Sancho v. Bacardi Corporation of America

Citation109 F.2d 57
Decision Date12 January 1940
Docket NumberNo. 3455,3456.,3455
PartiesSANCHO v. BACARDI CORPORATION OF AMERICA. DESTILERIA SERRALLES, Inc., v. SAME.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

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William Cattron Rigby, of Washington, D. C. (B. Fernandez Garcia, of San Juan, P. R., and Nathan R. Margold, of Washington, D. C., on the brief), for appellant Sancho.

David A. Buckley, of New York City (Jaime Sifre, Jr., of San Juan, P. R., and H. Russell Bishop, of Washington, D. C., on the brief), for appellant Destileria Serralles, Inc.

Thomas Hunt, of Boston, Mass. (Edward S. Rogers and Jerome L. Isaacs, both of New York City, on the brief), for appellee.

Before WILSON and MAGRUDER, Circuit Judges, and McLELLAN, District Judge.

McLELLAN, District Judge.

Bacardi Corporation of America, a Pennsylvania corporation, filed a bill of complaint in the District Court of the United States for Puerto Rico, seeking to enjoin the defendant, Treasurer of Puerto Rico, and others from enforcing certain Acts of the Legislature of Puerto Rico. The alleged grounds for relief are in substance that these Acts contravene the Constitution of the United States, the Organic Act of Puerto Rico and a Treaty between the United States, Cuba and other countries. The District Court, having made certain findings of fact, concluded that the legislation attacked in the bill of complaint was not a valid exercise of the police power and was repugnant to the Commerce Clause of the Constitution of the United States. The District Court also concluded that the legislation was invalid because it violates the due process clause of the Constitution of the United States and of the Organic Act of Puerto Rico and because it deprives the plaintiff, appellee, of the equal protection of the Laws for which the Organic Act provides. The final decree from which these appeals were taken by the Treasurer of Puerto Rico, defendant, and by Destileria Serralles, Inc., intervenor, reads so far as need be stated as follows:

"It is ordered, adjudged and decreed: That the defendant Rafael Sancho Bonet, Treasurer of Puerto Rico, his successors, his agents and all those acting under his authority, and the Destileria Serralles, Inc., the Puerto Rico Distilling Company, their successors, officers and agents, and any and all persons holding permits from the Treasurer of Puerto Rico under the alcoholic beverages laws of Puerto Rico, be and are hereby forever and perpetually enjoined and restrained from in any way enforcing or attempting to enforce against the plaintiff Bacardi Corporation of America the provisions of Sections 40 and 44 of Act No. 6 approved June 30, 1936, as amended by Act No. 149 approved May 15, 1937, and the provisions of Section 7 of said Act 149, insofar as said provisions prohibit complainant from marketing its products in Puerto Rico or shipping its products out of Puerto Rico with the Bacardi trade marks and labels attached thereto as now or hereafter authorized by the Federal Alcohol Administration, and from using its corporate name on its products; and also, from in any way enforcing or attempting to enforce against said plaintiff the provisions of Section 44(b) of said Act No. 6 as amended by said Act No. 149, insofar as said provisions prohibit the plaintiff from shipping its products to the United States or elsewhere in bulk; * * *"

In order that the history and declared purpose of the legislation thus stricken may appear, we set forth in the margin the pertinent portions of Act No. 115, approved May 15, 1936 and of Act No. 6, approved June 30, 1936, effective July 1, 1936, which repealed Act No. 115 and was of an experimental character and was by its terms to expire September 30, 1937.1 Following these Acts there appear in the margin the relevant provisions of Act No. 149 of 1937, including Section 1, Section 2, amending Section 40 of Act No. 6 of 1936, Section 3, amending Section 44 of the same Act, Section 4, adding Section 44(b) thereto, and Section 7 thereof, to which the decree of the District Court refers.

These sections of Act No. 149 prohibit the manufacture (by holders of the requisite permit) of alcoholic beverages on which there appears whether on the container or elsewhere "any trade mark, brand, trade name, commercial name, corporation name or any other designation if said trade mark, brand, trade name, commercial name, corporation name or other designation, design or drawing has been used previously * * anywhere outside the Island of Puerto Rico." This limitation is made inapplicable to designations by a manufacturer, bottler or canner of distilled spirits manufactured in Puerto Rico on or before February 1, 1936. By Section 7, this limitation or proviso is made applicable in regard to trade marks only to such "as shall have been used exclusively in the Continental United States * * * prior to February 1st, 1936, provided such trade marks shall not have been used, in whole or in part * * * outside of the Continental United States, at any time prior to said date."

Act No. 149, Section 4, also provides that with exceptions not here relevant distilled spirits may be shipped or exported from Puerto Rico or imported into Puerto Rico "only in containers holding not more than one gallon".

Bacardi Corporation of America aimed several blows at this legislation, and some of them took effect. We refrain, for the time being, from comment upon the apparent object and the avowed purpose of the Puerto Rican Legislature, because we want first to consider a question which needs for its determination nothing of this sort. The District Court was impressed with the suggestion that the commerce clause of the Constitution of the United States invalidates the statutory provisions as to the use of trade marks and as to the maximum size of the containers required for shipment. The commerce clause (U.S. C.A. Constitution, Article 1, Section 8, Clause 3) grants the Congress power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." By necessary implication, it prevents a state from regulating such commerce. But Puerto Rico is not a state. It is an organized Territory of the United States though not yet "incorporated" into the Union, Puerto Rico v. Shell Co., 302 U.S. 253, 58 S.Ct. 167, 82 L.Ed. 235 and the indubitable right of the Congress to regulate the commerce of Puerto Rico is founded on the Constitutional power "to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States." (Constitution, Article IV, Section 3, Clause 2). The power is in no direct sense dependent upon the Commerce clause which as this court has said "does not extend to Puerto Rico". Lugo v. Suazo, 1 Cir., 59 F.2d 386, 390. Cf. Inter-Island Steam Navigation Co. v. Hawaii, 9 Cir., 96 F.2d 412.

The decree of the District Court declaring such legislation unconstitutional can not be affirmed upon the ground that the Puerto Rican statutes violate the commerce clause of the Constitution of the United States.

The next question is whether the Puerto Rican statutes constitute a valid exercise of the police power of the Insular Legislature in view of the due process clause of the Constitution of the United States and of the Organic Act for Puerto Rico. And in discussing the Insular police power we shall consider whether it is relevantly narrowed either by the Federal Alcoholic Administration Act or by the Convention between the United States and Cuba.

The police power of the Puerto Rican Legislature depends upon the Organic Act for Puerto Rico passed by the Congress of the United States in 1917. This Act organizes the Territory and erects "the typical American governmental structure, consisting of three independent departments — legislative, executive and judicial." Puerto Rico v. Shell Co., supra 302 U.S. 253, 58 S.Ct. 171, 82 L.Ed. 235. To the Insular Legislature, the Organic Act extends legislative authority as "to all matters of a legislative character not locally inapplicable, including power to create, consolidate, and reorganize the municipalities so far as may be necessary, and to provide and repeal laws and ordinances therefor; also the power to alter, amend, modify, or repeal * * * all laws and ordinances of every character in force in Porto Rico or municipality or district thereof on March 2, 1917, in so far as * * * alteration, amendment, modification, or repeal may be consistent with the provisions of this chapter." U.S.Code, Title 48, Section 821, 48 U.S.C.A. § 821.

Clearly enough, the Organic Act of Puerto Rico authorizes legislation for the control of the manufacture and traffic in rum and other ardent spirits unless such legislation trespasses upon a field forbidden by the Constitution or by the Congress.

The appellee urges that the territorial legislation is invalid because it conflicts with the Federal Alcohol Administration Act, 27 U.S.C.A. §§ 201-211, and as examples of such asserted conflict, says:

"(a) American Bacardi has been authorized under the Federal Law to use on its product to be shipped from Puerto Rico certain labels which have been presented in evidence. Under the local statute the plaintiff is prohibited from using them (Section 44 of Law No. 6);

"(b) The Federal statute authorizes shipment in bulk in containers of more than one gallon, while the local statute (Section 44(b) prohibits such shipments."

As to labels, the Federal Alcohol Administration Act, aiming at unfair competition and other unlawful practices, forbids the introduction into interstate or foreign commerce of liquor unless labelled in accordance with regulations established by the Administration in such a way as to prevent deception of the consumer and the like. Such being the purpose of the Act, its effect was not to deprive the Legislature of Puerto Rico of the right to enact the territorial statute restricting the use of labels.

Nor does it...

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