A.M. Capen's Co., Inc. v. American Trading and Production Corp.

• Decision Date: 08 December 1995
• Docket Number: No. 95-1870,95-1870
• Citation: 74 F.3d 317
• Parties: A.M. CAPEN'S CO., INC., Plaintiff, Appellee, v. AMERICAN TRADING AND PRODUCTION CORPORATION and Blas Rossy Asencio and His Conjugal Partnership, Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 317

74 F.3d 317

A.M. CAPEN'S CO., INC., Plaintiff, Appellee, v. AMERICAN TRADING AND PRODUCTION CORPORATION and Blas Rossy Asencio and His Conjugal Partnership, Defendants Appellants.

No. 95-1870.

United States Court of Appeals First Circuit.

Heard Dec. 8, 1995.

Decided Jan. 18, 1996.

Jose Enrique Colon Santana for appellant.

Philip E. Roberts for appellee.

Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.

BOWNES, Senior Circuit Judge.

This is an appeal from a preliminary injunction issued by the district court barring defendant-appellant American Trading and Production Corp. ("ATAPCO") from terminating plaintiff-appellee A.M. Capen's Co., Inc. ("Capen's") as an exclusive distributor for Puerto Rico of ATAPCO's products. Capen's had filed an action in the United States District Court for the District of Puerto Rico alleging that ATAPCO violated P.R. Laws Ann. tit. 10, Sec. 278, et seq. (1976 and Supp.1989) (a.k.a. Law 75, the Puerto Rico Dealer's Act) by terminating the exclusivity of the distributorship. Section 278a of title 10 provides:

Notwithstanding the existence in a dealer's contract of a clause reserving to the parties the unilateral right to terminate the existing relationship, no principal or grantor may directly or indirectly perform any act detrimental to the established relationship or refuse to renew said contract on its normal expiration, except for just cause.

The injunction was issued pursuant to the provisional remedy provision, Section 278b-1 of the Act, which provides:

In any litigation in which there is directly or indirectly involved the termination of a dealer's contract or any act in prejudice of the relation established between the principal or grantor and the dealer, the Court may grant, during the time the litigation is pending solution, any provisional remedy or measure of an interdictory nature to do or to desist from doing, ordering any of the parties, or both, to continue, in all its terms, the relation established by the dealer's contract, and/or to abstain from performing any act or any omission in prejudice thereof. In any case in which the provisional remedy herein provided is requested, the Court shall consider the interests of all parties concerned and the purposes of the public policy contained in this chapter.

There is no dispute as to the basic facts. In 1978, Capen's entered into an agreement with ATAPCO's predecessor, Sheller-Globe, to be the exclusive distributor of Globe-Weiss and Steelmaster office products in Puerto Rico, the Caribbean, the Dominican Republic, and Central and South America. The agreement did not contain an expiration date. Although confirmed in a written letter, the parties did not sign a formal contract because they could not agree on the law that would apply to the contract. When ATAPCO took over, the arrangement with Capen's continued, as did the disagreement as to choice-of-law and forum selection clauses.

ATAPCO, with its principal place of business in Missouri, wanted Missouri law to apply to the contract. Capen's, a New Jersey corporation with its principal place of business in that state, wanted Puerto Rico law to apply. As a result, ATAPCO and Capen's never signed a formal contract. In December 1993, ATAPCO wrote a letter to Capen's in which it terminated the exclusive aspect of the dealership. ATAPCO did not end the Capen's dealership; it reserved the right to sell to others. ATAPCO made Blas Rossy Asencio a sales representative for the area for which Capen's originally had the exclusive rights. This lawsuit ensued. ¹

Proceedings of the District Court

The district court adopted the recommendation of the Magistrate Judge that the provisional remedy in the Puerto Rico Dealer's Act be granted. The court then issued a full-blown opinion giving the reasons for its action. It found that Capen's "has exhibited a likelihood of success on the merits." A.M. Capens Co., Inc. v. American Trading and Prod. Corp., 892 F.Supp. 36, 38 (D.P.R.1995). It then held:

Capens has also shown that his business will suffer irreparable injury if the injunction is not granted because Mr. Rossy Asencio will continue to sell the products in the areas wherein Capens had the exclusivity with the added competitive advantage for Asencio of freight charges assumed by ATAPCO. The above will obviously mean that Capens' business market will be significantly irreparably diminished.

The harm that Capens will suffer most certainly outweighs ATAPCO's possible harm: the business area will remain unchanged (the Caribbean and Central and South America) and ATAPCO will continue receiving benefits, either through Mr. Rossy Asencio or through A.M. Capens; however, the harm is for Capens who will lose business market should Mr. Rossy Asencio continue to interfere with the customers.

Id. at 38-39. Finally, the court held that the public interest would not be adversely affected by the preliminary injunction. Id. at 39.

It is obvious that what we are reviewing is not only a provisional remedy under the Puerto Rico Dealer's Act, but a preliminary injunction that meets, at least prima facie, all federal requisites. The appropriate standard for reviewing a preliminary injunction is abuse of discretion. Jimenez Fuentes v. Torres Gaztambide, 807 F.2d 236, 239 (1st Cir.1986) (en banc), cert. denied, 481 U.S. 1014, 107 S.Ct. 1888, 95 L.Ed.2d 496 (1987).

Analysis

We start our analysis with the only finding of the district court to which defendant has objected--probability of success on the merits. Defendant's appeal is posited on two contentions: that Puerto Rico law does not apply; and that plaintiff is not a dealer under the Puerto Rico Dealer's statute. As the district court noted, this is "a close matter." Id.

That is because Capen's does not fit the mold of a typical Puerto Rican dealer. It does not advertise in Puerto Rico and has neither a warehouse nor a showroom on the Island. It sells exclusively to retailers and wholesalers. Though Capen's sometimes sends an agent to Puerto Rico, it does not have a resident agent on the Island and is not qualified to do business in Puerto Rico on a regular basis. On the other hand, the annual sales made by Capen's in Puerto Rico under its exclusive distributorship increased from about $30,000 in 1978 to $423,000 in 1993. Total Puerto Rico sales of ATAPCO products for the five-year period spanning from 1989 to 1993 came to about $1,976,000.

The first issue is what law applies. This necessitates an examination of the conflict of law principles governing contract and tort law.

Contract Factors

ATAPCO contends that the district court incorrectly applied Puerto Rico choice of law rules to the facts. It stresses that none of the acts--negotiation of the contract, performance of the contract obligations, or breach of the contract--took place in Puerto Rico. It points out that neither it nor Capen's has offices or employees located in Puerto Rico.

The Supreme Court of Puerto Rico has approved the "dominant or significant contacts" test for contract and tort actions. In re San Juan Dupont Plaza Hotel Fire Litig., 745 F.Supp. 79, 82 (D.P.R.1990). Thus, "the laws of the jurisdiction with the most significant contacts with respect to the disputed issue should apply." Id. In determining this question, recourse to the Restatement (Second) of Conflict of Laws is appropriate. Id. (citing Sections 6 and 188).

Under Section 188 of the Restatement, absent a contractual choice of law, the contacts to be taken into account in a contract action include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

Restatement (Second) of Conflict of Laws Sec. 188 (1971).

The places of contracting and negotiating the contract in question occurred in the continental United States. ATAPCO and Capen's met in St. Louis, Missouri, to discuss the contract; they also spoke by phone. However, "[s]tanding alone, the place of contracting is a relatively insignificant contact." Id. Sec. 188 cmt. e.

The performance of the contract takes place, in part, in the continental United States. When Capen's wishes to purchase products from ATAPCO, it places an order with ATAPCO's customer service offices in Pennsylvania or Missouri. The goods are then sent to Capen's in New Jersey or to the point of embarkation. Sometimes Capen's sends a trailer to the Pennsylvania office to pick up the merchandise. But performance also occurs in Puerto Rico--where the market is--because the contract granted Capen's the exclusive right to sell ATAPCO's products there. See Id. Sec. 188 cmt. c ("[A] state where a contract provides that a given business practice is to be pursued has an obvious interest in the application of its rule designed to regulate or to deter that business practice.").

The location of the subject matter of the contract similarly varies, depending on one's view. If the products sold by ATAPCO, and then by Capen's, are considered the subject matter, they start out in Pennsylvania or Missouri (and Kentucky according to ATAPCO) and end up in New Jersey. Arguably, this is the end of the line because when the goods are shipped to Puerto Rico, they become the subject of contracts between Capen's and its customers in Puerto Rico. ATAPCO, not surprisingly, takes this position, pointing out that it has no direct contacts in Puerto Rico.

The other subject matter of the contract is the status of Capen's as the exclusive distributor of ATAPCO's merchandise. This, it seems clear, is located in Puerto Rico. It is this subject matter which is in dispute, rather than, say, the price of the goods or the manner of their delivery to Capen's. The essential purpose of the exclusive distributorship was to enable Capen's to sell the...