Lamex Foods, Inc. v. Audeliz Lebron, Corp. , 646 F.3d 100 ( 2011 )

United States Court of Appeals
For the First Circuit
No. 10-1677
LAMEX FOODS, INC.,
Plaintiff, Appellee,
v.
AUDELIZ LEBRÓN CORP.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. José Antonio Fusté, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Lipez, Circuit Judges.
Pedro Jiménez-Rodríguez, with whom Pedro J. Santa-Sánchez,
José L. Ramírez-Coll, and Adsuar Muñiz Goyco Seda & Pérez-Ochoa,
PSC were on brief, for appellant.
Laura Beléndez-Ferrero, with whom Ferraiuoli Torres Marchand
& Rovira, PSC was on brief, for appellee.
June 27, 2011
LIPEZ, Circuit Judge. Defendant-appellant Audeliz Lebrón
Corp. ("ALC") appeals from a judgment in favor of plaintiff-
appellee Lamex Foods, Inc. ("Lamex"), which the district court
entered after consolidating a preliminary injunction hearing with
a bench trial on the merits under Federal Rule of Civil Procedure
65(a)(2). The appellant argues that the district court abrogated
its right to a jury trial by failing to provide indisputably clear
notice of its intent to consolidate. See U.S. Const. amend. VII;
see also Fed. R. Civ. P. 65(a)(2) (permitting the consolidation of
a preliminary injunction hearing with a trial on the merits, but
noting that "the court must preserve any party's right to a jury
trial").
Although we appreciate the district court's efforts to
resolve the parties' dispute in an efficient and timely manner, we
agree with ALC that the court's inadequate notice of its intent to
consolidate abrogated ALC's right to a jury trial. Rejecting
appellant's other arguments, we vacate the judgment in part and
remand for further proceedings.
I.
A. Factual Background
Lamex is a Minnesota corporation that facilitates the
sale of food from manufacturers to suppliers and vendors worldwide.
Around February 2007, Lamex entered into a business relationship in
which it purchased frozen chicken from George's Farms, Inc.
-2-
("George's") and resold the product to ALC, a Puerto Rico
corporation that supplies frozen food products to supermarkets and
other retailers throughout the Commonwealth.
The parties' business relationship encountered an
obstacle around January 2009, when ALC's insurance underwriter
dropped the corporation from its coverage. Lamex sought from ALC
a replacement security, which ALC provided in the form of a standby
letter of credit for $500,000 drawn on First Bank, a Puerto Rico
financial institution. In turn, ALC requested from Lamex a
matching unsecured credit for $500,000. Lamex's corporate policy
prohibited such matching, but in an effort to preserve the parties'
relationship, Steve Anderson, the president of Lamex, encumbered
his personal funds to provide ALC with the matching credit.
In November 2009, however, the parties' cordial
relationship came to an end when ALC stopped paying Lamex money
owed. By that time, ALC, without remunerating appellee, had
received shipments of frozen poultry totaling over $1.2 million in
value. After myriad informal attempts to collect the delinquent
invoices from ALC failed, Lamex canceled ALC's account, halted
shipment on orders of poultry designated for ALC, and placed the
unpaid-for poultry into cold storage in various facilities in
Puerto Rico and on the mainland. Lamex also cashed in the $500,000
letter of credit from First Bank.
-3-
ALC responded by filing suit in the Commonwealth's
Superior Court in San Juan, naming as defendants Lamex, George's,
and First Bank, among others, and alleging violations of Puerto
Rico's Dealers' Contract Act of 1964 ("Law 75"), P.R. Laws Ann.
tit. 10, §§ 278-278e, which prohibits a principal from terminating
a business relationship with a dealer without just cause,
Euromotion, Inc. v. BMW of N. Am., Inc., 136 F.3d 866, 870 (1st
Cir. 1998). After ALC's suit had been filed, but before service-
of-process had been completed, Lamex brought the instant action in
federal district court, naming as defendants ALC and its president,
Audeliz Lebrón.
In its December 22, 2009 complaint, Lamex sought to
recover the remainder of the monies owed to it and asked that the
corporate veil be pierced to hold Lebrón personally liable for
ALC's debt should the corporation be unable to pay in full.
Furthermore, Lamex requested a declaratory judgment stating that it
was not a "principal" for Law 75 purposes or that even if it were
a principal, it had just cause to terminate its relationship with
ALC. Finally, Lamex sought a preliminary injunction barring ALC
from continuing a "smear campaign" against Lamex, in which ALC
purportedly interfered with Lamex's attempts to find other buyers
for the cold-stored poultry by telling potential buyers that Lamex
and George's poultry products were entangled in a lawsuit. Lamex's
complaint contained a jury demand for all of its legal claims.
-4-
B. District Court Proceedings
1. The First Hearing and Status Conference
On January 14, 2010, the district court convened an
initial hearing for the purpose of deciding Lamex's motion to
reconsider an order granting defendants extended time to answer the
complaint. After inquiring into the nature of the parties' dispute
and discovering that their conflict involved the collection of
outstanding debt, the court warned the litigants that "you cannot
drag a case like this for a year or two, because there's no point,"
and encouraged them to settle. In the interim, the court put the
case on an expedited schedule. It gave defendants one day to
respond to the complaint. Additionally, the court established what
it characterized as a "streamlined discovery process," ordering the
parties to exchange all pertinent documents by January 18 and to
depose two key witnesses -- Steve Anderson and Audeliz Lebrón -- by
January 20.
On January 18, Lamex filed a motion to convert its
request for a preliminary injunction, which it had submitted in its
complaint and in a separate motion dated January 13, into a demand
for a permanent injunction. The court, in an order issued on
January 20, "[g]ranted [the motion] in the sense that the
preliminary and permanent injunctive relief, if available, shall be
considered in a consolidated hearing as requested."
-5-
Soon after, the court received notice that the parties
did not finish the depositions on January 20, as ordered. Lebrón's
deposition was cut short after he refused to answer questions
relating to issues addressed in Lamex's prayers for declaratory
judgment and preliminary injunction. At a status conference six
days later, the court reviewed the transcript of Lebrón's
deposition, concluded that defendants were obstructing the
discovery process, and sanctioned them by ordering them to pay for
any expense Lamex incurred for the thwarted deposition. At the
conclusion of the status conference, the court advised the parties
that the preliminary injunction hearing, which was originally set
for February 1, would be advanced to January 27, the very next
morning.
2. The Injunction Hearing
Decrying behavior it characterized as parties "playing
hardball to avoid certain obligations," the court began the
preliminary injunction hearing by emphasizing that it was committed
"to help[ing] the parties . . . resolve this whole situation" in a
professional manner:
I am here to do the right thing, and that's the reason
why I got really upset with you people yesterday, and
that's the reason I said that if you had not taken my
advice to do discovery the right way, with the purpose of
trying to resolve the situation, I was going to then take
the law in my own hands and force it, shove it upon you,
a solution. . . . There is no way that I'm going to allow
a case like this to drag for months and months when you
have those amounts of money due and owing for chicken,
basically, okay? And I am not going to allow this kind
-6-
of argument to linger without some sort of arbiter,
[j]udge or whoever, telling you what the story is.
The court then informed the parties that "if I get at some point in
time during this hearing that I should convert this into a trial on
the merits, then I will do it." He advised them that "even though
we are proceeding under a preliminary injunction situation, if the
issues are as simple as I think they are, I'm going to take this
matter and resolve it altogether, one shot." When Lamex reminded
the court of its motion to convert the preliminary injunction
hearing into a permanent injunction hearing, the court replied,
"You already heard what I said. If I think as we progress that
that's what I should do, I'm going to do it. I'm just giving you
fair warning."
The court then proceeded to take the testimony of
Anderson. At the conclusion of its president's testimony, Lamex
again moved to have the hearing be treated as a permanent
injunction hearing.1 In response, the court stated, "I told you
that I was considering doing precisely that, the
consolidation. . . . But I will not make that decision until I have
heard all the evidence."
When the hearing reconvened after a lunch recess, Lamex
requested that the court "at least . . . enter an order for [a]
1
Lamex also moved, in the alternative, for summary judgment,
see Fed. R. Civ. P. 56, arguing that Anderson's testimony, combined
with Lebrón's deposition, was sufficient to resolve the claims in
its favor. The motion was denied.
-7-
preliminary injunction." The court admonished Lamex's counsel for
making this request, reminding her that it wanted to hear all the
evidence before proceeding: "Counsel, if you don't give me what I
need, I'm going to just deny your motion. Simple as that."
Defendants in turn moved for a judgment on partial findings under
Federal Rule of Civil Procedure 52(c), on the ground that because
they had already consigned money to the Superior Court, the amount
in controversy was insufficient to give the federal court subject
matter jurisdiction. As an alternative ground for their Rule 52(c)
motion, defendants argued that Lamex failed to meet the
requirements for a preliminary injunction. See Narragansett Indian
Tribe v. Guilbert, 934 F.2d 4, 5 (1st Cir. 1991) (reciting the
four-part preliminary injunction inquiry, which requires
consideration of the likelihood of success on the merits, the
potential for irreparable injury, the balance of equities for and
against an injunction, and the effect on the public interest). The
district court found both grounds unpersuasive and denied the
motion.
Audeliz Lebrón and two employees of George's then
testified, the latter two by phone. At the close of their
testimony, defendants renewed their Rule 52(c) motion, adding a new
argument that Lamex had failed to show irreparable harm "in as much
as ample evidence has been presented that the money that was
allegedly owed has already been consigned and given [to the Puerto
-8-
Rico court]." The district court asked defendants whether they
would "object to a motion filed tomorrow . . . to disburse that
money immediately to Lamex," to which defendants initially
responded in the negative. But they subsequently equivocated,
telling the court, "If the amounts are the same, then [Lamex] can
retire the money."
The court then had the following colloquy with counsel:
THE COURT: This is what we're going to do. I find that
this is a very simple case. I thought it was a lot more
complicated. It's an extremely simple case.
The only issues here are, number one, what kind of
intervention this [f]ederal [c]ourt can have in the
context of the relations between these parties as it
pertains to Law 75, having plaintiff being the one who
initiated the case.
That's number one. And it could be as claimed by
way of injunctive relief or, more probable than not,
perhaps declarative judgment, if any, that could be the
alternative.
And then the other question is whether there is any
issue with the payment that is due and owing supposedly.
That's all.
Does everybody agree that those are the issues?
Plaintiff, are those the issues?
COUNSEL FOR LAMEX: Yes, Your Honor.
COUNSEL FOR ALC: Yes, Your Honor.
THE COURT: I think what I told you at the beginning, that
I could consolidate this into one thing, is going to
happen. I don't think I need anything else. All I need
to do is sit down with this evidence and figure out which
rights each party has to this. Any objection to this?
COUNSEL FOR LAMEX: Your Honor, I don't have any objection
to that.
THE COURT: Do you have any objection to that?
COUNSEL FOR ALC: No, Your Honor.
-9-
3. After the Injunction Hearing
A week later, the court conducted an evidentiary hearing
to determine the amount of cold-storage fees Lamex incurred as a
result of ALC's failure to pay its outstanding invoices.
The next day, February 5, the court issued an opinion and
order disposing, on the merits, of all of the claims made in
Lamex's complaint. The court denied Lamex's requests to pierce the
corporate veil and for preliminary and permanent injunctive relief.
However, it granted Lamex's request for a declaratory judgment
absolving Lamex from liability under Law 75. Furthermore, it
ordered defendants to pay the total amount due to Lamex and ordered
the Superior Court of San Juan to release the money ALC consigned.2
After its motion for reconsideration was denied by the
district court, ALC timely appealed.3 Before us, it argues that
the district court failed to provide unambiguous notice of the Rule
65(a) consolidation and, in so doing, violated its right to trial
2
According to the district court, ALC owed Lamex monetary
relief in the sum of $1,287,911.13 in poultry delivered; interest
on that amount, calculated at 1.5% for every month ALC's account is
in arrears; and storage fees totaling $56,692.12. The $500,000
Lamex already received by drawing on First Bank's letter of credit
would be credited toward the total amount owed, as would the
$785,097.14 held in consignment by the San Juan court.
3
Lebrón, in his personal capacity, is not a party to this
appeal.
-10-
by jury.4 As an additional matter, ALC asks us to vacate the
court's order of sanctions for its discovery-related conduct.
II.
A. Right to a Trial by Jury
The Supreme Court has long counseled that "[m]aintenance
of the jury as a fact-finding body is of such importance and
occupies so firm a place in our history and jurisprudence that any
seeming curtailment of the right to a jury trial should be
scrutinized with the utmost care." Dimick v. Schiedt, 293 U.S.
474, 486 (1935). For this reason, once a party files a proper
demand for a jury trial on its legal claims, see Fed. R. Civ. P.
38, that demand must be honored unless the parties expressly
consent to withdraw the demand, see id., or subsequently waive
their jury trial right by either expressly or implicitly agreeing
to a bench trial, see Venture Tape Corp. v. McGills Glass
Warehouse, 540 F.3d 56, 62-63 (1st Cir. 2008); Coxcom, Inc. v.
Chaffee, 536 F.3d 101, 110-11 (1st Cir. 2008).
In this instance, Lamex made a general demand for a jury
trial with respect to all the legal claims pled in its complaint,
and ALC was entitled to rely on that demand. In re N-500L Cases,
4
Appellant raises two additional issues related to this
argument. It contends that the Rule 65(a) consolidation deprived
it of the opportunity to conduct meaningful discovery. It further
asserts that the court relied on inappropriate evidence, in
particular testimony obtained remotely via telephone, in adjudging
credibility and reaching a decision on the merits. Because we
vacate the judgment, we do not reach these subsidiary arguments.
-11-
691 F.2d 15, 22 (1st Cir. 1982) ("Where one party has made a
demand, others are entitled to rely on the demand with respect to
issues covered by the demand and need not make an independent
demand of their own."). ALC says that it did so rely and, never
having received clear notice from the district court of its intent
to consolidate, its participation in the January 27 hearing was
limited to the issue of injunctive relief. It expected that
Lamex's legal claims, including the declaratory judgment related to
Law 75,5 would be resolved at a later point before a jury.6 Lamex
counters that the district court consolidated the preliminary
injunction hearing with a trial on the merits after providing
adequate notice, and that ALC implicitly waived the right to a jury
trial by actively participating, without objection, in that
consolidated proceeding.
5
Although Lamex's Law 75 claim was framed as a declaratory
judgment, appellant argues, and Lamex does not disagree, that Law
75 controversies are quintessentially legal, and not equitable, and
thus can be heard by a jury. This court has not held that Law 75
is an action to which the Seventh Amendment attaches; however,
because the parties here are in agreement on this issue, we accept
that position for the purposes of this case.
6
As it turns out, during the injunction hearing, defendants
conceded the existence and amount of the debt owed to Lamex and
told the court that "[i]f the amounts [that Lamex claims is owed]
are the same [as that ALC consigned to the Puerto Rico court] then
they can retire the money." This admission left only two legal
claims: the declaratory judgment and the piercing of the corporate
veil.
-12-
1. Inadequate Notice of Rule 65(a)(2) Consolidation
Rule 65(a)(2) states, in relevant part: "Before or after
beginning the hearing on a motion for a preliminary injunction, the
court may advance the trial on the merits and consolidate it with
the [preliminary injunction] hearing." Fed. R. Civ. P. 65(a)(2).
Although the rule facilitates "the generally admirable objective of
saving time and duplication of effort," there are "hazards inherent
in fully disposing of cases in such an expedited fashion -- among
them incomplete coverage of relevant issues and failure to present
all relevant evidence." Caribbean Produce Exch., Inc. v. Sec'y of
Health & Human Servs., 893 F.2d 3, 5 (1st Cir. 1989); see also
Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981) (noting that
"a preliminary injunction is customarily granted on the basis of
procedures that are less formal and evidence that is less complete
than in a trial on the merits," and concluding that "[i]n light of
these considerations, it is generally inappropriate for a federal
court at the preliminary injunction stage to give a final judgment
on the merits"). Such risks are especially acute in cases that
turn on credibility determinations, as a truncated hearing will
often limit the parties' opportunity to present and thoroughly
examine witnesses. For this reason, our law "demand[s that a trial
court provide] 'indisputably clear notice' to the parties before
approving . . . consolidation." Francisco Sánchez v. Esso Standard
Oil Co., 572 F.3d 1, 15 (1st Cir. 2009) (quoting Caribbean Produce,
-13-
893 F.2d at 5); see also Camenisch, 451 U.S. at 395 (noting that
"the parties should normally receive clear and unambiguous notice
[of consolidation] either before the hearing commences or at a time
which will still afford the parties a full opportunity to present
their respective cases" (quoting Pughsley v. 3750 Lake Shore Drive
Coop. Bldg., 463 F.2d 1055, 1057 (7th Cir. 1972))).
Failure to provide indisputably clear notice of
consolidation can constitute reversible error even if the right to
a jury trial is not at issue.7 See Caribbean Produce, 893 F.2d at
5-6; 11A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane,
Federal Practice and Procedure § 2950 (2d ed. 1995) ("[O]rdering
consolidation during the course of a preliminary injunction hearing
is reversible error when little or no notice is given of this
change and the effect is to deprive a party of the right to present
his case on the merits."). The stakes are even higher where, as
here, the surprise consolidation would result in the deprivation of
7
The issue of the adequacy of notice of consolidation under
Rule 65(a) can arise independently of a dispute over the waiver of
the jury trial right and has constitutional implications beyond the
Seventh Amendment. Cf. K-Mart Corp. v. Oriental Plaza, Inc., 875
F.2d 907, 913 (1st Cir. 1989) ("It is apodictic that the district
court's power in [ordering consolidation] 'must be tempered by the
due process principle that fair notice and an opportunity to be
heard must be given the litigants before the disposition of a case
on the merits.'" (quoting 11 Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 2950 (1st ed. 1973))).
Here, however, ALC argues the adequacy of notice in relation to the
Seventh Amendment jury trial right. Under the circumstances of
this case, we think that is an appropriate way to analyze the
issue.
-14-
a party's right to prosecute or defend the remaining legal claims
before a jury. In these situations, we "indulge every reasonable
presumption against [construing the parties' participation in the
consolidated hearing as] waiver." Aetna Ins. Co. v. Kennedy, 301
U.S. 389, 393 (1937); see also García-Ayala v. Lederle Parenterals,
Inc., 212 F.3d 638, 645 (1st Cir. 2000) (emphasizing that "the
right to a jury trial is constitutionally protected and casual
waivers are not to be presumed").
In this case, the court gave the parties contradictory
signals as to its intent. At the parties' first appearance before
the court, which took place on January 14, Lamex requested, and the
court scheduled, a hearing on Lamex's motion to enjoin defendants
from "interfer[ing] with [Lamex's] course of dealing with other
Puerto Rico businesses" and "performing other acts in detriment of
[Lamex's] goodwill, name, and reputation." On January 20, the
court granted Lamex's motion to consolidate and agreed to consider
"the preliminary and permanent injunctive relief, if available
. . . in a consolidated hearing." This order, which was the only
written order mentioning "consolidation," was plainly not a Rule
65(a)(2) order. On the eve of the January 27 hearing, the court,
despite its January 20 order, was still referring to the next
morning's proceedings as a preliminary injunction hearing, and the
hearing was captioned as such. Up to this point, the court and the
-15-
parties seemed to be in agreement that only the plea for injunctive
relief was before the court.8
The confusion began the next day. At the start of the
preliminary injunction hearing, the court warned the parties: "[I]f
I get at some point in time during this hearing that I should
convert this into a trial on the merits, then I will do it." It
advised them "that even though we are proceeding under a
preliminary injunction situation, if the issues are as simple as I
think they are, I'm going to take this matter and resolve it
altogether, one shot." This statement might provide the requisite
notice of Rule 65(a)(2) consolidation if not for the court's
subsequent comments. In the next breath, the court offered a
different view of its intentions when it responded in the following
way to Lamex's reminder that it had "requested that the preliminary
injunction hearing be converted to a permanent injunction hearing":
"You already heard what I said. If I think as we progress that
that’s what I should do, I’m going to do it."9 This succeeding
statement implied that the court's intention was only to
8
Indeed, the crux of ALC's defense against the imposition of
sanctions at the status conference was that Lebrón justifiably
refused to answer Lamex's counsel's questions because they
pertained to the Law 75 claim and not to the preliminary
injunction.
9
It is not clear why Lamex insisted on renewing a motion that
had already been granted on January 20. Nor is it clear why the
court made no reference to its January 20th order. These oddities
confirm the confusion that permeated the proceedings.
-16-
consolidate the hearing for preliminary injunctive relief with the
hearing for permanent injunctive relief, as Lamex requested, and
not to reach the merits of the remaining claims. Later, the court
shored up this inference when, in response to Lamex's reminding the
court of its January 20 order, the court stated, "I told you that
I was considering doing precisely that, the consolidation."10 In
sum, during the hearing, the court made three references to
consolidation; of those three references, only the first mentioned
the merits of the other claims, and the later two implied that it
expected only to consolidate the proceedings for preliminary
injunctive relief with those for permanent injunctive relief.
At the very end of the preliminary injunction hearing,
the court compounded the confusion by stating that "I think what I
told you at the beginning, that I could consolidate this into one
thing, is going to happen," without clarifying what it meant by
consolidating "this into one thing." It then asked whether the
parties objected to "this," to which the parties answered in the
10
In responding to Lamex, the court again did not acknowledge
the terms or existence of its January 20 order. Instead, it
stated:
I told you that I was considering doing precisely that,
the consolidation. Consolidation doesn't mean that the
result is going to be favorable to you or to them.
Consolidation is a technical procedural matter.
But I will not make that decision until I have heard
all the evidence. I want to receive more evidence. I
need to hear you. I need to hear the other side, too.
Then I'll decide.
-17-
negative. Not once during this colloquy did the court explicitly
state that it intended to dispose of all the issues on the merits
or that it was proceeding under Rule 65(a)(2).
The court's contradictory and vague statements do not
satisfy "the overriding requirement [of] indisputably clear notice"
of the court's intention to consolidate the preliminary injunction
hearing with a trial on the merits. Caribbean Produce, 893 F.2d at
5. Indeed, statements less ambiguous than those voiced by the
district court have been held to be inadequate. See, e.g.,
AttorneyFirst, LLC v. Ascension Entm't, Inc., 144 F. App'x 283, 290
(4th Cir. 2005) (per curiam) (unpublished) (holding that the
comment that "the preliminary injunction stage, if I do it right,
will be the end of the fight," did not "constitute[] the kind of
clear and unambiguous notice required by Rule 65(a)(2)"); Woe v.
Cuomo, 801 F.2d 627, 629 (2d Cir. 1986) (concluding that the
court's "oblique references . . . to the dispositive nature of the
proceedings," including the statement that it wanted "to finally
close this case . . . [o]nce and for all, at least at this level,"
did not provide adequate notice); Pughsley, 463 F.2d at 1056-57
(holding that a court's instruction for counsel to put on "your
total case" did not provide adequate notice of consolidation, as
"[p]laintiffs' counsel could reasonably have understood the judge
as merely requiring a presentation . . . of the remainder of
plaintiffs' 'total case' in support of their pending motion [for a
-18-
preliminary injunction]"). From the court's statements, the
parties reasonably could have understood, as ALC claims that it
did, that only the issue of injunctive relief was before the court,
and that by "consolidation," the court meant that it would treat
the preliminary injunction hearing as a permanent injunction
hearing.11
Lamex suggests that we may infer the requisite notice
from the district court's summary of the issues before it as "one,
what kind of intervention this [court] can have in the context of
the relations between these parties as it pertains to Law 75," and
two, "whether there is any issue with the payment that is due and
11
Notably, even Lamex behaved in ways consistent with this
understanding: Lamex reiterated its jury trial demand for its legal
claims, pressed the court at various points to convert the hearing
from one for preliminary injunctive relief to one for permanent
injunctive relief, and, at the hearing's conclusion, indicated that
it would refrain from presenting the rest of its evidence "[i]n the
interest of a speedy injunction." Lamex also called few witnesses
and petitioned for liberal rules of evidence and procedure. During
her questioning of Steve Anderson, for instance, Lamex's counsel
specifically referenced the fact that this was a preliminary
injunction hearing to argue for a more lenient standard of
admissibility:
THE COURT: We don't know what is the relationship between this
[person] and ALC. Therefore, it's [not admissible until] you
establish that relationship. That's it.
COUNSEL FOR LAMEX: Your Honor, if this is a preliminary
injunction hearing, just for the record, inadmissible evidence
that may otherwise be admissible in a court of law at the
trial –
THE COURT: Counsel, no.
COUNSEL FOR LAMEX: Okay, Your Honor.
-19-
owing supposedly." These comments, however, do little to clarify
the scope of the issues actually at stake. By "what kind of
intervention this [court] can have in the context of the relations
between these parties as it pertains to Law 75," the court
reasonably could be understood as pondering whether it could
provide injunctive relief without addressing the Law 75 issues.
Nor could the reference to "the payment that is due and owing
supposedly" be construed unambiguously as notice of consolidation.
That comment came on the heels of defendants' renewal of its motion
for judgment on partial findings, see Fed. R. Civ. P. 52(c), in
which they argued that because they had already acknowledged their
debt and consigned money to the local court, Lamex could not meet
the irreparable harm prong of the four-part test for a preliminary
injunction.12 Alone or in context, these statements do not
constitute indisputably clear notice of the court's intent to
resolve all the issues on the merits.
2. No Implicit Waiver of the Jury Trial Right
12
Lamex countered that it was suffering irreparable harm in
that ALC's delinquency and smear campaign were causing Lamex to
incur cold-storage costs that would continue to skyrocket "if
defendants continue their delinquent conduct." Relatedly, we note
that because the cold-storage fees were part of the court's
calculus on irreparable injury and because ALC conceded the amount
and existence of its debt to Lamex, the court's convening of an
evidentiary hearing to determine the cold-storage costs also cannot
be construed as providing unambiguous notice of consolidation. Nor
can ALC's participation therein imply its waiver of the jury trial
right. Lamex does not argue to the contrary.
-20-
Given the court's failure to provide indisputably clear
notice of consolidation, it becomes far more difficult for Lamex to
argue that ALC implicitly waived its right to a jury trial. We
have held that "active participation both leading up to and during
[a] bench trial," combined with a failure to "specifically object
to the lack of a jury," amounts to a waiver of the jury trial
right. Coxcom, 536 F.3d at 111. This rule of waiver-by-conduct
reflects our judgment that a losing party who has been accorded an
opportunity to present its full case before a court should not be
allowed to "reassert[] a right to trial by jury after a bench
trial." Id.; see also Royal Am. Managers, Inc. v. IRC Holding
Corp., 885 F.2d 1011, 1018 (2d Cir. 1989) (adopting the implicit
waiver rule because "[i]t would be 'patently unfair' and, 'in
effect, [an] ambush [of the] trial judge on appeal' if appellant
were allowed 'to lodge an early demand for a jury,' participate in
a bench trial without objection, and then assign as error the
failure to honor the jury demand" (second and third alterations in
original) (quoting United States v. 1966 Beechcraft Aircraft Model
King Air A90, 777 F.2d 947, 951 (4th Cir. 1985)) (internal
quotation marks omitted)).
ALC's behavior during the hearing simply was not
consistent with Lamex's assertion that ALC "fully and vigorously"
participated in what it understood to be a bench trial on all the
remaining legal issues. Venture Tape, 540 F.3d at 63 (quoting 1966
-21-
Beechcraft Aircraft Model King Air A90, 777 F.2d at 951). To the
contrary, because it was not clearly notified of the court's intent
to adjudicate all of the issues on the merits, ALC conducted itself
as though it were participating in a preliminary injunction
hearing. During the January 27 proceeding, ALC acquiesced to
liberal rules of evidence and procedure. It only called one
witness and presented two exhibits, neither of which were in direct
support of its claim that Lamex could be held liable as a principal
under Law 75.13 Indeed, ALC conducted minimal discovery in the
barely one-month-long period between the commencement of the
federal suit and the injunction hearing; prior to the hearing, ALC
had not even deposed a single representative of Lamex or George's.
In arguing its initial Rule 52(c) motion, ALC framed its
argument in terms of the four-pronged test for preliminary
injunctions.14 Additionally, when arguing that Lamex lacked a
13
The first exhibit, a letter from George's to ALC's counsel
demanding that ALC cease and desist from using George's protected
marks in its marketing and denying any "exclusivity in favor of
ALC," was presented for the purpose of justifying ALC's decision to
stop paying Lamex. The second exhibit was comprised of copies of
the checks consigned to the Superior Court.
14
Rule 52(c) allows for a judgment on partial findings "[i]f
a party has been fully heard on an issue during a nonjury trial."
Fed. R. Civ. P. 52(c). Although Lamex is under the impression that
Rule 52(c) motions are only available in bench trials, appellant
points out, and the record confirms, that its Rule 52(c) motions
were directed toward Lamex's plea for injunctive relief, not toward
the Law 75 issues. Trial courts in this circuit routinely
entertain Rule 52(c) motions in preliminary injunction hearings,
and not just bench trials. See, e.g., Freightliner, L.L.C. v. P.R.
Truck Sales, Inc., 399 F. Supp. 2d 57, 73 (D.P.R. 2005).
-22-
probability of succeeding on the merits, ALC specifically pointed
out that "there is a hearing on the state case that is scheduled
for February 7." Finally, in renewing its motion at the end of the
hearing, ALC argued that "injunction is a remedy for a person to
claim a right when there is no other alternative," and that this
equitable remedy was not necessary here because the parties would
soon be trying their Law 75 case in state court. From these
statements, it is evident that ALC understood that the Law 75 issue
was not being litigated fully during the injunction hearing but
instead would be resolved at a later point, either before a jury in
federal court or as part of its multi-million-dollar state lawsuit.
3. Summary
Neither the status of the jury trial right nor the
protections afforded it by the courts or the Federal Rules is
diminished when a district court employs the consolidation
mechanism provided by Rule 65(a)(2). In fact, the rule explicitly
requires that even when consolidation is ordered, "the court must
preserve any party's right to a jury trial," Fed. R. Civ. P.
65(a)(2), and appellate courts have held that a party's agreement
to a properly noticed "'consolidation of trial on the merits with
a hearing for a preliminary injunction by itself in no way amounts
to a waiver of the right to jury trial.'" New Windsor Volunteer
Ambulance Corps, Inc. v. Meyers, 442 F.3d 101, 120 (2d Cir. 2006)
(quoting Heyman v. Kline, 456 F.2d 123, 130 (2d Cir. 1972)); see
-23-
also Bowles v. Bennett, 629 F.2d 1092, 1095 (5th Cir. 1980) (noting
that "[e]ven assuming that plaintiffs' counsel had agreed to
consolidate . . . , that, alone, would not be an express waiver of
the right to jury trial"). Where, as here, the district court
fails to provide indisputably clear notice of its intent to
consolidate, with the effect that a party does not understand
itself to be participating in a trial on the merits and conducts
itself accordingly, we cannot infer a waiver of the jury trial
right. See Royal Am. Managers, 885 F.2d at 1018 ("Of course, a
party should not be held, by reason of its participation in the
nonjury proceedings, to have waived the jury trial right unless the
party was 'on notice that the trial court was planning to
adjudicate the dispositive issues of fact.'" (quoting 1966
Beechcraft Aircraft Model King Air A90, 777 F.2d at 951)); see also
White v. McGinnis, 903 F.2d 699, 703 (9th Cir. 1990). This is not
a situation in which a losing party is "attempting a second bite at
the apple." Coxcom, 536 F.3d at 111. Rather, ALC has not even had
its first full bite.
We conclude that the district court erred in failing to
provide indisputably clear notice of its intent to consolidate
under Rule 65(a)(2) and, in so doing, abrogated ALC's right to a
jury trial. Accordingly, we vacate the court's judgment with
respect to the claims for declaratory judgment and to pierce the
corporate veil and remand for further proceedings consistent with
-24-
this opinion. Because ALC conceded the amount and existence of the
debt owed to Lamex, we affirm the district court's monetary
judgment in favor of Lamex.15
B. Discovery-Related Sanctions
Appellant challenges the district court's order imposing
sanctions upon it for its failure to comply with discovery
obligations. District courts have "first-line authority for case-
management decisions." Torres v. Puerto Rico, 485 F.3d 5, 10 (1st
Cir. 2007). We therefore "step softly" when reviewing the
imposition of sanctions, intervening only when there has been an
abuse of discretion. Id. (quoting United States v. One 1987 BMW
325, 985 F.2d 655, 657 (1st Cir. 1993)).
Pursuant to its authority under Federal Rules of Civil
Procedure 16(f) and 37(b)(2), the court ordered ALC to pay the
15
ALC also presses an abstention argument pursuant to the
doctrine enunciated in Colorado River Water Conservation District
v. United States, 424 U.S. 800 (1976). Although this court may
raise the issue of Colorado River abstention sua sponte, Jiménez v.
Rodríguez-Pagán, 597 F.3d 18, 27 n.4 (1st Cir. 2010), "abstention
is a waivable defense," Guillemard-Ginorio v. Contreras-Gómez, 585
F.3d 508, 517 (1st Cir. 2009). ALC failed to raise the issue
below, and we deem it waived. Even if the issue had been
preserved, however, abstention is not warranted here. The
circumstances permitting abstention on grounds of "wise judicial
administration," Colo. River, 424 U.S. at 818, "are quite 'limited'
and indeed 'exceptional.'" Rio Grande Cmty. Health Ctr., Inc. v.
Rullan, 397 F.3d 56, 71 (1st Cir. 2005) (quoting Colo. River, 424
U.S. at 819); see also Currie v. Group Ins. Comm'n, 290 F.3d 1, 10
(1st Cir. 2002) (reserving Colorado River abstention for only the
most "extraordinary circumstances"). The circumstances here would
not remotely justify the federal court taking the extraordinary
step of divesting itself of jurisdiction.
-25-
costs and attorney's fees Lamex incurred in the deposition of
Audeliz Lebrón. It did so upon finding that Lebrón was non-
responsive to the questions of Lamex's counsel during his
deposition, and that through his vexatious conduct he "placed
obstacles to the taking of the deposition in violation of the Rules
[of Civil Procedure]." Here, as below, appellant attempts to
justify Lebrón's behavior by asserting that he only refused to
answer questions that he thought were beyond the scope of the
deposition.16 This representation is belied by the deposition
transcript, which shows that Lebrón was obstructionist and hostile
to Lamex's counsel's most benign questions.17 Additionally, as the
16
ALC also ventures a fairness argument, contending that Lamex
too did not comply with its discovery obligations. It made this
argument in a motion for sanctions against Lamex, and the district
court, within its discretion, rejected the motion, concluding that
"[p]laintiff's behavior did not warrant sanction."
17
This is a typical exchange between Lamex's counsel and
Lebrón:
Counsel: [W]hat was your position in [the first]
supermarket [you worked for]?
Lebrón: Groceries.
Counsel: Okay . . . . Could you explain to me what were
your duties and responsibilities . . . ?
. . . .
Lebrón: I repeat groceries, groceries.
Counsel: Okay. But my question goes a little further
than that, Mr. Lebrón . . . . What exactly did you do as
a grocery [at the supermarket]?
-26-
district court pointed out in its sanctions order, it did not order
limited discovery and thus Lebrón and ALC had no grounds to believe
that the deposition was limited in scope. Finally, even if ALC or
Lebrón had justifiable concerns regarding the scope of the
deposition, the Federal Rules provide a way for them to register
those objections without holding up the deposition. See Fed. R.
Civ. P. 30(c)(2). Given Lebrón's behavior, the district court was
well within its discretion in imposing sanctions.
III.
For the reasons set forth, we affirm the court's
imposition of sanctions against ALC; affirm the court's monetary
judgment in favor of Lamex; vacate the court's judgment with
respect to Lamex's claims for a declaratory judgment and to pierce
ALC's corporate veil; and remand for proceedings consistent with
this opinion. Each party shall bear its own costs on appeal.
So ordered.
Lebrón: Well, if you don't know what groceries is, check
and see what groceries is.
-27-