Caribbean Sales Associates, Inc. v. Hayes Industries, Inc.

• Decision Date: 17 August 1967
• Docket Number: Civ. A. No. 134-67.
• Citation: 273 F. Supp. 598
• Parties: CARIBBEAN SALES ASSOCIATES, INC., Plaintiff, v. HAYES INDUSTRIES, INC., Defendant.
• Court: U.S. District Court — District of Puerto Rico

273 F. Supp. 598

CARIBBEAN SALES ASSOCIATES, INC., Plaintiff, v. HAYES INDUSTRIES, INC., Defendant.

Civ. A. No. 134-67.

United States District Court D. Puerto Rico, San Juan Division.

August 17, 1967.

Salvador E. Casellas, San Juan, P. R., for plaintiff.

Joseph T. Wynne (McConnell, Valdés & Kelley, San Juan, P. R., Law Offices), for defendant.

ORDER

CANCIO, District Judge.

The defendant is moving to have this action dismissed on the ground that the defendant corporation is not subject to service of process for the purposes of jurisdiction of this Court or that of the Superior Court of Puerto Rico, from which Court this action was timely removed.

Alternatively, the defendant asks for a stay of proceedings upon the ground that there is an action pending before the Circuit Court for the County of Jackson, State of Michigan, allegedly between the same parties and involving issues which are substantially identical to those involved in this action.

Defendant also seeks such other relief as this Court may deem proper and just.

The parties having been heard and the briefs submitted having been read, the Court being otherwise fully apprised of the issues at bar, is ready to rule on this matter.

The defendant, Hayes Industries, Inc. (hereinafter referred to as defendant) is a corporation organized under the laws of the State of Michigan. Its principal place of business is at Jackson, Michigan and it maintains no business office within the jurisdiction of the Commonwealth of Puerto Rico. It is principally dedicated to the manufacture and sale of automobile parts throughout the United States of America and other parts of the world.

Plaintiff, Caribbean Sales Associates, Inc., alleges in its complaint that it had been defendant's exclusive representative in Puerto Rico for more than one year, whereby it distributed defendant's products within the jurisdiction of the Commonwealth of Puerto Rico. Plaintiff further states that said contractual relationship was unilaterally terminated by defendant without just cause and in violation of the laws of Puerto Rico. This complaint was filed in the Superior Court of Puerto Rico on November 30, 1966. The summons and complaint were served upon the Secretary of State of the Commonwealth of Puerto Rico, pursuant to Rule 4.7 of the Rules of Civil Procedure.

Rule 4.7 of the Rules of Civil Procedure of 1958 for the General Court of Justice, as amended, provides as follows:

"4.7 Substitute service

(a) Where the person to be served is not within Puerto Rico, the General Court of Justice of Puerto Rico shall have personal jurisdiction over said nonresident as if he were a resident of the Commonwealth of Puerto Rico, if the action or claim arises as a result of the following:

(1) Such person or his agent carries out business transactions within Puerto Rico; or

(2) Executes by himself or through his agent, tortious acts within Puerto Rico; or

(3) * * *

(4) * * *

(5) * * *

(b) In such cases it shall be incontrovertibly presumed that the defendant has designated the Secretary of State of Puerto Rico as his agent and he shall signify his consent so that the former may receive service of summons, complaints, and judicial notices, and to such effect a copy of the summons and of the complaint shall be served upon the Secretary of State or upon his designee, and the plaintiff shall forthwith send to the defendant a copy of those documents by registered mail with return receipt. Any judicial step so taken shall have the same legal force and effect as a personal service. — Amended Jan. 24, 1961, eff. July 31, 1961; June 28, 1965, No. 105, p. 277, eff. June 28, 1965."

Defendant contends, in support of its motion under consideration herein, that plaintiff has failed to meet the jurisdictional requirements provided by Rule 4.7 (a) (1). This Court, however, has previously ruled on this question adversely to defendant's contention in Executive Air Services, Inc. v. Beech Aircraft Corporation, 254 F.Supp. 415 (D.C., 1966) and La Electronica, Inc. v. Electric Storage Battery Co., 260 F.Supp. 915 (D.C., 1966).

In the Executive Air Services, Inc. case, supra, 254 F.Supp. at p. 417, we expressed that

"To obtain jurisdiction over a juridical person in the manner foreseen in Rule 4.7 of the Rules of Civil Procedure of Puerto Rico, it is enough that that person have the minimal contacts in Puerto Rico envisaged by the Supreme Court of the United States in International Shoe Co. v. State of Washington (1945) 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, and McGee v. International Life Insurance Co., (1957) 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223."

The above rule closely follows the modern trend which supports the expansion of the state jurisdictional power over foreign corporations and other nonresidents. Due process and judicial policy authorizes this approach in view of the complicated problems which arise in an expanding economy. It would indeed be manifestly burdensome and unjust for financially weak dealers, from a comparative standpoint, if they were obliged to pursue their respective principals to far-off states in order to hold them legally responsible for their unlawful acts. Law 75 of June 24, 1964, as amended (10 L. P.R.A. § 278), the statute under which this claim has been instituted, was designed to protect the legitimate interests of local dealers and agents. We cannot ignore the strong interest which the Legislature of the Commonwealth of Puerto Rico has in providing an effective procedural mechanism for its residents when a suit is established under Act 75. We, therefore, adhere to the position taken by the Supreme Court in the McGee case, supra, 355 U.S. at p. 226, 78 S.Ct. at 201, 2 L.Ed.2d 223, when Justice Black said:

"Looking back over this long history of litigation a trend is clearly discernible toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents. In part this is attributable to the fundamental transformation of our national economy over the years. Today many commercial transactions touch two or more States and may involve parties separated by the full continent. With this increasing nationalization of commerce has come a great increase in the amount of business conducted by mail across state lines. At the same time modern transportation and communication have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity.

Turning to this case we think it apparent that the Due Process Clause did not preclude the California court from entering a judgment, binding on respondent. It is sufficient for purposes of due process that the suit was based on a contract which had substantial connection with that State. Cf. Hess v. Pawloski, 274 U.S. 352, 47 S. Ct. 632, 71 L.Ed. 1091; Henry L. Doherty & Co. v. Goodman, 294 U.S. 623, 55 S.Ct. 553, 79 L.Ed. 1097; Pennoyer v. Neff, 95 U.S. 714, 735, 24 L.Ed. 565, 573. * * *. It cannot be denied that California has a manifest interest in providing effective means of redress for its residents when their insurers refuse to pay claims. These residents would be at a severe disadvantage if they were forced to follow the insurance company to a distant State in order to hold it legally accountable."

Turning to this case, it appears from the allegations and papers on file that the minimal contacts required to subject the defendant to our jurisdiction are present. The sworn affidavit which was submitted by the defendant in support of its motion for dismissal clearly establishes that defendant corporation has been making sales transactions with concerns in Puerto Rico for approximately three years. Also, it appears from the statement that the defendant had a distributor in Puerto Rico. During all this time, the defendant's products were circulating within the jurisdictional boundaries of the Puerto Rican market and was obviously obtaining proceeds from such sales. Therefore, there is no doubt that this Court can properly assume jurisdiction in the present case.

Additional ground to support the jurisdiction of this Court can be found in Rule 4.7(a) (2), cited above. Defendant, however, argues that the alleged tort was committed outside of the Commonwealth of Puerto Rico. Accordingly, the defendant asserts that since the decision to terminate the relationship was made and carried out in Michigan, and since the notification to that effect was posted outside of Puerto Rico, jurisdiction under Rule 4.7(a) (2) cannot be sustained. Moreover, defendant contends that Rule 4.7(a) (2) cannot be interpreted in conjunction with Section 278b of Act 75, for this would require a prior determination as to whether a tort has been in fact committed by the principal. Heavy reliance is placed on various cases which have construed a similar New York State statute.

Again, this Court has already adopted a different interpretation. In La Electronica, Inc. v. The Electric Storage Battery Co., supra, wherein the defendant's motion for lack of jurisdiction over the person was dismissed, the Court said, 260 F.Supp. at p. 916,

"In addition, it appears from the pleadings, that this action is one arising from an alleged unilateral breach of a distributorship agreement, which breach, under 10 L.P.R.A. 278b, is specifically defined as a tortious act and as to which, under Rule 4.7(2) of the Rules of Civil Procedure for the General Court of Justice, 1958 (T. 32 L.P. R.A., App. 11) substituted service for acquiring jurisdiction over the person of the defendant or his agent, because of having executed tortious acts within Puerto Rico is also permitted." Emphasis supplied.

See Vol. XIX PR Legislative Record No. 97 of June 25, 1965.

In Executive Air Services, Inc. v. Beech Aircraft Corporation, supra, 254 F.Supp. at p. 418 we also find relevant expressions made by this Court:

"Rule 4.7 was given its present form by Law No. 105 of June 28, 1965, effective on that same date. The

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