A.M. Capen's Co. v. American Trading & Production Corp.

February 9, 1996
                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT

                                     

No. 95-1870

                   A.M. CAPEN'S CO., INC.,

                     Plaintiff, Appellee,

                              v.

         AMERICAN TRADING AND PRODUCTION CORPORATION
     AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,

                   Defendants, Appellants.

                                     

                         ERRATA SHEET

   The opinion of  this court  issued on January  18, 1996,  is

amended as follows:

   Page 14, line 6:   Change "P.R. Laws Ann. tit. 13"  to "P.R.

Laws Ann. tit. 14".


                UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                         

No.  95-1870

                   A.M. CAPEN'S CO., INC.,

                     Plaintiff, Appellee,

                              v.

         AMERICAN TRADING AND PRODUCTION CORPORATION
     AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,

                   Defendants, Appellants.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF PUERTO RICO

       [Hon. Daniel R. Dominguez, U.S. District Judge]
                                                                 
                                         

                            Before

                     Selya, Circuit Judge,
                                                     
                Bownes, Senior Circuit Judge,
                                                        
                  and Stahl, Circuit Judge.
                                                      

                                         

Jos  Enrique Colon Santana for appellant.
                                      
Philip E. Roberts for appellee.
                             

                                         

                       January 18, 1996
                                         


          BOWNES, Senior  Circuit Judge.   This is  an appeal
                      BOWNES, Senior  Circuit Judge.
                                                   

from a  preliminary injunction  issued by the  district court

barring defendant-appellant American  Trading and  Production

Corp.  ("ATAPCO")  from  terminating plaintiff-appellee  A.M.

Capen's Co., Inc. ("Capen's") as an exclusive distributor for

Puerto  Rico of  ATAPCO's  products.   Capen's  had filed  an

action  in the United States  District Court for the District

of Puerto Rico alleging that  ATAPCO violated P.R. Laws  Ann.

tit. 10,   278, et seq. (1976 and  Supp. 1989)(a.k.a. Law 75,
                                   

the Puerto Rico Dealer's  Act) by terminating the exclusivity

of the distributorship.  Section 278a of title 10 provides:

             Notwithstanding  the  existence  in  a
          dealer's contract of  a clause  reserving
          to  the parties  the unilateral  right to
          terminate  the existing  relationship, no
          principal  or  grantor  may  directly  or
          indirectly perform any act detrimental to
          the established relationship or refuse to
          renew   said   contract  on   its  normal
          expiration, except for just cause.

The injunction was issued  pursuant to the provisional remedy

provision, Section 278b.1 of the Act, which provides:

             In  any litigation  in which  there is
          directly   or  indirectly   involved  the
          termination of a dealer's contract or any
          act   in   prejudice   of  the   relation
          established  between   the  principal  or
          grantor and  the  dealer, the  Court  may
          grant,  during the time the litigation is
          pending solution,  any provisional remedy
          or  measure of an  interdictory nature to
          do or to desist  from doing, 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

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                                          2


          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.

          There  is no  dispute as  to the  basic facts.   In

1978,  Capen's  entered  into  an  agreement   with  ATAPCO's

predecessor,  Sheller-Globe, to be  the exclusive distributor

of  Globe-Weiss  and Steelmaster  office  products in  Puerto

Rico, the Caribbean, the  Dominican Republic, and Central and

South America.   The agreement did not  contain an expiration

date.   Although confirmed in  a written letter,  the parties

did not sign a  formal contract because they could  not agree

on  the law that  would apply to  the contract.   When ATAPCO

took over, the arrangement with Capen's continued, as did the

disagreement as to choice-of-law and forum selection clauses.

          ATAPCO,  with its  principal place  of  business in

Missouri,  wanted  Missouri law  to  apply  to the  contract.

Capen's, a New Jersey corporation with its principal place of

business in  that state, wanted Puerto Rico law to apply.  As

a result, ATAPCO and Capen's never signed a  formal contract.

In December 1993, ATAPCO  wrote a letter to Capen's  in which

it terminated the exclusive aspect of the dealership.  ATAPCO

did  not end the Capen's dealership; it reserved the right to

sell  to  others.   ATAPCO made  Blas  Rossy Asencio  a sales

representative for the area  for which Capen's originally had

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                                          3


the exclusive rights.  This lawsuit ensued.1

              Proceedings of the District Court
                          Proceedings of the District Court
                                                           

          The  district court  adopted the  recommendation of

the  Magistrate  Judge that  the  provisional  remedy in  the

Puerto Rico Dealer's Act be granted.  The court then issued a

full-blown opinion  giving the reasons  for its  action.   It

found that Capen's  "has exhibited a likelihood of success on

the merits."  A.M.  Capens Co., Inc. v. American  Trading and
                                                                         

Prod.  Corp., 892 F.  Supp. 36,  38 (D.P.R.  1995).   It then
                        

held:

             Capens   has   also  shown   that  his
          business  will suffer  irreparable injury
          if the injunction  is not granted because
          Mr.  Rossy Asencio will  continue to sell
          the  products in the areas wherein Capens
          had  the  exclusivity   with  the   added
          competitive  advantage   for  Asencio  of
          freight charges assumed  by ATAPCO.   The
          above  will  obviously mean  that Capens'
          business  market  will  be  significantly
          irreparably diminished.

             The harm that Capens will  suffer most
          certainly  outweighs  ATAPCO's   possible
          harm:    the  business area  will  remain
          unchanged (the Caribbean and  Central and
          South America) and  ATAPCO will  continue
          receiving  benefits,  either through  Mr.
          Rossy  Asencio  or  through A.M.  Capens;
          however, the harm is for Capens who  will
          lose  business  market  should Mr.  Rossy
          Asencio  continue  to interfere  with the
          customers.

Id.  at 38-39.    Finally, the  court  held that  the  public
               

                    
                                

1.  Capen's  has   sued  Blas  Rossy   Asencio  for  tortious
inference with contractual relations.

                             -4-
                                          4


interest 

                             -5-
                                          5


would   not   be  adversely   affected  by   the  preliminary

injunction.  Id. at 39.
                            

          It is  obvious that  what we  are reviewing  is not

only a provisional remedy under the Puerto Rico Dealer's Act,

but  a  preliminary injunction  that  meets,  at least  prima
                                                                         

facie, all federal requisites.   The appropriate standard for
                 

reviewing a  preliminary injunction  is abuse  of discretion.

Jiminez Fuentes v. Torres Gaztambide, 807 F.2d  236, 239 (1st
                                                

Cir. 1986)(en banc), cert. denied, 481 U.S. 1014 (1987).
                                             

                           Analysis
                                       Analysis
                                               

          We  start our analysis with the only finding of the

district court to which defendant has objected -- probability

of success on the  merits.  Defendant's appeal is  posited on

two  contentions:  that Puerto  Rico law does  not apply; and

that plaintiff is not a dealer under the Puerto Rico Dealer's

statute.    As the  district court  noted,  this is  "a close

matter."  Id.
                         

          That  is because Capen's does not fit the mold of a

typical Puerto Rican dealer.  It does not advertise in Puerto

Rico  and has  neither  a warehouse  nor  a showroom  on  the

Island.   It sells exclusively to  retailers and wholesalers.

Though Capen's sometimes  sends an agent  to Puerto Rico,  it

does  not have  a  resident agent  on the  Island and  is not

qualified to do business  in Puerto Rico on a  regular basis.

On the other hand, the annual sales made by Capen's in Puerto

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                                          6


Rico under its exclusive distributorship increased from about

$30,000 in 1978 to $423,000 in 1993.  Total Puerto Rico sales

of  ATAPCO products  for the  five-year period  spanning from

1989 to 1993 came to about $1,976,000.  

          The  first  issue  is   what  law  applies.    This

necessitates an examination of the conflict of law principles

governing contract and tort law.

                       Contract Factors
                                   Contract Factors
                                                   

          ATAPCO contends that the district court incorrectly

applied Puerto  Rico choice of  law rules to  the facts.   It

stresses  that  none  of  the  acts  --  negotiation  of  the
                                

contract, performance  of the contract obligations, or breach

of the contract -- took place in Puerto Rico.   It points out

that neither it nor Capen's  has offices or employees located

in Puerto Rico.  

          The Supreme  Court of Puerto Rico  has approved the

"dominant or significant contacts" test for contract and tort

actions.  In re San Juan Dupont Plaza Hotel Fire Litig.,  745
                                                                   

F.  Supp.  79, 82  (D.P.R. 1990).    Thus, "the  laws  of the

jurisdiction with the most  significant contacts with respect

to the disputed  issue should  apply."  Id.   In  determining
                                                       

this  question,  recourse  to  the  Restatement  (Second)  of

Conflict  of Laws is appropriate.  Id. (citing Sections 6 and
                                                  

188).

          Under  Section  188 of  the  Restatement, absent  a

                             -7-
                                          7


contractual  choice  of law,  the contacts  to be  taken into

account in a contract action include:

          (a)  the place of contracting,

          (b)  the place of negotiation of the contract,

          (c)  the place of performance,

          (d)   the location of the  subject matter
          of
          the contract, and

          (e)  the domicil, residence, nationality,
          place   of   corporation  and   place  of
          business of the parties.

Restatement (Second) of Conflict of Laws   188 (1971).

          The  places  of  contracting  and  negotiating  the

contract  in question  occurred  in  the  continental  United

States.   ATAPCO and Capen's  met in St.  Louis, Missouri, to

discuss the  contract; they  also spoke  by phone.   However,

"[s]tanding alone,  the place of contracting  is a relatively

insignificant contact."  Id.   188 cmt. e.
                                        

          The  performance of  the  contract takes  place, in

part, in  the continental United States.  When Capen's wishes

to purchase products  from ATAPCO,  it places  an order  with

ATAPCO's   customer  service   offices  in   Pennsylvania  or

Missouri.  The goods  are then sent to Capen's  in New Jersey

or  to the point of  embarkation.  Sometimes  Capen's sends a

trailer   to  the   Pennsylvania  office   to  pick   up  the

merchandise.   But performance also occurs  in Puerto Rico --

where the market is

                             -8-
                                          8


 -- because the contract  granted Capen's the exclusive right

to sell  ATAPCO's products there.  See Id.   188 cmt. c ("[A]
                                                      

state  where  a  contract  provides  that  a  given  business

practice  is to  be pursued  has an  obvious interest  in the

application of its rule designed to regulate or to deter that

business practice.").

          The location of the  subject matter of the contract

similarly varies, depending on one's  view.  If the  products
                                                                         

sold  by ATAPCO,  and  then by  Capen's,  are considered  the

subject matter,  they start  out in Pennsylvania  or Missouri

(and  Kentucky according to ATAPCO) and end up in New Jersey.

Arguably, this is the end of the line because  when the goods

are  shipped to  Puerto  Rico,  they  become the  subject  of

contracts between  Capen's and its customers  in Puerto Rico.

ATAPCO, not surprisingly,  takes this position, pointing  out

that it has no direct contacts in Puerto Rico.

          The  other subject  matter of  the contract  is the

status of  Capen's as  the exclusive distributor  of ATAPCO's

merchandise.    This, it  seems clear,  is located  in Puerto

Rico.  It is this subject matter which  is in dispute, rather

than,  say, the  price of  the goods or  the manner  of their

delivery to Capen's.  The essential purpose of the  exclusive

distributor-ship was  to enable Capen's to  sell the products

it purchased from ATAPCO in Puerto Rico without competition.

          The  last factor -- the  location of the parties --

                             -9-
                                          9


does  not  point  to   Puerto  Rico.    ATAPCO,   a  Missouri

corporation,  has main offices  in Pennsylvania  and Missouri

and  also  apparently  conducts  business  in  Maryland   and

Kentucky.  Capen's is a New Jersey corporation with its place

of  business  there.   Capen's  does  not have  any  offices,

warehouses or permanent employees in Puerto Rico; it does not

have  a Puerto Rico address  or phone number.   Capen's does,

however,  regularly send  employees  to Puerto  Rico to  take

orders from customers.

                         Tort Factors
                                     Tort Factors
                                                 

          A  breach of Law 75 is considered a "tortious act."

Telenetworks, Inc. v. Motorola Universal Data Sys., Inc.,    
                                                                    

F.  Supp.    ,      1995  WL 707412,  at  2 (D.P.R.  Nov. 28,

1995).  Section 278b of the  Dealer's Act provides:  "[i]f no

just cause exists  for the  termination . .  . the  principal

shall have  executed a  tortious act  against the dealer  and

shall indemnify it." 

          The Restatement of  Conflict of Laws  provides that

in  a  tort  action the  law  of  the  state  with  the  most

significant relationship to "the  occurrence and the parties"

controls.   Restatement (Second)  of Conflict  of Laws    145

(1971).    The  following   contacts  should  be  taken  into

consideration:

          (a)  the place where the injury occurred,

          (b)   the place where the conduct causing
          the injury occurred,

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                                          10


          (c)  the domicil, residence, nationality,
          place  of  incorporation  and   place  of
          business of the parties, and

          (d)  the place where the relationship, if
               any,  between  the  parties  is
               centered.

Id.
               

          The injury occurred in  Puerto Rico because that is

where the  exclusive Capen's dealership was  terminated.  The

termination directly impacts the position Capen's held in the

Puerto Rico  market.  See Colletti v. Ovaltine Food Products,
                                                                        

274  F.  Supp.  719, 722  (D.P.R.  1967)  (where an  Illinois

corporation  terminated the distributorship of a Puerto Rican

dealer, its failure to "place the goods in Puerto Rico at the

disposal of  the . . .  dealer" is a tortious  act which "did

not take place anywhere but  in Puerto Rico").  Additionally,

because Law 75 is aimed at compensating victims  for wrongful

terminations,  Puerto Rico,  the site  of the  injury,  has a

greater interest in applying its laws.  See Restatement   145
                                                       

cmt. c; Colletti, 274  F. Supp. at 722 ("[R]egardless  of the
                            

manner  in which the defendant  . . .  allegedly notified the

plaintiff"  of the  termination of  its distributorship,  the

defendant  executed the  tortious act  within Puerto  Rico.).

Viewing all of the relevant factors  as a whole, we find they

cut in favor of applying Puerto Rico law. 

                    General Considerations
                                General Considerations
                                                      

          Section 6 of  the Restatement (Second)  of Conflict

                             -11-
                                          11


of Laws sets forth  general choice of law principles.   Where

there is no statute on point, the following factors should be

considered:

          (a)  the needs of the interstate and
          international systems,

          (b)  the relevant policies of the forum,

          (c)  the relevant policies of other
          interested   states   and  the   relative
          interests   of   those   states  in   the
          determination of the particular issue,

          (d)  the protection of justified expecta-
          tions,

          (e)  the basic policies underlying the
          particular field of law,

          (f)  certainty, predictability and
          uniformity of result, and

          (g)  ease in the determination and
          application of the law to be applied.

Restatement (Second) of Conflict of Laws   6 (1971).

          Taking  the  policy   issues  first,  courts   have

recognized that Law 75 "was  passed to protect the  interests

of   commercial  distributors   working   in  Puerto   Rico."

Ballester Hermanos, Inc. v.  Campbell Soup Co., 797  F. Supp.
                                                          

103,  106 (D.P.R. 1992).   Law 75 is  "'directed to level the

contractual conditions between two groups financially unequal

in their strength.'"   Draft-Line  Corp. v. Hon  Co., 781  F.
                                                                

Supp 841, 844 (D.P.R. 1991) (quoting Walborg Corp v. Tribunal
                                                                         

Superior,  140 D.P.R. 184, 189 (1975)),  aff'd, 983 F.2d 1046
                                                          

(1st Cir. 1993).

                             -12-
                                          12


             The  Dealer's Act  was enacted  by the
          Puerto  Rico  Legislature to  prevent the
          economic  exploitation of  local dealers.
          The Legislature had observed that dealers
          in   Puerto    Rico   were   particularly
          vulnerable  to  summary termination  once
          they had established  a favorable  market
          for a principal's products.

Id. at 843-44.
               

          The Puerto Rico Dealer's  Act has been described as

embodying  a "strong  public  policy."   Medina  & Medina  v.
                                                                         

Country  Pride Foods, Ltd., 858 F.2d 817, 820 (1st Cir. 1988)
                                      

(response  of  Puerto  Rico  Supreme  Court  to  a  certified

question  concerning Law 75).  The  case law establishes that

Puerto  Rico  has  a  substantial  interest  in  seeing  that

distributorships  are not arbitrarily  terminated or, if they

are,  that "due  reparation" is  provided to  them.   Bonn v.
                                                                         

Puerto Rico Int'l Airlines,  Inc., 518 F.2d 89, 91  (1st Cir.
                                             

1975).

          As the district court pointed out, there is nothing

in the  statute that requires  a dealer to  be a  resident of

Puerto  Rico,  to  be  authorized   to  do  business  in  the

Commonwealth,  or  to have  a place  of  business such  as an

office,  showroom or warehouse on the Island.  Section 278 of

the Act defines "Dealer" and "Dealer's Contract":

             (a)  Dealer:  person actually inter-
          ested  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;

                             -13-
                                          13


             (b)  Dealer's contract:   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.

P.R.  Laws Ann.  tit.  10,     278  (1976  and  Supp.  1989).

Accordingly, Capen's  appears to  satisfy  the definition  of

dealer within the Dealer's Act.

          Although both Missouri and New Jersey have statutes

protecting  dealers, we do not think that either state has an

interest in protecting Capen's in  the instant circumstances.

Missouri provides  that a  franchisor must give  ninety days'

notice  to  a  franchisee of  a  termination  of  a franchise

agreement  and  that,  in  the  absence  of  such  notice,  a

franchisee may recover  damages.  Mo. Rev. Stat.     407.405,

407.410  (1974  and Supp.  1975).    The law,  however,  only

applies to distributors with a place of business in Missouri.

Mo. Rev. Stat.   407.400(1) (1974 and Supp. 1975) (definition

of "franchise").  It  is plain that Capen's has  no franchise

presence in Missouri.

          New  Jersey  has a  Franchise  Practices Act  which

provides that notice  (60 days)  must be given  prior to  the

termination  of  a  franchise   agreement  and  that  such  a

termination only can  be based  on "good cause."   N.J.  Rev.

Stat.   56:10-5 (1971).  As in Missouri, the Act applies only

                             -14-
                                          14


to  a franchisee who establishes a "place of business" in New

Jersey.  Id.   56:10-4.  Thus, even though Capen's is located
                        

in New Jersey, it does not qualify for the Act's protection.

          Because  all three  jurisdictions evince  a general

policy of  protecting distributors, we can  fairly infer that

the application of Puerto Rico law would not  offend Missouri

or  New  Jersey.   By  restricting protection  to  only those

dealers who service customers  within the state, Missouri and

New Jersey  are concerned  with dealers who  have established

markets  within their borders.  Thus, it makes sense, in this

case, to apply the  law of the jurisdiction in  which Capen's

maintains its market.

          In this context, ATAPCO argues that under P.R. Laws

Ann. tit. 14,   2403 (1989),  Capen's is not required to file

informational   documents   (certificate  of   incorporation,

statement  of assets  and liabilities)  with the  Puerto Rico

Department  of State to  qualify as doing  business in Puerto

Rico.   Section 2403  exempts from filing  those corporations

which only receive,  outside Puerto Rico,  orders by mail  or

otherwise  and fill  the orders  by  shipping the  goods into

Puerto Rico  from the  outside.   ATAPCO argues  that because

Section  2403 exempts  Capen's from having  to qualify  to do

business  in Puerto Rico, Puerto Rico can have no interest in

protecting the  status of Capen's  as a distributor.   ATAPCO

presents  no  cases in  support  of this  contention  and, as

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                                          15


already noted, there  is nothing in  the Dealer's Act  giving

rise to such a requirement.

          This  is  an appeal  from  a  grant of  preliminary

injunctive  relief.   When  an appeal  comes  to us  in  that

posture, the appellate court's  "conclusions as to the merits

of  the issues presented on preliminary  injunction are to be

understood as  statements of probable outcomes,"  rather than

as  comprising the ultimate  law of  the case.   Narragansett
                                                                         

Indian  Tribe v.  Guilbert, 934  F.2d 4,  6 (1st  Cir. 1991);
                                      

accord Jimeniz Fuentes v. Torres Gatzambide, 807 F.2d at 238.
                                                       

In this case, we conclude that, bringing all the factors into

consideration, the  law of Puerto Rico  most probably applies

to  this  hybrid  contract/tort  action  and,  perforce,  the

district  court properly  made reference  to the  Puerto Rico

Dealer's  Act for  the  purpose of  the  motion to  impose  a

provisional remedy.

          Because ATAPCO  has neither briefed  nor argued the

other factors  that the district court  considered in issuing

the preliminary injunction,  we need not  consider them.   We

must  note, however,  after reviewing  the record  carefully,

that  we agree  with  the district  court's  findings:   that

Capen's would suffer  irreparable harm  unless a  preliminary

injunction issued; that no appreciable harm would be incurred

by  ATAPCO  by reason  of such  relief;  and that  the public

interest  would not  be adversely  affected by  a preliminary

                             -16-
                                          16


injunction.

          Affirmed.
                      Affirmed.
                               

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                                          17