Re-Ace, Inc. v. Wheeled Coach Industries, Inc.

United States Court of Appeals
For the First Circuit

No. 03-2085

RE-ACE, INC.,

Plaintiff, Appellee,

v.

WHEELED COACH INDUSTRIES, INC.,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. Carmen Consuelo Cerezo, U.S. District Judge]

Before

Boudin, Chief Judge,

Torruella and Lynch, Circuit Judges.

Eyck O. Lugo-Rivera, with whom Martínez Odell & Calabria was
on brief, for appellant.
Alfredo Fernández-Martínez, with whom Delgado & Fernández,
LLP, was on brief, for appellee.

March 30, 2004
 TORRUELLA, Circuit Judge. Defendant-appellant Wheeled

Coach Industries, Inc. ("Wheeled Coach") appeals from the entry of

a preliminary injunction by the district court under the Puerto

Rico Dealers Act, Law 75 of June 24, 1964, 10 P.R. Laws Ann. § 278-

278d ("Law 75"), ordering Wheeled Coach to reinstate an exclusive

distribution agreement with plaintiff-appellee Re-Ace, Inc. ("Re-

Ace"). After careful review, we affirm.

I. Background

We begin by summarizing briefly the relevant facts as

found by the district court. Wheeled Coach, a Florida corporation,

manufactures ambulances for sale throughout the United States. In

1979, Wheeled Coach sold its first ambulance in Puerto Rico, and

from that first sale onward, Re-Ace, a Puerto Rico corporation,

initiated and managed Wheeled Coach's relations with its clients in

Puerto Rico. Until the events that brought about this suit, Re-Ace

had been involved in every sale of a Wheeled Coach ambulance in

Puerto Rico.

The parties' relationship, which proceeded uninterrupted

for over two decades, was organized thus: Re-Ace promotes and

closes the sales contracts for Wheeled Coach ambulances with both

private and governmental clients. Re-Ace does not keep an

inventory of Wheeled Coach ambulances, in order to avoid excise

taxes and because all ambulances are custom-made by Wheeled Coach

to meet the specifications of each client. Re-Ace determines the

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final sales price of the ambulances and thus determines its own

profit -- the difference between the final sales price and the list

price for the ambulance set by Wheeled Coach. Wheeled Coach also

pays a standard commission to Re-Ace of four hundred dollars per

ambulance sold. Re-Ace is responsible to the clients for the

delivery of the ambulances and may be subject to penalties for

delay. Re-Ace is responsible for collecting the clients' payment

for the ambulances and must pay Wheeled Coach if an order is

subsequently cancelled. Re-Ace is responsible for servicing and

honoring the warranty claims of Wheeled Coach's Puerto Rico

clients. Over the years, Re-Ace has developed a substantial market

for Wheeled Coach ambulances in Puerto Rico and is identified as

Wheeled Coach's distributor and representative on the island.

This arrangement proceeded on the basis of an oral

contract until 1989, when the parties executed an Exclusive

Distributor's Agreement granting Re-Ace exclusive distribution

rights for Wheeled Coach ambulances in Puerto Rico.1 The practical

aspects of the parties' relationship continued as before. In 2002,

Wheeled Coach sent Re-Ace a new proposed agreement that would have,

among other things, made the relationship non-exclusive. Re-Ace

1
This was a standard agreement sent to Re-Ace by Wheeled Coach.
Wheeled Coach argues that, because it has not been able to locate
in its records the signed copy of the agreement Re-Ace claims to
have sent back to Wheeled Coach, the agreement was never executed
by Re-Ace. The district court found that Re-Ace signed the
agreement and that it has been in effect since 1989.

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rejected this agreement and business went on as usual. In February

2003, Wheeled Coach terminated its relationship with Re-Ace and

entered into an agreement granting exclusive distribution rights to

Bill de León Specialty Vehicles ("Bill de León").

On March 14, 2003, Re-Ace commenced this action seeking

injunctive relief and recovery of damages for an alleged illegal

termination of an exclusive distribution agreement in violation of

Law 75. Re-Ace requested a preliminary injunction ordering the

reestablishment of the prior relationship between Re-Ace and

Wheeled Coach and enjoining Bill de León from representing Wheeled

Coach in Puerto Rico for the duration of the suit. A preliminary

injunction hearing was held on May 13, 2003. On June 25, 2003, the

district court issued a preliminary injunction ordering Wheeled

Coach to reinstate the exclusive distribution agreement with Re-Ace

and enjoining Wheeled Coach from entering into or maintaining any

distribution agreement with third parties.

On July 8, 2003, Wheeled Coach moved for reconsideration,

requesting that the district court vacate the injunction. Wheeled

Coach argued that the district court erred in identifying Re-Ace as

a distributor under Law 75 and in disregarding the procedural

safeguards of Rule 65 of the Federal Rules of Civil Procedure by

issuing a preliminary injunction without ordering Re-Ace to post

any form of security and without notice to an adverse party, Bill

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de León.2 On July 31, 2003, the district court denied the motion

for reconsideration, but imposed a bond of $50,000 on Re-Ace.

Wheeled Coach appeals.

II. Analysis

Law 75 was enacted "to remedy the abusive practices of

suppliers who arbitrarily eliminated distributors after they had

invested in the business and had successfully established a market

in Puerto Rico for the supplier's product or service." Triangle

Trading Co., Inc. v. Robroy Indus., Inc., 200 F.3d 1, 2 (1st Cir.

1999)(quoting González v. Brown Group, Inc., 628 F. Supp. 436, 438-

39 (D.P.R. 1985)(internal quotations omitted)). To this end, Act

75 regulates the termination of a supplier's relationship with a

dealer, providing that, regardless of any unilateral right to

terminate present in a contract, "no principal or grantor may

directly or indirectly perform any act detrimental to the

established relationship . . . , except for just cause." 10 P.R.

Laws Ann. § 278a.3

Provisional remedies under Law 75 are provided by the

statute:

In any litigation in which there is . . .
involved the termination of a dealer's
contract . . . , the Court may grant, during

2
Re-Ace has subsequently dismissed its claims against Bill de
León.
3
The terms "dealer," "distributor," and "distributorship" are
used interchangeably in the caselaw concerning Law 75.

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 the time the litigation is pending resolution,
any provisional remedy . . . ordering any of
the parties, or both, to continue, in all its
terms, the relation established by the
dealer's contract, and/or to abstain from
performing any act or any omission in
prejudice thereof. In any case in which the
provisional remedy herein provided is
requested, the Court shall consider the
interests of all parties concerned and the
purposes of the public policy contained in
this chapter.

10 P.R. Laws Ann. § 278b-1 ("Article 3A").4 The question before us

is whether there has been a sufficient showing that Re-Ace is a

"dealer" who may take advantage of Law 75's provisional remedies.

This court has jurisdiction to hear interlocutory appeals

of preliminary injunction orders under 28 U.S.C. § 1291(a)(1). In

reviewing a preliminary injunction, "we scrutinize abstract legal

matters de novo, findings of fact for clear error, and judgment

calls with considerable deference to the trier." New Comm Wireless

Servs., Inc. v. SprintCom, Inc., 287 F.3d 1, 9 (1st Cir.

2002)(citing Langlois v. Abington Hous. Auth., 207 F.2d 43, 47 (1st

Cir. 2000)). Despite Wheeled Coach's contentions to the contrary,

our review of the evidence before the district court at the

4
This does not mean, however, that the procedural safeguards
provided by the Rules of Civil Procedure are inapplicable to the
provisional remedies provided by Law 75. Aybar v. F. & B. Mfg.
Co., Inc., 498 F. Supp. 1184, 1192 (D.P.R. 1980). On appeal,
Wheeled Coach argues that the district court abused its discretion
by imposing on Re-Ace an inadequate injunction bond of $50,000.
Wheeled Coach has subsequently filed a motion in the district court
requesting an increase to the bond, and in an order dated
November 26, 2003, the district court increased the bond to
$100,000.

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preliminary injunction hearing fails to indicate clear error in the

district court's findings of fact.5 Thus, on the basis of the

facts found by the district court, we review de novo the question

of whether the relationship between Re-Ace and Wheeled Coach

warrants Re-Ace's protection for preliminary injunction purposes as

a dealer under Law 75.

Law 75 defines a dealer as a "person actually interested

in a dealer's contract because of his having effectively in his

charge in Puerto Rico the distribution, agency, concession or

representation of a given merchandise or service." 10 P.R. Laws

Ann. § 278(a). A dealer's contract is defined as a "relationship

established between a dealer and a principal or grantor whereby and

irrespectively of the manner in which the parties may call,

characterize or execute such relationship, the former actually and

effectively takes charge of the distribution of a merchandise, or

of the rendering of a service, by concession or franchise, on the

market of Puerto Rico." 10 P.R. Laws Ann. § 278(b).

Both federal and Puerto Rico courts have recognized that

this broad definition of a dealer "encompasses a wide range of

actors within the distribution process and threatens to extend Act

5
Although failing to describe some details of the commercial
transactions between Re-Ace and Wheeled Coach, particularly the
role of the Ford dealerships associated with Re-Ace, the district
court's findings provide a summary of the relevant aspects of the
relationship sufficient for the purposes of determining whether Re-
Ace is a dealer under Law 75.

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75's protective sweep well beyond the end that the statute sought

to achieve." Triangle Trading, 200 F.3d at 4. In Triangle

Trading, we outlined the factors to be considered in determining

whether an actor is a dealer protected by Law 75, relying on the

Supreme Court of Puerto Rico's decision in Roberco, Inc. v. Oxford

Indus., Inc., 22 P.R. Offic. Trans. 111 (1988):

The Roberco court reviewed the legislative
history of Act 75 and the existing case law,
of both Puerto Rico and the federal courts, to
develop an inclusive list of factors to be
weighed equally in consideration of whether a
party has the requisite autonomy to be a
dealer under the Act. Observing that
something beyond mere contact with the product
as it moves down the chain from manufacturer
to supplier is necessary, the court restricted
the definition of a dealer to an independent
entrepreneur who has established a continuing
relationship, either fixed or indeterminate,
with another principal for the distribution of
a product or service . . . geared to create,
develop, and coordinate a market and to obtain
new clients. From this definition the court
derived the following characteristics of a
dealership: promotion of the product, keeping
an inventory, fixing prices, delivery and
billing responsibilities, authority to extend
credit, advertising campaigns, assumption of
risk, purchasing the product, maintaining
facilities, and offering product-related
services to clients.

Triangle Trading, 200 F.3d at 4-5 (citing Roberco, 22 P.R. Offic.

Trans. at 115, 120-32)(internal quotations omitted). Triangle

Trading makes clear that Re-Ace must do more than provide evidence

that it developed a market for Wheeled Coach and made a financial

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investment, because "those facts alone are not dispositive as they

apply to any sales agent or middleman." Id. at 5.

Wheeled Coach urges this court to conclude that Re-Ace is

not a dealer for the purposes of Law 75 because Re-Ace, inter alia,

does not purchase the ambulances for resale, does not maintain an

inventory of Wheeled Coach ambulances in Puerto Rico, and does not

assume a risk of financial loss beyond any fees or fines imposed in

the case of late or failed delivery of ambulances. Re-Ace contends

that its failure to purchase or maintain an inventory of Wheeled

Coach ambulances and the resulting diminution of some of the

typical financial risks of distributorship are due to the

customized nature of the item being sold, since each ambulance must

be manufactured to meet the precise specifications of the client.

The district court agreed, concluding that "since 1979,

[Re-Ace] has performed the duties traditionally performed by a

distributor, tempered to the particular product to be distributed,

in this case, custom made ambulances." Re-Ace, Inc. v. Wheeled

Coach Indus., Inc., 270 F. Supp. 2d 223, 231 (D.P.R. 2003). In

reaching this conclusion, the district court noted that the Supreme

Court of Puerto Rico has made it clear that when considering the

factors in Roberco "not all had to be satisfied in order to

determine that a plaintiff is an Act 75 distributor. Instead, a

trial court must consider said factors in light of the evidence

presented." Id. at 232. The court distinguished the case of Cobos

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Liccia v. DeJean Packing Co., Inc., 124 D.P.R. 896 (1989), where

the plaintiff was denied dealer status under Law 75 because it

failed to fulfill even one of the Roberco criteria. Id. at 231-33.

Here, Re-Ace fulfills several of the Roberco criteria,

including active promotion and closing of contracts, exerting

control over prices,6 taking responsibility for delivery (as

evidenced by their exposure to fines for late delivery), and

assuming the risks and responsibility of its actions (e.g., if a

client subsequently decides not to purchase an ambulance after it

is ordered, Re-Ace must compensate Wheeled Coach).

Wheeled Coach argues that Re-Ace cannot be a dealer under

Law 75 because it never obtains title to the ambulances, directing

the court's attention to Franceschini v. Riley Co., 591 F. Supp.

414, 419 (D.P.R. 1984)("[A]n Act 75 distributor is not a mere agent

of the principal but acts on its own with full ownership of the

goods sold."). In Franceschini, however, the court decided that

the plaintiff was not a Law 75 dealer because it was "a mere

forwarder of orders who did not have the authority to close or

conclude the sales contracts it promoted." Id. at 420. Despite

the court's reference to ownership, then, the decision in

Franceschini relies on its conclusion that "the ultimate matter to

6
Wheeled Coach argues that because its price list determines the
"price" of the ambulances, Re-Ace does not "exert control over
prices." However, Re-Ace determines the final sales price of the
ambulances and in doing so also determines its own remuneration in
a manner consistent with the role of a dealer under Law 75.

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be determined is whether all activities performed, be they

warehousing, delivery, advertising, add up to the development of a

market through promotion and closing of sales contracts." Id. at

418. So, while "purchasing the product" is one of the Roberco

factors to be considered, it is not dispositive. Roberco, 22 P.R.

Offic. Trans. at 123 ("No single factor is conclusive by itself and

none has more weight or importance than the others.").

In a related argument, Wheeled Coach contends that Re-Ace

is not entitled to invoke Law 75 because Re-Ace is not a Law 75

dealer but rather an exclusive sales representative within the

meaning of Puerto Rico's Sales Representative Act of 1990, 10 P.R.

Laws Ann. § 279 ("Law 21").7 Law 21 was enacted to protect sales

representatives and other local agents who fell short of the

requirements for "dealership" status under Law 75. Innovation

Mktg. v. Tuffcare Inc., 31 F. Supp. 2d 218, 220 & n.1 (D.P.R.

1998); Tavarez v. Champion Prods., Inc., 903 F. Supp. 268, 271

(D.P.R. 1995). It is modeled closely on Law 75 and, with limited

exceptions, provides identical remedies. See Codecom, Inc. v.

Alcatel Standard, S.A., 103 F. Supp. 2d 65, 67 & n.4 (D.P.R. 2000).

7
Re-Ace argues that Wheeled Coach forfeited any argument
concerning Law 21 by failing to raise the issue in the district
court. This objection misunderstands Wheeled Coach's argument.
Wheeled Coach does not claim relief on the basis of Law 21 (an
argument that would indeed be forfeited), but rather cites Law 21
as evidence of what Law 75 is not intended to cover. This is
consistent with Wheeled Coach's contention, both in the district
court and on appeal, that Law 75 does not apply to Re-Ace.

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Law 21, however, applies only to sales representative contracts

formed after December 5, 1990. Innovation Mktg., 31 F. Supp. 2d at

220; Tavarez, 903 F. Supp. at 272. Wheeled Coach argues that its

relationship with Re-Ace is a "sales representation contract" under

Law 21, which means that the Puerto Rico legislature did not expect

Law 75 to apply in this context. Re-Ace's suit under Law 75,

Wheeled Coach continues, is simply an attempt to evade the 1990

prospective limitation on Law 21 claims.8

It is a plausible argument. Law 21 defines a sales

representative as "an independent entrepreneur who establishes a

sales representation contract of an exclusive nature, with a

principal or grantor, and who is assigned a specific territory or

market, within the Commonwealth of Puerto Rico. It includes the

figure known as 'manufacturer's representative.'" 10 P.R. Laws

Ann. § 279(a); Orba, Inc. v. MBR Indus., Inc., 49 F. Supp. 2d 67,

71 (D.P.R. 1999). A "sales representation contract," in turn, is

defined as follows:

The agreement established between a sales
representative and a principal, through which
. . . the party of the first part commits
himself to making a reasonable effort and due
diligence in the creation or expansion of a
market which is favorable for the products
that the principal sells, directed at
capturing clientele to offer it a product or
service marketed by him in Puerto Rico, and

8
As previously noted, the relationship between Re-Ace and Wheeled
Coach dates from 1979, and the two companies executed a written
contract in 1989.

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 the party of the second part is bound to
comply with the commitments that may result
from the sales representative's efforts and
coordination and to pay the previously-
accorded commission or remuneration.

10 P.R. Laws Ann. § 279(c). Aspects of Re-Ace's relationship with

Wheeled Coach do appear, at first glance, to fall within this

definition –- for example, Wheeled Coach pays Re-Ace a commission

or remuneration for each vehicle sold; Wheeled Coach is bound by

sales made by Re-Ace; and Re-Ace never acquires title in the

ambulances. As previously discussed, however, these facts, when

viewed within the context of a custom-made product, can likewise be

seen to fit within "the duties traditionally performed by a

distributor, tempered to the particular product to be distributed,

in this case, custom made ambulances." Re-Ace, Inc., 270 F. Supp.

2d at 231. The distinction between a Law 75 dealer and a Law 21

sales representative is "essentially a fact-specific one."

Innovation Mktg., 31 F. Supp. 2d at 221; Triangle Trading Co. v.

Robroy Indus., Inc., 952 F. Supp. 75, 78 (D.P.R. 1997). On the

basis of the evidence before it at the preliminary injunction

hearing, it was not clear error for the district court to determine

that Re-Ace is a Law 75 dealer rather than a Law 21 sales

representative.

We conclude that the district court did not err in

determining that Re-Ace deserved the provisional protections

provided to dealers by Law 75. Thus, the district court "was

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within its discretion in finding that public policy and the

interests of the parties would be best served by strict temporary

enforcement of the letter of the agreement." DeMoss, 493 F.2d at

1015. Of course, Wheeled Coach has the opportunity to present

further evidence and to argue anew the question of Re-Ace's status

as a dealer at trial. See Luis Rosario, Inc. v. Amana

Refrigeration, Inc., 733 F.2d 172, 173-74 (1st Cir. 1984).

III. Conclusion

The preliminary injunction issued by the district court

is affirmed.

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