As of late, dealers have not fared well in federal court when requesting preliminary injunctions under Law 75. It is unusual, however, for a court to deny preliminary injunctive relief after concluding that the dealer showed a likelihood of success on the merits of its claims and the public interest favors the injunction. Beatty Caribbean v. Nova Chemicals, No. 08-2259, 2009 WL 2151303 (ADC-CVR)(Velez-Rive, U.S. Mag. Judge) (D.P.R. July 16, 2009) is such a case.
There, the agent complained that the principal impaired verbal agreements for the sale and distribution of chemical products by unilaterally reducing the commission percentage from 5% to 3% in violation of Laws 75 or 21. The principal counterclaimed that an asset purchase transaction did not change a previously existing sales representation agreement, and that the agent was a non-exclusive representative who lacked an actionable claim under Laws 75 and 21. After consenting to proceed with the Magistrate and holding a hearing, the court denied the request for a preliminary injunction.
While the court found that, prima facie, the principal had impaired a protected relationship by reducing the payment of commissions without just cause, the agent had failed to satisfy two of the traditional prerequisites for injunctive relief, namely, balancing of the equities and irreparable harm. The court cited, and applied, the traditional prerequisites for injunctive relief under Federal Rule 65, noting that the standards are “tempered” considering the public policy objectives behind Law 75. The court determined that it would not overlook the issue of irreparable harm, though cited case law suggesting that a plaintiff need not show irreparable harm under Law 75.
On the issue of irreparable harm, the agent testified that the reduction in commissions caused a 40% reduction in revenues, which the court determined was legally insufficient for finding irreparable harm. The court held that financial injury alone does not constitute irreparable harm and that damages are recoverable at law. The balance of the equities favored the principal, the court said, because an injunction would alter existing relationships with other dealers.
My editorial comment. While the principal has a good reason to rejoice for the outcome in that case, the order denying the preliminary injunction may be vulnerable to attack by interlocutory appeal. The abuse of discretion standard will not help affirm the opinion because the district court found that prima facie the agent was a dealer or sales representative and there was no just cause. So, two of the most important requirements were met. The court’s conclusion that irreparable harm is mandatory for a federal court to issue a preliminary injunction under FRCP 65 is correct and sound. Although not discussed, under Hanna v. Plummer, the federal procedural rules requiring a showing of irreparable harm preempt contrary state substantive law, but Law 75 does not prohibit considering the traditional factors for preliminary injunctive relief so the court did the right thing to evaluate that factor. Where I think there might be an issue is with the court’s finding that financial hardship and a 40% drop in revenues are insufficient for a showing of irreparable harm. So, at the end of the day, the standard on appeal to review the legal issue of irreparable harm may be plenary and who knows what can happen.
