Some cases or appeals just leave me wondering….

Smart Distributors, an alleged distributor, alleged that Garraton, a Puerto Rico distributor, contracted with it verbally to serve as the distributor in Puerto Rico of many pharma products manufactured by Haleon. Smart v. Garraton, 2024 WL 5348678 (TA Dec. 13, 2024). Smart alleged that, for over a year, it performed promotional services and closed sales contracts with customers worth over $2 million in sales. Garraton suspended sales to Smart alleging that Haleon had prohibited it (where’s the antitrust claim for collusion?). Smart sued both defendants apparently only under Law 75. The trial court denied Haleon’s motion to dismiss and appealed on various grounds, first, that Smart was not a Puerto Rico distributor, and even if it was, that it had just cause. The appellate court denied certiorari basically holding that interlocutory appeals of this sort should wait until the record is more fully developed. I would have thought that who qualifies for protection as a Law 75 dealer and the existence of just cause are factually-intensive issues which almost never are susceptible to a dismissal on the pleadings. Or Halceon may have believed that its argument that it had no contractual relationship at all had more traction, but belied by the allegations that there was substantial commercial activity pre-termination suggesting the establishment of a dealer or sub-dealer relationship.

Puerto Rico distributor loses tortious interference case

Ballester Hermanos, a Puerto Rico distributor, had a verbal exclusive distribution agreement with Brugal rum since 1990. In 2008, Edrington acquired 60 % of Brugal’s shares. Ballester Hmnos v. CC1 Beer Distributors, 2024 WL 4369162 (TA Aug. 5, 2024). The existing distribution relationship continued after the acquisition. In 2019, Edrington decided to terminate the relationship with Ballester and transfer it to CC1, its primary distributor. Brugal did not continue to supply products to Ballester. It is not clear from the opinion if Ballester sued Brugal and Edrington under Law 75 in another forum or venue. In the state court, Ballester sued CCI and Edrington Americas for tortious interference. The TPI granted defendants’ motions for summary judgment and the appellate court declined to review. The outcome that followed is hard to follow. CCI prevailed on the theory that its appointment occurred after Edrington had terminated the agreement with Ballester so it could not have interfered with an existing contract. This result is at odds with current doctrine that a Law 75 agreement continues in operation indefinitely by law and public policy until and if the principal proves just cause. As to Edrington Americas, the court held that it was in fact the principal, and as such, it was not a third party to the contract capable of tortious interference. This was so despite Edrington’s admission in the pleadings that it was a third party to the contract. But as a purported legal admission the court did not find it binding as are factual admissions, and therefore, was disregarded. The appellate court expressly did not pass on claims or issues under Law 75 because it was not asserted in the pleadings. My impression is that stand-alone tortious interference claims are difficult to prove without joinder of the principal as a necessary party or absent the assertion of Law 75 claims in the same suit.

There is a clear conflict between First Circuit authority and a judgment of Puerto Rico’s intermediate appellate court interpreting when Law 75's three-year caducity period begins to run for filing suit

Law 75’s public policy comes into play in finding that certain contractual provisions cannot waive Law 75’s protections and applying statutory presumptions of lack of just cause. But Law 75’s strong public policy protecting Puerto Rico dealers has not received the weight that it rightfully deserves when computing the time to file a suit, until now. The time to file suit provision under Law 75 is of caducity, which means that for mercantile obligations only a judicial action can toll the claim. Other extrajudicial tolling methods in the civil law- that are far less adversarial- are legally ineffective. Being a public policy law it should be compelling to exercise restraint before finding that the dealer loses its rights unless it sues. In Healthy Air Masters, Inc. v. Motopac Corp., KLCE2024-00719, 2024 WL 5152889 (TA November 21, 2024) (Panel composed of Hon. Aldebol Mora, Adames Soto, and Bermúdez Torres) ("Healthy Air Masters"), the Judgment held that an impairment claim under Act 75 of an exclusive distributor agreement from a course of dealings was not time barred. In Healthy Air Masters, the defendants appealed by certiorari of a decision of the Court of First Instance ("TPI"), Superior Court of Bayamón, denying a motion for summary judgment on the grounds that claims were time-barred under Law 75. The distributor-plaintiff alleged, among other things, in its complaint filed in 2020 and amended in 2021 that it was the exclusive distributor in Puerto Rico of the principal's "Vital Oxide" products and filed claims for tortious interference and impairment under Act 75 of the existing exclusivity relationship. In addition, the distributor alleged that it was not until May 2020 that it learned of a massive advertisement campaign where the third party co-defendant, with the authorization of the principal, offered the exclusive product for sale. Id. at p. *1. The principal argued, in its motion for summary judgment, that the lawsuit was time-barred for the term of three years in Law 75 accrued in 2017 when it ended the exclusivity relationship, three and a half years before filing the lawsuit. Id. at p. *2. For its part, the distributor retorted that the parties continued to behave as if they maintained an exclusive relationship until 2020 when the principal sold the exclusive product to the other distributor. Id. The trial court denied the motion for summary judgment and made certain disputed and undisputed facts. The appellate court agreed with all the undisputed and disputed material facts except for one fact relating to purchase prices which it amended as disputed. Id. on page *11. With regard to the core issue of caducity, the appellate court did not attribute legal effect to the undisputed fact that in 2017 the principal informed the dealer of the termination of its exclusivity. Id. To evaluate the calculation of the term, said the court, "the subsequent conduct of the parties must be evaluated...". Id. on page *13. The relationship of exclusivity may continue de facto or the relationship may become a non-exclusive one, but, in any case, there is a cause of action for impairment depending on the facts of each case. Id. The prescription is activated by the realization of the act of impairment of the relationship that subsists. Id.; 10 LPRA Sec. 278d (the three-year term counted from "... the realization of the acts of impairment").In its relevant part, the TA resolved that: [I]t cannot conclude that where an exclusive distribution relationship exists, the mere announcement of the end of exclusivity deprives the distributor of any cause of action by prescription when they engage in commercial relations subsequently. Failing to take into consideration the acts subsequent to the notification of the termination of the exclusive business relationship would frustrate the purposes of Act No. 75 outlined, to the detriment of local distributors who, through their business management, manage to establish a market, while allowing abusive practices of the principals. Contrary to what the petitioner asserts in its appeal, the documentation before us is not sufficient to rule out that such a relationship prevailed beyond the date on which the email of December 12, 2017 occurred, so it remains a core fact that deserves to be elucidated through a plenary trial." Id. at *13. (emphasis added). Finally, the TA granted the writ of certiorari and affirmed the resolution denying the motion for summary judgment.