Mario R. Franceschini, Inc. v. Riley Co., Civ. No. 83-0917CC.

• Decision Date: 11 July 1984
• Docket Number: Civ. No. 83-0917CC.
• Parties: MARIO R. FRANCESCHINI, INC., Plaintiff, v. The RILEY COMPANY, Defendant.
• Court: U.S. District Court — District of Puerto Rico

591 F. Supp. 414

MARIO R. FRANCESCHINI, INC., Plaintiff, v. The RILEY COMPANY, Defendant.

Civ. No. 83-0917CC.

United States District Court, D. Puerto Rico.

July 11, 1984.

A.J. Amadeo-Murga, Hato Rey, P.R., for plaintiff.

Edgardo Cartagena-Santiago, O'Neill & Borges, Hato Rey, P.R., for defendant.

OPINION AND ORDER

CEREZO, District Judge.

This diversity case was removed from the Superior Court of Puerto Rico pursuant to 28 U.S.C. Sec. 1441(a). This federal court is again called upon to construe Puerto Rico's Act No. 75 of June 24, 1964, P.R.Laws Ann. Tit. 10 Sec. 278, et seq. also known as the Dealer's Act. We must determine whether the relationship between plaintiff Mario Franceschini, Inc. and defendant The Riley Company falls within the Act's definition of "dealer" and "dealer's contract." The matter has been raised in defendant's motion for summary judgment and in plaintiff's opposition. Adopting as true the uncontroverted facts relied on by defendant and granting in plaintiff's favor all those that remain challenged or which have been duly controverted, as well as all favorable inferences that may be derived therefrom, see: R. 56, Fed.R.Civ.P., the factual context of the commercial relationship between the parties can be described as follows.

Plaintiff is a Puerto Rico based enterprise dedicated to the sale and representation of various products of different mainland firms. It represented defendant's "Panalarm" line of products from 1965 until 1980 when their contractual relationship was terminated. During that span of time its activities consisted of visiting potential clients to inform them of defendant's products, advertising in local trade publications and shows, hiring employees with an engineering background and sending them to stateside training to enable them to understand the product's technical features, sending information by mail to customers and forwarding some orders to defendant. It did not buy equipment or spare parts from defendant nor did it keep any inventory or warehouse facilities. It neither set prices or terms on the sale nor did it extend credit or engage in billing or collection efforts. According to the Sales Representative Agreement, plaintiff would earn a commission once the purchase order had been received and approved in writing by defendant. The Agreement provided that all orders obtained by plaintiff or its employees were subject to formal acceptance by defendant.¹ It specified that plaintiff was not an employee of Riley but rather an independent contractor for whose acts Riley was not to be held liable and who had to carry workmen's compensation insurance for its employees.

Defendant's role in this relationship consisted in delivering, billing and servicing the product directly to the client once an order, sent either via plaintiff or directly by the client, was approved. Although plaintiff would sometimes provide routine consultation, installation or troubleshooting of defendant's equipment, all repairs were handled directly by defendant either by repairing or replacing the parts or by sending an authorized representative. Defendant was also in charge of all collection efforts of delinquent or credit accounts. In terms of promotion, there were clients in Puerto Rico who were first contacted by defendant through its promotion in the mainland. This mainly consisted of advertising in national publications and approaching the parent or affiliate corporations of Puerto Rico based clients. Riley would also provide plaintiff with mailing lists of these and other potential clients. Sometimes it would process orders directly from these clients. It also advertised its products in Puerto Rico through seminars and sales representations and indirectly in publications which circulated in Puerto Rico. Costs of these promotional efforts, as well as all those related to the servicing, billing and credit involved in the sale, were borne by defendant. Thus, plaintiff's activities essentially involved some promotion and the development of a minor market for defendant's products in Puerto Rico but no actual control over the end result of its promotional efforts.

Defendant's position is that the mere promotion of a product is not enough to cast one as a dealer under Act 75. It argues that the strict requirements of the Act and its generous compensation provisions cannot be construed to apply to those who do not assume the risks generally associated with activities inherent to a dealer's handling of a product or service, namely: maintaining an inventory, providing warehouse facilities and assuming responsibility for billing, delivery, shipping and credit accounting. Plaintiff understands that, pursuant to the statute and its caselaw, the crucial inquiry in determining whether one is a dealer consists in deciding whether a new market was created for the principal's products or services regardless of whether one had the authority to actually sell the product or service represented.

The Act defines dealer as one who is: "actually interested in a dealer's contract because of his having effectively in his charge in Puerto Rico the distribution, agency, concession or representation of a given merchandise or service." A dealer's contract is defined as a:

Relationship established between a dealer and a principal or grantor whereby and irrespectively of the manner in which the parties may call, characterize or execute such relationship, the former actually and effectively takes charge of the distribution of a merchandise, or of the rendering of a service, by concession or franchise, on the market of Puerto Rico.

P.R.Laws Ann. Tit. 10 Sec. 278(a), (b). The scant legislative history of the statute refers solely to the problems faced by dealers in Puerto Rico who created a favorable market for a principal's product only to have the relationship arbitrarily terminated at will. It does not explore the scope of the definitions. Through the years, however, the Supreme Court of Puerto Rico has provided guidelines in its interpretation of the Act. In San Juan Mercantile Corp. v. Canadian Transport Co., Ltd., 8 P.R. Supreme Court Official Translations, p. 218, 108 DPR 134 (1978), where the Court referred to the "very sketchy definition" provided by the Act for the terms dealer and dealer's contract, it said:

the dealer is basically characterized by his endeavors to create a favorable market and to draw customers to a product or service by promoting and closing sales contract. His work generally includes the activities necessary for the transportation of the products or services he represents from the manufacturer to the consumer or to some point in between.... Publicity, market coordination, merchandise deliveries, collections, the keeping of an inventory, and mainly the promotion and closing of sales contracts are, in general terms, obligations of the dealer. (Citations omitted, emphasis supplied.)

Id. at 220-221. It restated that the creation of a market and the winning of clients are the factors that trigger the indemnization provided by the Act if termination of the dealership is shown to be without just cause. Consistent with that reasoning it held that the services rendered by San Juan Mercantile Corp., consisting of providing defendant's ships with all necessary arrangements for unloading and delivering cargo, did not constitute a dealership for no market was generated by these activities. The court expressed that its construction of the scope of these terms would serve to complement the related discussion of them in J. Soler Motors v. Kaiser Jeep Int'l., 8 P.R. Supreme Court Official Translations, p. 138, 108 DPR 134 (1978). However, what was deemed "sketchy" in San Juan Mercantile was construed as "ample and encompassing" definitions in Kaiser Jeep. Upon reviewing the general characteristics of a commercial distributorship agreement it said:

The different stages comprised within the process of transferring goods from the manufacturer to the consumer are integrated by several middlemen. These middlemen may be classified in different ways: wholesalers, dealers, retailers, franchised dealers, exclusive representatives, etc. The distribution process includes them all, the first middleman or distributor, as well as the retailer who sells the product to the consumer. The distribution chain can also be divided into areas or regions, and each of its levels can be integrated by one or more middlemen. ...

Act No. 75, supra, has the purpose of protecting the Puerto Rican intermediaries who represent a product or a service in the different levels of the distribution chain. To this respect, art. 1 of said law defines in ample and encompassing terms the concepts of "dealer" and "dealer's contracts" ....

Kaiser Jeep, Translations supra at 142, 143. It recognized J. Soler Motors, Inc., an automobile retail sales concessionaire in an area of Puerto Rico, as a dealer within the meaning of the Act because:

It would not be consistent with the purposes of Act No. 75, nor with its very text, to exclude from its protection concessionaires that, as J. Soler Motors, Inc., have maintained a commercial relation with appellee which is characterized by its continuity, stability, mutual trust, coordination between both parties as independent entrepreneurs, devoid of hierarchical subordination, and in whom appellee has made a substantial investment. All of these are distinctive elements of agencies' contracts. See: III-1 Garriguez, Tratado de Derecho Mercantil, at 536 (1963).

Id. at 145. In Córdova & Simonpietri Insurance Agency v. Crown American Insurance Company, 112 DPR 797 (1982)² via certification, the Supreme Court of Puerto Rico confronted the question whether Act 75 applied to Puerto Rico based insurance agents. Having preliminary found that there was no conflict between Puerto Rico's Insurance Code and Act 75, it went on to examine the description of an insurance agent's activities as set out in the ...