Intermediaries in the distribution chain are not principals or grantors and Law 75 liability cannot attach to them

In Meta Med, LLC v. Insulet Corporation, 2024 WL 1763610 (D.P.R. Apr. 23, 2024) (Vélez-Rivë,J.), following a termination and the appointment of another distributor, a Puerto Rico reseller Meta Med and an individual sued a medical device company and two stateside wholesalers asserting claims under Laws 75 and 21. Plaintiffs alleged to have signed separate written agreements with defendants to provide training and resell diabetes products and services. Plaintiffs’ flawed theory of the case was that there were multiple principals and defendants were jointly liable. In short order, the court granted the defendants-wholesalers’ motion to dismiss. Citing Romero v. ITE, 332 F. Supp. 523 (D.P.R. 1971), the court held that Law 75 limits liability to the principal and grantor and not third parties. Based on the allegations, the court found that the wholesalers stopped selling products to plaintiffs at the principal Insulet’s request and control. As intermediaries and not principals, the wholesalers were not liable under Law 75. Because plaintiffs had no actionable Law 75 claim against these defendants, the claim for breach of a duty of good faith and fair dealing failed as well. As to Insulet, the court enforced a mandatory forum selection clause of Massachusetts in the agreement with plaintiff Mercado and dismissed certain claims. Notably, the court held that Law 75’s public policy considerations cannot override the benefit of the bargain in the valid choice of forum provision. The Law 21 claim did not survive as the statute requires exclusivity and Plaintiffs conceded the relationship was nonexclusive.The only claim that survived, and remained pending for a preliminary injunction hearing, was plaintiff Meta Med’s termination claim against Insulet, whose agreement apparently did not have a choice of forum provision.

Federal court rejects multiple tolling theories to resurrect a previously dismissed and stale Law 75 impairment lawsuit

Air-Con v. Daikin, 2024 WL 1016184 (D.P.R. March 8, 2024)(Raul Arias, J.), is instructive for its rejection of multiple tolling theories of Law 75’s caducity period. The case illustrates the risk of suing, voluntarily dismissing, and then refiling the same claims dressed as a new action years after the caducity period expired. A Puerto Rico dealer of air conditioners sued in 2018 asserting impairment claims under Law 75 that arose in 2013, except for one claim concerning the elimination of a mini split air conditioning line. Based on the three-year caducity period, the court granted the defendant’s motion for summary judgment and dismissed the complaint as time barred. The court considered plaintiff’s prior complaint which specifically alleged the same impairment acts and all arose in 2013 or 2014. The new lawsuit was a continuation of the identical prior lawsuit for claims that were time barred in 2018 and not tolled. The court rejected plaintiff’s arguments of equitable estoppel on the facts for plaintiff was not lulled by not suing during the entire limitations period. In any event, no state court case supported applying that defense in the context of Law 75. The court also rejected an argument that Daikin acknowledged a legal obligation to the distributor sufficient to toll the limitations period or the purported acknowledgements were irrelevant or untimely. Finally, the court held that plaintiff’s voluntary dismissal of the prior lawsuit did not legally toll. And, the continuing violations doctrine did not apply because a contract breach is a single and readily ascertainable event. As to the remaining Law 75 claim, it held that the principal’s elimination of the mini-splits did not breach any contract and could not be actionable as an impairment claim. Finally, the court dismissed in part Daikin’s counterclaim seeking a declaration of just cause for termination holding that the claim was not ripe as it was premised on events that have not come to pass. The court set the counterclaim for collection of monies for trial as there was a dispute as to whether monies were due and owing. Author's Note: The court’s dismissal of the declaratory judgment count may clash with General Motors v. Royal Motors Corp., 769 F. Supp. 2d 73 (D.P.R. Feb. 1, 2011)(Gelpí, J.). There, 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. 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.

The First Circuit adopted the so-called voluntary-involuntary rule challenged in a Law 75 removed case

In Caribe Chem Distributors, Corp. v. Southern Agricultural Insecticides, Inc., ---F. 4th ---, 2024 WL 1089653 (1st Cir. Mar. 13, 2024), the First Circuit adopted the voluntary-involuntary rule to remand an alleged Law 75 case back to Puerto Rico’s local court. The defendant removed the case to federal court for complete diversity after the state court partially granted a motion to dismiss all the diversity defeating co-defendants. The voluntary-involuntary rule is a judicially created doctrine that forbids removal to federal court of diversity cases when the order or judgment creating removal jurisdiction is involuntary in the sense that plaintiff did not consent to it (such as an order granting a dispositive motion) but permits removal when the order or judgment is voluntary, such as a plaintiff’s voluntary dismissal of diversity defeating defendants. The reason behind it is that the plaintiff may appeal from an order granting a dispositive motion dismissing a party and if the case is removed and the state appellate court later reverses there is a “yo-yo” effect where diversity jurisdiction would be destroyed after removal. In other words, the case should not have been removed because the order creating diversity was found to be erroneous. But that yo-yo effect never happens if the dismissal is voluntary because plaintiff cannot appeal or the order is unreviewable, and no state appellate court can reverse to destroy federal jurisdiction. This rule has a long history in federal common law established from court decisions since the 1900’s. In 1949, Congress amended the removal statute, 28 USC 1446(b), clarifying that a defendant may remove a case that was not originally removable within 30 days from notice of the initial pleading, but becomes removable at a late stage of the proceedings. In any event, the statute says that the case cannot be removed after more than a year from the commencement of the state court action unless the plaintiff acted in bad faith. The statute provides that the defendant may remove the case within 30 days from an order from which it may first be ascertained that the case becomes removable. The defendant argued that the statute’s plain text did not define or distinguish the type of order for removal or account for a plaintiff’s consent or lack thereof. In Caribe Chem, the First Circuit conceded that the statute on its face may be read “broadly” to permit removal at a late stage of the case from an order first creating removal jurisdiction, such as the order granting the motion to dismiss. But, without finding any ambiguity in the text of the law, the court delved into passages of legislative history in a House Report that Congress was clarifying existing law when it amended the removal statute in 1949. From this proof, the court held it was bound to presume that Congress would not have repealed decades of the common law’s voluntary-involuntary rule unless there was a clear directive to the contrary, and it found none. Finding support in all the other sister circuits that had decided the issue, it held that the case was not removable. In the context of a post-judgment Rule 60(b) motion in the district court, the First Circuit declined to accept the defendant’s argument that the plaintiff’s decision not to timely appeal the dismissal order was the functional equivalent of a voluntary dismissal. Finally, I should note that the First Circuit recognized the fraudulent joinder exception to the voluntary-involuntary rule but did not apply in this case. The larger question, at least to me, remains: when is it proper to resort to interpretive aids or apply a presumption that the law is not intended to change federal common law, when concededly, as in Caribe Chem, the law that Congress enacted is not ambiguous and can be read broadly to reach a different result? Caribe Chem may have created a slippery slope that the clear and unambiguous text of a law is not enough to understand what Congress intended and opens the door to searching for common law doctrines. Caribe Chem's holding is hard to reconcile with the Supreme Court’s originalism or textualism. Note, I argued the appeal for the defendant.