Thursday, June 16, 2016

Law 75 dispute between Florida supplier and Puerto Rico reseller of fish and seafood products stays in Puerto Rico federal court after a finding of fraudulent joinder

The underlying issue on the merits of this case is whether the Puerto Rico reseller (Sea World) has any basis to claim an exclusive distribution relationship protected by Law 75. The dispute began when the reseller's counsel threatened, in a letter, to sue for damages when, after many months of the reseller's failure to place even one purchase order for product, the supplier (Seafarers) sold product to a competing Puerto Rico reseller (Axa).

Not to be outdone, Seafarers first filed suit in federal court for declaratory judgment based on diversity of citizenship. Sea World's next move was to sue Seafarers in local Puerto Rico court for alleged impairment damages under Law 75 from sales made to Axa, the competing reseller, and also requested preliminary injunctive relief. Sea World also joined Axa as a defendant in the local court case alleging tortious interference and this would have defeated removal to federal court for lack of complete diversity of citizenship. The local court quickly scheduled a preliminary injunction hearing, but Seafarers timely removed the case to federal court depriving the local court of jurisdiction. Seafarers alleged that Axa, the diversity-defeating Puerto Rico co-defendant, should be disregarded for fraudulent joinder. The federal court would have diversity jurisdiction but for Axa's fraudulent joinder in the case.

In the second and removed federal case, Sea World LLC v. Seafarers Inc., 2016 WL 3258360 (D.P.R. June 10, 2016)(PG), the plaintiff Sea World moved to remand the action alleging that Axa had not timely joined Seafarers' notice of removal and its claim of tortious interference under Puerto Rico law defeated the allegation of fraudulent joinder. The federal court denied the motion to remand. The court first held that Axa's two-day delay in joining the notice of removal complied with the unanimity requirement in the interest of justice. In any event, Axa's joinder for removal was moot because the court found fraudulent joinder. Seafarers also argued that Sea World's reactive and subsequent suit in local court after the first-filed federal case demonstrated an improper purpose to circumvent federal jurisdiction, but the court did not have to reach that issue to find fraudulent joinder.

The court articulated the test of fraudulent joinder as whether Sea World stated a cognizable claim of tortious interference under the Rule 12(b)(6) standard. It held it did not. Puerto Rico law does not recognize a tortious interference claim of an alleged distribution contract with an indefinite term. Plaintiff Sea World failed to allege in its complaint that the alleged exclusive distribution agreement with Seafarers (with which Axa is said to have been interfering) had a fixed term or duration. Failing to state a valid claim against Axa, the court found fraudulent joinder and determined it had subject matter jurisdiction, thus ending the procedural chess match in local and federal courts. Pending before the federal court in the two cases are motions for consolidation.

CAB represents the supplier Seafarers Inc. in these cases. Natalia Morales and this author are counsel of record for the supplier in the federal cases.