Law 21 claim in the face of an expressly non-exclusive agreement does not survive partial summary judgment, but Court acknowledges important textual interpretation of standing to sue under Law 21

In a previous blog (Jan. 14, 2013), I reported that the question remains unanswered whether a sales representative in Puerto Rico- who represents exclusively the supplier’s products but no competing lines and does so without a written agreement (or is silent on exclusivity)-states a claim under Law 21.

Most courts, and Gonzalez v. Hurley International LLC, 2013 WL 371766 (D.P.R. Jan. 31, 2013)(SEC), is no exception, endorse the view that the exclusivity contemplated by Law 21 means either a restriction on the supplier’s right to appoint a competitor or the grant of an intra-brand monopoly to the sales representative. It is fairly predictable that, as in Hurley, most Law 21 cases fail to state an actionable claim when the de facto exclusive representative (like a “sole” distributor, meaning there is no one else but him or her representing the line in the territory) does business with an expressly non-exclusive written agreement. There should be no ambiguity there and that explains why the claim fails. Still, the question of statutory interpretation lingers whether one of the formulations of exclusivity that textually is possible under Law 21 is something different; that is, the representative has assumed the obligation not to represent competing lines, so that the character of his representation is “exclusive” for his principal. His or her attention is dedicated exclusively to the principal.

In a thoughtful opinion, Hurley addresses that question, although it concedes that it is not necessary for its holding. Hurley involved a motion for summary judgment to dismiss plaintiff’s claim brought under Law 21. Plaintiff, a representative of surfing wear clothing and equipment, filed suit alleging an unjustified termination of a sales representative agreement. Plaintiff alleged that Hurley’s founder had verbally appointed her as the exclusive representative and required her not to compete by offering similar products. Plaintiff was not the sole representative as Hurley offered its products for sale in Puerto Rico through other channels, including licensees and national accounts, such as Costco. Much to plaintiff’s chagrin, she signed an expressly non-exclusive agreement which expired, but the parties continued doing business under the same terms and conditions until the unilateral termination of the business relationship.

The thrust of the decision granting partial summary judgment for Hurley is that where, as here, the terms of the contract are clear and unambiguous, those terms must be enforced under the Civil Code so that plaintiff is clearly a non-exclusive representative and has no actionable claim under Law 21 for at least claims arising during the duration of the agreement. It does not matter that, verbally or from a course of dealings, plaintiff may have been the sole representative or was bound by a verbal agreement not to compete.

Plaintiff then argued that the court should disregard the non-exclusive terms of the agreement and accept the business reality that the “arrangements of the parties” evidenced exclusivity. For this proposition, plaintiff argued that Law 21 is of public order and the rights cannot be waived. The Court correctly noted that the anti-waiver provision in Law 21 was meant to prevent situations where the principal purposefully conceals aspects of the business relationship to avoid liability under Law 75, citing Advance Exp., Inc. v. Medline Indus., No. 06–1527, 2007 WL 853745, at *2 (D.P.R. Mar.19, 2007), not to excuse the parties from clear and unambiguous contracts they have willingly subscribed. As the Court carefully noted, “[s]he cannot now use Law 21’s liberal undertone as a sword with which to cut down what she voluntarily agreed to in the first place.” So, the waiver argument fails. The written agreement overrides the verbal allegations of exclusivity. Accordingly, the Court dismissed the Law 21 claim stemming from 2007-2009 for the duration of the agreement.

With respect to claims arising before entering into the agreement, the court also granted summary judgment reasoning that the claims were time barred. As to the six-month gap where the parties continued to do business after expiration of the agreement, Hurley failed to prove extinctive novation and the Law 21 claim for that period survived termination. There was a triable jury issue on whether the parties’ modus operandi evinced exclusivity.

The Court went further. In dicta, the Court delved into the unanswered question of statutory interpretation and acknowledged the textual meaning of Law 21: “Whether an agent is the sole sales representative within a defined territory, and whether her sole business is to represent the principal’s products or services (like González), then, should be of some consequence to the exclusivity determination. At the outset, this interpretation (the “Traditional Interpretation”) comports with the ordinary meaning (or at the very least one meaning) of the word exclusive. See, e.g., City of Vicksburg v. Vicksburg Waterworks Co., 202 U.S. 457, 471 (1906) (finding that exclusive means ‘[a]ppertaining to the subject alone; not including, admitting, or pertaining to any other or others; undivided; sole: as, an exclusive right or privilege ...” (citation and internal quotation marks omitted; emphasis added); Webster’s Ninth New Collegiate Dictionary 433 (1986) (defining exclusive as “limiting or limited to possession, control, or use by a single individual or group” or as “single, sole”). The Traditional Interpretation is also in accord with the Civil Code’s provision that “[t]he words of a law shall generally be understood in their most usual signification, taking into consideration, not so much the exact grammatical rules governing the same, as their general and popular use.”

Further, as I had observed in my Blog, the Court noted: “Cruz–Marcano seems to have left unanswered the question whether exclusivity is simply a limitation on the principal’s right to compete (the mercantile law definition), or whether it can also encompass the Traditional Interpretation: a non-compete obligation by a sole sales representatives whose business is solely to represent the principal’s products. Sales representatives like González would greatly benefit from this latter interpretation, which may further the objective behind Law 21 of placing the sales representatives on equal footing with the distributors currently protected by Law 75.”

In the end, the Court held that plaintiff “has completely ignored this important argument” and was waived. Having ruled that plaintiff’s Law 21 claim partially survived summary judgment, the Court then held that Hurley’s just cause defense was a factual issue for the jury.

The question of exclusivity in a declaratory judgment action under Law 75 is for the jury

The exclusivity imbroglio continues. In Medina & Medina v. Hormel Corporation, No. 09-1098 (JAG)(D.P.R. Feb. 20, 2013), Plaintiff, a distributor of meat products, filed an action for breach of contract, damages, and declaratory judgment under Law 75. After motion practice, the Court found that summary judgment was inappropriate on the issue whether an exclusive distributorship existed and ordered a jury trial as demanded in the Complaint. The parties agreed to bifurcate liability and damages to try first the issue of liability. During the pretrial conference, defendant Hormel objected to having juries decide the ultimate question whether there was an exclusive agreement arguing that it is an issue of law for the Court. The Court, however, holds that an action for declaratory relief is both legal and equitable and the constitutional right to a jury trial requires the jury to decide the exclusivity question. Mind you, under Puerto Rico law, exclusivity is apparent from the agreement of the parties or the course of dealings. Stating the Court’s Opinion differently, the distributor’s claim for impairment of an alleged exclusive contract under Law 75 requires the jury to decide if the facts demonstrate the existence of a meeting of the minds to appoint Medina as the exclusive distributor, and if so, the scope of the exclusivity. In other words, was there a breach of contract? Bifurcation of the case and the declaratory judgment action do not override the right to a jury trial on this question.