Court Opinion

ID: 2963903
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:17:09.380298+00
Date Added: 2024-06-11T11:42:48.243038
License: Public Domain

USCA1 Opinion

	

          February 9, 1996
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                     ____________

          No. 95-1870

                               A.M. CAPEN'S CO., INC.,

                                 Plaintiff, Appellee,

                                          v.

                     AMERICAN TRADING AND PRODUCTION CORPORATION
                 AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,

                               Defendants, Appellants.

                                     ____________

                                     ERRATA SHEET

               The opinion of  this court  issued on January  18, 1996,  is

          amended as follows:

               Page 14, line 6:   Change "P.R. Laws Ann. tit. 13"  to "P.R.

          Laws Ann. tit. 14".

                            UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No.  95-1870

                               A.M. CAPEN'S CO., INC.,

                                 Plaintiff, Appellee,

                                          v.

                     AMERICAN TRADING AND PRODUCTION CORPORATION
                 AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,

                               Defendants, Appellants.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                   [Hon. Daniel R. Dominguez, U.S. District Judge]
                                              ___________________
                                 ____________________

                                        Before

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

                                 ____________________

            Jos  Enrique Colon Santana for appellant.
            __________________________
            Philip E. Roberts for appellee.
            _________________

                                 ____________________

                                   January 18, 1996
                                 ____________________

                      BOWNES, Senior  Circuit Judge.   This is  an appeal
                      BOWNES, Senior  Circuit Judge.
                              _____________________

            from a  preliminary injunction  issued by the  district court

            barring defendant-appellant American  Trading and  Production

            Corp.  ("ATAPCO")  from  terminating plaintiff-appellee  A.M.

            Capen's Co., Inc. ("Capen's") as an exclusive distributor for

            Puerto  Rico of  ATAPCO's  products.   Capen's  had filed  an

            action  in the United States  District Court for the District

            of Puerto Rico alleging that  ATAPCO violated P.R. Laws  Ann.

            tit. 10,   278, et seq. (1976 and  Supp. 1989)(a.k.a. Law 75,
                            __ ____

            the Puerto Rico Dealer's  Act) by terminating the exclusivity

            of the distributorship.  Section 278a of title 10 provides:

                         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  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.

            The injunction was issued  pursuant to the provisional remedy

            provision, Section 278b.1 of the Act, which provides:

                         In  any litigation  in which  there is
                      directly   or  indirectly   involved  the
                      termination of a dealer's contract or any
                      act   in   prejudice   of  the   relation
                      established  between   the  principal  or
                      grantor and  the  dealer, the  Court  may
                      grant,  during the time the litigation is
                      pending solution,  any provisional remedy
                      or  measure of an  interdictory nature to
                      do or to desist  from doing, ordering any
                      of the parties, or both, to continue,  in
                      all its terms,  the relation  established
                      by  the  dealer's  contract,   and/or  to
                      abstain  from performing  any act  or any

                                         -2-
                                          2

                      omission  in prejudice  thereof.   In any
                      case  in  which  the  provisional  remedy
                      herein provided is  requested, the  Court
                      shall  consider  the  interests   of  all
                      parties concerned and the purposes of the
                      public policy contained in this chapter.

                      There  is no  dispute as  to the  basic facts.   In

            1978,  Capen's  entered  into  an  agreement   with  ATAPCO's

            predecessor,  Sheller-Globe, to be  the exclusive distributor

            of  Globe-Weiss  and Steelmaster  office  products in  Puerto

            Rico, the Caribbean, the  Dominican Republic, and Central and

            South America.   The agreement did not  contain an expiration

            date.   Although confirmed in  a written letter,  the parties

            did not sign a  formal contract because they could  not agree

            on  the law that  would apply to  the contract.   When ATAPCO

            took over, the arrangement with Capen's continued, as did the

            disagreement as to choice-of-law and forum selection clauses.

                      ATAPCO,  with its  principal place  of  business in

            Missouri,  wanted  Missouri law  to  apply  to the  contract.

            Capen's, a New Jersey corporation with its principal place of

            business in  that state, wanted Puerto Rico law to apply.  As

            a result, ATAPCO and Capen's never signed a  formal contract.

            In December 1993, ATAPCO  wrote a letter to Capen's  in which

            it terminated the exclusive aspect of the dealership.  ATAPCO

            did  not end the Capen's dealership; it reserved the right to

            sell  to  others.   ATAPCO made  Blas  Rossy Asencio  a sales

            representative for the area  for which Capen's originally had

                                         -3-
                                          3

            the exclusive rights.  This lawsuit ensued.1

                          Proceedings of the District Court
                          Proceedings of the District Court
                          _________________________________

                      The  district court  adopted the  recommendation of

            the  Magistrate  Judge that  the  provisional  remedy in  the

            Puerto Rico Dealer's Act be granted.  The court then issued a

            full-blown opinion  giving the reasons  for its  action.   It

            found that Capen's  "has exhibited a likelihood of success on

            the merits."  A.M.  Capens Co., Inc. v. American  Trading and
                          _______________________________________________

            Prod.  Corp., 892 F.  Supp. 36,  38 (D.P.R.  1995).   It then
            ____________

            held:

                         Capens   has   also  shown   that  his
                      business  will suffer  irreparable injury
                      if the injunction  is not granted because
                      Mr.  Rossy Asencio will  continue to sell
                      the  products in the areas wherein Capens
                      had  the  exclusivity   with  the   added
                      competitive  advantage   for  Asencio  of
                      freight charges assumed  by ATAPCO.   The
                      above  will  obviously mean  that Capens'
                      business  market  will  be  significantly
                      irreparably diminished.

                         The harm that Capens will  suffer most
                      certainly  outweighs  ATAPCO's   possible
                      harm:    the  business area  will  remain
                      unchanged (the Caribbean and  Central and
                      South America) and  ATAPCO will  continue
                      receiving  benefits,  either through  Mr.
                      Rossy  Asencio  or  through A.M.  Capens;
                      however, the harm is for Capens who  will
                      lose  business  market  should Mr.  Rossy
                      Asencio  continue  to interfere  with the
                      customers.

            Id.  at 38-39.    Finally, the  court  held that  the  public
            ___

                                
            ____________________

            1.  Capen's  has   sued  Blas  Rossy   Asencio  for  tortious
            inference with contractual relations.

                                         -4-
                                          4

            interest 

                                         -5-
                                          5

            would   not   be  adversely   affected  by   the  preliminary

            injunction.  Id. at 39.
                         ___

                      It is  obvious that  what we  are reviewing  is not

            only a provisional remedy under the Puerto Rico Dealer's Act,

            but  a  preliminary injunction  that  meets,  at least  prima
                                                                    _____

            facie, all federal requisites.   The appropriate standard for
            _____

            reviewing a  preliminary injunction  is abuse  of discretion.

            Jiminez Fuentes v. Torres Gaztambide, 807 F.2d  236, 239 (1st
            ____________________________________

            Cir. 1986)(en banc), cert. denied, 481 U.S. 1014 (1987).
                                 _____ ______

                                       Analysis
                                       Analysis
                                       ________

                      We  start our analysis with the only finding of the

            district court to which defendant has objected -- probability

            of success on the  merits.  Defendant's appeal is  posited on

            two  contentions:  that Puerto  Rico law does  not apply; and

            that plaintiff is not a dealer under the Puerto Rico Dealer's

            statute.    As the  district court  noted,  this is  "a close

            matter."  Id.
                      ___

                      That  is because Capen's does not fit the mold of a

            typical Puerto Rican dealer.  It does not advertise in Puerto

            Rico  and has  neither  a warehouse  nor  a showroom  on  the

            Island.   It sells exclusively to  retailers and wholesalers.

            Though Capen's sometimes  sends an agent  to Puerto Rico,  it

            does  not have  a  resident agent  on the  Island and  is not

            qualified to do business  in Puerto Rico on a  regular basis.

            On the other hand, the annual sales made by Capen's in Puerto

                                         -6-
                                          6

            Rico under its exclusive distributorship increased from about

            $30,000 in 1978 to $423,000 in 1993.  Total Puerto Rico sales

            of  ATAPCO products  for the  five-year period  spanning from

            1989 to 1993 came to about $1,976,000.  

                      The  first  issue  is   what  law  applies.    This

            necessitates an examination of the conflict of law principles

            governing contract and tort law.

                                   Contract Factors
                                   Contract Factors
                                   ________________

                      ATAPCO contends that the district court incorrectly

            applied Puerto  Rico choice of  law rules to  the facts.   It

            stresses  that  none  of  the  acts  --  negotiation  of  the
                            ____

            contract, performance  of the contract obligations, or breach

            of the contract -- took place in Puerto Rico.   It points out

            that neither it nor Capen's  has offices or employees located

            in Puerto Rico.  

                      The Supreme  Court of Puerto Rico  has approved the

            "dominant or significant contacts" test for contract and tort

            actions.  In re San Juan Dupont Plaza Hotel Fire Litig.,  745
                      _____________________________________________

            F.  Supp.  79, 82  (D.P.R. 1990).    Thus, "the  laws  of the

            jurisdiction with the most  significant contacts with respect

            to the disputed  issue should  apply."  Id.   In  determining
                                                    ___

            this  question,  recourse  to  the  Restatement  (Second)  of

            Conflict  of Laws is appropriate.  Id. (citing Sections 6 and
                                               ___

            188).

                      Under  Section  188 of  the  Restatement, absent  a

                                         -7-
                                          7

            contractual  choice  of law,  the contacts  to be  taken into

            account in a contract action include:

                      (a)  the place of contracting,

                      (b)  the place of negotiation of the contract,

                      (c)  the place of performance,

                      (d)   the location of the  subject matter
                      of
                      the contract, and

                      (e)  the domicil, residence, nationality,
                      place   of   corporation  and   place  of
                      business of the parties.

            Restatement (Second) of Conflict of Laws   188 (1971).

                      The  places  of  contracting  and  negotiating  the

            contract  in question  occurred  in  the  continental  United

            States.   ATAPCO and Capen's  met in St.  Louis, Missouri, to

            discuss the  contract; they  also spoke  by phone.   However,

            "[s]tanding alone,  the place of contracting  is a relatively

            insignificant contact."  Id.   188 cmt. e.
                                     ___

                      The  performance of  the  contract takes  place, in

            part, in  the continental United States.  When Capen's wishes

            to purchase products  from ATAPCO,  it places  an order  with

            ATAPCO's   customer  service   offices  in   Pennsylvania  or

            Missouri.  The goods  are then sent to Capen's  in New Jersey

            or  to the point of  embarkation.  Sometimes  Capen's sends a

            trailer   to  the   Pennsylvania  office   to  pick   up  the

            merchandise.   But performance also occurs  in Puerto Rico --

            where the market is

                                         -8-
                                          8

             -- because the contract  granted Capen's the exclusive right

            to sell  ATAPCO's products there.  See Id.   188 cmt. c ("[A]
                                               ___ ___

            state  where  a  contract  provides  that  a  given  business

            practice  is to  be pursued  has an  obvious interest  in the

            application of its rule designed to regulate or to deter that

            business practice.").

                      The location of the  subject matter of the contract

            similarly varies, depending on one's  view.  If the  products
                                                                 ________

            sold  by ATAPCO,  and  then by  Capen's,  are considered  the

            subject matter,  they start  out in Pennsylvania  or Missouri

            (and  Kentucky according to ATAPCO) and end up in New Jersey.

            Arguably, this is the end of the line because  when the goods

            are  shipped to  Puerto  Rico,  they  become the  subject  of

            contracts between  Capen's and its customers  in Puerto Rico.

            ATAPCO, not surprisingly,  takes this position, pointing  out

            that it has no direct contacts in Puerto Rico.

                      The  other subject  matter of  the contract  is the

            status of  Capen's as  the exclusive distributor  of ATAPCO's

            merchandise.    This, it  seems clear,  is located  in Puerto

            Rico.  It is this subject matter which  is in dispute, rather

            than,  say, the  price of  the goods or  the manner  of their

            delivery to Capen's.  The essential purpose of the  exclusive

            distributor-ship was  to enable Capen's to  sell the products

            it purchased from ATAPCO in Puerto Rico without competition.

                      The  last factor -- the  location of the parties --

                                         -9-
                                          9

            does  not  point  to   Puerto  Rico.    ATAPCO,   a  Missouri

            corporation,  has main offices  in Pennsylvania  and Missouri

            and  also  apparently  conducts  business  in  Maryland   and

            Kentucky.  Capen's is a New Jersey corporation with its place

            of  business  there.   Capen's  does  not have  any  offices,

            warehouses or permanent employees in Puerto Rico; it does not

            have  a Puerto Rico address  or phone number.   Capen's does,

            however,  regularly send  employees  to Puerto  Rico to  take

            orders from customers.

                                     Tort Factors
                                     Tort Factors
                                     ____________

                      A  breach of Law 75 is considered a "tortious act."

            Telenetworks, Inc. v. Motorola Universal Data Sys., Inc., ___
            ________________________________________________________

            F.  Supp. ___,  ___ 1995  WL 707412,  at  2 (D.P.R.  Nov. 28,

            1995).  Section 278b of the  Dealer's Act provides:  "[i]f no

            just cause exists  for the  termination . .  . the  principal

            shall have  executed a  tortious act  against the dealer  and

            shall indemnify it." 

                      The Restatement of  Conflict of Laws  provides that

            in  a  tort  action the  law  of  the  state  with  the  most

            significant relationship to "the  occurrence and the parties"

            controls.   Restatement (Second)  of Conflict  of Laws    145

            (1971).    The  following   contacts  should  be  taken  into

            consideration:

                      (a)  the place where the injury occurred,

                      (b)   the place where the conduct causing
                      the injury occurred,

                                         -10-
                                          10

                      (c)  the domicil, residence, nationality,
                      place  of  incorporation  and   place  of
                      business of the parties, and

                      (d)  the place where the relationship, if
                           any,  between  the  parties  is
                           centered.

            Id.
            ___

                      The injury occurred in  Puerto Rico because that is

            where the  exclusive Capen's dealership was  terminated.  The

            termination directly impacts the position Capen's held in the

            Puerto Rico  market.  See Colletti v. Ovaltine Food Products,
                                  ___ __________________________________

            274  F.  Supp.  719, 722  (D.P.R.  1967)  (where an  Illinois

            corporation  terminated the distributorship of a Puerto Rican

            dealer, its failure to "place the goods in Puerto Rico at the

            disposal of  the . . .  dealer" is a tortious  act which "did

            not take place anywhere but  in Puerto Rico").  Additionally,

            because Law 75 is aimed at compensating victims  for wrongful

            terminations,  Puerto Rico,  the site  of the  injury,  has a

            greater interest in applying its laws.  See Restatement   145
                                                    ___

            cmt. c; Colletti, 274  F. Supp. at 722 ("[R]egardless  of the
                    ________

            manner  in which the defendant  . . .  allegedly notified the

            plaintiff"  of the  termination of  its distributorship,  the

            defendant  executed the  tortious act  within Puerto  Rico.).

            Viewing all of the relevant factors  as a whole, we find they

            cut in favor of applying Puerto Rico law. 

                                General Considerations
                                General Considerations
                                ______________________

                      Section 6 of  the Restatement (Second)  of Conflict

                                         -11-
                                          11

            of Laws sets forth  general choice of law principles.   Where

            there is no statute on point, the following factors should be

            considered:

                      (a)  the needs of the interstate and
                      international systems,

                      (b)  the relevant policies of the forum,

                      (c)  the relevant policies of other
                      interested   states   and  the   relative
                      interests   of   those   states  in   the
                      determination of the particular issue,

                      (d)  the protection of justified expecta-
                      tions,

                      (e)  the basic policies underlying the
                      particular field of law,

                      (f)  certainty, predictability and
                      uniformity of result, and

                      (g)  ease in the determination and
                      application of the law to be applied.

            Restatement (Second) of Conflict of Laws   6 (1971).

                      Taking  the  policy   issues  first,  courts   have

            recognized that Law 75 "was  passed to protect the  interests

            of   commercial  distributors   working   in  Puerto   Rico."

            Ballester Hermanos, Inc. v.  Campbell Soup Co., 797  F. Supp.
            ______________________________________________

            103,  106 (D.P.R. 1992).   Law 75 is  "'directed to level the

            contractual conditions between two groups financially unequal

            in their strength.'"   Draft-Line  Corp. v. Hon  Co., 781  F.
                                   _____________________________

            Supp 841, 844 (D.P.R. 1991) (quoting Walborg Corp v. Tribunal
                                                 ________________________

            Superior,  140 D.P.R. 184, 189 (1975)),  aff'd, 983 F.2d 1046
            ________                                 _____

            (1st Cir. 1993).

                                         -12-
                                          12

                         The  Dealer's Act  was enacted  by the
                      Puerto  Rico  Legislature to  prevent the
                      economic  exploitation of  local dealers.
                      The Legislature had observed that dealers
                      in   Puerto    Rico   were   particularly
                      vulnerable  to  summary termination  once
                      they had established  a favorable  market
                      for a principal's products.

            Id. at 843-44.
            ___

                      The Puerto Rico Dealer's  Act has been described as

            embodying  a "strong  public  policy."   Medina  & Medina  v.
                                                     ____________________

            Country  Pride Foods, Ltd., 858 F.2d 817, 820 (1st Cir. 1988)
            __________________________

            (response  of  Puerto  Rico  Supreme  Court  to  a  certified

            question  concerning Law 75).  The  case law establishes that

            Puerto  Rico  has  a  substantial  interest  in  seeing  that

            distributorships  are not arbitrarily  terminated or, if they

            are,  that "due  reparation" is  provided to  them.   Bonn v.
                                                                  _______

            Puerto Rico Int'l Airlines,  Inc., 518 F.2d 89, 91  (1st Cir.
            _________________________________

            1975).

                      As the district court pointed out, there is nothing

            in the  statute that requires  a dealer to  be a  resident of

            Puerto  Rico,  to  be  authorized   to  do  business  in  the

            Commonwealth,  or  to have  a place  of  business such  as an

            office,  showroom or warehouse on the Island.  Section 278 of

            the Act defines "Dealer" and "Dealer's Contract":

                         (a)  Dealer:  person actually inter-
                      ested  in a dealer's  contract because of
                      his having effectively  in his charge  in
                      Puerto  Rico  the  distribution,  agency,
                      concession or representation  of a  given
                      merchandise or service;

                                         -13-
                                          13

                         (b)  Dealer's contract:   relationship
                      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  (1976  and  Supp.  1989).

            Accordingly, Capen's  appears to  satisfy  the definition  of

            dealer within the Dealer's Act.

                      Although both Missouri and New Jersey have statutes

            protecting  dealers, we do not think that either state has an

            interest in protecting Capen's in  the instant circumstances.

            Missouri provides  that a  franchisor must give  ninety days'

            notice  to  a  franchisee of  a  termination  of  a franchise

            agreement  and  that,  in  the  absence  of  such  notice,  a

            franchisee may recover  damages.  Mo. Rev. Stat.     407.405,

            407.410  (1974  and Supp.  1975).    The law,  however,  only

            applies to distributors with a place of business in Missouri.

            Mo. Rev. Stat.   407.400(1) (1974 and Supp. 1975) (definition

            of "franchise").  It  is plain that Capen's has  no franchise

            presence in Missouri.

                      New  Jersey  has a  Franchise  Practices Act  which

            provides that notice  (60 days)  must be given  prior to  the

            termination  of  a  franchise   agreement  and  that  such  a

            termination only can  be based  on "good cause."   N.J.  Rev.

            Stat.   56:10-5 (1971).  As in Missouri, the Act applies only

                                         -14-
                                          14

            to  a franchisee who establishes a "place of business" in New

            Jersey.  Id.   56:10-4.  Thus, even though Capen's is located
                     ___

            in New Jersey, it does not qualify for the Act's protection.

                      Because  all three  jurisdictions evince  a general

            policy of  protecting distributors, we can  fairly infer that

            the application of Puerto Rico law would not  offend Missouri

            or  New  Jersey.   By  restricting protection  to  only those

            dealers who service customers  within the state, Missouri and

            New Jersey  are concerned  with dealers who  have established

            markets  within their borders.  Thus, it makes sense, in this

            case, to apply the  law of the jurisdiction in  which Capen's

            maintains its market.

                      In this context, ATAPCO argues that under P.R. Laws

            Ann. tit. 14,   2403 (1989),  Capen's is not required to file

            informational   documents   (certificate  of   incorporation,

            statement  of assets  and liabilities)  with the  Puerto Rico

            Department  of State to  qualify as doing  business in Puerto

            Rico.   Section 2403  exempts from filing  those corporations

            which only receive,  outside Puerto Rico,  orders by mail  or

            otherwise  and fill  the orders  by  shipping the  goods into

            Puerto Rico  from the  outside.   ATAPCO argues  that because

            Section  2403 exempts  Capen's from having  to qualify  to do

            business  in Puerto Rico, Puerto Rico can have no interest in

            protecting the  status of Capen's  as a distributor.   ATAPCO

            presents  no  cases in  support  of this  contention  and, as

                                         -15-
                                          15

            already noted, there  is nothing in  the Dealer's Act  giving

            rise to such a requirement.

                      This  is  an appeal  from  a  grant of  preliminary

            injunctive  relief.   When  an appeal  comes  to us  in  that

            posture, the appellate court's  "conclusions as to the merits

            of  the issues presented on preliminary  injunction are to be

            understood as  statements of probable outcomes,"  rather than

            as  comprising the ultimate  law of  the case.   Narragansett
                                                             ____________

            Indian  Tribe v.  Guilbert, 934  F.2d 4,  6 (1st  Cir. 1991);
            __________________________

            accord Jimeniz Fuentes v. Torres Gatzambide, 807 F.2d at 238.
            ______ ____________________________________

            In this case, we conclude that, bringing all the factors into

            consideration, the  law of Puerto Rico  most probably applies

            to  this  hybrid  contract/tort  action  and,  perforce,  the

            district  court properly  made reference  to the  Puerto Rico

            Dealer's  Act for  the  purpose of  the  motion to  impose  a

            provisional remedy.

                      Because ATAPCO  has neither briefed  nor argued the

            other factors  that the district court  considered in issuing

            the preliminary injunction,  we need not  consider them.   We

            must  note, however,  after reviewing  the record  carefully,

            that  we agree  with  the district  court's  findings:   that

            Capen's would suffer  irreparable harm  unless a  preliminary

            injunction issued; that no appreciable harm would be incurred

            by  ATAPCO  by reason  of such  relief;  and that  the public

            interest  would not  be adversely  affected by  a preliminary

                                         -16-
                                          16

            injunction.

                      Affirmed.
                      Affirmed.
                      _________

                                         -17-
                                          17