Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.P.R.: Distributor’s Puerto Rico Dealers Act case against Candela dismissed, (May 14, 2025)

By Wendy Biddle, J.D.

The pleadings were unclear and insufficient to support the claims it purported.

After a medical device distributor sued its principal under the Puerto Rico Dealers Act (also called Law 75) and tortious interference, the district court in Puerto Rico dismissed the claims, finding the pleadings insufficient to state a claim. The court noted the severe deficiencies in the company’s complaint and dismissed the tortious interference claim with prejudice, but dismissed the Dealers Act claim without prejudice. The court noted that the dismissal “is not to be read as an invitation to amend” but rather does not preclude another lawsuit under the Dealers Act (AE Medical Technologies, Inc. v. Candela Corporation, Inc., No. 3:24-cv-01286-SCC (D.P.R. May 13, 2025)).

Background. AE Medical Technologies and Candela Corporation had a distribution agreement where AE Medical would distribute Candela’s medical devices in Puerto Rico. Initially, AE Medical filed a complaint against Candela which was limited to injunctive relief. The court denied the temporary restraining order and referred the request for a preliminary injunction to a magistrate judge. Before the hearing was held, the parties filed a joint informative motion stating they had reached a temporary settlement that the distribution agreement should remain in full force and effect and also asked for an order directing specific enforcement of the agreement. The magistrate judge agreed and approved the motion and vacated the hearing. The court adopted the report and recommendation from the magistrate and also ordered AE Medical to show cause as to why the case should not be dismissed as moot since the parties agreed to abide by the contract.

After an extension, AE Medical filed an amended complaint. Candela moved to dismiss the amended complaint for failure to state a claim.

Motion to dismiss. The court determined, although the complaint was not clear as to the causes of action, that AE Medical brought claims against Candela under the Puerto Rico Dealers Act and tortious interference under Article 1536 of the Puerto Rico Civil Code.

Dealers Act claim. The Dealers Act controls the business relationship between principals and local distributors. Without a clause in the contract allowing the parties the unilateral right to terminate, the Dealers Act prohibits a principal from performing any act detrimental to the established relationship or refusing to renew said contract without just cause.

Based on the pleadings, the court concluded it was hard to determine what conduct AE Medical was alleging Candela committed. The complaint stated that the distributor relationship was still in effect but also accused Candela of unilateral cancellation. The exhibits showed a continuing relationship. Because of that, the court concluded that AE Medical was alleging impairment, and not unilateral termination.

The court also noted that AE Medical was not clear regarding what provisions of the contract it was relying on, since the contract was only cited once in the complaint to simply establish that there was a distribution contract. The complaint never alleged what provisions of the contract were relevant to the litigation. Because the pleadings were so unclear, the court was not inclined to “play archaeologist with the record” to try to determine what rights they allege were impeded upon. The court therefore dismissed the Dealers Act claim without prejudice.

Article 1536 claim. Article 1536 was introduced by the 2020 Civil Code and had not yet been officially translated into English. But Article 1536 contains the same elements as its predecessor, Article 1802 and all caselaw remains in effect and will be applied to Article 1536. The article generally does not apply to commercial transactions, but the Puerto Rico Supreme Court recognized a cause of action for tortious interference under the article.

The court noted again that the pleadings were severely inadequate as it was unclear from the complaint if AE Medical was alleging that Candela tortiously interfered with the contract between the two of them or with contracts AE Medical had with third parties. A tortious interference claim in Puerto Rico requires a third party, so the court evaluated the claim under the assumption that the complaint was referring to AE Medical’s contracts with third parties.

However, Puerto Rico law also requires that the contract be a fixed term contract that is not terminable at will for one to claim tortious interference. AE Medical never pleaded any fixed-term contracts and that the court found to be fatal. The court therefore dismissed the Article 1536 claim. The court noted that AE Medical was on notice by Candela’s motion that to state a tortious interference claim it is required to plead that third-party contracts are for a fixed term, and therefore it was dismissing the claim with prejudice.

The Case is No. 3:24-cv-01286-SCC.

Judge: Coll, S.

Attorneys: Ramon L. Walker-Merino (Walker Merino Law Office) for AE Medical Technologies Inc. Fernando Van-Derdys (Law Offices of Fernando Van-Derdys) for Candela Corp., Inc.

Companies: AE Medical Technologies Inc.; Candela Corp., Inc.

Cases: FranchisingDistribution PuertoRicoNews