The Franchise Memorandum

A federal court in Puerto Rico partially granted a manufacturer’s motion for summary judgment, finding a Puerto Rican law that protects local distributors from contract terminations without just cause does not apply to the distributor’s operations outside of Puerto Rico, and that the manufacturer had just cause to terminate the distributorship. M30 Brands, LLC v. Riceland Foods, Inc., 2020 WL 6084138 (D.P.R. Oct. 15, 2020). Riceland, an Arkansas rice manufacturer and exporter, terminated its distribution relationship with M30, a Puerto Rican company that distributed Riceland’s products in Puerto Rico and the Caribbean. M30 sued, bringing wrongful termination and contract impairment claims. Both parties moved for summary judgment.

M30 argued that Riceland terminated the distributorship without just cause, thereby violating Puerto Rican Law 75, which protects local distributors from contract terminations without just cause. M30 also asserted claims for damages under Law 75 based on its future lost sales in the Virgin Islands. Riceland argued that Law 75 did not apply to M30 because M30 failed to develop a market for Riceland’s products in Puerto Rico, and that, even if Law 75 applied, Riceland had just cause to terminate the distributorship because M30 had poor sales performance in Puerto Rico. Riceland also argued that Law 75 does not apply outside of Puerto Rico, so the claims for damages based on sales in the Virgin Islands should be dismissed. The court agreed with Riceland, holding that Law 75 does not apply to markets outside of the geographical boundaries of Puerto Rico, and that Riceland had just cause to terminate the distributorship because M30 had “dismal” sales performance in Puerto Rico and undertook no efforts to promote, market, or otherwise develop a market for Riceland’s products in Puerto Rico. Finally, the court held that there was a triable issue of fact concerning M30’s claim that Riceland violated Law 75 by impairing its ability to compete in the Puerto Rican rice market by delivering some of its shipments late.