Jurisdictional Statement — Fornaris v. Ridge Tool Co.

eine ce Muted States

> OCTOBER TERM, 1970, is ee

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(eee On Agpeal From the United States Court of Appeals

sd Bac RTE for the First Circuit ae

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- P. O. Box 192 -

Old San Juan, Puerto Rico 00902

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INDEX |. -

e Page

Opinion Below ......... Weidisvayelascdea wieheuie coy ee

Jurisdiction §........ eae ges ghecvewessvads hautes 2

Questions Presented ............ SEXXEX UIA IXIA 4

Statute Imvolved .....cccccccecccccgecs ebibesnes we

* Statement ...... Sa hateoiss Mh. iisovedevssaes ware 5.

The Questions Are Substantial ..... ecccccces icndvane 9

1. The Court of Appeals exceeded its authority in

denying the ¢ ‘ommonwealth of Puerto Rico the

right to control business relationships within ex-

tremely broad limits ............. Soneneseenucs 9

2. The Court ef Appeals failed to follow this Court’s |

___ criteria for determining the constitutionality of _

retrospective: legislation jus dbodss vaueeneneshtel 12

"2. The Court of Appeals should have abstained from .

determining constitutionality pending an authori-

tative interpretation of Law 75 by the Puerto .

PGND die civcncesssancoes ry re 15

4.-The Court of —— improperly ruled on the con-

stitutionality of Law 75 in the absence of afactual,

WDE ci ccc ccvccccnsccddcssccostedcvsvadelve wo AT

5. The error of the Court of Appeals is far-reachitg “a

Conclusion ..... ee ereeereesecowsees senageeee Senent 19

Appendices ake et aes ;

' Opinion of Court of Appeals ®......... Oe Pe App. A

“ - Memorandum and Order of Distriét Court ...... App. B

Appellant’s Notice of Appeal .......... eeuban App. C

Text of Statute Involved ........ ao Sebeseces App. D

«ude Pel .

2

ii iJ Index Continued

TABLE OF AUTHORI

CASES: Page

Alabama vy. Arizona, 291°U.S. 286 (1984) ............ 18

Americana of Puerto Rico, Inc. v. Kaplus, 368 24 431

en Ld ccledasledsshwicnbaeeaab cee se~ 4

City of Meridian v. Southern Bell el. & Tel. Co., 258°

SS Bg Ree es Pee 15, 16.

Day. Brite Lighting, Ine. -v. Missouri, 342 US. 421

SS SY Ee 9, 12, 15

Detres y. Lyons Bldg. Corp., 234 F.2d 596 (7th Cir.

Dn wesc useless kdek ves sViaaboeiedwinesePide 4

East New York Savings Bank v. Hahn, 326 U.S. 230

Ee sees ei ras nivalis ddd dvcveatde ees oe ee |e

‘El Paso v. Simmons, 279-U.S. 497 (1965) ............ 4,13

Ferguson v. Skrupa, 372 U. S. 726 oa 19, 12, 15

Home Bldq.'& Loan Ass'n. v. Blaisdell, 290 US. 398

EE A aN Nt 1 eee ee ae 14

letetnatlced Union v. Eagle-Pic Ser M. & 8S. Co., 458 a

ee Ce eee 8 5 oe al ea ct wand 6'ss ‘ 2B

- Mora v. Mejias, 206 V.2d 377 (ttTir. 1953) 2..0...... 4

Muskrat x. United States, 219 U.S. 346 (1911) ........ 18

Nebbia vy. New York, 2911.8, 502-(1934)—..4+2233-5 = .

Reetz v. Bozanich, — U.S. —, 25 L. Fd. 2d 68 (1970) .

Treigle vy. Acme Homestead .. Ass’ n., 297 US, 189 :

gf HS Se LE ea 15, 14

United Gus Piffe Line Co. v. Ideal Cobsont Co., 369 US. 9

ee aan aianatece te 15

Veir v. Sixth Ward. Building & Loan Ass’n, 310 a Si

EE, SoG ese paren oa oa eo 4's su 13,14

West Coast Hotel.Co. v. Parrish, 300 U.S. 379 (1937) .. 15

Williamson ¥. Lee Optical of Oklahoma, Inc., 348 U. S.

OG Ec ee PARE SAE 15

Papert Statutes: ; <1

RS ON ol seis oo ned oak 3\

Me BE noire ve ncdpedwleie cad Agar 4 |

SBUSE. $1956 .,...:.1.... paassecersenssdecesens. 40 -

28 U.S.C. §1292(bY ...-. 0022 eee ik iionssaies pian 2

28 U.S.C. §§ 4441 ef seq. ........ oe Sure ney, ee “3

Index Continued ae? - Hi

Courr Rute: — WAY: ) , 7 Page: °°

Rule 61, Supreme Court of the United States ....... ee

MISCELLANEOUS: - i

$. 1967, 91st Cong., Ist Sess. (1969) ..........5...... + 19

- 116 Cong. Ree: 1501 (Daily Kd. May 19, 1970) ....... 19

New York Times Encyclopedic Almanac 1970 ........ 5 -

“Record of Meetings of the Legislative Assembly of 4

Puerto Rico of 1964, p. 1531 ......... geese ee Prey, ie

37 Marv. L. Rev. 1002 (1924) ........ Salus a's ores 18

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Supreme Cuurt of the United States.

OcrToBER TeKM, 1970

ey

Tun CommMonweaurn or Purnro Rico, A ppellant,

v. tool 7

The Rivce Too €o.,

Tue Rivce Tod. INTERNATIONAL Co., INC.,

Arruro Fornanis, Jn, Appellees.

On Appeal From the United 8 States Court of napere

for the First Circuit

ee ee

me 7 -

. 3

JURISDICTIONAL sii ceamencne

iipeialad eats from the Suilement of ‘the United

States Court of Appeals for the First Circuit entered

on March 17, 1970 holding a statute of the. Common-

wealth of Puerto Rico: unconstitutional and submits

this statement to show that the Supreme Court of

“the United States -has jurisdiction of the appeal. and

that substantial federal questions are. presented.

ge

OPINION BELOW

The opinion of the United States Court of Appeals

for the First Circuit, attached: hereto as Appendix A,

is reported at 423 F. 2d- 563 (1970).

* The unreported Memorandum and Order of the

United States District Court for the District of Puerto

Rico is attached as Appendix Bb.

JURISDICTION ©

This action was commenced by Arturo Fornarie,

Jr. against.The Ridge Tool Co. and its subsidiary, .

The Ridge Tool International €o., Ine., in the Superior

Court of the Commonwealth of Puerto! Rico under

Law 75-of the Laws of the Commonwealth of Puerto

Rico known as the Dealers’ Contracts Law. The case ——-

was subsequently removed to the United States Dis-

trict Court for the District of Puerto Rico, pursuant’:

to 28 U.S.C. §§ 1441 et seq. The Commonwealth of —

Puerto Rico was an iptervenor in -the proceeding.

In the District Court the defendant moved to dis-

miss on the ground that Law 75 was unconstitutional.

‘This motion was denied by order of the District Court

on August 8, 1969. In denying the motion, the Dis-

trict Judge certified, pursuant to 28 U.S.C. § 1292(b),

that his order involved a controlling question of-law -

_ as to which there was substantial ground for difference

.of opinion, thus making possible an immediate appeal —

from the otherwise interlocutory order.

On appeal, the United States Court of Appeals -for

the First Circuit revérsed, holding Law 75 invalid as

repugnant to the due process clause of either the fifth

or fourteenth amendment to the United’ States @on-

_ stitution. The opinion. was rendered March 17, 1970,

3

and judgment was entered that-same day. <A notice of

- appeals to this Court, attached .as Appendix C, was’

filed on behalf of the Intervenor, the Commonwealth

of Puerto Rico, on May 26, 1970.

The jur ixdlic tion of the Supreme Count of the United

States to review this decision by direct uppeal is: con-

ferred by 28 U.S.C. § 1254(2)

““Cases in the courts of appeals may he reviewed

by the Supreme Court by the following methods :

-, (2) By appeal by a party relyingon.a State

. Statute held by a esurt of appeals to*be invalid

as repugnant to the C nt pea treaties or laws

_ of the United States, . .

The Commonwealth of Puerto Rico Has Standing

As an intervenor below , the Commonwealth of Puerto

Rico is a party to this proceeding and may thus: seek —

review. of the judgment in its. own right. a U. 8.C.

_§ 1254(2) ef, yo

& S. Co., 325 U.S.. 335 (1945),

* The Statute in Question Is a “State Statute”

- The Commonwealth of Pugto Rico

_but its-laws should be treated as state taws rte the. 5

- purpose of an appeal to this Court.

Rule 61 of the Supreme hs“: of the United States

provides as follows:

“The term ‘state court’ when used in these rules

includes the Supreme Court of the Commonwealth

of Puerto Rico, and references in these rules to

the law and statutes of a state include the law

and statutes of the Commonwealth of Puerto

Rico.”” [Emphasis added.]

In: addition, decisions of. the Supreme Court of the

Commonwealth of Puerto Rico are treated exactl¥ the

Pa

a

4

?

~sanie as these of the. highest courts of the several

states regarding review in this Court. by, appeal or,

certiorari, ,Conipare, 28 U.S.C. § 12 v7 with 28 U.S.C:

§ 1258. cal ; @ Benger

. Furthermore, a number ‘of. cases have recognized -

Puerto Rieo to be a state within the meaning of cer-—

tain. statutory provisions: In the ease of Mora v.

Me jigs, 206 F.2d 3877 (st Cir, 1953), the Court of oi.

Appeals forthe First. Cireuié stated at p. 386. that - pe

the “word :State’ may in the context of a particular

act of: Congress have a broader’ connotation than a

state in the federal Union.” The ‘court continued by

saying ,at p. 387 that? ** Puerto Rieo has. thus not

~ become a Statevin the federal Union like the 48 States, :

\ but it would: seem. to have become a State within a:

\common and accepted. meaning of the word.” Cf., ne

‘Americana of Puerto Rico, Ine. ¥. Kaplus, 368 ¥, 2d

431 (3rd Cir. 1966); Detres v, vs Lyons se Corps 234 -

F.2d 506 _4th-Cir, 1956). 7 ae

A Puerto Riean statute i is, ther efore, to be considered |

a ‘state statute"? for the purpose of an.appeal to this

| Court.’ oi ae . = ieee

QUESTIONS PRESENTED

4 Ww eerie the Dealers’ Contracts Law, ae 75 of

the Laws ‘of the Commonwealth of Puerto Rieo, as. °+"-

interpreted by the Court of Appeals, is: invalid «as

repugnant to, the due process ¢lause of either the fifth .

or fourteenth amendment to the. United States Con- ;

stitution.

‘ ‘ ,

1In the event an appeal i is deemed i improper, however, the Com-

monwealth of Puerto Rico asks specifically that this document be

‘treated as a petition forscertiorari. El Paso v. Simmons, 379 U. S.

497 (1965Y. \

* ad Z

3 e “* “ 4

. ; ; ‘

"ee 2 . 4 ‘

. a ° ° o

stays cae ea oe eer

2, Whether the Court of Appeals erred in holding

Law 75 unconstitutional in the absence of any factual

— reeord or of a definitive: inerpretation of the statute ,

.. by the Supreme Court «Af Puerdo Rico.

| STATUTE INVOLVED ,

"Phe Dealers? Contracts. Law in effet at. the time

this case arose is’ set. forth cas. Appe mndix. D hereto. _° -

Law 75, 1964 Laws of Puerto Rico, as amended by

Law 104; 1965 Law of Puerto ‘bRieo, '

Paras Panay. : STATEMENT

‘Phis case ‘arises bedaune. of the unusual significance ‘

to the Puerto Rican economy. of dealerships and dis-

ee _tributorships i in the ommonwealth, the Pue wty Riean-

~Tegislature’s determination: of a need to legislate: with

respect, thereto, and the application” of such legisla-

| tion to a sporific manufacturer -deale rv relationshipge

—__—---——_} momy-of the Comnionwenlth-of Puerto Rico

-is welf known to be behind: that of the smainland *

United States. The per capita income of. Puerte Rico

($1,230 per annum) is substantially below that of the

State of Mississippi (#2,057 per anni) which is

the lowest of the fifty states. In such a ‘context, it is

obvious that termination of a number of ‘dealerships,

of which there are many in Puerto Rico, can have a .

> velatively much gre: iter impact than-a similar number

of terminations in a state of comparable population.”

Because. Puerto Rico has relatively few natural re-

sourees or indigenous industries, the C ommonwealth

- is forced to rely heavily upon mainland United States:

_. 2Puerto Rico with 2,741,800 people has a‘greater population °

than 25 of the 50 states, falling between the 25th State, Iowa

- (2,771,000), and the 26th State; South Carolina (2,587,000). .The

Nor York’ Témes Encyclopedic Almanac wn. oi }

on

a? y

. ® .

P, v

6 , !

° “@ . .

|

and foreign) manyfacturing conedins for consumer -

“goods and other products. The Freat distance between .

| uerto Rico and the mainland ‘and {hie signitic: ant, dif-

fererice in. cultures Virtually’ require ‘that: mainland

products be intréduced to the people of Puerto Rico,

initially at least; by loeal businessmen. Distributor-

ships* and dealerships accordingly make up aslarge

proportion of those Puerto” Ricans in business for

ee

themselves. As. rel: itive ly very. small entrepreneurs,

however, the Puerto Riean distributors and dealers

are at a considerable dis: fdvantage vis-a-vis the main f

land | maitat aedurers they serve,

| : me

sor disparity in economie and bargaining power lel

inevitably ‘to abiiges of the relationship. “Manufaetur-

ing jconcerns were ereating, dealerships at. the local

: level to introduce ‘their. products. to the people of

abruptly terminated, -

“ already establishes

Puerto Rieo, but after a favorable market had been

developed bythe dealer, the dealership would he

The manufpeturer would then :

‘ibution itself eapitalizing on the

market—or find other dealers will-

ing to operate on a lower eommission beeause of” the’

lack of risk involved. The dealer's investment in

either assume dist

_ capital, time, and effort was completely extinguished

and no indemnity or reparation) was made—nor did

any contract so provide. Such. was the weakness of —

the dealer's position. Eventially, the Puerto Riean -

legislature moved to correct the/ | injustice by ans

Law 75.2 cay aR | :

The Record of Mectings of t L Pagislative Ansembly

of Puerto Rico of 1964, p. 1531, gives this statement

- the: background of the law:

“Your Committee on ang mae Commé¥ce

has considered the substi ute to S.B. 673: and has

er

so ? a: ; ,

the honor of proposing that it; be approved with- —- ap

out Amendment. . ;

a , a

“The problem. created in the system of distri-

Hution in, Puerto Rico by the intemperate action

of foreign: aid domestic business, concerns that,

Without just cause, ¢ancel their: relationships

~ with their distributors/gnd agtnts in Puerto Rico,”

“as soon as, those have festoda favorable. market

‘for their products, frustrating the leitimate CX-

pectations. arid interests of those who have so: ef-

ficiently met their responsibilities, *has- recently

‘worsened, -) 5. eee ss /

_“Normally, the agency or distribution contract /

is drafted by the manufacturer with clauses favor?

able to it, and a provision to theteffert, that the |

relationship may be" terminatedsy either of the.

‘parties, by means gf prior nopee of sixty or ninety

days. The distributyr or Pow, efficiently devotes:

“himself .to opening the market for. the represented —

product, and, when he hegins to, derive benefits

from the operation, once the market is established,

the manufacturer realizes that. it would be eco-

. nomiecally favorable. to” establish “its own sales

office or its own branch, and in an unjust manner,

without equitable compensation, for the efforts ex-

pended by the distributor ‘or agent, cancels the

relationship. In other cases, the manufacturer

finds another person whd, the business being es-

tablished, is willing to distribute the produet for

less compensation, because he doesn’t haye.to make

the initial investment, and is nét subject tay the

risks of the prior distributor or agent. -’

/ a Se . ‘

“The traditional provisions which regulate con-

tracts between private parties have shown them-

selves. to be incapable of .protecting the legitimate -

rights of the distributor or agent, and for this

‘reason it has become necessary to legislate to regu-

late this relationship-and guarantee that the manu-

“facturers will act in geod faith, equitably, in a’

-

8

non-arbitrary manner, and to preserve for the

distributor or agent the legitimate rights and ex-

tions inlgerent in the relationship. Moreover,

this_will result in greater stability for the dis-

tri@tion relationship.”

“This is the grave-situation that is sought to

be remedied by the approval of this bill. The

Department of Commerce of the Commonwealth

of Puerto Rico, the Chamber of Conimeree of

San Juan, and the Agency for Lidustrial Deyel- °.

opment regard with aecord and heartily endorse -

the protection and ‘stability that would be ‘given

to the relationships between manufacturers’ and

theif distributors if this bill should be approved,

. “The Committ, unanimously, agreed to reéom-_-

mend the passage of this bill.’ - -

Further, ‘the Statement « Motives for Law 75 when -

enacted ift 1964 further highlights the problem sought

yto be corrected: ' bet

_ “The Commonwealth of Puerto Rico cannot re-

‘main indifferent to the growing number. of cases’

in ‘which domestic and foreign enterprises, with-

out just cause, eliminhte their dealers, concession-

, aries, or agents, as soon as these have created a

favorableanarket and withait taking into account

their legitimate interests. ~~

- “Phe eranre eaten St Puerto Rico de-

clares that the reasoriable stability in the dealer‘s

mY | in Puerto Rico is vital to the general

econqmy of the country,-to the public interest and

to the general welfare, and in the exercise of its

lice power, it deems it necessary to late, »

n as far a4. pertinent, thie field of said’ relation-

ship, so-as to avoid the abuse caused “by certain

‘ practices.”’ ;

in the case of the plaintiff bdow, Arturo Fornaris,

« Ir, The Ridge Tool Co.,‘subseqnent to the ensetment_

. ¥ fr

9

Ze

of t Law 75," cancelled his 29-year dealership and as-

sumed direct distribution of ite pre licts in Puerto

Rico. No provision was made to compensate Fornaris

for his investment in inventory, facilities or gbod will,

and Fornaris, hel ptess in the-face of this action, tarned

‘to the courts ‘for retief.

_ THE QUESTIONS ARE SUBSTANTIAL

The issues in this appeal go to the very heart of

the constitutional authority of the Commonwealth of

Puerto Rico to regulate economic activity within its -

‘ borders. Furthermore, the decision of the Court of

Appeals contravenes the long-standing poliey of per- .

mitting the states to legislate in this area and wholly

disregards the inherent right of the Commonwealth

to define a problem of concern to*its people and to

legislate accordingly. Finally, , the. Court of Appeals

struck dowp. the statuté in “question without any

factual record and in the absence of any definitive

interpretation of the statute by the Puerto Rican courts. . *

1. The Court’of Appeals Exceeded Its Authority in Denying

«the Commonwealth of Puerto Rico the Right To Control

Business Relationships Within Extremely Broad Limits

' The day has passed when state economic regulatory

legislation may. be struck down on the ground that -

the premises underlying such legislation are contrary

to’ or repugndiut to the views of the federal courts.

In holding Law 75 unconstitutional, the Courtvof Ap-

peals ignored principles set forth by this Conrt in

such cases as Day-Brite Lighting, Ine. v. Missouri, ~

942 U.S. 421 (4952):

“Our recent decisions make plain that we a not

sit af a superlegislature to weight the wisdom of

legislation nor to decide whether the poliey which

eae

710 -.

it expresses offends the public welfare. The leg-

islative power has limits. ..... But the state -

legislatures have constitutional authority to ezx- -

periment with«new techniques; they are entitled

to their own standard of the public welfare; they

may within extremely broad limits control prac-

_ tices in the business-labor field, so long as specific

. constitutional prohibitions are not violated and

so long as conflicts with valid and controlling

federal laws are avoided.” (at p. 423) [Emphasis

added. ] ! a

a As. reteutly as 1963 in the case of “Ferguson vy.

. Skrupa, 372 US. 726, this Court in reversing the de-

nae cision of the three-judge couit invalidating a Kansas

statute, said as follows:

“Under the system of government created by our

Constitution, it is up to legislatures, not courts,

to decidt on the wisdom and utility of legislation.

There was a time when the Due Process Clause

was used by this Court to strike down laws which

were thought unreasonable, that is, unwise or in-

compatible with some particular economic or social -

‘ philosophy. ‘In this manner the Due’ Process

Clause was used, for example, to nullify laws pre-

seribing maximum hours for work in bakeries,

.. outlawing ‘yellow dog’ contraets, . . . setting

minimum wages for women, ... and fixing the

weight of loaves of bread.... This intrusion by

the judiciary into the realm of legislative value

judgments was strongly objected to at the time.

“The doctrine... —that due process authorizes

courts to hpld laws unconstitutional when they

‘ believed the legislature hus acted unwisely—has

. long been discarded. We have returned to the -

original constitutiohal proposition that courts do .

not substitute their social and economic beliefs

11

for the judgment of legislative bodies, who are

elected to pass laws. As this Court stated in a_

unanimous opinion Wf7'1941, ‘We are not concerned.

... With the wisdom, need, or appropriateness of

the legislation.’ Legislative bodies have broad -

scope to experiment with economic problems, and

_ this Court does nét sit.to ‘subject the State té an

intélerable supervision hostile to the basic prin-

ciples of our Government and wholly wens, 5 the

protection which the general clause of the Four-

teenth Amendment was ‘intended to secure.’

* * a *

““We-conclude that the Kansas Legislature was

free to decide for itself that legislation was needed

to deal with the..business of debt adjusting. Un-

- questionably, there are arguments showing that

the business of debt adjusting has social utility,

but such arguments are properly. addressed to the

legislature, not to us. We refuse to sit as. a ‘su-

perlegislature to weigh the wisdom. of legislation,’

and we emphatically refuse to go back to the time

when courts used the Due Process Clause ‘to strike

‘down state laws, regulatory of business and in-

' dustrial éonditions, because they may be unwise,

improvident, or out of harmony with a particular

school of thought.’ Nor are we able or willing to _

draw lines by calting a law ‘prohibitory’ or ‘regu-

latory.’ Whether the legislature takes for its text-

book Adam Smith, Hierbert Spencer, Lord Keynes,

oF some other is no concern of ours. The Kansas

debt adjusting statute may be wise or unwise. .But

-rebef, if any be needed, lies not with us but with

_the body constituted to pass laws for the State

of Kansas,”’ (at pp. 729-732) [Emphasis added.]

Thé Puerto Rican législature determined that an

evil affecting its citizens and economy existed. Fran-

chised and other dealers who had huilt.up good will

through years of effort in the sale ‘and service of par-

12 : :

ticular products were having their. fratighibes and

dealerships terminated arbitrarily and without “just

cause” to the detriment of the local economy. The

legislature made a value judgment and defined an évil.

_ It devised a technique to place the manufacturer and

dealer on more equal ground. The result was Law 75.

The Court of Appeals; however, did not like Law

75 and allowed its distaste for the law’s provisions—.

abundantly evidenced by numerous remarks in its opin-

ion—to obscure its judgment and lead it into serious

error. The court improperly, and contrary. to the

principles established by this‘Court, intruded into the

‘realm of legislative value judgments’? and denied

the Puerto Rican legislature the right to control busi-

ness practices within ‘extremely broad limits’? and

“experiment with new techniques” in the area of busi-

ness regulation. Day-Brite Lightin@, Inc, v. Missouri;

supra; Férguson vy. Skrupa, supra. . ! ;

2. The Court of Appeals Failed To Follow This Court's Criteria

for Determining the Constitutionality of Retrospective

Legislation

The Court of Pande held the Dealers’ Contracts

Law of Puerto Rico unconstitutional as retrospectively

-applied. This alleged restrospectivity is questionable,

however, in that the law relates not to. conduct prior

to enactment but-rather to subsequent conduct within

a preexisting relationship, But even if the law does

operate retrospectively; the Court of Appeals never-

theless {atled’ properly to apply this Court’s well-

established precepts governing cqusideration of retro-

_ spective enactments. -The Court of Appeals, ap-

pareritly out of its dislike of the statute, accorded

those precepts only summary consideration. It noted —

| °

13

that ‘‘only minor’ infringement: of established contrac-

tual rights may be effected without just compensation” —

(423 F.2d at 567) and then went on to find that the

changes effected by the law were not minor (at 567-

568). A little more was said about retrospectivity,

nothing significant, but Law 75 was invalidated. De-

cisions 6f this Court require that infinitely more com-

plex criteria be considered in evaluating such legis- ~

lation. . :

First and. foremost,’ the constitutional validity of.

any: retrospective legislation must be viewed in the

light of the conditions Which led to its passage. See,

e.g., El Paso vy. Simmons, 379 U.S. 497 (1965). More

specifically, some examination must be made of the in-

terest. of the legislative body, and hence the public,

in the passage of such a law, and.legislative findings

must be accorded great weight. The courts are

obliged to ascertain whether any discernible public pur-

pose is being served. As the Court said in East-New —

York Savings Bank v. Hahn, 326 U.S. 230, 232 (1945) :

“The Blaisdell Case and decisions rendered since

“.. yield this governing constitutional principle:

when a widely diffused public interest has become. -

enmeshed in a network-of multitudinous private

arrangements, the authority of the State ‘to safe-

guard the vital interests of its people’... is

not to be gainsaid by abstracting. one such ar-

rangement from its public context and treating it

as though it were an isolated private contract con-

stitutionally immune from impairment.”

‘See also, Veix vy. Sizth Ward Building & Loan Ass’n,

310 U.S. 52 (1940) ; Treigle v. Aéme Homestead Ass’n,

297 U.S. 189 (1936). The Commonwealth has already

represented, both in its pleadings and briefs below

; | ae

and earlier in this statement that it had a pressing need

to redress a severe imbalance in the relationships be-

tween the many Puerto Riean dealers and mainland ~

y ;

or foreign . tnanufacturers. This *‘discernible public

purpose’ ’ found by the | uerto Ric ‘an legislature may

not be cavalierly dismissed, as it was by the Court

of Appeals, but must be examined in the light of the

established pr inciples of law laid down by this. Court.'

This Court has recognized that the test of the con-

stitutionality of retrospective, legislation is different

in emergeney situations than in non-emergency situa-

tions. E.g., Home Bldg. & Loan Ass’n vy. Blaisdell,

290 U.S. 398 (1934). Considering the present state

of the Puerto Rican economy and the legislatively as-

certained problem with respect to the manufacturer-

dealer relationship, charac terized as ‘*grave’’, it is

submitted that this situation qualifies as ah emergency

for the purpose of evaluating Law 75. In any event,

given the legislature’s findings and the prevailing eco-

nomie considerations, the statute should have been ex-

amined in th@light of the leading decisions of this _

Court discussing emergency conditions. Veir.v. Sirth ©

Ward Building & Loan Ass'n; supra; Home Building

ad: Loan Ass'n vy. Blaisdelt, supra. Had this been done,

the court could well have reached a different: con-

clusion.

An examination of. the relative strengths nibs.

facturers and dealers, and thus of the degree to which

the one may be disadvantaged relative to the other

(grossly in the case of the Puerti Rican dealer), is of

erucial importance in evaluating this statyte. The

Court of Appeals, it appears, concluded that. manu-

facturers and dealers stood in relatively the same posi-

tion and bargained an the same level. (423 F.2d at

ee!

_ 567- 068) Such an assumption is on its face clearly .

erroneous. Deéalership agreements are. notoriously

take-it-or-leave-it cantracts. In any \event, the Puerto

Rican legislature made an express finding as to the

conditions prevailing in. Puerto Rico, and that de-

termination should be controlling unless overwhelm-

ingly contradicted by the evidence. Day-Brite Light-

ing, Inc. v. Missouri, supra; Ferguson v. Skrupa,

. supra; Williamson vy. Lee Optical of Oklahoma, Inc, |

348 U.S. 483 (1955) ; Kast New York, Savings Bank v.

Hahn, supra; West Coast Hotel Co. vy. Parrish, 300

- U.S. 379 (1937); Nebbia v. New York, 291 U.S. 502 7

(1934). Certainly, it should not be.summarily brushed

aside merely on pleadings and briefs as. it was by the |

court below. ‘ 7

These several errors and: omissions by the Court of

Appeals require corr ection by. this ‘Court on appeal.

3. The Court of Appeals. Should Have Abstained Pina’ ‘De-

termining Constitutionality Pending an Authoritative In-

' terpretation of Law 75 by the Puerto Rican Courts

Under the established rules of abstention, where a

state court’s interpretation of state law may obviate

any need for the federal courts to consider its validity.

“under the Federal Constitution, the federal courts:

should stay their hand so that a constitutional deei-

sion is not rendered unnecessarily. Reetz v. Bozanich,

U.S. , 25 L.Ed. 2d 68 (1970); United Gas

' Pipe Line Co. v. Ideal Cement Co., 269 U:S. 134

(1962) ; City of Meridian v. Southern Bell Tel. c Tel.

Co., 358 U.S. -639 (1959).

In the Reetz case this Court reversed the invalida-

tion of Alaskan fishing laws by a three-judge ¢ourt in

order to enable the parties to repair to a state tribunal

NA

. oa

fora resolution of their state law questions. The case

relied on in Reetz was City of Meridian v. “Southern.

Bell Tel. & Tel. Co., supra, where tis Court, reversing .

the action of lower federal courts in invalidating a

Mississippi statute, stated at pp. 640-641 its follows:

‘Proper exercise of federal jurisdiction requires

‘that controversies involving unsettled questions _

of. state law be decided in the state tribunals

preliminary to a federal court’s consideration. of

the underlying federal constitutional questions. . .

That -is- especially desirable where the ‘questions

es state law are enmeshed with federal questions.

_... Here, the state. law problems are delicate

ones, the resolution of which is not without siub- ©

. stantial diffculty—certainly for a federal court.

“os... In such a ease, when the state court’s in-

3 terpretation of the statute or evaluation 6f its

‘alidity under the state constitution-may obviate

any need to consider its validity under the Federal

Constitution, the federal court should hold its

- hand, lest it render a coustitutional decision un-’‘

necessarily.’’: :

The determination of unconstitutionality by ‘the.

Court of Appeals was mappropriate because the Su-

~preme Court of the. Commonwealth: of Puerto Rico

-has rendered no decision as to this law. The only

ease to which the Cott of Appeals made refereiice

was from the Superior Court of Puerto Rico, Con-

struction. Machinery and Supplies Corp. v. Construc-

tion Machinery .Co., attached to the District, Court’s

Memorandum and -Oyder which is attached hereto.as

Appendix B. The Construction Machinéry ease, which

upheld the constitutionality of Law 75, is far from °

“being the last word of the courts of the Common-

wealth of Puerto Rico on 1 all: relevant aspects of the ©

°

ae

statite. The statute’s provisions as to damages which

the ourt of, Appeals: found offensive have not been

de finitively interpreted by any Puerto’ Rican court.

The damage provisions, aid in-fact the whole statute,

are oper: tora number of interpretations which when

finally resolved by the Puerto Rican ‘courts could

gre: tly diinish or entirely dispel any allegedly of-

fensive features of the statute... Under this ‘procedure,

of course, all Gbjoe tions under the due process clause

of the Constitytion. might well be similarly eliminated.

Atiother most important consideration, wholly ig-

nored by the Court of Appeals, is that Puer ‘to Rico |

has a citil law system which differs significantly from,

a common law systein, “Clearly, therefore, the ablest

bodies to evaluate and interpret Law 75 in the first

instance are the lower courts and, the Suprere Court.

of: Puerto Rico, ' .

‘A, The Court of Keele ili Ruled on the Constitu-

tionality of Law 75 in the Absence of a Factual Record

ae he court below, drawn no doubt by its predilections *

against Law 75, assumed that the’ statute completely

abolished an absolute right of the manufacturer uni-

laterally . to terminate the dealership contract, and

relied heavily on that and other « equally unsupported

assumptions’ in str iking down the statute. There was,-

_ however, no factual record in this case. It wag pre-

sented to the Court -of Appeals on ‘a ruling denying —__:

defendant’s motion to dismiss the complaint, and’ no

factual questions whatsoever had been resolved.

The court’s action was, therefore, clearly improper.

Jonstitutional decisions cannot be rendered on assump-

tions but must be based upon adequate facts. As Mr.

*

’

Justice Frankfurter stated while still a Harvard Law:

School. Professor : oe } %

“Thé stuff of these raduatitationall contests are

- facts, and judgment upon facts: Every tendency

to deal with them abstractedly, to formulate them

« . in ternis of sterile legal questions, is bound to

~ result in sterile conclusions unrelated to actuali- —

ties. ‘The reports are strewn with wrécks of leg- ‘

islation considered: in vacuo and torn out of the

context of life which evoked the legislation and

alone made it intelligible." These are common-. .

‘places, But they are the heart of.the matter of

American constitutional law. A failure .serupu-

lously and peysistently to observe these common-

_ places jeopardizes the traditiona} American con-

stitutional system... .’’ 37 Harve L. Rev. 1002, ~

: 1002-3 (1924) : | Se,

.. re

The action,of the Court of Appeals in expressing”

its views as to the unconstitutionality of Law 75 in

— the abstract amounts to’ an, advisory opinion which,

it has long been established, the courts may not be .

called upon to, give. E.g., Alabania v. Arizona, 291.

U.S. 286 (1934) ; Muskrat v. United Statés, 219 U.S,

346 (1911). - ae “ tee oes

5. The Error of the Court of pune Is Far-reaching

The. effect of the er roneous decision below: is not:

limited to this isolated case nor Merely to. other cases —

arising in Puerto Rico. Many state legislatures and

the Congress: ‘of the United States have addressed them-

selves 406 thé’ pr oblem ofthe small businéssman and

haye attempted t 1 iéqislation to protect his in-

véstment in hard work’ and capital where threatened :|

ne through no fault of his own.. If thé decision of the °..

Court of Appeals is’ permitted to stand, state legis- ~

*

& ‘

. fatcies _and- the Gong: 08s of the United States could /

‘be.inhibited, by due process considerations from adopt- /

ing similar measures applying to. continuing. business

~ relationships. : |

The history of the Hart B ill, s- 1967, 91st’ okt, A

“Ast Sess. (1969), before the Antitrust and Monopoly

- Subcommittee of the United States Senate. Judiciary

‘Committee, is. indicative of the ‘problem. | This’ bill

would regulate the relationship between ° franchisor

“and, franchisee in an attempt to balance the économic.

power im this relationship, which is now weighted |

heavily in favor of the former. Opponents of ‘the bill

were quick to use the decision of the Court. of Appeals’ |

in this case to raise alleged constitutional impediments °°

to its passage, and on May 18, 1970’the Subcommittee

in executive session ‘voted to indefinitely @ostpone’?

all further action on the measure.. 116 Cong. Ree. D ‘

501 Oat Ed. May. 19, taf).

CON CLUSION pee

‘The, United States Court 6f Appeals for tlie First,

— Cirvuit allowed its distaste for Law 75: to lead it, er-

ronedusly, to.ignére this Court’s established precepts

of constitutional inter pretation applying to state eco- .-

nomie regulation. If Law 75-is tr tily retrospective i in

its application, the Court of Appeals nevertheless failed

to follow this Court’s clearly enunciated principles

' for: analyzing and evaluating the effect. of such retro-

: spectivity. Further, the federal courts should. stay

theif hand pending a, definitive interpretation of Law . .

75 by the Supreme Court of. the. Commonwealth of»

Puerto Rico. In any event, the determination of un-

_ constitutionality of Law 75 in the absence of any fac-

~ tual record was 8 cheanty. pia ca

RO Raye pr ey ee. OR:

o *t* “0

Allowing the decision of the @ourt of Appeals to .

_ stand would permit the continuation of the practices :

which the Puerto Rican legidature sought to eliminate,

“The farge number of dealers in’ the Commonwealth .

‘would continie to be disadvantaged and helples—

dll to the damage of the economy of Puerto Rico, The *

* © “dpeision also has an inhibiting effert oni stafe legix-

+ Igtures andthe Congress of the United States in their

consideration of similar statutes to ‘protest franchised

and other dealers.

|

~The questions presented by this appeal are substan- *

tial and of Rreait public tyme ta 7 es eee

*

.

Respectfully submitted,

~

2 | Mima Naverna pe. Ropon

Director, Office of ‘Monapolistic

* Affairs

Puerto Rieo Department of Justice

P. O. Box 192 »\ 7

Old San Juan, Puerto Rieo 00902

Counsel for Appellant.

4

*

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