Eastern Fine Paper, Inc. v. Garriga Trading Co., Inc.

• Decision Date: 17 March 1983
• Citation: 457 A.2d 1111
• Parties: EASTERN FINE PAPER, INC. v. GARRIGA TRADING CO., INC.
• Court: Maine Supreme Court

Page 1111

457 A.2d 1111

EASTERN FINE PAPER, INC. v. GARRIGA TRADING CO., INC.

Supreme Judicial Court of Maine.

Argued Nov. 3, 1982.

Decided March 17, 1983.

Eaton, Peabody, Bradford & Veague, Daniel E. McKay (orally), John E. McKay, Bangor, for plaintiff.

Paine & Lynch, Martha J. Harris (orally), Bangor, for defendant.

Before McKUSICK, C.J., and GODFREY, NICHOLS, ROBERTS, CARTER, and VIOLETTE, JJ.

GODFREY, Justice.

Defendant, Garriga Trading Company ("Garriga"), appeals from a declaratory judgment entered in Superior Court, Penobscot County. The only issue we need address is whether the Superior Court erred in granting the declaratory judgment in view of the fact that when the Maine action was commenced, there was already pending in the United States District Court for the District of Puerto Rico an action between the same parties that would settle all the factual and legal issues presented in the Maine action. We vacate the judgment and remand with instructions to dismiss the action. ¹

Plaintiff, Eastern Fine Paper, Inc. ("Eastern"), is a manufacturer of paper products in Brewer, Maine; Garriga is an importer, distributor, and seller of paper products in Puerto Rico. Sometime in 1974, Garriga became a buyer of Eastern's products and a distributor for Eastern in Puerto Rico. During 1976 and early 1977, the volume of orders received by Eastern from Garriga dropped substantially. When Eastern complained, Garriga attributed the decline to non-competitive pricing by Eastern. Garriga, in turn, complained that Eastern was selling some of its paper products to another Puerto Rican paper distributor. Thereafter Eastern refused to sell exclusively to Garriga, and the two companies became embroiled in a dispute over whether the distributorship agreement was exclusive, whether it was terminable at will, and whether Eastern or Garriga had been in breach of it.

The parties could not resolve the dispute amicably. In June of 1979, Garriga commenced an action for damages and attorneys' fees against Eastern in federal district court in San Juan, alleging breach of contract and violation of Puerto Rico's Dealers Contract Law, Act No. 75 of 1964, P.R.Laws Ann. tit. 10, § 278, which provides in effect that a Puerto Rican dealer's contract with a manufacturer, regardless of any provision for termination, is renewable indefinitely at the option of the local dealer unless the manufacturer has "just cause" to terminate the arrangement. Eastern's answer in the Puerto Rican action included affirmative defenses alleging that Act No. 75 is unconstitutional for various stated reasons and that Eastern had just cause to terminate the contractual relationship because of Garriga's non-performance of essential obligations. Eastern made no counterclaim.

At some point it was agreed between counsel for the two parties in Puerto Rico that the case there be stayed pending decision of a case or cases then pending before the Supreme Court of Puerto Rico involving the construction and constitutionality of Act No. 75. The date of the initial agreement for the stay does not appear in the record in the instant case, but the stay was certainly still operative when the Superior Court heard the present case.

In September of 1979, Eastern filed the present action pursuant to the Declaratory Judgments Act, 14 M.R.S.A. ch. 707 (§§ 5951-5963) (1980), seeking a declaration that (1) the rights and obligations of the contract are governed by Maine law; (2) the contract was terminable at will by either party; (3) Garriga's failure to market Eastern's products effectively constituted a breach of contract; and (4) Eastern had "just cause" to contract with others to sell its paper products in Puerto Rico within the meaning of Act No. 75.

Garriga moved to dismiss the action on several grounds, among others that the Superior Court should decline to exercise subject-matter jurisdiction because suit was already pending in Puerto Rico involving the same litigants and issues. The Superior Court denied the motion and later denied a motion, made on the same grounds, to stay the Maine action pending decision by the United States District Court in Puerto Rico. After a trial, the court granted Eastern substantially the declaratory relief it sought.

Generally speaking, whether a declaratory judgment should be issued rests in the sound discretion of the trial court. Cape Elizabeth School Board v. Cape Elizabeth Teachers Association, 435 A.2d 1381, 1383 (Me.1981). The discretion to be exercised is of a judicial nature, not arbitrary but based on good reason. W. Anderson, Declaratory Judgments § 172, at 525-26 (1940). In exercising that discretion, the trial court must decide whether the adjudication will serve some useful purpose. Cape Elizabeth School Board, 435 A.2d at 1383; E. Borchard, Declaratory Judgments 299 (2d ed. 1941). The considerations forming the basis for a trial court's decision that the granting of declaratory relief will serve a useful purpose are subject to review and evaluation on appeal. ²

The record in the present case gives no clue to why the trial justice thought that a useful purpose would be achieved by granting the declaratory judgment. We must therefore resolve the question of the utility of that judgment by examining the facts revealed by the record. Having done so, we find that the judgment served no useful purpose and was improvidently granted in the circumstances.

The action already brought by Garriga in Puerto Rico involved exactly the same litigants; the issues presented in the Maine action had been raised by the pleadings in Puerto Rico. In effect, Eastern sought merely a declaratory judgment upholding its principal defense to that already pending suit. Ordinarily, when a party has begun an action, "it serves no sensible end to permit his adversary to appear as equitable actor and start the proceedings for an autonomous declaration that he has a good defense to his opponent's pending ... action." E. Borchard, supra, at 303. See also Rego Industries, Inc. v. American Modern Metals Corp., 91 N.J.Super. 447, 221 A.2d 35 (1966); Canadian Imperial Bank of Commerce v. Canada Life Assurance Co., 43 A.D.2d 920, 352 N.Y.S.2d 203, appeal dismissed, 34 N.Y.2d 959, 359 N.Y.S.2d 569, 316 N.E.2d 881 (1974).

Pendency of another action involving the same litigants and issues does not automatically require dismissal of a subsequently commenced action. Howell v. Howell, 418 A.2d 181 (Me.1980); Fitch v. Whaples, 220 A.2d 170 (Me.1966). Declaratory relief may be appropriate despite such a pending action if exceptional circumstances are alleged and proved, particularly if it is shown that denial of the relief would work injustice to plaintiff. Redmond v. Matthies, 149 Conn. 423, 428-29, 180 A.2d 639, 642 (1962); Jacoby v. Babcock Artificial Kidney Center, Inc., 364 Mass. 561, 563-64, 307 N.E.2d 2, 4-5 (1974). However, Eastern did not allege or prove exceptional circumstances. It did not allege, for instance, that it would be unfairly treated in the federal forum in Puerto Rico or unable to assert its defenses there. It did not even assert or demonstrate that Puerto Rico and Maine have different choice-of-law rules governing the question of the applicability of the Puerto Rico statute. In fact, the trial court's adjudication that Eastern had "just cause" for terminating its arrangement with Garriga seems to imply that, in the court's view, the Puerto Rican statute was pertinent in determining Eastern's obligations under the arrangements with Garriga. ³

This case contains the usual factors indicating the desirability of abstention where a declaratory judgment is sought merely to validate plaintiff's defense to an already pending action with similar parties and issues: the waste of litigants' resources and the extra investment of judicial time and energy required to entertain duplicative suits. American Home Assurance Co. v. Insular Underwriters Corp., 494 F.2d 317, 320 (1st Cir.1974). The case has none of the features that may in some circumstances justify entertaining such an action. No property in Maine is involved. The Maine court is not a more convenient forum, if the convenience of both parties is considered. The trial justice had no prior familiarity with the issues as a result of working on related litigation. See American Fidelity Fire Insurance Co. v. Construcciones Werl, Inc., 70 F.R.D. 695 (D.V.I.1976). The case is not one in which the rights of the parties in the court of the forum would be unaffected by the other tribunal's adjudication, ⁴ or in which it appears desirable that the court of the forum settle a question of public concern by construing legislation of the forum state expressing an important social or economic policy. See Developments in the Law--Declaratory Judgments--1941-1949, 62 Harv.L.Rev. 787, 807-08 (1949).

On the contrary, there were clear warning signs that comity should have been accorded to the federal court in Puerto Rico and the action there permitted to run its course without the intrusion of a Maine declaratory judgment--no doubt to be introduced in the Puerto Rico action for its res judicata effect--upholding Eastern's defense.

In its answer to the complaint in Puerto Rico, Eastern attacked the constitutionality of Act No. 75. The Supreme Court of the United States had held in Fornaris v. Ridge Tool Co., 400 U.S. 41, 91 S.Ct. 156, 27 L.Ed.2d 174 (1971), that the federal courts should avoid passing on the constitutionality of Act No. 75 until the Supreme Court of Puerto Rico construed it. ⁵ The Court thought that the scope of the statute might be considerably narrowed by such construction, with the result that constitutional difficulties with the act could be reduced or avoided. The Supreme Court said:

Whether the Supreme Court of Puerto Rico would give the same broad sweep to 'just cause' as did the Court of Appeals is something we do not know. It is conceivable that 'just cause' might be judicially...