
USCA1 Opinion

	




          February 9, 1996                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                     ____________          No. 95-1870                               A.M. CAPEN'S CO., INC.,                                 Plaintiff, Appellee,                                          v.                     AMERICAN TRADING AND PRODUCTION CORPORATION                 AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,                               Defendants, Appellants.                                     ____________                                     ERRATA SHEET               The opinion of  this court  issued on January  18, 1996,  is          amended as follows:               Page 14, line 6:   Change "P.R. Laws Ann. tit. 13"  to "P.R.          Laws Ann. tit. 14".                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No.  95-1870                               A.M. CAPEN'S CO., INC.,                                 Plaintiff, Appellee,                                          v.                     AMERICAN TRADING AND PRODUCTION CORPORATION                 AND BLAS ROSSY ASENCIO AND HIS CONJUGAL PARTNERSHIP,                               Defendants, Appellants.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                   [Hon. Daniel R. Dominguez, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                 Selya, Circuit Judge,                                        _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Jos  Enrique Colon Santana for appellant.            __________________________            Philip E. Roberts for appellee.            _________________                                 ____________________                                   January 18, 1996                                 ____________________                      BOWNES, Senior  Circuit Judge.   This is  an appeal                      BOWNES, Senior  Circuit Judge.                              _____________________            from a  preliminary injunction  issued by the  district court            barring defendant-appellant American  Trading and  Production            Corp.  ("ATAPCO")  from  terminating plaintiff-appellee  A.M.            Capen's Co., Inc. ("Capen's") as an exclusive distributor for            Puerto  Rico of  ATAPCO's  products.   Capen's  had filed  an            action  in the United States  District Court for the District            of Puerto Rico alleging that  ATAPCO violated P.R. Laws  Ann.            tit. 10,   278, et seq. (1976 and  Supp. 1989)(a.k.a. Law 75,                            __ ____            the Puerto Rico Dealer's  Act) by terminating the exclusivity            of the distributorship.  Section 278a of title 10 provides:                         Notwithstanding  the  existence  in  a                      dealer's contract of  a clause  reserving                      to  the parties  the unilateral  right to                      terminate  the existing  relationship, no                      principal  or  grantor  may  directly  or                      indirectly perform any act detrimental to                      the established relationship or refuse to                      renew   said   contract  on   its  normal                      expiration, except for just cause.            The injunction was issued  pursuant to the provisional remedy            provision, Section 278b.1 of the Act, which provides:                         In  any litigation  in which  there is                      directly   or  indirectly   involved  the                      termination of a dealer's contract or any                      act   in   prejudice   of  the   relation                      established  between   the  principal  or                      grantor and  the  dealer, the  Court  may                      grant,  during the time the litigation is                      pending solution,  any provisional remedy                      or  measure of an  interdictory nature to                      do or to desist  from doing, ordering any                      of the parties, or both, to continue,  in                      all its terms,  the relation  established                      by  the  dealer's  contract,   and/or  to                      abstain  from performing  any act  or any                                         -2-                                          2                      omission  in prejudice  thereof.   In any                      case  in  which  the  provisional  remedy                      herein provided is  requested, the  Court                      shall  consider  the  interests   of  all                      parties concerned and the purposes of the                      public policy contained in this chapter.                      There  is no  dispute as  to the  basic facts.   In            1978,  Capen's  entered  into  an  agreement   with  ATAPCO's            predecessor,  Sheller-Globe, to be  the exclusive distributor            of  Globe-Weiss  and Steelmaster  office  products in  Puerto            Rico, the Caribbean, the  Dominican Republic, and Central and            South America.   The agreement did not  contain an expiration            date.   Although confirmed in  a written letter,  the parties            did not sign a  formal contract because they could  not agree            on  the law that  would apply to  the contract.   When ATAPCO            took over, the arrangement with Capen's continued, as did the            disagreement as to choice-of-law and forum selection clauses.                      ATAPCO,  with its  principal place  of  business in            Missouri,  wanted  Missouri law  to  apply  to the  contract.            Capen's, a New Jersey corporation with its principal place of            business in  that state, wanted Puerto Rico law to apply.  As            a result, ATAPCO and Capen's never signed a  formal contract.            In December 1993, ATAPCO  wrote a letter to Capen's  in which            it terminated the exclusive aspect of the dealership.  ATAPCO            did  not end the Capen's dealership; it reserved the right to            sell  to  others.   ATAPCO made  Blas  Rossy Asencio  a sales            representative for the area  for which Capen's originally had                                         -3-                                          3            the exclusive rights.  This lawsuit ensued.1                          Proceedings of the District Court                          Proceedings of the District Court                          _________________________________                      The  district court  adopted the  recommendation of            the  Magistrate  Judge that  the  provisional  remedy in  the            Puerto Rico Dealer's Act be granted.  The court then issued a            full-blown opinion  giving the reasons  for its  action.   It            found that Capen's  "has exhibited a likelihood of success on            the merits."  A.M.  Capens Co., Inc. v. American  Trading and                          _______________________________________________            Prod.  Corp., 892 F.  Supp. 36,  38 (D.P.R.  1995).   It then            ____________            held:                         Capens   has   also  shown   that  his                      business  will suffer  irreparable injury                      if the injunction  is not granted because                      Mr.  Rossy Asencio will  continue to sell                      the  products in the areas wherein Capens                      had  the  exclusivity   with  the   added                      competitive  advantage   for  Asencio  of                      freight charges assumed  by ATAPCO.   The                      above  will  obviously mean  that Capens'                      business  market  will  be  significantly                      irreparably diminished.                         The harm that Capens will  suffer most                      certainly  outweighs  ATAPCO's   possible                      harm:    the  business area  will  remain                      unchanged (the Caribbean and  Central and                      South America) and  ATAPCO will  continue                      receiving  benefits,  either through  Mr.                      Rossy  Asencio  or  through A.M.  Capens;                      however, the harm is for Capens who  will                      lose  business  market  should Mr.  Rossy                      Asencio  continue  to interfere  with the                      customers.            Id.  at 38-39.    Finally, the  court  held that  the  public            ___                                            ____________________            1.  Capen's  has   sued  Blas  Rossy   Asencio  for  tortious            inference with contractual relations.                                         -4-                                          4            interest                                          -5-                                          5            would   not   be  adversely   affected  by   the  preliminary            injunction.  Id. at 39.                         ___                      It is  obvious that  what we  are reviewing  is not            only a provisional remedy under the Puerto Rico Dealer's Act,            but  a  preliminary injunction  that  meets,  at least  prima                                                                    _____            facie, all federal requisites.   The appropriate standard for            _____            reviewing a  preliminary injunction  is abuse  of discretion.            Jiminez Fuentes v. Torres Gaztambide, 807 F.2d  236, 239 (1st            ____________________________________            Cir. 1986)(en banc), cert. denied, 481 U.S. 1014 (1987).                                 _____ ______                                       Analysis                                       Analysis                                       ________                      We  start our analysis with the only finding of the            district court to which defendant has objected -- probability            of success on the  merits.  Defendant's appeal is  posited on            two  contentions:  that Puerto  Rico law does  not apply; and            that plaintiff is not a dealer under the Puerto Rico Dealer's            statute.    As the  district court  noted,  this is  "a close            matter."  Id.                      ___                      That  is because Capen's does not fit the mold of a            typical Puerto Rican dealer.  It does not advertise in Puerto            Rico  and has  neither  a warehouse  nor  a showroom  on  the            Island.   It sells exclusively to  retailers and wholesalers.            Though Capen's sometimes  sends an agent  to Puerto Rico,  it            does  not have  a  resident agent  on the  Island and  is not            qualified to do business  in Puerto Rico on a  regular basis.            On the other hand, the annual sales made by Capen's in Puerto                                         -6-                                          6            Rico under its exclusive distributorship increased from about            $30,000 in 1978 to $423,000 in 1993.  Total Puerto Rico sales            of  ATAPCO products  for the  five-year period  spanning from            1989 to 1993 came to about $1,976,000.                        The  first  issue  is   what  law  applies.    This            necessitates an examination of the conflict of law principles            governing contract and tort law.                                   Contract Factors                                   Contract Factors                                   ________________                      ATAPCO contends that the district court incorrectly            applied Puerto  Rico choice of  law rules to  the facts.   It            stresses  that  none  of  the  acts  --  negotiation  of  the                            ____            contract, performance  of the contract obligations, or breach            of the contract -- took place in Puerto Rico.   It points out            that neither it nor Capen's  has offices or employees located            in Puerto Rico.                        The Supreme  Court of Puerto Rico  has approved the            "dominant or significant contacts" test for contract and tort            actions.  In re San Juan Dupont Plaza Hotel Fire Litig.,  745                      _____________________________________________            F.  Supp.  79, 82  (D.P.R. 1990).    Thus, "the  laws  of the            jurisdiction with the most  significant contacts with respect            to the disputed  issue should  apply."  Id.   In  determining                                                    ___            this  question,  recourse  to  the  Restatement  (Second)  of            Conflict  of Laws is appropriate.  Id. (citing Sections 6 and                                               ___            188).                      Under  Section  188 of  the  Restatement, absent  a                                         -7-                                          7            contractual  choice  of law,  the contacts  to be  taken into            account in a contract action include:                      (a)  the place of contracting,                      (b)  the place of negotiation of the contract,                      (c)  the place of performance,                      (d)   the location of the  subject matter                      of                      the contract, and                      (e)  the domicil, residence, nationality,                      place   of   corporation  and   place  of                      business of the parties.            Restatement (Second) of Conflict of Laws   188 (1971).                      The  places  of  contracting  and  negotiating  the            contract  in question  occurred  in  the  continental  United            States.   ATAPCO and Capen's  met in St.  Louis, Missouri, to            discuss the  contract; they  also spoke  by phone.   However,            "[s]tanding alone,  the place of contracting  is a relatively            insignificant contact."  Id.   188 cmt. e.                                     ___                      The  performance of  the  contract takes  place, in            part, in  the continental United States.  When Capen's wishes            to purchase products  from ATAPCO,  it places  an order  with            ATAPCO's   customer  service   offices  in   Pennsylvania  or            Missouri.  The goods  are then sent to Capen's  in New Jersey            or  to the point of  embarkation.  Sometimes  Capen's sends a            trailer   to  the   Pennsylvania  office   to  pick   up  the            merchandise.   But performance also occurs  in Puerto Rico --            where the market is                                         -8-                                          8             -- because the contract  granted Capen's the exclusive right            to sell  ATAPCO's products there.  See Id.   188 cmt. c ("[A]                                               ___ ___            state  where  a  contract  provides  that  a  given  business            practice  is to  be pursued  has an  obvious interest  in the            application of its rule designed to regulate or to deter that            business practice.").                      The location of the  subject matter of the contract            similarly varies, depending on one's  view.  If the  products                                                                 ________            sold  by ATAPCO,  and  then by  Capen's,  are considered  the            subject matter,  they start  out in Pennsylvania  or Missouri            (and  Kentucky according to ATAPCO) and end up in New Jersey.            Arguably, this is the end of the line because  when the goods            are  shipped to  Puerto  Rico,  they  become the  subject  of            contracts between  Capen's and its customers  in Puerto Rico.            ATAPCO, not surprisingly,  takes this position, pointing  out            that it has no direct contacts in Puerto Rico.                      The  other subject  matter of  the contract  is the            status of  Capen's as  the exclusive distributor  of ATAPCO's            merchandise.    This, it  seems clear,  is located  in Puerto            Rico.  It is this subject matter which  is in dispute, rather            than,  say, the  price of  the goods or  the manner  of their            delivery to Capen's.  The essential purpose of the  exclusive            distributor-ship was  to enable Capen's to  sell the products            it purchased from ATAPCO in Puerto Rico without competition.                      The  last factor -- the  location of the parties --                                         -9-                                          9            does  not  point  to   Puerto  Rico.    ATAPCO,   a  Missouri            corporation,  has main offices  in Pennsylvania  and Missouri            and  also  apparently  conducts  business  in  Maryland   and            Kentucky.  Capen's is a New Jersey corporation with its place            of  business  there.   Capen's  does  not have  any  offices,            warehouses or permanent employees in Puerto Rico; it does not            have  a Puerto Rico address  or phone number.   Capen's does,            however,  regularly send  employees  to Puerto  Rico to  take            orders from customers.                                     Tort Factors                                     Tort Factors                                     ____________                      A  breach of Law 75 is considered a "tortious act."            Telenetworks, Inc. v. Motorola Universal Data Sys., Inc., ___            ________________________________________________________            F.  Supp. ___,  ___ 1995  WL 707412,  at  2 (D.P.R.  Nov. 28,            1995).  Section 278b of the  Dealer's Act provides:  "[i]f no            just cause exists  for the  termination . .  . the  principal            shall have  executed a  tortious act  against the dealer  and            shall indemnify it."                       The Restatement of  Conflict of Laws  provides that            in  a  tort  action the  law  of  the  state  with  the  most            significant relationship to "the  occurrence and the parties"            controls.   Restatement (Second)  of Conflict  of Laws    145            (1971).    The  following   contacts  should  be  taken  into            consideration:                      (a)  the place where the injury occurred,                      (b)   the place where the conduct causing                      the injury occurred,                                         -10-                                          10                      (c)  the domicil, residence, nationality,                      place  of  incorporation  and   place  of                      business of the parties, and                      (d)  the place where the relationship, if                           any,  between  the  parties  is                           centered.            Id.            ___                      The injury occurred in  Puerto Rico because that is            where the  exclusive Capen's dealership was  terminated.  The            termination directly impacts the position Capen's held in the            Puerto Rico  market.  See Colletti v. Ovaltine Food Products,                                  ___ __________________________________            274  F.  Supp.  719, 722  (D.P.R.  1967)  (where an  Illinois            corporation  terminated the distributorship of a Puerto Rican            dealer, its failure to "place the goods in Puerto Rico at the            disposal of  the . . .  dealer" is a tortious  act which "did            not take place anywhere but  in Puerto Rico").  Additionally,            because Law 75 is aimed at compensating victims  for wrongful            terminations,  Puerto Rico,  the site  of the  injury,  has a            greater interest in applying its laws.  See Restatement   145                                                    ___            cmt. c; Colletti, 274  F. Supp. at 722 ("[R]egardless  of the                    ________            manner  in which the defendant  . . .  allegedly notified the            plaintiff"  of the  termination of  its distributorship,  the            defendant  executed the  tortious act  within Puerto  Rico.).            Viewing all of the relevant factors  as a whole, we find they            cut in favor of applying Puerto Rico law.                                 General Considerations                                General Considerations                                ______________________                      Section 6 of  the Restatement (Second)  of Conflict                                         -11-                                          11            of Laws sets forth  general choice of law principles.   Where            there is no statute on point, the following factors should be            considered:                      (a)  the needs of the interstate and                      international systems,                      (b)  the relevant policies of the forum,                      (c)  the relevant policies of other                      interested   states   and  the   relative                      interests   of   those   states  in   the                      determination of the particular issue,                      (d)  the protection of justified expecta-                      tions,                      (e)  the basic policies underlying the                      particular field of law,                      (f)  certainty, predictability and                      uniformity of result, and                      (g)  ease in the determination and                      application of the law to be applied.            Restatement (Second) of Conflict of Laws   6 (1971).                      Taking  the  policy   issues  first,  courts   have            recognized that Law 75 "was  passed to protect the  interests            of   commercial  distributors   working   in  Puerto   Rico."            Ballester Hermanos, Inc. v.  Campbell Soup Co., 797  F. Supp.            ______________________________________________            103,  106 (D.P.R. 1992).   Law 75 is  "'directed to level the            contractual conditions between two groups financially unequal            in their strength.'"   Draft-Line  Corp. v. Hon  Co., 781  F.                                   _____________________________            Supp 841, 844 (D.P.R. 1991) (quoting Walborg Corp v. Tribunal                                                 ________________________            Superior,  140 D.P.R. 184, 189 (1975)),  aff'd, 983 F.2d 1046            ________                                 _____            (1st Cir. 1993).                                         -12-                                          12                         The  Dealer's Act  was enacted  by the                      Puerto  Rico  Legislature to  prevent the                      economic  exploitation of  local dealers.                      The Legislature had observed that dealers                      in   Puerto    Rico   were   particularly                      vulnerable  to  summary termination  once                      they had established  a favorable  market                      for a principal's products.            Id. at 843-44.            ___                      The Puerto Rico Dealer's  Act has been described as            embodying  a "strong  public  policy."   Medina  & Medina  v.                                                     ____________________            Country  Pride Foods, Ltd., 858 F.2d 817, 820 (1st Cir. 1988)            __________________________            (response  of  Puerto  Rico  Supreme  Court  to  a  certified            question  concerning Law 75).  The  case law establishes that            Puerto  Rico  has  a  substantial  interest  in  seeing  that            distributorships  are not arbitrarily  terminated or, if they            are,  that "due  reparation" is  provided to  them.   Bonn v.                                                                  _______            Puerto Rico Int'l Airlines,  Inc., 518 F.2d 89, 91  (1st Cir.            _________________________________            1975).                      As the district court pointed out, there is nothing            in the  statute that requires  a dealer to  be a  resident of            Puerto  Rico,  to  be  authorized   to  do  business  in  the            Commonwealth,  or  to have  a place  of  business such  as an            office,  showroom or warehouse on the Island.  Section 278 of            the Act defines "Dealer" and "Dealer's Contract":                         (a)  Dealer:  person actually inter-                      ested  in a dealer's  contract because of                      his having effectively  in his charge  in                      Puerto  Rico  the  distribution,  agency,                      concession or representation  of a  given                      merchandise or service;                                         -13-                                          13                         (b)  Dealer's contract:   relationship                      established  between  a   dealer  and   a                      principal   or    grantor   whereby   and                      irrespectively of the manner in which the                      parties may call, characterize or execute                      such  relationship,  the former  actually                      and  effectively  takes  charge   of  the                      distribution of a  merchandise, or of the                      rendering of a service, by  concession or                      franchise, on the market of Puerto Rico.            P.R.  Laws Ann.  tit.  10,     278  (1976  and  Supp.  1989).            Accordingly, Capen's  appears to  satisfy  the definition  of            dealer within the Dealer's Act.                      Although both Missouri and New Jersey have statutes            protecting  dealers, we do not think that either state has an            interest in protecting Capen's in  the instant circumstances.            Missouri provides  that a  franchisor must give  ninety days'            notice  to  a  franchisee of  a  termination  of  a franchise            agreement  and  that,  in  the  absence  of  such  notice,  a            franchisee may recover  damages.  Mo. Rev. Stat.     407.405,            407.410  (1974  and Supp.  1975).    The law,  however,  only            applies to distributors with a place of business in Missouri.            Mo. Rev. Stat.   407.400(1) (1974 and Supp. 1975) (definition            of "franchise").  It  is plain that Capen's has  no franchise            presence in Missouri.                      New  Jersey  has a  Franchise  Practices Act  which            provides that notice  (60 days)  must be given  prior to  the            termination  of  a  franchise   agreement  and  that  such  a            termination only can  be based  on "good cause."   N.J.  Rev.            Stat.   56:10-5 (1971).  As in Missouri, the Act applies only                                         -14-                                          14            to  a franchisee who establishes a "place of business" in New            Jersey.  Id.   56:10-4.  Thus, even though Capen's is located                     ___            in New Jersey, it does not qualify for the Act's protection.                      Because  all three  jurisdictions evince  a general            policy of  protecting distributors, we can  fairly infer that            the application of Puerto Rico law would not  offend Missouri            or  New  Jersey.   By  restricting protection  to  only those            dealers who service customers  within the state, Missouri and            New Jersey  are concerned  with dealers who  have established            markets  within their borders.  Thus, it makes sense, in this            case, to apply the  law of the jurisdiction in  which Capen's            maintains its market.                      In this context, ATAPCO argues that under P.R. Laws            Ann. tit. 14,   2403 (1989),  Capen's is not required to file            informational   documents   (certificate  of   incorporation,            statement  of assets  and liabilities)  with the  Puerto Rico            Department  of State to  qualify as doing  business in Puerto            Rico.   Section 2403  exempts from filing  those corporations            which only receive,  outside Puerto Rico,  orders by mail  or            otherwise  and fill  the orders  by  shipping the  goods into            Puerto Rico  from the  outside.   ATAPCO argues  that because            Section  2403 exempts  Capen's from having  to qualify  to do            business  in Puerto Rico, Puerto Rico can have no interest in            protecting the  status of Capen's  as a distributor.   ATAPCO            presents  no  cases in  support  of this  contention  and, as                                         -15-                                          15            already noted, there  is nothing in  the Dealer's Act  giving            rise to such a requirement.                      This  is  an appeal  from  a  grant of  preliminary            injunctive  relief.   When  an appeal  comes  to us  in  that            posture, the appellate court's  "conclusions as to the merits            of  the issues presented on preliminary  injunction are to be            understood as  statements of probable outcomes,"  rather than            as  comprising the ultimate  law of  the case.   Narragansett                                                             ____________            Indian  Tribe v.  Guilbert, 934  F.2d 4,  6 (1st  Cir. 1991);            __________________________            accord Jimeniz Fuentes v. Torres Gatzambide, 807 F.2d at 238.            ______ ____________________________________            In this case, we conclude that, bringing all the factors into            consideration, the  law of Puerto Rico  most probably applies            to  this  hybrid  contract/tort  action  and,  perforce,  the            district  court properly  made reference  to the  Puerto Rico            Dealer's  Act for  the  purpose of  the  motion to  impose  a            provisional remedy.                      Because ATAPCO  has neither briefed  nor argued the            other factors  that the district court  considered in issuing            the preliminary injunction,  we need not  consider them.   We            must  note, however,  after reviewing  the record  carefully,            that  we agree  with  the district  court's  findings:   that            Capen's would suffer  irreparable harm  unless a  preliminary            injunction issued; that no appreciable harm would be incurred            by  ATAPCO  by reason  of such  relief;  and that  the public            interest  would not  be adversely  affected by  a preliminary                                         -16-                                          16            injunction.                      Affirmed.                      Affirmed.                      _________                                         -17-                                          17
