Medina & Medina, Inc. v. Hormel Foods Corporation , 840 F.3d 26 ( 2016 )

United States Court of Appeals
For the First Circuit
Nos. 14-2055, 14-2066
MEDINA & MEDINA INC.,
Plaintiff, Appellant; Cross-Appellee,
v.
HORMEL FOODS CORPORATION,
Defendant, Appellee; Cross-Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Howard, Chief Judge,
Torruella and Lipez, Circuit Judges.
Jaime Sifre Rodríguez, with whom Marta E. Vilá Báez, Amanda
Collazo Maguire, and Sánchez-Betances, Sifre & Muñoz-Noya were on
brief, for appellant/cross-appellee.
Luis A. Oliver, with whom Salvador Antonetti-Zequeira and
Fiddler González & Rodríguez, P.S.C. were on brief, for
appellee/cross-appellant.
October 21, 2016
LIPEZ, Circuit Judge. This case involves a dispute over
an unwritten and allegedly exclusive distributorship agreement
between Medina & Medina, Inc. ("Medina") and Hormel Foods Corp.
("Hormel") under Puerto Rico's Dealer's Contracts Act ("Law 75"),
see P.R. Laws Ann. tit. 10, §§ 278-278e. Medina, a Puerto Rico-
based distributor of refrigerated food products, brought a lawsuit
against its principal, Hormel, seeking a declaration that Medina
is the exclusive distributor of Hormel's retail refrigerated
products in Puerto Rico. Medina also claimed that Hormel violated
the exclusive distribution agreement and hence Law 75 by selling
Supreme Party Platters directly to Costco while bypassing Medina,
and subsequently refusing to sell its new retail refrigerated
products to Medina on account of this lawsuit. Medina sought
damages for those violations. Hormel filed counterclaims,
asserting, inter alia, that Medina is not an exclusive distributor.
The parties' claims were evaluated by the court through
multiple proceedings, including, ultimately, a bench trial. After
the trial, the district court reached the following conclusions:
(1) Medina's exclusivity claim was time-barred by the three-year
statute of limitations under Law 75; (2) Hormel's counterclaim
that Medina was not its exclusive distributor was moot in light of
the court's statute of limitations ruling; (3) notwithstanding the
time bar for Medina's exclusivity claim, Hormel's sales of Supreme
Party Platters to Costco violated Law 75; and (4) Hormel was not
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liable for refusing to sell its new retail refrigerated products
to Medina. The parties cross-appealed.
Medina claims that the district court misunderstood its
exclusivity claim, construing it as one of "airtight exclusivity,"
a type of exclusive arrangement that prohibits stateside
distributors from reselling products into the Puerto Rico market.
Rather, Medina argues that it has only claimed to be the exclusive
distributor based in Puerto Rico for Hormel's retail refrigerated
products. In its cross-appeal, Hormel makes the argument, inter
alia, that the court's imposition of liability for Hormel's Costco
transactions is inconsistent with the court's finding that any
exclusivity claim is barred by the statute of limitations.
Having carefully considered these claims, we agree with
the district court that Medina's exclusivity claim as presented is
time-barred. However, we conclude that the statute of limitations
bar to recovery extends to Medina's Costco-related claim as well.
Hence, we affirm the district court's judgment in part and reverse
it in part.
I.
Medina, a company based in San Juan, purchases and
distributes refrigerated products to retailers in Puerto Rico.
Hormel is a multinational food corporation with its principal place
of business in Minnesota. Hormel produces, among other products,
refrigerated food items that are sold at various retail stores in
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the continental United States and Puerto Rico. The dispute in
this case, which arises under Puerto Rico's Law 75, was brought in
federal court based on diversity jurisdiction. See 28 U.S.C.
§ 1332.
Much of the dispute in this case involves whether Medina
argued for airtight exclusivity in its pleadings and in the
district court proceedings, and, if so, when the statute of
limitations accrued for such an exclusivity claim. Medina argues
that it has never claimed airtight exclusivity; rather, according
to Medina, it has alleged throughout the proceedings below only
that it is the exclusive distributor based in Puerto Rico for
Hormel's retail refrigerated products for the Puerto Rico market.
Hormel contends that the exclusivity arrangement alleged by Medina
is -- and has always been -- one of airtight exclusivity, and that
the district court was correct to construe it as such in finding
the claim to be time-barred. We examine the facts and the
procedural background with this disagreement in mind. It is
critical to an assessment of the statute of limitations ruling.
A. Distribution Arrangement
The facts underlying the origin of the parties'
relationship are undisputed. In May 1987, Pepin Medina ("Pepin"),
Executive Vice President of Medina,1 met Jim Dinicola and Tony
1The titles of individuals are their titles at the time that
the relevant events took place.
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Alonso,2 Vice President of Sales and National Accounts Sales
Manager for Food Service at Hormel, respectively, at a food show
in Chicago. Pepin and Dinicola discussed Law 75 and Hormel's
experience with a prior exclusive distribution arrangement in
Puerto Rico. Dinicola remarked that Law 75 is "a cut-throat law,"
and that it is "one of the things stopping [Hormel] from going
into the Puerto Rican market."
Several months later, Pepin, Dinicola, and Alonso met
again in Austin, Minnesota, to further discuss the prospect of
Hormel entering the Puerto Rico market. Dinicola indicated that
Hormel was considering appointing Medina as its distributor in
Puerto Rico. Dinicola reiterated, however, the concern regarding
exclusivity under Law 75. Pepin responded that because Puerto
Rico is a small market, non-exclusivity would mean "bumping heads
every day . . . with competition," including competition from
mainland distributors. Pepin told Dinicola, "[i]f we are not
exclusive, we are not interested [in distributing Hormel's
products]."
Then, in April 1988, several Hormel executives,
including Dinicola and Alonso, traveled to Puerto Rico and attended
a food show at which Medina had a booth displaying Hormel's
products and logo. During the same trip, the Hormel executives
2 To avoid confusion with the name of the company, we refer
to Pepin Medina and Eduardo Medina by their first names.
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also attended a dinner party held by Pepin at La Casona. At this
party, Dinicola told Pepin, "Pepin, let's go ahead, you go ahead
and distribute the Hormel product." That remark formed a verbal
agreement between the parties, and Medina has since distributed
Hormel's products in Puerto Rico. No written distribution
agreement was signed by the parties.
B. Retail Refrigerated Products
Medina has distributed two types of Hormel products
since 1988: retail refrigerated products and food service
products. Retail refrigerated products are branded products or
commodity-based products that can be marketed under a brand at
retail stores.3 Food service products are items sold to
institutions such as hotels, restaurants, and cafeterias, which
then prepare and sell the products to an end user, who is often an
individual customer. Since the beginning of the distributorship
arrangement with Medina in 1988, Hormel has not sold retail
refrigerated products to any other distributors based in Puerto
Rico besides Medina. Hormel's food service products, by contrast
(which we will address under a separate subheading below), have
been marketed in Puerto Rico through multiple Puerto Rico-based
3
While Medina describes itself as the exclusive distributor
of Hormel's "retail refrigerated products and fresh pork," Medina
suggests in its briefs that fresh pork is among the retail
refrigerated items. We rely on this understanding and use "retail
refrigerated products" as a term that is inclusive of fresh pork
products.
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distributors at different times. Medina claims to be the exclusive
distributor only of Hormel's retail refrigerated products, not of
its food service products, for the Puerto Rico market.
With respect to Hormel's retail refrigerated products,
the communications between Medina and Hormel over the years
consisted largely of Medina's complaints (and Hormel's responses)
concerning Hormel's supply of retail refrigerated products to
stateside distributors, which then resold those products to Puerto
Rico retailers. In January 1990, Medina complained to Hormel that
Pueblo Supermarkets ("Pueblo"), a grocery chain based in Puerto
Rico, had ceased purchasing Hormel products from Medina because it
was buying them at a lower price from Malone & Hyde, a Florida-
based distributor. In the following years, Medina made similar
complaints about stateside distributors interfering with its
business in Puerto Rico. In April 2001, Ron Fielding, Group Vice
President of the Meat Products Division at Hormel, tried to assuage
Medina's concerns in this regard, stating:
I remain very anxious to remove all doubt that
for certain aspects of your business you are
our primary, if not exclusive partner. The
retail packaged meat category clearly benefits
from your expertise and experience in the
market. Your capability to service the
business at all levels (headquarters/stores)
is excellent.
Nevertheless, Hormel continued to sell its refrigerated
products to mainland distributors, which then resold those
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products in the Puerto Rico market. In September 2001, Pepin
complained to Hormel that two local supermarket chains had refused
to buy Hormel products from Medina because they were getting better
prices from stateside distributors, such as White Rose, a
distributor based in New Jersey. Pepin wrote:
This letter intends to get from you assurance
that Hormel will not put us at a disadvantage
relative to other distributors selling into
our market. Specifically, we want your
commitment that Hormel will not give lower
prices (directly or by means of promotions,
deals, etc.) to any distributor in the
mainland than the prices billed to us.
In response, Alonso assured Pepin that Medina would continue to
receive "the best price on retail products sold by Hormel Foods
directly into the Puerto Rico market." Focusing on the word
"directly," Pepin wrote in reply: "[A]s you know, some of your
mainland distributors sell [Hormel refrigerated products] directly
into our customers in [Puerto Rico]. To the extent that they get
better pricing, deals, or terms than we do, we will be handicapped
to grow the business here." He then added, "[y]ou say that you
are not giving lower prices to your mainland distributors selling
to our market, but you are not willing to commit to the principle
that this will not happen."
In August 2002, Medina raised a concern of a different
nature with Hormel. Pepin complained to Fielding that one of
Hormel's meat group sales representatives was planning to make a
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presentation to the head merchandiser at Pueblo regarding Hormel's
Always Tender fresh pork products without Medina's presence.
Fielding explained in response that Hormel was simply reacting to
Pueblo's interest in the product, and that it was not trying to
"sell around" Medina. Fielding also indicated, however, that it
was the customer's decision as to what kind of local support it
would require and Hormel cannot force Pueblo to purchase the
product through Medina. Despite these exchanges, the Always Tender
fresh pork products were ultimately distributed through Medina.
Medina's complaints about stateside distributors
continued into the early 2000s. In June 2003, Pepin complained
about White Rose, which had opened up a distribution center in
Puerto Rico to cater to local wholesalers and retailers. Pepin
stated in a letter that this move by White Rose would "present
serious problems," and that "[Hormel] should be aware of them and
do the necessary to protect [Medina's] efforts in [Hormel's] behalf
and mitigate problems."
Then, in 2005, Medina began characterizing its
complaints regarding stateside distributors reselling into the
Puerto Rico market explicitly in terms of exclusivity. In June
2005, Pepin wrote to Fielding to complain about stateside
wholesalers, including White Rose and A.J.C. International, buying
Hormel refrigerated products and selling them to retailers in
Puerto Rico. Pepin stated in the letter:
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After a careful review and analysis of this
situation, we understand that said actions, if
[not] stop[ped] immediately, constitutes an
impairment of our relationship with Hormel as
principal, and [us] as the distributor[] of
your products in Puerto Rico . . . . It is
important for us to place this situation in
proper perspective because these wholesalers
with operations in Puerto Rico are infringing
in our relationship with you, our principal;
undermining our relationship with our
customers; and devaluating our company. In
fact, allowing these wholesalers to sell your
products within our territory results in
allowing a second or parallel distribution in
the region.
Pepin requested in the letter that Hormel "compel these wholesalers
and/or retailers to cease and desist from interfering with our
distribution of Hormel products in Puerto Rico by not selling your
products in Puerto Rico."
Hormel rejected this request. Fielding clarified in
response that Hormel views Medina "as [its] retail distributor on
the island of Puerto Rico," and hence Hormel "cannot interfere
with the legitimate purchase of [its] products in the United
States." He then noted, "[w]hile you doubtless feel that Law 75
somehow protects you from this competition, we do not agree."
Another dispute arose in January 2006 when Pueblo
decided to purchase certain Hormel products from Topco, a stateside
distributor. Pepin wrote to Gary Ray, then Hormel's Executive
Vice President of Refrigerated Foods, that he was "upset" with
"Hormel's disregard [for] our exclusive distribution contract and
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the legal obligation to act in good faith to protect the
exclusivity granted for our territory." He continued, "[t]here is
no question that [Medina] is Hormel's exclusive distributor for
the Commonwealth of Puerto Rico," and asked that Hormel advise
Topco and Pueblo that it will no longer supply fresh pork to Topco
in order for Topco to resell to Pueblo. Pepin also wrote that
Medina will "do everything [it] must do to protect [its] exclusive
distribution contract," and that he wanted to "create a historical
memory for this event and the future."
Ray stated the following in his reply:
Contrary to the assertions in your letter, we
do not have any written contract with [you],
or any exclusive distribution agreement. For
many years, [Hormel] has sold products through
other brokers and distributors in Puerto Rico.
Moreover, while we recognize that [Medina] has
worked with Pueblo on the Fresh Pork Program,
we cannot dictate Pueblo's method of acquiring
fresh pork products. Pueblo has made a
decision, without regard to [Hormel] or
[Medina].
Ray then observed that Hormel's relationship with Medina has
"always been based on the premise that [Medina] get[s] paid to
interact with the customer," and suggested that Medina negotiate
with Pueblo directly to continue their transactions concerning
Hormel's fresh pork products. The letter concluded, however, that,
"[i]f . . . Pueblo's decision to purchase exclusively from Topco
is final," Hormel "has no choice but to sell fresh pork products
to Topco."
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C. Food Service Products
While Medina claims exclusivity only as to Hormel's
retail refrigerated products, we agree with the district court
that the entire course of dealing between Medina and Hormel during
the relevant time period is helpful in understanding the business
relationship between the two parties, especially given the lack of
a written contract. Accordingly, we examine the parties'
communications regarding Hormel's food service products.
Starting in 1999, Medina wrote a series of letters
complaining to Hormel about other distributors, local and
stateside, selling Hormel food service products in Puerto Rico.
In July 1999, Pepin complained to Hormel that Sysco, a mainland
distributor, was selling Hormel's food service products to the
Wyndham hotel chain in Puerto Rico through Plaza Provision Company,
a Puerto Rico-based distributor. In September 2001, Pepin made a
similar complaint regarding market competition when Hormel
appointed José Santiago, Inc., a Puerto Rico-based company, as its
food service distributor for the Puerto Rico market.
Then, in November 2001, Hormel appointed an in-house
broker for Ballester Hermanos, a Puerto Rico-based distributor and
a competitor to Medina, as its representative in the Puerto Rico
food service business and asked Medina to focus on the retail
distribution instead. Medina objected to Hormel's decision to
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"take away" its food service business, which accounted for half of
Medina's total Hormel volume.4
Following this exchange, Medina began focusing its
complaints on Hormel's food service distributors' interference
with Medina's retail refrigerated business. In 2003 and 2004,
Medina complained to Hormel that its food service distributors,
including Ballester Hermanos, were supplying Hormel refrigerated
products in the deli departments of several of Medina's customers,
which Medina called "a clear and flagrant intrusion into [Medina]'s
retail accounts." Similarly, in August 2004, Pepin wrote a letter
to Hormel to clarify its market status as a distributor, in light
of the alleged interference by the food service distributors.
There, he stated that Medina was "the sole Hormel distributor/agent
in Puerto Rico authorized to service the Deli Departments of all
retail and club accounts in Puerto Rico." In response, Ray agreed
with this statement, noting that Medina "is the sole distributor
in Puerto Rico authorized to service the 'in the glass' and 'home
meal replacement' areas of delis located within retail stores and
club accounts who take possession of their products in Puerto
Rico."
Despite this clarification, Medina's complaints
continued. In June 2005, Ray wrote the following in response to
4 Even after this decision, however, Medina continued to sell
Hormel food service products on a non-exclusive basis.
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a complaint concerning the food service distributors' alleged
interference with Medina's retail business:
We have made it clear to our
distributors . . . and our people that the
retail marketplace[] is your venue. If you
have specific example of sales people visiting
and soliciting business from retailers within
your territory, please advise and we will make
every effort to see that the practice is
stopped.
In July 2005, Medina's counsel wrote to Hormel's counsel
to confirm in writing "the essential terms of the distribution by
[Medina] of the Hormel Foodservice products in Puerto Rico." The
letter also sought confirmation that "[Medina], as Hormel's
exclusive retail distributor, is the sole entity authorized to
solicit and/or quote and/or sell Hormel products to any and/all
retail accounts within Puerto Rico." Hormel's counsel re-phrased
this statement and confirmed the following: "Hormel has no other
retail distributors on the island of Puerto Rico. As we have
stated in the past, Hormel remains committed to its relationship
with [Medina] and, of more importance, remains optimistic that
[Medina] will continue to grow the business."
D. Supreme Party Platters
In 2008 a dispute arose over Hormel's sales of Supreme
Party Platters to Costco. This dispute, however, occurred against
the backdrop of Medina's business relationship with Costco, which
began in 2002.
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Eduardo Medina ("Eduardo"), Vice President of Medina,
met in 2002 with buyers from Costco to introduce Hormel party
platters to the Costco stores in Puerto Rico. The Hormel party
platters came in two kinds: the dry party platters contained cured
meats, cheese, and crackers, and the wet party platters contained
ham, turkey, cheese, and crackers. Later in 2002, Costco opened
its first warehouse in Puerto Rico, and Kamran Mossadeghi, Costco's
deli buyer, began purchasing Hormel products from Medina,
including the party platters. Massadeghi worked in Atlanta, the
location of Costco Southeast, which manages the Costco stores in
Puerto Rico. This was the first time that the Hormel party
platters were sold to Costco.
From 2002 until November 2008, the party platters
distributed by Medina sold well at the Costco stores in Puerto
Rico, which were the only Costco stores that sold those products.
Then, in September 2008, Medina learned from Danny Payne, an
assistant buyer at Costco, that Costco would discontinue
purchasing Hormel's wet party platters from Medina. That same
day, Medina was also notified by Hormel that Hormel would begin
selling Supreme Party Platters, which were intended to be an
improvement on Hormel's regular party platters, directly to Costco
Southeast. Hormel developed the Supreme Party Platters because
Lisa Reinert, the new deli buyer for Costco, was looking for a
platter that would work across all Costco locations, not just in
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Puerto Rico. Hormel then offered two options to Medina: Medina
could receive a five-cents-per-pound brokerage fee on the Supreme
Party Platters, or Hormel could sell the Supreme Party Platters
through Medina if Medina lowered its price for the platter so that
Costco could sell the product at its target price. Medina refused
both options. Pepin wrote that "offer[ing] to pay [Medina] a
commission to cover the[] direct sales to Costco Southeast" is not
acceptable because Medina is Hormel's "exclusive distributor" of
Hormel's retail refrigerated products, not a "broker."
From November 2008 to January 2009, the wet party
platters were not sold at the Costco stores in Puerto Rico;
instead, Hormel sold the Supreme Party Platters directly to Costco
Southeast, which then provided those products to the Puerto Rico
Costco stores. Then, in January 2009, Costco ceased the sale of
the Supreme Party Platters because the sales were "terrible."
Costco thereafter resumed purchasing the wet party platters from
Medina.
E. New Retail Refrigerated Products
On February 3, 2009, Medina filed this lawsuit, seeking
a declaration that Medina is the exclusive distributor of Hormel's
retail refrigerated products, and that Hormel violated the
exclusive distribution agreement and Law 75 by selling the Supreme
Party Platters directly to Costco. Medina also sought damages.
About a month later, in March 2009, Medina and Hormel gave a joint
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presentation to Pueblo and Sam's Club concerning Hormel's new
products. Following this presentation, Eduardo wrote to Patrick
Schwab, the Director of Meat Sales at Hormel, to request
information on the new products, which Pueblo and Sam's Club had
asked for from Medina. Schwab refused, however, stating:
[We] view[] the lawsuit you filed against us
as an insurmountable obstacle which prevents
us from making any additional products
available to the Puerto Rico retail market.
Thus, Hormel will not offer your company any
new items . . . that were discussed in our
last meeting. We will, however, continue to
offer your company any products that were sold
prior to the initiation of the lawsuit,
subject to availability.
Schwab also explained to Pueblo that, "[u]ntil we resolve those
legal issues with [Medina], we are unable to make additional
products available to your Puerto Rico locations."
Medina then amended its complaint to include a claim
that Hormel's refusal to sell its new retail refrigerated products
to Medina violated the exclusive distribution agreement and Law
75. This was so, Medina argued, because Hormel had historically
sold new retail refrigerated products to Medina for the Puerto
Rico market, and the exclusive distribution agreement compels
Hormel to continue this practice.
In March 2014, while this lawsuit was pending, Hormel
reversed course and began selling new retail refrigerated products
to Medina.
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II.
As previously noted, the procedural history of this case
is critical to understanding the parties' arguments on appeal,
particularly with respect to the airtight exclusivity issue. Thus,
we carefully examine the arguments that the parties made below and
the district court's treatment of them.
A. Pleadings
In Count I of the amended and operative complaint,5
Medina sought a declaration, pursuant to Law 75, that Medina was
"the exclusive retail distributor of the Hormel refrigerated
products in the Commonwealth of Puerto Rico, including, as has
been the relationship, the new products developed by Hormel," and
that Hormel violated the parties' mutual agreement to that effect
and Law 75 by selling the Supreme Party Platters directly to
Costco. Am. Compl., Docket No. 3, at ¶ 24.a.6 Relatedly, Count II
5
There are two causes of action in both the amended complaint
filed by Medina and the answer and counterclaim filed by Hormel.
To distinguish the parties' claims, the first and second causes of
action in the amended complaint are referred to herein as Count I
and Count II, respectively, and Hormel's two causes of action are
referred to as First Cause of Action and Second Cause of Action.
6
We use the following format for citations to the record
materials from the district court's docket: the name of the
document, followed by the docket number and the page and/or
paragraph number of the statement the citation supports. The only
exception is when we refer to the trial transcript from February
28, 2013, in which instance we use "Trial Tr." for the document
name. The case number in the district proceedings was 3:09-cv-
01098-JAG.
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sought damages based on Hormel's alleged violation of the agreement
by refusing to sell the new products to Medina on account of the
lawsuit. Id. at ¶¶ 25-28.
In its answer and counterclaim, Hormel introduced the
concept of "airtight exclusivity," which it used to describe
Medina's exclusivity argument.7 Answer to Am. Compl. and
Countercl. ("Answer and Countercl."), Docket No. 4, at 4, ¶ 10.
Hormel noted, for instance, that, despite Medina's claim of
"airtight exclusivity[,] which would preclude even sales to
customers outside of Puerto Rico who resell in Puerto Rico," Hormel
has "always asserted its right to sell to customers outside of
Puerto Rico without requiring that such customers refrain from
reselling in Puerto Rico." Id. at ¶ 11. Hence, to the extent
that the parties agreed on any exclusive distribution arrangement,
Hormel argued that such exclusivity "would not extend to sales by
Hormel to customers outside of Puerto Rico who then decide to sell
a portion or all of its purchases in Puerto Rico." Id. at 5, ¶ 12.
Additionally, Hormel alleged that Medina threatened to sue
Hormel's stateside distributors based on the false premise of
airtight exclusivity, and that as a result, certain stateside
7 We note that "airtight exclusivity" is a term introduced by
Hormel and is not defined under Law 75. We adopt the terminology
in our analysis, using it in the same way it was used by the
parties and the district court in the trial proceedings. See infra
Section III.B (defining airtight exclusivity).
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distributors had ceased buying Hormel's products, leading to a
loss of sales for Hormel. Id. at 6-7, ¶¶ 6-10. Based on these
allegations, Hormel sought damages (Second Cause of Action), id.
at 8, ¶¶ 18-22, and a declaration (First Cause of Action) that
Medina "does not have the exclusive right to purchase Hormel
products for resale in Puerto Rico," id. at 7, ¶ 14.
In answering Hormel's counterclaims, Medina all but
admitted that the exclusivity it was arguing for in the amended
complaint was airtight exclusivity. Medina wrote, for instance,
that as the "exclusive distributor of the Hormel refrigerated
products for the retail market in [Puerto Rico]," it has "the
obligation and right to protect said exclusive distribution
agreement against tort[i]ous interference by third parties" --
that is, by informing them of the exclusivity and requesting that
they cease and desist reselling Hormel refrigerated products in
Puerto Rico. Answer to Countercl., Docket No. 10, at 3, ¶ 6.
Medina also argued that Hormel's insistence that it can "sell to
customer[s] outside Puerto Rico even if they resell all or a
portion of its purchases in Puerto Rico" violates "the exclusive
distribution agreement" and Hormel's "obligation to protect [it]."
Id. at 4, ¶ 11; see also id. at 7-8, ¶ 13 ("Hormel's position that
Law 75 permits Hormel to allow parallel lines of distribution into
Puerto Rico, so long as the transaction is outside Puerto Rico is
not supported by Law 75.").
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B. Summary Judgment Motions and the Order for Clarification
The parties conducted discovery, during which several
depositions were taken. Then, both parties moved for partial
summary judgment. Hormel argued that Medina's lawsuit should be
dismissed to the extent that it relies on airtight exclusivity
because the parties never agreed on such an arrangement, and Law
75 enforces only the parties' own agreement. Hormel also raised
the timeliness issue, asserting that, "[e]ven if Medina had
airtight exclusivity in the sense that it had the right to demand
that Hormel take steps to prevent customers based on the US
mainland from selling into Puerto Rico," any such claim would be
barred under Law 75's three-year statute of limitations. Mot. for
Summ. J. and Mem. of Law in Supp., Docket No. 33, at 15. Indeed,
Hormel argued that Medina had notice of "detrimental acts" by
Hormel -- which triggers the statute of limitations under Law 75
-- as early as 1989, soon after the distribution arrangement began,
id. at 16, and at the latest by January 2006, when Ray denied to
Pepin that Hormel has "any written contract with [Medina], or any
exclusive distribution agreement," Statement of Uncontested Facts,
Docket No. 33, at ¶ 43. Medina, for its part, asked for a partial
judgment in its favor regarding Hormel's violation of the exclusive
distribution agreement, particularly with respect to Hormel's
sales of the Supreme Party Platters to Costco. While not
addressing the statute of limitations directly, Medina wrote that
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it has "put Hormel on notice of the interference of third parties
in [Medina's] exclusive territory, the Puerto Rico retail market,"
and, "once informed of the interference, Hormel failed to comply
with its legal duty" to take measures to stop such third party
interference. Medina & Medina, Inc.'s Mot. for Partial Summ. J.
("Medina's Summ. J. Mot."), Docket No. 34, at 2, ¶¶ 4-5.
The magistrate judge recommended that the district court
grant Hormel's summary judgment motion and deny Medina's. Report
and Recommendation, Docket No. 59, at 32. Specifically, the
magistrate judge made the following recommendations: (i) to the
extent that Medina's exclusivity claim relies on events that
occurred before the three years prior to the filing of the lawsuit,
such a claim is time-barred, id. at 18-19; (ii) the course of
dealing between the parties indicates that their distribution
agreement did not cover airtight exclusivity, which would preclude
Hormel from selling retail refrigerated products to stateside
distributors that resell them in Puerto Rico, id. at 28-29; (iii)
there is a genuine issue of material fact as to whether the
distribution agreement covered Hormel's direct sales to the Puerto
Rico market, such as Hormel's sales of the Supreme Party Platters
to Costco, id. at 29-30; and (iv) Hormel's refusal to sell the new
refrigerated products to Medina does not violate the distribution
agreement, id. at 30-31.
- 22 -
The district court adopted the magistrate judge's
recommendations in full, except as to (ii). The court found that
a letter from 1996 that Medina had proffered8 "inject[ed] a genuine
issue of material fact" as to whether the distribution agreement
between the parties covered airtight exclusivity, i.e., "a
prohibition regarding sales to mainland distributors." Op. and
Order, Docket No. 74, at 14-15. The court concluded, however,
that any such claim of airtight exclusivity is time-barred under
the three-year statute of limitations prescribed by Law 75, as
Medina was on notice at least by August 2005 when Fielding
confirmed that Hormel would continue to sell products to mainland
distributors. Id. at 17. Hence, while the district court rejected
the magistrate judge's conclusion that there is no genuine issue
of material fact as to whether the distribution agreement
encompassed airtight exclusivity, the court nonetheless granted
Hormel's summary judgment motion regarding airtight exclusivity
based on the statute of limitations. Id. at 18. The district
court appears not to have addressed the magistrate judge's
8
This letter from Robert A. Slavik, Vice President of Meat
Products for Hormel, stated that Slavik spoke with Hormel's
International Division, and that the Division has "stepped out of
the communication with any customers who would be involved in
product sold domestically that could end up in Puerto Rico and,
therefore it is now under our full control." As the district court
noted, however, the context of this letter is unclear, and, in any
event, it is superseded by subsequent communications between the
parties in which Hormel clearly indicated that it does not view
the distribution arrangement to include airtight exclusivity.
- 23 -
conclusion in (iv) -- that Hormel's refusal to sell Medina the new
retail refrigerated products did not violate Law 75.
The district court's disposition of the summary judgment
motions -- and particularly its analysis of the exclusivity issue
-- led to a series of motions and orders clarifying what issues
remained. In a joint stipulation for dismissal, the parties
asserted that the only issues that survived the court's summary
judgment order were: (a) "Medina's claim of impairment based on
allegations that Hormel refused to sell to it new refrigerated
retail products for sale in the Puerto Rico market"; (b) "Hormel's
corresponding request for a declaration that Medina does not have
a right to purchase new products introduced by Hormel into the
market"; and (c) "Hormel's request for damages on grounds of
Medina's alleged tortious interference." Stipulation for
Voluntary Dismissal Without Prejudice of Count 2 of Amended
Complaint and of Counterclaim ("Joint Stipulation for Dismissal"),
Docket No. 79, at 1-2. The parties also requested that the court
enter final judgment in favor of Hormel on Count I of the amended
complaint, which sought a declaration that Medina is the exclusive
distributor for Hormel's retail refrigerated products and that
Hormel violated the exclusive distribution agreement by selling
directly to Costco. Id. at 2.
The district court refused. The court characterized its
summary judgment rulings as follows: (i) "Medina's claim[] that
- 24 -
the distribution agreement between Medina and Hormel included
sales to mainland distributors was time barred"; (ii) despite this
statute-of-limitations finding, there is a genuine issue of
material fact as to "whether or not Medina was Hormel's exclusive
distributor"; and (iii) there is a genuine issue of material fact
regarding "whether or not Hormel's direct sales to Costco violated
the distribution agreement." Order for Clarification, Docket No.
85, at 2. Hence, according to the court, the parties' submission
that the court rule in favor of Hormel on Count I of the amended
complaint -- contrary to (ii) as summarized above -- was tantamount
to "asking th[e] [c]ourt to enter a blanket judgment over issues
that it has not decided." Id. at 3. In so ruling, the court
indicated that Medina's overall exclusivity claim could be
separated from airtight exclusivity:
At no point[] has this [c]ourt determined that
Medina is not an exclusive distributor. The
only issue that th[e] [c]ourt decided was that
Medina was time barred from advancing a claim
of airtight exclusivity (airtight exclusivity
refers to Medina's claim that Hormel was
precluded from selling its products to third
parties who resold Hormel products in Puerto
Rico).
Id. The court thus ordered the parties to file a joint motion
detailing "the issues that they are voluntarily dismissing and how
that dismissal impacts Medina's request that the [c]ourt determine
that it is Hormel's exclusive distributor, as well as the airtight
exclusivity claim." Id. at 4.
- 25 -
The court's order for clarification seems to have
exacerbated the confusion regarding the distinction vel non
between the court's summary judgment order that any airtight
exclusivity claim is time-barred and the court's insistence that
Medina's Count I claim over exclusive distributorship (and
Hormel's sales to Costco) is not governed by airtight exclusivity.
Indeed, in a motion responding to the court's order for
clarification, Hormel argued that the district court's statute of
limitations ruling disposed of Medina's Count I claim in its
entirety because the claim as a whole -- including the claim
regarding Hormel's Costco transactions -- is premised on airtight
exclusivity. Hormel Foods Corporation's Resp. to Order for
Clarification, Docket No. 92, at 4. In a separate motion, however,
Medina claimed, seemingly for the first time, that its exclusive
distributorship claim in Count I is not time-barred, evidently
because the district court itself understood it that way in parsing
its own summary judgment order. Mot. in Compliance with Order for
Clarification, Docket No. 93, at 1, 4.
With the parties suddenly at odds over the scope of
exclusivity alleged by Medina, the district court proceeded with
its understanding that Medina's exclusivity claim in Count I could
be separated from, and stand independent of, airtight exclusivity.
For instance, in responding to Hormel's argument that "it is hard
pressed to understand why Medina's claim that it is Hormel's
- 26 -
exclusive distributor is not [also] time-barred," the court noted
that this argument was not "properly developed" and, in any event,
the court was unable to conclude as much at the summary judgment
stage because "the relationship between Hormel and Medina is
fraught with difficulty as it was never reduced to writing and
must be defined via course of dealing." Mem. and Order, Docket
No. 105, at 5 n.1.
As to Hormel's Costco sales, the district court rejected
Hormel's argument that its sales of the Supreme Party Platters to
Costco Southeast is equivalent to its sales of retail refrigerated
products to mainland distributors, and hence the claim regarding
the Costco sales is time-barred under the same airtight exclusivity
theory. In its post-summary judgment memorandum and order, the
court observed that there may be "a distinction between
distributors who purchase products on the mainland and then
eventually resell those products in Puerto Rico and
wholesalers/retailers that have a presence in Puerto Rico and may
seek to purchase goods outside of Puerto Rico in an effort to
bypass Law 75." Id. at 11. The Costco sales, according to the
district court, could fall into the latter category. Id.
C. Trial
The issues of Medina's exclusivity claim, Hormel's
Costco transactions, and Hormel's refusal to sell new retail
refrigerated products to Medina all proceeded to a bench trial.
- 27 -
At trial, Medina framed airtight exclusivity as "Hormel's
invention and [a] smoke screen to confuse what Medina's position
is in relation to Hormel's . . . obligation to protect Medina's
exclusivity." Trial Tr., Docket No. 148, at 7. Indeed, Medina
argued forcefully and repeatedly that it had "never advanced the
position that Hormel cannot sell its refrigerated products . . . to
its stateside clients even if they sell them in Puerto Rico." Id.
at 9-10.
Instead, what it sought all along, according to Medina,
was a recognition that Medina is "the exclusive and sole
distributor in Puerto Rico for the Hormel retail refrigerated
products." Id. at 8 (emphasis added). As such, the argument went,
once Hormel was informed of third-party interference with Medina's
exclusivity, Hormel "ha[d] to take an affirmative step" to ensure
that those third party distributors ceased such sales and
interference with the Puerto Rico market. Id. (citing Gen. Office
Prods. Corp. v. Gussco Mfg., Inc., 666 F. Supp. 328, 333 (D.P.R.
1987)). Hormel countered, as it did in pre-trial proceedings,
that Medina's exclusivity claim is, in effect, one of airtight
exclusivity, and thus the court's earlier statute of limitations
ruling barred both Medina's exclusivity claim and its claim
regarding the Costco sales.
- 28 -
D. District Court's Final Order
The district court changed its view following the trial
regarding whether Medina's exclusivity claim can be separated from
airtight exclusivity. Indeed, the court ruled that Medina's
exclusive distributorship claim in Count I is time-barred, much as
any airtight exclusivity claim was earlier determined to be time-
barred, thus indicating that the court now understood Medina's
exclusivity claim in its entirety to be inseparable from airtight
exclusivity. Op. and Order on Bench Trial, Docket No. 170, at 37-
38. The court stated, for instance, that the statute of
limitations barred Medina's exclusivity claim in its entirety
because, "since 1990, Hormel was selling retail refrigerated
products to stateside distributors, with the knowledge that these
distributors were reselling in Puerto Rico." Id. at 37. At the
latest, the court further noted, Fielding's July 2005 letter and
Ray's January 2006 letter constituted "detrimental act[s]" that
triggered the three-year statute of limitations because they
confirmed to Medina that Hormel has continued, and will continue,
its practice of selling retail refrigerated products to stateside
distributors who resell into the Puerto Rico market. Id. at 36-
37. In light of this statute of limitations ruling, the court
found that Hormel's counterclaim -- seeking a declaration that
- 29 -
Medina is not the exclusive distributor of Hormel's retail
refrigerated products -- was moot. Id. at 38.
With respect to Hormel's sales of the Supreme Party
Platters, the court found that such direct sales to Costco violated
Law 75. Id. at 42. Separating Medina's claim regarding Hormel's
Costco transactions from its exclusivity claim, the court noted
that the Costco claim did not "concern Medina's right to
exclusivity," but rather "concern[ed] a specific product that,
years after Fielding's letter, was developed by Medina." Id. at
39. Given "Medina's efforts and knowledge of the Puerto Rico
market," which led to the popularity of Hormel's party platters
and thereby "greatly benefited" Hormel, id. at 40, the court
concluded that Hormel "stranded" Medina when it sold the Supreme
Party Platters directly to Costco, id. at 42. It did not matter,
indeed, that the Supreme Party Platters were "not developed with
the sole intention of being sold directly in the Puerto Rico
stores, and that [they were] sold across all the stores under the
Costco Southeast Region." Id. at 41. Nor was it relevant that
the Supreme Party Platters were shipped to the Costco Southeast
distribution center in Atlanta before being sold in the Costco
stores in Puerto Rico. Id. In light of the "history between
Medina and the Costco stores in Puerto Rico," the court found that
Hormel was "bound to protect its distributor, and sell through
- 30 -
Medina the upgraded version of a product for which Medina had
developed the market." Id. at 41-42.
Finally, the court determined that Medina had "produced
no evidence indicating that Hormel was obligated to sell its new
products and enter the Puerto Rico market." Id. at 43. Absent
such evidence, the court reasoned, Law 75 does not provide for a
distributor's right to "dictate whether a particular product will
enter the Puerto Rico market." Id. The court ruled, therefore,
that "Hormel is not obligated to introduce new retail refrigerated
products to Medina once it decides to enter the Puerto Rico
market," and that Hormel did not violate Law 75 by refusing to do
so. Id. at 44.
The parties cross-appealed the district court's
decision.
III.
On appeal, Medina argues that the district court erred
in finding its exclusivity claim to be time-barred. Specifically,
Medina claims that the court erroneously relied on Ray's letter
from January 2006 as triggering the three-year statute of
limitations for Medina's exclusivity claim, even in the face of
Ray's deposition testimony that his denial of exclusivity was based
only on stateside distributors selling into the Puerto Rico market,
not other Puerto Rico-based distributors selling Hormel's retail
refrigerated products in Puerto Rico. Relatedly, Medina repeats
- 31 -
the argument that it made at trial that it "never suggested it had
(and did not file its claims for) 'airtight exclusivity,'" that
airtight exclusivity "is not and never was, the question for the
court," and that, in reaching a contrary conclusion, the district
court was "side-tracked by Hormel's arguments against 'airtight
exclusivity.'" Instead, Medina's "actual claims" of exclusivity,
as the party puts it, have to do with "Costco . . . and Medina's
right to exclusive distribution in Puerto Rico." Medina also
argues that the course of dealing between the parties establishes
Medina's status as the exclusive distributor of Hormel's retail
refrigerated products in Puerto Rico, and, as such, Hormel's
refusal to sell new products to Medina was a detrimental act that
violated Law 75.
In its cross-appeal, Hormel contends that the court's
imposition of liability for the Costco transactions is
inconsistent with its ruling that Medina's exclusivity claim is
time-barred. This is so, Hormel argues, because its sales of the
Supreme Party Platters to Costco -- which were conducted through
Costco Southeast in Atlanta -- is no different from its sales of
retail refrigerated products to stateside distributors, and hence
Medina's claim regarding the Costco sales is time-barred, much as
any exclusivity claim is time-barred. Additionally, Hormel claims
that the district court committed a reversible error in declining
- 32 -
to address Hormel's counterclaim that Medina is not Hormel's
exclusive distributor.
A district court's legal determinations are subject to
de novo review. In re Pharm. Indust. Average Wholesale Price
Litig., 582 F.3d 156, 162-63 (1st Cir. 2009); United States v. 15
Bosworth St., 236 F.3d 50, 53 (1st Cir. 2001). The court's
findings of fact, by contrast, are reviewed for clear error,
Williams v. Poulos, 11 F.3d 271, 278 (1st Cir. 1993), meaning that
"we will give such findings effect unless, after carefully reading
the record and according due deference to the trial court's
superior ability to judge credibility, we form 'a strong,
unyielding belief that a mistake has been made.'" Id. (quoting
Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d 453,
457 (1st Cir. 1992)).
To frame our analysis of the parties' claims, we begin
with an overview of Law 75 as it applies to the case at hand.
A. Law 75
Law 75 "governs the business relationship between
principals and the locally appointed distributors . . . [that]
market[] their products." Irvine v. Murad Skin Research Labs.,
Inc., 194 F.3d 313, 317 (1st Cir. 1999). The statute was enacted
to avoid "the inequity of arbitrary termination of distribution
relationships once the designated dealer had successfully
developed a local market for the principal's products and/or
- 33 -
services." Id.; see also Twin Cty. Grocers, Inc. v. Mendez & Co.,
81 F. Supp. 2d 276, 283 (D.P.R. 1999) (explaining that "[t]he
[Puerto Rico] legislature had observed that dealers in Puerto Rico
were particularly vulnerable to summary termination once they had
established a favorable market for a principal's product" (quoting
Draft-Line Corp. v. Hon Co., 781 F. Supp. 841, 844 (D.P.R. 1991))).
Hence, Law 75 prohibits principals from engaging in conduct that,
directly or indirectly, impairs -- or is "detrimental" to -- the
established relationship without just cause. P.R. Laws Ann. tit.
10, § 278a;9 Irvine, 194 F.3d at 318 (explaining the scope of
§ 278a). By way of illustration, Law 75 enumerates certain
detrimental acts that give rise to a rebuttable presumption of an
impairment. See P.R. Laws Ann. tit. 10, § 278a-1. Those instances
include, among others, when a principal "establishes a
distribution relationship with one or more additional dealers for
the area of Puerto Rico . . . in conflict with the contract existing
between the parties." Id. § 278a-1(b)(2).
9 Section 278a provides:
Notwithstanding the existence in a dealer's
contract of a clause reserving to the parties
the unilateral right to terminate the existing
relationship, no principal or grantor may
directly or indirectly perform any act
detrimental to the established relationship or
refuse to renew said contract on its normal
expiration, except for just cause.
P.R. Laws Ann. tit. 10, § 278a.
- 34 -
The protection afforded distributors under Law 75,
however, is "circumscribed by those rights acquired under the
agreement regulating their business relationship." Irvine, 194
F.3d at 318; see also Nike Int'l, Ltd. v. Athletic Sales, Inc.,
689 F. Supp. 1235, 1238 (D.P.R. 1988) (noting that Law 75 should
not be interpreted to create a "safe-haven for dealers to avoid
the express terms of the contracts to which they willingly
subscribed"). Thus, "whether or not an impairment has taken place
will depend upon the specific terms of the distribution contract."
Irvine, 194 F.3d at 318; see also Vulcan Tools of P.R. v. Makita
USA, Inc., 23 F.3d 564, 569 (1st Cir. 1994) ("The question whether
there has been a 'detriment' to the existing relationship between
supplier and dealer is just another way of asking whether the terms
of the contract existing between the parties have been impaired.").
That is to say, while "non-exclusive distributors are entitled to
protection under Law 75," the statute does not "operate to convert
non-exclusive distribution contracts into exclusive distribution
contracts." Borschow Hosp. & Med. Supplies, Inc. v. Cesar
Castillo, Inc., 96 F.3d 10, 14 (1st Cir. 1996) (quoting Vulcan
Tools, 23 F.3d at 569).
The dependency of Law 75's protection on the terms of
the contract applies equally to the scope of any protected
exclusivity. Law 75 "imposes no prohibition upon the principal of
selling or establishing parallel distributorship agreements if he
- 35 -
reserved the right to do so." Gussco, 666 F. Supp. at 331. Hence,
where the contract does not prohibit a principal from setting up
a parallel distribution in Puerto Rico through stateside
distributors, "[t]he clear burden imposed [on the principal] is to
deal in good faith with his contracting party and not to impair
the established relationship, whatever the relationship is." Id.
Where, by contrast, the terms of the agreement provide for
exclusivity under which "a supplier agrees to sell its products
for resale to a single distributor in a given region," the supplier
-- upon being informed of "the interference of a third party in
[the distributor's] contractually-acquired exclusive
market" -- has an obligation "to take an affirmative step" toward
ensuring that such interference stops. Id. at 332, 333; see also
Irvine, 194 F.3d at 318 (noting that, where it is undisputed that
the distributor had "the exclusive distribution rights of [the
principal's] products in Puerto Rico," the principal -- once
informed of "market interference by third parties" -- has "the
obligation to take prompt positive action to curtail the
practice").
All claims arising under Law 75 must be brought within
three years of the distributor's being put on notice of "the
definitive termination of the dealer's contract, or of the
performing of the detrimental acts, as the case may be." P.R.
- 36 -
Laws. Ann. tit. 10, § 278d; see Basic Controlex Corp. v. Klockner
Moeller Corp., 202 F.3d 450, 452-53 (1st Cir. 2000).
B. Exclusivity
The precise terms of their distribution agreement are at
the heart of the dispute between Medina and Hormel. In addressing
that question, we note that there is an Alice-in-Wonderland quality
to this case. That is, Medina faults the district court for
construing its exclusive distribution claim as one of airtight
exclusivity, even though it allegedly never argued for airtight
exclusivity. Yet, Medina did exactly that in its pleadings and
throughout the district court proceedings. Hormel also
mischaracterizes Medina's position and the district court's
decision, arguing, for instance, that Medina's exclusivity claim
extends to food service products, when it clearly does not (and
never did). Similarly, Hormel claims that the district court ruled
that "Medina is not Hormel's exclusive distributor (albeit on
grounds that its claims were time-barred)," even though the court
plainly declined to address the merits of Medina's exclusivity
claim.
Therefore, to make sense of the confusion, we must review
the concept of "airtight exclusivity." The term was used by both
parties and the district court to denote a type of exclusive
distribution arrangement that precludes the principal from selling
its products to stateside distributors who in turn would resell
- 37 -
those products in the Puerto Rico market, thereby creating
competition for customers in Puerto Rico. Indeed, understanding
Medina to be arguing for such exclusivity, Hormel countered in its
answer and counterclaim that it has "always asserted its right to
sell to customers outside of Puerto Rico without requiring that
such customers refrain from reselling in Puerto Rico." Answer and
Countercl., Docket No. 4, at 4, ¶ 11. Medina, while not using the
term "airtight exclusivity," referred to the same concept in
describing its exclusivity claim. It alleged, for instance, that
Hormel "has the obligation to inform . . . its customers located
outside of Puerto Rico that it has an exclusive distribution
agreement with [Medina]," and that they must cease their
"tort[i]ous interference" with Medina's exclusivity rights.
Answer to Countercl., Docket No. 10, at 2-3, ¶¶ 5-6. Medina also
added in its answer to the counterclaims that Hormel's
"insist[ence] that it can sell to customer[s] outside Puerto Rico
even if they resell all or a portion of its purchases in Puerto
Rico" "violat[ed] . . . the exclusive distribution agreement," and
that such "parallel lines of distribution into Puerto Rico" are
prohibited by Law 75. Id. at 4, 8 ¶¶ 11, 13.
Medina continued to argue for airtight exclusivity at
the summary judgment stage and in the proceedings thereafter.
Arguing that there is no genuine issue of material fact as to
Hormel's violation of the alleged exclusive distribution
- 38 -
agreement, Medina claimed in its summary judgment motion that it
"put Hormel on notice of the interference of third parties in
[Medina's] exclusive territory, the Puerto Rico retail market, and
Hormel did not take measures to protect [Medina's] exclusivity."
Medina's Summ. J. Mot., Docket No. 34, at ¶ 4. Medina also added
that, "[o]nce informed of the interference, Hormel failed to comply
with its legal duty to inform such third parties of the exclusive
distributorship relationship it has with [Medina] and did not take
measures so that those third parties would not interfere with the
Puerto Rico retail market." Id. at ¶ 5. In isolation, it is
ambiguous whether the interference by "third parties" cited by
Medina in these motions referred to stateside distributors. Yet
Medina must mean stateside distributors in light of the course of
dealing between the parties and the facts before us.
To be sure, the district court, following its summary
judgment order, misinterpreted Medina's exclusivity claim,
suggesting that it could somehow be separated from airtight
exclusivity. Even then, however, Medina persisted in arguing for
airtight exclusivity, even while disavowing that terminology.10 At
10We acknowledge that Medina's arguments regarding the scope
of its exclusivity became more ambiguous following the court's
order for clarification, leading the district court to observe in
its final order that "Medina never proffers a definition of what
its exclusive distribution contract entails, and simply claims it
is Hormel's exclusive distributor." Op. and Order on Bench Trial,
Docket No. 170, at 37 n.36. As we conclude infra, however, the
- 39 -
trial, for instance, Medina argued for the first time that
"Medina[,] in its amended complaint and pretrial[,] has never
advanced the position that Hormel cannot sell its refrigerated
products and fresh pork to its stateside clients even if they sell
them in Puerto Rico." Trial Tr., Docket No. 148, at 9. Yet,
Medina's attorney articulated the company's allegedly narrower
exclusivity claim -- that it is the exclusive distributor of Hormel
retail refrigerated products based in Puerto Rico -- as follows:
It is Medina's contention, consistent
with [Gussco,] that once Medina informs Hormel
of the interference of a third party with its
acquired exclusivity, Hormel has to take an
affirmative step toward acting in accord with
its contractual obligation.
. . . .
Medina's position is further validated by
the First Circuit case of [Irvine], [which]
says -- and I quote -- "Once put on notice
that its products are reaching an area of
limited distribution rights, a principal has
the obligation to take prompt positive action
to curtail the practice."
Id. at 8-9.
Nowhere in these statements or others made during the
trial did Medina argue, explicitly and specifically, that Hormel's
"obligation to take prompt positive action to curtail the practice"
applies only to Puerto Rico-based distributors or Costco, and not
context and the substance of Medina's exclusivity argument at trial
suggest that it was still arguing for airtight exclusivity.
- 40 -
to stateside distributors. Indeed, it is more plausible to
construe such a claim, articulated in similar language to that
used throughout the litigation to present the exclusivity claim,
as an invocation of airtight exclusivity.11
Moreover, the two cases on which Medina principally
relied during the trial -- and the statements quoted from them --
concerned airtight exclusivity. In Gussco, General Office
Products Co. ("General"), a Puerto Rico-based company, had
negotiated an exclusive distribution contract with Gussco
Manufacturing, Inc. ("Gussco") to be the "exclusive agent and
distributor in Puerto Rico" for Gussco's office supplies products.
11See Medina's Answer to Countercl., Docket No. 10, at 2, ¶ 5
("[I]t is alleged that Hormel, as principal in an exclusive
distribution contract with [Medina], has the obligation to protect
the exclusivity granted to [Medina], and therefore, Hormel has the
obligation to inform . . . its customers located outside of Puerto
Rico that it has an exclusive distribution agreement with [Medina]
to have effect in the Commonwealth of Puerto Rico."); id. at 3,
¶ 6 ("It is affirmatively alleged that [Medina], as exclusive
distributor of the Hormel refrigerated products for the retail
market in the Commonwealth of Puerto Rico[,] has the obligation
and right to protect said exclusive distribution agreement against
the tort[i]ous interference by third parties and in the exercise
of said right has advised the third parties of the existence of
the exclusive distribution contract and has requested they cease
and desist from interfering with the exclusive distribution
contract."); Medina's Summ. J. Mot., Docket No. 34, at ¶ 4
("[Medina] put Hormel on notice of the interference of third
parties in [Medina's] exclusive territory, the Puerto Rico retail
market, and Hormel did not take measures to protect [Medina's]
exclusivity."); id. at ¶ 5 ("Once informed of the interference,
Hormel failed to comply with its legal duty to inform such third
parties of the exclusive distributorship relationship it has with
[Medina] and did not take measures so that those third parties
would not interfere with the Puerto Rico retail market.").
- 41 -
666 F. Supp. at 329. Pursuant to the exclusivity contract, Gussco
wrote to its distributors and retailers that General was "sole
distributor for the complete line of Gussco products in Puerto
Rico." Id. Years later, however, a third party, A.M. Capen's &
Sons ("Capen's"), a New Jersey-based corporation, began selling
Gussco products -- which it purchased from Gussco itself -- in
Puerto Rico. Id. General brought a lawsuit against Gussco,
asserting that Gussco violated the exclusive distribution contract
and Law 75 by refusing to "stop selling to Capen's" or,
alternatively, to "not honor orders [from Capen's] destined for
the Puerto Rico market." Id. at 330. In holding Gussco liable,
the district court noted that, while "[Law 75] imposes no
prohibition upon the principal of selling or establishing parallel
distributorship agreements if he reserved the right to do so," id.
at 331, it was the "clear intention" of the parties that the
exclusivity cover the entire Puerto Rico distribution, and not be
limited in a way that Gussco would simply be prohibited from
"contact[ing] or establish[ing] other distributors in Puerto
Rico," id. at 332 (emphasis added). Hence, the court found that,
"once General informed Gussco of the interference of a third party
in its contractually-acquired exclusive market," Gussco had an
obligation to "take an affirmative step toward acting in accord
with its contractual obligations" -- by, for example, "making
Capen's aware of its market interference and . . . taking measures
- 42 -
so that Capen's would not interfere with the Puerto Rico market."
Id. at 333.
Similarly, in Irvine, it was undisputed that IRG, a
Puerto Rico-based distributor, had an exclusive distribution
contract with Murad, a stateside manufacturer of skin care
products, under which Murad agreed "not [to] sell Murad branded
products in Puerto Rico thr[ough] any organization other than IRG."
194 F.3d at 316, 318 n.4. Hence, when Murad's products were made
available in Puerto Rico through a New York-based cable television
station that broadcast an infomercial on Murad's products in Puerto
Rico, IRG and Ileana Irvine, the founder of the company, brought
a lawsuit against Murad. Id. at 316. In affirming a judgment
against Murad, we first noted the undisputed fact that IRG "had
the exclusive distribution rights of Murad products in Puerto
Rico." Id. at 318. We then reiterated the Gussco principle,
stating, "once put on notice that its products are reaching an
area of limited distribution rights[,] a principal has the
obligation to take prompt positive action to curtail the practice."
Id.
Given the context of these cases, Medina's reliance on
Gussco and Irvine for the proposition that Hormel has an
affirmative duty to stop third parties from interfering with
Medina's exclusivity supports the understanding that Medina
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maintained its airtight exclusivity claim at trial.12 Hence, we
find no error in the district court's treatment of Medina's
exclusivity claim in the pleadings, as well as throughout the
district court proceedings, as one of airtight exclusivity. We
recognize that the court's change in view -- after having insisted
since the summary judgment order that Medina's exclusive
distribution claim could stand separate from airtight exclusivity
-- is somewhat surprising. A court's failure to explain its
understanding of a party's claim in full, however, is not, by
12 Medina claims that "[n]o cases under Law 75 contemplate
airtight distribution," characterizing Irvine and, by extension,
Gussco, as involving instances where the principal sold directly
to the competing Puerto Rico-based wholesaler or retailer. The
facts, however, clearly belie this argument. In Gussco, Gussco
sold its products to Capen's, a New Jersey-based distributor, who
then sold those products in Puerto Rico. 666 F. Supp. at 329.
Likewise, despite the language in Irvine that loosely describes
the sales of Murad's products in Puerto Rico as "direct sales,"
194 F.3d at 318, the products in question were in fact made
available in Puerto Rico through an infomercial broadcast by a New
York-based cable television station, id. at 316. Indeed, these
sales cannot be described as "direct" in the way that Medina wants
to characterize them because, if they were direct, the question of
whether Murad was put on notice of such sales -- which received
considerable attention in the court's analysis -- would not have
been an issue. See id. at 318-19. Finally, we note that Medina's
characterization of the two cases on appeal is contrary to how it
presented the two cases at trial, where Medina argued that a
question the court must answer is "what, if anything, should Hormel
do once it is advised by Medina that someone, an ex parte in
Miami . . . is buying from Hormel in the states and shipping to
Puerto Rico, and that's the Ileana Irvine case and the Gussco
case." Trial Tr., Docket No. 148, at 12 (emphasis added).
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itself, an error.13 The underlying analytical judgment here is
fundamentally sound.
Nor do we find error in the court's statute of
limitations analysis. Despite Medina's express and continuing
concerns early on about competition from stateside distributors,
it was clear from the beginning of their distribution arrangement
that Hormel would sell retail refrigerated products to mainland
distributors that resold those products in Puerto Rico. Indeed,
Pepin's complaints in the early years regarding the alleged
differential pricing that Hormel gave to mainland distributors
confirm this pattern of conduct by Hormel. See, e.g., J.A. at 82
(Medina complaining in January 1990 that Pueblo had ceased
purchasing Hormel refrigerated products because it was buying them
at a lower price from Malone & Hyde, a Florida-based distributor).
While we recognize that there is certain language in the parties'
13 The court did indicate, however, that it had earlier
believed that "Hormel's letters, and the fact that the claims as
to mainland distributors reselling in Puerto Rico were time barred,
could not insulate Hormel from further violations if the Court
found that exclusivity had been granted to Medina." Op. and Order
on Bench Trial, Dkt. No. 170, at 32 n.32. However, after examining
our decision in Basic, the court determined that, contrary to its
earlier thinking, the statute of limitations barred any claim of
airtight exclusivity. Id. at 34-35. We agree with this
understanding of the effect of the statute of limitations. See
Basic, 202 F.3d at 452-54. Indeed, the bar must operate in this
way because any claim that Medina could bring alleging Hormel's
later violation of airtight exclusivity would rest on the same
argument found to be time-barred -- i.e., that the parties'
distribution agreement granted airtight exclusivity.
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communications suggesting that Hormel viewed Medina as the "sole"
distributor of retail refrigerated products in Puerto Rico, such
language appears to have been referring to Medina being the sole
distributor based in Puerto Rico. See, e.g., id. at 110 (Ray
stating in a September 2004 letter that Medina "is the sole
distributor in Puerto Rico authorized to service [retail
refrigerated products]"). That is to say, even if Medina is the
exclusive distributor on the island of Puerto Rico, Medina would
not prevail here because its exclusivity claim, as we have already
determined, is one of airtight exclusivity.14
At the latest, moreover, Hormel's responses flatly
denying airtight exclusivity in 2005 and 2006 should have put
Medina on notice. In August 2005, Pepin wrote to Fielding to
request that Hormel "compel [mainland distributors] to cease and
desist from interfering with [Medina's] distribution of Hormel
products in Puerto Rico by not selling [Hormel's] products in
Puerto Rico." Fielding wrote, however, that Hormel "cannot
interfere with the legitimate purchase of [its] products in the
United States," even if they are re-sold in Puerto Rico. The same
is true of the parties' exchange in January 2006 when Medina wrote
to complain about Pueblo, a Puerto Rico-based retailer, buying
14 For the same reasons, we do not address here Medina's
argument that "sole" is synonymous with "exclusive," and hence it
is the exclusive distributor of Hormel retail refrigerated
products based in Puerto Rico.
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certain Hormel retail refrigerated products from Topco, a
stateside distributor. In a letter addressed to Ray, Pepin
expressed frustration at Hormel's "disregard [for] [the parties']
distribution contract" and demanded that Hormel "do everything
[it] must do to protect [the] exclusive distribution contract."
Ray replied, "Contrary to the assertions in your letter, we do not
have any written contract with [Medina], or any exclusive
distribution agreement." Given this record, we find that Medina's
exclusivity claim accrued at least by January 2006, more than three
years prior to the filing of this lawsuit on February 3, 2009.
Medina's attempts to persuade us otherwise are
unavailing. First, given our earlier holding that Medina's
exclusivity claim is one of airtight exclusivity, we can easily
dispose of Medina's argument that the district court erred in
relying on Ray's 2006 letter as a trigger for the three-year
statute of limitations because Ray clarified in a deposition that
he was referring to stateside distributors in his denial of
exclusivity.15
15
In a similar vein, Medina also disputes whether Ray's and
Fielding's letters could constitute "detrimental" acts that
trigger the statute of limitations under Basic, 202 F.3d at 452-
53. Indeed, Medina argues that this case is different from Basic
because in Basic it was uncontested that the parties had an
exclusive distribution agreement, and the letter that triggered
the statute of limitations explicitly stated an intent by the
principal to appoint additional distributors, contrary to the
existing contract. Id. at 451-52. Here, by contrast, the parties
had no written contract, thus requiring the court to rely on a
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In addition, to the extent that Medina's exclusivity
claim on appeal is any narrower than its exclusivity claim argued
below (and thus is not inclusive of airtight exclusivity), see
Medina's Reply Br. at 2, 4; Hormel's Reply Br. at 4 (noting that
Medina's reply brief "now construes Medina's claims of exclusivity
as limited to only barring direct sales by Hormel to wholesalers
or retailers within Puerto Rico"), we deem such an argument to be
waived. See Teamsters, Chauffeurs, Warehousemen & Helpers Union,
Local No. 59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir.
1992) ("If any principle is settled in this circuit, it is that,
absent the most extraordinary circumstances, legal theories not
raised squarely in the lower court cannot be broached for the first
time on appeal."); United States v. Zannino, 895 F.2d 1, 17 (1st
Cir. 1990) ("[I]ssues adverted to in a perfunctory manner,
course of dealing to discern the terms of the agreement, and there
are communications between the parties that allegedly suggest that
Medina is the exclusive distributor of Hormel retail refrigerated
products in Puerto Rico. These differences, however, are not
legally significant. We held in Basic that the distributor "had
notice of its claim as soon as [the principal] announced its plan
to use other distributors." Id. at 453. The subsequent events -
- for instance, whether the principal followed through on its
intent expressed in the letter -- were not relevant. Id. at 452.
Hence, relying on this interpretation of Basic, we recently held
in a case involving exclusivity under Law 75 that a letter that
"put[s] [the allegedly exclusive distributor] on notice that [the
principal] did not view their relationship as exclusive"
constitutes a detrimental act that triggers the three-year time
bar. Trafon Group, Inc. v. Butterball, LLC, 820 F.3d 490, 494
(1st Cir. 2016) (emphasis added). The same is true here with
Fielding's and Ray's letters.
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unaccompanied by some effort at developed argumentation, are
deemed waived.").
Accordingly, we affirm the district court's
determination that Medina's exclusivity claim in its entirety is
time-barred. Additionally, in light of this holding, we -- like
the district court -- find that Hormel's counterclaim for a
declaration that Medina is not its exclusive distributor is moot.
C. Hormel's Sales of the Supreme Party Platters to Costco
Despite its time-bar ruling, the district court found
that Hormel violated Law 75 by selling the Supreme Party Platters
to Costco while bypassing Medina. Hormel argues on appeal that
this determination presumes the existence of an exclusivity
agreement and is, therefore, inconsistent with the court's finding
that Medina's exclusivity claim is time-barred.16
We agree. In its amended complaint, Medina argued that
"Hormel, in direct and clear violation of the exclusive retail
distribution relationship between [Medina] and Hormel, and in
further violation of Law 75, developed for [Costco] a Hormel Party
Platter, which is being sold directly by Hormel to [Costco],
bypassing therefore [Medina] as its exclusive retail distributor
16
Hormel also attacks Medina's Costco claim because it is
based on an unwritten contract. It is black letter law, however,
that Law 75 does not require an agreement to be in writing for its
terms to have legal effect. See R.W. Int'l Corp. v. Welch Food,
Inc., 13 F.3d 478, 483 (1st Cir. 1994); Madelux Int'l, Inc. v.
Barama Co., 364 F. Supp. 2d 68, 74-75 (D.P.R. 2005).
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in the Commonwealth of Puerto Rico." Am. Compl., Docket No. 3, at
¶ 10. Consistently, Count I of the amended complaint describes
the allegedly exclusive distribution agreement as the basis for
Medina's damages claim for Hormel's Costco transactions. See id.
at ¶¶ 22-24 (Medina arguing that Hormel's Costco sales violated
Law 75 in the same count (Count I) that seeks a declaration that
Medina is the exclusive distributor of Hormel's products -- with
the Costco sales giving rise to damages, and Medina's claim of
exclusivity providing the basis for a declaration). That is to
say, the agreement to which Hormel's Costco sales were
"detrimental," P.R. Laws Ann. tit. 10, § 278a, according to Medina,
was the agreement that Medina claimed was one of airtight
exclusivity, see supra Section III.B.
Medina's subsequent arguments corroborate this
understanding. Following the district court's summary judgment
order, the parties filed a joint stipulation for dismissal, in
which they asked the court to enter a final judgment in favor of
Hormel on Count I of the amended complaint in light of the court's
rejection of airtight exclusivity as time-barred. Joint
Stipulation for Dismissal, Docket No. 79, at 1-2. Indeed, Medina,
as well as Hormel, understood the court's rejection of airtight
exclusivity to have disposed of both the Costco claim and the claim
of exclusivity in Count I, stating that the only remaining issues
concerned Hormel's refusal to sell new products and Hormel's
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counterclaim that Medina engaged in tortious interference by
threatening stateside distributors. Id. Additionally, even after
the court noted in its Order for Clarification that it had not
ruled on either the exclusivity or Costco claim in its summary
judgment order, and Medina changed its position to argue that Count
I should proceed to trial, Medina continued to characterize its
Costco claim as premised on the allegedly exclusive distribution
agreement. See Mot. in Compliance with Order for Clarification,
Docket No. 93, at 2 (arguing that "genuine issues of material fact
exist pursuant to the Order for Clarification . . . []that is,
whether or not Medina was Hormel's exclusive distributor and
whether or not Hormel's direct sales to Costco violated the
distribution agreement[]"); see also Trial Tr., Docket No. 148, at
4 (Medina's counsel noting that the issues for trial are "whether
or not Medina was Hormel's exclusive distributor" and "whether or
not Hormel's direct sales to Costco violated the distribution
agreement").
Because, as Medina argued, its damages claim regarding
Hormel's Costco sales is inextricably tied to Medina's claim of
exclusivity, we find that its Costco claim also is time-barred.17
17 Given our reading of Medina's arguments in the district
court, we do not address whether imposing liability for Hormel's
Costco transactions would have extraterritoriality implications,
as Hormel argues on appeal. Suffice it to say, however, that there
would be no extraterritoriality concern insofar as the basis for
liability is the principal's violation of obligations it willingly
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The district court's imposition of liability for Hormel's Costco
transactions is, therefore, reversed.
D. New Retail Refrigerated Products
Medina argues that Hormel is obligated to sell new retail
refrigerated products to Medina pursuant to the allegedly
exclusive distribution agreement. To the extent that this claim
is contingent upon such exclusivity, the claim is time-barred.
undertook. See Gussco, 666 F. Supp. at 330-31 (noting that "Law
75 has been attacked several times as unconstitutional" based on
exclusivity, but has "survived as constitutional" because the
statute simply protects the parties' agreement and "does not impose
exclusivity of distribution upon manufacturers or suppliers").
Moreover, we recognize that the district court appeared to
have in mind a theory of liability that did not depend on
exclusivity, i.e., that liability could be imposed under Law 75
regardless of exclusivity because Medina had "built up" the market
for Hormel's party platters in Costco's Puerto Rico stores. Op.
and Order on Bench Trial, Docket No. 170, at 40 (quoting Medina &
Medina v. Country Pride Foods, 825 F.2d 1, 2-3 (1st Cir. 1987)).
We express no view on that theory. See Caribe Indus. Sys., Inc.
v. Nat'l Starch & Chem. Co., 212 F.3d 26, 28-29, 31 (1st Cir. 2000)
(declining to address a district court's reasoning that "no cause
of action lies under Law 75 where a principal sells directly to a
customer of a non-exclusive dealer"). In addition, we acknowledge
that there could be a distinction between Hormel's Costco sales
and its sales to stateside distributors who resell into the Puerto
Rico market. That would be so if Costco Southeast, which Hormel
analogizes to a stateside distributor, was instead -- as Medina
now contends -- the customer for the party platters distributed in
Puerto Rico. Indeed, if Costco Southeast was Medina's customer,
and Medina had proved it was Hormel's exclusive distributor in
Puerto Rico, the district court's reasoning -- that Hormel left
Medina "stranded" by selling directly to Costco Southeast -- may
have had merit. Op. and Order, at 42. But, as explained above,
the only Costco-related claim that Medina asserted in the district
court was premised on the asserted agreement of airtight
exclusivity.
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See, e.g., Medina's Am. Compl., Docket No. 3, at ¶ 26 ("Hormel's
illegal conduct by refusing to sell [Medina] the new refrigerated
retail products, as it historically did in accordance with the
exclusive distribution agreement, . . . is an illegal action,
contrary to Law 75, and the existing exclusive distribution
agreement."). We agree with the district court, moreover, that
Medina has "proffered no evidence proving that Hormel obligated
itself to sell to Medina every new retail refrigerated product[]
developed," Op. and Order on Bench Trial, Docket No. 170, at 44,
or that Hormel used another Puerto Rico-based distributor to sell
such new products, see, e.g., P.R. Laws. Ann. tit. 10, § 278a-
1(b)(2) (providing that a rebuttable presumption of an impairment
occurs when a principal "establishes a distribution relationship
with one or more additional dealers for the area of Puerto
Rico . . . in conflict with the contract existing between the
parties"). We thus find that Medina is not entitled to compel
Hormel to sell new retail refrigerated products and that Hormel
cannot be held liable for refusing to do so.
IV.
For the foregoing reasons, we conclude that the three-
year statute of limitations bars Medina's exclusivity-based claims
and, contrary to the district court's determination, we hold that
the time bar extends to the sale of Costco party platters. In all
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other respects, the district court properly resolved the parties'
claims.
Hence, as to the issues raised in Medina's appeal (No.
14-2055), we affirm the judgment of the district court. As to the
issues raised in Hormel's cross-appeal (No. 14-2066), we reverse
that portion of the district court's decision finding Hormel liable
for the Costco sales and otherwise affirm the court's judgment.
So ordered. Costs to Hormel.
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