Casas Office Machines, Inc. v. Mita Copystar America, Inc.

• Decision Date: 08 June 1994
• Docket Number: No. 94-1067,94-1067
• Citation: 42 F.3d 668
• Parties: CASAS OFFICE MACHINES, INC., Plaintiff, Appellee, v. MITA COPYSTAR AMERICA, INC., et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 668

42 F.3d 668

31 Fed.R.Serv.3d 1272

CASAS OFFICE MACHINES, INC., Plaintiff, Appellee, v. MITA COPYSTAR AMERICA, INC., et al., Defendants, Appellants.

No. 94-1067.

United States Court of Appeals, First Circuit.

Heard June 8, 1994.

Decided Dec. 14, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied Jan. 18, 1995.

Ricardo F. Casellas, with whom Mario Arroyo, and Fiddler, Gonzalez & Rodriguez, San Juan, PR, were on brief, for appellants.

Luis A. Melendez-Albizu, with whom Luis Sanchez-Betances, Sanchez Betances & Sifre, Nilda M. Cordero de Gomez, and Jorge E. Perez-Diaz, Federal Litigation Div., U.S. Dept. of Justice, Hato Rey, PR, were on brief, for appellee.

Before TORRUELLA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and BOUDIN, Circuit Judge.

LEVIN H. CAMPBELL, Senior Circuit Judge.

Mita Copystar of America, Inc. ("Mita") appeals from the district court's order granting summary judgment and issuing a permanent injunction in favor of Casas Office Machines, Inc. ("Casas"). The action began when Casas sued Mita and two fictitious defendants, John Doe and Richard Roe, in the Superior Court of Puerto Rico, San Juan Part. Organized under the laws of California and with its principal place of business in New Jersey, Mita removed the action to the United States District Court for the District of Puerto Rico. After removal, Casas, by an amendment to its complaint, replaced the fictitious defendants with two named defendants, Caguas Copy, Inc. and Oficentro J.P., Inc., which, like Casas, are Puerto Rico corporations. Complete diversity of citizenship between the parties was thus destroyed, although this fact was not called to the district court's attention at the time. The district court proceeded to deny Mita's motions to dismiss and for summary judgment, and it allowed Casas's motion for a permanent injunction enjoining Mita from impairing a contract entered into with Casas. Now, for the first time on appeal, Mita points out the jurisdictional problem caused by the addition of the nondiverse parties. Mita asks us to vacate the judgment below and order the district court to remand the action to the Superior Court of Puerto Rico. Mita also attacks the district court's decision on the merits, arguing that summary judgment was improper and that the district court erred in granting the permanent injunction.

I.

Incorporated in Puerto Rico, Casas sells and distributes office and photocopying equipment in that Commonwealth. In 1983, Casas entered into an agreement with Mita, a supplier of office and photographic equipment, to distribute Mita products in Puerto Rico. As noted, Mita is a California corporation with its principal place of business in New Jersey. Following a period of strained business relations, Casas and Mita executed a second agreement in 1989 (the "1989 Agreement") granting Casas the exclusive right to distribute Mita's products in the "Greater San Juan" area. Paragraph 5 of the 1989 Agreement, however, provided that Casas's inability to meet or exceed 85% of a set sales quota would result in termination of the exclusivity provisions of the contract. Asserting that Casas had failed to achieve the 85% threshold, Mita terminated Casas's exclusive distribution rights--but retained Casas as a distributor--and designated two new distributors in the "Greater San Juan" area.

Casas responded on February 1, 1991, by suing Mita, John Doe, and Richard Roe ¹ in the Superior Court of Puerto Rico, San Juan Part. Casas alleged that (1) Mita had deprived Casas of its exclusive distribution rights without just cause in violation of P.R.Laws Ann. tit. 10, Secs. 278-278d 91976) (referred to in the complaint and hereinafter as "Law 75"), (2) defendants had conspired to deprive Casas of its right to sell and distribute Mita products, (3) Mita had impaired Casas's exclusive distribution agreement, and (4) defendants had intentionally interfered with Casas's contractual relationship with Mita. Casas sought preliminary and permanent injunctive relief, as well as monetary damages.

Alleging the existence of diversity jurisdiction, Mita removed the action to the United States District court for the District of Puerto Rico on March 6, 1991. Thereafter, Casas amended its complaint twice. An amendment filed on March 9, 1992, added a fifth count, ² and eliminated Casas's request for a preliminary (but not a permanent) injunction. By a second motion to amend, brought on May 14, 1992, Casas sought to replace the fictitious defendants with Caguas Copy, Inc. ("Caguas") and Oficentro J.P., Inc. ("Oficentro")--the corporations that Mita had designated as new distributors in the Greater San Juan area upon terminating Casas's exclusive distribution rights. Paragraph 3 of Casas's Second Amended Complaint read:

Codefendants Caguas Copy, Inc. and Oficentro J.P., Inc. are, upon information and belief, corporate entities organized pursuant to the laws of the Commonwealth of Puerto Rico, with Principal offices located at Suite B-3, Goyco Street # 10, Caguas, P.R., and Diamante Street # 24, Villa Blanca, Caguas, P.R., respectively. Said defendants are the corporate and/or judicial entities who together with MITA have conspired, with knowledge of the contractual relationship between MITA and Casas, to deprive the latter of said contractual relationship, directly and indirectly interfering therewith, causing the damages hereinafter itemized. To plaintiff's best knowledge and understanding, Caguas Copy, Inc. and Oficentro J.P., Inc. are citizens and residents of the Commonwealth of Puerto Rico and are also liable to plaintiff pursuant to the allegations mentioned hereinafter.

(emphasis added). Four days later, on May 18, 1992, Casas moved the district court for an expedited review of its second motion to amend its complaint. Such review was necessary, said Casas, because Oficentro was under the protection of the United States Bankruptcy Court for the District of Puerto Rico--which had ordered that all creditors file their proof of claims on or before June 8, 1992--and Casas could not file a proof of claim until its motion to amend was granted. The district court allowed Casas's second amendment in early June 1992.

In the meantime, Mita had moved for summary judgment on February 12, 1992. It argued primarily that (1) Mita did not impair its contractual relationship with Casas because it merely enforced its rights under the terms of the 1989 Agreement, (2) even if it were found that Mita impaired its contractual relationship with Casas, Mita had just cause to do so, and (3) Casas's suit was barred by the equitable doctrine of laches. On March 16, 1992, Casas opposed Mita's motion for summary judgment, and brought a cross-motion for partial interlocutory summary judgment on its Law 75 claims (Counts One and Three), renewing its request for a permanent injunction. ³ Mita, in turn, filed, on April 13, 1992, an opposition to Casas's cross-motion for summary judgment in which it maintained, inter alia, that (1) permanent injunctive relief is not available under Law 75, and (2) ordering permanent injunctive relief in this case would be unconstitutional. Finally, in a separate motion, filed on June 4, 1992, Mita sought to dismiss Casas's complaint on the grounds that Casas had engaged in a fraud upon the court.

The United States magistrate judge reviewed Mita's motions to dismiss and for summary judgment, as well as Casas's cross-motion for summary judgment. In a report and recommendation issued on September 2, 1993, the magistrate judge concluded that (1) Casas had not committed fraud on the court, (2) Casas was not barred by the doctrine of laches from pursuing its claims under Law 75, (3) Mita did not have just cause under Law 75 to terminate Casas's exclusive distribution rights because it failed to demonstrate that the quota provision in the 1989 Agreement was reasonable at the time of Casas's nonperformance, (4) a permanent injunction may be ordered under Law 75, and (5) Mita had impaired its contractual relationship with Casas. Consequently, the magistrate judge recommended that the district court deny Mita's motions to dismiss and for summary judgment, and grant Casas's cross-motion for summary judgment.

In its opinion and order filed on November 18, 1993, the district court adopted all of the magistrate judge's recommendations, thereby granting Casas's cross-motion for summary judgment on its Law 75 claims (Counts One and Three). ⁴ Casas Office Machines v. Mita Copystar Machines, 847 F.Supp. 981, 983 (D.P.R.1993). In a judgment entered the same day, the district court denied Mita's motions to dismiss and for summary judgment, and granted Casas's motion for an injunction permanently enjoining Mita from impairing the 1989 Agreement without just cause. ⁵ Mita, pursuant to 28 U.S.C. Sec. 1292(a)(1) (1988), ⁶ appeals from this interlocutory decision. Mita argues principally: (1) that diversity jurisdiction was defeated when Caguas and Oficentro were substituted for the fictitious defendants; (2) that the district court improperly entered summary judgment; and (3) that the district court improperly issued a permanent injunction.

II.

Before we reach the issue of subject matter jurisdiction, we respond to Casas's challenge to our appellate jurisdiction. Casas maintains that, under Carson v. American Brands, Inc., 450 U.S. 79, 101 S.Ct. 993, 67 L.Ed.2d 59 (1981), jurisdiction under Sec. 1292(a)(1) does not exist unless the appellant demonstrates that the district court's interlocutory order "might have a serious, perhaps irreparable, consequence, and that the order can be effectually challenged only by immediate appeal." 450 U.S. at 84 (internal quotations omitted). According to Casas, Mita has failed to satisfy these requirements. Casas's argument is not well taken.

The Supreme Court has said that Sec. 1292(a)(1) provides appellate jurisdiction over two types of orders: those "that grant or deny injunctions and [those]...