USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________

No. 95-2177

R. W. INTERNATIONAL CORP. AND

T. H. WARD DE LA CRUZ, INC.,

Appellants,

v.

WELCH FOODS, INC.,

Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Gilberto Gierbolini-Ortiz, Senior U.S. District Judge]

__________________________

____________________

Before

Cyr, Circuit Judge,

_____________

Campbell, Senior Circuit Judge,

____________________

and Boudin, Circuit Judge.

_____________

____________________

Jos A. Hern ndez Mayoral for appellants.

_________________________
Gilberto J. Marxuach-Torr s,

with whom

Samuel T. C spedes,

___________________________

__________________

Matilde Nin, and McConnell Valdes were on brief for appellee.

___________
________________

____________________

July 10, 1996

____________________

CYR, Circuit Judge.

CYR, Circuit Judge.
_______ _____

Ward

de la Cruz, Inc.

R.W. International Corp. and T.H.

(collectively:

judgment dismissing their claim

unilaterally terminated

its

violation

of the Puerto

Ann. tit.

10,

278

"R.W.")

appeal a summary

that Welch Foods, Inc. ("Welch")

dealership contract

Rico Dealers' Contracts

("Law 75").

We affirm the

with

R.W.

in

Act, P.R. Laws

district court

judgment.

BACKGROUND1
BACKGROUND
__________

Welch

is a

major fruit

juice manufacturer

which has

sold its products in Puerto Rico since the 1930's through various

local

its

distributors.

new Puerto

On March 25, 1988, Welch designated R.W. as

Rico distributor

for frozen

juice concentrate.

While the parties

dealership

continued to

contract, R.W. began

negotiate the terms

distributing Welch

of a

final

products to

over 500 retail stores throughout Puerto Rico.

Prior to R.W.'s

had expressed

concern about

distribute "Donald

brand,

designation as its

in

principle,

juice concentrate,

to begin distribution

bottled juice products in

agreed,

R.W.'s insistence on

Duck" frozen

and on its plans

January 1989.

to

distributor, Welch

continuing to

a competing

of "Donald Duck"

Consequently,

take various

measures

R.W. had

designed

to

alleviate Welch's concerns, including a one-year trial dealership

____________________

1The
lant

R.W.

facts are stated in the light most favorable to appelThe

reader is referred to

for additional detail.

13 F.3d 478 (1st Cir.

our two earlier decisions

See R.W. Int'l Corp. v. Welch Food, Inc.,

___ ________________
________________
1994); R.W. Int'l Corp., 937 F.2d

11 (1st

________________
Cir. 1991).

during which R.W.

would give Welch's

marketing

priority and

over 1987

sales figures, and

frozen juice product

support, increase

Welch's sales

contribute $50,000 toward

advertising promotion of Welch's juice products.

full

by 15%

a joint

Notwithstanding

their agreement in principle, final contract negotiations between

the

parties immediately

several peripheral

and unexpectedly became

respects which

contentious in

remained unresolved for

more

than a year.2

In

January 1989,

after

R.W.

began its

long-planned

expansion of the "Donald Duck" distribution line to include

frozen and bottled juices, Welch

had included an advertisement

employees noticed that (i) R.W.

for Donald Duck frozen juice

supermarket "shopper" publication,

both

while omitting an

in a

advertise-

ment for Welch frozen juice; (ii) "on various occasions" R.W. had
_____

stocked

Welch frozen juice on the bottom shelves of retail store

_____

freezer cases, while placing Donald Duck frozen juice at customer

eye-level;

and (iii)

R.W.'s average

monthly sales

figures for

Welch products during January-February 1989 fell by approximately

14% from its average monthly sales figures for 1988.3

____________________

2The matters in contention included whether:

Welch's exclusive
period; New York
dispute;

Puerto Rico
or Puerto

R.W. would

dealer during the

Rico law would

"assume"

the

R.W. would be

one-year trial

govern any

contract

"grandfathered" contract

of

Welch's previous dealer, thereby avoiding application of Law 75.

3During

the one-year

dealership relationship,

sales were as follows:

April 1988

1900 cases

$ 42,770

May 1988

3060 cases

$ 70,354

June 1988

2983 cases

$ 63,971

July 1988

3005 cases

$ 64,056

Welch juice

On

March 30,

1989,

Welch

discontinued the

contract negotiations and unilaterally terminated

ship.

Welch

pointed to

the "conflicts

representing both competing lines

yearlong

R.W.'s dealer-

of interest

of [R.W.]

[i.e., Welch and Donald Duck],

[which] are significant and irreconcilable, [and] [a]n

increased

level of conflict in personal relations between [us]."

In

April 1989,

R.W. filed

this action

alleging that

Welch's unilateral termination of the dealership violated Law 75,

which provides:

Notwithstanding the existence

in a

dealer's

contract of a clause reserving to the parties

the unilateral right to terminate

the exist-

ing relationship, no principal or grantor may

directly or indirectly perform any act detri-

mental [i.e., unilateral termination]

established relationship or
said contract

on its normal

to the

refuse to

renew

expiration, ex___

cept for just cause.

____ ___ ____ _____

P.R.

Laws Ann. tit. 10,

added).

for Welch

dealers

The district

278a (1976

court initially entered

on the ground

unless a

final,

executed by the parties.

and Supp. 1989) (emphasis

that Law 75

summary judgment

afforded no

written "dealer's

protection to

contract" has

been

On remand following our vacation of the

____________________

August 1988

3093 cases

$ 66,983

September 1988

2607 cases

$ 54,809

October 1988

2866 cases

$ 61,022

November 1988

2312 cases

$ 49,619

December 1988

2587 cases

$ 55,220

January 1989

2471 cases

$ 52,189

February 1989

2284 cases

$ 48,687

March 1989

2955 cases

$ 72,640

Although
Welch made

R.W. notes that sales figures

its determination to

rebounded in March 1989,

terminate contract negotiations

before month-end.

district

that

court judgment, see R.W. Int'l, 13 F.3d at 486 (holding

___ __________

the broad definition of "dealer's contract" in Law 75 would

comprehend dealers actually engaging in

a principal, albeit
______

only through a

product distribution for

course of dealing

preceding

the

execution of a final contract), Welch renewed its motion for

summary

judgment.

It

contended that

the undisputed

evidence

established that R.W.'s demonstrated conflict of interest consti-

tuted

"just cause," under Law 75, for terminating their one-year

dealership.

The

district

court once

again

entered

summary

judgment for Welch and R.W. appealed.

DISCUSSION4
DISCUSSION
__________

The Puerto

Rico Legislature

that traditional contract-law

dealers

adequate

protection

enacted Law

75 believing

principles had not afforded

from

arbitrary

local

dealer-contract

terminations by larger, primarily mainland-based principals which

normally enjoy a superior bargaining position.

See
___

Vulcan Tools
____________

of P.R.
_______

v.

1994).5

Makita U.S.A., Inc.,

____________________

The Legislature

23 F.3d

564,

568 (1st

therefore prohibited a

Cir.

principal from

____________________

4We will uphold a grant of summary judgment if the competent

evidence discloses no genuine issue of material fact and Welch is

entitled to judgment as a matter of law.
Casas Office Machs., Inc. v.
__________________________
668, 678 (1st Cir.

1994).

Mita Copystar Am., Inc., 42

________________________

The materiality of any

in genuine dispute is determined

cable

substantive law, in

See Fed. R. Civ. P. 56;

___

F.3d

disputed fact

through reference to the appli-

this case, Law

75.

See
___

Anderson v.
________

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

___________________

5The

statement of

motives in

Law 75

reads, in

pertinent

part: "The Commonwealth of

Puerto Rico cannot remain indifferent

to

cases in

the growing

number of

which domestic

and foreign

enterprises, without just cause, eliminate their dealers, concessionaires

or agents, as soon

as these have

created a favorable

unilaterally

terminating an

just cause."

See P.R. Laws Ann. tit. 10,

___

"just cause"

as either "nonperformance
______

obligations

278a.

of any of

"except for

Law 75 defines

the essential

of the dealer's contract, on the part of the dealer,

or any action or
__

and

established dealership

omission on [the dealer's] part

substantially

affects

grantor in promoting

chandise or service."

the

interest of

the marketing or

Id.
__

the

that adversely

principal

distribution of the

278 (emphasis added).

or

mer-

Ultimately, "just cause" under Law

75 is a question of

fact, see La Playa Santa Marina, Inc. v. Chris-Craft Corp., 597

___ ____________________________
__________________

F.2d

1,

4 (1st

whether the

tract

Cir. 1979),

as are

contracting parties considered

obligation allegedly breached by

tial,"

see
___

1991),

sions by

the particular

or (ii) whether

the dealer

con-

the dealer to be "essen-

Cordis
______

Cir. 1986), see also PPM Chem. Corp.

___ ____ _______________

v. Saskatoon Chem., Ltd., 931

______________________

F.2d 138, 140

any other "non-breaching"

were nonetheless sufficiently

have "adversely and substantially

principal or

issues (i)

Biomedical Instrument and Equip. Corp. v.

_________________________________________

Corp., 797 F.2d 16, 18 (1st

_____

of P.R.
_______

the subsidiary

(1st Cir.

acts or omis-

egregious to

affect[ed] the interest of the

grantor in promoting the

marketing or distribution

of the merchandise or service,"

Pan Am. Computer Corp. v.

______________________

Gen. Corp., 652 F.2d 215, 217 n.2 (1st Cir. 1981);
__________

F.2d at 3 (upholding

La Playa, 597
________

final judgment for dealer, despite

"minor" contract breaches).

Data
____

its two

Moreover, once a dealer demonstrates

____________________

market and

without taking

into account their

ests."

legitimate inter-

that its

principal unilaterally

principal

must carry

elements of the "just

terminated their

the burden

of persuasion

cause" showing.

contract, the

on the

factual

Newell Puerto Rico, Ltd.

_________________________

v. Rubbermaid Inc., 20 F.3d 15, 22 (1st Cir. 1994); La Playa, 597

_______________
________

F.2d at 3-4.

R.W. does

Welch

based its

not contest the historical

claim that

R.W. operated

Welch's long-term

under a

interest

adverse to

sales of

Welch products during January-February

note 3; R.W.'s failure to include

issue of

for

Duck's

competing

conflict of

interests: R.W.'s

lower

1989, see supra

___ _____

a Welch sales promotion in

a supermarket "shopper" which

Donald

facts upon which

products;

an

carried an advertisement

and

its

"occasional"

placement of

and

less

Rather,

drawn

Welch products in freezer

consumer-friendly

R.W. merely

from

than

argues that

these undisputed

positions less favorable

the

Donald

Duck

products.

divergent inferences

facts,

bearing on

the

might be

issues of

"essentiality" and "adversity" upon which Welch would be required

to bear

the burden of proof

inferences generated

at trial, and

that these competing

trialworthy issues not

amenable to summary

judgment.6

Even conceding the reasonableness of any such competing

inferences,

however, R.W.'s

protestation that

it committed

no

____________________

6For example,

the

parties

"contractual" commitment to

dispute

whether

their

mutual

contribute $50,000 apiece to

adver-

tise Welch frozen concentrate was to be performed during the oneyear

trial period

following R.W.'s

March 1988

designation, or

whether this commitment would accrue only during a one-year trial

period

commencing

from

the

date a

final

written

dealership

contract was signed.

cognizable breach of "contract," or other act or omission

ciently

"adverse"

termination,

Although

inquiry

Law

to

would

Welch's

not

75, by

turn solely on

business

preclude

its plain

interests

summary judgment

terms,

the dealer's
________

makes the

actions or

suffi-

to

warrant

for

Welch.

"just cause"

omissions, see
___

P.R. Laws Ann. tit. 10,

278,

the Puerto Rico Supreme Court has

read a "third" "just

cause" into the statute to

tional invalidation,

by holding

stances

may

permit its

dealership, irrespective

Medina
______

that a principal's

unilateral

termination

own circum-

of an

of the dealer's conduct.

v. Country Pride Foods, Ltd., 858 F.2d

__________________________

Cir. 1988) (responding to

avoid constitu-

ongoing

See Medina &

___ ________

817, 822-23 (1st

question certified in 825 F.2d

1 (1st

Cir. 1987)).

After the principal in Medina

______

in protracted

unsuccessfully attempted

good-faith negotiations to adjust

its business to

changed market conditions by renegotiating price and credit terms

with its long-time

contract, and

dealer, it decided to terminate

withdraw from the Puerto Rico market.

the dealer's

Id. at 818___

19.

The Medina court noted that an overly restrictive interpre______

tation of Law 75's "just cause" requirement could place a princi-

pal in

serious

capitulate to the

dilemma

under such

dealer's price

circumstances:

and credit terms

either

and be

held

hostage in an interminable dealership relationship on disadvanta-

geous terms,

itself to

Where

or unilaterally

a costly lawsuit

the principal intends

terminate the contract

under Law

75.

Id. at
___

to retire entirely

and expose

822 &

n.4.

from the Puerto

Rico market, however, little

of

ing

if any danger exists that

the sort

exploitation proscribed by Law 75 can occur, since the retir-

principal

cannot

hope

to

appropriate

prospectively

the

product goodwill created by its dealer in the Puerto Rico market.

Id.
___

at

823.

Thus, where

the

principal

offers "reasonable"

contract terms, but nonetheless arrives at a bona fide impasse in

____ ____

the negotiations,

Medina
______

barring unusual circumstances not present here

ordains a determination

that there was

"just cause" for

the unilateral dealership termination by the principal.

see

also Borg Warner Int'l

Corp. v. Quasar

See id.;
___ ___

Co., No. CE-94-182,

___

____ ________________________

___________

slip op. at 10 n.8 (P.R. Mar. 14, 1996) (Official Translation).

"Absent

controlling state

court sitting in diversity

court precedent,

may . . . predict[] .

a federal

. . the course

the state courts would take [if] reasonably clear."

VanHaaren v.
_________

State Farm Mut. Auto. Ins. Co.,

_______________________________

989 F.2d 1, 3

(1st Cir. 1993).

In

earlier

upon remand

fact,

this

court predicted

further discovery Welch's

that

asserted reasons for terminating

might constitute "just cause" as enunciated in Medina:

______

[W]e fail

to see how applying Law

75 in the

circumstances of this case

necessarily would

require

a relationship it

Welch to continue

does not want

in a

serious objections.

manner to

which it

has

Law 75 simply requires a

supplier to justify its decision to terminate

a

dealership.

flict-of-interest

If
concerns

Welch's
about

R.W.

conare

and

R.W.

legitimate, we have no
constitute "just

doubt that this would

cause" under Law 75.

Medina & Medina is

_________________

not precisely

because it involved a supplier's

totally

. . .

on point

decision to

withdraw from the Puerto Rico market

following good-faith negotiations that failed

to

achieve

There is

agreement

no indication

between the

parties.

here that

Welch in-

tended to leave the market rather than find a

new

dealer.

principle

Nevertheless,

we believe

underlying Medina & Medina

________________

the
is e-

qually

applicable

in

these

i.e., that a supplier

_ ________
minate if it has
______ __ __ ___
has not
___ ___
to
__

has just cause to ter___ ____ _____ __ ____

bargained in good faith but

_________ __ ____ _____ ___

been able "to reach

____ ____ __ _____

price, credit,
_____ ______

element of
_______ __

circumstances,

or
__

some other
____ _____

the dealership."
___ __________

true at least where,

market

in Puerto

before

the

an agreement as
__ _________ __
essential
_________

This would

be

as here, the supplier's

Rico was

well established

current dealer

relationship and

the supplier's action therefore "is not aimed

at reaping the good will or

clientele estab-

lished by the dealer."

R.W. Int'l Corp., 13 F.3d at 484 & n.4 (emphasis added).

________________

Our discussion

did not

suggest that the

inquiry

necessarily would

course.

Nonetheless, whereas the ultimate burden to

cause" under

be amenable

to summary

the two-part statutory definition

_________

"good faith"

judgment, of

prove "just

resides with the

principal

(i.e., Welch),

see Newell,
___ ______

20 F.3d

at 22,

the bona
____

fides of contract negotiations must be presumed under Puerto Rico

_____

law.

See
___

Borg Warner,
____________

Consequently,

Welch's

No. CE-94-182,

at trial R.W.

slip

would bear the

op.

at 10

n.8.

burden to establish

bad faith for purposes of the Medina "just cause" deter______

mination.

R.W.

has not met its burden as a nonmoving party under

Fed. R. Civ. P. 56.

See Celotex Corp.

___ _____________

v. Catrett, 477 U.S. 317,

_______

322 (1986) (if the nonmovant would bear the burden of

proof on a

particular

sufficient

evidence

issue

to

at trial,

demonstrate

judgment for the

its

failure

to adduce

its trialworthiness

movant); Smith
_____

warrants

summary

v. Stratus Computer, Inc.,

_______________________

40

F.3d

11, 12

(1st

Cir. 1994),

cert.
_____

denied, 115
______

S.

Ct. 1958

10

(1995).

As

R.W. proffered

historical facts

termination

omission, or the

ask

relied on

i.e.,

no competent evidence

by Welch

declining

to justify

sales figures,

bottom-shelf freezer placements

whether a rational jury

could find mala

____

to rebut

the

its unilateral

the

"shopper"

we need only

fides or unreason_____

ableness

on the

part

of Welch

in

determining that

R.W.

was

representing conflicting interests.

Even before

clear that

was

it appreciated R.W.'s distribution

extremely wary of its

concentrate and

bottled juice

tract,

trial

R.W.'s March 1988 designation,

Duck frozen juice

to begin distributing

in January 1989.

In order to get

the

R.W.'s

president, agreed

sales-volume

advertising expenditures.

year

capabilities, but

of its plans

Thomas Ward,

period,

handling of Donald

commitments,

Welch made

Donald Duck

the Welch con-

to the

and

The parties understood

one-year

the

mutual

that the one-

trial period would allow Welch to assess whether R.W. could

distribute Donald

provide full

Duck products while meeting

marketing support for

its obligation to

Welch products.

In January

1989, however,

its

there were strong signals that

primary attention to its newly expanded Donald Duck line, at

Welch's

expense.

indicia were

Although R.W.

either ambiguous,

that genuine factual issues

indicia

"adverse"

R.W.

R.W. was shifting

signaled

plausibly suggests

anecdotal, or

action by R.W.

aberrational, and

may well remain as to

"contract"

breach

under P.R. Laws

or

that these

whether these

other

Ann. tit.

sufficiently

10,

278,

has not shown that it was unreasonable for Welch, acting in

11

presumed good

faith, to interpret these signals

troubled business

relationship ahead,

Cf. Newell, 20 F.3d

___ ______

had known for twenty-three

marketing

competing product).

fifty-year presence

and to withdraw

at 23 (upholding verdict for

principal

from it.

dealer because

years that dealer had been

Given that

in the Puerto Rico

as portending a

Welch already

had a

market before appointing

R.W. in 1988, and that the parties reached a bona fide impasse on
____ ____

an

essential modification to the terms of their ongoing dealer's

"contract" (i.e., whether R.W. would continue to handle competing

product lines), we conclude

that Welch acted

that a rational jury could

in "bad faith."

not find

Accordingly, summary judgment

was proper.

The judgment is affirmed.

The judgment is affirmed.
________________________

12