Opinion
Case No. 02-2661 (JAG).
May 6, 2004
REPORT AND RECOMMENDATION
INTRODUCTION
This is a diversity action for breach of a distributorship agreement under the Puerto Rico Dealer's Act, P.R. Laws Ann., Tit. 10 §§ 278 et seq. (Law 75) and for damages arising from a breach of contract under Articles 1054 and 1059 of the Puerto Rico Civil Code, P.R. Laws Ann., Tit. 31 §§ 3018 and 3023.
Several matters, as discussed below, have been referred by the Honorable Court to the undersigned Magistrate Judge for report and recommendation. ( Docket entry #61).
ANALYSIS
Motion to Dismiss Second Cause of Action and Certification to the Puerto Rico Supreme Court.
On March 4, 2003, plaintiff Matosantos Commercial Corporation (hereafter "MCC") filed an Amended Complaint asserting two (2) causes of action, namely: 1) a cause of action pursuant to the Puerto Rico Dealer's Contract Act, Law 75 of June 24, 1964, as amended, P.R. Laws Ann, Title 10, § 278 et seq, and 2) a cause of action for breach of contract pursuant to Articles 1054 and 1059 of the Puerto Rico Civil Code, P.R. Laws Ann., Title 31, §§ 1054 and 1059. (Docket entry # 8).
On May 19, 2003, defendant SCA Tissue of North America, LLC (hereafter "SCA") filed a Motion to Dismiss Second Cause of Action of Amended Complaint requesting the dismissal of the second cause of action alleging that it is not legally separate from the first cause of action. SCA contends that Law 75 preempts the provisions of the Puerto Rico Civil Code in cases where a dealership contract is involved, so the remedies of Law 75 are exclusive. (Docket entry # 17).
On June 24, 2003, MCC filed its Opposition arguing in essence that actions under Law 75 are "tortuous" in nature and, thus, damages may also be recovered under a breach of contract theory and Law 75 does not provide for recovery of future lost profits while the Civil Code does, and, thus there is no duplication of remedies. (Docket entry #21).
Consequently, SCA filed its Reply to the Opposition on July 23, 2003 mainly contending that MCC is wrong concerning the scope of Law 75's damages provision and the interaction between the Puerto Rico Civil Code's breach of contract provisions and Law 75. (Docket entry # 27).
On August 28, 2003, MCC filed its Sur-reply to the Reply in which it requested that the following matter be certified to the Puerto Rico Supreme Court, to wit: "Do the provisions of Law 75 prevent a distributor who is asserting a cause of action under that statute from presenting as well a cause of action for breach of contract under Articles 1054 and 1059 of the Civil Code?" (Docket entry #42). SCA tendered its Opposition to the certification on September 25, 2003 and MCC filed its Reply to the Opposition on October 8, 2003. (Docket entry # 52).
SCA's Opposition was tendered and was never entered in the docket of this case. Nonetheless, since MCC's reply to the Opposition was filed and entered in the docket, we will consider SCA's Opposition as filed and entered in the docket.
These matters have been referred by the Honorable Court to the undersigned Magistrate Judge for report and recommendation ( Docket entry #61).
It is clear that Puerto Rico's Law 75 governs the business relationship between principals and the locally appointed distributors who market their products. See Caribe Indus. Systems, Inc. v. National Starch and Chemical Co., 212 F.3d 26, 29 (1st Cir. 2000); Irvine v. Murad Skin Research Labs., Inc., 194 F.3d 313, 317-18 (1st Cir. 1999). In order to avoid the inequity of arbitrary termination of distribution relationships once the distributor has developed a local market for the principal's products or services, Law 75 limits the principal's ability to unilaterally end the relationship except for "just cause." P.R. Laws Ann. Tit. 10, § 278a. Id.
Law 75 provides for damages when a principal has, without "just cause," terminated or refused to renew a dealership contract. The principal's conduct in such circumstances is deemed by the law a "tortuous act against the dealer," and the law provides for the indemnification of the dealer "to the extent of the damages caused him." 10 L.P.R.A. § 278b; Telenetworks, Inc. v. Motorola Universal Data Systems, Inc., 906 F.Supp. 75, 76 (D.P.R. 1995).
Section 278b identifies four primary factors in assessing the dealer's damages. The first three are: (a) the cost and value of fitting the dealer's premises to service the principal's product; (b) the cost of the principal's product the dealer has been "stuck with" as a result of the unjustly terminated relationship, and (c) the value of the "good will" accumulated by the distributor (the calculation of which is again provided for by a four-part analysis). The fourth factor pertains to lost profits. It provides that the dealer may receive as damages the amount of the profit obtained in the distribution of the merchandise or in the rendering of the services, as the case may be, during the last five years, or if less than five, five times the average of the annual profit obtained during the last years, whatever they may be. 10 L.P.R.A. § 278b(d); Telenetworks, Inc., 906 F.Supp. at 76.
Although the law identifies four factors to consider in awarding damages in a Law 75 case, the Puerto Rico Supreme Court has held that these factors should be flexibly applied:
[The factors] are only guidelines for the fixing of the damages and do not bind the court to automatically award indemnity applying each and every factor. The court has the discretion to apply the factors listed in the light of the specific circumstances of each case, pursuant to the evidence presented.Marina Industrial, Inc. v. Brown Boveri Corp., 114 D.P.R. 64, 90 (1983).
In Computec Systems Corp. v. General Automation, Inc., 599 F.Supp. 819, 826 (D.P.R. 1984), this Court explained the Marina Industrial decision finding that there is ". . . nothing in the Marina Industrial opinion or other relevant Act 75 case law, nor in the wording of the statute or its legislative history to suggest that the list of damage factors be read as exclusive of all others." Based on Marina Industrial, this Court ruled that "there being no specific command for exclusivity in the special law or its authoritative interpretations, Article 12 of the Civil Code, P.R. Laws Ann., Tit. 31 Sec. 12 directs us to supplement the special law with the general provisions of the Civil Code."Id. As such, the Court concluded that the special law, in this case the Dealer's Act (Law 75), "can and should be supplemented by those provisions in the [Civil] Code which may be applicable . . . and [d]amages arising from a breach of contract . . . are recognized by the Civil Code as compensable." Id.
Almost 11 years later in Telenetworks, Inc., this Court followed the holding in Computec and clarified that it has faithfully followed Marina Industrial's guidance in this regard. Thus, the Court concluded that a Law 75 case may also be a vehicle for awarding "[d]amages arising from breach of contract as well as those arising from the negligent performance of any type of obligation. . . ." Telenetworks, Inc., 906 F.Supp. at 77; Computec, 599 F.Supp. at 826.
See also, Ballester Hermanos, Inc. v. Campbell Soup Co., 1993 WL 269656, 3 (D. Puerto Rico 1993.) ("The factors listed in section 278b must . . . be used at the court's discretion based upon the specific circumstances"); Homedical Inc. v. Sarns/3M Health Care, Inc., 875 F.Supp. 952, 953 (D. Puerto Rico 1995) ("To be sure, plaintiff's recovery is not necessarily limited to the types of damages enumerated in section 278b. The factors listed act only as guidelines").
In sum, the Dealer's Act (Law 75) can be supplemented by the general provisions of the Civil Code which might be applicable. Thus, a Law 75 case may also be a vehicle for awarding damages arising from a breach of contract. Id.
Applying the case law above mentioned to this case, it is clear that MCC's second cause of action included in the Amended Complaint for breach of contract pursuant to Articles 1054 and 1059 of the Puerto Rico Civil Code, P.R. Laws Ann., Title 31, §§ 1054 and 1059 is a proper cause of action in this Law 75 case.
Finally, MCC has requested that the following matter be certified to the Puerto Rico SupremeCourt, to wit: "Do the provisions of Law 75 prevent a distributor who is asserting a cause of action under that statute from presenting as well a cause of action for breach of contract under Articles 1054 and 1059 of the Civil Code?" (Docket entry #42).
In light of the published opinions of this Court above cited, the statute is unambiguous on the issue being raised and the current state of the law of Puerto Rico on the matter is clear. Thus, there is no need to certify to the Supreme Court of Puerto Rico the question raised by MCC. Basic Controlex Corp., Inc. v. Klockner Moeller Corp., 202 F.3d 450, 453 (1st Cir. 2000) (parties who choose to litigate state law questions in federal court under diversity jurisdiction are presumptively disallowed a second bite at the apple via the certification process);Santiago v. Sherwin Williams Co., 3 F.3d 546, 548 (1st Cir. 1993) ("one who chooses to litigate [his/her] state action in the federal forum (as plaintiff did here) must ordinarily accept the federal court's reasonable interpretation of extant state law rather than seeking extensions via the certification process.");Croteau v. Olin Corp., 884 F.2d 45, 46 (1st Cir. 1989) (same); Sea-Land Service, Inc. v. Sea-Land of Puerto Rico, Inc., 636 F.Supp. 750 (D. Puerto Rico 1986) (a party's expectations of how the Supreme Court of Puerto Rico would modify existing law in order to rule favorably in its case was insufficient to warrant certification of issue to that Court where published opinions of that Court clearly indicated the current state of the law of Puerto Rico on the matter.).
Accordingly, it is RECOMMENDED that SCA's Motion to Dismiss Second Cause of Action of Amended Complaint be DENIED. It is also RECOMMENDED that MCC's request to certify a question to the Supreme Court of Puerto Rico be DENIED. Motion to Dismiss Counterclaim of Declaratory Relief.
On July 11, 2003, SCA filed a Motion for Leave to file Amended Answer to the Amended Complaint and Counterclaim tendering the Amended Answer and Counterclaim for Declaratory Relief against MCC seeking judicial declaration that: "(a) MCC does not have and never had at any time relevant to this action, exclusive rights to the distribution of any of SCA TISSUE NA's products in Puerto Rico or elsewhere; (b) SCA TISSUE NA is not now, and has not been at any time relevant to this action, prohibited by law or contract from selling its products in Puerto Rico through other dealers or distributors in addition to MCC; and (c) SCA TISSUE NA has not at any time, explicitly or constructively, directly or indirectly, terminated its dealer or distributor relationship with MCC as "Termination of Relationship" is defined in Law 75." (Docket entries # 23 and #26). On July 21, 2003, the Court granted the requested leave and docketed the tendered motion. (Docket entry # 25). On September 2, 2003, MCC filed a Motion to Dismiss Counterclaim alleging that it is redundant and will serve no useful purpose. (Docket entry #45). Then, SCA filed its Opposition to the Motion to Dismiss Counterclaim (Docket entry # 51) and MCC filed its Reply to the Opposition. (Docket entry # 53).
These matters have also been referred by the Honorable Court to the undersigned Magistrate Judge for report and recommendation ( Docket entry #61).
The Declaratory Judgment Act, 28 U.S.C. § 2201, reads in relevant part:
In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
The Declaratory Judgment Act, 28 U.S.C. §§ 2201- 2202 (1988), empowers a federal court to grant declaratory relief in a case of actual controversy. The Act does not itself confer subject matter jurisdiction, but, rather, makes available an added anodyne for disputes that come within the federal courts' jurisdiction on some other basis. See Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 15-16, 103 S.Ct. 2841, 2849-50 (1983).
The Declaratory Judgment Act serves a valuable purpose. It is designed to enable litigants to clarify legal rights and obligations before acting upon them. See Step-Saver Data Sys., Inc. v. Wyse Tech., 912 F.2d 643, 649-50 (3d Cir. 1990). Because the Act offers a window of opportunity, not a guarantee of access, the courts, not the litigants, ultimately must determine when declaratory judgments are appropriate and when they are not. Consequently, federal courts retain substantial discretion in deciding whether to grant declaratory relief. As we have stated, the Declaratory Judgment Act "neither imposes an unflagging duty upon the courts to decide declaratory judgment actions nor grants an entitlement to litigants to demand declaratory remedies."Ernst Young v. Depositors Economic Protection Corp., 45 F.3d 530, 534 (1st Cir. 1995); El Día Inc. v. Hernández-Colón, 963 F.2d 488, 493 (1st Cir. 1992). In other words, declaratory relief, both by its very nature and under the plain language of 28 U.S.C. § 2201, is discretionary.Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 581 (1962).
The two principal criteria guiding the policy in favor of rendering declaratory judgments are (1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding. Broadview Chemical Corp. v. Loctite Corp., 417 F.2d 998, 1001 (2nd Cir. 1969).
In cases when the request for declaratory relief brings into question issues that already have been presented in plaintiff's complaint and defendant's answer to the original claim, a party may challenge the counterclaim on the ground that it is redundant and a decision on the merits of plaintiff's claim will render the request for declaratory judgment moot. Aldens, Inc. v. Packel, 524 F.2d 38, 52 (3rd Cir. 1975); 6 Fed. Prac. Proc. Civ. 2d § 1406.
Based on the above criteria and Aldens, MCC challenges SCA's counterclaim for declaratory relief shows arguing that it is repetitive of the allegations in the Amended Complaint and the Amended Answer to the Amended Complaint and its affirmative defenses. Therefore, MCC contends that the resolution of the allegations of the Amended Complaint would render moot SCA's counterclaim for declaratory relief. Furthermore, MCC argues the counterclaim is redundant and will serve no useful purpose.
SCA's counterclaim for declaratory relief seeks declaration of the following: (a) MCC does not have and never had at any time relevant to this action, exclusive rights to the distribution of any of SCA TISSUE NA's products in Puerto Rico or elsewhere; (b) SCA TISSUE NA is not now, and has not been at any time relevant to this action, prohibited by law or contract from selling its products in Puerto Rico through other dealers or distributors in addition to MCC; and (c) SCA TISSUE NA has not at any time, explicitly or constructively, directly or indirectly, terminated its dealer or distributor relationship with MCC as "Termination of Relationship" is defined in Law 75" (Docket entry #26).
A perusal of the SCA's Amended Answer to the Amended Complaint and its affirmative defenses leads us to conclude that the request for declaratory relief brings into question issues that already have been presented in MCC's Amended Complaint and SCA's Amended Answer to the Amended Complaint.
The issues raised in the counterclaim for declaratory relief are related to the distribution relationship between MCC and SCA for the distribution of the products in Puerto Rico, and the termination of this relationship in alleged violation of Law 75. This is precisely the main allegation of the Amended Complaint and this has been addressed by defendant in its Amended Answer to the Amended Complaint and its affirmative defenses. So much so, that the first and third issues raised in the counterclaim for declaratory relief are affirmative defenses numbers 37 and 41 of the Amended Answer to the Amended Complaint. Both of these issues raised in the declaratory relief and the affirmative defenses are almost exactly worded. ( Docket entry # 26). The second issue of the counterclaim for declaratory relief has also been raised among the allegations included in the Amended Complaint and its Amended Answer. Thus, the request for declaratory relief brings into question issues that already have been presented in MCC's Amended Complaint, SCA's Amended Answer to the Amended Complaint and its affirmative defenses.
In view of the foregoing, the adjudication of the Amended Complaint will dispose of the issues raised in the counterclaim for declaratory judgment. Thus, the declaratory relief does not serve a useful purpose and a decision on the merits of the Amended Complaint will render the request for declaratory relief moot.
Accordingly, it is RECOMMENDED that MCC's Motion to Dismiss Counterclaim for Declaratory Relief be GRANTED.
IT IS SO RECOMMENDED.
The parties have ten (10) days to file any objections to this report and recommendation. Failure to file same within the specified time waives the right to appeal this order. Henley Drilling Co. v. McGee, 36 F.3d 143, 150-151 (1st Cir. 1994);United States v. Valencia, 792 F.2d 4 (1st Cir. 1986). See Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 991 (1st Cir. 1988) ("Systemic efficiencies would be frustrated and the magistrate's role reduced to that a mere dress rehearser if a party were allowed to feint and weave at the initial hearing, and save its knockout punch for the second round").
IT IS SO ORDERED.