B. Fernández & Hnos. v. Kellogg Usa, Inc.

• Decision Date: 17 March 2006
• Docket Number: No. 05-2188.,No. 05-2187.,No. 05-2189.,05-2187.,05-2188.,05-2189.
• Citation: 440 F.3d 541
• Parties: B. FERNÁNDEZ & HNOS., INC.; Caribbean Warehouse Logistics, Inc., Plaintiffs, Appellees, v. KELLOGG USA, INC.; ABC Insurance; XYZ Surety; Preferred Insurance; John Doe; Richard Doe, Defendants, Kellogg Caribbean Services Company, Inc., Movant, Appellant. B. Fernandez & Hnos., Inc.; Caribbean Warehouse Logistics, Inc., Plaintiffs, Appellees, v. Kellogg USA, Inc., Defendant, Appellant, ABC Insurance; XYZ Surety; Preferred Insurance; John Doe; Richard Doe, Defendants.
• Court: U.S. Court of Appeals — First Circuit

Page 541

440 F.3d 541

B. FERNÁNDEZ & HNOS., INC.; Caribbean Warehouse Logistics, Inc., Plaintiffs, Appellees, v. KELLOGG USA, INC.; ABC Insurance; XYZ Surety; Preferred Insurance; John Doe; Richard Doe, Defendants, Kellogg Caribbean Services Company, Inc., Movant, Appellant.

B. Fernandez & Hnos., Inc.; Caribbean Warehouse Logistics, Inc., Plaintiffs, Appellees, v. Kellogg USA, Inc., Defendant, Appellant, ABC Insurance; XYZ Surety; Preferred Insurance; John Doe; Richard Doe, Defendants.

No. 05-2187.

No. 05-2188.

No. 05-2189.

United States Court of Appeals, First Circuit.

Heard November 7, 2005.

Decided March 17, 2006.

Ricardo F. Casellas, with whom Fiddler González & Rodríguez, P.S.C., was on brief for appellant, Kellogg Caribbean Services Co., Inc.

Luis A. Oliver, with whom Fiddler González & Rodríguez, P.S.C., were on brief, for appellant and Kellogg USA, Inc.

Alfredo Fernández Martínez, with whom Delgado & Fernández, LLP, Ramón L. Walker Merino and Walker Merino Law Office, were on brief, for appellees, B. Fernandez & Hnos., Inc. and Caribbean Warehouse Logistics, Inc.

Before TORRUELLA, Circuit Judge, JOHN R. GIBSON, Senior Circuit Judge,^* and HOWARD, Circuit Judge.

HOWARD, Circuit Judge.

Before us are three interlocutory appeals arising from an action brought by B. Fernandez & Hnos., Inc. (BFH) and Caribbean Warehouse Logistics (CWL) (collectively, appellees) against Kellogg USA, Inc. (Kellogg USA). The appellees accuse Kellogg USA of violating Puerto Rico Law 75, a statute prohibiting a principal from terminating without just cause a distribution agreement with its dealer. P.R. Laws Ann. tit. 10, § 278. Appellees seek an injunction, damages, and declaratory relief. Federal jurisdiction is premised on diversity of citizenship as appellees are Puerto Rico companies and Kellogg USA is a Michigan company. See 28 U.S.C. § 1332.

The first appeal, by nonparty Kellogg Caribbean Services, Inc. (Kellogg Caribbean), a Puerto Rico company, challenges the denial of its motion to intervene under Fed.R.Civ.P. 24(a) and for dismissal under Fed.R.Civ.P. 19(b). Pointing out that it (and not Kellogg USA) is the party to the agreements with appellees, Kellogg Caribbean argues that it is an indispensable party whose intervention must be allowed but would destroy diversity jurisdiction. The district court denied the motion on the ground that Kellogg USA, a company affiliated with Kellogg Caribbean because they share the same corporate parent company could adequately represent Kellogg Caribbean's interests.

The second and third appeals, by Kellogg USA and Kellogg Caribbean respectively, challenge a preliminary injunction ordering Kellogg USA and its affiliates (which includes Kellogg Caribbean) to specifically perform the agreements with appellees. We do not reach the merits of these appeals because our resolution of the intervention appeal requires that we vacate the preliminary injunction.

I.

We derive the relevant facts primarily from the allegations and evidence submitted by Kellogg Caribbean in support of its motion to intervene but also consider uncontroverted facts established elsewhere in the record. See Southwest Ctr. for Biological Diversity v. Berg, 268 F.3d 810, 819-20 (9th Cir.2001) (stating that "a district court is required to accept as true the nonconclusory allegations made in support of an intervention motion") (collecting cases); 7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 1914, at 418 (2d ed.1986).

BFH, a Puerto Rico company, distributes Kellogg products to Puerto Rico retailers. CWL, also a Puerto Rico company and an affiliate of BFH, provides logistical and warehousing services. Kellogg USA, a Michigan company and subsidiary of nonparty Kellogg Company, manufactures cereal products on the mainland United States for export to certain geographic markets throughout the world. Kellogg Caribbean, a Puerto Rico company, promotes, sells and distributes Kellogg products in Puerto Rico. Like Kellogg USA, Kellogg Caribbean is a subsidiary of Kellogg Company.

In 1992, Kellogg USA signed an agreement to supply Kellogg products to BFH for distribution to Puerto Rico retailers. Sometime thereafter, Kellogg USA assigned its rights and obligations under this agreement to Kellogg Caribbean.¹

In October 2004, BFH and Kellogg Caribbean signed an Inventory and Repurchase Agreement under which Kellogg Caribbean would purchase the Kellogg products owned by BFH. The purpose of the repurchase agreement was to permit Kellogg Caribbean to consolidate its warehouse and administrative functions into one facility. Within this agreement, Kellogg Caribbean notified BFH that it had been assigned Kellogg USA's interest in the distribution agreement. The agreement stated that the terms of the initial Kellogg USA-BFH distribution agreement remained in "full force and effect."

After purchasing BFH's inventory, Kellogg Caribbean sold Kellogg products to BFH for distribution to the Puerto Rico market. As part of its consolidation effort, Kellogg Caribbean hired CWL, BFH's affiliate, to manage its warehouse operation. But Kellogg Caribbean and CWL did not sign a written agreement for these services.

In November 2004, Kellogg Caribbean informed BFH that it was exercising a provision in the distribution agreement entitling it to sell Kellogg "Cereal in a Cup" and "Fruit Snacks" products directly to Puerto Rico retailers. BFH would, however, remain the distributor of other Kellogg products.

Displeased, BFH sued Kellogg USA claiming that it had violated Law 75 by permitting "it or its affiliates" to sell "Cereal in a Cup" and "Fruit Snacks" directly to retailers. Five months later, Kellogg Caribbean notified CWL that it was terminating their warehouse services relationship. Shortly thereafter, appellees amended the complaint to add a count by CWL alleging that Kellogg USA "and/or its affiliates" violated Law 75 by terminating the warehouse services agreement. Appellees sought damages, declaratory relief, and a preliminary and permanent injunction.

Five days after appellees filed their amended complaint, Kellogg Caribbean moved "to intervene and to dismiss for lack of an indispensable party." In due course, the district court denied the motion. After an evidentiary hearing, the court entered a preliminary injunction requiring Kellogg USA "and/or its affiliates or subsidiaries" to specifically perform the agreements with appellees pending trial.

II.

As mentioned above, federal jurisdiction is premised on the diversity of citizenship between Kellogg USA (a Michigan company) and BFH and CWL (Puerto Rico companies). But, if Kellogg Caribbean (a Puerto Rico company) is entitled to intervene as a matter of right under Rule 24(a)(2) and is an indispensable party under Rule 19(b), the litigation must be dismissed because there would not be complete diversity. As Professors Wright, Miller and Kane have explained:

A person who should have been joined in the first instance because he is so related to the action that he is regarded as "indispensable" cannot intervene if his joinder will deprive the court of jurisdiction over the subject matter of the action. The action must be dismissed, as Rule 19(b) requires, if the court concludes that he is so related to the action that he is indispensable. For this reason the courts, in considering an application for intervention by one whose joinder would defeat diversity ... will examine his relation to the action and [dismiss the action] if he ... meets the tests of Rule 24(a)(2) and ... was ... an indispensable party to the original action.

7C Wright, Miller & Kane, supra § 1917, at 477-78; see also Travelers Indemnity Co. v. Dingwell, 884 F.2d 629, 636 (1st Cir.1989). We begin by considering whether Kellogg Caribbean meets the requirements of Rule 24(a)(2).

A. Rule 24(a)(2)

We review the denial of a Rule 24(a)(2) motion for abuse of discretion. See Ewers v. Heron, 419 F.3d 1, 2 (1st Cir.2005). But, because Rule 24(a)(2) provides explicit criteria for adjudicating a motion to intervene, the district court's discretion is more circumscribed than in some other contexts. See Cotter v. Mass. Assoc. of Minority Law Enforcement Officers, 219 F.3d 31, 34 (1st Cir.2000). We will reverse if the district court committed a legal error, or if the court reaches a decision patently out-of-step with the purposes of Rule 24(a)(2). See Pub. Serv. Co. of N.H. v. Patch, 136 F.3d 197, 204 (1st Cir.1998).

Rule 24(a)(2) provides in pertinent part:

Upon timely application anyone shall be permitted to intervene in an action ... when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.

A putative intervenor thus must show that (1) it timely moved to intervene; (2) it has an interest relating to the property or transaction that forms the basis of the ongoing suit; (3) the disposition of the action threatens to create a practical impediment to its ability to protects its interest and (4) no existing party adequately represents its interests.² See Patch, 136 F.3d at 204. "The failure to satisfy [all four conditions] dooms intervention." Id.

Because appellees concede that Kellogg Caribbean timely moved to intervene, we first consider whether Kellogg Caribbean has "an interest relating to the property or transaction which is the subject of the action." Kellogg Caribbean easily meets this requirement. An intervenor has a sufficient interest in the subject of the litigation where the intervenor's contractual rights may be affected by a proposed remedy. See Forest Conserv. Council v. United States Forest Serv., 66 F.3d 1489, 1495 (9th Cir.1995); Harris v. Pernsley, 820 F.2d 592, 601 (...