# UnitedStates C ou rt o f App eals For the First C ircuit

N os. 05-2187, 05-2189 B. FERNÁNDEZ & HNOS., INC.; CARIBBEAN WAREHOUSE LOGISTICS, INC.,

Plaintiffs, Appellees,

v. KELLOGG USA, INC.; ABC INSURANCE; XYZ SURETY; PREFERRED INSURANCE; JOHN DOE; RICHARD DOE, Defendants,

KELLOGG CARIBBEAN SERVICES COMPANY, INC.,

Movant, Appellant.

No. 05-2188 B. FERNANDEZ & HNOS., INC.;

CARIBBEAN WAREHOUSE LOGISTICS, INC.,

Plaintiffs, Appellees,

v. KELLOGG USA, INC., Defendant, Appellant,

ABC INSURANCE; XYZ SURETY; PREFERRED INSURANCE;

JOHN DOE; RICHARD DOE, Defendants.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO [Hon. Jaime Pieras, Jr., Senior U.S. District Judge]Of the Eighth Circuit, sitting by designation. * Before

Torruella, Circuit Judge, John R. Gibson, Senior Circuit Judge, * and Howard, Circuit Judge.

Ricardo F. Casellas, with whom Fiddler González & Rodríguez, P.S.C., was on brief for appellant, Kellogg Caribbean Services Co., Inc. Luis A. Oliver, with whom Fiddler González & Rodríguez, P.S.C., were on brief, for appellant and Kellogg USA, Inc. Alfredo Fernández Martínez, with whom Delgado & Fernández, LLP, Ramón L. Walker Merino and Walker Merino Law Office, were on brief, for appellees, B. Fernandez & Hnos., Inc. and Caribbean Warehouse Logistics, Inc.

March 17, 2006-3- HOWARD, Circuit Judge . Before us are three interlocutory appeals arising from an action brought by B. Fernandez & Hnos., Inc. (BFH) and Caribbean Warehouse Logistics (CWL) (collectively, appellees) against Kellogg USA, Inc. (Kellogg USA). The appellees accuse Kellogg USA of violating Puerto Rico Law 75, a statute prohibiting a principal from terminating without just cause a distribution agreement with its dealer. P.R. Laws Ann. tit. 10, § 278. Appellees seek an injunction, damages, and d e c laratory relief. Federal jurisdiction is premised on diversity of citizenship as appellees are Puerto Rico companies and Kellogg USA is a Michigan company. See 28 U.S.C. § 1332.

The first appeal, by nonparty Kellogg Caribbean Services, Inc. (Kellogg Caribbean), a Puerto Rico company, challenges the denial of its motion to intervene under Fed. R. Civ. P. 24(a) and for dismissal under Fed. R. Civ. P. 19(b). Pointing out that it (and not Kellogg USA) is the party to the agreements with appellees, Kellogg Caribbean argues that it is an indispensable party whose i n t e rvention must be allowed but would destroy diversity jurisdiction. The district court denie d t h e motion on the ground that Kellogg USA, a company affiliated with Kellogg Caribbean because they share the same corporate parent company, could adequately represent Kellogg Caribbean's interests.

The second and third appeals, by Kellogg USA and Kellogg Caribbean respectively, challenge a preliminary injunction ordering Kellogg USA and its affiliates (which includes Kellogg Caribbean)-4-

to specifically perform the agreements with appellees. We do not reach the merits of these appeals because our resolution of the intervention appeal requires that we vacate the preli m i nary injunction.
I.

We derive the r e l evant facts primarily from the allegations and evidence submitted by Kellogg Caribbean in support of its motion to intervene but also consider uncontroverted facts established el s e where in the record. See Southwest Ctr. for Biological Diversity v. Berg, 268 F.3d 810, 819-20 (9th Cir. 2001) (stating that "a district court is required to accept as true the non-conclusory allegations made in suppor t of an intervention motion " ) (collecting cases); 7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 1914, at 418 (2d ed. 1986).

BFH, a Puerto Rico company, distributes Kellogg products to Puerto Rico retailers. CWL, also a Puerto Rico company and an affiliate of BFH, provides logistical andwarehousing services. Kellogg USA, a Michigan company and subsidiary of nonparty Kellogg Company, manufactures cereal products on the mainland United States f o re x p o r t t o c e r t a i ng e o g r a p h i cm a r k e t s t h r o u g h o u t t h e w orld. Kellogg Caribbean, a Puerto Rico company, promotes, sells and distribute s Kellogg products in Puerto Rico. Like Kellogg USA, Kellogg Caribbean is a subsidiary of Kellogg Company.Appellees dispute the effectiveness of this assignment, but, 1 at this stage of the case, we accept the facts as pleaded by Kellogg Caribbean. See supra at 4. -5- In 1992, Kellogg USA signed an a g reement to supply Kellogg products to BFH for distribution to Puerto Rico retailers. Sometime thereafter, K ellogg USA assigned its rights and obligations under this agreement to Kellogg Caribbean. 1

In October 2004, BFH and Kellogg C a r i bbean signed an Inventory and Repurchase Agree m e n t under which Kellogg Caribbean would purchase the Kellogg products owned by BFH. The purpose of the repurchase agreement was to permit Kellogg Caribbean to consolidate its warehouse and administrative functions into one facility. Within this agreeme n t , Kellogg Caribbean notified BFH that it ha d b e e n assigned Kellogg USA's interest in the distribution agreement. The agreement stated that the terms of the initial Kellog g U SA-BFH distribution agreement remained in "full force and effect."

After purchasing BFH's inventory, Kellogg Caribbean sold Kellogg products to BFH for distribution to the Puerto Rico market. As part of its consolidation effort, Kellogg Caribbean hired CWL, BFH's affiliate, to manage its w a r e house operation. But Kellogg Caribbean and CWL did not sign a written agreement for these services. In November 2004, Kellogg Caribbean informed BFH that it was exercising a provision in the distribution agreement entitling it to sell Kellogg "Cereal in a Cup" and "Frui t S n acks" products-6-

directly to Puerto Rico retailers. BFH would, however, remain the distributor of other Kellogg products.

Displeased, BFH sued Kellogg USA claiming that it had violated Law 75 by permitting "it or its affiliates" to sell "Cereal in a Cup" and "Fruit Snacks" directly to retailers. Five months later, Kellogg Caribbea n n otified CWL that it was terminating their warehouse services relationship. Shortly thereafter, appellees amended the complaint to add a count by CWL alleging that Kellogg USA "and/or its affiliates" violated Law 75 by terminating the warehouse services agreement. Appellees sought damages, d e c l a r atory relief, and a preliminary and permanent injunction.

Five days after appellees filed their amended complaint, Kellogg Caribbean moved "to intervene and to dismiss for lack of an indispensable party." In due course, the district court denied the motion. After an evidentiary hearing, the court entered a preliminary injunction requiring Kellogg USA "and/or its affiliates or subsidiaries" to specif i c a l l y perform the agreements with appellees pending trial.
II.

As mentioned above, federal jurisdiction is premised on the diversity of c i t i zenship between Kellogg USA (a Michigan company) and BFH and CWL (Puerto Rico companies). But, if Kellogg Caribbean (a Puerto Rico company) is entitled to intervene as a matter of right under Rule 24(a)(2) and is an indispensable party-7-

under Rule 19(b), the litigation must be dismissed b e c a u s e there would not be complete diversity. As Professors Wright, Miller and Kane have explained:

A person who should h a v e been joined in t he first instance because he is so related to the action that he is regarded as "indispensable" cannot intervene if his j o i n d e r w i l l d e p r i v e t h e c o u r t of jurisdiction over the subject mat t er of the action. The action must be dismissed, as Rule 19(b) requires, if t he court concludes that he is so re l a ted to the action that he is indispensable. For this reason the court s , in considering an application for intervention by one whose joinder would defeat diversity
. . . will examine his re lation to the action and [dis m i s s the action] if he . . . meets the tests of Rule 24(a)(2) and . . . was . . . an indispensabl e party to the original action. 7C Wright, Miller & Kane, supra § 1 917, at 477-78; see also Travelers Indemnity Co. v. Dingwell, 884 F.2 d629, 636 (1st Cir. 1989). We begin by considering whether Kellogg Caribbean m e ets the requirements of Rule 24(a)(2).

A. Rule 24(a)(2) We review the denial of a Rule 24(a)(2) motion for abuse of discretion. See Ewers v. Heron, 419 F.3d 1, 2 (1st Cir. 2005). But, because Rule 24(a) (2) provides explicit criteria for adjudicating a motion to intervene, the dist r i c t court's discretion is more circumscribed than in some other contexts. See C o t t e r v . M a s s . A s s o c . o f M i n o r i t y L a w E n f o r c e m e n t O f f i c e r s , 219 F.3d 3 1 , 3 4 ( 1 s t C i r . 2 0 0 0 )
. W e w i l l r e v e r s e i ft h e d i strict court committed a legal error, or if the court reaches a decisionThe requirements for a n o n party to intervene under Rule 2 24(a)(2) are similar to the requirements for a named party to join a nonparty as a "person needed for just adjudication" under Fed. R. Civ. P. 19(a)(2)(i). See 1966 Advisory Committee Notes to Fed. R. Civ. P. 24. T h e refore, cases applying Rule 19(a)(2)(i) are helpful in interpreting appl i c a t ion of Rule 24(a)(2) and vice versa. See Pujol v. Shearson/Am. Express, Inc., 877 F.2d 132, 135 ( 1 s t C i r . 1 9 8 9 ) ; 4 J . M o o r e , M o o r e ' s F e d e r a l P r a c t i ce § 19.02[5][c] (2005). -8- patently out-o f -step with the purposes of Rule 24(a)(2).
See P u b
. S e r v. Co. of N.H. v. Patch, 136 F.3d 197, 204 (1st Cir. 1998). Rule 24(a)(2) provides in pertinent part:

Upon timely application anyone sh a ll be permitted to intervene in an action
. . . when the appli c ant claims an interest relating to the property or trans a ction which is the subject of the action and the applicant is s o situated that the disp o s i tion of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applica nt's interest is adequately represented by existing parties.
A putative intervenor thus must show that (1) it timely moved to intervene; (2) it has an interest relating t o t he property or
transac t i o n that forms the basis of the ongoing suit; (3) the disposition of the a c t i on threatens to create a practical impediment to its ability to protects its intere s t ; and (4) no existing party adequately represents its interests. See Patch, 2 136 F.3d at 204. "The failure to satisfy [all four conditions] dooms intervention." Id.Appellees claim that Kellogg Caribbean has no inte r e s t in 3 BFH's claim because Kellogg USA's assignment of the distribution agreement to Kellogg Caribbean was ineffective. But, as mentioned pre v i ously, we assume for purposes of this appeal that the assignment was effective. See supra at n.1. -9- Because appellees concede that Kellogg Caribbean timely moved to intervene, we firs t c o nsider whether Kellogg Caribbean has "an interest relating to the property or transaction which is the subject of the action." Kellogg Caribbean easily meets this requirement. An intervenor has a sufficient interest in the subject of the litigation wh ere the intervenor's contractual rights may be affected by a proposed remedy. See Forest Conserv.
Co u n c i l v . U n i t e d S t a t e s F o r e s t S e r v . , 6 6 F . 3 d 1 4 8 9 , 1 4 9 5 (9th Cir. 1995); Harris v. Pernsley, 820 F.2d 592, 601 (3d Cir. 1987). Here, appelle e s ' proposed remedy -- an injunction requiring specific performance of the agreements -- obviously would affect Kellogg Caribbean's as s e rted contractual rights. Kellogg Caribbean is the only Kellogg entity which i s a p arty to these agreements so that a n i njunction specifically enforcing the agreements would surely limit it s o p portunity to terminate or alter its future business relationship with appellees. 3

This same rationale satisfies the requirement t h at Kell ogg Caribbean's interests, as a practical matter, may be impaired by this litigat ion. Appellees seek an injunction requiring specific performance that could bind Kellogg Caribbean. See Fed. R. Civ. P. 65(d); see generally 11A Wright, Miller & Kane, supra § 2956 (discussing t h e c ircumstances in which a-10-

nonparty m a ybe bound by an injunction). Thus, this litigation could result (and preliminarily has resulted) in an order directly affecting Kellogg Caribbean's contractual righ t s . This is more than sufficient to satisfy the "practical impediment" requirement. See Daggett v. Comm. on Governmental Ethics & Election Practices, 172 F.3d 104, 110-11 (1st Cir. 1999) (holding that the possibility that the litigation co uld end with an injunction adversely affecting intervenors' interests was ade q u a te to satisfy this aspect of Rule 24(a)(2)).

This brings us to the district court's basis for denying intervention: that Kellogg Caribbean's interests are sufficiently represented by Kel l o g gUSA. In so ruling, the district court concluded that, because Kellogg USA and Kel l o g gCaribbean are subsidiaries of a common parent, there is a presumption that Kell o g g USA would adequately represent Kellogg Caribbean's interests. According to the district court, Kel logg Caribbean could only rebut this presumption by showing that its interests were somehow adverse to those of Kellogg USA, there was collusion between Kellogg USA and appellees, or Kellogg USA has committed nonfeasance in litigating the case. Because Kellogg Caribbean did not make a n y o f these showings, the court denied intervention.

Typically, an intervenor n e e donly make a "minimal" showing that the representation afforded by a named party would prove inadequate. Trbovich v. United Mine Workers, 404 U.S. 528, 538 n.10 (1972); see Patch, 136 F.3d at 207. However, in cases-11-

where the intervenor's ultimate objective matche s t h at of the named party, a rebuttable presumption of adequate representation applies. See Daggett, 172 F.3d at 111; Moosehead Sanitary Dist. v. S.G. Phillips Corp., 610 F.2d 49, 54 (1st Cir. 1979). We are doubtful that this presumption should apply based solely on the fact that Kellogg Caribbean and Kellogg USA share the same parent company. Cf. P u j o l , 877 F.2d at 135 (stating that "corporate alter ego status does not, by itself, mean that [the s]ubsidiary" is automatically denied intervention).

But assuming arguendo that this presumption applies, we think that the district court focused too narrowly when it ruled that Kellogg Caribbean could only rebut the presumption by showing adversity of interest, collusion, or nonfeasance. W e have explained that this trilogy of grounds for rebutting the adequate representation presumption is only illustrative. See Daggett, 172 F.3d at 111. Indeed, we have stressed th e c a se-specific nature of this inquiry, Maine v. United States Fish & Wildlife Serv., 262 F.3d 13, 19 (1st Cir. 2001), and have discouraged district courts from identifying only a limited number of "cubbyholes" for inadequate representation claims, Mass. Food Assoc. v. Mass. Alcohol Beverages Control Comm., 197 F.3d 560, 567 n.5 (1st Cir. 1999). Rather, to overcome the presumption, the intervenor need only o f f er "an adequate explanation as to why" it is not sufficiently represented by the named party. Maine, 262 F.3d atThis was Kell o g g USA's lead argument in response to 4 appellees' preliminary injunction motion.

-12- 19. One way for the intervenor to show inadequate representation is to demonstrate that its i n t e rests are sufficiently different in k i n d o r d egree from those of the named party. See United Nuclear Corp. v. Cannon, 696 F.2d 141, 144 (1st Cir. 1982); Glancy v. Taubman Cts., Inc., 373 F
. 3 d 656, 675 (6th Cir. 2004) ("Asymmetry in the intensity
. . of interest can prevent a named party from representing the interests of the absentee.").

To support its inadequate representation claim, Kellogg Caribbean contends that the arguments it would empha size are different from those that Kellogg USA has pressed and will press. According to Kellogg Caribbean, Kellogg USA will stress that it is not a party to the agreements at issue and therefore cannot be held liable for breaching those agreements u n d e r L a w75. See 4 Goya de P.R., Inc. v. Rowland Coffee Roasters, Inc., 206 F. Supp. 2d 211, 218-19 (D.P.R. 200 2 ) ( h olding that a manufacturer that assigns its interest in distribution contract is generally not liable under Law 75). On the other hand, Kellogg Car i b b e an contends, because it admits that it is a party to the agreements, it w o u l d d e f e n d b y a r g u i n g t h a t a p p e l l e e s ' a l l e g a t i o ns of wrongdoing are unfounded. In Kellogg Caribbean's view, this difference in emphasis is sufficient to demonstrate that Kellogg USA does not adequately represent its interests.

In assessing this argument, we observe first that,-13-

because of the potential for an injunction bindingKellogg Caribbean's future dealings, Kellogg Caribbean has a tangible and substantial stake in the outcome of this case. Because of this direct interest, the burden on Kellogg Carib bean to show inadequate representation i s l ighter than if its interest was "thin a n d w idely shared." Daggett, 172 F.3d at 113-14; see also Virg. Sur. Co. v. Northrop Grumman Corp., 144 F.3d 1243, 1248 (9th Cir. 1998) (concluding that a subsi d i ary was a necessary party in a lawsuit against the parent because the litigation could result in an injunction limiting the subsidiary's rights).

We recogn i z e that there is nothing to prevent Kellogg USA from defending this lawsuit by arguing that, even if it is a party to the agreements, Kellogg Caribbean acted lawfully. But, as we will explain, Kellogg Caribbean almost certainly has more to lose than Kellogg U SA in this litigation -- at least insofar as appellees seek relief enjoining Kellog g C a ribbean to perform under the agreements.

According to Kellogg C aribbean's pleadings (which we accept as true, see supra at 4), Kellogg USA is not a party to the agreements, d o e s not own or control Kellogg Caribbean, does no busin e s s i nP u e r t o R i c o , a n dh a dn o i n v o l v e m e n t i nt h e e v e n ts underlying appellees' complaint
. Unlike Kellogg Caribbean, Kellogg USA is u n l i k ely to be harmed by an injunction ordering specific performance of the agreements; after all, it no longer has a business relationship with appellees. See Tell v. Trustees-14-

of Dartmouth Coll., 145 F.3d 4 1 7 , 419 (1st Cir. 1998) (stating that "without a perfect identity of interests, a c o u r t must be
very cautious in concluding that a litigant will serve as a proxy for an absent party"). The potential for this litigation to have a greater adverse impact o n Kellogg Caribbean is a sufficient basis for concluding that Kellogg USA may not serve as an adequate proxy. See Nat. Union Fire Ins. Co. v. Rite Aid of S. Carolina, Inc., 210 F.3d 246, 251 (4th Cir. 2000) (concluding that a parent
company was a necessary party in a lawsuit against its subsidiary because the results of the li t i gation could have more serious future consequences for the parent); see also Southwest Ctr. for Biological Diversity, 268 F.3d at 824 ("[I]t is not Applicants' burden at this stage in the litigation to a n t icipate specific differences in trial strategy. It is sufficient for Applicants to show that, because o f d ifferences in interests, it is likely that Defendant s will not advance the same arguments as Applicants.").

In sum, Ke l l o gg Caribbean's attempt to overcome the
pre s u mp t i o no fa d e qu a t e r e p r e s e n t a t i o ns h o u l dn o t h a v e been limited to showing adversity, collusion or nonfeasance. Because the injunc t i v e relief sought would affect Kellogg Caribbean and because "there is sufficient doubt a bout the adequacy of representation to warrant intervention," Trbovich, 404 U.S. at 538, K e llogg Caribbean has satisfied the Rule 24(a)(2) requirements.-15- B. Rule 19(b) Having concluded that Kellogg Caribbean meets the Rule 24 ( a )(2) requirements, but that intervention would destroy complete diversity, we turn to w h e t h e r Kellogg Caribbean is an indispensable party under Rule 19(b). See supra at 7- 8
. Rule 19(b) provides that, if a nonparty is deemed necessary to litigation but joining that nonparty would deprive the court of jurisdiction, the court should permit the action to proceed only to the extent that " equity and good conscience" warrant. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 109 (1968). Four factors channel the analysis:

[F]irst to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rend e r ed in the person's absence will be adequate; fourth, whether the plaintiff will have an adeq uate remedy if the action is dismissed for nonjoinder. Fed. R. Civ. P. 19(b).

We review Rule 19(b) determinations only for abuse of discretion, s e e U n ited States v. San Juan Bay Marina, 239 F.3d 400, 40 3 ( 1 s t C i r . 2 0 0 1 ) , b e c a u s e s u c hd e t e r m i n a t i o n s i n v o l ve "the balancing of competing interests" and "must be stee p e din pragmatic considerations," Travelers, 884 F.2d at 6 3 5
. Here, the district court did not independently analyze the Rule 19(b) question due to the erroneous conclusion that Kellogg Caribbean-16-

could not intervene. Because the district court i s i n t he "preferred p o s i t i o n" to make the Rule 19(b) determination, we think that i t s h ould have the first opportunity to address the question. Id.

That said, at least one thing is cle ar: Kellogg
Car i b b e a n i s i n d i s p e n s a b l e i n s o f a r a s a p p e l l e e s s e e kan injunction that affects Kellogg Caribbean's interests under the agreements. See, e.g., Acton Co. Inc. of Mass. v. Bachman Foods,
Inc. , 6 6 8 F.2d 76, 81-82 (1st Cir. 1982) (stating that, in an actio n s e e k ing recision of a contract, all parties to the contract and others having a substantial int e r e st in it are indispensable parties); 7 Wright, Miller & Kane, supra § 1613,
at 1 9 6 ( "[I]n an action seeking specific performance of a contract all persons who will be required to act to carry out a

c o u r t order compelling performance have been held to be indispensable parties."). As discussed earlier, our conclusion that Kellogg Caribbea n meets Rule 24(a)(2)'s requirements was influenced by our concern that i t c o uld be enjoined to perform under the agreements without being adequately represented. This analysis also renders Kellogg Caribbean an indispensable party,
at least to the extent that appellees seek specific performance. See Acton, 668 F.2d at 81-82.

Nevertheless, there are multiple ways that the district court could resolve the Rule 19(b) question consistent with this limitation. For example, it could decide that Kel l o gg-17-

Caribbean's involvement in the underlying dispute is so extensive that it is indispensable to a proper adjudication of the case and therefore dismiss the action entirely. See H.D. Corp. of P.R. v.
F o r d M otor Co., 791 F.2d 987, 993 (1st Cir. 1986); Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 559 (5th Cir
. 1 985).
It also could decide to retain jurisdiction and limit the relief available to ap p e l l e es. See 7 Wright, Miller & Kane, supra § 1608 at 107 ("[W]hen rescission or speci f i c p e rformance might have a detrimental impact on an absent person, money damages may prove to be an appropriate alternative." )
. W e do not prejudge whether one of these approaches, or perhaps another, provides a better avenue for accommodating the "competing interests" of the parties. This rationale requi r e s , however, that we vacate the preliminary injunction while the district court considers the Rule 19(b) question. This injunction, by its terms, requ ires that Kellogg Caribbean (as an affiliate of Kellogg USA) perform under the agreements while this litigation is pending. As just discussed, this kind of relief cannot be granted consistent with Rule 19(b) because it harms Kellogg Caribbean's legal interests.
III.
F o r the reasons stated, we vacatethe preliminary injunction and remand for further proceedings consi stent with this opinion. The parties shall bear their own costs.

So ordered.