Monday, December 5, 2011

Declaratory judgment is appropriate vehicle to obtain declaration of just cause for termination of agreement in Law 75 case

In General Motors v. Royal Motors Corp., 769 F. Supp. 2d 73 (D.P.R. Feb. 1, 2011)(Gelpí, J.), GM filed a preemptive suit against one of its dealers seeking a declaration under 28 U.S.C. §2201 that it had just cause for termination of the motor vehicle dealer agreement with one of its dealers. GM alleged that the dealer submitted false or fraudulent claims related to warranty repairs of vehicles which constituted a material breach of the agreement. GM pleaded complete diversity of citizenship and the amount in controversy exceeded the requisite jurisdictional amount.

The dealer moved to dismiss the action for lack of subject matter jurisdiction. It alleged that the complaint did not satisfy the jurisdictional minimum and did not present a justiciable controversy. The court held that the amount in controversy “is measured by the value of the object in the litigation.” Because the “value of the dealer agreement” exceeds the jurisdictional minimum, the court denied the motion to dismiss on that basis.

As to the justiciability of the claim, the court found that the federal Declaratory Judgment Act “is designed to enable litigants to clarify legal rights and obligations before acting on them.” “GM’s right to terminate its contractual relationship is the exact type of dispute considered ripe for declaratory judgment”, held the court. The court also found that GM showed the hardship it would suffer absent a judicial determination of its rights and denied the motion to dismiss.

Note: CAB represents General Motors in the litigation.