Removal of Law 75 case to federal court was outcome-determinative of the forum for litigation

It matters when a Puerto Rico distributor accepts a contract with arbitration and choice of law or forum in jurisdictions outside Puerto Rico. Most often, these clauses are negotiated, but the supplier holds the line and the distributor capitulates to acquire a potentially valuable line on the supplier’s take it or leave it terms or pass and give the new business to a competitor. It is obvious that the parties are not in equal bargaining positions because the supplier almost always has the leverage of adding incremental profit from the new business to the distributor. And, suppliers are mostly informed (not always correctly or well informed) of Law 75's principles. ADR provisions are a way to minimize what suppliers perceive is an exposure to risk from doing business in Puerto Rico. Then, years ahead, when the distributor creates a market and goodwill for the products it is left without an effective recourse if the supplier takes its rights away without compensation. The choice is to litigate or arbitrate in the supplier’s home court, which increases the costs of litigation to the distributor and gives the supplier a natural advantage. In AM Medical Technologies v. Candela Corporation, 2025 WL 2466273 (D.P.R. Aug. 27, 2025) (Arias, J.), a Puerto Rico distributor signed a dealer agreement with a supplier of medical devices with a Massachusetts choice of law clause and a mandatory choice of forum clause in that state. Distributor sued in PR state court for termination of the agreement under Law 75. Defendant removed the case to federal court and moved to dismiss under 12(b)(6) or transfer under 1404(a). Plaintiff correctly argued that the text of Law 75 expressly nullifies forum selection clauses outside PR. The court would not revisit this issue, holding that First Circuit caselaw requires a transfer or dismissal of Law 75 cases and the clause is prima facie valid under federal law. The court dismissed the case without prejudice. As I have written before, had the case remained in state court, the outcome would probably have been different. The PR Supreme Court had not decided the validity of a stateside or foreign choice of forum clause in Law 75 cases. Federal and state court decisions are in conflict on the enforcement of forum selection clauses in Law 75 cases.

Dealer took no action to complain about unauthorized sales, then waited 10 months to request injunctive relief, and if granted, would confer exclusivity that it never had

Guess the result? In a thoughtful opinion, Innovair Corp. v. Factory Direct Sales, No. 23-1079 (GMM-GLS), slip op. (D.P.R. Jan. 16, 2026), the court gave de novo review to factual and legal challenges to a Magistrate’s report and recommendation denying, after an evidentiary hearing, a preliminary injunction in a Law 75 impairment case. The opinion has an extensive narrative of Law 75 injunctions and the interplay with the norm that federal procedural law governs in diversity cases. So, the standards for preliminary injunctive relief in federal court and those invoking Law 75 are not identical. (I published years ago a piece for the P.R. Federal Bar's Newsletter on this issue). On the one hand, Law 75 preliminary injunctions do not require a showing of irreparable harm. On the other, FRCP 65 and jurisprudence do, among other factors. Courts reconcile these norms holding that Law 75 tips the scale in favor of granting injunctive relief in light of the Act’s policies. While the absence of irreparable harm is not dispositive, courts may consider this factor among others in the balancing of interests under Law 75. On the key issue of likelihood of success, the court had to determine first, from a course of dealings, if a verbal agreement was probably exclusive when the distributor claimed exclusivity and the supplier denied it, citing CTA1’s Jose Santiago v. Smithfield. First, the court held that plaintiff’s status as the only seller of the products for four years did not establish legal exclusivity. The court drew a distinction that being the only one does not prove the supplier’s intent to limit direct sales or the right to appoint another distributor. Second, plaintiff took no action to sue when a competing air conditioning retailer sold the alleged exclusive products for years. Third, although plaintiff complained about unauthorized sales, it took no affirmative action, citing CTA1’s Irvine as persuasive on this point. Finally, apart from the contract’s terms, the supplier’s direct sales model did not impair the existing relationship because it restructured it in a format that would be more financially sustainable for plaintiff. Plaintiff’s unlikelihood of success weighed against issuance of an injunction. As to irreparable harm, while injury to goodwill and reputation from customers turning to competitors is the kind of harm that is irreparable, there was no such proof here. Finally, the court held that a delay of 10 months in seeking relief from the implementation of the challenged conduct weighs against finding irreparable harm. Balancing of the interests and Law 75’s public policy did not favor granting injunctive relief which would confer plaintiff an exclusivity it never had.

Tortious interference case related to a Law 75 breach with novel theories and defenses survives in part in federal court

Hardware Plus v. OmnniMax International, 2025 WL 1426175 (D.P.R. May 15, 2025) discusses jurisdictional and merit-issues of tortious interference claims arising from allegations of a Law 75 breach of an exclusive contract. Exclusive distributor of hardware products in Puerto Rico sued successor of grantor for breach of exclusive dealer’s contract for sales to a competing wholesaler in the exclusive territory. In this Law 75 suit, the distributor joined the grantor, the manufacturer, and the third-party Puerto Rico wholesalers. Essentially, the defendants argued that the infringing sales originated outside Puerto Rico and the grantor could not control the sales of such products. The competing distributor True Value had an ace up its sleeve. It moved to dismiss on grounds that the tortious interference claim could not meet the jurisdictional amount requirement. First, it argued successfully that it had sold only $58,000 worth of the exclusive products and the measure of damages was lost profits and not revenues. The complaint did not plead loss of profits from such sales. Second, attorney’s fees and costs are not part of the jurisdictional amount unless the contract provides for such recovery, and the dealer’s contract is silent here. Third, the request for injunctive relief did not add up to the jurisdictional amount because had plaintiff made those sales the complaint was deficient in alleging that lost profits would have exceeded the jurisdictional requirement. With True Value out of the case, without prejudice, the court turned to the other motion to dismiss by the codefendant Ace asserted for failure to state a claim. The first argument was that the complaint did not plead fault for tortious interference. The court held that plaintiff had sufficiently pleaded defendant's knowledge of the exclusive contract from which fault can be inferred. Defendants argued next that the claims were time barred because the SOL started to run from plaintiff’s discovery of the sales by the infringers in June 2022. Applying the continuing torts theory in a tortious interference case for the first time, it held that plaintiff sufficiently pled allegations of continuous tortious acts, as opposed to injuries, and denied the motion to dismiss. The supplier and manufacturer did not move to dismiss.

Only does not mean exclusive for purposes of the Sales Representative Act 21

In American Paper v. Clearwater Paper, 2025 WL 3687940 (D.P.R. Dec. 19, 2025) (Arias, J.), the court granted a Rule 12(b)(6) motion to dismiss a complaint alleging a Law 21 claim for termination of a verbal sales representative agreement without just cause. Unlike Law 75, Law 21 requires exclusivity. Although the statute does not define the meaning of exclusivity and could be ambiguous (e.g., is exclusivity a restriction on the supplier from appointing another agent or a restriction on the agent not to represent competing products?), what the cases have often understood exclusivity to mean is that a restriction on the supplier’s right to appoint another agent or sell directly can be derived from the terms of a contract or the course of dealings of the parties. According to the federal court, being the only agent or receiving commissions does not rise to the level of exclusivity from a course of dealings without some corroborating evidence of conduct by the supplier that it is so. Such conduct, according to the court, would be a document evidencing exclusivity or other conduct by the supplier from which exclusivity can be inferred. If the principal did not retain its right to sell to others or restricted its ability to do so in its relationship with the agent, such conduct would permit an inference of exclusivity from a course of dealings. I surmise that had the principal proposed a draft of an exclusive agreement to memorialize the verbal agreement or the course of dealings, even if not signed, that evidence would qualify to prove intent. What failed in this case were the agent’s naked allegations of exclusivity without stating facts to make a Law 21 termination claim plausible. It did not help the agent in that case that there was no corroborating evidence with factual content, verbal or written, of an exclusive agreement. The court also dismissed the claim for breach of duty of fair dealing in the absence of an actionable Law 21 claim or a contract of fixed duration.

Sole distributor of Fireball Cinnamon Whisky wins preliminary injunction in state court to stop sales by a competing distributor of Fireball Cinnamon Malt Beverage

Pan American Properties, Corp. v. Sazerac Company and CCI, 2025 WL 20448234 (TCA June 27, 2025), is an interesting case of conflicts in distribution over brand extensions. That is, when the supplier introduces and markets a new product of the same brand in the same trade channels at a lower price and the design is to displace or undermine an established but similar product of the same brand sold at higher prices. In that case, the brand's whisky flavored malt beverage cannabilized, through two competing distributors, sales and customers at the expense of the whisky flavored branded product. The impairment was not that the plaintiff-distributor had exclusivity over the malt beverage brand extension, although it alleged it did, but that the marketing and distribution of it through a competing distributor appropriated the goodwill and clientele created by the exclusive distributor for the brand’s whisky flavored line. What makes this theory interesting is that the supplier did not breach a contractual provision for the distributor to state an impairment claim. There was an impairment from the effect of the supplier's decision to employ competing distributors to appropriate the clientele and demand created by the distributor of the whisky flavored line. For more than a decade, Pan American introduced and created a market in Puerto Rico for flavored whiskies branded Fireball Cinnamon. The trademark owner authorized Panamerican as a Puerto Rico distributor. Although the appointment letter did not specify that Panamerican was exclusive, Panamerican was, in fact, the sole distributor of this branded flavored whiskey and alleged it was the exclusive distributor from a course of dealings. The trademark owner decided to introduce a new product into the market which was a malt beverage with a whisky flavor but with both a lower alcohol content and price point. This malt beverage product, Fireball Cinnamon Malt Beverage, had similar packaging, labels, and sizes as the brand’s flavored whisky and potentially could cause consumer confusion. After much fanfare about the prospects of the new line, Panamerican placed a purchase order, which the supplier did not serve. Meanwhile, the supplier met with Panamerican to inform the distributor that it desired to terminate its exclusivity over the flavored whisky line because of alleged dissatisfaction with performance. Panamerican then placed a second purchase order for the malt beverage product which was again not served. The supplier denied the existence of exclusivity, and appointed CC1 as the exclusive distributor for the malt beverage line. Panamerican filed suit in state court against the supplier principally for impairment under Law 75 and against the competing distributor for tortious interference. Joinder of the Puerto Rico distributor destroyed jurisdiction for removal to federal court (and probably, leading to a different outcome). From review by certiorari of the granting of a preliminary injunction, the appellate court applied the standards of Next Step v. Bromedicon. First, the court held that the supplier appointed Panamerican as the exclusive distributor for Fireball flavored whisky and had protection as a Law 75 dealer. Second, the court held that the “impairment” from the introduction of the malt beverage line caused both a reduction in its client base of 26% year to year and customer confusion. The court held that “the impairment of the market created, and clientele conquered by distributor are sufficient for a preliminary injunction.” This serves the purpose of Law 75 to provide remedies for the appropriation of the goodwill created by the distributor. The appellate court adopted the lower court’s reasoning that the introduction of the new brand extension was part of an intentional strategy to appropriate the market and clientele created by the distributor and cause customer confusion to cannibalize sales to favor the malt beverage whisky flavored line at a lower price point. The impairment was not necessarily that CCI did not have a right to distribute the brand extension or a claim that Panamerican was exclusive over the malt beverage product, but that the supplier’s sales and marketing strategy impaired the contractual rights of Panamerican by displacing the branded flavored whisky. The appellate court granted certiorari and affirmed the preliminary injunction under the balancing of interests test of the Next Step line of cases.