Dealer Applies Law 75 to Leverage Contract Dispute

The refusal by a car manufacturer to reimburse local sales and use tax levied on parts used in warranty repairs and maintenance services by a Puerto Rico car dealer turned into a contract dispute that was recently litigated in the U.S District Court for the District of Puerto Rico (Autogermana, Inc. v. BMW of N. Am., Inc., Civil No. 12-1542 (D.P.R. May 23, 2014).

The local dealer brought a diversity action against the Delaware-based manufacturer under Puerto Rico Law 75 (also known as the Dealers’ Act), 10 L.P.R.A. § 278, et seq., alleging impairment of a dealership relationship.

The dealer claimed that  the manufacturer was contractually obligated to reimburse the cost of local sales tax.  By refusing to reimburse tax- the dealer argued- the manufacturer was impairing its “contractually acquired rights” under Law 75.

Law 75 protects Puerto Rico distributors from arbitrary terminations and impairment of dealership relationships with the principal; meaning among other things that “no principal or grantor may directly or indirectly perform any act detrimental to the established relationship . . . except for just cause.” 10 L.P.R.A. § 278a.

The manufacturer argued that because the relevant section of the agreement was silent about reimbursement of taxes, they had no obligation to reimburse the dealer for sales taxes levied on warranty parts. The dealer considered otherwise-  because the reimbursement policy intended dealers to recover “the reasonable and justified cost associated with warranty repairs.”

The court denied cross-motions for summary judgment (dealer sought summary judgment as to liability under Law 75, and jury trial for the determination of damages) because there were genuine questions of fact disputed by the parties.