Court Opinion

ID: 2965915
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:46:19.736048+00
Date Added: 2024-06-11T11:43:07.999998
License: Public Domain

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<pre>                  United States Court of Appeals <br>                      For the First Circuit <br>                       ____________________ <br> <br>No. 98-1595 <br> <br>             ILEANA IRVINE, IRG RESEARCH GROUP, INC., <br> <br>                      Plaintiffs, Appellees, <br> <br>                                v. <br> <br>             MURAD SKIN RESEARCH LABORATORIES, INC., <br> <br>                      Defendant, Appellant. <br> <br>                       ____________________ <br> <br>           APPEAL FROM THE UNITED STATES DISTRICT COURT <br> <br>                 FOR THE DISTRICT OF PUERTO RICO <br> <br>        [Hon. Carmen Consuelo Cerezo, U.S. District Judge] <br> <br>                       ____________________ <br> <br>                              Before <br> <br>                     Torruella, Chief Judge, <br> <br>                      Selya, Circuit Judge, <br> <br>                and Acosta, Senior District Judge. <br> <br>                      _____________________ <br> <br>    Vincent J. Syracuse, with whom Newman Tannenbaum Helpern <br>Syracuse & Hirschtritt LLP, David A. Pellegrino and Luis N. Blanco- <br>Matos were on brief, for appellant. <br>    Jossie Yunque-Lpez and Ral Gonzlez-Toro, for appellees. <br> <br> <br>                       ____________________ <br> <br>                           July 8, 1999 <br>                       ____________________

         ACOSTA, Senior District Judge.  On appeal defendant- <br>appellant Murad Skin Research Laboratories, Inc. ("Murad") <br>challenges the verdict rendered in favor of both plaintiffs IRG <br>RESEARCH GROUP, INC. ("IRG") and Ileana Irvine ("Irvine"). <br>Specifically, Murad alleges that the district court erred by (1) <br>not granting its motion for judgment as a matter of law; (2) <br>declining to charge the jury in accordance with its proffered <br>instruction on foreseeability; (3) denying its petition for a new <br>trial; and (4) allowing the testimony of plaintiffs' expert <br>witness. <br>  On review we agree with Murad's reasoning that both <br>causes of action should have been dismissed as a matter of law.  <br>Accordingly, there is no need to address the other issues raised by <br>Murad. <br>                            BACKGROUND <br>  Murad is a stateside manufacturer of skin care products.  <br>Irvine and her daughter, Catherine Irvine Sarnataro, both <br>"aestheticians," i.e. skin care specialists, first came in contact <br>with the Murad line of products at a trade show in Chicago in 1989.  <br>Irvine testified at trial that there was a "glycolic acid <br>revolution" in the industry at the time and she found the glycolic <br>acid manufactured by Murad to be the "most effective" of all the <br>other products available in the market.  Initially, she purchased <br>Murad products for her own clients but since 1991 she also sold <br>them to various salons.

  Subsequently, Irvine and her daughter met periodically <br>with Dr. Howard Murad, president of Murad, at various conferences <br>and conveyed to him an interest in becoming the exclusive <br>distributor of Murad products in Puerto Rico.  The conversations <br>culminated in a provisional exclusive distribution agreement dated <br>September 2, 1993 with IRG, a corporation established and <br>controlled by Irvine and her daughter.  The contract would be <br>extended thereafter conditioned upon IRG meeting certain sales <br>quotas. <br>  Both Irvine and her daughter testified regarding their <br>efforts on behalf of IRG to develop a market for the Murad skin <br>products in Puerto Rico which included promotions, advertisements, <br>demonstrations, training and education of both aestheticians and <br>dermatologists.  IRG operated through its own clinics and also sold <br>to aestheticians and medical offices. <br>  In May 1994 Murad broadcast an infomercial on various <br>stateside cable television stations as part of its advertising <br>campaign.  Dr. Murad testified that the purpose behind the <br>infomercial was to expose their home products to customers and also <br>to lure them into the salons for professional treatment.  Unbeknown <br>to Murad, a New York station relayed the infomercial to Puerto Rico <br>and its products were thereby made available locally through <br>telemarketing. <br>  According to plaintiffs-appellees, the infomercial marked <br>the beginning of the economic downfall of both IRG and Irvine.  <br>After IRG learned of the telemarketing incursion, it sought relief <br>under the Puerto Rico Distributorship Act, Law 75 of June 24, 1964, <br>P.R. Laws Ann. tit. 10,  278 et seq. (1997) whereas Irvine sued <br>under the local torts statute.  The jury found for plaintiffs- <br>appellees and awarded $390,000 to IRG and $100,000 to Irvine as <br>damages. <br>                             RULE 50 <br>  Petitions for judgments as a matter of law under Rule <br>50(a)(1) Fed. R. Civ. P. will be granted only in those instances <br>where, after having examined the evidence as well as all <br>permissible inferences drawn therefrom in the light most favorable <br>to non-movant, the court finds that a reasonable jury could not <br>render a verdict in that party's favor.  Mangla v. Brown Univ., 135 <br>F.3d 80, 82 (1st Cir. 1998); Ed Peters Jewelry Co. v. C & J Jewelry <br>Co., 124 F.3d 252, 261 (1st Cir. 1997); Bogosian v. Mercedes-Benz <br>of N. Am., Inc., 104 F.3d 472, 475 (1st Cir. 1997); Speen v. Crown <br>Clothing Corp., 102 F.3d 625, 628 (1st Cir. 1996), cert. denied, <br>520 U.S. 1276, 117 S. Ct. 2457, 138 L.Ed.2d 214 (1997).  In <br>carrying out this analysis the court may not take into account the <br>credibility of witnesses, resolve evidentiary conflicts, nor ponder <br>the weight of the evidence introduced at trial.  Alvarez-Fonseca v. <br>Pepsi Cola Bottling Co. of P.R.,  152 F.3d 17, 23 (1st Cir. 1998), <br>cert. denied, No. 98-8641, ___ U.S. ___, 1999 WL 170188 (May 17, <br>1999);  Logue v. Dore, 103 F.3d 1040, 1043 (1st Cir. 1997);  Speen, <br>102 F.3d at 637; Katz v. City Metal Co., Inc., 87 F.3d 26, 28 (1st <br>Cir. 1996). <br>  In order to overcome a Rule 50 petition the party <br>carrying the burden of proof must have introduced at trial <br>sufficiently adequate evidence for the jury to determine the <br>plausibility of a particular fact.  "Thus, in order to support a <br>jury finding on such an issue, the evidence presented must make the <br>existence of the fact to be inferred more probable than its <br>nonexistence."  Alvarez-Fonseca, 152 F.3d at 24; Katz, 87 F.3d at <br>28; Richmond Steel, Inc. v. Puerto Rican Am. Ins. Co., 954 F.2d 19, <br>22 (1st Cir. 1992); Malav-Flix v. Volvo Car Corp., 946 F.2d 967, <br>971 (1st Cir. 1991). <br>  A mere scintilla of evidence will not rise to a triable <br>issue of fact necessary to avoid dismissal under Rule 50.  Crane v. <br>Green & Freedman Baking Co., Inc., 134 F.3d 17, 21 (1st Cir. 1998); <br>Ed Peters Jewelry, 124 F.3d at 261; Coyante v. P.R. Ports Auth., <br>105 F.3d 17, 21 (1st Cir. 1997); Speen, 102 F.3d at 637.  Nor will <br>"conjecture" or "speculation" over the evidence presented provide <br>sufficient grounds  to warrant a fact finding determination by the <br>jury.  Russo v. Baxter Healthcare Corp., 140 F.3d 6, 8 (1st Cir. <br>1998) (citing Katz v. City Metal Co., 87 F.3d at 28). <br>  On appeal we will review the record de novo employing the <br>same criteria applicable to the trial court, and decide whether, as <br>defendant/appellant contends, the jury in this case "as a rational <br>factfinder could have reached no conclusion except that the <br>plaintiff[s] take nothing."  Logue v. Dore, 103 F.3d at 1043.  See <br>also Russo, 140 F.3d at 8; Speen, 102 F.3d at 628; Katz, 87 F.3d at <br>28.

                              LAW 75 <br>                            Generally <br>  Puerto Rico's Law 75 governs the business relationship <br>between principals and the locally appointed distributors/dealers <br>for marketing their products.  The statute was initially enacted to <br>avoid the inequity of arbitrary termination of distribution <br>relationships once the designated dealer had successfully developed <br>a local market for the principal's products and/or services.  <br>Euromotion, Inc. v. BMW of N. Am., Inc., 136 F.3d 866, 870 (1st <br>Cir. 1998); Borschow Hosp. and Med. Supplies, Inc. v. Csar <br>Castillo, Inc., 96 F.3d 10, 14 (1st Cir. 1996); R.W. Intern. Corp. <br>v. Welch Foods, Inc., 88 F.3d 49, 51 (1st Cir. 1996).  In order to <br>accomplish its goal Law 75 limited the principal's ability to end <br>the relationship unilaterally except for "just cause,"  278a, <br>while subjecting the principal to  considerable economic liability <br>for terminations without just cause.  See  278b of Law 75 <br>(enumerating factors to consider in calculating award). <br>  In 1966 the protection afforded to dealers under Law 75 <br>was extended to include the conduct of a principal which even <br>though it did not end the contract it was deemed detrimental to <br>the distribution relationship.  The amendment further provided that <br>impairments without just cause would subject the infringing party <br>to the same liability provided for terminations under  278b.  <br>                            Impairment <br>  Law 75 enumerates some instances of impairment by way of <br>illustration and establishes a rebuttable presumption of <br>impairment whenever a principal bypasses a dealer by distributing <br>merchandise directly; appoints additional dealers in contravention <br>of the agreement; fails to adequately fill orders; or arbitrarily <br>changes the transportation and/or payment terms.   278a-1(b)(1)- <br>(4). <br>  The protection afforded dealers by Law 75, however, is <br>circumscribed by those rights acquired under the agreement <br>regulating their business relationship.  Therefore, whether or not <br>an impairment has taken place will depend upon the specific terms <br>of the distribution contract. <br>      The question whether there has been a <br>  "detriment" to the existing relationship <br>  between supplier and dealer is just another <br>  way of asking whether the terms of the <br>  contract existing between the parties have <br>  been impaired. <br> <br>Vulcan Tools of P.R. v. Makita USA, Inc., 23 F.3d 564, 569 (1st <br>Cir. 1994). <br>  The parties do not dispute the fact that, pursuant to the <br>September 2, 1993 agreement, IRG had the exclusive distribution <br>rights of Murad products in Puerto Rico during a trial period <br>lasting from August 25, 1993 through December 31, 1994.  Further, <br>the document provided that should IRG meet a particular sales quota <br>it would qualify to act as Murad's exclusive distributor for an <br>additional two years. <br>  It is also uncontested that through its infomercial, <br>which commenced airing in Puerto Rico in May 1994, Murad sold its <br>products directly to local clientele.  The uncontroverted evidence <br>at trial also established that Murad never intended the broadcast <br>to be aired in Puerto Rico.  This was a fortuitous event brought <br>about by cable carriers not related to Murad in any way. <br>  Murad argues that it is not liable for impairment of the <br>relationship because once notified by plaintiffs-appellees of the <br>broadcast in Puerto Rico it promptly gave instructions for this <br>sales mode to be discontinued. <br>  A principal may not be held accountable for unknown <br>market interference by third parties.  However, once put on notice <br>that its products are reaching an area of limited distribution <br>rights a principal has the obligation to take prompt positive <br>action to curtail the practice.  Even though its role was not to <br>"stand as a vigilant dog", Gen. Office Prod. Corp. v. Gussco Mfg., <br>Inc., 666 F. Supp. 328, 333 (D.P.R. 1987), once informed of the <br>local transmission Murad did have an affirmative duty to ensure <br>that the direct sales would cease and avoid further interference <br>with the Puerto Rico market. <br>  Murad argues that it was alerted to the local <br>transmission of the broadcast "for the first time" via a letter <br>dated October 14, 1994 forwarded by Catherine Irvine (Appellant's <br>brief at 6) and that it immediately responded by taking steps to <br>avoid its recurrence.  However, there is enough information in the <br>record from which a reasonable jury could infer that Murad was <br>advised of the broadcast much earlier than October 14, 1994. <br>  At trial Dr. Murad acknowledged having been informed of <br>the broadcast matter "a few weeks before" receiving the October 14, <br>1994 letter.  Further, this correspondence makes reference to a <br>request made by IRG "[a]bout a month ago" for a list of local <br>customers who had placed orders through the infomercial which <br>presupposes Murad had been notified of this practice long before <br>the letter was mailed.  The letter also points to an earlier <br>telephone call by Gerard Sarnataro, Catherine Irvine's husband, on <br>behalf of IRG "several days ago" notifying of direct orders placed <br>by him and others.  Lastly, the letter was a follow-up to a prior <br>conversation between Catherine Irvine and Dr. Murad demanding some <br>kind of response from Murad which again proves earlier contacts <br>regarding the prohibited availability of Murad products through the <br>infomercial. <br>  Irvine also testified that she, her daughter and son-in- <br>law  "started feeling the negative effects" of the infomercial in <br>the summer of 1994.  She related how  customers and beauty salon <br>owners complained to her that the products were being made <br>available through the television at lower prices.  Irvine further <br>indicated that she, her daughter and her son-in-law "immediately <br>got in touch with Mr. Angelo Fiorita," Murad's representative, to <br>express their concern (emphasis ours) and that Mr. Fiorita <br>responded that he would "speak with Dr. Murad and ... take the <br>necessary steps for this to stop happening."  However, according to <br>Irvine's testimony, "[n]othing happened."  Irvine explained that <br>the October 1994 letter was eventually sent to Murad because the <br>situation continued to worsen without any corrective measures being <br>taken by Murad. <br>  Gerard Sarnataro testified that he placed orders from <br>Puerto Rico "several times to test out" how long Murad would <br>continue the practice of selling the products directly in the local <br>market.  Mr. Sarnataro further indicated that he continued <br>purchasing products from Puerto Rico and calling Murad to object to <br>what he considered an unauthorized practice.  At trial <br>Mr. Sarnataro also described how, despite his complaints, <br>approximately two months later he had been approached over the <br>telephone to inquire if he was interested in reordering Murad's <br>products. <br>  Murad's first remedial action was taken on October 25, <br>1994.  Because the jury could logically infer that Murad was put <br>on notice of the interference soon after May 1994 Murad's argument <br>that it responded diligently is undermined by the evidence in the <br>record.  Therefore, a reasonable fact finder could have found that <br>the exclusive distribution provision of the contract had been <br>impaired by Murad's failure to take prompt positive action in <br>reacting to IRG's complaints.  However, our analysis under Law 75 <br>does not conclude here. <br>                             Damages <br>  The jury awarded IRG $390,000 as damages under Law 75.  <br>The statute establishes a formula for the indemnification of <br>dealers/distributors in the event of either termination or <br>impairment to the relationship by a principal without just cause.  <br>However, Law 75 specifically limits payment "to the extent of the <br>damages caused [the dealer/distributor]"  278b (emphasis ours).  <br>It is clear from reading this provision that damages will not be <br>automatically conferred in all cases of termination and/or <br>impairment.  In this regard the Puerto Rico Supreme Court <br>specifically held in Marina Indus. Inc. v. Brown Boveri Corp., 114 <br>D.P.R. 64, 90 (1983) that the factors enumerated in  278b are not <br>mandatory.  Rather, they constitute guidelines to be utilized <br>contingent upon the presentation of adequate proof in each case.  <br>Further, in Marina Industrial the Supreme Court acknowledged that <br>evidence of damages is an essential element of a Law 75 violation <br>as to which plaintiff bears the burden of proof.  Therefore, in <br>order to prevail, a Law 75 plaintiff must submit evidence of <br>damages as part of its action. <br>      A claim for impermissible termination <br>  or impairment of a dealership contract under <br>  section 278 has two essential elements; that <br>  the contract existing between the parties was <br>  impaired or terminated without just cause and <br>  that there were resulting damages.  After the <br>  plaintiff has shown an impairment or <br>  termination of the contract, the defendant may <br>  offer the affirmative defense of just cause.  <br>  If there was no just cause, the plaintiff must <br>  show damages. <br> <br>Draft-Line Corp. v. Hon Co., 781 F. Supp. 841, 843 (D.P.R. 1991) <br>aff'd, 983 F.2d 1046 (1st Cir. 1993) (unpublished table decision). <br>  The evidence presented at trial to justify damages to IRG <br>consisted of the testimony of Irvine as well as the opinion of <br>Radams Alvarez Menndez, an accountant.  According to Irvine, as <br>a result of the infomercial IRG "sales began to decline <br>dramatically" in August-September 1994.  The "business began <br>collapsing little by little... and in the end the business <br>virtually came apart."  However, the invoices of Murad products <br>sold to IRG during 1994 through April 1995 directly belie this <br>testimony as well as the conclusions reached by the expert <br>witness. <br>  The opinion rendered by plaintiffs' expert to justify <br>IRG's damages was based on a formula using the ratio between the <br>number of clinics opened by IRG and the corresponding volume of <br>sales.  The expert then proceeded to make a projection of the <br>anticipated sales of IRG had it opened 25 clinics within a term of <br>five years as originally planned.  However, the revenues employed <br>as a basis for this computation were based on the total sales of <br>IRG for the fiscal year running from July 1, 1993 through June 30, <br>1994 without any reference to the sale of Murad products in <br>particular.  Mr. Alvarez Menndez assumed that all sales and <br>services provided by IRG for that period of time were exclusively <br>Murad products which was not the case.  When confronted with the <br>increase of orders of Murad products throughout 1994 the expert <br>conceded that this was "not consistent" with the overall decline of <br>sales by IRG for the same period.  <br>  More significantly, according to Mr. Alvarez Menndez the <br>drop in sales and closing down of clinics commenced "after the <br>second quarter of 1994 [that is, October through December of 1993]" <br>which confirms that the downward trend began prior to May 1994, the <br>onset of the alleged impairment by Murad. <br>  Inasmuch as plaintiffs did not challenge in any way the <br>authenticity of Murad's invoices and/or the veracity of the <br>information contained therein the amount of IRG sales for this <br>period is conclusive on this matter.  Further, if indeed IRG's <br>purchases of Murad products remained unaltered despite the brief <br>period of Murad's direct sales in Puerto Rico IRG could not <br>reasonably argue that it had been injured by Murad even if Murad <br>had breached the exclusivity clause of their  distribution <br>agreement.  Given this uncontested factual scenario a reasonable <br>jury could not plausibly conclude that the damages complained of by <br>IRG arose as a result of the principal's alleged impairment. IRG's <br>Law 75 claim must fail for  having failed to establish a causal <br>connection between its economic downfall and Murad's forbidden <br>infomercial.  Accordingly, IRG's cause of action should have been <br>DISMISSED. <br>                         INDIVIDUAL CLAIM <br>  The jury awarded Ileana Irvine $100,000 as damages for <br>her pain and suffering and loss of reputation due to Murad's <br>negligent actions regarding the infomercial. <br>  Murad contends that Irvine has no personal cause of <br>action and that there was no evidence of a causal relationship <br>between its "purchase of air time for the infomercial at a New York <br>television station" and Irvine's purported damages (Appellants' <br>Brief at 28). <br>  In this jurisdiction tort liability is governed by art. <br>1802 of the Puerto Rico Civil Code, P.R. Laws Ann. tit. 31,  5141 <br>(1990) which imposes responsibility for damages caused by <br>negligence or fault.  The necessary elements to prevail in a tort <br>action are: (1) a negligent act or omission, (2) damages and (3) a <br>causal relationship between them.  De-Jess-Adorno v. Browning <br>Ferris Indus. of P.R., Inc., 160 F.3d 839, 842 (1st Cir. 1998); <br>Marshall v. Prez-Arzuaga, 828 F.2d 845, 847 (1st Cir. 1987); <br>Montalvo-Feliciano v. Cruz-Concepcin, 144 D.P.R. ____,  98 JTS 6 <br>at 495, 499 (1998); Toro-Aponte v. E.L.A., 142 D.P.R. ____, 97 JTS <br>18 at 627 (1997). <br>  Not all actions or omissions which result in <br>injuries/damages will give rise to liability under art. 1802.  <br>"Negligence has been defined by the Commonwealth courts as the <br>failure to exercise due diligence to avoid foreseeable risks."  <br>Malav-Flix, 946 F.2d at 971.  Therefore, liability will only <br>arise if the damages complained of were reasonably foreseeable to <br>the defendant.  De-Jess-Adorno, 160 F.3d at 842; Montalvo- <br>Feliciano, 144 D.P.R. ____, 98 JTS at  499; Toro-Aponte, 142 D.P.R.  <br>____, 97 JTS at 627; Ocasio-Juarbe v. Eastern Airlines, Inc., 125 <br>D.P.R. 410, 418 (1990), official translation reproduced in full in <br>902 F.2d 117 (1st Cir. 1990); Rivera-Prez v. Cruz-Corchado, 119 <br>D.P.R. 8, 18 (1987).  The duty of care imposed upon a tortfeasor is <br>anticipating reasonably probable injuries to probable victims.  <br>Marshall v. Prez-Arzuaga, 828 F.2d 847.  See Herminio M. Brau, Los <br>Daos y Perjuicios Extracontractuales en Puerto Rico  7.02[2] at <br>184-5 (2d ed. 1986).  The foreseeability contemplated by the <br>statute does not include every conceivable consequence of an act or <br>omission since to do so would make the defendant an absolute <br>insurer.  See  Montalvo-Feliciano, 144 D.P.R. ____, 98 JTS at 499; <br>Pacheco v. A.F.F., 112 D.P.R. 296, 300 (1982); Jimnez v. <br>Pelegrina-Espinet, 112 D.P.R. 700, 704 (1982). <br>  For purposes of our analysis we will assume that the <br>conduct complained of by Irvine in support of her negligence claim <br>is the same utilized by IRG for its Law 75 action, i.e., allowing <br>the Murad products to be sold directly in Puerto Rico. <br>  Inasmuch as our review of the claim is limited by the <br>constraints of a Rule 50 motion, the issue then becomes whether <br>there is sufficiently reliable evidence in the record for a jury to <br>conclude that the mental anguish and loss of reputation averred by <br>Irvine were reasonably to be foreseen to Murad as a probable <br>consequence of the infomercial.  In other words whether, based on <br>the facts presented at trial as well as the permissible inferences <br>derived therefrom, it was reasonable for the trier of fact to find <br>that Murad should have anticipated the resulting damages to Irvine <br>individually.  As previously mentioned, there is no actionable <br>claim under art. 1802 if the particular injury/damage complained of <br>by Irvine could not have been reasonably foreseen by Murad. <br>  Even though Irvine described in detail the alleged <br>injuries to her reputation, humiliation and pain and suffering <br>caused by Murad's airing of the infomercial in Puerto Rico, <br>liability based on art. 1802 cannot rest on the existence of an <br>injury alone.  Irvine did not introduce any evidence to explain <br>why it should have been reasonably foreseeable to Murad that  <br>making its products available in Puerto Rico at lower prices would <br>somehow affect her personally.  At trial when asked by her counsel <br>to describe her relationship with Murad, separate from that of IRG, <br>Irvine merely responded that it was "cordial" and that she found <br>Dr. Murad "very pleasant."  Her testimony in this regard was <br>circumscribed by the tenor of her and her daughter's contacts with <br>the Murad representatives.  No mention was made of any particular <br>circumstances in her dealings with Murad which would support her <br>individual claim. <br>  Additionally, the documentary evidence submitted at trial <br>further supports Murad's theory.  The distribution agreement was <br>made with the corporation, not Irvine.  All the correspondence <br>available in the record which was exchanged between Murad and <br>plaintiffs/appellants was conducted through the corporation. <br>  Accordingly, Irvine did not produce any evidence at trial <br>from which the jury could reasonably conclude that her personal <br>damages were a probable and foreseeable consequence of Murad's <br>infomercial.  Irvine's individual claim must also be DISMISSED for <br>having failed to meet her burden of proof. <br>                            CONCLUSION <br>  Accordingly, we direct the district court to set aside <br>the judgments on both the corporate and individual claims and enter <br>judgment as a matter of law in the appellant's favor. </pre>

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