Before the Court is plaintiff Puerto Rico Hospital Supply,Inc.'s motion for a preliminary injunction to maintain the statusquo of the parties' Distributorship Agreement pending arbitrationbefore the International Chamber of Commerce.1 On June 9,2005, a hearing on said motion was held before theundersigned.2 The parties filed simultaneous briefs onJune 14, 2005.3
For the reasons set forth below, plaintiff's motion for apreliminary injunction is DENIED.
Puerto Rico Hospital Supply, Inc. ("PRHS") is a corporationorganized under the laws of the Commonwealth of Puerto Rico dedicated to thepromotion, sale, and distribution of medical products andsupplies to hospitals, clinics, and physicians in Puerto Rico.Boston Scientific Corporation ("BSC") is a Massachusetts-basedcompany which produces, inter alia, the Medi-tech line ofperipheral vascular medical products. In the Fall of 1988, PRHS'former vice-president of marketing and sales and currentpresident, Felix Santos, attended a radiologist convention inChicago where he met BSC management. At that time, BSC did nothave any presence in the Puerto Rico market. Thereafter, Mr.Santos on the behalf of PRHS and Don Woods on the behalf of BSCnegotiated a Distributorship Agreement.4 TheDistributorship Agreement was finalized and executed on July 10,1989. Since said date, PRHS has been the exclusivedistributor5 of BSC's Medi-tech products in Puerto Rico.PRHS sells approximately 1.1 million dollars worth of BSC'sMedi-tech products annually. PRHS' annual gross profit from thesale of these products is approximately $400,000.00 to$500,000.00.
The Distributorship Agreement contains both an arbitrationclause and a choice of law provision.6 Article 9.6(a) ofthe Agreement provides that "[t]his Agreement and all related business transactions shall be governed by the laws ofthe Commonwealth of Massachusetts and, to the extent applicable,the Commonwealth of Puerto Rico and the United States ofAmerica."7 Pursuant to Article 9.6(b) of the Agreement,"all disputes arising in connection with this Agreement orquestions as to the construction hereof or as to the right orliabilities of any parties hereunder shall . . . be referred toand finally settled by arbitration held and conducted inaccordance with the Rules of Conciliation and Procedure of theInternational Chamber of Commerce."8
Article 8.1. of the Distributorship Agreement provides that"[the] Agreement shall become effective as of July 10, 1989 (the"Effective Date"), and shall remain in full force and effectuntil June 30, 1991. The term of this agreement of the partiesfor periods of one (1) year, provided such agreement is reachedat least three months before the expiration of the original orextended term — as the case may be."9 Since 1989 therehas never been any interruption in PRHS' distribution of BSC'sMedi-tech products. For the past fourteen (14) years, the partieshave renewed the Agreement without written notification of theirintent to renew. The evidence is undisputed that each year theDistributorship Agreement was automatically renewed by theparties through the normal course of business.
On April 29, 2005, BSC provided PRHS with a letter that statedthat pursuant to section 8.1 of the Distribution Agreement, the Agreement wouldnot be renewed and thus, would terminate on June 30,2005.10 Said letter provides that the decision toterminate was based, among other things, on the fact that PRHShas breached sections 2.2 and 3.3 of the Agreement by failing:(1) "to use its best efforts to `develop and promote the use andsale of, sell and deliver, and assure customer satisfaction for,the Products within the Territory;'" (2) "to maintain `anadequate inventory and a suitable staff in the Territory for theproper promotion sale, delivery and servicing of the Products andfor assuring customer satisfaction;'" (3) and "to timely pay theamounts owed for the Products purchased from BSC." (See JointEx. II, at 1-2).
On May 16, 2005, PRHS filed a request for arbitration beforethe International Chamber of Commerce ("ICC") Court ofArbitration.11 In said petition, PRHS also requestsdamages and conservatory or interim measures pursuant to thePuerto Rico Dealer's Act, 10 L.P.R.A. § 278b-1 ("Law 75") andArticle 23 of the ICC Rules of Arbitration. On that same date,PRHS filed a verified complaint before this Court seeking solelyprovisional and preliminary injunctive remedies pursuant toPuerto Rico's Law 75 and Article 23 of the ICC Rules ofArbitration to maintain the status quo of the parties'Distributorship Agreement pending arbitration before theInternational Chamber of Commerce.12 BSC subsequently filed a motion to dismiss the verified complaint on the groundsthat pursuant to the Federal Arbitration Act, 9 U.S.C. § 2, thisCourt lacks the authority to entertain plaintiff's request for apreliminary injunction.
A show cause hearing on PRHS's motion for preliminaryinjunction was held on June 9, 2005.13 Testimony onbehalf of PRHS's president, Felix Santos, was heard. Counsel forBSC appeared for the hearing unprepared and did not present anyevidence or witnesses. Mr. Santos testified that BSC's claimswere without any basis or merit, and that the non-renewal ortermination letter dated April 29, 2005, was the first complaintthat PRHS had ever received from BSC. Mr. Santos furthertestified that PRHS has not been in arrears in payment to BSC andthat he had personally verified the records and that all accountshad been paid on time. Five days after the hearing, BSC producedfinancial records and affidavits contradicting Mr. Santos'testimony. However, the Court will not consider thisdocumentation because it was untimely filed after evidence wasclosed and was not accompanied by sufficient explanation for thedelay.14
I. The Court of Appeals for the First Circuit has held that "adistrict court can grant injunctive relief in a arbitrabledispute pending arbitration, provided the prerequisites forinjunctive relief are satisfied." Teradyne, Inc. v. MostekCorp., 797 F.2d 43, 51 (1st Cir. 1986); see also, Bercovitch v.Baldwin Sch., 133 F.3d 141, 151 (1st Cir. 1998) (finding that adistrict court has "jurisdiction to issue a preliminaryinjunction to preserve the status quo pending arbitration")(citing Teradyne, Inc., 797 F.2d at 51); Danieli & C. OfficineMeccaniche, S.p.A. v. Morgan Constr., 190 F.Supp.2d 148, 154(D.Mass. 2002) ("Notwithstanding the arbitrability of theparties' dispute, this Court has the authority to grantpreliminary injunctive relief to preserve the status quo pendingarbitration provided the prerequisites for injunctive relief aremet.")). "[T]his approach reinforces rather than detracts fromthe policy of the Arbitration Act . . . [since] the congressionaldesire to enforce arbitration agreements would frequently befrustrated if the courts were precluded from issuing preliminaryinjunctive relief to preserve the status quo pending arbitrationand, ipso facto, the meaningfulness of the arbitrationprocess." Teradyne, Inc., 797 F.2d at 51 (internal citationsomitted).
In the present case, the Court also sources authority toentertain movant's motion for preliminary injunctive relief fromArticle 23 of the ICC Rules of Arbitration. As discussed above,the arbitration clause of the Distribution Agreement providesthat all disputes with the Agreement shall be referred to andfinally settled by arbitration held and conducted in accordance with the conciliation and procedural rules of theICC.15 Thus, the Rules of Arbitration of the ICC areincorporated into the parties' Distributorship Agreement. Article23-2 of the ICC Rules of Arbitration provides that "[b]efore thefile is transmitted to the Arbitral Tribunal, and in appropriatecircumstance even thereafter, the parties may apply to anycompetent judicial authority for interim or conservatorymeasures. The application of a party to a judicial authority forsuch measures or for the implementation of any such measuresordered by an Arbitral Tribunal shall not be deemed to be aninfringement or a waiver of the arbitration agreement and shallnot affect the relevant powers reserved to the ArbitralTribunal." Art. 23-2 of ICC Rules of Arbitration. Therefore, theCourt concludes that it has the authority to grant preliminaryinjunctive relief to preserve the status quo of theDistributorship Agreement pending arbitration provided that theprerequisites for injunctive relief are met. Accordingly,defendant BSC's motion to dismiss is DENIED.16
A party seeking preliminary injunctive relief has the burden todemonstrate (1) a significant risk of irreparable harm in theabsence of injunctive relief; (2) that such harm outweighs anyharm which granting injunctive relief would inflict on defendant;(3) a likelihood of success on the merits; and (4) that the publicinterest will not be adversely affected by granting theinjunction. See TEC Engineering Corp. v. Budget Molders SupplyInc., 82 F.3d 542, 544 (1st Cir. 1996).
"Irreparable harm is an essential prerequisite for a grant ofinjunctive relief." Ross-Simons of Warwick, Inc. v. Baccarat,Inc., 217 F.3d 8, 13 (1st Cir. 2000); see also Matos ex rel.Matos v. Clinton Sch., 367 F.3d 68, 73 (1st Cir. 2004)("[I]rreparable harm is a necessary threshold showing forawarding preliminary injunctive relief."). The "burden ofdemonstrating that the denial of preliminary injunction is likelyto cause irreparable harm rests squarely upon movant."Charlesbank Equity Fund II v. Blinds to Go, 370 F.3d 151, 162(1st Cir. 2004). In the present case, the Court finds thatplaintiff PRHS has failed to satisfy this burden.
PRHS argues that if this Court does not issue a preliminaryinjunction it will suffer irreparable harm because (1) it willlose profits; (2) one of its employees will be detrimentallyaffected; and (3) its business reputation will be negativelyimpacted. "`Irreparable injury' in the preliminary injunctioncontext means an injury that cannot adequately be compensated foreither by a later-issued permanent injunction . . . or by alater-issued damages remedy." Rio Grande Cmty Health Ctr. v.Rullan, 397 F.3d 56, 76 (1st Cir. 2005). PRHS' claim of lostprofits is not sufficient to justify preliminary injunctiverelief for two reasons. First, the loss to PRHS is notsubstantial. PRHS sells approximately 54 million dollars worth of merchandise annually. BSC's Medi-techproducts represent only 1.1. million dollars, or a mere twopercent (2%) of the company's total sales. Second, the potentialloss of profits to PRHS is calculable, and could easily beremedied by a subsequent award of damages. See Ross-Simons ofWarwick, Inc. v. Baccarat, Inc., 217 F.3d 8, 13 (quoting K-MartCorp v. Oriental Plaza, Inc., 875 F.2d 907, 915 (1st Cir. 1989))("The necessary concomitant of irreparable harm is the inadequacyof traditional legal remedies.") Therefore, PRHS' lost sales areinsufficient to show irreparable harm because PRHS could becompensated for such loss by a monetary damages award. SeeMatrix Group Ltd., Inc. v. Rawlings Sporting Goods Co., Inc.,378 F.3d 29, 34 (1st Cir. 2004).
We turn now to PRHS' second claim, that it will suffer damageto its reputation if a preliminary injunction is not granted. Itis decidedly more difficult to determine whether money damagesare ascertainable, and thus a sufficient remedy, with regard toinjury to business reputation. See Matrix Group Ltd., Inc.,378 F.3d at 24. However, in the present case, we find PRHS'particular claim of reputational harm to be too speculative andunsubstantiated to constitute irreparable injury. PRHS claimsthat absent the preliminary injunction, the physicians who dependon BSC Medi-tech products will no longer be able to obtain theseproducts in Puerto Rico, and thus PRHS's business reputation willbe irretrievably destroyed.
The Court is not persuaded by this argument. It is undisputedevidence that these physicians will continue to have access toBSC's Medi-tech products because BSC will promptly assume service to PRHS's current Medi-tech clients.Moreover, PRHS testified that the potential market for Medi-techproducts is comprised solely of fourteen (14) physicians becauseonly interventional radiologists use Medi-tech products and thereare only fourteen interventional radiologists in Puerto Rico.Therefore, we conclude that it is highly improbable that thebusiness reputation of PRHS — a company that has been in businessin Puerto Rico for fifty-eight (58) years, has $54 million inrevenue per year, and sells multiple product lines — will beharmed when approximately fourteen17 physicians beginreceiving Medi-tech products directly from the manufacturer,rather than from PRHS. Any harm that PRHS is likely to sufferfrom the termination of the Dealership Agreement appears to bepurely financial in nature, and thus, is best remedied throughmonetary damages.
PRHS' final argument is that at least one employee will besubstantially and negatively affected if injunctive relief is notafforded. PRHS' president, Felix Santos, testified that PRHS hasover two hundred (200) employees and that only one employee, whodevotes 90% of his work to the Medi-tech line, would be affectedby the termination of the Distributorship Agreement. PRHS did notprovide any specifics about how this employee would bedetrimentally affected or why this employee could not simply beredistributed to work with PRHS' other product lines. The Courtfinds that PRHS' amorphous claim that one of the company's two hundred employeeswill be detrimentally impacted simply does not constituteirreparable injury.
As PRHS has failed to establish a threshold showing ofirreparable harm, the Court's inquiry stops here. However, it isimportant to note that a petition for conservatory and interimrelief is squarely before the ICC Arbitral Tribunal, which isbetter suited to determine whether such relief is warranted. TheDistribution Agreement in this case contains an ambiguous choiceof law provision. "Where an agreement contains a validarbitration clause as well as a choice of law provision [such asin the case at hand], the determination of what law appliesshould be made by the arbitrator." See Danieli & C. OfficineMeccaniche S.p.A., 190 F.Supp.2d at 156 (citing Medika Int'l.,Inc. v. Scanlan Int'l, Inc., 830 F.Supp. 81, 87 (D.P.R. 1993);Misubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,473 U.S. 614, 637 n. 19 (1985); Protane Gas Co. of Puerto Rico, Inc.v. Sony Consumer Products Co., 613 F.Supp. 215 (D.P.R. 1985)("The controversy concerning the law to be applied is one fallingwithin the scope of the agreement. Accordingly, suchconsideration is for the arbitrators and not for the courts.")).
Thus, the ICC Arbitral Tribunal will be able to determine whatlaw should be applied to the controversy between the parties.Specifically, the Arbitral Tribunal can ascertain theapplicability of Puerto Rico's Law 75's provisional remedy, 10L.P.R.A. § 278b-1, which requires a less stringent showing ofinjury than the traditional preliminary injunction standardannounced by the First Circuit. See De Moss v. Kelly,493 F.2d 1012, 1015 (1st Cir. 1974) ("The availability of temporary relief under [Law 75]is not tied to a showing of irreparable injury or to probabilityof success in the case on the merits, but rather to the policiesof the Act in promoting the continuation of dealership agreementsand the strict adherence to the provisions of such agreements.").
For the aforementioned reasons, defendant BSC's motion todismiss the verified complaint is DENIED, and plaintiff PRHS'motion for preliminary injunction is DENIED. Finally, pursuantto the Federal Arbitration Act and the arbitration provision ofthe parties' Distributorship Agreement, the Court hereby ordersarbitration before the International Chamber of Commerce.Judgment shall be entered accordingly.
IT IS SO ORDERED.
1. See docket no. 2.
2. See docket no. 12.
3. See docket nos. 17-19.
4. See Joint Ex. I.
5. PRHS purchases the Medi-tech products from BSC; maintainsan inventory of the products; maintains a warehouse for theproducts; assumes the risk of loss of the inventory afterpurchase; assumes the credit risk after purchase; promotes theproduct; closes sales; provides pricing; delivers the product;and provides financing for the purchase of the products to itsclients.
6. See Distributorship Agreement, Joint Ex. I, at ¶9.6(a),(b).
7. Id. at ¶ 9.6(a).
8. Id. at ¶ 9.6(b).
9. See Joint Ex. I, ¶ 8.1.
10. See Joint Ex. II.
11. See docket no. 2, Ex. I.
12. See docket no. 1.
13. See docket no. 12.
14. See docket no. 15. The Court takes a dim view of counselcoming to the show cause hearing unprepared, and then after theconclusion of the hearing, filing documents that were previouslyavailable to him and could have been used at the hearing, butwere not.
15. See Joint Ex. I, at ¶ 9.6 (b).
16. See docket no. 9; see also Transcript, Order to ShowCause on Preliminary Injunction at 73-76, docket no. 19, Ex. I,73-76.
17. This number may be smaller since this figure representsthe approximate total market for Medi-tech products, not thenumber of Medi-tech clients that PRHS currently serves.