B. Fernandez & Hnos, Inc. v. Kellogg Usa, Inc.
| Citation | 516 F.3d 18 |
| Decision Date | 14 February 2008 |
| Docket Number | No. 07-1317.,No. 07-1318.,07-1317.,07-1318. |
| Parties | B. FERNÁNDEZ & HNOS, INC.; Caribbean Warehouse Logistics, Inc., Plaintiffs-Appellants/Cross-Appellants, v. KELLOGG USA, INC.; Kellogg Caribbean Services Company, Inc., Defendants-Appellees/Cross-Appellants. ABC Insurance; XYZ Surety Company; Preferred Insurance; John Doe; Richard Roe, Defendants. |
| Court | United States Courts of Appeals. United States Court of Appeals (1st Circuit) |
Gael Mahony, with whom Holland & Knight LLP, Alfredo Fernández Martinez and Delgado & Fernández, LLP were on brief, for appellants.
Ricardo F. Casellas, with whom Casellas Alcover & Burgos, P.S.C. was on brief, for appellees.
Before TORRUELLA and HOWARD, Circuit Judges, and SMITH,* District Judge.
Before us are an appeal and cross-appeal arising from an action brought by B. Fernández & Hnos., ("BFH") and Caribbean Warehouse Logistics ("CWL") against Kellogg USA, Inc. ("Kellogg USA") in the United States District Court for the District of Puerto Rico. Jurisdiction was based on diversity of citizenship. The district court dismissed the case, finding that Kellogg Caribbean Services, Inc. ("Kellogg Caribbean"), a non-party entitled to intervene in the matter, was an indispensable party to the action under Federal Rule of Civil Procedure 19 whose joinder would destroy complete diversity.
In the appeal, plaintiff BFH challenges the district court's indispensability determination. BFH argues that the court erroneously denied two motions that would have rendered. Kellogg Caribbean dispensable to its action against Kellogg USA. In the cross-appeal, Kellogg USA and Kellogg Caribbean protest the court's decision, upon dismissal of BFH's action, to deny them costs and attorneys' fees.
We conclude that, even had the court granted BFH's motions, consideration of the Rule 19 factors guiding the indispensability analysis continue to support the dismissal. Additionally, we find no error in the district court's denial of costs and fees. Thus, we affirm the district court's judgment.
We have previously discussed in detail the relevant background facts of this case. See B. Fernandez & Hnos., Inc. v. Kellogg USA, Inc., 440 F.3d 541 (1st Cir.2006) ("Kellogg I"). We provide a similar rehearsal here, gleaned from the record as it stands.
This dispute involves four players: Kellogg USA, a Michigan company that manufactures cereal products in the United States. Kellogg Caribbean, a Puerto Rico company that promotes, sells and distributes Kellogg products in Puerto Rico;1 BFH, a Puerto Rico company that distributes Kellogg products in Puerto Rico; and, CWL, a Puerto Rico company and affiliate of BFH that provides logistical and warehousing services.
For a number of years, BFH was Kellogg Company's exclusive agent in Puerto Rico. BFH purchased certain Kellogg brand cereal products for resale to customers in Puerto Rico, acting pursuant to written distribution agreements with various Kellogg entities. BFH also developed and implemented marketing plans for Kellogg products in Puerto Rico.
In 1992, BFH's relationship with the Kellogg family of companies began to change. In that year, BFH signed a nonexclusive, written distribution agreement with Kellogg USA ("the 1992 agreement"). The 1992 agreement would serve as the last written distribution agreement between BFH and a Kellogg entity. Further, Kellogg Caribbean was incorporated in 1993 and took over BFH's duties of developing and implementing marketing plans for Kellogg cereal products in Puerto Rico. Sometime after Kellogg Caribbean's incorporation, Kellogg USA assigned its rights and obligations under the 1992 agreement to Kellogg Caribbean.
During and after these developments, BFH continued to purchase Kellogg products for resale in Puerto Rico. In 1996, BFH established a distribution center to house its inventory of Kellogg products and, at Kellogg Caribbean's urging, created an affiliate company, CWL, to provide logistic and warehousing services at the center.
In October 2004, Kellogg Caribbean and BFH signed an Inventory Repurchase agreement ("the 2004 agreement") under which Kellogg Caribbean purchased BFH's inventory of Kellogg products. A purpose of this agreement was to allow Kellogg Caribbean to consolidate its warehouse and administrative functions into one facility. The 2004 agreement also notified BFH that Kellogg Caribbean had. been assigned Kellogg USA's interest in the 1992 agreement and provided that the 2004 agreement and "the activities it contemplates do not extinguish, supersede, or terminate the [1992 agreement], which, except as expressly modified by this [2004 agreement], continues in full force and effect." The 1992 agreement, however, contained terms indicating that it expired in December of 1992.
After purchasing BFH's inventory of Kellogg products, Kellogg Caribbean hired CWL to manage Kellogg Caribbean's warehouse operation. There was no written contract for these services.
In November of 2004, Kellogg Caribbean informed BFH that it was exercising a provision in the 1992 agreement entitling Kellogg Caribbean to sell Kellogg's "Cereal in a Cup" and "Fruit Snacks" products directly to Puerto Rico retailers. BFH would remain the distributor of other Kellogg products.
BFH, contending that Kellogg Caribbean's decision violated its exclusive right to distribute Kellogg products in Puerto Rico, sued Kellogg USA in the United States District Court for the District of Puerto Rico. Jurisdiction was premised on diversity of citizenship. Specifically, BFH claimed that Kellogg USA, by permitting "it or its affiliates" to sell "Cereal in a Cup" and "Fruit Snacks" directly to retailers, had violated Puerto Rico Law 75 (P.R. Laws Ann. tit. 10 § 278), a statute prohibiting a principal from terminating a distribution agreement with a dealer without just cause. BFH claimed that its exclusive right to distribute Kellogg products derived from an unwritten, longstanding exclusive distribution agreement with Kellogg USA.
While the action was pending, Kellogg Caribbean notified CWL that it was ending their warehouse services agreement. As a result of this decision, BFH moved to join CWL as a plaintiff and to amend its complaint to add a count alleging that Kellogg USA "and/or its affiliates" violated Law 75 by terminating the warehouse services agreement. The district court granted the motions. The plaintiffs sought declaratory and injunctive relief, as well as damages.
After BFH and CWL secured a temporary restraining order requiring CWL's reinstatement at the distribution center, Kellogg Caribbean moved "to intervene and dismiss for lack of an indispensable party." The district court denied Kellogg Caribbean's motion to intervene and, after an evidentiary hearing, entered a preliminary injunction requiring Kellogg USA "and/or its affiliates" to specifically perform the agreements with BFH and CWL pending trial. Kellogg Caribbean appealed from the denial of its motion to intervene, and Kellogg USA and Kellogg Caribbean filed an interlocutory appeal from the entry of the preliminary injunction.
In that appeal we concluded that Kellogg Caribbean met the requirements for intervention. Kellogg I, 440 F.3d at 547.2 We noted, however, that intervention was not feasible because it would destroy the district court's diversity jurisdiction (Kellogg Caribbean, like BFH and CWL, is a Puerto Rico company). Id. Accordingly, we vacated the preliminary injunction and remanded to the district court with instructions to determine whether Kellogg Caribbean was indispensable to BFH's action against Kellogg USA. If Kellogg Caribbean was indispensable, then the action could not proceed in federal court. Fed. R.Civ.P. 19(b); see id. We observed that Kellogg Caribbean would be considered indispensable if BFH and CWL continued to seek injunctive relief requiring Kellogg Caribbean to perform under certain agreements. Kellogg I, 440 F.3d at 548.
On remand, BFH sought both to remove CWL as a party and to file an amended complaint. Taking its cue from our opinion in Kellogg I, BFH's proposed amended complaint excluded all claims relating to CWL and requested only money damages against Kellogg USA rather than injunctive relief.
The district court denied both BFH's motion to drop CWL and the motion to amend the complaint. The court concluded that Kellogg Caribbean was indispensable to BFH's action against Kellogg USA and consequently dismissed BFH's action without prejudice. Sua sponte, the court also denied Kellogg USA and Kellogg Caribbean costs and attorneys' fees.
Both sides appeal. BFH challenges the district court's dismissal of the action, arguing that the court erroneously concluded that Kellogg Caribbean was indispensable to BFH's action against Kellogg USA. In their cross-appeal Kellogg USA and Kellogg Caribbean assert error in the district court's decision to deny them costs and attorneys' fees.
We determined in Kellogg I that Kellogg Caribbean could not intervene in BFH's action against Kellogg. USA because its intervention would destroy diversity jurisdiction. Kellogg I, 440 F.3d at 548. Further, it was clear to us that Kellogg Caribbean was an indispensable party insofar as the requested injunctive relief applied to it. Id. Now, BFH attempts to modify the action so as to render Kellogg Carribean dispensable. The critical question in this round, then, is "whether in equity and good conscience" the action may proceed in Kellogg Caribbean's absence. Fed. R.Civ.P. 19(b). If we conclude that it cannot, the action must be dismissed and Kellogg Caribbean labeled an "indispensable" party. See 4 Moore's Federal Practice § 19.05(1)(a) (3d ed.2000) ().
Federal Rule of Civil Procedure 19(b) specifies four factors to guide the...
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