Law 21 Sales Agent Case Discusses Compensation Guidelines

Local sales representative filed  a complaint alleging breach of a sales representative contract between itself and a supplier,  a foreign corporation organized under the laws of the state of Nebraska. Plaintiff’s cause of action claimed $200,000 in damages.  It based its complaint  on diversity jurisdiction and among other things, termination of the commercial agreement without cause pursuant to the Puerto Rico Sales Representative Act, (“Law 21”).  Grupo Alimentaria, LLC v. Conagra Foods, Inc.  No.  15-2302  (D.P.R. Sep. 28, 2016). While Plaintiff pleaded the requisite amount-in-controversy, Defendants contested whether the cause of action meet the required jurisdictional amount of $75,000 (28 U.S.C. § 1332). The Court held that Plaintiff had  “failed to show with sufficient particularity facts that it is not a legal certainty that the claim involves less than the jurisdictional amount of $75,000. ”

Law 21 is modeled after the Puerto Rico Dealers Act, Puerto Rico Law 75, which provides similar protections to distributors. In enacting Law 21, the Legislature’s intent was “to protect sales representatives and other local agents who fell short of the requirements for ‘dealership’ status under Law 75.” Re-Ace, Inc. v. Wheeled Coach Inds., Inc., 363 F.3d 51, 57 (1st Cir. 2004)). It protects Puerto Rico sales representatives from arbitrary terminations after they create a market for their principals.  A sales representative  under Law 21 is as “an independent entrepreneur who establishes a sales representation contract of an exclusive nature, with a principal or grantor, and who is assigned a specific territory or market, within the Commonwealth of Puerto Rico.”

Contracts of sales representatives covered by Act 21 cannot be terminated or impaired  without “just cause”. When this occurs, sales representatives are entitled to compensation.  As the court stated:

The textual meaning of these sections from Law 21 is undoubtedly unambiguous and needs no further interpretation.  When deciding the amount compensated for a presumed contract termination without “just cause, “the Court can consider a series of precise factors: (1) the actual value of all investments and expense;   (2) the good will of the business, and  (3), the amount of the benefits obtained during the last five years, or if less than five, five times the average of the annual benefits during the course of the contractual relationship. See P.R. LAWS ANN. tit. 10 § 279c(a)(b)(c). If a Plaintiff cannot prove “just cause” under these factors it could petition the Court for an alternate compensation, which shall not be greater than five percent (5%) of the total sales volume. See Id. § 279d.

Defendants argued that (1) Plaintiff only earned $2,494.92 in commissions over the life of their commercial relationship (from 2012 to 2014) and  (2) that Plaintiff’s claim for breach of contract under the Puerto Rico Civil Code was “duplicative and derivative” of its Law 21 claim.  The court sided with Defendant.  It noted Plaintiff’s admission-  that during 2014, it achieved a total of $83,164 in sales.  The court reasoned that under  the agreement, Plaintiff “was only entitled to a three percent (3%) commission, which following the total profits from sales in 2014, amounts to $2,494.92” and that this sum did not meet the required jurisdictional.

The court further stated that “even if the Court were to apply Law 21’s favorable compensation guidelines for damages, Plaintiff once again[did] not come close to reaching the required amount.  The court noted that during their two-year business relationship, 2014 was the only year with profits from sales and;  “[a]s for the alleged private client list, the Plaintiff’s submissions [were] devoid of evidence to support its actual value. Additionally, the Court agreed with Defendants and disregarded calculation based on future projections of sales because the language of the statute  used  “the past tense when referring to the value of sales and benefits.”  The court also agreed that “Plaintiff’s damages claim under Article 1802 of the Puerto Rico Civil Code  [was] duplicative and derivative of Plaintiff’s Law 21 claim.”