Quality Cleaning Prods. R.C., Inc. v. SCA Tissue N. Am., LLC

• Decision Date: 21 July 2015
• Docket Number: No. 14–1405.,14–1405.
• Citation: 794 F.3d 200
• Parties: QUALITY CLEANING PRODUCTS R.C., INC.; Rafael Correa, Plaintiffs, Appellants, v. SCA TISSUE NORTH AMERICA, LLC, Defendant, Appellee, John Doe; Richard Roe Defendants.
• Court: U.S. Court of Appeals — First Circuit

794 F.3d 200

QUALITY CLEANING PRODUCTS R.C., INC.; Rafael Correa, Plaintiffs, Appellants

v.SCA TISSUE NORTH AMERICA, LLC, Defendant, Appellee, John Doe; Richard Roe Defendants.

No. 14–1405.

United States Court of Appeals, First Circuit.

July 21, 2015.

Miguel Angel Rangel–Rosas, Jr., with whom Maymi Rivera, LLC was on brief, for appellant.

Alejandro Jose Cepeda–Díaz, with whom Raúl M. Arias and McConnell Valdés LLC were on brief, for appellee.

Before HOWARD, Chief Judge, LYNCH and THOMPSON, Circuit Judges.

Opinion

HOWARD, Chief Judge.

Eleven years after Appellee SCA Tissue North America (“SCA”) allegedly breached its distribution agreement with Appellant Quality Cleaning Products (“QCP”), QCP filed this breach of contract action. The district court dismissed the action as time-barred under the applicable three-year statute of limitations. Applying Puerto Rico's statute of limitations and accrual rules, as we must when sitting in diversity, we affirm.

I.

SCA manufactures cleaning products and paper goods such as napkins, bath and facial tissue, and liquid soap. In August 1997, QCP entered into a distribution agreement with SCA which designated QCP as a non-exclusive, authorized Puerto Rican distributor and wholesaler of SCA's “Tork” brand product line. QCP agreed that it would not distribute any of SCA's competitors' products and, in return, SCA promised to offer QCP all promotions and discounts that it extended to any other Puerto Rican distributor. QCP claims that SCA breached that agreement in 2001, when SCA agreed to sell its “Tork” products at a reduced rate to a third company, Bunzl/Melissa Sales Corp. (“Bunzl”), and when it granted Bunzl a five percent discount or profit on every sale of “Tork” products that Bunzl made to other distributors in Puerto Rico.

QCP filed this breach of contract action on December 7, 2012—over a decade later. In Puerto Rico, Act 75 governs distribution agreements. See P.R. Laws Ann. tit. 10, §§ 278 et seq. SCA moved to dismiss the action as (among other things) time-barred under Act 75's three-year statute of limitations. See id. § 278d. QCP opposed SCA's statute of limitations defense on the sole basis that the “continuing violation” doctrine applied to delay the accrual of its claims. Finding the continuing violation doctrine inapplicable, the district court granted SCA's motion to dismiss. Based on the allegations contained in the complaint, the court concluded that QCP “knew since at least the year 2001” that SCA had engaged in conduct that QCP believed had violated the contract. Seizing on that statement, QCP filed a motion to reconsider. In that motion, and for the first time, QCP raised the “discovery rule,” claiming that it had no knowledge of SCA's alleged breach until 2011. The district court summarily denied that motion, and this timely appeal followed.

II.

We review the district court's dismissal on statute of limitations grounds de novo, and affirm “only if the record, construed in the light most flattering to the pleader [the party opposing dismissal], leaves no plausible basis for believing that the claim may be timely.” Erlich v. Ouellette, Labonte, Roberge & Allen, P.A., 637 F.3d 32, 35 (1st Cir.2011) (internal quotation marks omitted).

Act 75 imposes a three-year statute of limitations “from the date of the definite termination of the dealer's contract, or of the performing of the detrimental acts, as the case may be.” P.R. Laws Ann. tit. 10, § 278d. A limitations period “begins to run when the cause of action accrues—that is, when the plaintiff can file suit and obtain relief.” Heimeshoff v. Hartford Life & Accident Ins. Co., ––– U.S. ––––, 134 S.Ct. 604, 610, 187 L.Ed.2d 529 (2013) (internal quotation marks omitted). Breach of contract actions, like those under Act 75, traditionally accrue at the time of the breach. See 1 Calvin W. Corman, Limitation of Actions

§ 7.2.1, at 485–86 (1991); cf. Erlich, 637 F.3d at 35 (discussing Maine law).

Under this traditional rule, Act 75's limitations period began to run when SCA allegedly breached its agreement with QCP. QCP's amended complaint identifies SCA's breach (the Bunzl agreement) as taking place around the time that two companies merged to form Bunzl. The complaint alleges that the merger, and thus the breach, occurred in 2001. Because QCP did not file its complaint until 2012, the complaint facially indicates that Act 75's three-year statute of limitations has been far exceeded.

Nevertheless, QCP invokes both the continuing violation doctrine and the discovery rule in an attempt to argue that its Act 75 claim did not accrue until years later. In order to establish when QCP's claim accrued, we thus must determine whether those doctrines apply to Act 75.

A. Does State or Federal Accrual Law Apply?

A threshold question, disputed by the parties, is whether we look to Puerto Rico or federal law in making that accrual determination. Federal courts sitting in diversity apply the substantive law of the state and, pursuant to statute, Puerto Rico is treated as a state for diversity purposes. See Erie R.R.Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ; 28 U.S.C. § 1332(e). State law includes the applicable state statute of limitations. See Guaranty Trust Co. of N.Y. v. York, 326 U.S. 99, 110, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945) ; Morel v. DaimlerChrysler AG, 565 F.3d 20, 23 (1st Cir.2009). QCP's breach of contract action is based on Puerto Rico law and, consistent with Erie and Guaranty Trust, the parties agree that Act 75's three-year statute of limitations applies. But, pointing to cases in which we have borrowed a state's statute of limitations for purposes of federal law while noting that the date of accrual remains a federal law question, QCP urges that—even in a diversity action—accrual is necessarily governed by federal law.

QCP's contention is mistaken. In fact, it directly conflicts with the Supreme Court's remark in Ragan v. Merchants Transfer & Warehouse Co. that a cause of action in a diversity action “accrues and comes to an end when local law so declares.” 337 U.S. 530, 533, 69 S.Ct. 1233, 93 L.Ed. 1520 (1949). Relying on this plain statement, several other circuits have held that it “is long since settled” that state law governs “when a state-created cause of action accrues.” Walko Corp. v. Burger Chef Sys., Inc., 554 F.2d 1165, 1171 (D.C.Cir.1977) ; accord Cantor Fitzgerald Inc. v. Lutnick, 313 F.3d 704, 709–10 (2d Cir.2002) ; Joyce v. A.C. & S., Inc. 785 F.2d 1200, 1203 (4th Cir.1986). We agree.

Moreover, this rule makes eminent sense because a federal court sitting in diversity must apply related state-law rules that form “an integral part of the several policies served by the [state's] statute of limitations.” Walker v. Armco Steel Corp., 446 U.S. 740, 751, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980) (holding that whether filing of the complaint tolls the statute of limitations is governed by state law); see also, e.g., West v. Am. Tel. & Tel. Co., 311 U.S. 223, 239, 61 S.Ct. 179, 85 L.Ed. 139 (1940) (applying Ohio law requiring a plaintiff to make a pre-lawsuit demand before the statute of limitations begins to run). State accrual rules fit comfortably within this category. When state law commands that the statute of limitations hourglass is to be turned is no less an “integral part” of a state's statute of limitations scheme than how long the state allows the sand to drain.

That we frequently apply federal accrual rules in the context of § 1983 actions and other federal laws does not aid QCP. When a federal statute contains no statute of limitations, we apply “the most analogous statute of limitations in the state where the action was brought.” Greenwood ex rel. Estate of Greenwood v. N.H. Pub. Utils. Comm'n, 527 F.3d 8, 13 (1st Cir.2008) ; see also, e.g., Randall v. Laconia, N.H., 679 F.3d 1, 4–5 (1st Cir.2012) (applying state statute of limitations but federal accrual rules for purposes of the Residential Lead–Based Paint Hazard Reduction Act, 42 U.S.C. § 4852d ). In those circumstances, federal rules determine when the claim accrues because “the cause of action is created by federal law,” even if the statute of limitations is set by reference to state law. Cantor Fitzgerald, 313 F.3d at 710. But when, by contrast, “federal jurisdiction is based on diversity ... state substantive law must govern” accrual and the statute of limitations alike. Id. Indeed, we have consistently adhered to this delineation in diversity cases, albeit without explicitly referencing this threshold distinction. See, e.g., Erlich, 637 F.3d at 35 (considering Maine's accrual rules); Loguidice v. Metro. Life Ins. Co., 336 F.3d 1, 6 (1st Cir.2003) (applying Massachusetts' discovery rule).

To remove all doubt, we take this opportunity to clearly hold that a federal court sitting in diversity must apply the relevant state's statute of limitations, including its accrual rules. The mere fact that a diversity-based action is brought “in a federal court instead of in a State court a block away, should not lead to a substantially different result.” Guaranty Trust Co., 326 U.S. at 109, 65 S.Ct. 1464. Accordingly, we decline QCP's invitation to graft a federal common law of accrual onto local statutes of limitation when sitting in diversity.

B. Applying Puerto Rico's Accrual Rules to QCP's Claim

We thus look to Puerto Rico law to resolve whether the continuing violation doctrine or the discovery rule applies. We discuss each doctrine in turn.

i. The Continuing Violation Doctrine

QCP first argues that the discounts SCA granted pursuant to the Bunzl agreement—which continued at least until 2010, and perhaps extend into the present—constitute a continuing violation of the distribution agreement. In narrow circumstances, typically including Title VII and other discrimination claims, the continuing violation doctrine permits a plaintiff to recover for injuries occurring outside of the limitations period. See Pérez–Sánchez v. Pub. Bldg....