Opinion
No. 99-1461 (JAG).
April 22, 2002
OPINION AND ORDER
V Suarez Co., Inc. ("V Suarez"), brought suit against Dow Brands, Inc. ("Dow"), seeking damages and provisional relief pursuant to the Puerto Rico Dealer's Act of June 24, 1964 ("Law 75"), P.R. Laws Ann. tit. 10, § 278 et seq.. The parties have filed cross-motions for summary judgment pursuant to Fed.R.Civ.P. 56. The parties agree that although they take issue with some material facts, they submit they will not stand in the way of getting the matter resolved through summary judgment. (Docket 32, Opposition to Dow's Motion for Summary Judgment at 2). For the following reasons, Dow's motion for summary judgment is GRANTED, and V Suarez motion for summary judgment is DENIED.
FACTUAL BACKGROUND
Up until January of 1998, Dow was a manufacturer and suppler of household products. (Docket 24, Dow Statement of Material Fact ("DSMF") 1). In January of 1998, S.C. Johnson Son, Inc. ("S.C. Johnson") purchased Dow's worldwide assets of its home food management and home care product business. (Docket 24, DSMF # 2, Exhibit 2 at 1). At that time, V. Suarez was the exclusive local distributor in Puerto Rico for three of Dow's home care products (i.e., Fantastik, Glass Plus and Spray 'N Wash). (Docket 24, DSMF # 3). Dow notified V Suarez about the purchase by S.C. Johnson the same day it became effective, that is, January 23, 1998 (Docket 24, DSMF # 17, Exhibit 1). It also notified V Suarez that S.C. Johnson had not assumed the distributorship agreement with V Suarez and Dow Brands would not accept or fill orders for Dow Brands products distributed by V Suarez. (Id.). V. Suarez claims that Dow had no "just cause" under Law 75 to terminate its distributorship agreement with V. Suarez. (Docket 32, Opposition to Dow's Motion for Summary Judgment at 15-20). Dow avers that the sale of its entire home food and home care product business to S.C. Johnson and its concomitant withdrawal from the Puerto Rico market did, as a matter of law, constitute "just cause" for termination under Law 75. (Docket 24, Dow's motion for Summary Judgment at 4). The parties agree that the sole legal question before the Court is whether Dow's market withdrawal amounts to "just cause" in light of Law 75's legislative intent and the standards set down by the Puerto Rico Supreme Court. (Docket 32, Opposition to Dow's Motion for Summary Judgment at 2).
DISCUSSION
I. Summary Judgment Standard
The standard for summary judgment is governed by Fed.R.Civ.P. 56. The Court may grant summary judgment only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); See Santiago-Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 52 (1st Cir. 2000). The party moving for summary judgment bears the burden of showing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
A properly supported motion can be survived only if the non-moving party shows that a trial worthy issue exists. The party opposing the motion cannot rely on an absence of competent evidence, but must affirmatively point to specific facts that demonstrate the existence of an authentic dispute. Not every controversy is sufficient to preclude summary judgment. The fact has to be "material" and the dispute must be "genuine." "Material" means that a contested fact has the potential to change the outcome of a suit. The issue is "genuine" when a reasonable jury could return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The mere existence of a scintilla of evidence is insufficient to defeat a properly supported motion for summary judgment. See Anderson, 477 U.S. at 252. Consequently, in order to defeat the motion, the party opposing summary judgment must present competent evidence supporting its position. See Maldonado-Denis v. Castillo-Rodriguez, 23 F.3d 576, 583. (1st Cir. 1994). To make this assessment in a given case, the Court "must view the entire record in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party's favor."See Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990). When carrying out that task, the Court may safely ignore "conclusory allegations, improbable inferences, and unsupported speculation." See Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990).
II. Law 75 Legal Standard
Law 75 governs the business relationship between principals and the locally appointed distributors who market their products. See Irvine v. Murad Skin Research Labs., Inc., 194 F.3d 313, 317-18 (1st Cir. 1999). Law 75 limits the principal's ability to unilaterally end the relationship except for "just cause," once the distributor has developed a local market for the principal's products or services, and while subjecting the dealer to economic hardship. Caribe Indus. Systems, Inc. v. National Starch and Chemical Co., 212 F.3d 26 (1st Cir. 2000). "Just cause" under Law 75 is a question of fact. See La Playa Santa Marina, Inc. v. Chris-Craft Corp., 597 F.2d 1, 4 (1st Cir. 1979). The "just cause" inquiry, by the statute's plain terms, turns solely on the dealer's actions or omissions, see P.R. Laws Ann. tit. 10, § 278. To avoid the constitutional invalidation of the statute, however, the Puerto Rico Supreme Court has held that a principal's own circumstances may permit its unilateral termination of an ongoing dealership, irrespective of the dealer's conduct. See Medina Medina v. Country Pride Foods, Ltd., 858 F.2d 817, 822-23 (1st Cir. 1988) (responding to a question certified in 825 F.2d 1 (1st Cir. 1987)). Medina Medina recognized that courts cannot construe law 75 in such a way that the principal would be subordinated to the dealer. Such an interpretation would be contrary to public order because it would place an unreasonable restriction on a corporation's contractual liberty. 122 D.P.R. at 187-189. ("[T]he legislative intent was not to turn dealerships into interminable relationships, first of all because such legislative option would raise serious constitutional objections; and, second, because [the] principal and dealer have opposed interests.")
The facts in this case are distinguishable from the facts in Medina Medina, however. Medina Medina involved a principal's decision to withdraw totally from the Puerto Rico market following good-faith negotiations that failed to achieve an agreement between the parties. Here, Dow's withdrawal from the Puerto Rico market came as a result of the purchase of all of Dow's assets by one of its main competitors. Nonetheless, "[a]bsent controlling state court precedent, a federal court sitting in diversity may . . . predict . . . the course the state courts would take [if] reasonably clear." See VanHaaren v. State Farm Mut. Auto. Ins. Co., 989 F.2d 1, 3 (1st Cir. 1993). In B.W.A.C. Int'l v. Quasar Co., 138 D.P.R. 60, (1995), the Puerto Rico Supreme Court in dicta addressed the question of whether a large diversified company that sold to a third party all the assets it used to manufacture its product line, would be required to compensate its Puerto Rican dealer. The Court expressed its opinion that "a reading consonant with the legislative purpose would not [require compensation]." 138 D.P.R. at 84 n. 14, citing with approval Antonetti Zequeira, A Different Opinion About "Just Cause", 58 Rev. Jur. U.P.R. 625, 632 (1989). When Medina Medina's rationale is viewed in light of the dicta in Quasar Co., the result seems to be that a principal has just cause to terminate a distribution agreement if it completely withdraws from the Puerto Rico market, and the withdrawal is not arbitrary. This is such a case.
According to Medina Medina, a withdrawal is not arbitrary when adequate prewithdrawal notice is given, and the withdrawal "is not aimed at reaping the good will or clientele established by the dealer." See R.W. Int'l Corp. v. Welch Food, Inc., 13 F.3d 478 484 at n. 4 (1st Cir. 1994); R.W. Intern. Corp. v. Welch Foods, Inc., 88 F.3d 49 (1st Cir. 1996); Medina Medina, 858 F.2d at 823-24. It is undisputed that Dow did in fact completely withdraw from the Puerto Rican market. We must, therefore, determine if adequate prewithdrawal notice was given, and if the withdrawal was not "aimed at reaping the good will or clientele established by the dealer." Id.
III. Attempt to Reap the Dealer's Good Will or Established Clientele
Quasar Co., held that "a principal takes advantage of the dealer's good will and established clientele by creating in Puerto Rico facilities for the direct distribution of merchandise and services to the consumer that had previously been the dealer's responsibility." 138 D.P.R. at 82. Here it is undisputed that Dow after the sale of its assets, does not sell anymore its former products in Puerto Rico directly or through any designated dealers, agents, or retailers because it completely withdrew from the Puerto Rico market.
V Suarez attempts to persuade the Court that Dow took advantage of the market or good will developed by V Suarez to sell its assets to S.C. Johnson. The argument is extremely speculative because Dow's worldwide revenues at the time of the sale of its assets totaled approximately $764 million. (Plaintiff's Deposition Exhibit 3 at 1). V Suarez's revenues from the sale of Dow's products were $1.1 million or 0.14% of Dow's worldwide sales. (Docket 24 Dow's motion for Summary Judgment at 1). Furthermore, V Suarez has not proffered any evidence that V Suarez's sales of Dow's products in Puerto Rico increased or otherwise impacted S.C. Johnson's purchase price for Dow's worldwide assets. The evidence submitted, therefore, does not indicate that Dow took advantage or profited because of the market and goodwill developed in Puerto Rico for Dow's former products.
IV. Adequate Prewithdrawal Notice
The purpose of the prewithdrawal notice is to afford the dealer the opportunity to prepare for the impact that withdrawal could have on the dealer's business operations by cutting down on the negative effects of the termination and protecting the dealer's future business interest.See Medina Medina v. Country Pride Foods Ltd., 901 F.2d 181, 182 (1st Cir. 1990). We must decide, therefore, on the undisputed facts proffered by the parties, whether Dow's failure to give a market prewithdrawal notice to V Suarez was arbitrary.
With respect to the prewithdrawal notice, the present case is somewhat atypical because Dow was bound by a Confidentiality Agreement not to disclose its negotiations with S.C. Johnson until the sale of assets had been completed. Dow, however, does not premise its adequate prewithdrawal notice argument on the the Confidentiality Agreement. We, therefore, need not decide to what extent such an Agreement would or would not justify Dow's failure to give prewithdrawal notice to V Suarez. (Docket 24 at 9).
It is well established that the adequacy or usefulness of the prewithdrawal notice depends on, "the closeness of the relationship, the dependency of the dealer on the principal's product line, the `age of the ties broken by the dealer,' market conditions, and the dealer's relationship with other suppliers and with the clientele. In essence, the determination is one of reasonableness under the circumstances." Medina Medina, 122 D.P.R. at 191. The less lines a dealer represents, the greater his reliance on each line he sells, and thus the greater the relevance and importance of the prewithdrawal notice. The termination of a contract that only represents a small fraction of the dealer's business will not have a serious detrimental impact on his business and, therefore, the importance of the prewithdrawal notice accordingly diminishes. Id.
It is undisputed that V Suarez only distributed three Dow products (i.e., Fantastik, Glass Plus and Spray 'N Wash), with annual sales of less than $1.1 million, or approximately 0.335% of Suarez's annual sales of more than $312 million. (Docket 24 DSMF # 3). That, however, has not always been the case. At one point during the business relationship, V Suarez was the distributor of over 20 products supplied by Dow and its related companies, with annual sales in excess of $4 million. (Docket 24 DSMF # 4). Nevertheless, since 1992 Suarez's sales of Dow products dropped consistently every single year. (Docket 24 DSMF # 7). During that time, and until today the parties have engaged in a well-documented battle of finger pointing as to who was to blame for the line's decidedly mediocre performance. (Docket 24 DSMF # 8). In August of 1996, Suarez divested itself of a number of Dow products it was no longer interested in. (Docket 24 DSMF # 10). In February of 1997 Suarez hired the accounting firm of Zayas Morazanni Co. to perform a valuation of the Dow dealership for a possible sale of the Dow product line. (Docket 24 DSMF # 13). In sum, two years prior to S.C. Johnson's purchase of Dow, V Suarez divested itself of most of its Dow products. Indeed, ten months prior to S.C. Johnson's purchase of Dow, V Suarez even contemplated the sale of its Dow distributorship. Thus, after carefully reviewing the record, and given V Suarez's reduced dependency on Dow's product line, the dwindling market ability of the product line, and the parties increasing contentious relationship, we conclude that V Suarez has not and could not successfully contend as a matter of law that Dow's failure to give V Suarez prewithdrawal notice resulted in V Suarez suffering damages of the type recoverable under Law 75 because of its inability to alleviate the effects of the termination of the distribution agreement. Hence, Dow's failure to give prewithdrawal notice to V Suarez was not arbitrary. Accordingly, Dow's sale of its business to S.C. Johnson and its concomitant complete withdrawal from the Puerto Rico market did, as a matter of law, constitute "just cause" for termination under Law 75.
CONCLUSION
For the foregoing reasons, the Court GRANTS defendants' motion for summary judgment. Judgment shall be entered dismissing the Complaint with prejudice.
JUDGMENT
Pursuant to the Opinion and Order issued this date, the Court hereby enters judgment dismissing the Complaint with prejudice.This case is now closed for statistical purposes.