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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-2177
R. W. INTERNATIONAL CORP. AND
T. H. WARD DE LA CRUZ, INC.,
Appellants,
v.
WELCH FOODS, INC.,
Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gilberto Gierbolini-Ortiz, Senior U.S. District Judge] __________________________
____________________
Before
Cyr, Circuit Judge, _____________
Campbell, Senior Circuit Judge, ____________________
and Boudin, Circuit Judge. _____________
____________________
Jos A. Hern ndez Mayoral for appellants. _________________________
Gilberto J. Marxuach-Torr s, with whom Samuel T. C spedes, Ana ___________________________ __________________ ___
Matilde Nin, and McConnell Valdes were on brief for appellee. ___________ ________________
____________________
July 10, 1996
____________________
CYR, Circuit Judge. R.W. International Corp. and T.H. CYR, Circuit Judge. _______ _____
Ward de la Cruz, Inc. (collectively: "R.W.") appeal a summary
judgment dismissing their claim that Welch Foods, Inc. ("Welch")
unilaterally terminated its dealership contract with R.W. in
violation of the Puerto Rico Dealers' Contracts Act, P.R. Laws
Ann. tit. 10, 278 ("Law 75"). We affirm the district court
judgment.
BACKGROUND1 BACKGROUND __________
Welch is a major fruit juice manufacturer which has
sold its products in Puerto Rico since the 1930's through various
local distributors. On March 25, 1988, Welch designated R.W. as
its new Puerto Rico distributor for frozen juice concentrate.
While the parties continued to negotiate the terms of a final
dealership contract, R.W. began distributing Welch products to
over 500 retail stores throughout Puerto Rico.
Prior to R.W.'s designation as its distributor, Welch
had expressed concern about R.W.'s insistence on continuing to
distribute "Donald Duck" frozen juice concentrate, a competing
brand, and on its plans to begin distribution of "Donald Duck"
bottled juice products in January 1989. Consequently, R.W. had
agreed, in principle, to take various measures designed to
alleviate Welch's concerns, including a one-year trial dealership
____________________
1The facts are stated in the light most favorable to appel-
lant R.W. The reader is referred to our two earlier decisions
for additional detail. See R.W. Int'l Corp. v. Welch Food, Inc., ___ ________________ ________________
13 F.3d 478 (1st Cir. 1994); R.W. Int'l Corp., 937 F.2d 11 (1st ________________
Cir. 1991).
2
during which R.W. would give Welch's frozen juice product full
marketing priority and support, increase Welch's sales by 15%
over 1987 sales figures, and contribute $50,000 toward a joint
advertising promotion of Welch's juice products. Notwithstanding
their agreement in principle, final contract negotiations between
the parties immediately and unexpectedly became contentious in
several peripheral respects which remained unresolved for more
than a year.2
In January 1989, after R.W. began its long-planned
expansion of the "Donald Duck" distribution line to include both
frozen and bottled juices, Welch employees noticed that (i) R.W.
had included an advertisement for Donald Duck frozen juice in a
supermarket "shopper" publication, while omitting an advertise-
ment for Welch frozen juice; (ii) "on various occasions" R.W. had _____
stocked Welch frozen juice on the bottom shelves of retail store _____
freezer cases, while placing Donald Duck frozen juice at customer
eye-level; and (iii) R.W.'s average monthly sales figures for
Welch products during January-February 1989 fell by approximately
14% from its average monthly sales figures for 1988.3
____________________
2The matters in contention included whether: R.W. would be
Welch's exclusive Puerto Rico dealer during the one-year trial
period; New York or Puerto Rico law would govern any contract
dispute; R.W. would "assume" the "grandfathered" contract of
Welch's previous dealer, thereby avoiding application of Law 75.
3During the one-year dealership relationship, Welch juice
sales were as follows:
April 1988 1900 cases $ 42,770
May 1988 3060 cases $ 70,354
June 1988 2983 cases $ 63,971
July 1988 3005 cases $ 64,056
3
On March 30, 1989, Welch discontinued the yearlong
contract negotiations and unilaterally terminated R.W.'s dealer-
ship. Welch pointed to the "conflicts of interest of [R.W.]
representing both competing lines [i.e., Welch and Donald Duck],
[which] are significant and irreconcilable, [and] [a]n increased
level of conflict in personal relations between [us]."
In April 1989, R.W. filed this action alleging that
Welch's unilateral termination of the dealership violated Law 75,
which provides:
Notwithstanding the existence in a dealer's
contract of a clause reserving to the parties
the unilateral right to terminate the exist-
ing relationship, no principal or grantor may
directly or indirectly perform any act detri-
mental [i.e., unilateral termination] to the
established relationship or refuse to renew
said contract on its normal expiration, ex- ___
cept for just cause. ____ ___ ____ _____
P.R. Laws Ann. tit. 10, 278a (1976 and Supp. 1989) (emphasis
added). The district court initially entered summary judgment
for Welch on the ground that Law 75 afforded no protection to
dealers unless a final, written "dealer's contract" has been
executed by the parties. On remand following our vacation of the
____________________
August 1988 3093 cases $ 66,983
September 1988 2607 cases $ 54,809
October 1988 2866 cases $ 61,022
November 1988 2312 cases $ 49,619
December 1988 2587 cases $ 55,220
January 1989 2471 cases $ 52,189
February 1989 2284 cases $ 48,687
March 1989 2955 cases $ 72,640
Although R.W. notes that sales figures rebounded in March 1989,
Welch made its determination to terminate contract negotiations
before month-end.
4
district court judgment, see R.W. Int'l, 13 F.3d at 486 (holding ___ __________
that the broad definition of "dealer's contract" in Law 75 would
comprehend dealers actually engaging in product distribution for
a principal, albeit only through a course of dealing preceding ______
the execution of a final contract), Welch renewed its motion for
summary judgment. It contended that the undisputed evidence
established that R.W.'s demonstrated conflict of interest consti-
tuted "just cause," under Law 75, for terminating their one-year
dealership. The district court once again entered summary
judgment for Welch and R.W. appealed.
DISCUSSION4 DISCUSSION __________
The Puerto Rico Legislature enacted Law 75 believing
that traditional contract-law principles had not afforded local
dealers adequate protection from arbitrary dealer-contract
terminations by larger, primarily mainland-based principals which
normally enjoy a superior bargaining position. See Vulcan Tools ___ ____________
of P.R. v. Makita U.S.A., Inc., 23 F.3d 564, 568 (1st Cir. _______ ____________________
1994).5 The Legislature therefore prohibited a principal from
____________________
4We will uphold a grant of summary judgment if the competent
evidence discloses no genuine issue of material fact and Welch is
entitled to judgment as a matter of law. See Fed. R. Civ. P. 56; ___
Casas Office Machs., Inc. v. Mita Copystar Am., Inc., 42 F.3d __________________________ ________________________
668, 678 (1st Cir. 1994). The materiality of any disputed fact
in genuine dispute is determined through reference to the appli-
cable substantive law, in this case, Law 75. See Anderson v. ___ ________
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). ___________________
5The statement of motives in Law 75 reads, in pertinent
part: "The Commonwealth of Puerto Rico cannot remain indifferent
to the growing number of cases in which domestic and foreign
enterprises, without just cause, eliminate their dealers, conces-
sionaires or agents, as soon as these have created a favorable
5
unilaterally terminating an established dealership "except for
just cause." See P.R. Laws Ann. tit. 10, 278a. Law 75 defines ___
"just cause" as either "nonperformance of any of the essential ______
obligations of the dealer's contract, on the part of the dealer,
or any action or omission on [the dealer's] part that adversely __
and substantially affects the interest of the principal or
grantor in promoting the marketing or distribution of the mer-
chandise or service." Id. 278 (emphasis added). __
Ultimately, "just cause" under Law 75 is a question of
fact, see La Playa Santa Marina, Inc. v. Chris-Craft Corp., 597 ___ ____________________________ __________________
F.2d 1, 4 (1st Cir. 1979), as are the subsidiary issues (i)
whether the contracting parties considered the particular con-
tract obligation allegedly breached by the dealer to be "essen-
tial," see Biomedical Instrument and Equip. Corp. v. Cordis ___ _________________________________________ ______
Corp., 797 F.2d 16, 18 (1st Cir. 1986), see also PPM Chem. Corp. _____ ___ ____ _______________
of P.R. v. Saskatoon Chem., Ltd., 931 F.2d 138, 140 (1st Cir. _______ ______________________
1991), or (ii) whether any other "non-breaching" acts or omis-
sions by the dealer were nonetheless sufficiently egregious to
have "adversely and substantially affect[ed] the interest of the
principal or grantor in promoting the marketing or distribution
of the merchandise or service," Pan Am. Computer Corp. v. Data ______________________ ____
Gen. Corp., 652 F.2d 215, 217 n.2 (1st Cir. 1981); La Playa, 597 __________ ________
F.2d at 3 (upholding final judgment for dealer, despite its two
"minor" contract breaches). Moreover, once a dealer demonstrates
____________________
market and without taking into account their legitimate inter-
ests."
6
that its principal unilaterally terminated their contract, the
principal must carry the burden of persuasion on the factual
elements of the "just cause" showing. Newell Puerto Rico, Ltd. _________________________
v. Rubbermaid Inc., 20 F.3d 15, 22 (1st Cir. 1994); La Playa, 597 _______________ ________
F.2d at 3-4.
R.W. does not contest the historical facts upon which
Welch based its claim that R.W. operated under a conflict of
interest adverse to Welch's long-term interests: R.W.'s lower
sales of Welch products during January-February 1989, see supra ___ _____
note 3; R.W.'s failure to include a Welch sales promotion in an
issue of a supermarket "shopper" which carried an advertisement
for Donald Duck's competing products; and its "occasional"
placement of Welch products in freezer positions less favorable
and less consumer-friendly than the Donald Duck products.
Rather, R.W. merely argues that divergent inferences might be
drawn from these undisputed facts, bearing on the issues of
"essentiality" and "adversity" upon which Welch would be required
to bear the burden of proof at trial, and that these competing
inferences generated trialworthy issues not amenable to summary
judgment.6
Even conceding the reasonableness of any such competing
inferences, however, R.W.'s protestation that it committed no
____________________
6For example, the parties dispute whether their mutual
"contractual" commitment to contribute $50,000 apiece to adver-
tise Welch frozen concentrate was to be performed during the one-
year trial period following R.W.'s March 1988 designation, or
whether this commitment would accrue only during a one-year trial
period commencing from the date a final written dealership
contract was signed.
7
cognizable breach of "contract," or other act or omission suffi-
ciently "adverse" to Welch's business interests to warrant
termination, would not preclude summary judgment for Welch.
Although Law 75, by its plain terms, makes the "just cause"
inquiry turn solely on the dealer's actions or omissions, see ________ ___
P.R. Laws Ann. tit. 10, 278, the Puerto Rico Supreme Court has
read a "third" "just cause" into the statute to avoid constitu-
tional invalidation, by holding that a principal's own circum-
stances may permit its unilateral termination of an ongoing
dealership, irrespective of the dealer's conduct. See Medina & ___ ________
Medina v. Country Pride Foods, Ltd., 858 F.2d 817, 822-23 (1st ______ __________________________
Cir. 1988) (responding to question certified in 825 F.2d 1 (1st
Cir. 1987)).
After the principal in Medina unsuccessfully attempted ______
in protracted good-faith negotiations to adjust its business to
changed market conditions by renegotiating price and credit terms
with its long-time dealer, it decided to terminate the dealer's
contract, and withdraw from the Puerto Rico market. Id. at 818- ___
19. The Medina court noted that an overly restrictive interpre- ______
tation of Law 75's "just cause" requirement could place a princi-
pal in a serious dilemma under such circumstances: either
capitulate to the dealer's price and credit terms and be held
hostage in an interminable dealership relationship on disadvanta-
geous terms, or unilaterally terminate the contract and expose
itself to a costly lawsuit under Law 75. Id. at 822 & n.4. ___
Where the principal intends to retire entirely from the Puerto
8
Rico market, however, little if any danger exists that the sort
of exploitation proscribed by Law 75 can occur, since the retir-
ing principal cannot hope to appropriate prospectively the
product goodwill created by its dealer in the Puerto Rico market.
Id. at 823. Thus, where the principal offers "reasonable" ___
contract terms, but nonetheless arrives at a bona fide impasse in ____ ____
the negotiations, barring unusual circumstances not present here
Medina ordains a determination that there was "just cause" for ______
the unilateral dealership termination by the principal. See id.; ___ ___
see also Borg Warner Int'l Corp. v. Quasar Co., No. CE-94-182, ___ ____ ________________________ ___________
slip op. at 10 n.8 (P.R. Mar. 14, 1996) (Official Translation).
"Absent controlling state court precedent, a federal
court sitting in diversity may . . . predict[] . . . the course
the state courts would take [if] reasonably clear." VanHaaren v. _________
State Farm Mut. Auto. Ins. Co., 989 F.2d 1, 3 (1st Cir. 1993). _______________________________
In fact, this court predicted earlier that upon remand and
further discovery Welch's asserted reasons for terminating R.W.
might constitute "just cause" as enunciated in Medina: ______
[W]e 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 con-
flict-of-interest concerns about R.W. are
legitimate, we have no doubt that this would
constitute "just cause" under Law 75. . . .
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 in-
9
tended to leave the market rather than find a
new dealer. Nevertheless, we believe the
principle underlying Medina & Medina is e- ________________
qually applicable in these circumstances,
i.e., that a supplier has just cause to ter- _ ________ ___ ____ _____ __ ____
minate 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." 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 estab-
lished by the dealer."
R.W. Int'l Corp., 13 F.3d at 484 & n.4 (emphasis added). ________________
Our discussion did not suggest that the "good faith"
inquiry necessarily would be amenable to summary judgment, of
course. Nonetheless, whereas the ultimate burden to prove "just
cause" under the two-part statutory definition resides with the _________
principal (i.e., Welch), see Newell, 20 F.3d at 22, the bona ___ ______ ____
fides of contract negotiations must be presumed under Puerto Rico _____
law. See Borg Warner, No. CE-94-182, slip op. at 10 n.8. ___ ____________
Consequently, at trial R.W. would bear the burden to establish
Welch's bad faith for purposes of the Medina "just cause" deter- ______
mination.
R.W. has not met its burden as a nonmoving party under
Fed. R. Civ. P. 56. See Celotex Corp. v. Catrett, 477 U.S. 317, ___ _____________ _______
322 (1986) (if the nonmovant would bear the burden of proof on a
particular issue at trial, its failure to adduce sufficient
evidence to demonstrate its trialworthiness warrants summary
judgment for the movant); Smith v. Stratus Computer, Inc., 40 _____ _______________________
F.3d 11, 12 (1st Cir. 1994), cert. denied, 115 S. Ct. 1958 _____ ______
10
(1995). As R.W. proffered no competent evidence to rebut the
historical facts relied on by Welch to justify its unilateral
termination i.e., declining sales figures, the "shopper"
omission, or the bottom-shelf freezer placements we need only
ask whether a rational jury could find mala fides or unreason- ____ _____
ableness on the part of Welch in determining that R.W. was
representing conflicting interests.
Even before R.W.'s March 1988 designation, Welch made
clear that it appreciated R.W.'s distribution capabilities, but
was extremely wary of its handling of Donald Duck frozen juice
concentrate and of its plans to begin distributing Donald Duck
bottled juice in January 1989. In order to get the Welch con-
tract, Thomas Ward, R.W.'s president, agreed to the one-year
trial period, the sales-volume commitments, and the mutual
advertising expenditures. The parties understood that the one-
year trial period would allow Welch to assess whether R.W. could
distribute Donald Duck products while meeting its obligation to
provide full marketing support for Welch products. In January
1989, however, there were strong signals that R.W. was shifting
its primary attention to its newly expanded Donald Duck line, at
Welch's expense. Although R.W. plausibly suggests that these
indicia were either ambiguous, anecdotal, or aberrational, and
that genuine factual issues may well remain as to whether these
indicia signaled a "contract" breach or other sufficiently
"adverse" action by R.W. under P.R. Laws Ann. tit. 10, 278,
R.W. has not shown that it was unreasonable for Welch, acting in
11
presumed good faith, to interpret these signals as portending a
troubled business relationship ahead, and to withdraw from it.
Cf. Newell, 20 F.3d at 23 (upholding verdict for dealer because ___ ______
principal had known for twenty-three years that dealer had been
marketing competing product). Given that Welch already had a
fifty-year presence in the Puerto Rico market before appointing
R.W. in 1988, and that the parties reached a bona fide impasse on ____ ____
an essential modification to the terms of their ongoing dealer's
"contract" (i.e., whether R.W. would continue to handle competing
product lines), we conclude that a rational jury could not find
that Welch acted in "bad faith." Accordingly, summary judgment
was proper.
The judgment is affirmed. The judgment is affirmed. ________________________
12
Document Info
Docket Number： 95-2177
Filed Date： 7/10/1996
Precedential Status： Precedential
Modified Date： 9/21/2015