TRAFON GROUP, INC., Plaintiff, Appellant, v. BUTTERBALL, LLC, Defendant, Appellee.
Nos. 15-1419, 15-1577.
United States Court of Appeals, First Circuit.
May 2, 2016.
821 F.3d 490
III.
The district court‘s decision is reversed and this case is remanded for further proceedings consistent with this opinion.
Jorge I. Peirats, with whom Jason R. Aguiló-Suro and Pietrantoni Méndez & Álvarez LLC, were on brief, for appellant.
Luis A. Oliver, with whom Salvador Antonetti-Zequeira and Fiddler González & Rodríguez, P.S.C., were on brief, for appellee.
Before HOWARD, Chief Judge, TORRUELLA and LIPEZ, Circuit Judges.
Filing suit in the United States District Court for the District of Puerto Rico, Plaintiff-Appellant Trafon Group, Inc. (“Trafon“) alleges that Defendant-Appellee Butterball, LLC (“Butterball“) breached an exclusive distribution agreement in violation of Puerto Rico‘s Law 75 of June 24, 1964,
I.
A Puerto Rico-based wholesale food distributor, Trafon alleges that, in June 2009, it acquired certain assets from Packers Provisions Company of Puerto Rico, including an exclusive distribution agreement with Butterball for whole bird and turkey part products in Puerto Rico.1 Soon after the deal was executed, Trafon learned that Butterball was selling its products to a Florida wholesaler that was distributing those products to a retailer in Puerto Rico. On October 14, 2009, Trafon‘s counsel wrote to Butterball expressing concerns that Butterball was violating the exclusive distribution agreement. On October 26, 2009, Butterball‘s counsel sent a letter (the “2009 letter“) denying Trafon‘s allegation:
[T]he allegation of a Law 75 violation rests on the incorrect premise that your
clients acquired exclusive rights to distribute Butterball products in Puerto Rico. For many years, Butterball (and its predecessors) have offered Butterball branded products for sale and distribution within Puerto Rico without entering into a written agreement or appointing an exclusive distributor.... [W]e have not located any documents corroborating your clients’ conclusory allegation that Butterball or any predecessors (i.e., the principals) granted any exclusive distribution rights in Puerto Rico limiting the principals’ right to sell directly or appoint competing distributors. If your clients have any evidence to the contrary on this issue, we would appreciate it if you would produce the same to us immediately.... Butterball has an interest to negotiate in good faith the terms of a formal written non-exclusive agreement with your clients for the sale and distribution of its products in Puerto Rico. During this time, Butterball is agreeable to continue to do business with your clients on the same non-exclusive terms and on a purchase order basis as has existed over the past few months.
The record does not reveal whether Trafon or its counsel responded to the 2009 letter. Trafon and Butterball continued to do business together, and each invoice that Trafon received from Butterball contained the following notice:
As confirmed by way of letter dated October 26, 2009, any and all purchase orders for Butterball branded products fulfilled by Butterball LLC are done so on a non-exclusive basis. Nothing contained in this invoice, nor any act or omission to act by Butterball LLC, is intended to grant you with any exclusive distribution rights in Puerto Rico or elsewhere.
Trafon alleges that, notwithstanding the 2009 letter and subsequent invoices, Butterball treated Trafon as an exclusive distributor. On various occasions where Butterball made direct sales to Puerto Rico supermarkets in contravention of Trafon‘s alleged exclusive rights, Butterball paid Trafon commissions. For example, in 2010, Trafon consented to direct sales that Butterball made to the supermarket chain Selectos and received a commission of two cents per pound on the sale.2 Similarly, on multiple instances Trafon suspected Butterball was working directly with supermarkets in Puerto Rico or negotiating with different Puerto Rico-based distributors. Rather than deny that Trafon was their exclusive distributor, Butterball responded to Trafon‘s queries by promising to investigate the situations. For example, after Trafon saw that the retailer Pueblo was selling Butterball products, it informed Butterball that Trafon had not sold to Pueblo and asserted that this sale was “another violation on Butterball‘s end.” Butterball replied that it would “investi-gat[e] where this fresh turkey sale came from and report back to you.”
This relationship lasted until Trafon learned that Butterball made direct sales to various retailers in Puerto Rico without Trafon‘s knowledge in 2012. Around this time, Butterball also refused to pay commissions that it allegedly promised Trafon for direct sales to Costco in 2011 and 2012. Trafon informed Butterball that these actions violated the exclusive distribution agreement. In April 2013, Butterball responded to these allegations with a flat denial that Trafon and Butterball had ever entered into an exclusivity agreement:
You are, of course, aware that Butterball has never recognized Trafon as an
exclusive distributor of Butterball products.... [A]s things currently stand, Butterball intends to sell to other customers in Puerto Rico on a non-exclusive basis, and Trafon is welcome to purchase products from Butterball on the same basis if it chooses to do so.
Spurred by Butterball‘s proclamation that it intended to work with other distributors in Puerto Rico, Trafon brought this action in the District of Puerto Rico in September 2013 and moved for a preliminary injunction enjoining Butterball from violating the alleged exclusive distribution agreement. Following a hearing, a magistrate judge issued a Report and Recommendation (“R & R“) recommending that the motion for a preliminary injunction be denied. The magistrate judge determined that Law 75‘s three-year limitations period started when Trafon received the 2009 letter, and, as a result, Trafon‘s claims were time-barred. The magistrate judge also found that, even assuming Trafon‘s claims were timely, Trafon had failed to show that it had ever entered into an exclusive contract with Butterball. Adopting the R & R‘s conclusion that Trafon‘s claims were time-barred, the district court denied the request for a preliminary injunction. It declined to reach the question of whether the parties had an exclusive distribution relationship.
The district court also entered an order for Trafon to show cause as to why the case should not be dismissed under
II.
A.
The district court‘s grant or denial of a preliminary injunction is reviewed for an abuse of discretion, with conclusions of law reviewed de novo and findings of fact for clear error. Bl(a)ck Tea Soc‘y v. City of Bos., 378 F.3d 8, 11 (1st Cir.2004). The parties do not contest the basic facts, and neither party disputes that the determination of whether Trafon‘s claim is time-barred is subject to de novo review. See Montalvo v. González-Amparo, 587 F.3d 43, 46 (1st Cir.2009); Skwira v. United States, 344 F.3d 64, 72 (1st Cir.2003).
B.
Law 75 provides that, in a dealer‘s contract,3 “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.”
Law 75 contains a three-year statute of limitations, providing that “[e]very action ... shall prescribe in three years reckoning from the date of the definite termination of the dealer‘s contract, or of the performing of the detrimental acts, as the case may be.”
The parties contest whether the 2009 letter is a detrimental act under Basic Controlex Corp. v. Klockner Moeller Corp., 202 F.3d 450 (1st Cir.2000), which also involves the alleged breach of an exclusive distribution agreement. There, “KMC [the principal] informed Basic Controlex [the distributor] that it intended to sell its products through other distributors in Puerto Rico, ‘effective immediately.‘” Id. at 452. Although the parties disputed whether KMC acted on these plans, this court determined that Basic Controlex‘s Law 75 action, brought over three years after it received this notice from KMC, was time-barred because “Basic Controlex had notice of its claim as soon as KMC announced its plan to use other distributors in 1993. That announcement constituted the ‘performing of a detrimental act’ under Act 75, sufficient to trigger the statute.” Id. at 453 (internal formatting omitted).
Similarly, the 2009 letter put Trafon on notice that Butterball did not view their relationship as exclusive. Trafon argues that the 2009 letter was insufficient to start Law 75‘s statute of limitations as it did not mention an “affirmative act.” According to Trafon, KMC‘s letter in Basic Controlex announced concrete plans to begin working with other distributors, whereas the 2009 letter was simply a statement of legal position. Trafon‘s argument, however, overlooks a significant component of Basic Controlex: there, the First Circuit found summary judgment appropriate on statute of limitations grounds although the parties disputed whether KMC had followed through on its plans. Id. at 452. In other words, KMC‘s letter constituted a detrimental act regardless of whether KMC actually contracted with other distributors: what mattered was that KMC had announced its intent to do so. Likewise, the 2009 letter announced Butterball‘s intent not to treat Trafon as its exclusive distributor. Once Trafon received the letter, it was on notice that Butterball could begin working with other distributors at any point in contravention of the alleged agreement. See id. at 453 (“On May 3, 1993, KMC expressly informed Basic Controlex of its intent to use other distributors in alleged violation of the parties’ agreement.“). As in Basic Controlex, Butterball‘s subsequent actions have no bearing on whether the 2009 letter was a detrimental act under the statute.
Trafon argues that this interpretation of Law 75 will benefit principals at the expense of distributors. As Trafon sees it, principals could announce to distributors that they do not intend to honor rights conferred by Law 75 and wait three years to act on those intentions, thereby forcing distributors to bring lawsuits without having suffered injury. In this way, distributors would be forced to bring costly law-
More importantly, the 2009 letter was a response to Trafon‘s accusations that Butterball had worked with another distributor, Quirch Foods. Had Trafon brought a timely suit under Law 75, it could have identified damages stemming from that transaction and sought provisional injunctive relief under Law 75, just as it did here. See
Trafon contends that, even if the 2009 letter constituted a detrimental act under Law 75, Butterball‘s statute of limitations defense should be barred on equitable estoppel grounds. In the alternative, Trafon argues that a de facto exclusive relationship developed following its receipt of the 2009 letter. Butterball contends that these issues are waived as they were not raised before the magistrate. Although Trafon asserts that these issues were addressed in its objection to the R & R, “an unsuccessful party is not entitled as of right to de novo review by the judge of an argument never seasonably raised before the magistrate.” Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 990-91 (1st Cir.1988); accord Fireman‘s Ins. Co. of Newark, N.J. v. Todesca Equip. Co., Inc., 310 F.3d 32, 38 (1st Cir.2002).5
Because the 2009 letter constituted a detrimental act under Law 75, Trafon‘s action is time-barred, and the judgment of the district court is affirmed.
Affirmed.