Court Opinion

ID: 202029
Source: CourtListenerOpinion
Date Created: 2011-02-07 05:43:08+00
Date Added: 2024-06-11T17:27:23.404355
License: Public Domain

Not For Publication in West's Federal Reporter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.

                                      -2-
                  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.

                                       -3-
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."

                                          -4-
             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

                                         -5-
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

                                   -6-
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.

                                         -7-
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.

                                    -8-
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

                                 -9-
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

                                    -10-
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

                                           -11-
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.

                                    -12-