Fornaris v. Ridge Tool Company/Opinion of the Court

In 1964 by Act No. 75, the Legislature of Puerto Rico enacted the Dealer's Contract Law which in effect provides that a Puerto Rican dealer's contract with a manufacturer, regardless of any provisions for termination, is renewable indefinitely at the option of the local dealer unless the manufacturer has 'just cause' to terminate. Section 1(d) defines 'just cause' as '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.' If a manufacturer terminates for any other reason he is liable for substantial damages.

This cause was brought by a dealer in a Puerto Rican court for damages for breach of his distributorship contract against Ridge Tool Co., an appellee. It was removed to the Federal District Court on the basis of diversity of citizenship. That court denied the motion to dismiss which claimed that the Dealer's Contract Law upon which the complaint was based was unconstitutional. The Court of Appeals allowed an interlocutory appeal and held the Dealer's Contract Law unconstitutional. 423 F.2d 563.

The relations of the federal courts to Puerto Rico have often raised delicate problems. It is a Spanish-speaking Commonwealth with a set of laws still impregnated with the Spanish tradition. Federal courts, reversing Puerto Rican courts, were inclined to construe Peurto Rican laws in the Anglo-Saxon tradition which often left little room for the overtones of Spanish culture. Out of that experience grew a pronouncement by this Court that a Puerto Rican court should not be overruled on its construction of local law unless it could be said to be 'inescapably wrong.' See Bonet v. Texas Co., 308 U.S. 463, 471, 60 S.Ct. 349, 353-354, 84 L.Ed. 401.

The question presented here is akin to that question, for we deal with a rather vague Puerto Rican law that the Supreme Court of Puerto Rico has not authoritatively construed. Only last Term in Reetz v. Bozanich, 397 U.S. 82, 90 S.Ct. 788, 25 L.Ed.2d 68 we held that a three-judge federal court should not have proceeded to strike down an Alaska law which, if construed by the Alaska Supreme Court, might be so confined as not to have any constitutional infirmity. We said, 'A state court decision here * *  * could conceivably avoid any decision under the Fourteenth Amendment and would avoid any possible irritant in the federal-state relationship.' Id., at 86-87, 90 S.Ct. at 790.

In this cause the Court of Appeals held that 'just cause' placed substantial liability on a manufacturer who had contracts that he could have terminated without liability prior to the new statute. This retrospective impact, the court held, violated 'the due process clause of the federal constitution'-without saying whether the Fifth of the Fourteenth Amendment was involved. 423 F.2d, at 566-567.

Whether the Supreme Court of Puerto Rico would give the same broad sweep to 'just cause' as did the Court of Appeals is something we do not know. It is conceivable that 'just cause' might be judicially confined to a more narrow ambit which would avoid all constitutional questions. We therefore reverse and direct the Court of Appeals to remand the cases to the District Court with instructions to hold its hand until the Puerto Rican Supreme Court has authoritatively ruled on the local law question in light of the federal claims. See England v. Medical Examiners, 375 U.S. 411, 420, 84 S.Ct. 461, 467, 11 L.Ed.2d 440.

It is so ordered.

Reversed with directions.