Unilever Home & Personal Care USA v. Puerto Rico Beauty Supply, Inc. ( 2006 )

Not For Publication in West's Federal Reporter
Citation Limited Pursuant to 1st Cir. Loc. R. 32.3
United States Court of Appeals
For the First Circuit
No. 05-1075
UNILEVER HOME & PERSONAL CARE USA,
Plaintiff, Appellee,
v.
PUERTO RICO BEAUTY SUPPLY, INC.,
Defendant-Counterclaimant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Pérez-Giménez, U.S. District Judge]
Before
Lipez, Circuit Judge,
John R. Gibson, Senior Circuit Judge,*
and Howard, Circuit Judge.
Luis E. Padron-Rosado, with whom Consuelo M. Sifre Garcia,
Sánchez Betances, Sifre, and Muñoz Noya & Rivera, PSC, were on
brief, for appellant.
Ana M. Nin-Torregrosa, with whom Nin-Torregrosa Law Office,
Armando Llorens, Samuel T. Céspedes and McConnell Valdés, were on
brief, for appellee.
January 20, 2006
*
Of the United States Court of Appeals for the Eighth Circuit,
sitting by designation.
Per Curiam. Puerto Rico Law 75 prohibits a principal
from terminating a distribution contract with its dealer without
just cause. 10 L.P.R.A. § 278. Law 75 was enacted on June 24,
1964, and does not apply retroactively to distribution agreements
reached before the law's enactment. See Warner Lambert v. Superior
Court, 101 D.P.R. 378 (1973). In this case, Unilever Home &
Personal Care USA (Unilever), the manufacturer of Helene Curtis
beauty products, sought a declaratory judgment that its
relationship with a former distributor, Puerto Rico Beauty Supply
Company (PRBS), was not governed by Law 75 because their
distribution relationship commenced before June 24, 1964. The
parties cross-moved for summary judgment, and the district court
entered judgment for Unilever. We vacate the judgment and remand
for further proceedings.
Resolution of this appeal requires an understanding of
the relationships among three entities: Helene Curtis Industries
(Helene Curtis) (which Unilever acquired in 1996), Llorens
Caribbean Distribution Company (Llorens Caribbean), and PRBS. As
this case is before us after the grant of summary judgment in favor
of Unilever, we present the facts in the light most favorable to
PRBS.1 See Sargent v. Tenaska, Inc., 108 F.3d 5, 6 (1st Cir.
1997).
1
PRBS has not appealed the denial of its cross-motion for
summary judgment.
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In 1958, Llorens Caribbean, owned by two brothers,
Humberto and Edgar Llorens, became the Puerto Rico distributor of
Helene Curtis's professional and retail lines of beauty products.2
In 1961, the Llorens brothers incorporated PRBS. PRBS operated as
a store in Hato Rey, Puerto Rico, selling to salons and beauticians
various cosmetic lines, including the Helene Curtis professional
line.
Although the Llorens brothers owned both Llorens
Caribbean and PRBS from 1961 until 1971, the companies maintained
separate employees, records, books, and accounts. One of PRBS's
employees was Gloria Soegaard de Martin. In 1969, the Llorens
brothers hired Soegaard's husband, Carlos Martin, as the accountant
for both companies.
In 1971, the Llorens brothers decided to sell PRBS to the
Martins to generate additional capital for Llorens Caribbean, which
was financially distressed. To effectuate the sale, the Llorens
brothers transferred ownership of all PRBS stock from themselves to
Llorens Caribbean, thus making PRBS a wholly-owned subsidiary of
Llorens Caribbean. The Martins then purchased PRBS's stock from
Llorens Caribbean.
After the sale, PRBS continued to operate as before. It
ordered its Helene Curtis professional products from Llorens
2
In 1958, Llorens Caribbean was known as Curtis Laboratories.
It changed its name in 1969.
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Caribbean and resold them from its store. Martin continued to work
for Llorens Caribbean as its accountant until March 1972, when he
resigned. Shortly thereafter, Llorens Caribbean filed for
bankruptcy.
Sometime near the end of 1973, Martin learned from Edgar
Llorens that Llorens Caribbean was planning to close because of
financial difficulties. This prompted Martin to contact Helene
Curtis about the possibility of becoming its Puerto Rico
distributor. Martin learned that, if this was to happen, Helene
Curtis could not designate PRBS as its Puerto Rico distributor
until it terminated its relationship with Llorens Caribbean, and
that PRBS would have to distribute both the professional and retail
lines of products.
In the early summer of 1974, Helene Curtis informed
Martin that it was terminating its relationship with Llorens
Caribbean. In June 1974, Helene Curtis sent PRBS a draft
agreement, which included a provision requiring PRBS to repay
Llorens Caribbean's outstanding debt to Helene Curtis. PRBS signed
the agreement on July 1, 1974. The only parties to the agreement
were Helene Curtis and PRBS. Sometime after PRBS signed the
agreement, it amended its corporate documents to state that it
would engage in "retail and wholesale of beauty products."
(Emphasis supplied.) Previously, the corporate objective was
stated to be the "purchase and sale of beauty products."
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The initial distribution agreement between PRBS and
Helene Curtis was modified in 1977. A new contract was executed in
1982, and was later modified in 1987 and 1990. In 1996, Unilever
acquired Helene Curtis and, in 1999, it presented PRBS with a new
distribution agreement.
PRBS refused to sign the agreement and the parties'
relationship deteriorated. On February 6, 2002, Unilever
terminated PRBS as a distributor. In its termination letter,
Unilever offered three reasons: (1) PRBS failed to provide proper
service to national accounts such as Wal-Mart; (2) PRBS failed to
work diligently to insure that Helene Curtis products destined for
Puerto Rico were not diverted to the United States mainland; and
(3) PRBS had failed to modernize its operations to provide adequate
marketing services.
Shortly after the termination, Unilever sought a
declaratory judgment that the parties' relationship was not
governed by Law 75 or, if Law 75 did apply, the relationship had
been terminated for "just cause." At the conclusion of discovery,
Unilever moved for summary judgment on three grounds: (1) PRBS had
been a distributor of Helene Curtis products since its founding in
1961; (2) PRBS was assigned Llorens Caribbean's distributorship in
1974 and was therefore a successor-in-interest to Llorens
Caribbean's relationship with Helene Curtis (which predated Law
75's June 24, 1964 enactment date); and (3) Unilever terminated its
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relationship with PRBS for just cause.
The district court granted Unilever's motion on a ground
not argued by Unilever. It concluded that Llorens Caribbean was a
distributor of Helene Curtis products prior to the enactment of Law
75 and that PRBS was a wholly-owned subsidiary of Llorens Caribbean
when Llorens Caribbean sold PRBS to the Martins. Based on these
facts, the court ruled that, by operation of law, Llorens
Caribbean's distribution relationship with Helene Curtis was
transferred to the Martins as part of the Martins' purchase of PRBS
in 1971. And, since this transferred relationship began before Law
75's enactment, Law 75 did not apply to the parties' relationship.
We review the district court's summary judgment ruling de
novo. See Guzman-Rosario v. United Parcel Serv., Inc., 397 F.3d 6,
9 (1st Cir. 2005). Summary judgment is appropriate where there is
no genuine issue of material fact, and the moving party is entitled
to judgment as a matter of law. See Fed. R. Civ. P. 56 (c).
The parties agree that Law 75 does not apply if the
distributorship relationship between PRBS and Helene Curtis began
before Law 75's enactment in June 1964. As just explained above,
the district court concluded that the relationship began before
June 1964 because of PRBS's status as a wholly-owned subsidiary of
Llorens Caribbean when PRBS was sold to the Martins in 1971.
The district court incorrectly concluded that PRBS was or
became a party to Llorens Caribbean's distributor relationship with
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Helene Curtis merely because it was Llorens Caribbean's subsidiary
in 1971. "The properties of two corporations are distinct though
the same shareholders own or control both," 1 W. Fletcher,
Cyclopedia of the Law of Private Corporations § 31 (rev. ed. 1999).
Moreover, a subsidiary does not own the property of its parent
company simply by virtue of its subsidiary status, see Dole Food
Co. v. Patrickson, 538 U.S. 468, 475 (2003).3 Therefore, the
district court's ruling is only sustainable if PRBS was in fact a
distributor of Helene Curtis products prior to the enactment of Law
75.
The record is not sufficiently undisputed to require such
a conclusion. The former president of Helene Curtis, Ronald
Gidwitz, testified that Llorens Caribbean was the sole owner of the
contract to distribute Helene Curtis products in Puerto Rico until
Helene Curtis terminated its relationship with Llorens Caribbean in
1974. Similarly, Edgar Llorens testified that PRBS "did not have
a relationship with Helene Curtis" while PRBS was owned by the
Llorens brothers and that "all purchases of Helene Curtis
professional products made by PRBS prior to the termination of the
contract between Llorens Caribbean Distributing Corporation and
Helene Curtis were done through Llorens Caribbean Distributing
Corporation, as the exclusive distributor of [Helene Curtis]
3
The parties assume for purposes of appeal that the Llorens
brothers did not disregard corporate formalities to such a degree
that the PRBS and Llorens Caribbean were in fact one entity.
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products." Moreover, Carlos Martin testified that Llorens
Caribbean was the exclusive distributor of Helene Curtis products
until July 1974 and that, after he bought PRBS in 1971, the company
continued to purchase all of its Helene Curtis products from
Llorens Caribbean. Finally, PRBS did not change its corporate
objective to the "wholesale" sale of beauty products until after it
signed the 1974 distributorship agreement. This evidence
establishes, at the least, a material issue of fact as to whether
PRBS had a distributor relationship with Helene Curtis prior to the
enactment of Law 75.4
Arguing in the alternative, Unilever contends that the
undisputed facts demonstrate that Llorens Caribbean assigned its
distributorship contract to PRBS in 1974. Since Llorens Caribbean's
distributor relationship with Helene Curtis began before Law 75's
enactment, Unilever argues that Law 75 does not apply.
We may, of course, affirm on this ground even though it
was not the basis for the district court's ruling. See Fabiano v.
Hopkins, 352 F.3d 447, 451 (1st Cir. 2003). PRBS does not dispute
that the relationship between Llorens Caribbean and Helene Curtis
predated the enactment of Law 75 and agrees that Law 75 would not
4
To defend the summary judgment ruling, Unilever cites cases
holding that an entity may simultaneously act as a retail store and
distributor. See, e.g., J. Soler Motors, Inc. v. Kaiser Jeep
Int'l, 108 P.R. Dec. 134, 139 (1979). While this may be so, a
factfinder could conclude that PRBS was only a retail store and not
a distributor of Helene Curtis products prior to Law 75's
enactment.
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apply if PRBS succeeded to Llorens Caribbean's distributorship
agreement with Helene Curtis. It contends, however, that the facts
are disputed as to whether it assumed Llorens Caribbean's contract
or formed an independent distributor relationship with Helene Curtis
by signing the July 1974 agreement. We agree.
Under Puerto Rico law, the assignment of a contract is
"the transfer by one of the contracting parties to a third party,
of the exact and integral position occupied by the former in the
assigned contract." Goya de P.R. v. Rowland Coffee Roasters, Inc.,
206 F. Supp. 2d 211, 218 (D.P.R. 2002) (internal citation omitted).
For an effective assignment to occur, "the three interested parties
must concur in the act of the assignment: the party that transfers
its position in the contract (the assignor), the assignee party that
will acquire it and the obligor that will be affected by the change
of the person with whom he had contracted." Id.The record is in dispute concerning whether Llorens
Caribbean, PRBS, and Helene Curtis agreed that Llorens Caribbean's
distributorship contract would be assigned to PRBS. Martin
testified that he learned, at the end of 1973, that Llorens
Caribbean was going to close because of financial troubles. At that
point, he contacted Helene Curtis about PRBS becoming its Puerto
Rico distributor. After approaching Helene Curtis, Martin was told
that Helene Curtis could not appoint PRBS as the distributor until
it had concluded its relationship with Llorens Caribbean. After
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that, Martin took no further action until Helene Curtis sent him a
distributorship agreement. These proffered facts do not compel a
conclusion that Martin agreed with Llorens Caribbean to assume its
contractual relationship before signing the distributorship
agreement.
Moreover, Edgar Llorens testified that Llorens Caribbean
never agreed to transfer its distributorship rights to "anyone."
This testimony, in turn, was consistent with Gidwitz's testimony
that Helene Curtis understood that Llorens Caribbean was its sole
distributor. The record thus contains evidence from which a
factfinder could conclude that neither PRBS (the potential assignee)
nor Llorens Caribbean (the potential assignor) agreed to an
assignment of Llorens Caribbean's rights to distribute Helene Curtis
products.
Unilever argues that PRBS's promise that it would pay
Llorens Caribbean's outstanding debt to Helene Curtis is conclusive
proof of such an assignment. We disagree. At most, this suggests
a connection between Llorens Caribbean's relationship with Helene
Curtis and PRBS's subsequent agreement with Helene Curtis. On the
other hand, it could be that Helen Curtis demanded this concession
from PRBS as a condition of the new distributorship relationship.
The factfinder must sort this out.
Finally, Unilever contends that, even if Law 75 applies
to the parties' relationship, summary judgment was appropriately
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granted because the undisputed facts indicate that Unilever
terminated its relationship with PRBS for just cause. Law 75
defines "just cause" as "nonperformance of the essential obligations
of the [distributor] . . . that adversely and substantially affects
the interest of the [manufacturer] in promoting the marketing or
distribution of the merchandise or service." 10 L.P.R.A. § 278(d).
As mentioned, Unilever offered three reasons for terminating its
relationship with PRBS. But, as to each, there are disputed issues
of fact.
Unilever claimed that PRBS failed to properly service the
Wal-Mart account. But representatives from Wal-Mart testified that
they were satisfied with PRBS's service. Victor Schiavo, a Wal-
Mart senior buyer who worked directly with PRBS for five years,
testified that PRBS's service of Wal-Mart's account was "excellent"
and that he knew of no complaints about PRBS's performance.
Moreover, Milagros Ester Meléndez-Rodríguez, another Wal-Mart buyer,
testified that PRBS was "one of the best" distributors that Wal-Mart
had.
Unilever also contended that PRBS was intentionally
diverting Helene Curtis product to the mainland. However, there was
evidence challenging this assertion. Ronald Gidwitz testified that
there had been investigations into allegations that PRBS was
involved in the diversion of Helene Curtis products but that these
allegations had never been substantiated. Moreover, Norma
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Santamaría, Helene Curtis's director of Latin America and Eastern
European sales until February 1999, testified that Martin acted
aggressively on behalf of PRBS to address complaints concerning the
diversion of products.
Unilever further accused PRBS of failing to provide
adequate service to the Puerto Rico market, but Gidwitz and
Santamaría provided contrary testimony. Santamaría stated that PRBS
was "one of the best [distributors] in Latin America," that "its
salesmen were well prepared," and that there was a positive response
from PRBS's customers to its efforts. Gidwitz similarly testified
that PRBS "was doing quite a good job" in distributing Helene Curtis
products in Puerto Rico.
In sum, whether PRBS was distributing Helene Curtis
products before the enactment of Law 75, whether Llorens Caribbean
assigned its distribution agreement to PRBS in 1974, and whether
Unilever terminated its relationship with PRBS for just cause cannot
be resolved on summary judgment, but will instead require resolution
of contested factual issues.
Vacated and remanded. Costs are awarded to Puerto Rico
Beauty Supply, Inc.
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