R.W. Intern. Corp. v. Welch Food, Inc.

• Decision Date: 03 November 1993
• Docket Number: No. 93-1704,93-1704
• Citation: 13 F.3d 478
• Parties: 1994-1 Trade Cases P 70,488 R.W. INTERNATIONAL CORP. and T.H. Ward de la Cruz, Inc., Plaintiffs, Appellants, v. WELCH FOOD, INC., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 478

13 F.3d 478

1994-1 Trade Cases P 70,488

R.W. INTERNATIONAL CORP. and T.H. Ward de la Cruz, Inc., Plaintiffs, Appellants, v. WELCH FOOD, INC., et al., Defendants, Appellees.

No. 93-1704.

United States Court of Appeals, First Circuit.

Heard Nov. 3, 1993.

Decided Jan. 20, 1994.

Jose A. Hernandez Mayoral with whom Rafael Hernandez Mayoral was on brief, for appellants.

Jaime E. Toro-Monserrate with whom Samuel T. Cespedes and Ana Matilde Nin were on brief, for Welch Food, Inc.

Jorge I. Peirats with whom Jacabed Rodriguez Coss was on brief, for Magna Trading Corp.

Before BREYER, Chief Judge, COFFIN, Senior Circuit Judge, and BOUDIN, Circuit Judge.

COFFIN, Senior Circuit Judge.

The parties in this action attempted to negotiate a long-term distribution relationship, but after a year of haggling, defendant Welch Foods, Inc. (Welch) notified plaintiffs R.W. International Corp. (R.W.) and T.H. Ward de la Cruz, Inc., ¹ that it was calling off the corporate marriage because of irreconcilable differences. Plaintiffs claimed that the dissolution of the relationship violated the Puerto Rico Dealers' Contracts Act, P.R.Laws Ann. tit. 10, Sec. 278 (Law 75), and federal and state antitrust laws. Plaintiffs also alleged a claim of tortious interference with contractual relations against defendant Magna Trading Corp., supervisor of Welch's operations in Puerto Rico.

The district court concluded that the association between the parties had not yet matured into a relationship protected by Law 75, and it consequently granted summary judgment for defendants on the Dealers' Act and tort claims. It dismissed the antitrust claims on the ground that plaintiffs had failed to make the required showing of injury to competition. Our review of the caselaw and circumstances persuades us that only the antitrust claims properly were dismissed. We therefore reverse the summary judgment on the other causes of action.

I. Factual Background

The facts underlying this dispute essentially are undisputed, with the parties differing only with respect to their legal significance. Our review of the district court's grant of summary judgment is plenary. Cambridge Plating Co. v. Napco, Inc., 991 F.2d 21, 24 (1st Cir.1993).

Welch, a producer of fruit juices and related products, has sold its products through local distributors in Puerto Rico since the 1930s. In 1987, Welch needed a new distributor for its frozen concentrate line of products, and, with the help of its local broker, Magna Trading, it identified R.W. as the most suitable--though not perfect--candidate.

From the beginning of Welch's interest in R.W., company executives had concerns about R.W.'s handling a competing line of juice products under the "Donald Duck" label. Welch's international marketing manager initially had suggested internally that R.W. would have to drop the Donald Duck line "to be a viable option," see App. at 213, but he later reported that R.W.'s owner, Thomas Ward, had agreed to undertake several measures to assure that the Welch frozen concentrates would receive full support despite the continued presence of the Donald Duck products. These included "[a] trial period with no commitment by Welch's for a larger period of representation," App. at 219, and a financial contribution from R.W. for advertising Welch's product.

Discussion among the parties took place through the early months of 1988 and, on March 25, Welch's international marketing manager wrote to Ward to announce his company's decision:

... I am pleased to inform you that Welch's has reached a decision to continue the frozen concentrate distribution and sales business begun by Ventura Rodriguez in Puerto Rico by transferring our account to R.W. International.

Confirming our conversation on Monday, Welch's will proceed to draft an agreement calling for the appointment of R.W. International in Puerto Rico for a one-year trial period....

App. at 364. Four days later, on March 29, Welch notified its customers that it had

made the decision to appoint R.W. International and its distributing affiliate T.H. Ward de la Cruz Inc. as its distributors in Puerto Rico for Welch's frozen product line. This change will go into effect as of this date and a written agreement is expected to be arrived at in the near future.

App. at 366 (translation in appendix to appellant's brief).

The parties immediately began doing business, with plaintiffs regularly submitting purchase orders and defendants delivering the merchandise and billing plaintiffs. It was not until three months later, however, in late June, that Welch submitted a proposed contract to plaintiffs. Ward responded in August with a counterproposal. Of particular concern to the Puerto Rico company were provisions in the agreement that appeared to reflect an effort by Welch to bypass Act 75, which subjects companies to substantial damages if they terminate dealership contracts for other than "just cause." The Welch document, for example, characterized the relationship with R.W. as a transfer of the contractual arrangement that had existed between Welch and its prior distributors before the passage of Act 75. Welch's draft also specified that New York law would govern the agreement. R.W.'s revised draft, inter alia, deleted the "transfer" language and specified that Puerto Rico law would apply.

In mid-October, after a series of telephone conversations between attorneys, Welch submitted a third proposed draft of the agreement, which reinstated all of the language that had been of primary concern to R.W. During a visit to Puerto Rico in early December and in subsequent correspondence, Welch's international marketing manager encouraged Ward to complete the contract negotiations "as soon as possible." On January 30, 1989, Ward responded by letter stating that he, too, was anxious to finalize the agreement, but that there were a few items "that your lawyer insists on and that we feel are not in the best interest of our future relationship." In response to an inquiry about R.W.'s investing $50,000 in a promotional campaign, Ward noted that the commitment was not yet ripe because he had agreed to make this expenditure "once we as a company[ ] held a working agreement with Welch's." A follow-up letter sent by Ward on February 8 to the president of Magna Trading reiterated concerns about the "transfer" concept as a means of "avoid[ing] Law 75 constraints."

At this point, the applicability of Law 75 remained the only significant point of contractual disagreement between the parties. They had resolved earlier conflicts as to which of Ward's entities would be named specifically in the contract (only R.W.), and whether R.W. would have an exclusive distributorship during the one-year trial period (no).

The companies had been continuing to do business throughout the negotiation period. Late in 1988, the relationship appeared to be working well; Magna Trading's president, Roberto Giro, wrote to Ward in early December to commend him for exceeding by 11 percent the goal on a special product promotion. Early in 1989, however, Giro began to express concern about R.W.'s side-by-side handling of the Welch and Donald Duck products. On January 20, he wrote to Welch's marketing manager indicating discomfort with Ward's involvement in a new line of Donald Duck grape juice products. This concern escalated, and Giro wrote again on March 22 suggesting that R.W. was not giving priority to Welch products as it had promised to do.

On March 30, 1989, Welch's international vice president, William Hewins, informed Ward in a letter of Welch's decision "to discontinue the existing pre-trial relationship ... and, therefore, putting an end to the one-year trial or probationary relationship for our frozen concentrate products." The letter continued:

As you know, the idea of working together on a one-year trial basis was, as per your recommendations, to determine if Welch's frozen concentrates could be handled to our satisfaction in spite of your handling a competitive product. The pre-trial relationship proved to us that the conflicts of interest of your representing both competing lines are significant and irreconcilable.... An increased level of conflict in personal relations between our broker and R.W. International has also been noted, tracing to conflicts between the brands represented by the two firms.... Instead of complementing one another, as was your original premise, these brands represent conflicting interests for you and us....

Because Welch terminated the relationship before the parties reached an agreement in writing, the one-year trial period envisioned at the outset of their dealings never even commenced.

Plaintiffs filed this action in April 1989. Their amended complaint alleges that Welch terminated their dealership agreement without just cause in violation of Law 75; that Magna Trading tortiously interfered with their contractual relationship with Welch; and that defendants violated antitrust laws by threatening, and then later actually terminating, plaintiffs' dealership if R.W. did not agree to drop Donald Duck products, and by seeking to monopolize the bottled grape juice market through a price-cutting war. The case was dismissed once on improper procedural grounds, see R.W. International Corp. v. Welch Foods, Inc., 937 F.2d 11 (1st Cir.1991), and, following remand, dismissed again on defendants' motions for summary judgment.

In this appeal, plaintiffs maintain that all of their claims are viable. They argue that, contrary to the district court's ruling, precedent on Law 75 establishes that the statute does govern the business relationship within which R.W. and Welch operated for a year. They assert that this arrangement also provides a basis for their tortious interference claim against Magna. In addition, plaintiffs argue that their antitrust allegations were sufficient to withstand defendants' summary judgment motion and that, if their showing were...