Opinion
CIVIL NO. 02-1536 (JAG)
February 2, 2004
Rafael A. Robles Díaz, Esq, DOJ Commonwealth of Puerto Rico, San Juan, PR, for Plaintiffs
Francisco A. Besosa, Esq., San Juan, PR, for Defendant
REPORT AND RECOMMENDATION
The Court has referred to this Magistrate Judge Defendants' Motion for Summary Judgment(D.E. #138)and Plaintiffs' Motion for Partial Summary Judgment (D.E. #67, 77). Oppositions and replies to both motions were filed (D.E. #97, 98, 102 and 103).
Considering the averments submitted and the attachments to the petitions for summary judgment, it is appropriate to DENY Plaintiffs' Motion for Partial Summary Judgment and to GRANT Defendants' Motion for Summary Judgment upon absence of any genuine issue of material fact that preclude same.
PROCEDURAL BACKGROUND
On March 19, 2002, Plaintiffs Tomás Díaz Rodríguez ("Díaz") and Energy Tech Corporation ("ETC") filed a complaint in the Court of First Instance of Puerto Rico, Bayamón Judicial Center, Superior Division (Civil Number DAC2000-1017 (503)), against Defendants The Pep Boys — Manny Moe Jack ("The Pep Boys") and Pep Boys — Manny Moe Jack of Puerto Rico, Inc. ("Pep Boys PR"). Plaintiffs' claim is grounded on a contract with Defendants for Pep Boys' exclusive distribution in Puerto Rico of a product called Super FuelMax, under the terms and conditions established in a Memorandum, attached to the Complaint as Exhibit A. Plaintiffs claimed that Defendants breached the memorandum agreement because Defendants had not paid for 8,950 Super FuelMax units that Defendants' had ordered and because Defendants decided not to purchase any additional product. Plaintiffs claimed Defendants had no right to cease purchasing the product.
On April 9, 2002, Defendants removed the case to this Court. (D.E. #1). Defendants filed an answer to the Complaint on May 8, 2002. (D.E. #6).
On February 28, 2003, Defendants' moved for summary judgment requesting that the Court dismiss Plaintiffs' breach of contract claims. (D.E. #67). Defendants argued that because the agreement between Plaintiffs and Defendants was terminable at will, Defendants were under no obligation to purchase any specific amount of Super FuelMax units or for any specific period of time. Plaintiffs opposed the motion on April 8, 2003, and Defendants replied on April 30, 2003. (D.E. #102).
On March 11, 2003, Plaintiffs moved for partial summary judgment against Defendants to collect payment for 8,950 Super FuelMax units which Defendants had ordered from Plaintiffs. Plaintiffs argued that partial summary judgment should be entered against Defendants for the amount of $554,900.00 plus interest, payable in part to ETC and in part to Anchor Funding, Inc. ("Anchor Funding"), which had provided financing to ETC for the purchase of SuperFuel Max units. According to Plaintiffs, Anchor Funding was entitled to payment for 3,876 units of the 8,950 units for which Plaintiffs had originally demanded payment. Defendants opposed Plaintiffs' motion for partial summary judgment on April 8, 2003, (D.E. #93) and Plaintiffs replied on April 30, 2003 (D.E. #103).
On September 27, 2002, Defendants filed a Counterclaim in Interpleader against Plaintiffs and joining Anchor Funding, Inc. (D.E. No. 29). Defendants alleged that if the Court found that Defendants owed any amount to Plaintiffs, Plaintiffs and Anchor Funding should be required to interplead and settle between themselves their rights to any money due by Defendants under the terms of its agreement with Plaintiffs.
Since then, Defendants have settled and/or paid Anchor Funding's demand for payment for 3,876 units and have paid Plaintiffs for 566 units, a total of 4,432 units. (D.E. Nos. 109, 111, 113, 117, 118, 153 and 159).
Earlier in the case, on September 25, 2002, Plaintiffs had moved to amend the complaint (D.E. #27). The Court allowed Plaintiffs' Amended Complaint on July 18, 2003 (D.E. #129). On July 31, 2003, Defendants answered the Amended Complaint (D.E. #132), supplemented the statement of material facts submitted with the motion for summary judgment which had already been filed and moved for summary judgment on the Amended Complaint (D.E. #133) on the same grounds as those set forth already in the motion for summary judgment already filed (D.E. #67,#102). Plaintiffs did not oppose or contest Defendants' Supplemental Statement of Material Facts. SUMMARY JUDGMENT STANDARD
On August 29, 2003, however, Plaintiffs moved to amend the complaint for a second time (D.E. No. 142). On September 3, 2003, Plaintiffs then moved to supplement their opposition to Defendants' Motion for Summary Judgment relying on the new allegations contained in the tendered Amended Complaint (D.E. No. 143). Defendants opposed both. (D.E. No. 146 and 147). Although this Magistrate Judge initially allowed the second amended complaint (D.E. #149), the Order was set aside by the Court and leave to file a second amended complaint was denied. (D.E. #161). Plaintiffs' Supplemental opposition to Defendants' Motion for Summary Judgment is therefore disregarded for purposes of disposing of the motions for summary judgment.
The court's discretion to grant summary judgment is governed by Rule 56 of the Federal Rules of Civil Procedure. Rule 56 states, where pertinent, that the court may grant summary judgment only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. " Fed.R.Civ.P. 56(c); see Santiago-Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 52. (1st Cir. 2000).
Summary judgment is appropriate if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." See Fed.R.Civ.P. 56(c). The party moving for summary judgment bears the burden to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986). Once a properly supported motion has been presented, the opposing party has the burden of demonstrating that a trial-worthy issue exists that would warrant the court's denial of the motion for summary judgment. For issues where the opposing party bears the ultimate burden of proof, that party may not merely rely on the absence of competent evidence, but must affirmatively point to specific facts that demonstrate the existence of an authentic dispute. Suarez v. Pueblo Int'l, Inc., 229 F.3d 49 (1st Cir. 2000).
In this case, the record demonstrates that Defendants are entitled to summary judgment. The August 9th memorandum is the agreement between the parties (hereinafter the "Agreement"). The Agreement is clear and unambiguous. The Agreement does not require Defendants to continue purchasing product in perpetuity or for any fixed period of time. Thus, Defendants could not have breached the Agreement by refusing to purchase any additional product, sell it throughout Puerto Rico, and expand distribution to the United States.
On the other hand, the record shows that Plaintiffs are not entitled to partial summary judgment as requested. Of the 8,950 units for which Plaintiffs demand payment, there is no evidence that Plaintiffs ordered, received, or paid for 4,306 of the units or that they had an obligation to continue purchasing the product from the manufacturer, so Plaintiffs have no claim for these 4,306 units. The record shows that Defendants have already paid or settled the claim for payment for 4,432 of the units actually purchased by Plaintiffs from the manufacturer (of which 3,014 units are, in fact, still in Plaintiffs' possession).
FACTUAL BACKGROUND
Plaintiff ETC is the exclusive distributor in Puerto Rico for Super FuelMax, advertised as a magnetic fuel saving device. Diaz dep. at 28-32. ETC does not have distribution rights in the United States for Super FuelMax. Id. at 71-73. ETC and its President, Plaintiff Díaz, recruited Attorney Marco Antonio Rigau to help sell Super FuelMax. Díaz dep. at 48; Rigau dep. at 15-19.
Rigau suggested that ETC contact an automotive retailer to sell the product. Diaz dep. at 51; Rigau dep. at 19-24. Rigau and Plaintiffs chose to approach Pep Boys and met with Pep Boys PR's Regional Fleet Accounts Manager, Gabriel Marrero. Rigau dep. at 19. Marrero brought the product to the attention of Guillermo Alvarez, Pep Boys Vice President in charge of operations in Puerto Rico. Marrero dep. (1st sess.) at 93; Alvarez dep. at 67-68.
Alvarez agreed to negotiate an agreement with ETC, through Rigau, for Pep Boys PR to purchase Super FuelMax and sell it in Puerto Rico. Alvarez and Rigau negotiated the terms of the agreement. Rigau dep. at 36-38; Alvarez dep. at 100-102.
After the negotiations, "the parties to this action agreed to a contract whereby Plaintiffs delivered the exclusive distribution of the Super FuelMax Product in Puerto Rico to Pep Boys-PR under the terms and conditions established in a Memorandum signed by the representatives of the parties." Complaint ¶ 6, Amended Complaint ¶ 11, and Exh. A to both. Rigau drafted the Memorandum and sent it to Alvarez for his signature. Rigau dep. at 35; Alvarez dep. at 94-95. Rigau signed on behalf of Plaintiffs and Alvarez signed on behalf of Defendants. Exh. A to Complaint and Amended Complaint. The Memorandum reads:
"I summarize below the agreement reached by us yesterday, August 8, 2001, at the meeting we held at your office.
1. The Energy Tech Corp. company (hereinafter "ETC") and/or the corporation organized for this purpose, will supply Pep Boys the "Super Fuel Max" product to sell the same in Puerto Rico and elsewhere where Pep Boys has operations.
2. Pep Boys will only purchase said product through ETC, and ETC will distribute said product through Pep Boys.
3. Pep Boys will pay ETC $62.00 for each unit within a period of not more than 60 days after delivery of said merchandise.
4. ETC will maintain this contract in effect insofar as Pep Boys orders from ETC 27,000 units annually.
5. The suggested retail sale price is $99.99."
(Exhibit A to Amended Complaint.)
On September 25, 2001, Pep Boys PR issued a purchase order to ETC for 8,950 units. Pl's Statement of Uncontested Facts (D.E. No. 77) ¶ 6. Of the 8,950 units, 4,644 units were scheduled for delivery (Id. at ¶ 7) and 4,306 units were never ordered or received by ETC from the manufacturer nor has ETC been billed for or been required to pay for them. Diaz dep. at 154-156. Of the 4,644 units scheduled for delivery, 1,630 units were actually delivered to and received by Defendants and 3,014 are stored by Plaintiffs even though they were "signed for" by Pep Boys PR. Diaz dep. at 154-162. Defendants have already paid for 4,432 units of the 4,644 scheduled for delivery. (D.E. #109, 111, 113, 117, 118, 153 and 159).
Anchor Funding claimed to be entitled to payment for 3,876 units due to its financing. Anchor Funding and Pep Boys have settled their claims. (D.E. #153-159). Plaintiffs have also collected on 556 units. (D.E. #109, 111, 113, 117, 118).
After Defendants informed Plaintiffs that they had decided not to continue selling Super FuelMax, Defendants' counsel later wrote a letter to Plaintiffs' counsel to make it completely clear that Defendants did not want any additional product delivered to it, and that ETC was free to sell the product to whomever they wished. Defendants' counsel letter to Plaintiffs' counsels-Defendants' Statement of Contested Facts, par; 36. (D.E. #67) Plaintiffs have made no effort to sell this product to anyone else. Diaz dep. at page 211.
DISCUSSION A. Defendants' Motion for Summary Judgment
Plaintiffs claim that Defendants had no right to stop purchasing the Super FuelMax product from them. They claimed that Defendants breached their agreement with Plaintiffs when in December 2001 they decided to stop purchasing the Super FuelMax product. As for damages, Plaintiffs claim that had Defendants decided not to stop purchasing the Super FuelMax product, they would have purchased millions of units, and would have sold them, not only in Puerto Rico, but also in the Continental United States.
In its Motion for Summary Judgment, Defendants argue that the August 9th memorandum is the agreement between the parties and that, under the clear terms of the agreement and the law of Puerto Rico, Pep Boys PR could stop purchasing Super FuelMax whenever it wanted. As such, there was no breach of contract. Plaintiffs opposed, arguing that the August 9th memorandum was not the agreement but rather a collateral document which only summarized the agreement between the parties. Plaintiffs argue that the real agreement was some oral agreement reached the day before the memorandum was signed and that parol evidence demonstrates that the parties' intention was to keep the agreement in effect indefinitely or at least for five years.
This Magistrate considers that the August 9, 2001, Memorandum, and nothing else, is the contract between the parties. Plaintiffs affirmatively pleaded in the Complaint and in the Amended Complaint that Pep Boys PR agreed to purchase a product called Super FuelMax from plaintiff ETC under the terms and conditions established in a Memorandum signed by the representatives of the parties. See ¶ 11 of the Amended Complaint. As such, they are now precluded from making the argument that the memorandum is not the agreement in order to avoid summary judgment. "A party's assertion of fact in a pleading is a judicial admission by which it normally is bound throughout the course of the proceeding."Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 757 F.2d 523, 528 (2d Cir. 1985). As held in Schott Motorcycle Supply. Inc. v. American Honda Mot. Co., Inc., 976 F.2d 58 (1st Cir. 1992), a plaintiff cannot avoid summary judgment by claiming that it was a party to a contract different than the one attached to, and pleaded in, the complaint. Plaintiffs cannot now allege that some other oral agreement, rather than the agreement attached as Exhibit A to the Complaint and Amended Complaint, governs the relationship between the parties in order to avoid summary judgment.
Moreover, as matter of law and as Defendants argued, Plaintiffs cannot assert that some other oral agreement between the parties contains a five-year term where that term was not reduced to writing. The agreement in this case "is a commercial contract, and is thereby regulated by the relevant provisions of the Commerce Code of Puerto Rico. . . ." Vulcan Tools of Puerto Rico v. Makita USA. Inc., 23 F.3d 564, 567 n. 4 (1st Cir. 1994.) Pursuant to the Commerce Code, a plaintiff cannot simply allege that an oral agreement exists based on nothing more than testimony. See P.R. Laws Ann. tit. 10, § 1302 ("the testimony of witnesses shall not in itself be sufficient to prove the existence of a contract the amount of which exceeds three hundred dollars, unless such testimony concurs with other evidence."). "Under Puerto Rico law, a commercial contract must be corroborated, and this requirement extends not just to the existence of an agreement but also to its essential terms." Garita Hotel Ltd. Partnership v. Ponce Federal Bank, 122 F.3d 88, 89 (1st Cir. 1997) (emphasis supplied). Because the five-year term which Plaintiffs allege exists "is undoubtedly an essential covenant of the agreement and there is no written corroboration of said clause" any testimony, including Plaintiffs', is inadmissible to establish that the Agreement had a five-year term. Innovation Marketing v. Tuffcare Inc., 31 F. Supp.2d 218, 223 (D.P.R. 1998) ("The Commerce Code requires that essential elements of a contract be confirmed in writing.").
Plaintiffs cannot avoid summary judgment by now arguing, against their own judicial admissions, that the real agreement between the parties was some oral agreement which would happen to contain the provisions not in the Agreement but which the plaintiffs need to avoid summary judgment. Under the clear terms of the contract, Pep Boys PR was under no obligation to purchase any amount of Super FuelMax nor to keep the contract in effect for any particular period of time. The contract had no fixed term and as such was terminable at will. As this Court held in Castillo v. Smart Products. Inc., 289 F. Supp. 138 (D.P.R. 1968):
Obviously, if no specific length of time was stipulated for the duration of the distribution agreement, the two parties to the same remained at liberty to rescind the agreement and bring to an end the commercial relationship established thereunder at any time that they might wish to do so.
Just because the contract does not contain a specific term stating that it is not for any particular length of time, it cannot be argued, as Plaintiffs attempt to do, that the contract is ambiguous as to that particular term. The principles of Puerto Rico contract law do not allow "a party to defeat a motion for summary judgment by the mere invocation of the parties' intention to introduce an interpretation of a contract totally inconsistent with its clear terms." Caribbean Ins. Services, Inc. v. American Bankers Life Assurance Co. of Fla., 754 F.2d 2, 7 n. 6 (1st Cir. 1985). "The law of Puerto Rico is clear that no oral extrinsic evidence may be admitted to add to, alter, or modify a written agreement except when fraud or surprise is alleged. P.R. Laws Ann. tit. 32 App. IV, R. 69(B)." Vulcan Tools, 23 F.3d at 567. Where a contract is "clear" — in that it can "be understood in one sense alone, without leaving any room for doubt" — the court may not consider parol evidence to alter or add terms to an agreement. Executive Leasing Corp. v. Banco Popular de Puerto Rico, 48 F.3d 66, 69 (1st Cir. 1995). The First Circuit Court of Appeals has strongly put it this way: "For the third time, we mean what we say, and say what we mean: extrinsic evidence of the parties' intent is inadmissible in the face of a clear and unambiguous contract term under Puerto Rico Law". Borschow Hosp. v. Castillo, 96 F.3d 10, 16 (1st Cir. 1996)
Even if parol evidence were admissible, Plaintiffs have offered no evidence that the parties intended to include any term, let alone a five-year term, as part of their Agreement.
As Mr. Rigau, Plaintiffs' attorney, put it:
"Q (by Mr. Robles, Plaintiffs' counsel): Where, either in the meeting or in the (Agreement), you established (sic) the term, or the period of time to which this contract will (sic) be in force, in any time?
. . .
A (by Mr. Rigau): We expected this to be forever, you know; . . . this was a mutual agreement forever . . . Now, as I told you, the contract was for an undefined period of time. . . ." (Emphasis supplied.)Rigau Dep., pp. 91-92
The only evidence that Plaintiffs could allude is that they hoped to sell as much product as possible which, of course, is what any reasonable business person would want. That "hope" certainly does not create contractual obligations.
Similarly, just because the Memorandum contains the term "summarize" does not mean that the document is not a contract subject to the parol evidence rule. In Vulcan Tools, the First Circuit Court of Appeals considered a letter which began: "This letter will summarize our phone conversation today regarding a nonexclusive distributorship for Makita's tool order program." Vulcan Tools, 23 F.3d at 566 (emphasis supplied). There the Court found that the letter was an agreement subject to the parol evidence rule, regardless of the use of the word summarize. Id. at 566-67. The same analysis applies here. Because almost exactly the same language was used by Mr. Rigau in drafting the contract in this case, Vulcan Tools is controlling, especially because Mr. Rigau, the attorney who negotiated and drafted the contract for plaintiffs, stated in the deposition to just that:
"Q: Well, I am asking you, were there any other points that you do not consider a main point that were not written down?
A: Well, I think the basic —, the basic things for this agreement are here".Rigau Dep., pp. 35-36.
It is therefore recommended that Defendants' motion for Summary Judgment BE GRANTED.
B. Plaintiffs' Motion for Partial Summary Judgment
In their motion for partial summary judgment, Plaintiffs demanded payment for the 8,950 units for which Pep Boys issued a purchase order on September 25, 2002. Plaintiffs assert as an uncontested fact that pursuant to the memorandum executed by the parties Pep Boys was bound to pay $62.00 per unit within the period of not more than 60 days after delivery of the merchandise, and that although more than 60 days had elapsed, Pep Boys did not pay for the units delivered to it.
The 8,950 units were divided in two groups: (1) 4,644 units which had been scheduled for delivery by Plaintiffs and which had been signed for as accepted, although in fact Pep Boys had only received 1,630 units (Plaintiffs admit still to have in their possession the remaining 3,014 units); and (2) 4,306 units which Plaintiffs never ordered or received from, or have had to pay to, the manufacturer.
Plaintiffs are not entitled to payment for the latter group of 4,306 units. There is no evidence in the record that these 4,306 units were (1) ever ordered by ETC from the manufacturer; (2) ever delivered to ETC by the manufacturer; (3) ever paid for by ETC to the manufacturer; or (4) ever delivered by ETC to Pep Boys PR. As such, the claim for payment of these 4,306 units must be dismissed. Plaintiffs have offered no evidence that they even ordered this product from the manufacturer. In fact, plaintiffs admit they have not been required to pay for these 4,306 because they were never ordered or delivered and only assume that Plaintiffs "could be responsible for full payment of those 4,306 units to the manufacturer".
Under the terms of the Agreement, Pep Boys PR was required to pay for product "within a period of not more than 60 days after delivery of said merchandise." See Exh. A to Amended Complaint. Under no reasonable construction of the Agreement could the term "delivery" be said to include merchandise which was never ordered by ETC from the manufacturer, never received by ETC, or never placed at Pep Boys PR's disposition. See Article 1351 of the Civil Code, 31 P.R. Laws Ann. § 3811 ("A thing sold shall be considered delivered, when it is placed in the hands and possession of the vendee"). Thus, there can be no breach of contract for the Defendants' non-payment of product which was not ordered by Plaintiffs, not received by Plaintiffs, and not delivered to Pep Boys-PR. Plaintiffs are therefore not entitled to payment for these 4,306 units.
As for the first group of 4,644 units, Defendants have already paid for and/or settled claims for payment for 4,432 of those units. First, Defendants deposited in Court payment for 1,630 units actually delivered to Pep Boys PR, for which Plaintiffs received payment for 556 units and Anchor Funding received payment for 1,074 units. (D.E. #109, 111, 113, 117, 118). Then, Defendants settled Anchor Funding's additional claim for 2,802 units. (D.E. #153 and 159). This means that only 226 units of this group are still at issue.
These remaining 226 units belong to the group that was scheduled for delivery, signed for as received by Pep Boys PR, but stored by Plaintiffs, and currently remain in Plaintiffs possession. In their motion for partial summary judgment, Plaintiffs demand payment for these units because, even though the units were stored by Plaintiffs and are currently in Plaintiffs possession, signing the invoices for these units constitutes "delivery" pursuant to Puerto Rico law. Defendants opposed because factual issues remain as to whether Plaintiffs mitigated their damages upon learning of Pep Boys-PR's decision to no longer purchase the Super FuelMax product.
Factual issues in this case regarding mitigation of damages, however, do not preclude summary judgment in this case. In order for a factual controversy to prevent summary judgment the contested fact must be "material" and the dispute over it must be "genuine". Id. "Material" means that a contested fact has the potential to change the outcome of the suit under the governing law. Blackie v. State of Maine, 75 F.3d 716, 721 (1st Cir. 1996); United States v. One Parcel of Real Property, 960 F.2d 200, 204 (1st Cir. 1992). "Genuine" means that the evidence presented is such that a reasonable fact finder, drawing favorable inferences, could resolve the fact in the manner urged by the non-moving party. Blackie v. State of Maine, 75 F.3d. at 721.
It is well-settled that a plaintiff in a breach of contract case must take the necessary steps to mitigate its damages. Soc. de Gan. v. Gerónimo Corp., 103 P.R. Dec. 127, 134 (1974); Aponte v. Cortes Express, 101 P.R. Dec. 31, 36 (1973). After Defendants decided to stop selling the Super FuelMax product, Pep Boys PR counsel wrote to the Plaintiffs' counsel to make clear that Defendants did not want the units being "stored" by the plaintiffs and the plaintiff was free to sell the product to whomever they wished. Defendants' counsel letter to Plaintiffs' counsel, Defendants' Statement of Uncontested Facts, ¶ 36 (D.E. #67). Plaintiffs, however, made no effort whatsoever to sell this product to anyone else. Diaz dep. at page 211. There is no evidence in the record to that fact.
Because Plaintiffs still have in their possession 3,014 units, of which Defendants have paid for all except 226 units, this Magistrate Judge is of the opinion that there are no damages associated with the failure to pay for the 226 units still at issue. Defendants paid for the vast majority of the units still in Plaintiffs' possession and Defendants have indicated to Plaintiffs that they can keep the units to sell. Additionally, it is clear that Plaintiffs have not mitigated their damages, preferring to keep the units even after Pep Boys PR clearly told Plaintiffs to sell the units to whomever would purchase them.
It is recommended, therefore, that Plaintiffs' Motion for Partial Summary Judgment be DENIED.
The parties have ten (10) days to file any objections to this report and recommendation. Failure to file same within the specified time waives the right to appeal this order. Henley Drilling; Co. v. McGee, 36 F.3d 143, 150-151 (1st Cir. 1994); United States v. Valencia, 792 F.2d 4 (1st Cir. 1986). See Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 991 (1st Cir. 1988) ("Systemic efficiencies would be frustrated and the magistrate's role reduced to that a mere dress rehearser if a party were allowed to feint and weave at the initial hearing, and save its knockout punch for the second round").