Fornaris v. Ridge Tool Co.
| Decision Date | 17 March 1970 |
| Docket Number | No. 7422.,7422. |
| Citation | 423 F.2d 563 |
| Parties | Arturo FORNARIS, Jr., Plaintiff, Appellee, v. The RIDGE TOOL CO. et al., Defendants, Appellants, and The Commonwealth of Puerto Rico, Intervenor. |
| Court | U.S. Court of Appeals — First Circuit |
Edward M. Borges and O'Neill & Borges, Santurce, P. R., on brief for appellants.
Francisco de Jesus Schuck and Fiddler, Gonzalez & Rodriguez, San Juan, P. R., on brief for appellee.
Gilberto Gierbolini, Solicitor Gen., and Ida Cardona-Hernandez de Orenstein, Asst. Solicitor Gen., on brief for Commonwealth of Puerto Rico, intervenor.
Eduardo Negrón Rodríguez and Baragano, Trias, Saldana & Francis, Hato Rey, P. R., on brief for appellant in No. 6876.
Joseph T. Wynne and McConnell, Valdes, Kelley & Sifre, San Juan, P. R., on brief for appellee in No. 6876.
Rafael A. Rivera Cruz, Solicitor Gen., and Peter Ortiz, Asst. Solicitor Gen., on brief for Commonwealth of Puerto Rico, intervenor in No. 6876.
Sutton Keany, McConnell, Valdes, Kelly & Sifre, San Juan, P. R., Merrell E. Clark, Jr., Terrence H. Benbow, Robert W. Gray, and Winthrop, Stimson, Putnam & Roberts, New York City, on joint brief of appellee and Bristol-Myers Company and others, amici curiae in No. 6876.
Edward M. Borges, O'Neill & Borges, Santurce, P. R., and Baker & McKenzie, Philip A. Ryan, Washington, D. C., on brief for Economics Laboratory, Inc., and others, amici curiae in No. 6876.
Thomas V. Koykka, Edward D. Crocker, Walter A. Bates, William W. Taft and Arter, Hadden, Wykoff & Van Duzer, Cleveland, Ohio, on brief for Eaton Yale & Towne, Inc., amicus curiae in No. 6876.
Stanley L. Feldstein, Salvador Antonetti Zequeira and Nachman, Feldstein, Laffitte & Smith, San Juan, P. R., on brief for La Electronica, Inc., and others, amici curiae in No. 6876.
Arturo Estrella, San Juan, P. R., and Baragano, Trias, Saldana & Francis, Hato Rey, P. R., on brief for Felix A. Rodriguez, Inc., amicus curiae in No. 6876.
Mariano Canales Delgado and McConnie, Canales & Ferrer, San Juan, P. R., on brief for Carlos M. Ruiz, amicus curiae in No. 6876.
Before ALDRICH, Chief Judge, McENTEE and COFFIN, Circuit Judges.
On June 24, 1964 the Puerto Rico legislature enacted the so-called Dealer's Contract Law known as Law 75, 1964 Laws of Puerto Rico, 4th Sess., at 231 (approved June 24, 1964). Its exact terms we will come to presently, but in effect this statute provided that a Puerto Rico dealer's contract with a "principal," hereinafter manufacturer, regardless of its provisions for termination was, with certain exceptions, renewable indefinitely at the option of the dealer, and imposed substantial damages upon a manufacturer who refused to accede. On June 23, 1966 the scope of the obligation was enlarged to forbid the manufacturer from performing, irrespective of the provisions of the contract, "any act detrimental to the established relationship." 10 L.P.R.A. § 278a (1968 supp.). In spite of this legislation a number of manufacturers acted to terminate or otherwise change their dealers' agreements, and much litigation has ensued. Because of diversity of citizenship the bulk, apparently, of the cases were removed to the district court, where the defendants raised constitutional and other defenses. The court resolved these defenses in the plaintiff's favor in Ruiz v. Economics Laboratory, Inc., D.P.R., 1967, 274 F.Supp. 14, and in the defendant's favor, in a more limited situation, in United Medical Equipment Corp. v. S. Blickman, Inc., D.P.R., 1966, 260 F. Supp. 912. In the Blickman case the plaintiff appealed, and because of the great importance of the legislation we issued a general invitation for amicus briefs. Many were filed. We specially invited the Commonwealth to brief and argue the question of constitutionality, which it graciously did.
After argument, but before we had completed our opinion, the Blickman case (No. 6876) was settled, mooting the appeal. Thereafter we were asked to accept an interlocutory appeal in the present case pursuant to 28 U.S.C. § 1292(b). The parties did not request oral argument. By order we took the appeal on the briefs of the parties and transferred all earlier briefs, amicus and otherwise, filed in the Blickman case. We invited the Commonwealth to file a supplemental brief, which it has done. In addition, we have the benefit of the opinion of the Puerto Rico Superior Court in Construction Mach. & Supplies Corp. v. Construction Mach. Co., decided December 23, 1968, upholding the act's constitutionality.
In the present complaint plaintiff Fornaris, a citizen of Puerto Rico, alleges that for twenty-nine years he had been the exclusive distributor in Puerto Rico of merchandise manufactured by the defendant The Ridge Tool Company, an Ohio corporation; that on November 26, 1965, effective as of April 15, 1966, defendant "cancelled and/or terminated, without just cause the distributorship contract," contrary to the law of Puerto Rico.1 It is not alleged that the termination was contrary to the terms of the contract itself, and we assume that it was in accordance therewith, and that plaintiff's rights depend solely upon Law 75. Defendant moved to dismiss on the ground that this law is unconstitutional, stating various reasons therefor. The court denied the motion on the basis of its opinion in Ruiz v. Economics Laboratory, Inc., supra, and defendant appeals.
Before considering the precise terms of Law 75 it is pertinent to review the circumstances that led to its passage, and the declared purposes sought to be achieved. The legislature appended the following statement.
We take this statement to be a summary of, and to represent an adoption of, the unanimous Report of the Committee on Industry and Commerce recommending the act in the form that it was eventually passed. The committee stated that it proposed the law because terminating dealerships "as soon as these have created a favorable market for their products, frustrated the legitimate expectations and interests of those who have so efficiently fulfilled their responsibilities."2 See, generally, 18 Diario de Sesiones, Asambla Legislativa (Camara), May 22, 1964, pp. 1723-25. With respect to the "reasonable stability in the dealer's relationship," further amplification is to be found in 34 Rev.Jur. de la U.P.R. 497, quoted at length in the Construction Machinery opinion. Briefly, it was felt that cutting off dealers, with the manufacturer establishing its own sales office or branches, leads to instability of local investments and to the export of profits. Conversely, if manufacturers can terminate with impunity, some may withdraw altogether. Some Puerto Rico branches are marginal compared with other branches in the United States, and consequently are the first to be closed in case of declining business, to Puerto Rico's detriment.
We have gone into this background supplied by the parties not only because it shows the purposes of the act, illuminating the propriety, or possibly, impropriety, of its provisions, but also because of the assistance it may give in resolving doubts as to the statutory meaning. Law 75 itself is relatively brief. A manufacturer may never terminate, regardless of the provisions of the contract, or refuse to renew the dealership on an agreed expiration date, except for "just cause." Law 75, § 2, 1964 Laws of Puerto Rico at 232 (approved June 24, 1964).3 "Just cause" is legislatively defined as substantial failure of performance by the dealer.4 In case of breach of the statutorily imposed obligation, damages "shall be fixed on the basis"5 of a specified list of items. Law 75, § 3. These are substantial, particularly with respect to awarding the dealer the entire good will value of the agency without inquiry or adjustment for what portion may have been due to the acts of the manufacturer, or even of prior dealers. To this figure is added, cumulatively the Commonwealth concedes, the amount of profits for the past five years. Law 75, § 3(d).6 There is no provision for mitigation should it appear that the dealer had successfully transferred into an equally profitable line. Even apart from such lack of offsets, the award of both good will and loss of profits amounts to duplication. The parties are precluded from agreeing otherwise. Law 75 § 4.
In upholding the constitutionality of the application of the act to the present defendant the district court, as did the superior court in the comparable case, relied upon the police power. There can be no question but that this power permits the legislature to remedy various economic evils. All courts recognize, however, that retrospective legislation, affecting established rights and relationships, presents an additional problem. While the legislature may prevent an employee willing to contract to work for a low wage from doing so, West Coast Hotel Co. v. Parrish, 1937, 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703, the retrospective imposition of a minimum wage would be quite a different matter. See Luce & Co. v. Minimum Wage Board, 1943, 62 P.R.R. 431, aff'd 1 Cir., 1946, 155 F.2d 983, where the court stated, in dictum, that a statute granting additional benefits for "services...
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