Another failed injunction

The streak of losses continues in federal court for distributors in their quests for preliminary injunctions pendente lite. In Nilo Watch Parts, Inc. v. Rado Watch Co., Ltd., 2023 WL 5814264 (D.P.R. Sept. 2023) (Vélez-Rivé, J.), a retail store of Rado-branded watches sued its supplier for termination of its exclusivity right established in a distribution relationship without a formal written agreement (which meant that the court had to discern the parties’ course of dealings). The principal argued that the retailer failed to grow the market for the brand and focused on lower price-point watches instead of newer models like the diver watch “Captain Cook” that had an acceptance in the United States. The dealer's years-long downward trend in sales did not help its case. Essentially, the dealer tried to control or override the supplier’s worldwide sales and marketing practices by arguing that the Puerto Rican consumer preffered cheaper watches. Although it was not discussed in the opinion, the court excluded the dealer’s proffer of expert economic testimony to prove that market or economic conditions or force majeure affected sales. It all came to naught since the court, applying the traditional criteria for injunctive relief but tailored to Law 75 cases, concluded that the dealer had not shown a likelihood of success on the merits to rebut a showing of just cause for termination of the retailer’s exclusivity. The termination was grounded on the dealer’s failure to meet Rado’s “worldwide distribution standards” governing the course of dealings, which the dealer did not contest during the hearing. And, because the dealer continues to operate and remains in business with the Swatch brand, it could not prove irreparable harm. Instead of seeking to appropriate the dealer’s creation of goodwill for Rado, Rado offered alternative terms to transition the business from distributor to retailer which showed that its business decisions were not made in bad faith or arbitrary. For other reasons too, the court denied the injunction.

Part II: The twists and turns of the new Civil Code's regulation of distribution relationships

By: Diana Pérez Seda, Esq. In a previous post we took a first close look at Chapter XV of Book Five of the New Civil Code of Puerto Rico enacted in 2020 because it includes Articles 1439-1447, which directly impact the rights and obligations of distributors and principals in a manner that demands the attention of those engaged in commercial relationships regulated by Law 75. The New Civil Code does not create new claims or causes of action. Rather, it essentially supplements and indirectly amends Law 75. Knowing all about how those articles came to be is indispensable to understanding the new scenarios principals and distributors face post-2020. Any in-depth study of a legal provision requires a detailed inspection of its text and legislative history, which includes the sequence of drafts leading up to the final approved text, the reports prepared by the various legislative commissions and any noteworthy event in the development of a legal provision. The Civil Code of 1930 was amended several times throughout the years to modify specific provisions as the needs arose. In the late nineties, Act No. 85 of August 16, 1997, was enacted to create the Joint Permanent Commission for the Revision and Reform of the Civil Code of Puerto Rico. This commission was composed of academics and practitioners of the highest caliber who worked for decades to produce multiple drafts. The New Civil Code of 2020 was, therefore, the product of thousands of hours of work by legal professionals with varied backgrounds and legal specialties. The direct legislative history of the New Civil Code reveals that the first draft was officially filed as House Bill 1654 on June 18, 2018. Interestingly, this draft did not include any of the provisions contained in Chapter XV of Book Five. Nothing in its legislative history has clued us as to why. The first time the articles are seen in the electronic file of House Bill 1654 is in the Substitute Bill of October 25, 2018, filed on January 30, 2019, which included Articles 1488-1496. A comparison shows that only one minor change is present between the Substitute Bill and the final New Civil Code. Essentially, Article 1494 of the Substitute Bill, which is equivalent to Article 1445 of the New Civil Code, had a subsection stating that the distribution contract would be deemed terminated after a bankruptcy judgment. That subsection was eliminated for the final version of the bill. Otherwise, the final version of the articles at issue was set with the Substitute Bill. It is with this Substitute Bill that the acts Exposition of Motives states for the first time that “[t]he division between civil obligations and contracts and commercial obligations and contracts is a constant source of confusion. Such a distinction lacks, for the most part, justification in today's context, as it does not lead to substantially different regulations.” It goes on to say that several different commercial contracts—including distribution—are now specifically regulated in Book Five of the Civil Code of 2020. This language, however, was taken ad verbatim from the Positive Report of the Substitute Bill of January 30, 2019. While House Bill 1654 has a specific history that began in 2018, the bill was the product of decades of work by the Joint Permanent Commission, as explained above. The articles at issue were not actually developed between the presentation of House Bill 1654 in June 2018 (where they were not present) and the Substitute Bill of October 2018 (where they appear). The articles were, in fact, present in prior drafts of the Civil Code developed by the Joint Permanent Commission for the Revision and Reform of the Civil Code of Puerto Rico. A Draft for Discussion and Explanatory Memorandum of 2004 contains the articles at issue as Articles 220-229. Some of the articles differ in significant ways from the language finally approved in 2020. For example, Article 222 of the 2004 draft stated that the “concession comprises all products manufactured or afforded by the concessionary, among which all new models are included.” The New Civil Code prefaces that same language with the caveat “unless otherwise agreed,” which is extremely significant because it recognizes that the parties may agree to exclude new models expressly from a distribution relationship. The flipside is, of course, that, unless excluded expressly, new models are automatically included within a distribution relationship. Another interesting difference is that Article 224 of the 2004 draft set a minimum of four years for distribution contracts. The New Civil code does not contain any limitation on the contract duration and does not regulate the duration. The draft is otherwise substantively very similar to the New Civil Code. A Draft for Discussion and Explanatory Memorandum of 2010 was also produced by the Joint Permanent Commission for the Revision and Reform of the Civil Code of Puerto Rico in 2010. Said draft contained the same articles at issue with the same language so nothing varied between 2004 and 2010. Both explanatory memoranda as well as the commentary to the New Civil Code note explain that the articles in question had their origin in the Draft Bill of the Civil Code of Argentina. The reason for this is that Argentina enacted a Civil Code in 2014 and during the time both the 2004 and 2010 drafts were developed by the Joint Permanent Commission for the Revision and Reform of the Civil Code of Puerto Rico academics from multiple jurisdictions in Latin America were regularly meeting at conferences and discussing and exchanging drafts. Argentina’s Civil Code of 2014 contains Articles 1502-1511 that deal with concessionaries and distributors. The 2004 and 2010 drafts of the Civil Code of Puerto Rico, as well as the New Civil Code of 2020, closely track these articles from the Civil Code of Argentina. There will certainly be future opportunities to dig deeper into the legislative history of the Civil Code of Argentina to discover the true origin of each article.

A Chapter in the new Civil Code of 2020 with Argentinian roots regulates distribution agreements protected by Law 75

By: Diana Pérez Seda, Esq. Principals and distributors alike should be looking very closely at their distribution agreements and course of business dealings along with their counsel as soon as practicable. Chapter XV- “La Concesión o Distribución” of Book Five of the New Civil Code of Puerto Rico enacted in 2020 includes a handful of provisions that potentially impact the rights and obligations of distributors and principals or grantors in the most significant way since the enactment of Law 75 fifty-nine years ago. A little dose of civil law 101 is in order. The purpose of a civil code is to generally prescribe what should happen in the absence of a special law or contract addressing a specific issue. A special law, in contrast, regulates a specific topic, like Law 75 does for distribution relationships. In fact, it is a basic law tenet that special laws supersede general laws when dealing with their specific subject matter. This was generally the case when dealing with distribution agreements, where Law 75 superseded the general principles of contract law laid out in the Civil Code of 1930. And that is still likely true now that the Civil Code of 2020 is in effect. Yet Articles 1439-1447 of the New Civil Code merit close study because the substance of these articles supplement Law 75 to a degree so substantial that they could be considered essentially an amendment to the special law. For starters, the last article in the chapter at issue, Article 1447, is perhaps the most interesting. It states that, “[t]he provisions of this chapter do not impair the rights of the concessionary or distributor under special laws applicable to distribution contracts.” On its surface this article declares what we described above as the basic law principle which states that special laws like Law 75 should supersede a general law like the Civil Code of 2020. Closer inspection of Article 1447’s language, however, potentially raises a myriad of questions: Why does it only expressly say that the rights of distributors are not impaired? Were these articles included in the Civil Code to benefit only distributors? Why not amend Law 75? One can speculate that amending Law 75 would have ruffled the feathers of many special interest groups that would have made its passage more difficult. One is left to wonder where this new Chapter came from. It appears to have been adopted, in part, from the “Código Civil y Comercial de la Nación”, Law 26.994 decree 1795/2014 of Argentina, which expressly applies to distribution contracts. The Argentinian Code also enacts a chapter to regulate franchises, but our Civil Code did not adopt those provisions. The Statement of Motives of the Civil Code of 2020 says that, “[t]he division between civil obligations and contracts and commercial obligations and contracts is a constant source of confusion. Such a distinction lacks, for the most part, justification in today's context, as it does not lead to substantially different regulations.” It goes on to say that several different commercial contracts—including distribution—are now specifically regulated in Book Five of the Civil Code of 2020. The Statement of Motives does little to shed light onto the reasons behind the inclusion of the articles at issue in the Civil Code of 202 and once again we are left with more questions than answers: Why does the legislator say that the division is a constant source of “confusion”? Confusion to whom? The courts? Distributors and principals? Article 1440 of the Civil Code of 2020 goes on to state that a concession may or may not be exclusive within the territory or convened zone of influence. Hence, unlike Law 75, the New Civil Code expressly recognizes exclusive arrangements and makes it patently clear that variations of exclusivity are all viable. Although exclusive relationships have certainly existed in multiple shapes and forms since before the enactment of Law 75, having the Civil Code of 2020 expressly recognize and, in a restricted sense, validate them, adds clarity. Article 1441(a) further states that “in absence of a contrary agreement: The concession includes all products manufactured or supplied by the grantor, including new models.” Subsections (b) and (c) states that no sub-concessions or assignments are allowed (in absence of a contrary agreement). Subsection (a) is, of course, the most interesting provision because it makes absolutely clear that, unless there is an express agreement excluding new products, distributors will have a right to distribute them. If the agreement is exclusive and, if new models of products are not expressly excluded, the distributor will have a right to exclusively distribute all new models of products. Given how a large proportion of disputes relates to the rights over the distribution of new products, these provisions should prompt both distributors and principals to look at their own relationships closely carefully. Furthermore, Article 1443 and 1444 list the essential obligations of principals and distributors, respectively. The lists include the typical and essential obligations of each type of actor and provide a baseline of what is expected from each side. If there is an ongoing relationship that has no written contract actors must carefully consider whether their business relationship has or should have the listed elements and whether perhaps formalizing the relationship in a written contract would be beneficial to all parties involved. A contract may, for example, specifically list each side’s obligations so that a breach can be readily identified. Historically, the breach of essential obligations was considered just cause under Law 75, but that could have changed with the Civil Code of 2020. For instance, Article 1445, lists the reasons for which a distribution agreement can be terminated. The article lists five reasons aside from “general contract termination reasons”: (a) the death or incapacity of the concessionaire; (b) the expiration of the agreed term; (c) serious or repeated breaches that reasonably cast doubt on the ability or intention of the non-compliant party to fulfill the remaining obligations; (d) the dissolution of either party, provided it does not result from a merger or split; or (e) in the event of dissolution through merger or split, if it significantly reduces the concessionaire's business volume. This list of causes for termination do not override the classic termination causes and presumptions listed in Articles 2 (just cause), 2A (presumptions) & 2B (just cause due to privatization) of Law 75. Of particular interest is subsection (c) of Article 1445 which states that termination is legal following “serious or repeated breaches that reasonably cast doubt of the ability or intention” of the other party to fulfil its obligations. There are several highly subjective and possibly ambiguous concepts in that subsection (“serious,” “repeated,” “reasonably,” “cast doubt,” “intention”) that will require careful documentation and consideration before action is taken to end a distribution relationship. Indeed, this new termination cause opens up a pandoras box for principals and distributors alike. All in all, the new Civil Code of 2020 provisions will likely create opportunity and concern depending on whose rights are at stake. They certainly demand that principals and distributors reflect upon their commercial relationships and whether they are in a stronger or more vulnerable position today than prior to the enactment of the Civil Code of 2020 and whether they should take prompt action. (Diana is a contributor of the blog and litigates Law 75 cases. CAB promoted Diana to income partner).

Supplier denied, on waiver grounds or outside the scope of Law 75, attorney’s fees it incurred to confirm arbitration award

In Conmed Corporation v. First Choice Prosthetic, 2023 WL 3647908 (N.D.N.Y. 2023), the Northern District granted the supplier First Choice’s motion to confirm an arbitration award and denied the distributor Conmed’s motion to vacate. Subsequently, First Choice moved to reconsider, arguing it was entitled to fee recovery under Law 75 in the proceedings to confirm the award. The federal court held: 1) that the movant did not meet the high standard for reconsideration under Rule 59(e) and had waived the argument; 2) an award of fees to a prevailing party supplier is discretionary under B. Fernandez v. Kellogg’s First Circuit’s reasoning where the supplier incurred in fees after prevailing in a preliminary injunction proceeding on appeal but had not prevailed by judgment on the ultimate merits; 3) the supplier’s motion to confirm is not a Law 75 action so that fee recovery is not contemplated under Law 75, and 4) in Casco, Inc. v. John Deere Construction, 596 F. 3d 359 (D.P.R. 2022), the District of Puerto Rico held that a distributor prevailing in a Law 75 action was entitled to fee recovery under parameters similar to Title VII or Section 1988 of the Civil Rights Act, and First Choice was no such distributor. Had First Choice preserved the argument, the court would have had to reach the issue whether the principal may recover attorney's fees in a Law 75 arbitration initiated by the distributor, provided it shows bad faith as a prevailing defendant must to recover its fees in a civil rights case.On another note, there is a fee recovery case pending on appeal to keep an eye on. That is, Holsum v. ITW Foods, where a defendant prevailed at trial in a breach of contract case and appealed from the district court’s denial of fee recovery. Essentially, Peerless argues that it is entitled to fee recovery by contract and for temerity under Rule 44.1. See 2023 WL 3479459 (CTA 1). A final observation. Fee recovery litigation has been the norm in civil rights cases. Until Casco v. John Deere and because Kellogg v. B. Fernandez involved the supplier's appeal from a preliminary injunction and not a fee claim by the distributor, there had been no reported cases in fee recovery for merits litigation under Law 75. I predict that with more litigants becoming aware of the standards for fee recovery in Law 75 cases there should be an uptick in collateral fee litigation as is the norm in civil rights cases.

Foodservice distributor loses Law 75 preliminary injunction and tests the boundaries of just cause from a brand consolidation in a case with unusual facts

A ruling on a preliminary injunction is not an adjudication on the merits but a preview of what the merits might bring. José Santiago v. Smithfield Packaged Meats, 66 F. 4th 329 (1st Cir. 2023), is significant for it tests the boundaries of the meaning of just cause from acts or omissions that are not attributable to the dealer. Specifically, when is it just cause for the principal to terminate a dealer’s contract after a bona fide impasse on the essential terms of the distribution relationship? There is a long line of cases on this subject but none on the facts squarely presented here. Santiago is Puerto Rico’s largest foodservice distributor with over $300 million in sales. It had a written exclusive contract for the sale and distribution of packaged meat products marketed and branded under the Farmland label. Smithfield acquired Farmland and merged into Smithfield as the surviving entity. Smithfield had appointed Ballester, another Puerto Rico distributor, for its Smithfield branded meat products. Some of the products that Ballester sold were rebranded Farmland products. Smithfield embarked on a “global SKU rationalization process” with the goal of consolidating brands and reducing product redundancies. Smithfield decided that all products would be marketed solely under the Smithfield brand. Smithfield offered Santiago to continue its exclusive distribution over Farmland until it was withdrawn. Importantly, Smithfield offered both distributors a non-exclusive relationship over the new Smithfield re-branded product lines. Smithfield later offered Santiago exclusivity over seven products that had been carved out from Ballester’s contract, but Santiago refused for it wanted exclusivity over the entire portfolio of 40 products. After an impasse, Smithfield terminated the relationship. The First Circuit disagreed with the District Court’s reasoning on two of three grounds for its denial of the injunction, but it affirmed. First, the court rejected Smithfield’s argument that Santiago had no protected dealer’s contract. It was counterintuitive said the court that, if Santiago performed the statutory functions of a dealer, it would not qualify as such because the parties did not execute the non-exclusive dealer’s contract for the products it continued to sell and distribute after the consolidation. Second, the court rejected Smithfield’s argument that its affirmative consent was essential for a finding of exclusivity from a course of dealings. “Smithfield claims to have continued filling JSI’s orders since February 2021 only “out of courtesy” and in hopes of eventually reaching an agreement. But Smithfield points to no evidence showing that it ever communicated to JSI that it was filling orders out of courtesy on an order-by-order basis, rather than as a continuation of the parties’ longstanding relationship. The parties’ course of dealing is to be defined by their observable behavior, rather than any subjective, unexpressed intent that one of them claims to have had. (citations omitted). And the evidence in the record strongly suggests that Smithfield continued filling JSI’s orders after February 2021 in the exact same manner as it had done before.” Finally, and key to its holding, following the long line of Medina and V. Suarez line of cases, the court affirmed because it held that the supplier had just cause for termination after a bona fide impasse following the consolidation and Santiago’s rejection of a non-exclusive agreement. Santiago’s exclusivity pretensions were unreasonable because the supplier had two distributors in P.R. for competing product lines and granting exclusivity to one over the other would disrupt the established relationships. Importantly, there was no evidence that the consolidation and the termination were done to appropriate the goodwill created by Santiago for the Farmland product line or was otherwise an arbitrary or bad faith decision. “To hold otherwise would be to render perfectly legal corporate and brand consolidations unduly problematic. Here, for example, two distributors apparently each enjoyed distributing similar products under different brands (and at least JSI did so exclusively). Following the brand consolidation, something had to give: Both distributors could not have conflicting rights over the same products. So unless we are to read Law 75 as precluding good-faith brand consolidations, we must conclude that the law allowed Smithfield to attempt to reallocate distribution rights in a manner that acknowledged the interests of both its distributors and its own legitimate interest in making its products available in Puerto Rico. Cf. Borg Warner, Official Translation at 23–24.” The court also discussed other grounds asserted for just cause, such as the timeliness of payments, and the criteria for injunctive relief in Law 75 cases, that are important to consider. In my view, the First Circuit’s opinion on the dealer’s exclusivity derived from its course of dealings implicitly revokes a rationale in Ramos v. Willert Home Products, 2023 WL 234758 (D.P.R. 2023)(Arias, J.), the case I blogged about recently, holding that exclusivity can only arise if the principal affirmatively consents to it. Rather, what counts are the terms of the written contract and the behavior of the parties consistent with exclusivity in performing with or without a written contract. The court’s main holding of just cause from a brand consolidation is both fact-intensive and not susceptible to bright-line rules. For Santiago in this case, losing the injunction is the result of a bad set of facts or aggressive business decisions coupled with the supplier’s business acumen and well-researched legal strategy.

Law 75/21 appeals in the First Circuit’s docket

I’ve identified so far three appeals dealing with Law 75/21 claims in the First Circuit’s active docket. Two appeals are from denials of preliminary injunctions and the other is a direct appeal and mandamus from a remand order. Caribe Chem Distributors v. Southern Agricultural Insecticides, No. 21-1918, appeal from remand order, 2021 WL 5406563 (D.P.R. 2021), raises an underlying Law 75 claim for an alleged breach of an exclusive agreement to distribute insecticides. The appeal raises issues of first impression in the First Circuit whether a remand order based on the so-called voluntary/involuntary rule is appealable. If so, whether the Law 75 principal-defendant can remove the case to federal court after the state court's notice of a final partial judgment granting a motion to dismiss the diversity-defeating Puerto Rico codefendants that created complete diversity for removal. Most federal courts hold that a defendant can only remove in those circumstances if the plaintiff voluntarily dismissed the action against the non-diverse parties because an involuntary dismissal (such as an order granting a motion to dismiss) is appealable (and, in theory, if the losing party wins, the state court could destroy federal jurisdiction after removal). There is a more recent line of out of circuit federal cases going in the opposite direction finding removal jurisdiction. The undersigned represents the principal as lead counsel in that case. The other two appeals raise more directly Law 75/21 issues involving distributor appeals from orders denying preliminary injunctions. Both are reported in this Blog. B. Fernández v. Anheuser Bush, 2023 WL 2776304 (D.P.R. 2023), appeal pend’g, No. 23-1293, (1st. Cir. 2023) and José Santiago, Inc. v. Smithfield Foods, Inc., 2022 WL 2155023 (D.P.R. 2022), No. 22-1491 (1st Cir. 2022) (argued).

Starting an arbitration on the wrong foot after losing a preliminary injunction

There is a risk-reward calculus in the decision whether to move for a preliminary injunction in a civil case. Particularly in Law 75/21 cases, the reward to the distributor can be high because a favorable ruling preserves the status quo ante pending trial. An injunction could forestall a termination or the appointment of a competing distributor for years. It throws a monkey wrench in the principal’s business plans which to resolve requires an appeal, a settlement, or going through years of litigation. But the risks are high to the distributor from losing a preliminary injunction and the practical consequences cannot be overlooked. Losing an injunction means, among other things, that the distributor has not proven its likelihood of success on the merits of its case. While a decision on a preliminary injunction is not an adjudication on the merits, having a federal court hold that the case lacks merit is negative when an arbitrator (or the judge himself/herself) must pass judgment on the same issues with a more developed record or after a trial or hearing. There is less risk, of course, if the trier of fact is a jury but still the distributor would have to survive a summary judgment motion with the same judge who denied the injunction. For these reasons, the strategic decision whether to move for an injunction should not be made automatically or lightly. In B. Fernandez Hmnos. V. Anheuser-Bush, 2023 WL 2776304 (D.P.R. Feb. 2023) (Velez-Rive, J.), appeal pend’g, (1st Cir. 2023), the dispute arose from an agreement to distribute beer in military installations and diplomatic corps facilities in Puerto Rico. The agreement expired on its own terms but the parties stipulated that it continued in effect under the same terms and conditions via “an unwritten extension”. Caveat emptor: the agreement had an arbitration clause. The distributor sued the principal in federal court after termination of the agreement asserting multiple Puerto Rico law claims. Interestingly, the distributor pleaded a Law 21 claim and went all cards in with a motion for a preliminary injunction which it lost but not before the federal court compelled arbitration. The court held that under either New York law governing the agreement or Puerto Rico Law 21 the distributor had not proven the elements for an injunction in aid of arbitration. What I find most significant in this opinion is the choice of law ruling. The agreement had a New York choice of law clause coupled with an arbitration clause. Adopting the Magistrate’s recommendation, the court held that an arbitrator, who was called under the FAA to decide the question, would not under New York law be compelled to apply Puerto Rico law despite “public policy considerations.” Even applying Law 21 to the merits, the distributor would lose because the facts established at the hearing showed that, as an independent contractor, it had no authority to bind the principal which was a sine qua non to find a sales representation relationship. Providing logistical support is insufficient to establish a protected Law 21 relationship. As for irreparable harm, the distributor’s testimony that termination of the agreement had a negative effect on the company was insufficient without proof of loss of goodwill. All other claims failed under New York law. The distributor appealed to the First Circuit. The district court’s ruling, unless reversed, sets the tone if not the roadmap of the arbitration to follow.

De facto exclusive is not what you think it means and there’s a new but not true intra-district conflict

Willert is a manufacturer of household products. In Ramos v. Willert Home Products, 2023 WL 234758 (D.P.R. 2023) (Arias, J.), Plaintiff claimed that, for “over 40 years,” it served as Willert’s exclusive distributor in Puerto Rico and the Dominican Republic. In 2011, Plaintiff delegated some of the distributor’s functions or obligations to another distributor (PRSG) in a contract where the latter assumed distribution responsibilities over the Willert line. Plaintiff retained sales responsibilities and received from Willert commissions on sales. In 2021, Willert notified that it would be unilaterally terminating all sales representation agreements as part of a global business strategy. Plaintiff filed a federal suit claiming damages for termination and impairment of a sales representation agreement under both Law 21 and the Civil Code for breach of contract. Two facts or business decisions would prove fatal to Plaintiff’s case under Law 21. First, the business relationship, if it started in the 1970’s predated the enactment of Law 21, but not Law 75. Second, and possibly more important, Plaintiff’s delegation of its distribution obligations to PRSG meant that it would have had no basis to state a Law 75 claim from the termination. Plaintiff, in effect, ceased being a Law 75 dealer and morphed as a sales representative. Because Law 21 does not apply to the relationship established with Willert before its enactment in 1990, Plaintiff ran out of luck. Whether Plaintiff calculated the risks of losing any protection from Puerto Rico’s relationship laws that the delegation would have is unknown. It all went predictably downhill from there. The court held that Plaintiff could not state an actionable Law 21 claim because the statute does not apply retroactively. That should have been enough to dismiss the case under Rule 12(b)(6) but in dicta the court went further. Applying settled law, the court held that Puerto Rico law does not apply extraterritorially to provide a damages remedy for sales within the Dominican Republic. And, the district court readily dismissed the breach claim under the Civil Code for the contract was terminable at will. As the final dagger in the distributor’s heart, and breaking stride with the Homedical v. Sarns, 875 F. Supp. 947 (D.P.R. 1995) line of cases, Judge Raul Arias in dicta determined that the complaint also failed to plead the elements of exclusivity required by Puerto Rico Law 21. The complaint failed to allege an exclusivity contract, or an exclusive arrangement agreed by the parties. This was unncessary to the court's decision since it held that Law 21 did not apply to the agreement. It is insufficient, says the court, to conclusorily allege a de facto exclusive relationship even over decades without ostensible facts proving that the principal consented or acquiesced to it. Those overt intentional acts (not pleaded in the complaint) tending to show an exclusive course of dealings would include the supplier’s communications recognizing exclusive rights or refraining from selling product to other distributors, among others. The court relied on IOM Corp. v. Brown Forman, 627 F. 3d 440 (1st Cir. 2010), but it seems distinguishable. In IOM the parties had executed a written and integrated non-exclusive agreement, so proving exclusivity from a course of dealings was legally problematic. What is remarkable is the notion that an exclusive course of dealings over decades without an integrated and complete written agreement as in this case would apparently not be, by itself, enough to survive a motion to dismiss. The court's rationale about the meaning of exclusivity reflects viewing exclusivity as a restriction on the principal’s autonomy as opposed to a right or legitimate expectation derived by the distributor from a continuous course of dealings. The court prioritizes the principal's expectations over the distributor's to give no credence to the alleged course of dealings at the pleading stage. But the court’s rationale ignores the commercial reality that principals derive benefits and tangible value from a sole distributor’s investments and efforts acting as if the relationship was in fact exclusive and there would be no intrabrand competition. The court’s decision conflicts with Homedical (among others), a Law 75 case decided on summary judgment with a developed record but importantly where the principal never acknowledged plaintiff’s exclusivity despite years of an exclusive course of dealings. Judge Arias' ruling might spill over in Law 75 litigation in the months and years ahead.