Injunctions not automatic in Puerto Rico Distributor Law 75

Next Step Medical Co., Inc. v. Biomet, Inc.; 2016 TSPR 120 is a recent case dealing with Puerto Rico’s Distribution Law 75.  It involved a local dealer/distributor and  a manufacturer/supplier of medical devices.  After a protracted negotiation process to hammer out a new contract,  the distributor sued the manufacturer alleging among other things impairment and / or termination of the distributorship in violation of Puerto Rico Distributor Law 75  also known as P.R Dealers Act. A few weeks later the manufacturer  permanently canceled the distribution and  filed suit against the dealer seeking  declaratory judgment to validate the termination.

In the original complaint, the manufacturer denied the allegations  and raised a number of defenses including the averment that the termination was justified. The distributor in turn asked the court for an injunction to force the manufacturer to continue supplying products until the case was decided.  Later, the manufacturer renounced its ‘just cause’ defense  and  argued against the injunction  on the grounds that it had turned moot; and instead requested a hearing  to determine damages. The  Court accepted the petition and did not allow the injunction. The dealer appealed the decision to the PR Court of Appeals which overturned the Superior Court and granted the injunction. The manufacturer then went to the Supreme Court which overturned the lower court ruling that:

  • Just cause is a defense expressly provided for in Act. 75 and as an affirmative defense it can be waived. The practical effect of abandoning this defense is to admit that the Manufacturer  competed and/ or unduly interfered with the distribution agreement without  any statutory justification. As a result, the principal is obliged to respond for damages
  • The injunctive remedy  does not become moot simply because the manufacturer admit  responsibility.
  • There was no reason to mechanically rule out the use of the preliminary injunctive remedy merely because the manufacturer had accepted that there was  no just cause to terminate the distribution agreement.
  • The fact that the dealer will eventually be compensated, does not eliminate the possibility that in the meantime it will suffer irreparable damage.
  • The preliminary injunction operates strictly as a transitional mechanism until the dispute expires.   It aims to prevent a dealer from collapsing economically when the principals withdraws  the right to sell its  goods or services.
    This remedy does not operate automatically. To obtain an injunction in its favor, the aggrieved distributor must show  how will the business suffer from the manufacturer’s actions. The manufacturer must do the same, either attack the validity of the arguments presented by the petitioner or provide proof of the harm that will come to the businesses if it is forced to  keep the relationship. Once the parties present their respective positions, the judge must evaluate and balance the interests of each party. The Court of Appeals should not have granted the interim injunction without first conducting a hearing to allow the parties an opportunity to present their side of the story.