Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. P.R.: Issues of fact precluded summary judgment in wrongful termination action, (Sep 3, 2014)

By Linda O’Brien, J.D., LL.M.

Genuine issues of material fact precluded the grant of cross motions for summary judgment in an action by a construction equipment distributor against its equipment supplier for wrongful impairment and termination of the distributor agreement, the federal district court in San Juan, Puerto Rico has decided (Casco, Inc. v. John Deere Construction Co. and Forestry Co., August 26, 2014, Gelpi, G.).

Casco, Inc. is engaged in the sale, distribution, and service of construction equipment. In 1986, Casco and John Deere executed an agreement for the sale and distribution of John Deere construction equipment in Puerto Rico. In December 2012, John Deere cancelled a purchase order by Casco for an excavator for failure to comply with new model qualification (NMQ) requirements for the purchase of a new model. Subsequently, John Deere terminated the distributor agreement for failure to pay past due fees.

Casco filed suit against John Deere, alleging that the company terminated their relationship without just cause in violation of the Puerto Rico Dealers Act (Law 75). Casco asserted that the NMQ was unilaterally implemented by John Deere and was not part of Casco’s essential obligations under the agreement. Both parties filed motions for summary judgment.

The court found genuine issues of material fact regarding whether John Deere improperly impaired Casco by rejecting its purchase order and terminating the agreement for indebtedness or whether it did so with just cause. Law 75 regulates the termination of a supplier’s relationship with a dealer and provides that a supplier may not directly or indirectly perform any act detrimental to an established relationship except for just cause.

John Deere argued that it had just cause for terminating the agreement because Casco failed to (1) maintain sufficient positive net worth, (2) adequately train personnel, (3) maintain adequate inventory, (4) fulfill warranty obligations, (5) actively promote the sale of goods, and (6) cooperate with reviews and correction of deficiencies. Casco contended that John Deere should have followed its internal policy allowing a 90-day grace period to complete the NMQ’s and should not have offered to sell the new model to another distributor, denying Casco a commission.

The court noted that the determination of whether NMQ compliance was an essential obligation and prerequisite to filling a purchase order depended on a factual inquiry. Paying for goods on time is normally considered one of the essential obligations of the dealer’s contract. However, reasonable minds could differ as to whether John Deere denied the purchase order with just cause or was Casco unable to pay on its debt because John Deere refused to continue to effectuate the agreement. Therefore, the motions for summary judgment were denied.

The case is No. 13-1325.

Attorneys: Ricardo F. Casellas (Casellas, Alcover & Burgos PSC) for Casco, Inc. Eduardo A. Zayas-Marxuach (McConnell Valdés LLC) for John Deere Construction Co. & Forestry Co.

Companies: Casco, Inc.; John Deere Construction Co. & Forestry Co.

Cases: FranchisingDistribution PuertoRicoNews