Court Opinion

ID: 195363
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:38:27+00
Date Added: 2024-06-11T09:42:46.114825
License: Public Domain

May 9, 1994       UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT

                                     

No. 93-2089

                 VULCAN TOOLS OF PUERTO RICO,

                    Plaintiff, Appellant,

                              v.

                      MAKITA USA, INC.,

                     Defendant, Appellee.

                                     

                         ERRATA SHEET

   The opinion of this court issued  on May 4, 1994, is amended

as follows:

   Page  4, lines  6-7:   Delete "Because  Makita's motion  for
summary judgment was not filed until August 3, 1993,"

                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 93-2089

                 VULCAN TOOLS OF PUERTO RICO,

                    Plaintiff, Appellant,

                              v.

                      MAKITA USA, INC.,

                     Defendant, Appellee.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF PUERTO RICO

        [Hon. Raymond L. Acosta, U.S. District Judge]
                                                    

                                         

                            Before

                     Selya, Circuit Judge,
                                         
                Bownes, Senior Circuit Judge,
                                            
                  and Stahl, Circuit Judge.
                                          

                                         

Wilfredo A.  G igel, with whom Law  Offices of  Wilfredo A. G igel
                                                                  
was on brief for appellant.
Arturo  J.  Garcia-Sola,  with  whom  Manuel  Fernandez-Bared  and
                                                             
McConnell, Valdes were on brief for appellee.
             

                                         

                         May 4, 1994
                                         

          BOWNES, Senior Circuit  Judge.   Does the  Dealers'
          BOWNES, Senior Circuit  Judge.
                                       

Act of Puerto Rico, Act  75 of June 24, 1964, P.R.  Laws Ann.

tit. 10,     278-278d (1976  & Supp.  1989) ("Law 75"  or the

"Act"), come  into play where the sales  or market share of a

non-exclusive   distributor   decline   after  its   supplier

establishes  additional  non-exclusive  distributors for  its

products  in Puerto Rico?  Because we answer this question in

the negative, we affirm the district court's grant of summary

judgment for the defendant.

                              I.

                          BACKGROUND
                                    

          The  following facts  are  undisputed.   Plaintiff-

appellant,  Vulcan  Tools of  Puerto  Rico,  Inc., sells  and

services  power tools  manufactured  by  a Japanese  company,

Makita Corp.   Vulcan  has distributed Makita  products since

May 1983,  when it entered into  a non-exclusive distribution

contract   with   defendant-appellee,  Makita   U.S.A.,  Inc.

("Makita"), a subsidiary of its Japanese parent.

          At   the   time  Vulcan   became   a  non-exclusive

distributor for  Makita, the  latter already had  three other

non-exclusive distributors operating in Puerto Rico.  In 1988

Makita appointed  a sales  representative in Puerto  Rico and

authorized      thirty-four     additional      non-exclusive

distributorships on the island.  Vulcan continued to sell and

service Makita tools.   While the sale of Makita  products in

                             -2-
                              2

Puerto Rico has more than tripled  since 1988, Vulcan's total

sales of the same and its market share have fallen.

          In February  1989 Vulcan  filed this action  in the

United States District Court for the District of Puerto  Rico

alleging that Makita had  impaired the existing  relationship

between the  parties without just  cause in violation  of Law

75.   The district court granted summary judgment in favor of

Makita.  This appeal ensued.

                             II.

                          DISCUSSION
                                    

          On appeal Vulcan argues (1) that the district court

abused  its discretion  in entertaining  Makita's  motion for

summary  judgment,   and  (2)   that  summary   judgment  was

improvidently  granted  because  whether  Makita's  hiring of

thirty-four additional  distributors in Puerto  Rico impaired

Makita's  established relationship with  Vulcan is a disputed

question of material fact.1

                    

1.    In  the  complaint,  Vulcan  also  alleged that  Makita
violated Law 75  by (1) appointing a sales  representative in
Puerto Rico and (2) allowing the importation into Puerto Rico
of Makita power  tools  that did not   meet the  requirements
of the Occupational Safety and  Health Act ("OSHA").   Vulcan
did not, with  respect to the  former claim, contest  summary
judgment below, and has  not pressed either of the  claims on
this court.   Consequently, they have been  waived on appeal.
Gamma Audio &  Video, Inc.  v. Ean-Chea, 11  F.3d 1106,  1113
                                       
(1st  Cir. 1993) (issues that  surface for the  first time on
appeal  or are raised in  a perfunctory manner  on appeal are
deemed waived).

                             -3-
                              3

A.  Timeliness of Makita's Summary Judgment Motion
                                                  

          On  November 4, 1991  the Magistrate Judge assigned

to the case issued a "Final Pretrial Conference Report" which

established  December 15,  1991  as the  date for  completing

outstanding discovery,  and December  30 as the  deadline for

filing dispositive motions.  Vulcan argues on appeal the same

argument rejected  below:   that because Makita's  motion for

summary judgment  was  not filed  until August  3, 1993,  the

motion was untimely, and  the district court was barred  from

considering it under Fed. R. Civ. P. 16(b) and 16(e).2

          Because trial  judges must  be able to  control the

management  of  their cases,  we  review  a district  court's

decision to modify a pretrial scheduling order under an abuse

of discretion standard.  See Anda v. Ralston Purina, Co., 959
                                                        

F.2d 1149, 1155 (1st Cir. 1992); In re San Juan  Dupont Plaza
                                                             

Hotel  Fire Litigation, 859 F.2d  1007, 1020 (1st Cir. 1988);
                      

see  also Ramirez Pomales v. Becton Dickinson & Co., 839 F.2d
                                                   

1, 3 (1st Cir. 1988) (decision to modify a pretrial order  is

subject to the trial court's discretion).  Moreover, pretrial

orders  are to be  liberally construed, James  W.M. Moore, et

                    

2.  Rule 16(b) instructs district courts to enter  scheduling
orders  limiting the time  to, inter  alia, file  motions and
                                          
complete discovery.  Under this rule, "[a] schedule shall not
be modified except upon  a showing of good cause and by leave
of the district judge or, when authorized by local rule, by a
magistrate judge."   Rule 16(e) provides,  in pertinent part,
that  once a  pretrial  order is  entered,  it "controls  the
subsequent  course  of  the  action,  unless  modified  by  a
subsequent order."

                             -4-
                              4

al.,  Moore's  Federal Practice,    16.19,  at 16-90  (2d ed.
                               

1993) (citing cases).  Thus we are loathe to upset a district

court's  interpretation  of  its  own order.    See  Martha's
                                                             

Vineyard  Scuba HQ.  v. Unidentified  Vessel, 833  F.2d 1059,
                                            

1066-67  (1st  Cir.  1987) (citing  cases)  (recognizing "the

special  role played by the writing  judge in elucidating the

meaning and intendment of an order which he authored").

          The district court determined that the deadline for

filing  dispositive motions  established in  the magistrate's

order was vacated by  a subsequent order issued by  the court

in which no such  deadline was set, and that  Makita's motion

was therefore not  untimely.   The sequence of  events is  as

follows.   In  March 1992 Vulcan  moved to have  a trial date

set.   Makita objected on  the ground  that the case  was not

ready for trial, in part, because Vulcan had not responded to

various document  requests  and the  deposition  of  Vulcan's

President, Joseph Fayer, had not yet concluded.  On April 27,

1992, in response to  Makita's objections, the district court

granted   Vulcan   additional  time   to   produce  specified

documents, set  deadlines  for various  depositions,  ordered

that discovery  be completed by  June 30, 1992,  and referred

the  case to  the  magistrate  judge  for the  scheduling  of

another  pretrial conference.   The court  further instructed

the  parties  to submit  a  revised  proposed final  pretrial

order.

                             -5-
                              5

          The  parties  submitted a  proposed  final pretrial

order in August  1992, which  was approved by  the court  six

days later.  Neither that order nor the April 27 order, set a

deadline for filing dispositive  motions.  The district court

viewed  its decision  to  reopen discovery  as vitiating  the

existing  deadline for  the  filing  of dispositive  motions.

Vulcan Tools of Puerto Rico, Inc. v. Makita U.S.A., Inc., No.
                                                        

89-148, slip op. at  6 (D.P.R. Sept. 1,  1993).  Because  the

original cut-off  date  for filing  dispositive motions  fell

after the  original discovery deadline,  the court's  finding

that  a change in the latter necessarily abolished the former

is  eminently reasonable.  While  it is true  that Makita did

not specifically request  an extension of  time for filing  a

motion for  summary judgment, the court  could have concluded

that the  "good cause" Makita demonstrated  for extending the

discovery  deadline  was  also  good cause  for  lifting  the

deadline for filing dispositive motions.  We find no abuse of

discretion in  the  court's  decision  to  consider  Makita's

motion for summary judgment.

B.  Law 75
          

          We  now  turn  to  the principal  issue  raised  on

appeal.      Vulcan   argues   that  summary   judgment   was

inappropriate because whether Makita's appointment of thirty-

four additional  distributors caused a  "detriment" to Vulcan

(i.e., the  subsequent decline  in Vulcan's sales  and market
     

                             -6-
                              6

share with respect to Makita products), is a question of fact

for the  jury.   Vulcan apparently concedes  that, under  the

parties'  contract, Makita  was  entitled to  name additional

non-exclusive  distributors at  will, so long  as it  did not

violate Law 75.

          We say  "apparently," because  Vulcan has  sent out

mixed messages.   Although it has  made the above  concession

both  in  its brief,  Appellant's Brief  at  21, and  in oral
                                       

argument, at  times  during oral  argument Vulcan  maintained

that, as part of its distribution  contract, Makita agreed to

limit the  number of  Makita distributors in  Puerto Rico  to

three.   Even if this argument has been properly preserved by

Vulcan, it is without merit.

          The terms of Vulcan's non-exclusive distributorship

are set forth  in a May  26, 1993 letter from  Carl Schwinne,

Makita's  marketing  manager,   to  Joseph  Fayer,   Vulcan's

president.  The letter states:   "This letter will  summarize

our  phone  conversation   today  regarding  a  non-exclusive

distributorship for Makita power tools in  Puerto Rico."  The

letter also  contains information  about Makita's  tool order

program,   payment   terms,   stock   adjustments,   Makita's

advertising  program,  and warranty  repairs.    Vulcan never

objected to the  contractual terms  set forth in  the May  26

letter.   Vulcan's argument that  Makita agreed  not to  have

more than three other distributors in Puerto Rico is based on

                             -7-
                              7

a  conversation that took place  on May 18  between Fayer and

Frank  Isaacs,  then Makita's  regional  sales  manager.   As

evidence   of  such   limitations,  Vulcan   offered  Isaacs'

deposition, at which Isaacs testified as follows:

          Q.   All right.  Getting back to the
               agreement  with Vulcan,  as for
               the    setting   up    of   the
               distributorship,  did   you  or
               anyone at Makita,  to the  best
               of    your     knowledge    and
               recollection, ever  indicate to
               Mr.  Fayer  that  Makita  would
               operate  through  only  two  or
               three   distributors   in   the
               market.

          A.   Yes.   I  stated that  right up
               front that we  -- on our  visit
               to him  -- went and  said these
               are the people -- These are the
               channels  of  distribution that
               we're  looking  at.   These are
               the  distributors   that  we're
               going   to   try  to   sell  to
               accomplish  our   objective  in
               this  market, and if  -- and we
               told this to each one.   If you
               support our  programs, grow our
               business here, in an acceptable
               rate,  whatever that  might be,
               then we see no reason to pursue
               any other distributors in these
               channels.

          Q.   At that time they didn't  see a
               need for that?

          A.   That's right.

          Q.   But that could change?

          A.   Sure it can.

          Q.   And the company wanted  to make
               sure that it retained the right

                             -8-
                              8

               to    name    others,     other
               distributors?

          A.   Sure.  You  always retain  that
               right, but if  you change  your
               strategy  in  the  marketplace,
               you    need    to   let    your
               distributors know what that is.

Isaacs' Deposition at 71-72.

          The  law  of Puerto  Rico  is  clear  that no  oral

extrinsic evidence may be admitted to add to, alter or modify

a written agreement except when fraud or surprise is alleged.

P.R.  Laws Ann.  tit. 32,  App. IV,  R. 69(B)  (1983) (Parole

Evidence Rule).3   When an  agreement leaves no  doubt as  to

the  intention of the parties, a court should not look beyond

the literal terms of the contract.  Marina Ind. Inc. v. Brown
                                                             

Boveri  Corp.,   114  P.R.  Dec.  64,   72  (1983)  (Official
             

Translation); Catullo  v. Metzner,  834 F.2d 1075,  1079 (1st
                                 

Cir.  1987).  This principle  is embodied in  Article 1233 of

the Puerto  Rico Civil  Code, which  applies to  the contract

                    

3.  We have recognized that,

          [i]n spite of  the general  applicability
          of  the  Federal  Rules  of  Evidence  to
          diversity actions, it is  well recognized
          that Congress did not intend the rules to
          preempt  so-called   "substantive"  state
          rules  of  evidence  such  as  the parole
          evidence  rule  . .  .  .   Although  the
          application  of  these rules  will affect
          the  admissibility  of certain  evidence,
          they in reality  serve substantive  state
          policies regulating private transactions.

McInnis v. A.M.F., Inc., 765 F.2d 240, 245 (1st Cir. 1985).
                       

                             -9-
                              9

between Vulcan  and Makita4 and determines  how courts should

interpret a  contract  where there  is  a conflict  over  its

meaning:

          If the terms of  a contract are clear and
          leave no doubt  as to  the intentions  of
          the  contracting   parties,  the  literal
          sense  of  its   stipulations  shall   be
          observed.   If  the  words should  appear
          contrary to the evident intention  of the
          contracting parties,  the intention shall
          prevail.

P.R. Laws  Ann. tit. 31,    3741  (1990).  "For  Article 1233

purposes,   a  term   is  considered   `clear'  when   it  is

sufficiently lucid  to be  understood to have  one particular

meaning, without room  for doubt."  Hopgood v. Merrill Lynch,
                                                             

Pierce,  Fenner & Smith, 839  F. Supp. 98,  104 (D.P.R. 1993)
                       

(citations omitted).  If the meaning of a contract's terms is

sufficiently clear, "the court  cannot dwell on the `alleged'

intent  of  the parties  at the  time  they entered  into the

contract."  Id.
               

          There is  no doubt  that  the meaning  of the  word

"non-exclusive," used in the  letter of May 26, is  clear and

unambiguous.     Makita  named   Vulcan  as  a  non-exclusive

                    

4.  The contract  between Vulcan  and Makita is  a commercial
contract, and is thereby regulated by the relevant provisions
of the  Commerce Code of Puerto Rico, P.R. Laws Ann. tit. 10,
    1301-1314  (1976).   Where,  as  is  the  case here,  the
Commerce  Code does not provide the solution to a question of
contractual interpretation,  courts  must look  to the  Civil
Code and the common law to fill the gaps.  See P.R. Laws Ann.
                                              
tit.  10,    1301 (1976);  General  Office Products  Corp. v.
                                                          
Gussco Mfg., Inc., 666 F. Supp. 328, 331 (D.P.R. 1987).
                 

                             -10-
                              10

distributor, and thereby expressly retained the right to name

additional  non-exclusive  distributors  at  its  discretion.

Therefore,  we  need  not  dwell on  the  import  of  Isaacs'

testimony, and the  alleged promise by  Makita that it  would

limit its distributors in Puerto Rico  to three.  We move  on

and address Law 75 directly.

          On  June 24,  1964, Law  75 became  effective.   It

prohibited "the termination  by the  principal . .  . of  the

relationship derived from a  dealer's contract or the refusal

to renew said contract  on its normal expiration,  except for

just cause,  this, notwithstanding the existence  of a clause

in the contract reserving to the parties the unilateral right

to  terminate the  existing  relationship."   United  Medical
                                                             

Equipment Corp. v. S.  Blickman, Inc., 260 F. Supp.  912, 913
                                     

(D.P.R.  1966); see  P.R. Laws  Ann. tit.  10,    278a (1964)
                   

(amended 1966).  Law 75 was  enacted in order to protect  the

interests of commercial distributors operating in Puerto Rico

"from the harm caused  when a supplier arbitrarily terminates

a  distributorship once  the dealer  has created  a favorable

market  for the  supplier's product."    R.W. Int'l  Corp. v.
                                                          

Welch  Food, Inc., 13 F.3d 478, 482 (1st Cir. 1994); see also
                                                             

Medina & Medina v.  Country Pride Foods, Ltd., 858  F.2d 817,
                                             

820 (1st Cir. 1988)  (reproduction of official translation of

Puerto  Rico   Supreme  Court's  response   to  certification

question, 122 P.R.  Dec. 172 (1988));  Warner Lambert Co.  v.
                                                         

                             -11-
                              11

Superior  Court  of Puerto  Rico,  101 P.R.  Dec.  378 (1973)
                                

(Official Translation).

          The statement  of motives  behind Law 75  issued by

thePuerto RicoHouse Committeeon Commerceand Industryis clear:

               The  Commonwealth   of  Puerto  Rico
          cannot remain indifferent to  the growing
          number  of cases  in  which domestic  and
          foreign enterprises,  without just cause,
          eliminate their dealers .  . . or without
          fully eliminating  them, such enterprises
          gradually reduce and impair the extent of
          their        previously       established
          relationships,  as  soon  as  these  have
          created  a  favorable market  and without
          taking  into   account  their  legitimate
          interests.

Statement of Motives of Act 75, 1964 P.R. Laws, 4th Reg.Sess.

231.    Because the  legislature  of  Puerto Rico  considered

traditional  principles  of   contract  law  insufficient  to

protect  the rights of dealers, it passed Law 75 to safeguard

these rights  and stabilize dealership relationships.  Medina
                                                             

& Medina, 858 F.2d at 820.
        

          In 1966, the Dealers'  Act was amended, and assumed

its present form:

          Notwithstanding   the   existence  in   a
          dealer's contract of  a clause  reserving
          to  the parties  the unilateral  right to
          terminate  the existing  relationship, no
          principal or grantor  may terminate  said
          relationship  or  directly or  indirectly
                                                   
          carry  out  any  act detrimental  to  the
                                                   
          existing relationship or refuse  to renew
                               
          said contract on  its normal  expiration,
          except for just cause.

                             -12-
                              12

P.R.  Laws Ann.  tit.  10,    278a  (1976).   The  underlined

language  was added by the amendment.  The 1966 amendment was

intended  to  cover cases  where  the  principal impairs  the

distributor's  contractually acquired rights.  General Office
                                                             

Products v. Gussco, 666 F. Supp. at 331 ("Gussco") (citing W.
                                                

Colon  & R. Colon, El  Contrato de Distribucion  o de Agencia
                                                             

Comercial, 27 Revista de  Derecho Puertorriqueno 225 (1968)).
         

Gussco  involved a claim under Law 75 by the exclusive Puerto
      

Rico  distributor of  its  supplier's office  products.   The

plaintiff alleged that  its supplier violated  Law 75 by  its

passivity   in  the  face  of  a  decision  by  a  state-side

distributor  to enter  the Puerto  Rican market.   The  court

found  "that the  1966  amendment  adding the  impairment-of-

contract  cause  of action  [covers]  this  type of  parallel

market  distributorship  in  contravention of  a  voluntarily

established exclusive contract."   Id.; see also A. Estrella,
                                                

The  Dealer's  Contractual  or   Commercial  Distributorship:
                                                             

Nature of  the Relationship, Termination of  the Contract, 31
                                                         

Revista de Colegio de Abogados de Puerto Rico 241, 251 (1967)

(a  distributor has a  cause of action under  Law 75 when its

supplier establishes additional distribution  contracts after

having entered  into an exclusive one) (cited  in Gussco, 666
                                                        

F.  Supp.  at  333).   We  must  determine  whether the  1966

amendment covers Vulcan's claim.

                             -13-
                              13

          In  order  to  focus  our  inquiry,  we  illustrate

Vulcan's argument  with the following syllogism:   (1) Makita

established  additional   non-exclusive  distributorships  in

Puerto Rico; (2) subsequently  Vulcan's sales of Makita tools

and its share of the Makita market fell; therefore (3) Vulcan

is entitled to a  jury trial to determine whether  (1) caused

(2).  This argument is premised upon Vulcan's assumption that

if  (1) caused (2), then there has  been a "detriment" to the

parties'  "established relationship,"  and  Makita is  liable

under  Law 75 absent a showing of just cause for its actions.

For  the reasons set  forth below, we  disagree with Vulcan's

assumption.

          It  is beyond cavil that non-exclusive distributors

are entitled to protection under Law  75.  J. Soler Motors v.
                                                          

Kaiser Jeep  Int'l, 108 P.R.  Dec. 134, 146  (1978) (Official
                  

Translation).   It is equally true, however, that Law 75 does

not  operate to convert  non-exclusive distribution contracts

into exclusive  distribution contracts.   See Gussco,  666 F.
                                                    

Supp.  at  331  ("The law  imposes  no  prohibition upon  the

principle of selling or establishing parallel distributorship

agreements if he so reserves the right to do so.");  see also
                                                             

Nike  Int'l, Ltd. v. Athletic Sales, Inc., 689 F. Supp. 1235,
                                         

1238 (D.P.R.  1988) ("[T]he legislature [of  Puerto Rico] did

not intend that  Law 75 be a safe haven  for dealers to avoid

                             -14-
                              14

the express terms  of the contracts  to which they  willingly

subscribe.").

          The basic  flaw in Vulcan's  position emanates from

its  expansive  reading  of  the  phrase  "detriment  to  the

established  relationship."    According  to   Vulcan,  every

diminution  in  the  sales or  the  market  share  of a  non-

exclusive distributor attributable to  a business decision by

its  supplier  constitutes   such  a   "detriment,"  and   is

actionable   under  Law  75.     This  spin  on   Law  75  is

unprecedented, and wholly unsupported by any legal authority.

Not  only  would Vulcan's  interpretation  of  the Act  grant

virtual  monopoly  status  to  every  supplier's  first  non-

exclusive distributor  in Puerto  Rico, it  would effectively

prevent suppliers from raising prices, even when such a right

is secured by  contract, where  doing so would  cut into  the

distributor's  sales or  profits.   This view  of Law  75 has

already  been rejected by  the Supreme Court  of Puerto Rico.

See  J.   Soler  Motors,  108  P.R.  Dec.  at  150  (Official
                       

Translation) (manufacturer-imposed increase in price of motor

vehicles  does  not give  rise to  a  Law 75  violation where

manufacturer  reserved   right  to  do  so   in  distribution

agreement);  see  also  Medina  &  Medina,  858  F.2d  at 823
                                         

(declining to  construe Law 75  in such a  way that  a dealer

could   govern   its   principal's  policies   resulting   in

principal's loss of legal and financial autonomy).

                             -15-
                              15

          As   we   explained    above,   the    "established

relationship" between dealer and  principal is bounded by the

distribution agreement,  and therefore the  Act only protects

against detriments to contractually acquired rights.  Gussco,
                                                            

666 F. Supp.  at 331.   The text of  Law 75 makes this  point

particularly  clear.    The   statutory  language  defines  a

"dealer's contract" subject to Law 75 as:

          A  relationship   established  between  a
          dealer and a principal  . . . whereby the
          former  actually  and  effectively  takes
          charge of the distribution of merchandise
          . . . on the market of Puerto Rico.

P.R. Laws Ann.  tit. 10,   278d (1976).   Consistent with our

reading  of  the Act  is  the  statutory presumption  that  a

principal has impaired the  existing relationship when, inter
                                                             

alia,  "the  principal  .  .  .  establishes  a  distribution
    

relationship with one or more additional dealers for the area

of Puerto Rico or any part of said area in  conflict with the
                                                             

contract existing between the parties."  P.R.  Laws Ann. tit.
                                      

10,   278a-1(b)(2) (Supp. 1989) (emphasis added).

          The question whether there  has been a  "detriment"

to the  existing relationship between supplier  and dealer is

just  another way of asking whether the terms of the contract

existing between  the parties have been impaired.   Here, the

contractual  relationship between Vulcan  and Makita  was not

affected  by   Makita's  establishment  of   additional  non-

exclusive distributors for its products in Puerto Rico.  This

                             -16-
                              16

is because Makita, in its distribution agreement with Vulcan,

expressly  reserved  the right  to  add  distributors in  the

Puerto Rican market.  Where, as  is the case here, a dealer's

contractually acquired  rights have not been  impaired in any

way, Law 75 does not come into play.

          The judgment of the district court is Affirmed.
                                                Affirmed.
                                                         

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                              17