Thursday, July 29, 2010

Impairment, de facto exclusivity, nature of relationship, business terms after expiration of written agreement and assumption by successor in interest, present triable issues of material fact precluding summary judgment for the principal under Laws 75 and 21.

Beatty Caribbean, Inc. v. Nova Chemicals, 2010 WL 2697163 (D.P.R. July 6, 2010)(CVR), underscores the risks under Puerto Rico’s distribution laws that a principal assumes from doing business with an agent after expiration of a written agreement.

Beatty filed suit in federal court for impairment of an alleged verbal exclusive agreement when the principal, the successor in interest, sought to reduce the payment of commissions on the sale of Styrofoam products from 5% to 3% allegedly without just cause under Laws 75 and 21.

Beatty had been a non-exclusive representative of non-party Arco under a written agreement for many years until defendant NOVA later acquired Arco’s assets in 1996. The agreement provided a 5% commission and had a term of one year. Beatty’s 1990 agreement with Arco was not part of the assumed contracts in the acquisition.

Without entering into a new written agreement and not expressly assuming the expired contract between Arco and Beatty, NOVA and Beatty allegedly entered into a verbal exclusive agreement in the 1990’s. Beatty’s proof of exclusivity relied on a course of dealings as it alleged that it was de facto the sole distributor in the Caribbean and Puerto Rico and NOVA had not appointed another distributor in the exclusive territory. The court found it was undisputed that when NOVA acquired Arco’s assets “there was no change or alteration in any of the terms and conditions of dealings with Beatty.”

Nova moved for summary judgment on two grounds, one that Beatty did not qualify as a Law 75 dealer and two, it was not an exclusive sales representative for coverage under Law 21. The court found there were controversies of material fact precluding summary judgment. “Since there is no written contract in effect as to what was the extent, provisions or understanding of the verbal contract between the parties in the present controversy, once it is ruled and determined based on credibility determination, it would then be legally possible to determine if their business relation may fall under Law 75 or 21, or none.”

Where there is no integrated written and expressly non-exclusive agreement in effect at the relevant time of the impairment or termination by the successor in interest, this and other cases prove that an agent claiming protection under Laws 75 and 21 may avert summary judgment with extrinsic evidence of a verbal distribution or representation agreement and a course of dealings of de facto exclusivity.