Federal court grants supplier's motion for summary judgment dismissing Law 75 case for lack of timely payment

There are a number of permutations for when lack of timely payment may or may not be just cause as a material breach of contract under Law 75. The legal proposition is that paying on time is "normally" one of the dealer's essential obligations, the breach of which may be just cause for termination. But that proposition has never been an absolute rule because paying on time is not always an essential obligation. Saying otherwise that, as a matter of law, paying of time is always essential would lead to absurd or unjust results (for example, is late payment by one day of one invoice automatically just cause to terminate a long-standing business relationship?) or may ignore the commercial reality of the relevant industry, the terms of the contract itself, or the course of conduct of the parties.

Any notion that paying late or making incomplete payments is always or automatically just cause when the supplier protests, is legally incorrect and misguided. Paying on time is not essential and may not be just cause in at least three situations: when an integrated contract specifies all of the dealer's essential obligations and excludes timely payments (the Casco vs. John Deere contract was of this mold) or in the unusual situation where the supplier is not serious about or accepts late payments. To add to the mix, a dealer may also allege and prove to the trier of fact (as in Casco vs. John Deere) that the dealer's alleged breach of contract was a subterfuge or a pretext to terminate the agreement for ulterior motives or that the supplier contributed to payment problems.

But, when the dealer's contract clearly specifies that paying on time is essential and there is no evidence of a subterfuge or pretext and nothing on record indicates that the supplier has not cared about late payments (and what it has meant to "care or not" depends on the facts of each case) courts have uniformly granted summary judgment in the supplier's favor.

Kemko Food Distributors Inc. v. Schreiber Foods Inc., 2016 WL 814833 (D.P.R. Feb. 29, 2016)(Hon. Pedro Delgado, J.), is one of those cases where the contract and the facts hurt the dealer.

There, a supplier of food service products appointed the Puerto Rico dealer as its exclusive distributor, but the contract expressly made the appointment contigent on both making timely payments and making sales efforts. For 18 consecutive months before the termination, the dealer paid late and it became a serious concern to the supplier. Judge Delgado recognized situations where timely payments are not essential obligations and found them to be inapplicable to the facts of that case. With undisputed evidence of a breach of an essential payment obligation in the contract and absent any proof of a pretext or subterfuge, the court granted the supplier's motion for summary judgment.

Luck of the draw in jury selection

Last week I tried to verdict in federal court a dealer termination case under Law 75. Fortunately, the jury favored my client, a Puerto Rico dealer, with an award covering 100% of the Law 75 claims.

Statistics show that 99% of federal civil cases are dismissed before reaching the jury, either by dispositive motions or settlements. In fact, my last Law 75 federal jury trial, representing the manufacturer, had been 6 years ago, and I settled before the jury took the case. The Casco v. John Deere case I tried last week, after three years of intense litigation against competent defense counsel, was the first Law 75 case to reach a jury in many years. Mind you that, while a lot of Law 75 cases are bench-tried in the local courts, there's no right to trial by jury in Puerto Rico and the only civil jury cases are heard in the federal court. And, the civil cases tried in our federal district court in Puerto Rico are few and far between and almost none is a commercial case. Criminal cases overwhelm the federal docket and there is no time or judicial resources for the few labor employment or civil rights cases that actually get tried.

It is no wonder then that the art of trying a case before a jury is getting lost. Even more perplexing, is the jury selection process in which lawyers get no meaningful participation in the voir dire to question the venire and the jurors that actually get picked are more of a lucky draw than a consciencious or scientific effort at jury selection.

Jury cases of Law 75 claims are so rare, that I'd like to share my insights into the backgrounds of the jurors that actually tried our case and the jurors who unanimously found for the dealer. These thoughts never get published except by word of mouth from some of the older or more experienced members of our federal bar.

Jury venire in the Casco v. John Deere case was composed of roughly 36 candidates. Some were excused for cause, either for medical reasons or some had prior travel arrangements or commitments or knew the lawyers or their law firms etc. For example, one of the potential jurors worked as a clerk for my firm's external auditors and was stricken for cause. From those who remained after 3 peremptories or strikes per side, the jury was initially composed of 4 men and 4 women. After a number of back-to-back recesses called by the Judge mid-trial, a middle-aged female juror had become sick or extenuated, from two weeks of trial or most likely after eating a federal lunch pack, and was rightly excused for cause. The remaining 4 men and 3 women were representive of all walks of life. We had an administrative assistant of a multinational corporation, two engineers, an attendant of an auto parts store, a public school physical education teacher, an accounts receivable clerk in a newspaper, and a housewife. There were no accountants or financial analysts per se in the jury, except perhaps for the accounts receivable clerk who must have known basic math and the engineers who have a fuller understanding of science and mathematics. I don't think, however, the two engineers had post-graduate degrees. Although their age was not disclosed, I guess that most were between the ages of 32-55. All lived in different municipalities across all over Puerto Rico, except for one juror from San Juan. As expected, fluency in English was mixed. The Judge required the second venire (the second pool of jurors who are left after others from the first badge are excused for cause) to read out loud on the record their responses to a set of a few boilerplate questions, such as, where they live and work and what their family members do for a living. Most of the jurors were naturally so soft-spoken in the intimidating courtroom environment that at least I could barely hear what they said. From what may have been a 20 second narrative by each of roughly 20 persons, the lawyers are supposed to discern all the facts to make an informed judgment to select the jury. No interrogation by counsel is allowed. Also, from this brief narrative, which is the only words ever spoken by a juror in the case, except for an individual assent to the verdict after a poll, you can tell about their fluency in English, sort of. In this case, jurors clearly spoke and understood English but not as a first language but some were actually very fluent. I'd say most spoke English like most Puertorricans do as a second language. The only common denominator, that may or may not have been relevant, is that none of the jurors had served before in any other case, civil or criminal, which implies that all had a fresh or open mind and were not contaminated by experiences in other cases. Judgment came after more than two hours of deliberations.

Full of energy and enthusiasm after eating their nutritious federal lunch packs, our jury reached a unanimous verdict before the rush hour on a sunny Friday afternoon and left the court for home.

Ricardo

John Deere Construction and Forestry Company gets hit with federal jury verdict in dealer termination case

UPDATE


On November 8, 2018, a panel of the Court of Appeals for the First Circuit (Howard, Thompson, and Kayatta, J.) heard oral argument on Deere's appeal from the jury verdict finding Law 75 liability and awarding damages and Casco's cross-appeal from the dismissal of the dolus Civil Code claim. A ruling by the First Circuit is generally issued within three months after oral argument.


PROCEEDINGS BELOW

Last Friday, March 11, 2016, a federal jury in the U.S. District Court of Puerto Rico found defendant John Deere Construction & Forestry Company liable for termination of a 27 year-old dealer's contract without just cause under Law 75 and awarded plaintiff Casco, the Puerto Rico distributor, impairment and termination damages of $1,763,934.

This is the first Law 75 case to reach a federal jury verdict in recent memory.

The federal court's pretrial in limine rulings in Casco v. John Deere (published in Westlaw) provide a more developed background of the disputes and claims between the parties than I will attempt here. In summary, Casco, a Puerto Rican distributor of construction equipment, claimed that John Deere, one of the leading manufacturers of construction equipment in the United States, terminated unilaterally the dealer's contract in 2013 without just cause and impaired the contract by cancelling in 2012 a purchase order for the sale of a John Deere excavator worth $268,000.

Only the separate claims for impairment and termination under Law 75 reached the jury. At trial, the Court (Hon. Pedro Delgado Hernandez, J) dismissed the dolus (fraud) claim holding that the alleged predicate for fraud of constructive termination of the contract in 2009 was not actionable under Puerto Rico Law 75, a pure issue of law and one of first impression with the P.R. Supreme Court. Mid-trial, as noted, the Court granted John Deere's Rule 50 motion to dismiss the dolus claim for fraudulent inducement and fraudulent performance of contract and also entered judgment for John Deere on its counterclaim for collection of a debt of roughly $200,000.

About Casco's success on the Law 75 claims, the Jury must have found that John Deere's ostensible reasons stated in two letters for the impairment and subsequent termination were false or a pretext. The jury credited Casco's version of the events that John Deere retaliated or discriminated against its Puerto Rican dealer over many years as a vendetta for the dealer's owner's business affiliation with Volvo Construction, a competitor.

Substantial evidence was introduced at trial that John Deere treated its Puerto Rican distributor differently from other construction equipment dealers in Latin America or the United States. Those other dealers received grace periods to comply with John Deere's requirements and were invited to attend important dealer conferences. Casco received no breaks and was the only dealer excluded from the dealer conferences. John Deere's executives admitted to being upset at Casco for standing up for its rights for many commercial issues in their relationship, and more upsetting was to John Deere its business dealings with Volvo. The John Deere dealer agreement with Casco also did not have a non-compete obligation, as do many of John Deere's newer dealer contracts with other distributors.

After a two-week trial and over two hours of deliberations, the Jury awarded Casco impairment damages of $323,440 and termination damages of $1,440,494, fully compensating Casco for 100% of its Law 75 claims. Puerto Rico law does not permit punitive damages. Puerto Rico Law 75 has a cost-shifting provision requiring the Court to award reasonable attorney's and expert witness fees in the dealer's favor as the prevailing party, and those fees are expected to be substantial in this case.

This author Ricardo Casellas was lead trial counsel for the dealer Casco in this case and CAB's attorneys Heriberto Burgos and Sarika Angulo and paralegal Mercedes Rodriguez formed CAB's team. Plaintiff's damages expert was Reynaldo Quinones Marquez, CPA, and Gustavo Velez, an economist who testified about market conditions affecting the construction industry in Puerto Rico. For defendant, Dr. Freyre, an economist, testified as rebuttal expert on damages.