Computec Systems Corp. v. General Automation, Inc.Computec Systems Corp. v. General Automation, Inc.
OPINION AND ORDER
This is a diversity action for breach of a distributorship agreement under the Puerto Rico Dealers’ Act, P.R.Laws Ann., Tit. 10 Secs. 278 et seq. (Law No. 75) and for damages arising from slander of business reputation under Article 1802 of the Puerto Rico Civil Code, P.R.Laws Ann., Tit. 31 Sec. 5141, and the libel and slander provision of P.R.Laws Ann., Tit. 32 Secs. 3141-3149. The complaint was filed on June 8, 1978 1 and is based on two distinct causes of action stemming from events occurring at separate times. In its Law 75 action plaintiff seeks compensation in the sum of 850,000 2 for the alleged without just cause termination of its dealer’s relationship with General Automation, Inc. The other action is based on defamatory remarks on the manner that plaintiff conducted business allegedly made by defendant to a third party after termination. Damages in the sum of $150,000 to plaintiff’s reputation, credit and standing in the business community are claimed. Before us now is a Motion to Dismiss Plaintiff’s Claims for Damages Under Act 75 filed by defendant and duly opposed by plaintiff. The primary contention, that the damages provided by the Dealers’ Act are exclusive of any others, is erroneous. The record reveals that this is not the first time that defendant has tried to advance this theory. Defendant, although mistaken in its basic premise that there are absolutely no recoverable damages in this case under Law 75, is correct in sustaining that many of the damages claimed have no basis.
The prior motions
3
for summary adjudication of the complaint or of some of its
The major source of dispute between the parties, however, arose when ITT Island Finance, a unit of ITT Financial Corporation, invited defendant to submit a proposal for a system to automate its branch offices in Puerto Rico and the U.S. Virgin Islands. Apparently plaintiff wanted to participate in the sales proposal but defendant insisted that the sale was beyond the contract’s scope for it was to be made outside Puerto Rico and to an OEM entity. Even though plaintiff admitted that the sale was to be made outside Puerto Rico, it rejected the view that it would be made to an OEM entity arguing that the computers were to be bought for Island Finance Corporation “for their own use as stand-alone systems” and not “for resale, lease or rental to third parties as part of a larger system” as OEM sales are defined in the agreement. Plaintiff threatened to terminate the dealership and seek judicial action unless it was offered a suitable “special agreement” for the ITT sale proposal. Defendant replied that the proposed sale would be made to ITT Corporate, New York, and that ITT would then sell to Island Finance in Puerto Rico. Defendant indicated that the reference in the contract to a special agreement for sales outside Puerto Rico did not specify the conditions of said agreement but was merely intended to provide the opportunity for the parties to agree by a special arrangement on the terms and conditions of service and support systems that plaintiff could provide to sales made outside
The legal issues spawned by these disputes deal mainly with defendant’s claims of lack of substantial damages as to both causes of action and the existence of just cause to terminate the contract. 7 . Plaintiff states that the alleged breaches of its duties as distributor are nothing more than “afterthought excuses” to justify a cancellation that was promoted essentially by defendant’s refusal to permit it to participate in the ITT sale proposal. It contends that the sales forecasts and reports required by the agreement were made verbally by phone and that it had not hired a maintenance man to be trained by defendant because it was awaiting the shipment of the demonstration computer system it had ordered verbally on February 1977. It concludes that the hiring and training of such an employee was not an essential element of their obligations. 8
Defendant additionally seeks to strike the ad damnum allegations of the second claim for relief. Its argument is simply that the only damages affordable in this litigation are those spelled out in the Dealer’s Act at 10 LPRA Sec. 278(b). We fail to find any authority in this record for defendant’s proposition. First, both claims for relief may be read separately. The Dealer’s Act claim for relief is centered on the termination of the contract itself. The libel and slander claim for relief is based upon acts allegedly occurring after the distribution contract had already terminated. Second, we find that the claim for relief based on libel and slander is neither “redundant, immaterial, impertinent nor scandalous” within the meaning ofRule 12(f), Fed.R.Civ.Proc. Since the two claims may be subjected to the above interpretation and on their face they do present a cognizable claim, the affordability of any damages for libel and slander is, thus, a matter best adjudicated with the examination of the merits.
Reconsideration of that order was sought on the ground that what had been requested was the striking of the ad-damnum pleading of the first cause of action because Act 75 did not provide for such damages. This motion was never ruled upon and defendant filed its answer to the corn-
Plaintiff’s position on the issue of damages has always been that the listing of the statute is not exclusive and that difficulty in determining their exact amount should not be an obstacle to their entitlement and award. It seeks to recover the investment made in equipment, furniture and leasehold because it was inactive for almost a year trying to obtain a new line of computers. Defendant’s Motion to Dismiss the Claims for Damages Under Act 75 raises once more the issue of whether plaintiff is entitled to the damages claimed in view of the Dealer’s Act enumeration of recoverable damages.
It is important to understand that the procedural context in which we are making our analysis provides certain guidelines which are quite different from those one must apply to the facts in a trial setting. Previous requests for summary disposition were denied since, in that procedural context and under applicable guidelines, resolution of material issues of fact, i.e., whether there was “just cause” for termination, causal relationship, extent of damages, was not possible. None of these rulings are to be interpreted to signify that defendant’s stated reasons for termination were insufficient to constitute just cause, that the ITT sale was a breach of the agreement, that damages were caused by unjustified acts or that damages add up to the sums claimed. The previous rulings mean only that these issues are still marred by controversy and require thrashing them out in a plenary hearing.
In its Motion to Dismiss the Claims for Damages Under Act 75 defendant relies on
Marina Industrial,
Inc.
v. Brown Boveri Corporation,
Op. of March 18, 1983, — DPR —,
We find nothing in the
Marina Industrial
opinion or other relevant Act 75 case law, nor in the wording of the statute or its legislative history to suggest that the list of damage factors be read as exclusive of all others. On the contrary, the Act provides for a liberal interpretation in furtherance of the remedial considerations behind it.
P.R.Laws Ann.
Tit. 10 Sec. 278c. There being no specific command for exclusivity in the special law or its authoritative interpretations, Article 12 of the Civil Code,
P.R.Laws Ann.,
Tit. 31 Sec. 12
11
directs us to supplement the special law with the general provisions of the Civil Code.
See gen.: Housing Investment Corp. v. Alberto J. Luna,
Op. of Feb. 26, 1982, — DPR —,
The plaintiff claims, clearly and definitely, the difference between the sale pricestipulated in the contract and the price agreed with his clients, to which he has a perfect right; but then he goes further and alleges that, by reason of the conduct of the defendant, the clients of the plaintiff lost confidence in him and ceased doing business with him, causing him to lose $2,000 in profits which he would have made from said clients in a year. On these vague and indefinite generalities, the plaintiff claims profits which he considers he might have realized, without even mentioning the existence of any agreement to sell coffee to his clients during the time stated. We do not know the plaintiffs ground for claiming the profit which he might have realized in a year. Similarly as he has fixed this period of time, so he could have extended it or shortened it to suit his fancy, and could even have made his claim for an indefinite period. We do not believe that these damages can be included in the category of those which might have been foreseen at the time of constituting the obligation, and which are a necessary consequence of the breach of contract.
Id. at 599.
It is also part of the Puerto Rico general law of damages that the claimant must take the necessary steps to reduce or contain the damages suffered,
Soc. de Gan. v. Gerónimo Corp.,
When these concepts from the general law of damages and the guidelines provided by the Act are applied to the damages claimed here it appears that some of the items are difficult if not impossible, to award for not only is their computation based on speculation but their very existence rests on. very fragile grounds. Other items are clearly exaggerated in the amount claimed. Nevertheless, at this moment most of the items claimed remain controverted. Let us examine each of the items of damages claimed in order to explore their triable aspects or their clear inapplicability.
Complete recovery of the actual value of all of the equipment, furniture, fixtures and leasehold improvements which are now being used or were used by plaintiff to distribute other lines of computers would run counter to the Act’s provision that reimbursement shall be only “to the extent that these are not easily and reasonably useful to any other activity in which the dealer is normally engaged.” The same holds true for that item of damages of the Act that provides for recovery of profits during the last five years five times the profit of the year previous to termination, P.R.Laws Ann., Tit. 10 Sec. 278(b)(d), for no profits were made during the brief period of this contractual relationship, as shown by plaintiff’s financial statement. However, as to those items acquired to distribute defendant’s product and which were allegedly useless for a certain period of time, is their depreciation during that period compensable? The determination of this item of damages requires that two periods of time be considered: one, during the existence of the relationship and, the other, after termination and until plaintiff obtained another line of computers to sell. In the first period plaintiff could recover, subject of course to a finding that termination was without just cause, the depreciation of the equipment and furniture, rent paid and any other investment which cannot be used now if such investments are shown to have been necessary to carry out the business. As to the second period, in order to be able to recover the depreciation costs of these items plaintiff will additionally have .to prove that it was unable to sell the equipment, cancel the lease and move to a smaller office or sublease the space, that it did not obtain any profit during this period and that it in fact devoted all this time to obtain a new dealership.
As to the amounts invested for training of its employees plaintiff must first prove that all of this training was necessary to carry out the dealership and that it was entirely useless for the business
As to the two million dollar proposal to ITT, suffice it to note that the record reveals that defendant’s proposal was not accepted by ITT. Thus, any “expected profits” that plaintiff may be contemplating to recover from this transaction are not recoverable for the “sale” just never took place.
In sum, if it is adequately established, that defendant terminated the contract without just cause and if plaintiff can establish the reality of the damages claimed, their relation to the breach and their value, it would, technically, be entitled to the following items: the depreciation of the necessary equipment, furniture, etc., during the four-month relationship and during the necessary time thereafter to continue selling computers, the necessary expenses incurred during the dealership that could not be used by the present business and those necessary after termination to obtain a new computer line, the amounts invested for training which may not benefit the present business and the amount of expected earnings from any sales it can prove were going to be actually carried out had it not been for defendant’s termination. The Motion to Dismiss the Claims for Damages Under Act 75 is DENIED as to the claims for damages related to the following: the depreciation of equipment, furniture, etc., during the four-month relationship and during the necessary time thereafter to continue selling computers, the necessary expenses incurred during the dealership that could not be used by the present business and those necessary after termination to obtain a new computer line, the amounts invested for training which may not benefit the present business and the amount of expected earnings from any sales it can prove were going to be actually carried out had it not been for defendant’s termination and GRANTED as to the claims for damages related to the five-times-the-amount-of-profits-obtained provided by section 278b(d), the goodwill provision of section 278b(c) and the expected profits on the two million dollar proposal to ITT. 14
SO ORDERED.
PARTIAL JUDGMENT
For the reasons stated in the Opinion and Order issued on this same date, the claims for damages related to the five-times-the-amount-of-profits-obtained provided by section 278b(d), the goodwill-provision of section 278b(c) and the expected profits on the
SO ORDERED AND ADJUDGED.
Notes
. This case was temporarily stayed pending the resolution of a constitutional challenge to the Dealer’s Act. Both the Commonwealth and federal court upheld its constitutionality.
. This amount is detailed in paragraph 12 of the complaint as follows:
“(a) Present value of common stock issued, space, furniture, fixtures, equipment, leasehold improvements, loans and interest, and expenditures to promote defendant’s products —$150,000.
(b) Projected earnings for five years from the date of breach — $500,000.
(c) Loss of good will with potential customers and with other computer manufacturers, and loss of one year's ability to reenter the computer market — $200,000."
. Motion to Strike filed on September 5, 1978; Motion for More Definite Statement, filed on September 6, 1978; Motion for Summary Judgment filed on November 3, 1980 and Motion for Reconsideration and/or Certification to the Su
. The contract states: “Other situations such as sales in for use outside or sales outside for use in the territory will be subject for /sic/ special agreement between the parties as to what conditions are applicable."
. Defined by the contract as: “A manufacturer of computer or other systems who purchases products for resale, lease or rental to third parties as part of a larger system.”
. Plaintiffs principal Mr. Víctor Soltero had told defendant during his visit to Anaheim the type of equipment arrangement that he wanted for the demonstration computer. Although plaintiff appears to have obtained a letter of credit there is no indication in the record that it ever placed an order against said letter of credit in the manner provided for by the contract.
. Defendant also contended that plaintiff was not a "dealer" within the meaning of the Act because it never bought any of defendant’s products, never sold any of defendant’s products nor kept an inventory of equipment or spares. Defendant thus concludes that plaintiff did not create a market in Puerto Rico and was not effectively in charge of a dealership. It points to Sudouest Import Sales v. Union Carbide, 569 F.Supp. 1547 (DPR 1983) where emphasis was placed on the capacity to be effectively in charge of the distribution of a product. Aware of this construction of the term dealer, we refer plaintiff to our Circuit’s opinion affirming Sudouest and to our decision in Mario Franceschini, Inc. v. The Riley Co., Op. of July 11, 1984 and cases there cited where such concept was explored. The facts of this case differ from the situation in Franceschini. The key element is capacity and not whether the dealership was carried out adequately or not. The provisions in the Act for just cause and damages address the question of how the dealership was carried out. If no sales were made because of the dealer’s own fault (even though the dealer could in effect make them), then the question is not that there is no dealership but rather whether the existing one was terminated by just cause — lack of sales. In this case, the contract clearly gives plaintiff the power and the capacity of an Act 75 dealer. Whether these powers were carried out effectively or not is another matter.
As to the slander of business reputation action, defendant presented an affidavit by the third-party recipient of the allegedly defamatory remarks indicating that no such statements were made by defendant and that it was plaintiff instead who commented unfavorably of defendant. The affiant adds that, in any event, he did not introduce his line of computers in Puerto Rico; not to plaintiff or anyone else. Plaintiff countered by pointing out that the affiant’s past statements to it showed that after some “back room” activity with defendant the affiant’s firm decided not to appoint plaintiff as distributor of their line of computers and that this contradiction casts a shadow on affiant’s credibility.
. An examination of the pre-contract-stage correspondence in the record reveals, however, that defendant conveyed to plaintiff since 1976 that the training of an installation and maintenance (hardware) technician was a necessary initial step in the dealership of defendant’s computer for plaintiff had to have an employee capable of installing the equipment sold in Puerto Rico. By letter of September 20, 1976 defendant’s Mr. Bress responding to the initial inquiries about the possibility of a dealership stated:
“Installation Assistance
We time the first system shipment to a new distributor after his customer engineer has attended our free 7-week maintenance class. This training fully prepares a competent electronic technician to make all installations.”
And by letter of November 10, 1976:
“My understanding for your appointment as our distributor is for you to hire a technician and schedule him for training plus schedule a man for software training. The next step isfor you to order a system and spares. I will agree to extend delivery up to six months to give you time to start a sales campaign.”
At this early stage defendant also told plaintiff that a potential customer in Puerto Rico was concerned with whether defendant could provide local maintenance service and defendant had suggested to this customer that plaintiff could provide such service. Throughout their brief commercial relationship defendant also asked plaintiff whether its hardware technician was ready for the training and that the demonstration system it had verbally requested was ready for shipment but they were awaiting the letter of credit order. There is no indication in the record that plaintiff ever placed said order through a command for payment by its letter of credit nor is there evidence that it told defendant that it could not hire the hardware man until it had the demonstration computer in Puerto Rico. The record only reveals that plaintiff hired a software technician whom it did send to training in California. However, according to defendant's Mr. Bress when a shipment of $45 in instructional materials was sent to plaintiff at the software technician's request, plaintiff refused to pay and the shipment was returned.
. Said section indicates:
If no just cause exists for the termination of the dealer’s contract for detriment to the established relationship, or for the refusal to renew same, the principal shall have executed a tortious act against the dealer and shall indemnify it to the extent of the damages caused him, the amount of such indemnity to be fixed on the basis of the following factors:
(a) the actual value of the amount expended by the dealer in the acquisition and fitting of premises, equipment, installations, furniture and utensils, to the extent that these are not easily and reasonably useful to any other activity in which the dealer is normally engaged;
(b) the cost of the goods, parts, pieces, accessories and utensils that the dealer may have in stock, and from whose sale or exploitation he is unable to benefit;
(c) the goodwill of the business, or such part thereof attributable to the distribution of the merchandise or to be render be rendering of the pertinent services, said goodwill be determined by taking into consideration the following factors:
(1) number of years the dealer has had charge of the distribution;
(2) actual volume of the distribution of the merchandise or the rendering of the pertinent services and the proportion it represents in the dealer’s business;
(3) proportion of the Puerto Ric'an market said volume represents;
(4) any other factor that may help establish equitably the amount of said goodwill;
(d) the amount of the profit obtained in the distribution of the merchandise or in the rendering of the services, as the case may be, during the last five years, or if less than five, five times the average of the annual profit obtained during the last years, whatever they may be.
. In any event the COPAN opinion is noticeably silent on the aspect of what sort of damages may be recovered from this "new" action. A dissident opinion appears to suggest that only expenses and not expected earnings are recoverable if no bad faith is found. See Dissident Opinion by Díaz Cruz, J., JTS at 2918.
. Said article states: "In matters which are the subject of special laws, any deficiency in such laws shall be supplied by the provision of this title.”
. Section 3018 indicates: “Those who in fulfilling their obligations are guilty of fraud, negligence or delay, and those who in any manner whatsoever act in contravention of the stipulations of the same, shall be subject to indemnity for the losses and damages caused thereby.” Section 3020 states: "Liability arising from negligence is also demandable in the fulfillment of all kinds of obligations; but it may be mitigated by the court according to the case.”
. Plaintiff has placed much emphasis on the reference in section 278b of the Act that if there is no just cause for the termination or detrimental act "the principal shall have executed a tortious act against the dealer” to classify the substantive elements of its claim under Act 75 as one more analogous to an
ex delictu
action than to an
ex contractu
one. Although in the present case it makes no significant difference whether we supplement the deficiency in the Act with the applicable provisions from the general law of contract or from the general principles of tort liability, for the damages claimed, if in fact they are proven, are recoverable under both sources of liability and were foreseeable under both standards of foresseability.
See:
III, Santos Briz, J.,
Derecho Civil Teoría y Práctica,
pp. 516-528 (Ed.Rev.Derecho Privado 1973)
and compare: Díaz Torres v. Rivera,
. Although this item of damages is not expressly claimed in the complaint, during the various motions filed by plaintiff it has incorporated the same as part of its damages.