In Medina & Medina, Inc. v. Hormel Foods Corporation, No. 09-1098 (JAG)(March 30, 2012), the federal court adopted, in part, Magistrate Lopez' “well-thought out” R&R to deny the distributor’s motion for summary judgment and allow the principal’s partial motion for summary judgment.
There were two main issues. First, was there exclusivity? On summary judgment, the distributor Medina claimed an exclusive distributorship for certain products based on a verbal authorization by an officer of Hormel for Medina to distribute Hormel’s products. Medina also introduced a letter of Hormel referring to Medina as the “primary if not the exclusive partner.” Nonetheless, Hormel disputed the assertion of exclusivity as the parties did not agree on the scope and terms for the distribution of the products. There was no written contract and Hormel contested the assertion of exclusivity. Reinforcing the argument that exclusivity is a right conferred by the principal, the court noted “Medina seems to think that the fact that Hormel may not have had another distributor in Puerto Rico means that Medina was by definition Hormel’s exclusive distributor. The Court fails to find this line of reasoning persuasive.” The reader should observe that there is precedent that exclusivity is determined by the contract between the parties and the course of dealings. But, none of the cases has supported allowing summary judgment for a distributor based solely on a course of dealings and at least in the absence of a written exclusive agreement. Finding it was a stretch to allow the distributor’s motion for summary judgment, the court adopted the Magistrate’s R&R finding material issues of fact precluding the distributor’s motion for summary judgment.
Two, did the existing dealer relationship prohibit sales by Hormel to mainland distributors? The court analyzed the trilogy of impairment cases involving sales to mainland distributors: The First Circuit’s Irvine decision, and district courts’ decisions in Sterling and Di Giorgio and concluded that the factual situation in this case was not analogous to the other cases because Hormel had sold its products directly to mainland distributors. Despite the Magistrate’s conclusion that Law 75 would reach to proscribe those sales, it determined that the existing agreement did not prohibit Hormel’s sales to stateside distributors and recommended granting Hormel’s motion for summary judgment to dismiss that claim. The Magistrate gave weight to Medina’s failure over many years to contest Hormel’s sales to mainland distributors. The court concurred and adopted the Magistrate’s recommendation on the alternate ground that the impairment of contract claim was time-barred under the Commerce Code’s three-year caducity period. Finding that, at least since 2005, Medina had been aware that Hormel would continue to sell to mainland distributors despite its objections (Medina wanted better prices), the claim for impairment under Law 75 was time barred. As to the issue whether the existing agreement (i.e., the business relationship created from the course of dealings) prohibited direct sales to mainland distributors, the issue turned moot because the court concluded that Medina’s claims arising from sales to mainland distributors, though covered by Law 75, are time barred. Presumably, the impairment claim for damages that remains alive after the court’s ruling arises from sales within Puerto Rico if a jury concludes that Medina and Hormel had an exclusive agreement for certain products.