Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—1st Cir.: Puerto Rico dealer law claims time-barred, (May 3, 2016)

By Linda O’Brien, J.D., LL.M.

A poultry product manufacturer’s notification that it would do business with an exclusive wholesale food distributor only on a non-exclusive basis constituted a detrimental act under Puerto Rico’s Dealers’ Contracts Law (Law 75) and, therefore, commenced the running of the law’s three-year statute of limitations, the U.S. Court of Appeals in Boston has decided. The appeals court affirmed a district court’s denial of a preliminary injunction against the manufacturer’s direct sales to Puerto Rico retailers and dismissal of the claim as time-barred (Trafon Group, Inc. v. Butterball, LLC., May 2, 2016, Howard, J.).

Trafon Group is a Puerto-Rico based wholesale food distributor. In June 2009, Trafon acquired certain assets from Packers Provisions Company, including an exclusive distribution agreement with Butterball, LLC for whole bird and turkey part products. Shortly after the transaction was completed, Trafon learned that Butterball was selling its products to a Florida wholesaler for distribution to a retailer in Puerto Rico. In October 2009, Trafon contacted Butterball about violations of the exclusive distribution agreement. Butterball responded in a letter, stating that the company never entered into an exclusive distribution agreement with Packers and therefore Trafon could not have acquired such rights. However, Butterball was willing to do business with Trafon on non–exclusive terms and on a purchase order basis. Butterball and Trafon began to do business and each invoice that Trafon received from Butterball stated that all orders fulfilled by Butterball were on a non-exclusive basis.

In September 2013, after Trafon learned that Butterball made direct sales to various retailers in Puerto Rico, Trafon filed suit, seeking a preliminary injunction enjoining Butterball from violating the alleged exclusive distribution agreement. The district court, in denying Trafon’s motion and dismissing the case, found that the three-year statute of limitations under Puerto Rico’s Law 75 started when Trafon received Butterball’s letter in October 2009. As a result, Trafon’s claims were time-barred. Trafon appealed.

Law 75 provides that, in a dealer’s contract, a principal or grantor may not directly or indirectly act detrimentally to the established relationship or refuse to renew a contract upon its normal expiration without just cause.

The district court properly determined that Butterball’s 2009 letter constituted a detrimental act under Law 75, the appellate court found. The letter announced that Butterball’s intent not to treat Trafon as its exclusive distributor and put Trafon on notice that Butterball could begin working with other distributors at any time. Specifically, the letter was a response to Trafon’s inquiry into whether Butterball was working with another distributor. Had Trafon brought a timely suit under Law 75, it could have identified damages stemming from that transaction and sought provisional injunctive relief. Once Trafon had knowledge of the facts needed to bring a claim, it could not wait idly for "process to be afforded," the court noted.

Furthermore, it was undisputed that Butterball regularly submitted invoices to Trafon indicating that their relationship was not exclusive. Given the repeated and clear assertions to the contrary, it was unlikely that Butterball intentionally induced Trafon to rely upon representations that their relationship was exclusive, the court concluded.

The cases are Nos. 15-1419 and 15-1577.

Attorneys: Jorge I. Peirats and Jason R. Aguiló-Suro (Pietrantoni & Álvarez LLC) for Trafon Group, Inc. Luis A. Oliver and Salvador Antonetti-Zequeira (Fiddler González & Rodriguez, P.S.C.) for Butterball, LLC.

Companies: Trafon Group, LLC.; Butterball, Inc.

Cases: FranchisingDistribution MaineNews MassachusettsNews NewHampshireNews PuertoRicoNews RhodeIslandNews