Saturday, December 11, 2010

The First Circuit applies Iqbal’s plausibility standard to affirm the dismissal of a Law 21 claim and compel arbitration of claims for breach of contract and implied duty of good faith and fair dealing.

In Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) the Court heightened pleading requirements holding that “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”

In IOM Corporation v. Brown Forman, slip op., No. 09-1672 (1st Cir. Dec. 2, 2010), the opportunity presented itself for the First Circuit to review an order granting a motion to dismiss under FRCP 12(b)(6) a claim brought under Law 21. A detailed recital of the facts is appropriate as this noteworthy case presents a host of issues that come up regularly in distribution cases in Puerto Rico involving allegations of exclusivity, parole evidence, and integration clauses.

There, the broker Caribbean alleged that it had entered into oral agreements with Brown Forman’s predecessor to promote Finlandia vodka and Jack Daniels whisky in Puerto Rico. Subsequently, the parties entered into promotion agreements on a commission basis. The promotion agreements had integration and completeness clauses which, in effect, superseded the prior oral agreement with Brown Forman’s predecessor.

What prompted the lawsuit was that Brown Forman decided to restructure its operations in Puerto Rico and offered Caribbean to serve as its exclusive broker, but this arrangement would have permitted Brown Forman to open a sales office in Puerto Rico. Negotiations failed and Caribbean brought suit in local court since removed to federal court. Caribbean asserted claims for breach of an alleged oral exclusive contract, wrongful termination under Law 21, breach of contract and breach of the duty of good faith and fair dealing. After holding a hearing on Caribbean’s application for a preliminary injunction and denying injunctive relief, the federal court (Besosa, J.) dismissed the Law 21 claim and ordered arbitration of the remaining claims.

The First Circuit agreed with the District Court that the Law 21 claim was not plausible on the facts alleged. The court, citing Puerto Rico Supreme Court precedent, noted that the elements of a Law 21 claim require obligations to promote and expand the market in a territory for the principal’s products in exchange for a commission, as well as an appointment of exclusivity.

First, the court concluded that the promotion agreements met none of the elements except the payment of commissions. Caribbean attempted to vary the clear terms of the agreements with extraneous evidence. Though the court recognized that the parole evidence rule had been repealed, in dicta, it suggested that the legal effect would be the same under Article 1233 of the Civil Code whose mandates requires observing the literal terms of a clear and unambiguous agreement. Even considering extrinsic evidence, the court concluded that Caribbean did not have authority to close sales orders on Brown Forman’s behalf, an essential element of a Law 21 claim, and did not allege sufficient facts to prove that the relationship was exclusive.

On the exclusivity element, the court held that it is “generally apparent either from the contract or from the arrangements agreed upon by the parties.” Where Iqbal comes in, is that the court concluded that the allegations of exclusivity were conclusory. There were no facts pleaded as to the scope of exclusivity and no allegation was made that Brown Forman had made any “assurances” that would support the contention that “no other sales representatives were allowed to sell the products in Puerto Rico.” The integration and completeness clauses were material to defeat the argument that extrinsic evidence existed that contradicted the plain terms of the promotion agreements (which were not exclusive on their face). On these facts the court affirmed the dismissal of the Law 21 termination claim of a purportedly oral exclusive agreement.

Turning to the arbitration issue, the court rejected the argument that the breach of contract claim arose from a non-arbitrable oral agreement. With the broad "arising under and related to" arbitration clause in the promotion agreements, all related claims of breach of contract and bad faith were arbitrable under the AAA in Louisville, Kentucky. The court held that all claims arose from the termination of the promotion agreements which have valid and enforceable arbitration clauses. As to the choice of forum, the court found that Caribbean had waived the argument that it was unenforceable under Law 21 for lack of a developed argumentation. As a matter of law, the court enforced the arbitration agreements and dismissed the claims.

Last but not least important, the court affirmed an award of attorney’s fees of $23,456 for temerity against Caribbean. It was significant to affirm the award under plain error review since Caribbean failed to object to the itemized and verified statement of fees. The court affirmed the judgment in its entirety.

Tuesday, November 23, 2010

A complaint with a Law 21 claim was properly removed to federal court after satisfying the minimum jurisdictional amount for diversity jurisdiction.

I have witnessed a trend by franchisees, distributors, and sales representatives of doing everything in their means to avoid litigation in federal court of their claims brought under Laws 75 and 21. At first glance, the strategy seems perplexing particularly when there is a right to trial by jury in federal court (but not in local Puerto Rico courts); and generally, federal courts are quicker to judgment. Deep down, however, the issue of forum selection is more complex and the decision of where to sue is influenced by many factors. For example, local courts are more inclined to deny motions for summary judgment in part due to the Supreme Court of Puerto Rico’s procedurally stringent standard for summary disposition. By the same token, federal courts have developed over the years a body of jurisprudence in distribution cases that provide support for the granting of motions in limine to exclude or limit expert testimony and allow more readily summary judgment for principals in certain cases. Whether it is perception or reality the fact remains that Plaintiffs implement a number of tactics to avoid the federal court in these cases including the “fraudulent” joinder of a diversity-defeating co-defendant, a Puerto Rico distributor, or the subsequent filing of a similar action in local court when a “first-filed” case was pending in federal court against the same parties. And, suing for less than the jurisdictional amount may get a party out of federal court, too (or not!).

The case under discussion, Ramirez de Arellano v. Budenheim USA, Inc. 2010 WL 3810078 (D.P.R. Sept. 22, 2010)(Perez-Gimenez,J), presents the anomaly where the Plaintiff alleged that his damages were lower and the Defendant alleged that his actual economic damages were higher. There, Plaintiff, a sales representative in a case brought under Law 21, alleged on the face of the complaint less than the jurisdictional minimum of $75,000 when Law 21 would have allowed a claim for recovery of a greater amount of damages. Defendant removed the case to federal court. Plaintiff moved to remand alleging there was no subject matter jurisdiction. Defendant opposed the remand contending that, at relevant times, Plaintiff had a sales volume of $1.6 million and that Law 21 permitted recovery of 5% the total sales volume plus loss of goodwill and other damages.

Faced with conflicting allegations, the court determined that Plaintiff, who represented Defendant over a 20 year-relationship (presumably Law 21 would not have applied unless an extinctive novation occurred-an issue not addressed by the parties or the court at this time), would be entitled to potential recovery of at least $80,000. Since it is not a legal certainty that the claim involves less than the jurisdictional minimum, the court denied Plaintiff’s motion to remand and set a briefing schedule for Defendant’s motion to dismiss.

Wednesday, November 17, 2010

Another victory for principals: are forum selection clauses enforceable in Law 75 cases?

Not automatically, but almost always. Puerto Rico Surgical Technologies, Inc. v. Applied Medical Distribution Corp., 2010 WL 4237927 (D.P.R. Oct. 26, 2010)(Pieras, J.) is no exception. There, the parties executed a distribution agreement with a California choice of law clause and a mandatory forum selection clause vesting California federal and state courts with exclusive jurisdiction. Plaintiff filed an action for damages under Law 75 in local court, which was then removed to federal court. Finding no difficulty in enforcing the forum selection clause under federal or Puerto Rico law, the court granted a motion to dismiss the complaint without prejudice. Distinguishing the First Circuit’s Combraco decision as dicta (reported in my previous blog) suggesting that Law 75’s public policy disfavoring litigation outside Puerto Rico may outweigh the federal interest in enforcing a forum selection clause, the district court held that enforcement of the forum selection clause in this case did not contravene an important public policy of Puerto Rico, was negotiated freely, and was not otherwise unreasonable. At least where the parties and the facts underlying the claims have a sufficiently close nexus to California, the court will not invalidate a forum selection clause simply because of Plaintiff’s inconvenience in litigating outside Puerto Rico.

Wednesday, October 13, 2010

Puerto Rico's Dealer and Franchise Statute Adapts to the Latest Developments in Law, Commerce and Technology

My partner Manuel Pietrantoni and this author published the referenced article on Law 75 in Volume 30, Number 1, of the Franchise Law Journal of the American Bar Association (Summer 2010). The legal currents under Law 75 addressed in the article include transfers, assignments or acquisitions, product sales diversion, constructive termination and preemption under federal copyright and trademark laws.

For those curious about the topics covered in the article, feel free to contact us at or

Stay current stay relevant!

Sunday, October 10, 2010

Puerto Rico’s Legislature moves to regulate franchising: is Law 75 inadequate?

El Nuevo Dia, Oct. 9, 2010 at 44, reported that representatives of a group of eight McDonald’s franchisees testified at a Commission of the House of Representatives to urge the passage of legislation to regulate unfair franchising practices. The hearing came about because McDonald’s franchisor sold its franchise rights or assets in Puerto Rico to “Arcos Dorados” an entity who is said to have refused to renew the franchise agreements and retaliated against the eight franchisees that complained to the press about alleged abusive franchising practices. There is ongoing litigation in Puerto Rico’s Court of First Instance, San Juan Part over this subject matter, including allegations that Arcos Dorados has failed to participate in coop advertising programs and allowed the establishment of competing restaurants in the territories of the existing franchisees. The Committee’s President allegedly remarked that the need to regulate franchising in Puerto Rico is “urgent and necessary.”

Is it urgent and necessary? Many states have statutes with disclosure requirements when franchisors offer to sell franchise rights for a fee. But problems with disclosures do not appear to be prominent in the McDonald’s dispute, at least as far as we are able to tell from the article. Many statutes in the states similar to Law 75 regulate abusive or unfair practices in dealer relationships, including franchising. Is the necessity to regulate a franchise based on a perceived notion that retail food establishments lack the protection of dealers under Law 75? It could be. But, there is no hard, fast, and absolute rule or statutory exclusion that retailers do not qualify for protection as Law 75 dealers. Who is a dealer turns on the facts and circumstances of each case. Is there another concern that an acquiring franchisor (or the seller) may impair at will the existing franchise agreements without violating Law 75? On this point there is a body of developed case law under Law 75 defining the rights and obligations of those selling and acquiring dealership rights.

Before the Legislature moves hastily to pass legislation it should consider whether or not Law 75, as enacted, is sufficient to protect the rights of franchisees.

Monday, September 27, 2010

“Muddied waters” or not, Law 75 claims for termination of exclusive distributorship and tort damages are arbitrable

It is unremarkable that the Federal Arbitration Act enforces written arbitration agreements involving Law 75 claims. Unless the movant (the dealer) seeks to invoke the district court’s limited power to issue a Teradyne injunction in aid of arbitration, claims for injunctive relief fall in the hands of the arbitrator. Next Step Medical Co. v. Johnson & Johnson International, No. 09-2077 (1st Cir. Aug. 30, 2010) is one of those cases. What is peculiar about the case is the appeal from the District Court’s judgment dismissing with prejudice a tort claim for emotional distress as not viable in a contract action, despite a Magistrate’s prior recommendation that the entire action was arbitrable. Despite the First Circuit's statement that the district judge “muddied the waters” by dismissing the arbitrable claims with prejudice, the appellate court sanitized the Judgment and concluded that the dismissal with prejudice meant the claims could not be brought in court; but rather, the claims survived on the merits for arbitration. After a removal to federal court, a still born request for injunctive relief, the lost appeal, years of litigation, the dealer was forced to arbitrate as required by the clear and broad arbitration agreement.

Friday, September 17, 2010

First Circuit enforces forum selection clause in agreement protected by Law 21

Puerto Rico Law 21 protects sales representatives from unjustified actions by their principals, much like Law 75 protects dealers. Law 21 provides that, regardless of a contractual provision to the contrary, sales representation agreements covering the Puerto Rico territory shall be governed by Law 21 and no such agreement can be terminated without just cause.

The agreement in the case had both a choice of law clause providing for North Carolina law and a compulsory choice of forum provision for litigation in North Carolina. The principal terminated the agreement and, after removal of the dealer’s complaint to federal court, the district court enforced the choice of forum clause granting a Rule 12b6 motion and dismissed the action without prejudice.

In Barril v. Combraco Industries, No. 09-2163 slip op. (Sept. 8, 2010), the First Circuit affirmed. The court followed the federal standard in Bremen v. Zapata, 407 U.S. 1 (1972), and skirted the issue whether enforcement of a forum selection clause is procedural or substantive, noting that both Puerto Rico and North Carolina follow the Zapata standard. Appellant argued that enforcement of the clause, under Zapata’s fourth prong, was invalid because it contravened the strong public policy of the forum behind Law 21. The court disagreed. The court noted that Law 21 does not by its terms forbid the enforcement of a choice of forum clause, but only a choice of law clause insofar as it “would prevent Law 21’s substantive protections from being given effect.” (citation omitted). The court rejected the argument that North Carolina law precludes courts from giving effect to the laws of another state or territory, so that North Carolina courts are just as capable to enforce Law 21 to the extent that it otherwise applies despite the choice of law clause.

Author’s note: Combraco paves the way to enforce choice of law clauses of states other than Puerto Rico to the extent those laws otherwise apply. PR Law 21 presumptively governs the substantive aspects of the contract’s termination and resulting damages, but other substantive aspects governing other claims or the interpretation of the agreement would be governed by the chosen law when not offensive to Law 21. As to Law 21’s preemption, the analysis is circumscribed to contractual provisions that render Law 21’s substantive protections inoperative. That is, where an agreement permits termination without cause or disallows any recovery of compensatory damages to an exclusive sales representative there would be preemption under Law 21. Where the agreement is not contrary to express substantive provisions in Law 21 (or Law 75 for that matter) or when consistent with those laws, it is likely that the chosen law of another state will apply to govern the enforcement of those other provisions in the agreement. If the agreement were to be governed by Puerto Rico law, then the Civil Code, or other provisions of the Commerce Code, would oversee the enforcement of provisions not expressly governed by Laws 21 or 75. An example is the Supreme Court of Puerto Rico’s recent case holding that the enforcement of a non-compete provision in a franchise agreement (to which Law 75 applies on its face) is governed by the Civil Code as Law 75 is silent on the issue. With Combraco, it remains to be seen if there is a change in the body of federal cases enforcing forum selection clauses despite Law 75’s express prohibition and what weight will be given to Law 75 under Zapata. My prediction is that the strong federal law interest to enforce reasonable forum selection clauses under Zapata (and the Federal Arbitration Act when the clause requires arbitration outside Puerto Rico) will continue to continue to override Law 75’s public policy interests.

Sunday, August 29, 2010

Appeals Court affirms judgment under Law 75 awarding damages for five-years of lost benefits and goodwill to exclusive distributor for constructive termination or impairment.

Appellate court decisions in Puerto Rico are persuasive authority in the application and interpretation of Law 75. One such case is Cadierno Corporation v. Rowland Coffee Roasters, 2010 WL 3168203 (TCA April 30, 2010) where plaintiff Cadierno, an exclusive distributor of branded Café Estrella premium coffee, brought a claim for damages under Law 75 against its principal Rowland when the latter introduced Café Pilon, an essentially identical branded premium coffee, through a subsidiary at prices below the distributor’s costs. The distributor opened the market and clientele for Café Estrella, as the exclusive distributor, with the expectation that, once a controversy as to the ownership of the Café Pilon brand was resolved, it would also distribute Café Pilon in Puerto Rico. The parties negotiated the exclusive distribution of Café Pilon, but did not reach an agreement. After Rowland introduced Café Pilon in Puerto Rico through a subsidiary at predatory prices, the distributor decided to discontinue purchases of Café Estrella for it alleged that it was driven out of the market and sales of Café Pilon has in effect cannibalized sales of Café Estrella.

Claiming that the principal’s acts impaired and terminated the exclusive relationship by appropriating the goodwill and clientele created for Café Estrella, the distributor sued in local court under Law 75. After trial, the local court (Bayamon Part) found in favor of the distributor, credited the testimony of the distributor’s expert (Ronald Martinez), and awarded damages for lost benefits, loss of goodwill, attorney’s fees and costs.

Interestingly, the distributor’s expert computed lost benefits from the impairment based on the criteria normally used in termination cases under Section 278c, by computing profits on the line for the prior five years and discounting, as mitigation, the profits realized on sales of Café Estrella until the distributor abandoned the line.

The principal challenged on appeal the sufficiency of the evidence of impairment and constructive termination; the finding of lack of just cause; the determination of damages from the trial court’s decision not to impute fixed and administrative costs from the award of damages; the finding of loss of goodwill; finally, it contested the imposition of attorney’s fees, expert witness fees and costs.

The principal lost as the appellate court affirmed the judgment on all counts. The court held that the decision to introduce Café Pilon, a premium coffee that was substantially the same as Café Estrella, through a subsidiary at prices below the distributor’s costs impaired the exclusive contract over Café Estrella and caused damages to the distributor in violation of both Law 75 and the principle of good faith and fair dealing.

Note: Cadierno reinforces Law 75’s remedial purpose when the principal seeks to appropriate the clientele and goodwill created by the exclusive distributor by introducing a new brand or product line extension through a third party or an affiliate. It is even more significant considering that the distributor abandoned the line voluntarily and was not terminated in fact by the principal. It should be noted that Cadierno finds an impairment of an exclusive contract although the parties had not reached an agreement over the new brand or product line extension. The impairment with the exclusivity over Café Estrella came about because of cannibalism that resulted when the principal introduced Café Pilon to compete and displace Café Estrella in the territory. Finally, Cadierno validates the distributor’s expert’s methodology that five-years of benefits are not limited to termination cases.

Thursday, July 29, 2010

Impairment, de facto exclusivity, nature of relationship, business terms after expiration of written agreement and assumption by successor in interest, present triable issues of material fact precluding summary judgment for the principal under Laws 75 and 21.

Beatty Caribbean, Inc. v. Nova Chemicals, 2010 WL 2697163 (D.P.R. July 6, 2010)(CVR), underscores the risks under Puerto Rico’s distribution laws that a principal assumes from doing business with an agent after expiration of a written agreement.

Beatty filed suit in federal court for impairment of an alleged verbal exclusive agreement when the principal, the successor in interest, sought to reduce the payment of commissions on the sale of Styrofoam products from 5% to 3% allegedly without just cause under Laws 75 and 21.

Beatty had been a non-exclusive representative of non-party Arco under a written agreement for many years until defendant NOVA later acquired Arco’s assets in 1996. The agreement provided a 5% commission and had a term of one year. Beatty’s 1990 agreement with Arco was not part of the assumed contracts in the acquisition.

Without entering into a new written agreement and not expressly assuming the expired contract between Arco and Beatty, NOVA and Beatty allegedly entered into a verbal exclusive agreement in the 1990’s. Beatty’s proof of exclusivity relied on a course of dealings as it alleged that it was de facto the sole distributor in the Caribbean and Puerto Rico and NOVA had not appointed another distributor in the exclusive territory. The court found it was undisputed that when NOVA acquired Arco’s assets “there was no change or alteration in any of the terms and conditions of dealings with Beatty.”

Nova moved for summary judgment on two grounds, one that Beatty did not qualify as a Law 75 dealer and two, it was not an exclusive sales representative for coverage under Law 21. The court found there were controversies of material fact precluding summary judgment. “Since there is no written contract in effect as to what was the extent, provisions or understanding of the verbal contract between the parties in the present controversy, once it is ruled and determined based on credibility determination, it would then be legally possible to determine if their business relation may fall under Law 75 or 21, or none.”

Where there is no integrated written and expressly non-exclusive agreement in effect at the relevant time of the impairment or termination by the successor in interest, this and other cases prove that an agent claiming protection under Laws 75 and 21 may avert summary judgment with extrinsic evidence of a verbal distribution or representation agreement and a course of dealings of de facto exclusivity.

Tuesday, July 13, 2010

AAA Arbitration Damages Award under Law 75-republished

In a previous blog on June 12, 2009, I commented about a final award in a Law 75 dispute issued by a three-member Panel under the auspices of the AAA. While arbitration awards have no precedential value beyond the parties or their privies in the dispute, a Panel’s reasoning may be persuasive in cases brought under Law 75. Arbitration awards may be publicly available through special databases in Westlaw and Lexis. The award at issue here was filed in a subsequent enforcement proceeding in federal court and is republished in full in the link below.

Thursday, July 1, 2010

Does Law 75 govern the validity of a non-compete obligation in a franchise agreement when it does not specifically regulate the conduct at issue?

Plain language provides that a “distribution contract” includes the relationship established to distribute merchandise or provide a service by means of a “concession” or a “franchise” in the Puerto Rico market. 10 L.P.R.A. Sec. 278(b). It is plain that Law 75 applies to a franchise agreement.

But does Law 75 regulate the enforceability of contractual provisions in a franchise agreement without the triggering event of a termination or impairment or where Law 75 is silent on the issue?

At least with respect to a non-compete obligation in a franchise agreement, the answer is No. In Franquicias Martin’s BBQ v. Garcia de Gracia, 2010 TSPR 71 (P.R. May 10, 2010), the Supreme Court of Puerto Rico invalidated a non-compete provision in a franchise agreement, not under Law 75, but applying the Civil Code. The Civil Code provides that agreements are enforceable on their terms unless contrary to good faith, "morals" or public policy. Finding no provision in Law 75 that regulates the validity of a non-compete agreement, and suggesting that Law 75’s public policy is not implicated without an unjustified termination of the agreement, the court turned to the Civil Code, which is the primary source of law.

In the opinion, the court relegated Law 75 to a footnote (n. 10): “Law 75 of June 24, 1964, as amended, 10 L.P.R.A. Sec. 278, is limited to regulating the termination or non-renewal of a distribution contract without just cause, and is applicable to those persons that fit within the imprecise definition of a distributor.” (translation ours).

The court could not have meant that Law 75 does not apply to franchise agreements because the statutory definition of distributor is “imprecise”. After all, plain language in Law 75 includes a franchise relationship within the definition of a distribution contract.

What the court does suggest is that Law 75 does not come into play merely because a distribution or franchise agreement is at issue in the case. The court’s opinion suggests that Law 75 would not apply where: 1) the agreement has not been impaired or terminated without just cause, or 2) there is no provision in Law 75 specifically governing the legality of the contested provision at issue (in that case, the non-compete obligation).

Thus, for example and consistent with existing case law, a provision in a distribution agreement allowing the unilateral or automatic termination, non-renewal, or expiration of the agreement clashes with the specific provision in Law 75 expressly requiring just cause. Law 75 would apply in that situation as the contractual provision violates the statute and public policy requiring just cause.

On the other hand, the court’s opinion leaves room for argument that, where Law 75 does not specifically “preempt” or “regulate” the provision at issue in a franchise or distribution agreement, Law 75’s public policy is not at stake simply because there has been an unjustified termination, impairment or non-renewal of the agreement. Thus, in that scenario, the Civil Code remains the primary legal source to determine the enforceability of a contractual provision that is not specifically governed by Law 75. A narrow exception may be an arbitration provision which is governed solely and preempted by the Federal Arbitration Act and the Supremacy Clause although Law 75 regulates the enforcement of arbitration clauses in distribution contracts.

Applying the Civil Code may have important repercussions on the outcome of a franchise or distribution dispute. The Civil Code presumes both the existence of good faith and the validity of contractual obligations. The burden of proof is on the party challenging the enforcement of a contract.

It remains to be seen how far the court's footnote goes in determining the rule of decision in franchising and distribution issues under Law 75.

Friday, June 25, 2010

Whether a non-compete obligation in a franchise agreement is enforceable under Puerto Rico law depends on the reasonableness of the restriction as applied to the facts of each case.

In Franquicias Martin’s BBQ Inc. v. Luis Garcia de Gracia, No. 2009-0410 (P.R. May 10, 2010), the Supreme Court of Puerto Rico considered the validity of a non-compete provision in the context of a franchise agreement.

The court determined that Puerto Rico Law 75, which regulates distribution and franchise relationships from unjustified terminations, did not specify the norms by which to determine the validity of a non-compete obligation. Nor does Law 75 invalidate per se a non-compete obligation. For guidance, the court turned to the Civil Code’s general precept that contractual obligations are enforceable unless contrary to public policy. Finding no statutory prohibition against the enforcement of non-compete obligations, the court adopted the criteria to validate a non-compete in employment relationships.

The court set forth a four-part test to determine the validity of a non-compete obligation in a franchise agreement. First, does the franchisor have a legitimate interest in the non-compete obligation, so that its business would be substantially affected without the restriction? A relevant factor is the employee’s position and his or her ability to be able to compete against the employer in the future. Second, the scope of the restriction must be reasonable in terms of the employer’s interests, the object, place, time and clients affected. The object must be limited to activities “similar” to those carried out by the employer. Third, the term of the restriction should not exceed 12 months. When the restriction applies to a geographic area, it must be limited to that strictly necessary to prevent “real competition” with the employer. When the restriction limits the scope of clients, it must be to those that the employee serviced personally and were clients of the employer before the employee’s resignation or termination. Finally, the employer must offer some consideration as a quid pro quo for the non-compete.

On the facts of the case, the franchisor, a rotisserie-style fast food restaurant chain, established a reasonable restriction of two years (it was not per se illegal to exceed the 12 month limitation) and limited the sale of products to those “similar” to the rotisserie chicken sold by the employer. It was unreasonable, however, as the non-compete prohibited the operation of a similar business within ten miles of any restaurant of the franchisor when the employee’s competing restaurant, established in the same location previously operated by the franchisor, had only a two mile radius of operations. The court did not explain the basis supporting the conclusion that the former employee's restaurant had a two mile radius of operations. In any event, the court determined that the prohibition in the contract was on its face broader than reasonably necessary for its admittedly legitimate purpose, could not be saved, and invalidated the entire non-compete agreement as contrary to good faith and public policy.

It is debatable whether the court's decision provides certainty and uniformity by which to guide contracting parties in the future or whether it is likely to cause confusion and litigation. Given the factually intensive and variable nature of the inquiry, it is probable that litigation will be both inevitable and costly to enforce a non-compete in a franchise or distribution agreement.

Sunday, May 16, 2010

Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit speaks candidly (if not controversially) about the current economic crisis and the financial markets in the United States at the Judicial Conference for the First Circuit held on May 13-14, 2010. What’s the relevance for Law 75?

What relevance could a conference about economics by a distinguished jurist have with the regulation of dealer contracts in Puerto Rico?

I was critical in my blog recently about the position espoused by an economics professor at another judicial conference a few weeks back favoring the repeal of Law 75 because of it allegedly causes artificially high consumer prices and hampers economic progress. My criticism was that proposals to amend or repeal legislation must be substantiated with reason in the facts and sound economic analysis.

Judge Posner seems to favor the Keynesian theory that market forces act on their own to correct irregularities in the financial markets and that more (or hastily-enacted regulation) is not the right answer.

Judge Posner described three fallacies that have been named to explain the situation with the financial markets in the United States, one, that the collapse was caused by over “greedy bankers”, second, that the recession ended last fall, and third, that there is a need for more regulation. In his view, Posner opined that the financial collapse was caused by various factors, including a freeze in consumer spending, heavy debt and unequal distribution of wealth, bad monetary policy, bad regulatory policy, and bad economists.

Judge Posner pulled all the stops when he blamed top-level regulators for the current financial crisis. He blamed Congress for an inept reaction or overreaction to the crisis. All congressmen and senators, except Barney Frank, know little or nothing about economic theory, Posner said.

Posner believes that the root of the current financial crisis (and the worst recession since the 1930’s) dates back to 2001 when the Federal Reserve substantially reduced short term interest rates. This caused mortgage rates to fall. Housing prices increased. A “bubble” was formed when adjustable rate mortgages made 100% financing possible and increased artificially the demand for housing. When the bubble burst in 2004, housing prices fell and this sent millions of people who had no equity to abandon their homes they could no longer afford. The banking industry and the financial markets that had heavily invested in housing collapsed. Posner opined that the government bailout of the financial institutions was necessary to prevent a bigger crash.

Finally, Posner believes there are impediments to short term economic recovery:

---Credit remains tight.
---Housing prices remain low.
---Unemployment remains high.
---The European financial crisis (and Greece’s financial collapse) will impact the U.S. economy.
---With the value of the Euro declining, U.S exports become more expensive.
---States and Cities in the U.S. remain in precarious financial positions or are bankrupt.
---The national debt in the U.S of 8 trillion dollars continues to rise.

In short, Posner believes there is no need for the creation of new government regulatory agencies and to pass hasty regulations to address the current economic situation.

As to Law 75. The same concern applies to those that are quick to single-out Law 75 as an evil for economic development in Puerto Rico and should be repealed. To state what should be obvious, no legislation should be passed or repealed without sound and reasoned analysis.

Wednesday, May 12, 2010

An “epic battle” over exclusive distribution rights under Law 75 comes to a close with a stalemate: the Kellogg and B. Fernandez dispute.

The dispute generated no less than multiple published cases in the federal court in Puerto Rico, two appeals on jurisdictional issues in the U.S. Court of Appeals for the First Circuit, and related litigation in Michigan state court. The matter came to a head in B. Fernandez v. Kellogg USA, 2010 WL 376326 (Jan. 27, 2010 D.P.R.)(Gelpi, J.) where on the eve of trial the court granted and denied in part Kellogg’s motion for summary judgment and denied B. Fernandez’ motion for summary judgment. It should be disclosed to our readers that I was lead counsel for Kellogg in those cases.

Since the mid 1900’s, B. Fernandez had been, and still is, a distributor of Kellogg cereals in Puerto Rico. Since the 1960’s up to 1992, written agreements defined the commercial relationships between the parties. All the written agreements were non-exclusive. In 1992, the last written contract expired on its own terms without it being renewed or replaced by a new agreement. The relationship continued on the same terms and conditions, except that in 2003 Kellogg paid commissions to B. Fernandez for direct sales of certain Kellogg cereal products and the parties made other changes in their business dealings. B. Fernandez alleged that the relationship after 1992 became de facto exclusive as recognized by the absence of competing distributors and the payment of commissions. In 2004, B. Fernandez transferred title over the inventory of Kellogg cereals to the Puerto Rican Kellogg affiliate. The inventory repurchase agreement expressly ratified the continued validity of the non-exclusive 1992 agreement. As part of that transaction, Kellogg USA, the principal in the distribution relationship, assigned the 1992 agreement to Kellogg Caribe.

B. Fernandez filed suit claiming an impairment of exclusive rights in violation of Law 75 and fraudulent inducement of the inventory contract when Kellogg started to sell certain cereal products directly in Puerto Rico. Kellogg moved for summary judgment claiming that Law 75 did not apply retroactively to the relationship that began decades before the enactment of Law 75 in 1964, there was no extinctive novation, and there was no legal basis for a claim of fraudulent inducement. B. Fernandez moved for summary judgment for the court to declare that the relationship was exclusive.

After 15 rounds of fierce litigation, the court declared a draw. The court dismissed the fraudulent inducement claim finding it hard to believe that B. Fernandez, a sophisticated business entity assisted by counsel, could allege to have been misled into transferring the inventory. As to whether Law 75 applied or not, the issue became more complex. First, the court determined that there was a factual dispute concerning the validity of the assignment of rights in the inventory contract. Thus, the court could not give conclusive effect, without a trial, as to the representation in the inventory agreement ratifying the non-exclusive agreement of 1992 (and this would have been proof that no extinctive novation occurred). The court then concluded that it could not determine summarily that Law 75 did not apply because there was a factual dispute as to extinctive novation. Finally, the court determined that whether or not on these facts the relationship was exclusive was a triable issue for the jury. In a separate opinion, the court dismissed a Law 75 claim by CWL, an affiliate of B. Fernandez and logistics provider, for it did not qualify for protection as a dealer under Law 75 and the relationship without a fixed term was terminable at will.

Tuesday, April 20, 2010

Reseller mounts a preemptive strike for collection of monies and declaratory relief under Law 75 against its distributor and wins in federal court despite a related action in local court.

In Lamex Foods Inc. v. Audeliz Lebron Corp., 2010 WL 500405 (D.P.R. Feb. 5, 2010)(JAF), the court turned a deaf ear to a distributor's claim under Law 75 to excuse compliance with its obligation to pay for goods sold and delivered.

Plaintiff, a reseller and broker of food products in the U.S., sued its alleged distributor of frozen foods in federal court on three counts, one, collection of monies against the distributor corporation and its principals in their personal capacity on an alter ego theory, two, for preliminary and permanent injunctive relief to censure "false representations" about plaintiff, and three, for declaratory judgment that plaintiff is not liable under Law 75.

The court held an evidentiary hearing on the request for preliminary injunctive relief and, absent any objections by defendant, consolidated the hearing with a bench trial on the merits. It does not appear that defendant raised any constitutional objections to the scope of an injunction that would have the effect of censuring commercial speech.

On a side note, the court observed that defendant's claim under Law 75, which was pending in local court, was that an "exclusive verbal agreement" existed. While the court noted that Law 75 does not require the formality of a written instrument confirming exclusivity, citing RW v. Welch, 13 F. 3d 478 (1st Cir. 1994), the court found the allegation to be suspect as "strain[ing] the imagination" absent any written confirmation or support for the allegation over a period of months if not years.

The dispute arose over defendant's late payments and subsequent delinquency to pay outstanding invoices for goods sold and delivered exceeding $1.2 million. Plaintiff then froze defendant's account for non-payment.

In an interesting twist, plaintiff then attempted to have another distributor Trafon Group resell the poultry products in Puerto Rico, until Trafon declined upon receipt of a claim letter from defendant threatening suit and plaintiff's inability to defend and hold Trafon harmless. This incident was part of the basis of plaintiff's claim that defendant was engaged in a "smear campaign".

Litigation in both federal and local court ensued. In local court, the distributor filed a Law 75 suit and sought to deposit in court monies due plaintiff. At a status conference, the federal court (Fuste, J) warned defendant that it viewed "the litigation strategy as one merely meant to delay and to frustrate a good-faith resolution of the matter."

This was a revelation of things to come.

After a bench trial, the court ruled in plaintiff's favor. First, the court held that, based on a factual stipulation, the money was due and owing. The defendant’s "meritless" Law 75 claim could not serve to condition the obligation to pay. The court ordered the local court to disburse and release funds due plaintiff. The court also awarded damages consisting of cold storage costs for merchandise sold but undelivered to defendant because of its delinquency in payments.

On the claim to pierce the corporate veil the court determined that plaintiff had produced no evidence that the defendant corporation would be unable to meet its financial obligations. Thus, it dismissed under Puerto Rico law the alter ego theory to reach the individuals.

As to Law 75, the court concluded that the relationship, on a purchase order basis, was not protected under Law 75. The court reasoned that plaintiff "deals with various clients in Puerto Rico and does not rely on [defendant] to create a market for its services."

As to the claim for injunctive relief, the court found that isolated conduct informing the nature of the legal dispute was insufficient to warrant injunctive relief. Anticipating a potential constitutional issue, the court noted that plaintiff failed to specify the "legal right" that the behavior is said to violate.

In sum, the court ordered defendant to pay the principal amount due, damages incurred, plus interest, less amounts collected by plaintiff from a line of credit and the amounts deposited in local court.

NOTE: In Lamex Foods v. Audeliz Lebron, No. 10-1677 (1st Cir. June 27, 2011), the First Circuit vacated the District Court’s (Fusté, J.) Judgment holding that consolidation of a preliminary injunction hearing with a bench trial on the merits without providing adequate and clear prior notice violated the constitutional right to a jury trial. Thus, the court vacated the judgment with respect to the claims for declaratory relief and to pierce the corporate veil and remanded the action for further proceedings. Significantly, because Defendant conceded the amount and existence of the debt owed to Plaintiff, it affirmed the court’s monetary judgment in Plaintiff’s favor. As to the appeal from a discovery sanction, the court affirmed the court’s imposition of sanctions against Defendant for its President’s evasive and non-responsive answers during his deposition.

Sunday, March 21, 2010

Law 75 comes under attack at a conference ….and this is not the final chapter

Last week, the Foundation of the Federal Bar Association, Puerto Rico Chapter, and the Foundation of the Historical Society of the Supreme Court of Puerto Rico sponsored a conference on Judicial Independence and Economic Development in Puerto Rico. Among the panelists were distinguished practitioners, Judge Cabranes of the U.S. Court of Appeals for the Second Circuit, and a professor of economics at the graduate school of the University of Puerto Rico. Among those attending were Justices of the Supreme Court of Puerto Rico, Judges of the U.S. District Court for the District of Puerto Rico and members of the federal bar.

The theme of the presentation was to establish a positive correlation between states and countries that have a strong and independent judiciary that values observance of the rule of law and economic development. It is not surprising, but disappointing, that such an important conference has received so far no coverage in the press.

Law 75 has come under attack almost since its inception in 1964 as a protectionist statute. Some court decisions and commentators have objected to the statute as being anti-competitive. Law 75 has thus far survived constitutional challenges under the Due Process Clause, and the Dormant Commerce clause including arguments of preemption under federal trademark and antitrust laws.

With the globalization of commerce it is hardly surprising that Law 75, as many other laws that are perceived to act as obstacles to freedom of commerce, will come up on the radar screen as it did at the conference last week. To a packed house full of lawyers, judges and possibly legislators, the economics Professor espoused the repeal of Law 75 as creating intrabrand monopolies and as harmful to economic development. The Professor concluded that Law 75 causes artificial increases in the prices of goods and services to consumers. He described an experience in Uruguay that repealed a law similar to Law 75 and stated that the Dominican Republic also repealed its dealer protection statute (an assertion which I believe may be factually erroneous). At least 18 states of the Union and many countries still have laws similar to Law 75.

When asked to provide empirical economic support for his conclusions, the Professor admitted that he had conducted no analysis, and knew of no study, that supported his conclusion that Law 75 causes or contributes to price differentials of goods and services between Puerto Rico and the continental United States. He said that the distribution industry was opposed to conducting studies as if to suggest there is something to hide. What precludes the academic world from doing the research independently is odd!

The Professor was unable to reject other plausible and independent explanations; that is, that price differentials may arise from unrelated market conditions, such as the imposition of high tax rates on both imports and the sale of goods to consumers (the exorbitant taxes to luxury vehicles are but one example), and other high fixed costs on imports (e.g., freight and insurance costs). Further, the Professor assumed that intrabrand monopolies created by exclusive distributorships are inherently pernicious to consumers when that is not necessarily so. For one thing, the antitrust laws are primarily concerned with interbrand not intrabrand competition. When a distributor prices a product or service above its competitive level, the elasticity of demand dictates that consumers will change their spending and consumption patterns toward another brand or service. That sort of explains why the pricing points at the supermarket of Coke and Pepsi, for example, are basically identical even as some consumers may stick to their brand despite price increases (up to a point). Absent collusion between manufacturers of competing brands or products, from an economics standpoint, the distributor that uses its intrabrand monopoly to reap higher profit margins will be forced by the market to lower its prices in order to remain competitive. On the other hand, exclusive distributorships help to eliminate “free-riding” by other dealers and theoretically require the exclusive dealer to do more to promote the sale of the principal’s products. And, contrary to popular belief, Law 75 protects but does not require exclusive distributorships.

Without reliable economic research, it is easy if not irresponsible for one to advocate the repeal of Law 75 as not serving the public interest. It remains to be seen if any lasting impressions have been left on the policy makers attending the conference by the facially appealing, but superficial, viewpoint of the Professor that Law 75 acts a barrier to economic development in Puerto Rico.

Saturday, March 6, 2010

Part 2: Is a constructive or de facto termination of a distribution agreement actionable under Law 75 after the Supreme Court’s decision in Mac’s Shell Service v. Shell Oil Products?

In Mac’s Shell Service v. Shell Oil Products, No. 08-240, slip op. (March 2, 2010), the Supreme Court of the United States held that a constructive termination claim was not actionable under the PMPA, the federal law protecting petroleum franchisees, unless the retailer-operator voluntarily has abandoned the franchise. The Court reasoned that both the plain language of the PMPA, and analogous federal employment law jurisprudence, do not support the First Circuit’s reasoning that a franchisor’s breach of an essential contractual term made it actionable as a constructive termination under the PMPA. The PMPA’s comprehensive scheme for compensation, including awards of punitive damages for violations, also made the Court reluctant to expand the reach of the statute for all breach of contract claims. A termination claim under the PMPA, said the Court, requires an end to the relationship of the parties. While the Court refused to federalize claims not involving a complete rupture of the business relationship, the Court held that the PMPA does not disturb state laws that provide remedies for wrongful practices, including a franchisor’s breach of contract short of termination. Thus, the Shell Oil Products decision does not foreclose claims under Puerto Rico law for de facto or constructive termination of franchise and distribution agreements.

That’s where Law 75 comes in as it was enacted to compensate for abusive practices by principals designed to appropriate the goodwill created by the Puerto Rican distributor. And, Puerto Rico’s Article 1077 of the Civil Code supplements the remedies available for resolution of contracts arising from breaches of essential and material terms.

Specifically, the type of claim that was not actionable in Shell is actionable on the face of Law 75 as it codifies a claim for impairment of contractually acquired rights and expectations short of a complete cessation of the relationship (a “menoscabo”). Moreover, Law 75’s definitions of termination without just cause and the measure of damages for termination expressly include a remedy for acts detrimental to the established relationship (“menoscabo”). Thus, from Law 75’s plain language and its interpretive case law (including a series of federal cases and the PR’s appellate court’s opinion in Maderas Alfa), a principal’s impairment of an established relationship with the distributor may operate as the functional equivalent of a termination requiring consideration of the statutory criteria for termination damages, including loss of goodwill and five-years of lost profits, among other factors. Compare Maintainco, Inc. v. Mitsubishi Caterpillar Forklift, CCH Business Franchise Guide ¶14,195 (holding that a dealer's loss of an exclusive territory, in and of itself, could qualify as a constructive termination under New Jersey’s Franchise Practices Act which, like Law 75, requires good cause for termination; affirmed the trial court’s ruling and its award of compensatory damages for lost profits to the dealer in the amount of $679,414. Additionally, the trial court's substantial award of attorney fees to the dealer in the amount of $3,533,642 was also upheld, but an award of $477,611 in expert witness fees was reversed).

Monday, February 15, 2010

Do commission payments to a distributor for direct sales made by the principal create an exclusive distribution relationship under Laws 75 or 21?

An exclusive distribution relationship may be established by: 1) an expressly exclusive written distribution agreement, or 2) in the absence of an integrated written agreement, by evidence of a verbal exclusive agreement or a course of dealings or course of performance between the parties establishing de facto exclusivity.

At least where an expressly non-exclusive agreement is in effect between the parties, courts have ruled that the payment of commissions is not evidence that the principal has waived its right to sell products directly or through another distributor in competition with its alleged exclusive distributor. In Print, Medical Books Inc. v. Harcourt, Inc. 93 Fed. Appx. 240, 241, 2004 WL 528433, 1 n.1 (1st Cir. 2004)(unpublished)(“The plaintiff contends that the payment of a 10% override commission on all direct sales by the defendant in Puerto Rico rendered the distribution agreement exclusive. We do not agree. The essence of a non-exclusive agreement is that the manufacturer (or, as here, the publisher) retains the right to sell its wares to others, including other distributors, as it sees fit. [citation omitted]. The defendant at all times retained that right”).

Things get like quick sand for the principal, where there is no written agreement or a material factual dispute exists as to whether a non-exclusive written agreement continues to govern the relationship between the parties.

In those circumstances, a distributor has been able to avert the entry of summary judgment on the issue of exclusivity with an argument that, over a period of years, it has been the sole reseller of the principal’s products in Puerto Rico or the principal has paid a commission for selling products directly. Kellogg USA v. B. Fernandez, 2010 WL 376326 (D.P.R. Jan. 27, 2010)(Gelpi, J.)(Out of full disclosure the author represented Kellogg in that case). The distributor’s argument in that case was that the principal would not have been contractually obliged to pay any commissions if the relationship had been non-exclusive. The court decided that this allegation created a triable issue of fact. On the other hand, if the court hit it on the spot in In Print, Medical Books Inc. v. Harcourt, Inc., the payment of commissions would not necessarily create exclusivity as the principal acted consistently with its right to sell directly, which is the essence of non-exclusivity. In other words, paying commissions does not indicate the principal's intent to renounce its right to sell directly. By the same token, there is an equally permissible inference from the one drawn by the Kellogg court that the distributor waives its claim of de facto exclusivity by permitting others to sell directly even when accepting the payment of commissions. Unless, of course, in that case the principal clearly has manifested its intent to agree to pay commissions in recognition of the distributor’s exclusive rights.

Saturday, February 6, 2010

Amendments to the Rules of Evidence of Puerto Rico may become outcome-determinative with respect to the admissibility and weight of expert testimony in commercial litigation, including Law 75 cases.

For those who think that a local court in Puerto Rico is necessarily more favorable to a principal in Law 75 cases simply because there is no right to trial by jury, think again, after the recent amendments to the Rules of Evidence of Puerto Rico.

The Amendments conform to the structure and numbering of the Federal Rules of Evidence, but some of the changes are substantively far-reaching. One of those changes turns on the admissibility and weight of expert testimony. Significantly, the Puerto Rico evidentiary rules on expert testimony, as amended, depart from Daubert and progeny, norms that set the standards for the court’s gate-keeping role for the admission of reliable expert testimony. Instead, the Rules rely on Puerto Rico Supreme Court precedent which seems to be inclined to admit expert testimony, even if unreliable or untested, and leaves to the trier of fact to give the weight to that evidence as it deems appropriate. While the point is not free of debate, precedent in Puerto Rico seems to prefer admitting rather than summarily excluding expert testimony.

Not adhering to Daubert and progeny could have significant repercussions in commercial cases especially those that require expert testimony. One effect may well be that the local court would be less inclined to grant a motion in limine to exclude or limit unreliable expert testimony on the issue of damages. Law 75 cases almost always require expert testimony on the computation of damages. Thus, expert testimony may get admitted, and depending on the weight of all the other evidence, it may be more difficult to set aside a Judgment as clearly erroneous when the error has been that the court gave improper or undue due weight to expert testimony or where the determination turns on the credibility of one expert over the other.

So, if you are a distributor or a principal in a Law 75 case, where would you rather be if you had an opportunity to decide what forum to litigate in? It seems that the amendments of the Puerto Rico Rules of Evidence add another factor to the mix.

Monday, January 4, 2010

Hormel, a producer of meat products, faces allegations in federal court of encroachment of exclusive territory from sales of “Hormel Party Platters” to COSTCO, a national account.

This topic continues to be one of the “hottest” or most current in distribution law practice in Puerto Rico.

For many years, retailers in Puerto Rico have been aggressive to improve their margins by using whatever leverage and buying power they may have to demand that suppliers, including Puerto Rico distributors, lower their wholesale prices of groceries and provisions. With the entry of national accounts and clubs, such as Wal-Mart (Sam’s), Costco, and Walgreens, the retail market of groceries and provisions in Puerto Rico has become more competitive in terms of price, quality and services. The consumers' demand for produce and other commodities is price sensitive (elastic) so that the national accounts or clubs- and the Puerto Rico retailers that compete with them- make purchases either from Puerto Rico distributors that have exclusive agreements or from other sources of supply that claim to offer the same products at the best possible prices but without providing any value-added services.

It is widely known that some of these national accounts or clubs purchase brand-name products that have exclusive distribution contracts with Puerto Rico distributors from suppliers or wholesalers directly in the continental U.S. for resale not only to customers throughout the United States but to Puerto Rico.

Puerto Rico distributors that must compete in this challenging environment may opt, 1) to reduce their margins and lower their prices but continue to provide the same level of service, 2) request suppliers to pay them commissions on these direct sales and have them match the prices offered to the national accounts, and/or 3) sue to enforce their claims of exclusivity. A few Puerto Rico distributors that claim to have exclusive distribution agreements have complained that sales to national accounts or to Puerto Rico retailers constitute impairments by their suppliers in violation of Law 75 or a third-party’s tortious interference with contract.

Reported federal litigation in both Puerto Rico and New Jersey (the Twin County and Di Giorgio cases) have not slowed the tide of a new wave of claims provoked by these national accounts aggressively purchasing products at bulk in the U.S. and reselling to end-user customers at their stores in Puerto Rico. See Twin County Grocers v. Mendez, 81 F. Supp. 2d 276 (D.P.R. 1999); Di Giorgio Corp. v. Mendez & Co. Inc., 230 F.Supp.2d 552 (D.N.J. 2002); see also Sterling Merchandising v. Nestle, 546 F.Supp.2d 1 (D.P.R. 2008)(dismissing tortious interference counterclaim from sales first made outside Puerto Rico);compare Eliane Exportadora v. Maderas Alfa Inc., 2007 WL 2585173 (TCA 2007)(verbal exclusive distribution agreement and course of conduct as the sole distributor of branded ceramic products impaired and constructively terminated without just cause in violation of Law 75 caused by supplier’s sales to Home Depot and other distributors).

There is a common thread of legal issues arising in all these cases, including in one of the most recent cases, Medina & Medina Inc. v. Hormel Foods Corporation, No. 09-1098 (JAG) pending in the U.S. District Court for the District of Puerto Rico. Those issues are: first, does an exclusive distribution agreement in fact exist; second, if so, is the agreement “airtight” in the sense that the contracting parties intended to prevent all intrabrand competition?; third, is the exclusive agreement confirmed or refuted in writing or by the course of performance of the parties; fourth, is Puerto Rico law being applied extra-territorially affecting sales made outside Puerto Rico to raise any concerns under the Dormant Commerce Clause or federal antitrust laws?; fifth, are those impairment claims time-barred under Law 75’s three-year caducity period or the Civil Code’s one-year limitations period for tort claims?; and sixth, does federal intellectual property law preempt Puerto Rico Law 75 in these circumstances? Finally, should some of these issues be certified to the Supreme Court of Puerto Rico?

With a stagnant economy and price competition as aggressive as ever, we can expect more litigation in the near future of this type of claims brought under Law 75 and the Civil Code. Where timely legal advice is sought by the supplier or the distributor, “preventive medicine” may help to minimize the risk of litigation.

Where there is no choice but to litigate, courts should definitively put to rest once and for all the legal issues that can be decided conclusively and do not depend for their resolution on the facts and circumstances of each case.