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Trafon Group, Inc. v. Butterball, LLC.

United States Court of Appeals, First Circuit

May 2, 2016

TRAFON GROUP, INC., Plaintiff, Appellant,
v.
BUTTERBALL, LLC, Defendant, Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Jay A. García-Gregory, U.S. District Judge]

Jorge I. Peirats, with whom Jason R. Aguiló-Suro and Pietrantoni Méndez & Álvarez LLC, were on brief, for appellant.

Luis A. Oliver, with whom Salvador Antonetti-Zequeira and Fiddler González & Rodríguez, P.S.C., were on brief, for appellee.

Before Howard, Chief Judge, Torruella and Lipez, Circuit Judges.

TORRUELLA, CIRCUIT JUDGE.

Filing suit in the United States District Court for the District of Puerto Rico, Plaintiff-Appellant Trafon Group, Inc. ("Trafon") alleges that Defendant-Appellee Butterball, LLC ("Butterball") breached an exclusive distribution agreement in violation of Puerto Rico's Law 75 of June 24, 1964, P.R. Laws Ann. tit. 10, § 278 et seq. ("Law 75"). Trafon sought a preliminary injunction, asking that the district court enjoin Butterball from further impairing Trafon's exclusive distribution rights. The district court denied the motion on the basis that Trafon's claim was barred under Law 75's three-year statute of limitations and subsequently dismissed the case under Federal Rule of Civil Procedure 56(f). Trafon now appeals the denial of the preliminary injunction and the judgment against it.

I.

A Puerto Rico-based wholesale food distributor, Trafon alleges that, in June 2009, it acquired certain assets from Packers Provisions Company of Puerto Rico, including an exclusive distribution agreement with Butterball for whole bird and turkey part products in Puerto Rico.[1] Soon after the deal was executed, Trafon learned that Butterball was selling its products to a Florida wholesaler that was distributing those products to a retailer in Puerto Rico. On October 14, 2009, Trafon's counsel wrote to Butterball expressing concerns that Butterball was violating the exclusive distribution agreement. On October 26, 2009, Butterball's counsel sent a letter (the "2009 letter") denying Trafon's allegation:

[T]he allegation of a Law 75 violation rests on the incorrect premise that your clients acquired exclusive rights to distribute Butterball products in Puerto Rico. For many years, Butterball (and its predecessors) have offered Butterball branded products for sale and distribution within Puerto Rico without entering into a written agreement or appointing an exclusive distributor. . . . [W]e have not located any documents corroborating your clients' conclusory allegation that Butterball or any predecessors (i.e., the principals) granted any exclusive distribution rights in Puerto Rico limiting the principals' right to sell directly or appoint competing distributors. If your clients have any evidence to the contrary on this issue, we would appreciate it if you would produce the same to us immediately. . . . Butterball has an interest to negotiate in good faith the terms of a formal written non-exclusive agreement with your clients for the sale and distribution of its products in Puerto Rico. During this time, Butterball is agreeable to continue to do business with your clients on the same non-exclusive terms and on a purchase order basis as has existed over the past few months.

The record does not reveal whether Trafon or its counsel responded to the 2009 letter. Trafon and Butterball continued to do business together, and each invoice that Trafon received from Butterball contained the following notice:

As confirmed by way of letter dated October 26, 2009, any and all purchase orders for Butterball branded products fulfilled by Butterball LLC are done so on a non-exclusive basis. Nothing contained in this invoice, nor any act or omission to act by Butterball LLC, is intended to grant you with any exclusive distribution rights in Puerto Rico or elsewhere.

Trafon alleges that, notwithstanding the 2009 letter and subsequent invoices, Butterball treated Trafon as an exclusive distributor. On various occasions where Butterball made direct sales to Puerto Rico supermarkets in contravention of Trafon's alleged exclusive rights, Butterball paid Trafon commissions. For example, in 2010, Trafon consented to direct sales that Butterball made to the supermarket chain Selectos and received a commission of two cents per pound on the sale.[2] Similarly, on multiple instances Trafon suspected Butterball was working directly with supermarkets in Puerto Rico or negotiating with different Puerto Rico-based distributors. Rather than deny that Trafon was their exclusive distributor, Butterball responded to Trafon's queries by promising to investigate the situations. For example, after Trafon saw that the retailer Pueblo was selling Butterball products, it informed Butterball that Trafon had not sold to Pueblo and asserted that this sale was "another violation on Butterball's end." Butterball replied that it would "investigat[e] where this fresh turkey sale came from and report back to you."

This relationship lasted until Trafon learned that Butterball made direct sales to various retailers in Puerto Rico without Trafon's knowledge in 2012. Around this time, Butterball also refused to pay commissions that it allegedly promised Trafon for direct sales to Costco in 2011 and 2012. Trafon informed Butterball that these actions violated the exclusive distribution agreement. In April 2013, Butterball responded to these allegations with a flat denial that Trafon and Butterball had ever entered into an exclusivity agreement:

You are, of course, aware that Butterball has never recognized Trafon as an exclusive distributor of Butterball products. . . . [A]s things currently stand, Butterball intends to sell to other customers in Puerto Rico on a non-exclusive basis, and Trafon is welcome to ...

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