Tuesday, July 5, 2011

First Circuit vacates final judgment for a supplier in a Law 75 case after consolidation of a preliminary injunction hearing with a bench trial on the merits did not provide adequate prior notice.

In Lamex Foods v. Audeliz Lebron, No. 10-1677 (1st Cir. June 27, 2011), the First Circuit vacated the District Court’s (Fusté, J.) Judgment holding that consolidation of a preliminary injunction hearing with a bench trial on the merits without providing adequate and clear prior notice violated the constitutional right to a jury trial.

Plaintiff Lamex is a Minnesota corporation that facilitates the sale of food from manufacturers to suppliers and vendors worldwide. Plaintiff entered into a “business relationship” where it purchased frozen chicken for resale to Defendant ALC, a Puerto Rico corporation, that supplies product to supermarkets and retailers in Puerto Rico. In 2009, after failed collection attempts, ALC fell behind in its payments for poultry sold and delivered totaling $1.2 million. Lamex, among other actions, canceled ALC’s account and cashed in on a letter of credit tendered as security.

ALC sued Lamex first in local court alleging violations of Law 75. Before Lamex was served, it sued ALC in federal court naming ALC and its President as defendants. Lamex sought to recover payment of unpaid monies due and to pierce the corporate veil to hold the President personally liable. Lamex also sought a declaration that it was not a principal under Law 75, and even if it was, it had just cause to terminate the relationship.

There were mixed or contradictory signals on the record whether the court had in fact consolidated the case. After an evidentiary hearing, the District Court found for Plaintiff in all respects on its complaint except that it disallowed the request to pierce the corporate veil.

Defendant appealed and argued that the court erred in consolidating the preliminary injunction hearing with a bench trial on the merits. The First Circuit accepted, without deciding, an argument for the present case that Law 75 actions are essentially legal to which the Seventh Amendment attaches. Despite Defendant’s counsel’s failure to object to consolidation, the First Circuit held that the court’s failure to give unequivocal and adequate prior notice did not comply with the heavy burden to show a waiver of the constitutional right to a jury trial.

Thus, the court vacated the judgment with respect to the claims for declaratory relief and to pierce the corporate veil and remanded the action for further proceedings. Significantly, because Defendant conceded the amount and existence of the debt owed to Plaintiff, it affirmed the court’s monetary judgment in Plaintiff’s favor. As to the appeal from a discovery sanction, the court affirmed the court’s imposition of sanctions against Defendant for its President’s evasive and non-responsive answers during his deposition.