Monday, November 9, 2020
Federal district court awards summary judgment to principal in Law 75 case, in part, because distributor did not put money and legwork in the brand
In M30 Brands, LLC v. Riceland Foods, Inc., 2020 WL 6084138 (D.P.R. Oct. 15, 2020), the federal court granted the principal’s MSJ to dismiss claims brought by a Puerto Rico dealer under Law 75 for termination of a distribution agreement, and partially refused to dismiss an impairment claim from alleged lost sales caused by delayed shipments. The principal was a stateside supplier of rice. The distributor sold the principal’s rice overwhelmingly in the Virgin Islands and nominally in Puerto Rico. "At its core", Law 75 prevents terminations "once the distributor has put the money and legwork to successfully establish a brand in Puerto Rico." Op. at *2. "Absent Law 75, supplier could simply yank distribution rights away...". Id. The case was a dead duck from the start. 90% of the distributor’s rice sales occurred in the Virgin Islands. The distributor sold the balance, which did not amount to much, in Puerto Rico ($31,000 in 2016 and $22,000 in 2017). It is settled that extra-territorial sales do not count for damages under Law 75. Why? Because Law 75 provides coverage when a Puerto Rico dealer develops the market and clientele for the principal's products or services with customers in Puerto Rico. It was irrelevant that the distributor’s rice products were warehoused in and passed through Puerto Rico because what counts is whether customers in Puerto Rico purchased them. Applying the Goya and Palladio line of federal cases, which is the majority view, the court held that Law 75 did not apply to sales in the Virgin Islands. With the damages termination claim mortally wounded, the court found that there was just cause for termination of the distribution agreement from an interplay of two factors: a) the principal’s uncontroverted deposition testimony that the distributor’s sales in Puerto Rico were a drop in the bucket, and b) the distributor’s undisputed failure to do anything to market the sale of rice in Puerto Rico. The court gave more weight to failure to market rather than to sales performance, the latter being a factual question especially without an integrated distribution agreement specifying performance standards or metrics. As for the impairment claim based on allegations of price discrimination and unfair competition, the court did not buy them. It was dispositive that prices were lower for bulk sales of unprocessed and unpackaged rice to certain customers but higher for sales of branded products to the distributor as permitted by the agreement. The products were not similarly situated so that the contractual relationship was unaffected by the principal’s other rice sales. There is no final judgment as the court refused to dismiss the impairment claim based on allegations of delays in shipments as the principal could not demonstrate that the distributor did not suffer damages or lost sales directly attributable to those delays. The case is alive by a thread.