IOM Corp. v. Brown Forman Corp.

• Decision Date: 02 December 2010
• Docket Number: No. 09-1672,09-1672
• Citation: 627 F.3d 440
• Parties: IOM CORPORATION, d/b/a Caribbean Wine Spirits Brokers, Plaintiff, Appellant, v. BROWN FORMAN CORPORATION, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

627 F.3d 440

IOM CORPORATION, d/b/a Caribbean Wine Spirits Brokers, Plaintiff, Appellant,

v.BROWN FORMAN CORPORATION, Defendant, Appellee.

No. 09-1672.

United States Court of Appeals, First Circuit.

Heard June 9, 2010.

Decided Dec. 2, 2010.

Rubén T. Nigaglioni, with whom Nigaglioni & Ferraiuoli Law Offices, was on brief for appellant.

Rafael Escalera-Rodríguez, with whom Amelia Caicedo-Santiago and Reichard & Escalera, were on brief for appellee.

Before TORRUELLA, LIPEZ, and HOWARD, Circuit Judges.

TORRUELLA, Circuit Judge.

In this diversity action, Plaintiff-Appellant IOM Corporation, d/b/a Caribbean Wine Spirits Brokers ("Caribbean") appeals the dismissal of its claim under Puerto Rico's Sales Representative Act, commonly known as Law 21, P.R. Laws Ann. tit. 10, §§ 279-279h. Caribbean also appeals the district court's order finding that its cause of action for breach of contract and breach of the implied covenant of good faith and fair dealing was covered under the terms of an arbitration clause included in two written promotional agreements executed by the parties. Finally, Caribbean challenges the district court's award of attorneys' fees for Defendant-Appellee, Brown Forman Corporation.

For the reasons stated below, we find that the district court properly dismissed Caribbean's Law 21 claim for failure to state a claim. We also affirm the district court's order directing the parties to submit the breach of contract claim to arbitration. Finding that the district court did not commit plain error in granting attorneys' fees to Brown Forman, we affirm the fee award.

I. Facts and Procedural History

The district court dismissed Caribbean's Law 21 claim pursuant to Federal Rule of Civil Procedure 12(b)(6). We therefore view the well-pleaded facts in the light most favorable to Caribbean, drawing all reasonable inferences in its favor. Gray v. Evercore Restructuring L.L.C., 544 F.3d 320, 324 (1st Cir.2008).

Brown Forman is a corporation organized under the laws of the State of Kentucky. Brown Forman markets and distributes Finlandia vodka and Jack Daniel's whiskey in the United States and Puerto Rico. Caribbean is a corporation organized under the laws of the Commonwealth of Puerto Rico. As the complaint avers, in 1996, Caribbean entered into a series of oral agreements with Primalco Ltd., Brown Forman's predecessor, by which Caribbean agreed to promote Finlandia in Puerto Rico. In August 2002, Brown Forman and Caribbean formalized this commercial relationship in a written "promotion agreement," whereby Caribbean agreed to employ its best efforts to promote Finlandia vodka in Puerto Rico on Brown Forman's behalf. Under the terms of this agreement, Caribbean received a commission of $5.50 per each nine-liter case of Finlandia sold in Puerto Rico by the distributor, Ballester Hermanos. This Agreement also contained an integration clause which stated:

Th[e] Agreement covers all the terms and conditions of [Brown Forman's] agreement with Caribbean concerning the promotional services that Caribbean will be rendering for [Finlandia Vodka] and supersedes all other agreements, whether written or oral, previously entered into. This letter agreement may be amended or changed only in writing duly signed by Caribbean and [Brown Forman].

On June 23, 2002, Brown Forman and Caribbean subscribed a written "promotion agreement," by which "Caribbean agree[d] to use its best efforts" to promote Jack Daniel's whiskey in Puerto Rico. Per the terms of this agreement, Caribbean received a commission of $5.00 per nine-liter case of Jack Daniel's sold in Puerto Rico by the local distributor, V. Suárez. The Agreement also included an integration clause which stated:

This Agreement covers all the terms and conditions of [Brown Forman's] agreement with Caribbean concerning the promotional services that Caribbean will be rendering for [Jack Daniel's]. This letter agreement may be amended or changed only in writing duly signed by Caribbean and [Brown Forman].

Pursuant to these written agreements, Caribbean was required to (1) provide promotional merchandise; (2) create and set up product displays in certain locations; (3) purchase materials and products locally; (4) hire personnel for promotional activities; and (5) issue invitations for special events. Both contracts were set to expire on April 30, 2006.

In March 2006, Brown Forman renewed the promotional agreements until April 30, 2007. In April 2007, Brown Forman informed Caribbean that it was re-evaluating its operations in Puerto Rico and that the company had decided to hire Caribbean on a monthly basis. On April 30, 2007, Caribbean accepted Brown Forman's proposal to renew their commercial relationship on a monthly basis. The parties thereafter engaged in a series of negotiations to restructure their commercial relationship. In the course of these negotiations, Brown Forman explained that it was planning to establish an office in San Juan that would undertake all promotional, sales, and merchandising activities in Puerto Rico. As the complaint states, on September 10, 2007, Brown Forman confirmed its decision to terminate its prior commercial relationship with Caribbean and offered to hire Caribbean as "an exclusive broker consultant for Brown Forman ['s] brands." On September 12, 2007, Caribbean filed a state-court complaint against Brown Forman seeking equitable and legal relief for an alleged unlawful termination of a sales representative contract in violation of Law 21. The original complaint stated that the parties had "a contractual relationship [whereby] IOM [Caribbean] ... [acted as a] sales representative for Finlandia vodka and Jack Daniel's whiskey in Puerto Rico." Brown Forman removed the case to federal court based on diversity jurisdiction.

Caribbean subsequently filed an amended complaint, including both a cause of action under Law 21 for the unlawful termination of its sales representation contract and an additional cause of action for breach of contract and breach of the implied covenant of good faith and fair dealing. Caribbean claimed that although the written promotional agreements did not deal with its duties as a sales representative, "Brown-Forman [had] also entrusted Caribbean with the sale of its products as an additional endeavor under the existing commercial relationship." Regarding Finlandia vodka, the complaint averred that the parties intentionally opted to exclude Caribbean's sales activities from the written promotional agreements. Finally, Caribbean claimed that, pursuant to its commercial dealings with Brown Forman, Caribbean sent purchase orders to the local distributors of Finlandia and Jack Daniel's-Ballester Hermanos and V. Suárez, respectively-who then supplied the products to the clients.

In October 2007, Caribbean filed a motion requesting a temporary restraining order (TRO) and/or a preliminary injunction. The district court denied the TRO and scheduled a hearing to address Caribbean's request for preliminary injunctive relief. Prior to the hearing, Brown Forman opposed Caribbean's request for a preliminary injunction and requested the dismissal of Caribbean's complaint for failure to state a claim under Law 21. Additionally, Brown Forman petitioned the court to refer Caribbean's claims to arbitration per the terms of certain arbitrationclause included in the promotional agreements.

The district court held a hearing on October 30, 2007 in which the parties stated their positions regarding the nature of their commercial relationship. At the conclusion of the hearing, the district court judge informed the parties of his decision to dismiss Caribbean's complaint for failure to state a claim. In an opinion and order dated November 8, 2007, the district court explained that dismissal of Caribbean's Law 21 claim was proper as Caribbean had not shown that it was an exclusive sales representative as required by Law 21. Furthermore, the district court dismissed Caribbean's claim for breach of contract and of the implied covenant of good faith and fair dealing, finding that the arbitration clauses included in the promotional agreements required the parties to arbitrate that claim.

On April 8, 2009, the district court denied Caribbean's motion for reconsideration. The district court later issued a summary order granting Brown Forman's request for costs and attorneys' fees in the amount of $24,424.51.¹ Caribbean now appeals.

II. Puerto Rico's Sales Representatives Act

In 1990, the Puerto Rico Legislature enacted Law 21 to protect sales representatives from the unjust termination of their contracts.² P.R. Laws Ann. tit. 10, §§ 279- 279h; see also Orba Inc. v. MBR Industries, Inc., 49 F.Supp.2d 67, 71 (D.P.R.1999). The statute provides that "no principal or grantor may terminate [the principal-sales representative] relationship, or directly or indirectly perform any act that may impair the established relationship, or refuse to renew said contract ..., except for just cause." ³ P.R. Laws Ann. tit. 10, § 279a. If the principal terminates its commercial relationship with an exclusive sales representative without just cause, it is liable for the damages caused. Id. § 279c (stating the criteria courts should employ to calculate damages due to an unlawful termination of a sales representation contract).

Under Law 21, a sales representative is "[a]n independent entrepreneur who establishes a sales representation contract of an exclusive nature, with a principal or grantor, and who is assigned a specific territory or market, within the Commonwealth of Puerto Rico." Id. § 279(a) (emphasis added). In turn, a sales representation contract is

[an] agreement established between a sales representative and a principal, through which, and regardless of the way in which the parties establish, delineate or formalize said agreement, theparty of the first part commits himself to making a reasonable effort and due diligence in the creation or expansion of a market which is

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