Vulcan Tools v. Makita USA, Inc. ( 1994 )

May 9, 1994 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 93-2089
VULCAN TOOLS OF PUERTO RICO,
Plaintiff, Appellant,
v.
MAKITA USA, INC.,
Defendant, Appellee.
ERRATA SHEET
The opinion of this court issued on May 4, 1994, is amended
as follows:
Page 4, lines 6-7: Delete "Because Makita's motion for
summary judgment was not filed until August 3, 1993,"
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 93-2089
VULCAN TOOLS OF PUERTO RICO,
Plaintiff, Appellant,
v.
MAKITA USA, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, U.S. District Judge]
Before
Selya, Circuit Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
Wilfredo A. G igel, with whom Law Offices of Wilfredo A. G igel
was on brief for appellant.
Arturo J. Garcia-Sola, with whom Manuel Fernandez-Bared and
McConnell, Valdes were on brief for appellee.
May 4, 1994
BOWNES, Senior Circuit Judge. Does the Dealers'
BOWNES, Senior Circuit Judge.
Act of Puerto Rico, Act 75 of June 24, 1964, P.R. Laws Ann.
tit. 10, 278-278d (1976 & Supp. 1989) ("Law 75" or the
"Act"), come into play where the sales or market share of a
non-exclusive distributor decline after its supplier
establishes additional non-exclusive distributors for its
products in Puerto Rico? Because we answer this question in
the negative, we affirm the district court's grant of summary
judgment for the defendant.
I.
BACKGROUND
The following facts are undisputed. Plaintiff-
appellant, Vulcan Tools of Puerto Rico, Inc., sells and
services power tools manufactured by a Japanese company,
Makita Corp. Vulcan has distributed Makita products since
May 1983, when it entered into a non-exclusive distribution
contract with defendant-appellee, Makita U.S.A., Inc.
("Makita"), a subsidiary of its Japanese parent.
At the time Vulcan became a non-exclusive
distributor for Makita, the latter already had three other
non-exclusive distributors operating in Puerto Rico. In 1988
Makita appointed a sales representative in Puerto Rico and
authorized thirty-four additional non-exclusive
distributorships on the island. Vulcan continued to sell and
service Makita tools. While the sale of Makita products in
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Puerto Rico has more than tripled since 1988, Vulcan's total
sales of the same and its market share have fallen.
In February 1989 Vulcan filed this action in the
United States District Court for the District of Puerto Rico
alleging that Makita had impaired the existing relationship
between the parties without just cause in violation of Law
75. The district court granted summary judgment in favor of
Makita. This appeal ensued.
II.
DISCUSSION
On appeal Vulcan argues (1) that the district court
abused its discretion in entertaining Makita's motion for
summary judgment, and (2) that summary judgment was
improvidently granted because whether Makita's hiring of
thirty-four additional distributors in Puerto Rico impaired
Makita's established relationship with Vulcan is a disputed
question of material fact.1
1. In the complaint, Vulcan also alleged that Makita
violated Law 75 by (1) appointing a sales representative in
Puerto Rico and (2) allowing the importation into Puerto Rico
of Makita power tools that did not meet the requirements
of the Occupational Safety and Health Act ("OSHA"). Vulcan
did not, with respect to the former claim, contest summary
judgment below, and has not pressed either of the claims on
this court. Consequently, they have been waived on appeal.
Gamma Audio & Video, Inc. v. Ean-Chea, 11 F.3d 1106, 1113
(1st Cir. 1993) (issues that surface for the first time on
appeal or are raised in a perfunctory manner on appeal are
deemed waived).
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A. Timeliness of Makita's Summary Judgment Motion
On November 4, 1991 the Magistrate Judge assigned
to the case issued a "Final Pretrial Conference Report" which
established December 15, 1991 as the date for completing
outstanding discovery, and December 30 as the deadline for
filing dispositive motions. Vulcan argues on appeal the same
argument rejected below: that because Makita's motion for
summary judgment was not filed until August 3, 1993, the
motion was untimely, and the district court was barred from
considering it under Fed. R. Civ. P. 16(b) and 16(e).2
Because trial judges must be able to control the
management of their cases, we review a district court's
decision to modify a pretrial scheduling order under an abuse
of discretion standard. See Anda v. Ralston Purina, Co., 959
F.2d 1149, 1155 (1st Cir. 1992); In re San Juan Dupont Plaza
Hotel Fire Litigation, 859 F.2d 1007, 1020 (1st Cir. 1988);
see also Ramirez Pomales v. Becton Dickinson & Co., 839 F.2d
1, 3 (1st Cir. 1988) (decision to modify a pretrial order is
subject to the trial court's discretion). Moreover, pretrial
orders are to be liberally construed, James W.M. Moore, et
2. Rule 16(b) instructs district courts to enter scheduling
orders limiting the time to, inter alia, file motions and
complete discovery. Under this rule, "[a] schedule shall not
be modified except upon a showing of good cause and by leave
of the district judge or, when authorized by local rule, by a
magistrate judge." Rule 16(e) provides, in pertinent part,
that once a pretrial order is entered, it "controls the
subsequent course of the action, unless modified by a
subsequent order."
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al., Moore's Federal Practice, 16.19, at 16-90 (2d ed.
1993) (citing cases). Thus we are loathe to upset a district
court's interpretation of its own order. See Martha's
Vineyard Scuba HQ. v. Unidentified Vessel, 833 F.2d 1059,
1066-67 (1st Cir. 1987) (citing cases) (recognizing "the
special role played by the writing judge in elucidating the
meaning and intendment of an order which he authored").
The district court determined that the deadline for
filing dispositive motions established in the magistrate's
order was vacated by a subsequent order issued by the court
in which no such deadline was set, and that Makita's motion
was therefore not untimely. The sequence of events is as
follows. In March 1992 Vulcan moved to have a trial date
set. Makita objected on the ground that the case was not
ready for trial, in part, because Vulcan had not responded to
various document requests and the deposition of Vulcan's
President, Joseph Fayer, had not yet concluded. On April 27,
1992, in response to Makita's objections, the district court
granted Vulcan additional time to produce specified
documents, set deadlines for various depositions, ordered
that discovery be completed by June 30, 1992, and referred
the case to the magistrate judge for the scheduling of
another pretrial conference. The court further instructed
the parties to submit a revised proposed final pretrial
order.
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The parties submitted a proposed final pretrial
order in August 1992, which was approved by the court six
days later. Neither that order nor the April 27 order, set a
deadline for filing dispositive motions. The district court
viewed its decision to reopen discovery as vitiating the
existing deadline for the filing of dispositive motions.
Vulcan Tools of Puerto Rico, Inc. v. Makita U.S.A., Inc., No.
89-148, slip op. at 6 (D.P.R. Sept. 1, 1993). Because the
original cut-off date for filing dispositive motions fell
after the original discovery deadline, the court's finding
that a change in the latter necessarily abolished the former
is eminently reasonable. While it is true that Makita did
not specifically request an extension of time for filing a
motion for summary judgment, the court could have concluded
that the "good cause" Makita demonstrated for extending the
discovery deadline was also good cause for lifting the
deadline for filing dispositive motions. We find no abuse of
discretion in the court's decision to consider Makita's
motion for summary judgment.
B. Law 75
We now turn to the principal issue raised on
appeal. Vulcan argues that summary judgment was
inappropriate because whether Makita's appointment of thirty-
four additional distributors caused a "detriment" to Vulcan
(i.e., the subsequent decline in Vulcan's sales and market
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share with respect to Makita products), is a question of fact
for the jury. Vulcan apparently concedes that, under the
parties' contract, Makita was entitled to name additional
non-exclusive distributors at will, so long as it did not
violate Law 75.
We say "apparently," because Vulcan has sent out
mixed messages. Although it has made the above concession
both in its brief, Appellant's Brief at 21, and in oral
argument, at times during oral argument Vulcan maintained
that, as part of its distribution contract, Makita agreed to
limit the number of Makita distributors in Puerto Rico to
three. Even if this argument has been properly preserved by
Vulcan, it is without merit.
The terms of Vulcan's non-exclusive distributorship
are set forth in a May 26, 1993 letter from Carl Schwinne,
Makita's marketing manager, to Joseph Fayer, Vulcan's
president. The letter states: "This letter will summarize
our phone conversation today regarding a non-exclusive
distributorship for Makita power tools in Puerto Rico." The
letter also contains information about Makita's tool order
program, payment terms, stock adjustments, Makita's
advertising program, and warranty repairs. Vulcan never
objected to the contractual terms set forth in the May 26
letter. Vulcan's argument that Makita agreed not to have
more than three other distributors in Puerto Rico is based on
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a conversation that took place on May 18 between Fayer and
Frank Isaacs, then Makita's regional sales manager. As
evidence of such limitations, Vulcan offered Isaacs'
deposition, at which Isaacs testified as follows:
Q. All right. Getting back to the
agreement with Vulcan, as for
the setting up of the
distributorship, did you or
anyone at Makita, to the best
of your knowledge and
recollection, ever indicate to
Mr. Fayer that Makita would
operate through only two or
three distributors in the
market.
A. Yes. I stated that right up
front that we -- on our visit
to him -- went and said these
are the people -- These are the
channels of distribution that
we're looking at. These are
the distributors that we're
going to try to sell to
accomplish our objective in
this market, and if -- and we
told this to each one. If you
support our programs, grow our
business here, in an acceptable
rate, whatever that might be,
then we see no reason to pursue
any other distributors in these
channels.
Q. At that time they didn't see a
need for that?
A. That's right.
Q. But that could change?
A. Sure it can.
Q. And the company wanted to make
sure that it retained the right
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to name others, other
distributors?
A. Sure. You always retain that
right, but if you change your
strategy in the marketplace,
you need to let your
distributors know what that is.
Isaacs' Deposition at 71-72.
The law of Puerto Rico is clear that no oral
extrinsic evidence may be admitted to add to, alter or modify
a written agreement except when fraud or surprise is alleged.
P.R. Laws Ann. tit. 32, App. IV, R. 69(B) (1983) (Parole
Evidence Rule).3 When an agreement leaves no doubt as to
the intention of the parties, a court should not look beyond
the literal terms of the contract. Marina Ind. Inc. v. Brown
Boveri Corp., 114 P.R. Dec. 64, 72 (1983) (Official
Translation); Catullo v. Metzner, 834 F.2d 1075, 1079 (1st
Cir. 1987). This principle is embodied in Article 1233 of
the Puerto Rico Civil Code, which applies to the contract
3. We have recognized that,
[i]n spite of the general applicability
of the Federal Rules of Evidence to
diversity actions, it is well recognized
that Congress did not intend the rules to
preempt so-called "substantive" state
rules of evidence such as the parole
evidence rule . . . . Although the
application of these rules will affect
the admissibility of certain evidence,
they in reality serve substantive state
policies regulating private transactions.
McInnis v. A.M.F., Inc., 765 F.2d 240, 245 (1st Cir. 1985).
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between Vulcan and Makita4 and determines how courts should
interpret a contract where there is a conflict over its
meaning:
If the terms of a contract are clear and
leave no doubt as to the intentions of
the contracting parties, the literal
sense of its stipulations shall be
observed. If the words should appear
contrary to the evident intention of the
contracting parties, the intention shall
prevail.
P.R. Laws Ann. tit. 31, 3741 (1990). "For Article 1233
purposes, a term is considered ``clear' when it is
sufficiently lucid to be understood to have one particular
meaning, without room for doubt." Hopgood v. Merrill Lynch,
Pierce, Fenner & Smith, 839 F. Supp. 98, 104 (D.P.R. 1993)
(citations omitted). If the meaning of a contract's terms is
sufficiently clear, "the court cannot dwell on the ``alleged'
intent of the parties at the time they entered into the
contract." Id.There is no doubt that the meaning of the word
"non-exclusive," used in the letter of May 26, is clear and
unambiguous. Makita named Vulcan as a non-exclusive
4. The contract between Vulcan and Makita is a commercial
contract, and is thereby regulated by the relevant provisions
of the Commerce Code of Puerto Rico, P.R. Laws Ann. tit. 10,
1301-1314 (1976). Where, as is the case here, the
Commerce Code does not provide the solution to a question of
contractual interpretation, courts must look to the Civil
Code and the common law to fill the gaps. See P.R. Laws Ann.
tit. 10, 1301 (1976); General Office Products Corp. v.
Gussco Mfg., Inc., 666 F. Supp. 328, 331 (D.P.R. 1987).
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distributor, and thereby expressly retained the right to name
additional non-exclusive distributors at its discretion.
Therefore, we need not dwell on the import of Isaacs'
testimony, and the alleged promise by Makita that it would
limit its distributors in Puerto Rico to three. We move on
and address Law 75 directly.
On June 24, 1964, Law 75 became effective. It
prohibited "the termination by the principal . . . of the
relationship derived from a dealer's contract or the refusal
to renew said contract on its normal expiration, except for
just cause, this, notwithstanding the existence of a clause
in the contract reserving to the parties the unilateral right
to terminate the existing relationship." United Medical
Equipment Corp. v. S. Blickman, Inc., 260 F. Supp. 912, 913
(D.P.R. 1966); see P.R. Laws Ann. tit. 10, 278a (1964)
(amended 1966). Law 75 was enacted in order to protect the
interests of commercial distributors operating in Puerto Rico
"from the harm caused when a supplier arbitrarily terminates
a distributorship once the dealer has created a favorable
market for the supplier's product." R.W. Int'l Corp. v.
Welch Food, Inc., 13 F.3d 478, 482 (1st Cir. 1994); see also
Medina & Medina v. Country Pride Foods, Ltd., 858 F.2d 817,
820 (1st Cir. 1988) (reproduction of official translation of
Puerto Rico Supreme Court's response to certification
question, 122 P.R. Dec. 172 (1988)); Warner Lambert Co. v.
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Superior Court of Puerto Rico, 101 P.R. Dec. 378 (1973)
(Official Translation).
The statement of motives behind Law 75 issued by
thePuerto RicoHouse Committeeon Commerceand Industryis clear:
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 . . . or without
fully eliminating them, such enterprises
gradually reduce and impair the extent of
their previously established
relationships, as soon as these have
created a favorable market and without
taking into account their legitimate
interests.
Statement of Motives of Act 75, 1964 P.R. Laws, 4th Reg.Sess.
231. Because the legislature of Puerto Rico considered
traditional principles of contract law insufficient to
protect the rights of dealers, it passed Law 75 to safeguard
these rights and stabilize dealership relationships. Medina
& Medina, 858 F.2d at 820.
In 1966, the Dealers' Act was amended, and assumed
its present form:
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 terminate said
relationship or directly or indirectly
carry out any act detrimental to the
existing relationship or refuse to renew
said contract on its normal expiration,
except for just cause.
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P.R. Laws Ann. tit. 10, 278a (1976). The underlined
language was added by the amendment. The 1966 amendment was
intended to cover cases where the principal impairs the
distributor's contractually acquired rights. General Office
Products v. Gussco, 666 F. Supp. at 331 ("Gussco") (citing W.
Colon & R. Colon, El Contrato de Distribucion o de Agencia
Comercial, 27 Revista de Derecho Puertorriqueno 225 (1968)).
Gussco involved a claim under Law 75 by the exclusive Puerto
Rico distributor of its supplier's office products. The
plaintiff alleged that its supplier violated Law 75 by its
passivity in the face of a decision by a state-side
distributor to enter the Puerto Rican market. The court
found "that the 1966 amendment adding the impairment-of-
contract cause of action [covers] this type of parallel
market distributorship in contravention of a voluntarily
established exclusive contract." Id.; see also A. Estrella,
The Dealer's Contractual or Commercial Distributorship:
Nature of the Relationship, Termination of the Contract, 31
Revista de Colegio de Abogados de Puerto Rico 241, 251 (1967)
(a distributor has a cause of action under Law 75 when its
supplier establishes additional distribution contracts after
having entered into an exclusive one) (cited in Gussco, 666
F. Supp. at 333). We must determine whether the 1966
amendment covers Vulcan's claim.
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In order to focus our inquiry, we illustrate
Vulcan's argument with the following syllogism: (1) Makita
established additional non-exclusive distributorships in
Puerto Rico; (2) subsequently Vulcan's sales of Makita tools
and its share of the Makita market fell; therefore (3) Vulcan
is entitled to a jury trial to determine whether (1) caused
(2). This argument is premised upon Vulcan's assumption that
if (1) caused (2), then there has been a "detriment" to the
parties' "established relationship," and Makita is liable
under Law 75 absent a showing of just cause for its actions.
For the reasons set forth below, we disagree with Vulcan's
assumption.
It is beyond cavil that non-exclusive distributors
are entitled to protection under Law 75. J. Soler Motors v.
Kaiser Jeep Int'l, 108 P.R. Dec. 134, 146 (1978) (Official
Translation). It is equally true, however, that Law 75 does
not operate to convert non-exclusive distribution contracts
into exclusive distribution contracts. See Gussco, 666 F.
Supp. at 331 ("The law imposes no prohibition upon the
principle of selling or establishing parallel distributorship
agreements if he so reserves the right to do so."); see also
Nike Int'l, Ltd. v. Athletic Sales, Inc., 689 F. Supp. 1235,
1238 (D.P.R. 1988) ("[T]he legislature [of Puerto Rico] did
not intend that Law 75 be a safe haven for dealers to avoid
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the express terms of the contracts to which they willingly
subscribe.").
The basic flaw in Vulcan's position emanates from
its expansive reading of the phrase "detriment to the
established relationship." According to Vulcan, every
diminution in the sales or the market share of a non-
exclusive distributor attributable to a business decision by
its supplier constitutes such a "detriment," and is
actionable under Law 75. This spin on Law 75 is
unprecedented, and wholly unsupported by any legal authority.
Not only would Vulcan's interpretation of the Act grant
virtual monopoly status to every supplier's first non-
exclusive distributor in Puerto Rico, it would effectively
prevent suppliers from raising prices, even when such a right
is secured by contract, where doing so would cut into the
distributor's sales or profits. This view of Law 75 has
already been rejected by the Supreme Court of Puerto Rico.
See J. Soler Motors, 108 P.R. Dec. at 150 (Official
Translation) (manufacturer-imposed increase in price of motor
vehicles does not give rise to a Law 75 violation where
manufacturer reserved right to do so in distribution
agreement); see also Medina & Medina, 858 F.2d at 823(declining to construe Law 75 in such a way that a dealer
could govern its principal's policies resulting in
principal's loss of legal and financial autonomy).
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As we explained above, the "established
relationship" between dealer and principal is bounded by the
distribution agreement, and therefore the Act only protects
against detriments to contractually acquired rights. Gussco,
666 F. Supp. at 331. The text of Law 75 makes this point
particularly clear. The statutory language defines a
"dealer's contract" subject to Law 75 as:
A relationship established between a
dealer and a principal . . . whereby the
former actually and effectively takes
charge of the distribution of merchandise
. . . on the market of Puerto Rico.
P.R. Laws Ann. tit. 10, 278d (1976). Consistent with our
reading of the Act is the statutory presumption that a
principal has impaired the existing relationship when, inter
alia, "the principal . . . establishes a distribution
relationship with one or more additional dealers for the area
of Puerto Rico or any part of said area in conflict with the
contract existing between the parties." P.R. Laws Ann. tit.
10, 278a-1(b)(2) (Supp. 1989) (emphasis added).
The question whether there has been a "detriment"
to the existing relationship between supplier and dealer is
just another way of asking whether the terms of the contract
existing between the parties have been impaired. Here, the
contractual relationship between Vulcan and Makita was not
affected by Makita's establishment of additional non-
exclusive distributors for its products in Puerto Rico. This
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is because Makita, in its distribution agreement with Vulcan,
expressly reserved the right to add distributors in the
Puerto Rican market. Where, as is the case here, a dealer's
contractually acquired rights have not been impaired in any
way, Law 75 does not come into play.
The judgment of the district court is Affirmed.
Affirmed.
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