Ryvelix Company, Inc. v. Onset Dermatologics, LLC
Filing
13
OPINION AND ORDER granted 4 Motion to Compel Arbitration. Signed by Judge Carmen C. Cerezo on 9/30/2014. (mld)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
RYVELIX COMPANY, INC.
Plaintiff
vs
ONSET DERMATOLOGICS;
ABC CORPORATION;
XY INSURANCE COMPANY
Defendants
CIVIL 14-1041CCC
OPINION AND ORDER
On November 18, 2013 Ryvelix Company, Inc. (Ryvelix) filed suit in the
Puerto Rico Court of First Instance, San Juan Part, against Onset
Dermatologics, LLC (“Onset”), under Law 75 of June 24, 1964, 10 P.R. Laws
Ann. §§ 278, et seq., as amended (“Puerto Rico Dealers’ Act” or “Law 75"),
claiming damages for unlawful termination and impairment of a distribution
agreement.
The contract is a Pharmaceuticals Specialties Distributor
Agreement entered by and between Ryvelix and Triax Pharmaceuticals, LLC
(“Triax”) on October 10, 2008, pursuant to which Triax appointed Ryvelix as its
exclusive authorized distributor for the sale, marketing and distribution of
various pharmaceutical specialty products in Puerto Rico (D.E. 4-1). The
complaint alleges that upon Onset acquiring Triax “it assumed all of its
obligations together with the Locoid product and became the PRINCIPAL
party.” (D.E. 1, paragraph 5). At paragraph 10, plaintiff alleges that Onset
notified Ryvelix by letter dated 12/17/2012, of “the termination of the exclusive
distribution agreement in violation of what is established in Law 75 of June 24,
1964, (10 L.P.R.A. sec. 278a, Art. 2).” It seek damages in the sum of
$2,750,000.00 under Law 75 for the unlawful termination of the dealership
contract and $2,600,000.00 in commissions allegedly generated by the indirect
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entry into Puerto Rico of “Locoid” via mega companies which sold them in
Puerto Rico thereby impairing plaintiff’s rights as exclusive distributor of such
product. On January 16, 2014, defendant Onset filed an unopposed Notice of
Removal based on diversity of jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).
Before the Court now is defendant’s Motion to Compel Arbitration filed
on January 23, 2014 (D.E. 4), plaintiff’s opposition (D.E. 7) and defendant’s
Reply (D.E. 10).
Onset invokes the compulsory arbitration provision at
Section 8(e) of the distribution agreement which reads:
If any dispute or difference should arise between the parties, the
dispute or difference shall be referred for decision to two
arbitrators, one to be selected by Triax [now Onset] and the other
by Distributor. In case the two arbitrators so selected cannot
agree, they shall select a third arbitrator and the decision of two of
the three shall be binding upon the parties hereto. A party which
had not appointed an arbitrator shall do within thirty (30) days after
being notified in writing by such other party to do so, and in default
of appointment such other party’s arbitrator may act as sole
arbitrator and his decision shall be binding. The decision shall be
made by the majority of the arbitrators. The seat of the arbitration
shall be in New York, New York, U.S.A. and the decision of the
arbitrators shall be final.
Under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq.,
“[a] written provision in [. . .] a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of such
contract and transaction, or the refusal to perform the whole or any part
thereof, [. . .] shall be valid, irrevocable and enforceable save upon such
grounds as exist at law.” 9 U.S.C. § 2. The standard governing a petition to
compel arbitration is well established.
Where there is an agreement to
arbitrate, the FAA reflects a strong federal policy favoring arbitration.
HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d 41, 43 (1st Cir. 2003).
Federal law mandates rigorous enforcement of agreements to arbitrate,
Perry v. Thomas, 482 U.S. 483, 490 (1987). The Federal Arbitration Act
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“creates a body of federal substantive law establishing and regulating the duty
to honor an agreement to arbitrate.” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 25, n. 32, 103 S. Ct. 927, at 942, n. 32 (1983).
“By agreeing to arbitrate a statutory claim, a party does not forgo the
substantive rights afforded by the statute; it only submits to their resolution in
an arbitral, rather than a judicial forum.” Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354 (1985).
“And so long as the prospective litigant effectively may vindicate its statutory
cause of action in the arbitral forum, the statute will continue to serve both its
remedial and deterrent function. Mitsubishi, 473 U.S. at 637, 105 S.Ct. at 360.
Where a party seeks to invalidate an arbitration agreement on the ground
that arbitration would be prohibitively expensive, that party bears the burden
of showing the likelihood of incurring in such costs. In Green Tree Financial
Corp-Alabama v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 522 (2000), the
Court found that unsupported statements that arbitration costs were “high” and
that the party “did not have the resources to arbitrate” provided “no basis on
which to ascertain the actual costs and fees to which she would be subject to
arbitration.” In the instant case, Ryvelix does not question that its Law 75
claims against Onset fall within the scope of the arbitration clause. Rather it
seeks to avoid arbitration as unenforceable asserting that: (1) the costs of
arbitration, given its current financial situation, would be unreasonable and
unjust, thereby depriving it of its day in court and, (2) the contractual forum is
difficult and inconvenient.
Ryvelix argues that it initially had the financial capacity to participate in
an arbitration process, but its earnings have dropped since 2011 allegedly due
to Onset’s breach of contract, a matter which goes to the merits, and poor
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economic conditions in Puerto Rico. It avers, as an example, that in 2011 it
had seven (7) full-time employees and one (1) part-time employee, that
in 2012, it had five (5) full-time employees and since February 2013 it has
one (1) full-time employee and three (3) part-time employees. Ryvelix has not
submitted any evidence in support of its contention that arbitration costs and
the selected forum would be prohibitively expensive. The above are but
threadbare statements which do not constitute a showing of prohibitive
expense that would justify invalidating the arbitration agreement which it
subscribed. In sum, Ryvelix has not met its burden of proving that the costs
of arbitration are so substantial that it cannot meet them and that it is placed
at risk of being unable to vindicate its statutory rights in the arbitral forum, as
opposed to the judicial forum.
I.
The Rebus Sic Stantibus Doctrine
Ryvelix also alleges that under Puerto Rico law, the doctrine of rebus sic
stantibus makes the present arbitration clause enforceable.
Rebus sis
stantibus is a clause deemed implicit in contracts that serves to adjust the
debtor’s obligation or rescind the contract when unforeseeable circumstances
render compliance extremely burdensome for one of the parties.
In Casera Foods, Inc. v. E.L.A., 108 D.P.R. 850, 853-855, 8 Official
Translations 914 (1979) the Court addressed the requirements of this doctrine;
foremost among the conditions for its appreciation is that there be “very special
and extraordinary circumstances”. After examining the elements which justify
the existence of this remedy, the Court cautioned: “[w]e emphasize the fact that
all these elements must be present at the same time and stress the
extraordinary character of this remedy, which should be employed only in
exceptional instances requiring a judicious and scrupulous moderating judicial
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discernment. ‘We cannot over-emphasize the need for greater caution in the
application of these technical proceedings which, if misused, could entail the
loss of contractual security.’”
Ryvelyx’s self serving and conclusory arguments regarding its difficult
financial situation raised without supporting evidence with regard to the alleged
prohibitive costs of arbitration are now rehashed in the context of the rebus sic
stantibus doctrine’s applicability. The plaintiff’s opposition (D.E. 7) relies solely
on the principal’s alleged breach of the dealer’s contract to justify the
application of the rebus sic stantibus doctrine. It asserts that it could not
anticipate that the defendant could breach the dealer’s contract between them,
thereby creating the financial hardship which plaintiff claims makes arbitration
impossible. This is a misapprehension of the nature of the concept underlying
the rebus sic stantibus doctrine for this is a theory on reviewing contracts
because of a change of circumstances. See Casera Foods, Inc. v. E.L.A.,
108 D.P.R. 850, 853-855, 8 Official Translations 914 (1979). That is, it is a
principle of reviewing a contract to determine whether an extraordinary
disturbance or circumstance has arisen which was unforeseeable and which,
upon judicial review, it is determined that the contract may be rescinded or its
effects suspended. The principles of law underlying this doctrine apply to a
review of the contractual relationship as a whole in order to determine whether
the obligations arising from the contract should be nullified or modified.
In this case, plaintiff dealer has focused on one clause of the contract,
the arbitration clause set forth in section 8E. It does not seek that the Court
in its review of the contract, pursuant to the rebus sic stantibus theory apply
said principle to the contract as a whole. It argues instead that because the
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principal breached its obligations under the contract, the arbitration clause
which is a part of the same should not be enforced.
In any Law 75 action, the principal issue is whether there was just cause
for termination of the dealer’s contract. “Just cause” is defined at § 278(d) of
the Dealer’s Act as follows:
(d) Just cause.—Nonperformance of any of the essential
obligations of the dealer’s contract, on the part of the dealer, or any
action or omission on his part that adversely and substantially
affects the interests of the principal or grantor in promoting the
marketing or distribution of the merchandise or service.—June 24,
1964, No. 75, p. 231, § 1; June 23, 1966, No. 105, p. 331, § 2.
In the event that there is a determination on the merits that no just cause
existed for the termination of the dealer’s contract or refusal to renew the
same, § 278b provides that “the principal shall have executed a tortious act
against the dealer and shall indemnify it to the extent of the damages caused.”
That same statutory provision establishes a formula which lists certain factors
to determine the amount of indemnification.
There is no dispute in this case that the parties voluntarily agreed to
submit all disputes related to the dealership relationship to arbitration.
Whether the termination of that relationship was with or without cause is a
matter to be determined in the arbitral forum, as agreed to in their dealership
contract. It was their consensual determination that an arbiter decide whether
cause exists for the termination. A review of the dealer’s contract between the
parties, within the ambit of the rebus sic stantibus doctrine, does not allow for
rescission, nullification or modification of the dealership agreement in the
manner proposed by plaintiff. Absent a showing that the costs of arbitration is
prohibitive, an argument already disposed of as lacking foundation, there is no
legal basis for applying the rebus sic stantibus concept to eliminate only the
arbitration clause of the agreement.
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For the reasons stated, we GRANT defendants’ Motion to Compel
Arbitration (D.E. 4) and DISMISS the case, without prejudice. Judgment
dismissing the case shall be entered on this same date.
SO ORDERED.
At San Juan, Puerto Rico, on September 30, 2014.
S/CARMEN CONSUELO CEREZO
United States District Judge
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