Tuesday, September 15, 2015

Plaintiff, like Rip Van Winkle, slept on its rights and the First Circuit affirmed the dismissal of a Law 75 case on statute of limitations grounds

The reader might recall the story of Rip Van Winkle where this character drank moonshine to the point of falling asleep for roughly 20 years only to find that the American Revolution had passed, among other personally more important things. In the case before us, Quality Cleaning Products S.C. v. SCA Tissue N.A., 794 F. 3d 200 (1st Cir. 2015), a distributor of cleaning products sued the principal under Law 75 eleven years after an alleged breach of the distribution agreement. The distributor basically alleged that the principal breached the agreement by selling certain products to other distributors at reduced and preferential rates and granting price discounts to its competitors. Not surprisingly, the principal’s primary defense was that the action was time barred by Law 75’s three year statute of limitations. The district court dismissed the case as time barred and the First Circuit affirmed the judgment below.

The First Circuit’s decision has a number of interesting substantive issues regarding accrual and tolling of statutes of limitations and procedural waivers in the context of actions brought under Law 75. The first issue, whose result did not favor the distributor, was that the “continuing violation doctrine” did not apply to prevent the accrual of the Law 75 claim from the time that the distributor first became aware of the principal’s breach at least ten before filing suit. After a thoughtful and complete consideration of the issue, the court held that a federal court sitting in diversity must apply the relevant state’s statute of limitations (not federal law), including the state’s accrual rules. And, finding no authority on point under Law 75, the First Circuit predicted that the continuing violation doctrine has been largely confined to civil rights cases and Puerto Rico’s Highest Court has not applied it in contract cases. The court also found support not to apply the doctrine from the “need for expeditious resolution of commercial disputes.”

But plaintiff was not to be outdone. Plaintiff alleged that under the “discovery rule” it did not have knowledge of the breach- for reasons unknown- until 2011, but the record did not help plaintiff on this issue. The court left open the question whether the discovery rule applies in Law 75 cases. It left the issue undecided because plaintiff failed to raise the discovery rule in its opposition to the motion to dismiss but brought it only in a Rule 59(e) motion for reconsideration. But that doomed consideration of the alleged error because judicial review of a denial of the Rule 59(e) motion is for abuse of discretion, not an issue susceptible of plenary or de novo review. Finding no abuse of discretion, the court affirmed the dismissal.