Court Opinion

ID: 3199677
Source: CourtListenerOpinion
Date Created: 2016-05-02 21:00:24.997345+00
Date Added: 2024-06-11T07:39:13.338256
License: Public Domain

United States Court of Appeals
                      For the First Circuit

Nos. 15-1419
     15-1577

                       TRAFON GROUP, INC.,

                      Plaintiff, Appellant,

                                v.

                         BUTTERBALL, LLC,

                       Defendant, Appellee.

          APPEALS FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF PUERTO RICO

        [Hon. Jay A. García-Gregory, U.S. District Judge]

                              Before

                       Howard, Chief Judge,
               Torruella and Lipez, Circuit Judges.

     Jorge I. Peirats, with whom Jason R. Aguiló-Suro and
Pietrantoni Méndez & Álvarez LLC, were on brief, for appellant.
     Luis A. Oliver, with whom Salvador Antonetti-Zequeira and
Fiddler González & Rodríguez, P.S.C., were on brief, for appellee.

                           May 2, 2016
             TORRUELLA, Circuit Judge.          Filing suit in the United

States District Court for the District of Puerto Rico, Plaintiff-

Appellant Trafon Group, Inc. ("Trafon") alleges that Defendant-

Appellee Butterball, LLC ("Butterball") breached an exclusive

distribution agreement in violation of Puerto Rico's Law 75 of

June 24, 1964, P.R. Laws Ann. tit. 10, § 278 et seq. ("Law 75").

Trafon sought a preliminary injunction, asking that the district

court enjoin Butterball from further impairing Trafon's exclusive

distribution rights.     The district court denied the motion on the

basis that Trafon's claim was barred under Law 75's three-year

statute of limitations and subsequently dismissed the case under

Federal Rule of Civil Procedure 56(f).               Trafon now appeals the

denial of the preliminary injunction and the judgment against it.

                                       I.

          A Puerto Rico-based wholesale food distributor, Trafon

alleges that, in June 2009, it acquired certain assets from Packers

Provisions     Company   of   Puerto        Rico,   including   an   exclusive

distribution agreement with Butterball for whole bird and turkey

part products in Puerto Rico.1         Soon after the deal was executed,

Trafon learned that Butterball was selling its products to a

1  Neither the original Asset Purchase Agreement nor the attached
documents reference an exclusive distribution agreement between
Butterball and Packers Provisions Company.

                                   -2-
Florida wholesaler that was distributing those products to a

retailer in Puerto Rico.      On October 14, 2009, Trafon's counsel

wrote   to   Butterball   expressing    concerns   that   Butterball   was

violating the exclusive distribution agreement.           On October 26,

2009, Butterball's counsel sent a letter (the "2009 letter")

denying Trafon's allegation:

        [T]he allegation of a Law 75 violation rests on the
        incorrect premise that your clients acquired
        exclusive rights to distribute Butterball products
        in Puerto Rico. For many years, Butterball (and its
        predecessors)   have   offered   Butterball   branded
        products for sale and distribution within Puerto
        Rico without entering into a written agreement or
        appointing an exclusive distributor. . . .       [W]e
        have not located any documents corroborating your
        clients' conclusory allegation that Butterball or
        any predecessors (i.e., the principals) granted any
        exclusive distribution rights in Puerto Rico
        limiting the principals' right to sell directly or
        appoint competing distributors.     If your clients
        have any evidence to the contrary on this issue, we
        would appreciate it if you would produce the same to
        us immediately. . . . Butterball has an interest to
        negotiate in good faith the terms of a formal written
        non-exclusive agreement with your clients for the
        sale and distribution of its products in Puerto
        Rico. During this time, Butterball is agreeable to
        continue to do business with your clients on the same
        non-exclusive terms and on a purchase order basis as
        has existed over the past few months.

The record does not reveal whether Trafon or its counsel responded

to the 2009 letter.   Trafon and Butterball continued to do business

together, and each invoice that Trafon received from Butterball

contained the following notice:

                                  -3-
         As confirmed by way of letter dated October 26, 2009,
         any and all purchase orders for Butterball branded
         products fulfilled by Butterball LLC are done so on
         a non-exclusive basis.    Nothing contained in this
         invoice, nor any act or omission to act by Butterball
         LLC, is intended to grant you with any exclusive
         distribution rights in Puerto Rico or elsewhere.

          Trafon alleges that, notwithstanding the 2009 letter and

subsequent invoices, Butterball treated Trafon as an exclusive

distributor.    On various occasions where Butterball made direct

sales to Puerto Rico supermarkets in contravention of Trafon's

alleged exclusive rights, Butterball paid Trafon commissions.         For

example, in 2010, Trafon consented to direct sales that Butterball

made to the supermarket chain Selectos and received a commission

of two cents per pound on the sale. 2           Similarly, on multiple

instances Trafon suspected Butterball was working directly with

supermarkets in Puerto Rico or negotiating with different Puerto

Rico-based distributors.      Rather than deny that Trafon was their

exclusive distributor, Butterball responded to Trafon's queries by

promising to investigate the situations.              For example, after

Trafon   saw   that   the   retailer   Pueblo   was   selling   Butterball

products, it informed Butterball that Trafon had not sold to Pueblo

and asserted that this sale was "another violation on Butterball's

2    Butterball contests this account and attests that it
consistently sold its products directly to supermarkets and mass
retailers in Puerto Rico without paying Trafon.

                                   -4-
end."   Butterball replied that it would "investigat[e] where this

fresh turkey sale came from and report back to you."

             This    relationship    lasted     until   Trafon   learned    that

Butterball made direct sales to various retailers in Puerto Rico

without Trafon's knowledge in 2012.            Around this time, Butterball

also refused to pay commissions that it allegedly promised Trafon

for direct sales to Costco in 2011 and 2012.                  Trafon informed

Butterball that these actions violated the exclusive distribution

agreement.          In   April   2013,    Butterball    responded   to     these

allegations with a flat denial that Trafon and Butterball had ever

entered into an exclusivity agreement:

        You are, of course, aware that Butterball has never
        recognized Trafon as an exclusive distributor of
        Butterball products. . . .    [A]s things currently
        stand, Butterball intends to sell to other customers
        in Puerto Rico on a non-exclusive basis, and Trafon
        is welcome to purchase products from Butterball on
        the same basis if it chooses to do so.

             Spurred by Butterball's proclamation that it intended to

work with other distributors in Puerto Rico, Trafon brought this

action in the District of Puerto Rico in September 2013 and moved

for a preliminary injunction enjoining Butterball from violating

the   alleged    exclusive       distribution    agreement.      Following    a

hearing, a magistrate judge issued a Report and Recommendation

("R&R") recommending that the motion for a preliminary injunction

be denied.      The magistrate judge determined that Law 75's three-

                                         -5-
year limitations period started when Trafon received the 2009

letter, and, as a result, Trafon's claims were time-barred.             The

magistrate judge also found that, even assuming Trafon's claims

were timely, Trafon had failed to show that it had ever entered

into an exclusive contract with Butterball.           Adopting the R&R's

conclusion that Trafon's claims were time-barred, the district

court   denied   the   request   for    a   preliminary   injunction.    It

declined to reach the question of whether the parties had an

exclusive distribution relationship.

           The district court also entered an order for Trafon to

show cause as to why the case should not be dismissed under Federal

Rule of Civil Procedure 56(f) (a court may consider summary

judgment sua sponte "[a]fter giving notice and a reasonable time

to respond").    In response, Trafon sought reconsideration of the

order denying the preliminary injunction.             The district court

denied the motion and entered judgment for Butterball.          Trafon now

appeals the denial of the preliminary injunction and subsequent

dismissal of its case.

                                   II.

                                       A.

           The district court's grant or denial of a preliminary

injunction is reviewed for an abuse of discretion, with conclusions

of law reviewed de novo and findings of fact for clear error.

                                   -6-
Bl(a)ck Tea Soc'y v. City of Bos., 378 F.3d 8, 11 (1st Cir. 2004).

The parties do not contest the basic facts, and neither party

disputes that the determination of whether Trafon's claim is time-

barred is subject to de novo review.            See Montalvo v. González-

Amparo, 587 F.3d 43, 46 (1st Cir. 2009); Skwira v. United States,

344 F.3d 64, 72 (1st Cir. 2003).

                                     B.

            Law   75   provides   that,   in   a    dealer's    contract, 3 "no

principal or grantor may directly or indirectly perform any act

detrimental to the established relationship or refuse to renew

said contract on its normal expiration, except for just cause."

P.R. Laws Ann. tit. 10, § 278a; see also Irvine v. Murad Skin

Research Labs., Inc., 194 F.3d 313, 317 (1st Cir. 1999) ("Law 75

limited    the    principal's     ability      to   end   the     relationship

unilaterally except for 'just cause' . . . . " (quoting P.R. Laws

Ann. tit. 10, § 278a)).      In this way, Law 75 serves "to avoid the

3   Under Law 75, a "dealer's contract" is defined as a

          [r]elationship established between a dealer and a
          principal or grantor whereby and irrespectively of
          the manner in which the parties may call,
          characterize or execute such relationship, the
          former actually and effectively takes charge of the
          distribution of a merchandise, or of the rendering
          of a service, by concession or franchise, on the
          market of Puerto Rico.

P.R. Laws Ann. tit. 10, § 278(b).

                                    -7-
inequity of arbitrary termination of distribution agreements once

the designated dealer ha[s] successfully developed a local market

for the principal's products and/or services."             Irvine, 194 F.3d

at 317; see also R.W. Int'l Corp. v. Welch Food, Inc., 13 F.3d
478, 482 (1st Cir. 1994).

             Law 75 contains a three-year statute of limitations,

providing that "[e]very action . . . shall prescribe in three

years reckoning from the date of the definite termination of the

dealer's contract, or of the performing of the detrimental acts,

as the case may be."           P.R. Laws Ann. tit. 10, § 278d.              The

magistrate    judge   found,   and     the   district   court   agreed,    that

Butterball's 2009 letter notifying Trafon that they did not have

an exclusive relationship constituted a "detrimental act" under

Law 75 and, therefore, that the statute of limitations had expired

long before Trafon brought suit in 2013.

             The   parties   contest    whether   the   2009    letter    is   a

detrimental act under Basic Controlex Corp., Inc. v. Klockner

Moeller Corp., 202 F.3d 450 (1st Cir. 2000), which also involves

the alleged breach of an exclusive distribution agreement.               There,

"KMC [the principal] informed Basic Controlex [the distributor]

that it intended to sell its products through other distributors

in Puerto Rico, 'effective immediately.'"           Id. at 452.     Although

the parties disputed whether KMC acted on these plans, this court

                                       -8-
determined that Basic Controlex's Law 75 action, brought over three

years after it received this notice from KMC, was time-barred

because "Basic Controlex had notice of its claim as soon as KMC

announced its plan to use other distributors in 1993.                    That

announcement constituted the 'performing of a detrimental act'

under Act 75, sufficient to trigger the statute."                Id. at 453

(internal formatting omitted).

             Similarly, the 2009 letter put Trafon on notice that

Butterball did not view their relationship as exclusive.               Trafon

argues that the 2009 letter was insufficient to start Law 75's

statute of limitations as it did not mention an "affirmative act."

According to Trafon, KMC's letter in Basic Controlex announced

concrete plans to begin working with other distributors, whereas

the 2009 letter was simply a statement of legal position.            Trafon's

argument, however, overlooks a significant component of Basic

Controlex:      there,    the   First    Circuit   found   summary   judgment

appropriate on statute of limitations grounds although the parties

disputed whether KMC had followed through on its plans.                Id. at

452.   In other words, KMC's letter constituted a detrimental act

regardless     of    whether    KMC     actually   contracted   with    other

distributors:       what mattered was that KMC had announced its intent

to do so.    Likewise, the 2009 letter announced Butterball's intent

not to treat Trafon as its exclusive distributor.               Once Trafon

                                        -9-
received the letter, it was on notice that Butterball could begin

working with other distributors at any point in contravention of

the alleged agreement.     See id. at 453 ("On May 3, 1993, KMC

expressly informed Basic Controlex of its intent to use other

distributors in alleged violation of the parties' agreement.").

As in Basic Controlex, Butterball's subsequent actions have no

bearing on whether the 2009 letter was a detrimental act under the

statute.

           Trafon argues that this interpretation of Law 75 will

benefit principals at the expense of distributors.       As Trafon sees

it, principals could announce to distributors that they do not

intend to honor rights conferred by Law 75 and wait three years to

act on those intentions, thereby forcing distributors to bring

lawsuits   without   having     suffered   injury.      In     this   way,

distributors would be forced to bring costly lawsuits with no

prospect of damages or else risk forfeiting their rights under Law

75.   To be sure, "evidence of the damages sustained is an essential

requirement" for an award under Law 75.          Marina Indus., Inc. v.

Brown   Boveri   Corp.,   114    D.P.R.    64,   90   (1983)    (official

translation); see also Sun Blinds, Inc. v. S.A. Recasens, 111 F.

App'x 617, 619 (1st Cir. 2004) ("If a plaintiff proves termination

or impairment of the business relationship by the defendant, Law

75 provides a formula for indemnification but only 'to the extent

                                  -10-
of the damages caused.'" (quoting P.R. Laws Ann. tit. 10, § 278b)).

Nevertheless, lawsuits are costly for plaintiffs and defendants

alike, and we are not convinced that today's result will lead to

companies merrily announcing their intent to breach contracts and

thus inviting litigation under Law 75.

           More importantly, the 2009 letter was a response to

Trafon's   accusations   that   Butterball   had   worked   with   another

distributor, Quirch Foods.      Had Trafon brought a timely suit under

Law 75, it could have identified damages stemming from that

transaction and sought provisional injunctive relief under Law 75,

just as it did here.     See P.R. Laws Ann. tit. 10, § 278b-1.4         By

their very nature, limitations periods punish plaintiffs who sit

on their rights once they have the requisite knowledge to assert

a claim:   Trafon could not simply wait to file until Butterball

committed a more costly breach.      Cf. Jardín de las Catalinas Ltd.

P'ship v. Joyner, 766 F.3d 127, 134 (1st Cir. 2014) ("Once a

plaintiff has knowledge of the facts needed to bring a claim, it

cannot wait idly for process to be afforded or for the defendant

to change its mind.").

4  While the record does not indicate how this issue was resolved
after Trafon received the 2009 letter, during oral argument Trafon
indicated that it did not bring suit at the time because Butterball
denied having made these sales. Nevertheless, this denial did not
prevent Trafon from filing a breach of contract claim based on its
allegations.

                                  -11-
            Trafon   contends   that,   even    if   the   2009   letter

constituted a detrimental act under Law 75, Butterball's statute

of limitations defense should be barred on equitable estoppel

grounds.     In the alternative, Trafon argues that a de facto

exclusive relationship developed following its receipt of the 2009

letter.    Butterball contends that these issues are waived as they

were not raised before the magistrate.         Although Trafon asserts

that these issues were addressed in its objection to the R&R, "an

unsuccessful party is not entitled as of right to de novo review

by the judge of an argument never seasonably raised before the

magistrate."    Paterson-Leitch Co., Inc. v. Mass. Mun. Wholesale

Elec. Co., 840 F.2d 985, 990-91 (1st Cir. 1988); accord Fireman's

Ins. Co. of Newark, N.J. v. Todesca Equip. Co., Inc., 310 F.3d 32,

38 (1st Cir. 2002).5

5  In any case, Trafon would be unlikely to succeed on the merits
of these claims.     It is undisputed that Butterball regularly
submitted invoices to Trafon indicating that their relationship
was not exclusive. Given these repeated and explicit assertions
to the contrary, Butterball is unlikely to "have intentionally
induced the plaintiff to rely upon representations that" their
relationship was exclusive, Matosantos Commercial Corp. v. SCA
Tissue N. Am., LLC, 329 F. Supp. 2d 255, 259 (D.P.R. 2004), or
otherwise created an exclusive agreement by action alone, see
Vulcan Tools of P.R. v. Makita USA, Inc., 23 F.3d 564, 569 (1st
Cir. 1994) ("Law 75 does not operate to convert non-exclusive
distribution contracts into exclusive distribution contracts.").
Trafon contends that its executives never saw these invoices, as
they were handled by clerical employees.      Butterball, however,
cannot be faulted for Trafon's failure to read critical information
that it received on a regular basis. See Restatement (Second) of
Contracts § 157 cmt. b ("Generally, one who assents to a writing

                                 -12-
                              III.

          Because the 2009 letter constituted a detrimental act

under Law 75, Trafon's action is time-barred, and the judgment of

the district court is affirmed.

          Affirmed.

is presumed to know its contents . . . .").

                              -13-