Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—DPR: Terminated Distributor Did Not Have Actionable Claim Under Puerto Rico’s Dealers’ Contracts Act, (Jun 13, 2013)

By Peter Reap, J.D., LL.M.

A manufacturer of foam disposable cups, bowls, containers, and lids did not violate Puerto Rico’s Dealers’ Contracts Act (commonly referred to as “Law 75”) in connection with its termination of brokerage agreement with a distributor of its products because the termination could not have impaired the parties’ alleged dealer relationship under Law 75, the federal district court in San Juan, Puerto Rico, has determined (E.A. Hakim Corp. v. New Wincup Holdings, Inc., June 11, 2013, Garcia-Gregory, J.). Thus, the manufacturer’s motion for reconsideration of the court’s prior ruling on the distributor’s Law 75 claim was granted and the claim was dismissed.

Background. The distributor, E.A. Hakim Corp., filed this action due to the manufacturer’s termination of the parties’ brokerage agreement. The distributor claimed that it was entitled to relief under both the Puerto Rico Sales Representatives Act and Law 75.

The manufacturer, New WinCup Holdings, Inc., filed for summary judgment, alleging that (1) the brokerage agreement between the parties was non-exclusive and (2) the parties lacked an established relationship that could be deemed a dealership contract under Law 75. The court found that the distributor was not an exclusive sales representative and, as a result, the Sales Representative Act claim was dismissed. On the other hand, the court found genuine issues of material fact concerning whether the relationship between the parties could also be deemed a dealership contract, and, therefore, denied the motion for summary judgment in regards to the Law 75 claim.

The manufacturer then filed the instant motion for reconsideration of the issues concerning Law 75.

Analysis. On reconsideration the manufacturer emphasized that, as the distributor admitted, the parties’ distribution relationship—whether or not there was a dealer relationship governed by Law 75—is still ongoing, and that the distributor still purchases approximately the same amount of products (since the termination of the brokerage agreement), and with the same discount that the distributor received prior to the termination.

Law 75 protects dealers and franchisees against the termination, nonrenewal, or impairment of their agreements without just cause. The statute defines just cause to include a dealer’s failure to perform “any of the essential obligations” of the agreement, as well as “any action or omission…that adversely and substantially affects the interests of the principal or grantor in the marketing or distribution of the merchandise or service.”

The manufacturer argued that since the court found that the distributor was never entitled to exclusivity to sell the manufacturer’s products as a sales representative in Puerto Rico, the only possible impairment to the ongoing relationship was the loss of commission. Nonetheless, it claimed that the loss of commission was never related to their alleged dealer relationship, and, therefore, their “Law 75” relationship was unaffected.

In clarification, the manufacturer stated that the distributor received commission in his capacity as a broker. The distributor did not prove otherwise and, in fact, admitted that the dealer relationship “existed parallel” to their broker agreement. The manufacturer thus claimed that the loss of commission had had no bearing over the ongoing dealer relationship between the parties.

After reviewing the record and reconsidering both parties’ motions, the manufacturer’s argument was convincing, according to the court. The alleged dealer relationship between the parties has not been impaired, the court held. More importantly, the distributor did not respond to the manufacturer’s motion for reconsideration, which clarified key issues and presented a colorable argument concerning the Law 75 claim. Given the court’s previous ruling on the distributor’s lack of exclusivity as a dealer and its admissions concerning the ongoing relationship, the distributor’s Law 75 claim was dismissed.

The case is Civil No. 11-1232 (JAG).

Attorneys: Antonio Moreda-Toledo (Moreda & Moreda) for E.A. Hakim Corp. Eduardo A. Zayas-Marxuach (McConnell Valdes) for New WinCup Holdings, Inc.

Companies: E.A. Hakim Corp.; New WinCup Holdings, Inc.

Cases: FranchisingDistribution PuertoRicoNews