United States Court of Appeals
For the First Circuit
No. 05-1962
PUERTO RICO HOSPITAL SUPPLY, INC.,
Plaintiff, Appellee,
v.
BOSTON SCIENTIFIC CORP.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Hector M. Laffitte, U.S. District Judge]
Before
Boudin, Chief Judge,
Siler,* Senior Circuit Judge,
and Saris,** District Judge.
Humberto Guzman-Rodriguez, with whom Edward W. Hill-Tolinche
and Jorge Soltero-Pales were on brief, for appellant.
Jesus E. Cuza, with whom John L. McManus and Linda M. Reck
were on brief, for appellee.
October 21, 2005
*
Of the Sixth Circuit, sitting by designation.
**
Of the District of Massachusetts, sitting by designation.
SILER, Senior Circuit Judge. Plaintiff Puerto Rico Hospital
Supply, Inc. (“PRHS”) filed suit against Boston Scientific
Corporation (“BSC”) in the United States District Court in Puerto
Rico for the purpose of obtaining a preliminary injunction pending
arbitration before the International Chamber of Commerce (“ICC”).
PRHS appeals the district court’s denial of the injunction on the
basis that the district court applied the wrong legal standard. We
AFFIRM the district court.
I. BACKGROUND
PRHS is a Puerto Rico company in the business of distributing
medical products. BSC is a manufacturer of medical products and is
incorporated in Delaware with a principal place of business in
Massachusetts. In 1989, the two businesses entered into a contract
under which PRHS would become the exclusive distributor of BSC
products in Puerto Rico. The contract specified that PRHS would
use its “best efforts to develop and promote” BSC’s products and
that PRHS would “maintain, at [PRHS’s] own expense, an adequate
inventory” of BSC products. The term of the agreement was one
year, but it could be extended for additional one-year periods
provided that both parties agreed to the extension. The contract
was extended for one-year periods through the normal course of
business until 2005. Under the contract, either party could
terminate or not renew the agreement for cause after giving the
breaching party sixty days to remedy the problem. Otherwise, any
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party could terminate the agreement by giving the other twelve
months notice. The choice-of-law provision states that the
agreement “shall be governed by the laws of the Commonwealth of
Massachusetts and, to the extent applicable, the Commonwealth of
Puerto Rico and the United States of America.” The agreement
specifies that all disputes, including those relating to the
construction of the contract, shall be arbitrated under the rules
and the governance of the ICC.
In a letter dated April 29, 2005, BSC sent PRHS notice that it
did not intend to renew the contract after it was set to expire on
June 30, 2005. The letter cited three reasons for not wishing to
renew: 1) that PRHS “failed to use its best efforts to develop and
promote the use and sale” of BSC products such that “BSC’s goodwill
has been negatively affected” causing a loss of “millions of
dollars in sales”; 2) that PRHS “failed to maintain an adequate
inventory” of BSC products; and 3) that PRHS failed to “timely pay
the amounts owed” to BSC. The letter stated that if PRHS began to
meet its contractual obligations, BSC would reconsider terminating
their relationship.
PRHS filed a complaint with the ICC to arbitrate the merits of
this case. It also filed a complaint in district court for the
sole purpose of obtaining a preliminary injunction pending
arbitration. The ICC rules provide that either an arbitrator or a
court can issue interim relief. The district court denied the
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motion for injunctive relief by analyzing this case under the
traditional test. PRHS appeals. This court has jurisdiction under
28 U.S.C. § 1292(a)(1).
II. STANDARD OF REVIEW
This court reviews the denial of the preliminary injunction
for an abuse of discretion. Charlesbank Equity Fund II v. Blinds
To Go, Inc., 370 F.3d 151, 158 (1st Cir. 2004). This court reviews
abstract issues of law de novo, recognizing that an error of law is
always an abuse of discretion. Id. Factual findings, however, are
reviewed for clear error. New Comm Wireless Servs., Inc. v.
SprintCom, Inc., 287 F.3d 1, 9 (1st Cir. 2002).
III. DISCUSSION
A district court has jurisdiction to issue preliminary
injunctions to preserve the status quo pending arbitration.
Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141, 151 (1st Cir. 1998)
(citing Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 51 (1st Cir.
1986)). Additionally, the ICC rules, which were incorporated into
the contract, allow either the arbitrator or “any competent
judicial authority” to issue interim relief. Rules of Arbitration
of the ICC, Article 23, available at
http://www.iccwbo.org/court/english/arbitration/rules.asp. Thus,
the court did not err in hearing the case and deciding the matter.
The essence of PRHS’s argument is that the district court
erred in not making a “provisional choice of law,” and that such a
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choice would have resulted in the application of Puerto Rico’s Law
75, 10 P.R. Laws Ann. § 278 (“Law 75”).3 Because this argument was
not made below, it was waived. See Carcieri v. Norton, 398 F.3d
22, 39 (1st Cir. 2005) (“The general rule is that issues not raised
in district court cannot be raised for the first time on appeal as
a matter of right.”).
Additionally, PRHS’s actions below appear to have invited the
very error it now claims. See Austin v. Unarco Indus., Inc., 705
F.2d 1, 15 (1st Cir. 1983) (citing McPhail v. Mun. of Culebra, 598
F.2d 603, 607 (1st Cir. 1979)). In general, “a party may not
appeal from an error to which he contributed, either by failing to
object or by affirmatively presenting to the court the wrong law.”
Id. The district court repeatedly stated that it would not make a
choice-of-law determination, despite BSC’s insistence that it must
do so to properly rule on the motion. Not only did PRHS not object
to the court’s intentions, but it also stated that the
determination would not turn on a choice-of-law interpretation.
Rather, PRHS stated, in relevant part: “My point and my client’s
point is that this court should not go into either Puerto Rico law
. . . or . . . Massachusetts law to decide whether my client . . .
3
Law 75 is a Puerto Rican dealers’ law enacted “to protect
Puerto Rico dealers from the harm caused when a supplier
arbitrarily terminates a distributorship once the dealer has
created a favorable market for the supplier’s products,” which
prevents suppliers from refusing to renew or terminating a covered
contract, except for just cause. R.W. Int’l Corp. v. Welch Food,
Inc., 13 F.3d 478, 482 (1st Cir. 1994).
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is entitled to the injunction” and “[m]y only request to this Court
is [to] . . . retain the status quo, and let the arbitrator decide,
whether it is Massachusetts [or] Puerto Rico” law. In its opinion,
the district court followed federal law; and, as PRHS implored the
court not to determine applicable law, PRHS cannot now assert error
for the choice.
Even if there is no invited error or waiver, the district
court was faced with an ambiguous choice-of-law provision. The
parties’ contract stated that “[t]his Agreement . . . shall be
governed by the laws of the Commonwealth of Massachusetts and, to
the extent applicable, the Commonwealth of Puerto Rico and the
United States of America.” This provision is ambiguous because the
phrase “to the extent applicable” does not clearly dictate which
law should apply under what circumstances. PRHS’s witness said
that he wanted Puerto Rico law to apply, and suggested that this
was in order to gain the benefits of Law 75. BSC, of course, may
not have shared this understanding.” Because neither the contract
nor the evidence presented clarify the parties’ intent, the
provision is ambiguous.
Ambiguous choice-of-law provisions should be determined by the
arbitrator, not the district court. Medika Int’l, Inc. v. Scanlan
Int’l, Inc., 830 F. Supp. 81, 88 (D.P.R. 1993). However, the fact
that the choice-of-law determination is left to the arbitrator
should not prevent a district court from making a preliminary
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judgment regarding which law to apply for the purposes of
injunctive relief. In the face of an ambiguous choice-of-law
provision, the district judge made a permissible choice to apply
federal law as the default standard for preliminary injunction
purposes. In Medika Int’l, Inc. v. Scanlan Int’l Inc., the court
examined a contract involving a Minnesota choice-of-law provision
which may have contravened Law 75. Id. The court held that the
arbitrator should decide the applicability of Minnesota law, and it
applied federal law when determining the merits of the plaintiff’s
request for a preliminary injunction. Id. Because preliminary
relief is intended to deal with temporary conditions, the
district’s court decision to apply the federal law standard, given
the ambiguous choice-of-law provision, was a reasonable one. The
district court thus did not err in applying federal law.
PRHS relies on Danieli & C. Officine Meccaniche S.p.A. v.
Morgan Constr. Co., 190 F. Supp. 2d 148, 156-57 (D. Mass. 2002),
for the proposition that a district court has the authority to make
a provisional choice of law. Yet that decision explicitly stated
that when “an agreement contains a valid arbitration clause as well
as a choice of law provision, the determination of what law applies
should be made by the arbitrator.” Id. The district judge in
Danieli declined to make a choice-of-law determination; rather, he
simply selected what law to apply for the limited purpose of
evaluating the availability of preliminary injunctive relief. Id.
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Similarly, in the case at hand, the district court used the federal
standard to determine if PRHS was entitled to an injunction, but
did not address the likelihood of success on the merits because
PRHS had not proven irreparable harm.
To determine whether PRHS was entitled to an injunction, an
applicable law must be selected - the district court chose federal
law.1 Both the Medika and Danieli courts relied on the traditional
four-part test for preliminary injunctions, and the district court
here did not err in doing the same. Because this case involved the
district court’s authority to issue an injunction under the FAA,
and because the choice-of-law provision provided that the case
should be governed by federal law “to the extent applicable,” the
district court properly applied federal law, leaving for the
arbitrator the choice-of-law determination.
1
The Massachusetts standard for issuing a preliminary
injunction closely tracks the federal standard:
The judge initially evaluates in combination the moving
party's claim of injury and chance of success on the merits.
If the judge is convinced that failure to issue the injunction
would subject the moving party to a substantial risk of
irreparable harm, the judge must then balance this risk
against any similar risk of irreparable harm which granting
the injunction would create for the opposing party. What
matters as to each party is not the raw amount of irreparable
harm the party might conceivably suffer, but rather the risk
of such harm in light of the party's chance of success on the
merits.
Siemens Bldg. Techs., Inc. v. Div. of Asset Capital Mgmt., 791
N.E.2d 340, 343 (Mass. 2003).
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Even if the district court’s application of federal law was in
error, any such error is harmless because there is no clear
indication that the case would come out differently under Law 75,
which, although not explicitly requiring irreparable harm, does
entail a balancing of the equities. The federal test looks to the
following four factors: 1) the likelihood of success on the merits;
2) the potential for irreparable harm if the injunction is not
granted; 3) the balance of impositions on both parties; and 4) the
effect of the ruling on the public interest. Air Line Pilots
Ass’n, Int’l. v. Guilford Transp. Indus., Inc., 399 F.3d 89, 95
(1st Cir. 2005). Law 75 prohibits the termination of established
business relationships in Puerto Rico without “just cause,” and to
obtain an preliminary injunction, the plaintiff must show: 1) the
public policy of Law 75; 2) whether the plaintiff is a dealer; and
3) the interests of the parties and balancing the equities. Tatan
Mgmt. v. Jacfran Corp., 270 F. Supp. 2d 197, 200 (D.P.R. 2003).
The district court denied PRHS’s request for an injunction on
the basis that it could not show an irreparable injury. There is
little to suggest that once the district judge found there was no
irreparable harm threatened, he would have gone on to grant a
preliminary injunction in light of the rather serious breach of
contract allegations raised by BSC against PRHS. PRHS claimed that
it would be harmed because it would lose profits, that one of its
employees would be affected in some way, and that its business
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would be impacted. None of these factual findings has been
challenged on appeal, and none of them is clearly erroneous based
on the record. These injuries are not irreparable because later-
issued damages can properly compensate any wrong committed. Rio
Grande Cmty. Health Ctr. v. Rullan, 397 F.3d 56, 76 (1st Cir.
2005). Because PRHS cannot establish irreparable harm, the
district court did not abuse its discretion in denying the
injunction, and any error of law is harmless.
IV. CONCLUSION
For the above reasons, the decision of the district court is
AFFIRMED.
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