In Mac’s Shell Service v. Shell Oil Products, No. 08-240, slip op. (March 2, 2010), the Supreme Court of the United States held that a constructive termination claim was not actionable under the PMPA, the federal law protecting petroleum franchisees, unless the retailer-operator voluntarily has abandoned the franchise. The Court reasoned that both the plain language of the PMPA, and analogous federal employment law jurisprudence, do not support the First Circuit’s reasoning that a franchisor’s breach of an essential contractual term made it actionable as a constructive termination under the PMPA. The PMPA’s comprehensive scheme for compensation, including awards of punitive damages for violations, also made the Court reluctant to expand the reach of the statute for all breach of contract claims. A termination claim under the PMPA, said the Court, requires an end to the relationship of the parties. While the Court refused to federalize claims not involving a complete rupture of the business relationship, the Court held that the PMPA does not disturb state laws that provide remedies for wrongful practices, including a franchisor’s breach of contract short of termination. Thus, the Shell Oil Products decision does not foreclose claims under Puerto Rico law for de facto or constructive termination of franchise and distribution agreements.
That’s where Law 75 comes in as it was enacted to compensate for abusive practices by principals designed to appropriate the goodwill created by the Puerto Rican distributor. And, Puerto Rico’s Article 1077 of the Civil Code supplements the remedies available for resolution of contracts arising from breaches of essential and material terms.
Specifically, the type of claim that was not actionable in Shell is actionable on the face of Law 75 as it codifies a claim for impairment of contractually acquired rights and expectations short of a complete cessation of the relationship (a “menoscabo”). Moreover, Law 75’s definitions of termination without just cause and the measure of damages for termination expressly include a remedy for acts detrimental to the established relationship (“menoscabo”). Thus, from Law 75’s plain language and its interpretive case law (including a series of federal cases and the PR’s appellate court’s opinion in Maderas Alfa), a principal’s impairment of an established relationship with the distributor may operate as the functional equivalent of a termination requiring consideration of the statutory criteria for termination damages, including loss of goodwill and five-years of lost profits, among other factors. Compare Maintainco, Inc. v. Mitsubishi Caterpillar Forklift, CCH Business Franchise Guide ¶14,195 (holding that a dealer's loss of an exclusive territory, in and of itself, could qualify as a constructive termination under New Jersey’s Franchise Practices Act which, like Law 75, requires good cause for termination; affirmed the trial court’s ruling and its award of compensatory damages for lost profits to the dealer in the amount of $679,414. Additionally, the trial court's substantial award of attorney fees to the dealer in the amount of $3,533,642 was also upheld, but an award of $477,611 in expert witness fees was reversed).