
view that dealers will gain unfair advantage in bargaining if Law
75 is triggered as soon as the parties start dealing. Both sides
have an incentive to reach agreement at the earliest possible
time. To the extent a supplier's future flexibility is
diminished by its choice to begin dealing before all issues have
been resolved, this is a result intended by the legislators who
enacted Law 75.
In short, the practical effect of activating the Dealers'
Act as soon as the parties start conducting business as supplier
and dealer is to ensure that, right from the start, the
relationship is marked by a certain level of commitment from the
supplier. This does not entirely deprive suppliers of the
opportunity to evaluate the suitability of a particular match
through a "test period." It simply means that the relationship
can be severed without consequence only for just cause, i.e., if
the dealer fails a meaningful test. This should not trouble
suppliers engaged in good-faith negotiations, for their goal is
to produce a long-term working agreement. If, on the other hand,
a preliminary "understanding" disintegrates into impasse over
-16-
essential terms, a finding of "just cause" seems likely. Law 75
is not intended to extend unworkable relationships, but only to
prevent arbitrary terminations. See Medina & Medina, 858 F.2d at
___ _______________
823-24.
Of course, whether or not statutes of this kind are sound
policy is not our concern. Perhaps a case can be made for having
a fixed period during which the relationship is probationary and
the statutory rights under Law 75 do not vest; this is typical
for tenure arrangements in government employment and in the
academic world. But the legislature has not enacted such a
window, as we read the present statute, and it is not for us to
amend the statute in the guise of construction.
Welch's effort to bolster its position through reliance on
Medina & Medina and another case involving a novel Law 75
_________________
question, Nike Int'l Ltd. v. Athletic Sales, Inc., 689 F. Supp.
________________ ____________________
1235 (D.P.R. 1988), is unavailing. In Medina & Medina, the
________________
Puerto Rico Supreme Court held that a supplier may withdraw from
the Puerto Rico market without consequence under Law 75 if "the
parties have bargained in good faith but have not been able to
reach an agreement as to price, credit, or some other essential
element of the dealership," 858 F.2d at 824. Welch contends that
the district court's ruling, allowing the company to call off the
protracted, unsuccessful negotiations with R.W., is faithful to
that decision.
In Medina & Medina, however, the Puerto Rico Supreme Court
________________
did not rule that a temporary relationship pending completion of
-17-
negotiations is outside the scope of Law 75, but it held that the
failed negotiations over price and credit terms provided just
____
cause for the supplier's decision to terminate the
_____
distributorship a year after it began.5 Until that case, it was
unclear whether a supplier could terminate without consequence
for any reason other than the dealer's adverse actions. Medina &
________
Medina does help Welch, in that it allows an argument that failed
______
negotiations may support a finding of "just cause," but it does
not bolster the company's argument that preliminary dealings fall
outside Law 75.
In Nike, a federal district court permitted termination of a
____
dealer who failed to give the contractually required written
notice to the supplier of its intent to renew the contract. 689
F. Supp. at 1239. According to Welch, Nike stands for the
____
principle that dealers may not avoid the express terms of
agreements to which they willingly subscribe. Consequently, the
company argues, the district court properly held appellants to
their own characterization of the arrangement as a preliminary
test period.
This argument stretches Nike far beyond its legitimate
____
boundaries. Nike addressed only whether Law 75 released a dealer
____
from an explicit renewal procedure contained in the
distributorship contract. Noting that the statute's purpose was
to protect against unjustified termination by the principal, the
________________
____________________
5 The dealership contract between Medina & Medina and
Country Pride contained no time limit. Product prices were set
periodically by mutual agreement. 858 F.2d at 818.
-18-
court ruled that it had no effect on mutual agreements specifying
the manner in which a dealer must notify a supplier of its desire
to continue their relationship. See 689 F. Supp. at 1239. In
___
other words, while Law 75 takes away from the supplier the right
to make a subjective decision to terminate, other than for "just
cause," the parties may agree to a contractual procedure that
gives the dealer the power either to end or to continue the
__________
relationship after a given period of time. Nike holds that Law
____
75 does not protect the dealer from its own failure to follow
that procedure.
This case is simply not equivalent to Nike. Welch, in
____
essence, claims that the parties agreed that Welch would have the
power to terminate their relationship after a preliminary test
period, without regard to just cause. This, however, is
precisely the imbalance of power to which Law 75 was directed,
and the statute invalidates such an agreement. Under Law 75, a
principal may not wield unilateral authority to terminate a
dealership relationship for other than just cause.
In sum, we find no basis upon which to exclude the ongoing
commercial dealings between Welch and R.W. from the embrace of
Law 75. The district court's grant of summary judgment therefore
must be reversed so that the court may consider whether Welch had
"just cause" for terminating the relationship.6 Because summary
judgment on the claim for tortious interference with a
____________________
6 We recognize that Welch conceded that R.W. was performing
as a dealer only for purposes of its summary judgment motion, and
that, consequently, this issue also may surface again on remand.
-19-
contractual relation was premised on the Law 75 holding, that
decision also must be vacated and remanded for further
consideration. The remand on the tortious interference claim is
without prejudice to any argument Welch may be making that,
regardless of the existence of a relationship protected by Law
75, there was no contract protected against tortious
interference.
III. Antitrust Claims
________________
In January 1989, R.W. introduced a new Donald Duck bottled
grape juice into the market with an intensive promotional
campaign. Plaintiffs allege that defendants' reaction to the new
product, and R.W.'s representation of it, violated sections 1 and
2 of the Sherman Act, 15 U.S.C. 1, 2, as well as Commonwealth
antitrust law, P.R. Laws Ann. tit. 10, 258, 260. The
principal actions cited by plaintiffs in their amended complaint
were (1) discussions in which Welch and Magna expressed "anger
(`molestia'), discomfort and preoccupation with Plaintiffs'
handling of the `Donald Duck' bottled grape juice," Amended
Complaint at 78; (2) a "massive promotional campaign" for
Welch's own bottled grape juice, and a price cutting war, "in
order to block out the entrance [of] the `Donald Duck' bottled
grape juice into the Puerto Rican market," id. at 82, 91; and
___
(3) the decision of Welch to terminate its relationship with
plaintiffs because R.W. did not drop representation of the Donald
Duck juice, id. at 81.
___
-20-
The district court granted summary judgment on these claims,
concluding that plaintiffs had failed to demonstrate a genuine
issue of material fact as to whether defendants' actions
constituted either a conspiracy in restraint of trade in
violation of 1 of the Sherman Act,7 or an unlawful conspiracy
to monopolize the bottled grape juice market in violation of
2.8 Of greatest significance to the court was a declaration
from one of Magna's principals, Francisco Gil, stating that
Donald Duck bottled products had reached, within a short period
of time, at least 80 percent of the stores typically carrying
such products. The court found that summary judgment was proper
because "plaintiffs never responded to Welch's claim that []
competition has not been injured, and that the Donald Duck
bottled grape juice was successfully introduced into the Puerto
Rico market."
Plaintiffs claim on appeal that the court improperly and
prematurely dismissed their antitrust claims. Much of their
brief on this issue, however, is devoted to an off-the-mark
argument concerning the court's failure to treat the allegations
in their complaint liberally. The court did not dismiss the
____________________
7 Section 1 makes unlawful "[e]very contract, combination in
the form of trust or otherwise, or conspiracy, in restraint of
trade or commerce among the several States, or with foreign
nations . . . ." 15 U.S.C. 1.
8 Section 2 makes it an offense for any person to
"monopolize, or attempt to monopolize, or combine or conspire
with any other person or persons, to monopolize any part of the
trade or commerce among the several States, or with foreign
nations . . . ." 15 U.S.C. 2.
-21-
antitrust claims based on the pleadings, but ruled that
plaintiffs had failed to substantiate in any way their conclusory
allegations in response to defendants' summary judgment motion
and accompanying declaration. Our review of the district court's
decision consequently focuses solely on the appropriateness of
summary judgment.
Section 1 of the Sherman Act. As argued by plaintiffs in
_____________________________
their appellate brief, the unreasonable restraint of trade
underlying their 1 claim was an alleged threat by Welch (as
part of a conspiracy with Magna) to terminate plaintiffs'
_____
dealership and the subsequent actual termination of the
relationship. These actions presumably were alleged to violate
the antitrust laws based on their impact in pressuring plaintiffs
to drop the Donald Duck line of products, thereby suppressing
competition among grape juice manufacturers.
Heavy-handed competitive tactics alone do not constitute an
antitrust violation, however. To survive defendants' motion for
summary judgment, plaintiffs needed to demonstrate a genuine
dispute as to whether defendants' actions caused an injury to
competition, as distinguished from impact on themselves. See,
___________ ___
e.g., Spectrum Sports, Inc. v. McQuillan, 113 S. Ct. 884, 892
____ ______________________ _________
(1993) ("The law directs itself not against conduct which is
competitive, even severely so, but against conduct which unfairly
tends to destroy competition itself."); Copperweld Corp. v.
_________________
Independence Tube Corp., 467 U.S. 752, 767 n.14 (1984) ("`[T]he
_______________________
antitrust laws . . . were enacted for "the protection of
-22-
competition, not competitors."'") (citations omitted) (emphasis
___________ ___________
in original); Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851
________________ __________________________
F.2d 478, 486 (1st Cir. 1988) ("`Anticompetitive' . . . refers
not to actions that merely injure individual competitors, but
rather to actions that harm the competitive process."). Once
defendants presented a declaration averring that the Donald Duck
products successfully entered the market during the relevant
period of time -- indicating a lack of injury to competition --
plaintiffs were obliged to counter that statement with more than
the bare allegations contained in their complaint. See
___
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
___________________________ __________________
584-87 (1986).
Plaintiffs responded with a statement from R.W. owner Ward,
which stated, in relevant part:
2. During the last months of 1988 R.W. International
Corp. became the broker of Donald Duck bottled grape
juice.
3. Shortly after the introduction in the market of the
Donald Duck bottled grape juice, Welch's began an
intensive promotion of their bottled grape juice
products.
4. This intensive promotion of the Welch's Grape
bottled products caused [] the introduction of the
Donald Duck bottled grape juice be severely suppressed.
5. Upon information and believe [sic], this intensive
promotion was carried out in conjunction with Magna
Trading Corporation to eliminate the Donald Duck
bottled grape juice from [the] Puerto Rico market.
The district court concluded that this statement was
insufficient to generate a genuine factual dispute because it
left unchallenged defendants' assertion that the Donald Duck
-23-
bottled juice had deeply penetrated the Puerto Rico market during
the period of defendants' allegedly unlawful conspiracy. The
court observed:
[A]s the Puerto Rico Supreme Court has recognized,
distributors are in contact with the retailers,
consumers, and the different components of the trade.
Medina, 817 F.2d at 823 n.6. Plaintiffs were in the
______
position to show, based on their knowledge of the
Puerto Rico market, the effects of Welch's conduct on
the market . . . . However, other than the conclusory
allegation that their line had been "severely
suppressed," plaintiffs never responded to Welch's
claim that the competition has not been injured, and
that the Donald Duck bottled grape juice was
successfully introduced into the Puerto Rico market.
The district court's decision and explanation are
unimpeachable. Plaintiffs may have felt pressured to drop the
Donald Duck products in order to preserve the Welch dealership,
and may have suffered economic consequences from Welch's decision
to terminate, but these circumstances are irrelevant insofar as
an antitrust violation is concerned. Plaintiffs' failure to
rebut defendants' assertion that Donald Duck bottled grape juice
had no problem entering the market -- an implicit assertion that
competition was not affected -- fully justifies the district
___
court's decision to grant summary judgment for defendants.
Plaintiffs take issue with the significance of defendants'
penetration figure, arguing that each of the stores carrying
Donald Duck juice may have had only a single bottle of that brand
while displaying shelves full of Welch products. We agree with
the district court, however, that such information, if true,
could have been obtained easily by plaintiffs, and its absence is
-24-
thus not a proper basis upon which to withhold summary judgment
from defendants.9 See infra at 24-25 (denial of discovery).
___ _____
Section 2 of the Sherman Act. Plaintiffs' 2 claim
________________________________
characterizes defendants' promotional campaign, in which Welch
reduced prices on its bottled grape juice, as an impermissible
effort to gain monopoly control of the bottled grape juice market
in Puerto Rico. In light of R.W.'s success in introducing the
Donald Duck juice, this claim is wholly without merit.
The Supreme Court repeatedly has recognized that "cutting
prices in order to increase business often is the very essence of
competition," Matsushita, 475 U.S. at 594. See also Brook Group
__________ ___ ____ ___________
Ltd. v. Brown & Williamson Tobacco Corp., 113 S. Ct. 2578, 2586
____ _________________________________
(1993) (". . . Congress did not intend to outlaw price
differences that result from or further the forces of
competition."); Atlantic Richfield Co. v. USA Petroleum Co., 495
______________________ _________________
U.S. 328, 341 (1990) ("`It is in the interest of competition to
permit dominant firms to engage in vigorous competition,
including price competition.'") (citations omitted). There was
little basis for believing that Welch was engaged in below-cost
____________________
9 We have not considered Magna's argument that the 1 claim
fails because the requirement for joint action by independent
___________
entities is not fulfilled here in light of Magna's and Welch's
unified economic interest. The argument does seem to have some
force, however. See Copperweld, 467 U.S. at 776 (holding that
___ __________
"the coordinated behavior of a parent and its wholly owned
subsidiary falls outside the reach of [ 1]"); Pink Supply Corp.
_________________
v. Hiebert, Inc., 788 F.2d 1313, 1316-17 (8th Cir. 1986)
______________
(corporate agents may lack "the independent economic
consciousness" necessary to be conspirators separate from their
principal).
-25-
pricing as opposed to mere price reduction, although even below-
cost pricing is not automatically an antitrust violation if
competition is not threatened. See Brook Group, 113 S. Ct. at
___ ___________
2588. Where, in addition, a new product is able to deeply
penetrate the market during the challenged price-cutting period,
it is evident that competition is unharmed and "summary
disposition of the case is appropriate," id. at 2589.
___
Request for Discovery. Plaintiffs suggest that their
_______________________
inability to respond with particularity to defendants' motion for
summary judgment is attributable to the district court's refusal
to lift a stay of discovery that had been imposed on the
antitrust claims. The decision whether to allow discovery while
a summary judgment motion is pending rests within the discretion
of the district court, Sheinkopf v. Stone, 927 F.2d 1259, 1263
_________ _____
(1st Cir. 1991), and "the party seeking additional time for
discovery . . . must show that the facts sought `will, if
obtained, suffice to engender an issue both genuine and
material,'" id. (citation omitted).
___
As the district court observed, plaintiffs were well
situated to explore Welch's impact on competition in the bottled
grape juice market, and they had an obligation to use their
knowledge and connection with the market to develop some basis to
justify further inquiry.10 Plaintiffs, however, "never
____________________
10 For example, plaintiffs could have done a sampling of
stores to compare prices and shelf life between the Welch and
Donald Duck products. If bottles of Donald Duck juice remained
on the shelves for long periods while Welch products enjoyed a
quick turnover, and Welch's prices were substantially lower,
-26-
articulated how discovery from Welch would provide insight on the
impact of Welch's conduct on the market." District Court
Opinion, at 23-24. Their failure to do so negates their claim
that the district court erred in denying discovery.
Accordingly, we conclude that the district court properly
dismissed plaintiffs' claims under sections 1 and 2 of the
Sherman Act, as well as under the analogous provisions of Puerto
Rico law.
IV. Conclusion
__________
For the foregoing reasons, we vacate the summary judgment
for defendants on the Law 75 and tortious interference claims,
and remand those issues for further proceedings consistent with
this opinion. We affirm dismissal of the antitrust claims. We
have not considered in any fashion defendants' argument to the
district court that dismissal of all claims alternatively is
appropriate based on Fed. R. Civ. P. 41 and the court's inherent
powers to control the proceedings before it. The district court
explicitly sidestepped this issue, and it is not properly before
us.
Affirmed in part, and vacated and remanded in part. Each
_____________________________________________________ ____
party to bear its own costs.
____________________________
____________________
plaintiffs may have been able to persuade the district court to
grant discovery into the possibility that Welch was engaged in
predatory pricing. See Brook Group, 113 S. Ct. at 2587 (predatory
___ ___________
pricing involves pricing products "in an unfair manner with an
object to eliminate or retard competition and thereby gain and
exercise control over prices in the relevant market").
-27-
R.W. International v. Welch Food, (1st Cir. 1994).
R.W. International v. Welch Food (R.W. International v. Welch Food) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.
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