Filed: Jul. 21, 2015
Latest Update: Mar. 02, 2020
Summary: other circuits have held that it is long since settled that state, 5 law governs when a state-created cause of action accrues.F.3d at 35 (considering Maine's accrual rules);a claim eleven years after SCA's alleged breach would permit, 11 QCP to more than triple Act 75's limitations period.
United States Court of Appeals
For the First Circuit
No. 14-1405
QUALITY CLEANING PRODUCTS R.C., INC.; RAFAEL CORREA,
Plaintiffs, Appellants,
v.
SCA TISSUE NORTH AMERICA, LLC,
Defendant, Appellee,
JOHN DOE; RICHARD ROE
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen Consuelo Cerezo, U.S. District Judge]
Before
Howard, Chief Judge,
Lynch and Thompson, Circuit Judges.
Miguel Angel Rangel-Rosas, Jr., with whom Maymi Rivera, LLC
was on brief, for appellant.
Alejandro Jose Cepeda-Díaz, with whom Raúl M. Arias and
McConnell Valdés LLC were on brief, for appellee.
July 21, 2015
HOWARD, Chief Judge. Eleven years after Appellee SCA
Tissue North America ("SCA") allegedly breached its distribution
agreement with Appellant Quality Cleaning Products ("QCP"), QCP
filed this breach of contract action. The district court dismissed
the action as time-barred under the applicable three-year statute
of limitations. Applying Puerto Rico's statute of limitations and
accrual rules, as we must when sitting in diversity, we affirm.
I.
SCA manufactures cleaning products and paper goods such
as napkins, bath and facial tissue, and liquid soap. In August
1997, QCP entered into a distribution agreement with SCA which
designated QCP as a non-exclusive, authorized Puerto Rican
distributor and wholesaler of SCA's "Tork" brand product line.
QCP agreed that it would not distribute any of SCA's competitors'
products and, in return, SCA promised to offer QCP all promotions
and discounts that it extended to any other Puerto Rican
distributor. QCP claims that SCA breached that agreement in 2001,
when SCA agreed to sell its "Tork" products at a reduced rate to
a third company, Bunzl/Melissa Sales Corp. ("Bunzl"), and when it
granted Bunzl a five percent discount or profit on every sale of
"Tork" products that Bunzl made to other distributors in Puerto
Rico.
QCP filed this breach of contract action on December 7,
2012 -- over a decade later. In Puerto Rico, Act 75 governs
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distribution agreements. See P.R. Laws Ann. tit. 10, §§ 278 et
seq. SCA moved to dismiss the action as (among other things) time-
barred under Act 75's three-year statute of limitations. See id.
§ 278d. QCP opposed SCA's statute of limitations defense on the
sole basis that the "continuing violation" doctrine applied to
delay the accrual of its claims. Finding the continuing violation
doctrine inapplicable, the district court granted SCA's motion to
dismiss. Based on the allegations contained in the complaint, the
court concluded that QCP "knew since at least the year 2001" that
SCA had engaged in conduct that QCP believed had violated the
contract. Seizing on that statement, QCP filed a motion to
reconsider. In that motion, and for the first time, QCP raised
the "discovery rule," claiming that it had no knowledge of SCA's
alleged breach until 2011. The district court summarily denied
that motion, and this timely appeal followed.
II.
We review the district court's dismissal on statute of
limitations grounds de novo, and affirm "only if the record,
construed in the light most flattering to the pleader [the party
opposing dismissal], leaves no plausible basis for believing that
the claim may be timely." Erlich v. Ouellette, Labonte, Roberge
& Allen, P.A., 637 F.3d 32, 35 (1st Cir. 2011) (internal quotation
marks omitted).
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Act 75 imposes a three-year statute of limitations "from
the date of the definite termination of the dealer's contract, or
of the performing of the detrimental acts, as the case may be."
P.R. Laws Ann. tit. 10, § 278d. A limitations period "begins to
run when the cause of action accrues -- that is, when the plaintiff
can file suit and obtain relief." Heimeshoff v. Hartford Life &
Accident Ins. Co., 134 S. Ct. 604, 610 (2013) (internal quotation
marks omitted). Breach of contract actions, like those under Act
75, traditionally accrue at the time of the breach. See 1 Calvin
W. Corman, Limitation of Actions § 7.2.1, at 485-86 (1991); cf.
Erlich, 637 F.3d at 35 (discussing Maine law).
Under this traditional rule, Act 75's limitations period
began to run when SCA allegedly breached its agreement with QCP.
QCP's amended complaint identifies SCA's breach (the Bunzl
agreement) as taking place around the time that two companies
merged to form Bunzl. The complaint alleges that the merger, and
thus the breach, occurred in 2001. Because QCP did not file its
complaint until 2012, the complaint facially indicates that Act
75's three-year statute of limitations has been far exceeded.
Nevertheless, QCP invokes both the continuing violation
doctrine and the discovery rule in an attempt to argue that its
Act 75 claim did not accrue until years later. In order to
establish when QCP's claim accrued, we thus must determine whether
those doctrines apply to Act 75.
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A. Does State or Federal Accrual Law Apply?
A threshold question, disputed by the parties, is
whether we look to Puerto Rico or federal law in making that
accrual determination. Federal courts sitting in diversity apply
the substantive law of the state and, pursuant to statute, Puerto
Rico is treated as a state for diversity purposes. See Erie R.R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938); 28 U.S.C. § 1332(e).
State law includes the applicable state statute of limitations.
See Guaranty Trust Co. of N.Y. v. York,
326 U.S. 99, 110 (1945);
Morel v. DaimlerChrysler AG,
565 F.3d 20, 23 (1st Cir. 2009).
QCP's breach of contract action is based on Puerto Rico law and,
consistent with Erie and Guaranty Trust, the parties agree that
Act 75's three-year statute of limitations applies. But, pointing
to cases in which we have borrowed a state's statute of limitations
for purposes of federal law while noting that the date of accrual
remains a federal law question, QCP urges that -- even in a
diversity action -- accrual is necessarily governed by federal
law.
QCP's contention is mistaken. In fact, it directly
conflicts with the Supreme Court's remark in Ragan v. Merchants
Transfer & Warehouse Co. that a cause of action in a diversity
action "accrues and comes to an end when local law so declares."
337 U.S. 530, 533 (1949). Relying on this plain statement, several
other circuits have held that it "is long since settled" that state
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law governs "when a state-created cause of action accrues." Walko
Corp. v. Burger Chef Sys., Inc., 554 F.2d 1165, 1171 (D.C. Cir.
1977); accord Cantor Fitzgerald Inc. v. Lutnick,
313 F.3d 704,
709-10 (2d Cir. 2002); Joyce v. A.C. & S., Inc.
785 F.2d 1200,
1203 (4th Cir. 1986). We agree.
Moreover, this rule makes eminent sense because a
federal court sitting in diversity must apply related state-law
rules that form "an integral part of the several policies served
by the [state's] statute of limitations." Walker v. Armco Steel
Corp., 446 U.S. 740, 751 (1980) (holding that whether filing of
the complaint tolls the statute of limitations is governed by state
law); see also, e.g., West v. Am. Tel. & Tel. Co.,
311 U.S. 223,
239 (1940) (applying Ohio law requiring a plaintiff to make a pre-
lawsuit demand before the statute of limitations begins to run).
State accrual rules fit comfortably within this category. When
state law commands that the statute of limitations hourglass is to
be turned is no less an "integral part" of a state's statute of
limitations scheme than how long the state allows the sand to
drain.
That we frequently apply federal accrual rules in the
context of § 1983 actions and other federal laws does not aid QCP.
When a federal statute contains no statute of limitations, we apply
"the most analogous statute of limitations in the state where the
action was brought." Greenwood ex rel. Estate of Greenwood v.
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N.H. Pub. Utils. Comm'n, 527 F.3d 8, 13 (1st Cir. 2008); see also,
e.g., Randall v. Laconia, N.H.,
679 F.3d 1, 4-5 (1st Cir. 2012)
(applying state statute of limitations but federal accrual rules
for purposes of the Residential Lead-Based Paint Hazard Reduction
Act, 42 U.S.C. § 4852d). In those circumstances, federal rules
determine when the claim accrues because "the cause of action is
created by federal law," even if the statute of limitations is set
by reference to state law. Cantor
Fitzgerald, 313 F.3d at 710.
But when, by contrast, "federal jurisdiction is based on diversity
. . . state substantive law must govern" accrual and the statute
of limitations alike.
Id. Indeed, we have consistently adhered
to this delineation in diversity cases, albeit without explicitly
referencing this threshold distinction. See, e.g.,
Erlich, 637
F.3d at 35 (considering Maine's accrual rules); Loguidice v. Metro.
Life Ins. Co.,
336 F.3d 1, 6 (1st Cir. 2003) (applying
Massachusetts' discovery rule).
To remove all doubt, we take this opportunity to clearly
hold that a federal court sitting in diversity must apply the
relevant state's statute of limitations, including its accrual
rules. The mere fact that a diversity-based action is brought "in
a federal court instead of in a State court a block away, should
not lead to a substantially different result." Guaranty Trust
Co., 326 U.S. at 109. Accordingly, we decline QCP's invitation to
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graft a federal common law of accrual onto local statutes of
limitation when sitting in diversity.
B. Applying Puerto Rico's Accrual Rules to QCP's Claim
We thus look to Puerto Rico law to resolve whether the
continuing violation doctrine or the discovery rule applies. We
discuss each doctrine in turn.
i. The Continuing Violation Doctrine
QCP first argues that the discounts SCA granted pursuant
to the Bunzl agreement -- which continued at least until 2010, and
perhaps extend into the present -- constitute a continuing
violation of the distribution agreement. In narrow circumstances,
typically including Title VII and other discrimination claims, the
continuing violation doctrine permits a plaintiff to recover for
injuries occurring outside of the limitations period. See Pérez-
Sánchez v. Pub. Bldg. Auth., 531 F.3d 104, 107 (1st Cir. 2008).
As long as a related act falls within the limitations period, the
doctrine allows a lawsuit to be delayed in cases -- such as hostile
work environment claims -- in which a course of "repeated conduct"
is necessary before "a series of wrongful acts blossoms into an
injury on which suit can be brought." Ayala v. Shinseki,
780 F.3d
52, 57 (1st Cir. 2015) (internal quotation marks omitted). The
doctrine does not apply, however, to allow the late filing of a
claim based on a discrete discriminatory act that occurs on a
specific day, and thus does not permit a plaintiff "to avoid filing
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suit so long as some person continues to violate his rights,"
Pérez-Sánchez, 531 F.3d at 107; see also Nat'l R.R. Passenger Corp.
v. Morgan,
536 U.S. 101, 113 (2002). In that sense, the doctrine
is not truly "about a continuing [violation], but about a
cumulative violation." Limestone Dev. Corp. v. Village of Lemont,
Ill.,
520 F.3d 797, 801 (7th Cir. 2008).
We agree with the district court that the continuing
violation doctrine does not apply to Act 75 claims.1 The parties
have not cited any decisions of the Supreme Court of Puerto Rico
that apply the continuing violation doctrine to Act 75, nor have
we independently found any case that does. Thus, it appears that
"the Puerto Rico Supreme Court has not spoken directly to the
precise question that confronts us." González Figueroa v. J.C.
Penny P.R., Inc., 568 F.3d 313, 318 (1st Cir. 2009). Where that
is the case, "our task is to ascertain the rule the state court
would most likely follow under the circumstances." Blinzler v.
1SCA does not argue that QCP's complaint failed to adequately
invoke the continuing violation doctrine. When the dates listed
and the allegations contained in the complaint facially suggest
that the limitations period had been exceeded, the plaintiff must,
to avoid dismissal, "'sketch a factual predicate'" that provides
a basis for avoiding the statute of limitations, concluding that
the limitation period has not run, or finding that a different
statute of limitations applies. Trans-Spec Truck Serv., Inc. v.
Caterpillar Inc., 524 F.3d 315, 320 (1st Cir. 2008) (quoting
LaChapelle v. Berkshire Life Ins. Co.,
142 F.3d 507, 509-10 (1st
Cir. 1998)). We assume for the sake of argument that QCP has
sketched an adequate factual predicate.
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Marriot Int'l, Inc., 81 F.3d 1148, 1151 (1st Cir. 1996). We are
convinced that Puerto Rico is unlikely to apply the continuing
violation doctrine to Act 75 claims.
Courts have largely, if not exclusively, held that
application of the continuing violation doctrine is cabined to
certain civil rights or tort actions.2 See e.g., Lutz v. Chesapeake
Appalachia, LLC, 717 F.3d 459, 466 & n.5 (6th Cir. 2013) (citing
cases noting that courts have been reluctant to apply the
continuing violation doctrine outside of the Title VII context);
Schaffhauser v. Citibank (S.D.) N.A.,
340 F. App'x 128, 131 (3d
Cir. 2009) ("[O]ur decisions have limited the continuing violation
doctrine to the employment discrimination context."). The only
Puerto Rico Supreme Court case that we have found arguably
endorsing the concept of a continuing wrong tracks this
delineation, and applies the concept in the employment
discrimination context. See Sánchez v. Elec. Power Auth., 142
P.R. Dec. 880, 1997 P.R.-Eng. 878520, slip op. at 3-4 (1997)
(García, J., concurring);
id. slip op. at 8-9 (Naveira de Rodón,
J., concurring). We are not aware of any case in which a court,
including the Puerto Rico Supreme Court, has applied the doctrine
2 QCP suggests that SCA's alleged contractual infractions
sound in tort, but provides no legal or factual support for that
assertion. In any event, the pleaded claim is plainly a breach of
contract action under Act 75.
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to a contract claim. See 1 Corman, supra § 7.2.1, at 487 ("The
tort concept of continuing wrong, which postpones the time of
accrual of the cause of action, does not apply to actions for
breach of contract."). And this apparent resistance to applying
the doctrine in contract cases makes sense. Unlike a prolonged
series of wrongful acts, a contract breach is a single, readily
ascertainable, event. Cf. 51 Am. Jur. 2d Limitation of Actions §
139, at 601 (2011) (noting that a breach "occurs when a party fails
to perform when performance is due").
Given this general principle, and the dearth of any
Puerto Rico authority on point, we see no basis to assume that the
Puerto Rico Supreme Court would extend the continuing violation
doctrine to Act 75 claims. In fact, that conclusion is all the
more likely because, when that court has considered mechanisms
that might prolong Act 75's limitation period, the court has
emphasized the need for expeditious resolution of commercial
disputes. In an effort to "encourage diligence and speed in
commercial relations" and to "expedite mercantile traffic," the
court has held that the restrictive tolling provisions of the
Commerce Code, not the more generous provisions of the Civil Code,
apply to Act 75. Pacheco v. Nat'l W. Life Ins. Co., 122 P.R. Dec.
55,
22 P.R. Offic. Trans. 49, 60 (1988). To nevertheless apply
the continuing violation doctrine here -- and allow QCP to assert
a claim eleven years after SCA's alleged breach -- would permit
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QCP to more than triple Act 75's limitations period. That result
would directly conflict with Pacheco's rationale.3
Ultimately, we see no basis to apply the continuing
violation doctrine to Act 75 and thus prolong the statute of
limitations. "A federal court sitting in diversity cannot be
expected to create new doctrines expanding state law." Gill v.
Gulfstream Park Racing Ass'n, 399 F.3d 391, 402 (1st Cir. 2005).
ii. The Discovery Rule
QCP also raises the discovery rule as an alternative
ground to escape the limitations bar, claiming that it had no
knowledge of SCA's alleged breach until 2011. The rule "delays
accrual of a cause of action until the plaintiff has 'discovered'
it." Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 645 (2010).
The Puerto Rico Civil Code's general statute of limitations
explicitly includes a discovery rule. See P.R. Laws Ann. tit. 31,
§ 5298 (statutory period runs "from the time the aggrieved person
Furthermore, even if the doctrine did apply, because the
3
alleged detrimental act here is SCA's agreement with Bunzl, we are
doubtful that any later discounts granted pursuant to that
agreement could even be construed as a continuing violation. See,
e.g., McNamara v. City of Nashua, 629 F.3d 92, 97 (1st Cir. 2011)
("That the wrong (if any) had consequences that endure to the
present does not make the violation a continuing one."); Muñiz-
Rivera v. United States, 204 F. Supp. 2d 305, 315 (D.P.R. 2002)
aff'd,
326 F.3d 8 (1st Cir. 2003) ("A continuing violation occurs
when there is a series of continual unlawful acts, not when there
are merely continual harmful effects from an original unlawful
act." (emphasis in original)).
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had knowledge" of the injury); see also Colón Prieto v. Géigel,
115 P.R. Dec. 232,
15 P.R. Offic. Trans. 313, 326-27 (1984). Act
75 contains no similar language.4
We need not definitively resolve whether Act 75
nevertheless incorporates a discovery rule, however, because a
basic infirmity abounds. QCP did not raise the discovery rule in
its initial opposition to SCA's motion to dismiss. Instead, it
only sought refuge in the discovery rule in its Rule 59(e) motion
for reconsideration. In that motion, QCP first claimed that it
had no knowledge of SCA's breach until it inadvertently received
an e-mail from a Bunzl sales representative in 2011 revealing the
4 Although SCA again raises no pleading deficiency, we note
that QCP's complaint is devoid of any allegations suggesting it
was oblivious to SCA's purported breach until 2011. We have not
had the occasion to define the contours of a plaintiff's burden to
plead facts necessary to invoke the discovery rule -- an inquiry
governed by federal law, even in a diversity case. See Andresen
v. Diorio, 349 F.3d 8, 17 (1st Cir. 2003). While some courts,
including one district court in our circuit, have concluded that
a plaintiff must affirmatively plead the discovery rule, others
have held that it is unnecessary for a plaintiff to specifically
name the rule in order to rely upon it. Compare, e.g., Stone v.
Colt Indus. Operating Corp., No. 86-1107-MA,
1986 WL 13073, at *2
(D. Mass. Oct. 31, 1986), with Colonial Penn Ins. Co. v. Market
Planners Ins. Agency, Inc.,
1 F.3d 374, 376 (5th Cir. 1993). But
even those courts that do not require a plaintiff to explicitly
reference the discovery rule by name in the complaint note that a
plaintiff must plead some facts "sufficient to give notice of its
reliance on the discovery rule." Colonial Penn Ins.
Co., 1 F.3d
at 376. Thus, at the very least, QCP likely had to plead some
facts that would indicate that it was unaware of or unable to
discover SCA's breach until 2011. Nevertheless, we need not decide
whether QCP failed to meet its pleading burden here because we are
able to resolve this issue on other grounds.
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SCA/Bunzl agreement. We review the district court's dismissal of
that motion only for abuse of discretion. Biltcliffe v.
CitiMortgage, Inc., 772 F.3d 925, 930 (1st Cir. 2014).
As we have held time and again, however, a Rule 59(e)
motion "does not provide a vehicle for a party to undo its own
procedural failures" or to "introduce new evidence or advance
arguments that could and should have been presented to the district
court prior to judgment." Emmanuel v. Int'l Bhd. of Teamsters,
Local Union No. 25, 426 F.3d 416, 422 (1st Cir. 2005) (internal
quotation marks omitted); Aybar v. Crispin-Reyes,
118 F.3d 10, 16
(1st Cir. 1997) (holding that plaintiffs could not rely on a new
argument in a motion for reconsideration to toll the statute of
limitations). Accordingly, because QCP did not raise the discovery
rule until its motion for reconsideration, "the district court
scarcely can be said to have abused its discretion in refusing to
reconsider its decision based on the plaintiff's newly raised
argument." Cochran v. Quest Software, Inc.,
328 F.3d 1, 11 (1st
Cir. 2003).5
5QCP's complaint also alleged that its president, Rafael
Correa, suffered mental and emotional distress as a result of SCA's
breach. In its opening brief, QCP made no argument that the
district court erred in dismissing that tort claim; as a result,
the argument is waived. See Sandstrom v. ChemLawn Corp., 904 F.2d
83, 86 (1st Cir. 1990). In any event, QCP conceded in its reply
brief that if the district court properly dismissed its Act 75
claim, the dismissal of the tort claim necessarily followed. Thus,
we similarly affirm the dismissal of the emotional distress count.
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III.
For the foregoing reasons, the district court's order
dismissing QCP's complaint is affirmed.
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