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T$X,XXX    3    _HydroStopalsoallegesfraudbutdoesnotdevelopthisargument  andsowedonotconsiderit.Sunoco,Inc.v.Makol,372F.3d31,  38(1stCir.2004).*+ (_2623  ..*G+G (_25   /%` ` hp x /23  ../%` ` hp x /   *8+8 (_24  ," hp x ,23  ..," hp x ,  *5+5 (_23 ` ) hp x )23  ..) hp x ) ` *2+2 (_22  &hhp x &23  ..&hhp x &  */+/ (_21  #p x #23  ..#p x #  *,+, (_20 h  p x 23  .. p x h *)+) (_19  pp x 23  ..pp x   *&+& (_18   x 23  .. x   *AA (_17  5+ ` hp x 523  Ԁ5+ ` hp x 5  *GG (_16   /%` ` hp x /23  Ԁ/%` ` hp x /   *88 (_15  ," hp x ,23  Ԁ," hp x ,  *55 (_14 ` ) hp x )23  Ԁ) hp x ) ` *22 (_13  &hhp x &23  Ԁ&hhp x &  *// (_12  #p x #23  Ԁ#p x #  *,, (_11 h  p x 23  Ԁ p x h *)) (_10  pp x 23  Ԁpp x   (&& &_9   x 23  Ԁ x   (AA &_8  5+ ` hp x 523  5+ ` hp x 5  (GG &_7   /%` ` hp x /23  /%` ` hp x /   (88 &_6  ," hp x ,23  ," hp x ,  (55 &_5 ` ) hp x )23  ) hp x ) ` (22 &_4  &hhp x &23  &hhp x &  (// &_3  #p x #23  #p x #  (,, &_2 h  p x 23   p x h ()) &_1  pp x 23  pp x   &&& $_   x 23   x   0AA.Normal  5+ ` hp x 55+ ` hp x 5  <AA:Definition T  5+ ` hp x 55+ ` hp x 5  <AA:Definition L , 5+ ` hp x 5  5+ ` hp x 586Definition(hh&H1  5+ ` hp x 5      5+ ` hp x 5  (]]&H2  5+ ` hp x 5  5+ ` hp x 5  (]]&H3  5+ ` hp x 5  5+ ` hp x 5  (]]&H4  5+ ` hp x 5 XXX 5+ ` hp x 5  (]]&H5  5+ ` hp x 5  5+ ` hp x 5  (]]&H6  5+ ` hp x 5  5+ ` hp x 5  2DD0Address  5+ ` hp x 55+ ` hp x 5  8MM6Blockquote , , 5+ ` hp x 5   5+ ` hp x 5,*CITE,dl*CODEKX<6X9`(Courier NewKSY\  `&Times New RomanS42Emphasis64Hyperlink    <:FollowedHype    4go2Keyboard KX<6X9`(Courier NewKSY\  `&Times New RomanS <:Preformatted  /%  ,Kk %#/KX<6X9`(Courier NewKSY\  `&Times New RomanS/%  ,Kk %#/  <:zBottom of 7J(X7    5+ ` hp x 5?Z%2A`Arial?  SY\  `&Times New RomanS7K(X75+ ` hp x 5  &  d dI)1dxd'dxd<:zTop of For7N(X7    5+ ` hp x 5?Z%2A`Arial?  SY\  `&Times New RomanS7K(X75+ ` hp x 5    T$X,XXX    1    _Rule73provides:  8  a)Powers;Procedure.Whenspeciallydesignatedto \ exercisesuchjurisdictionbylocalruleororderofthe 2 districtcourtandwhenallpartiesconsentthereto,a X magistratejudgemayexercisetheauthorityprovidedby . Title28,U.S.C.636(c)andmayconductanyorall   proceedings,includingajuryornonjurytrial,ina   civilcase.`      ... 6   8  c)Appeal.InaccordancewithTitle28,U.S.C.636  \  (c)(3),appealfromajudgmententeredupondirectionof  2  amagistratejudgeinproceedingsunderthisrulewill    lietothecourtofappealsasitwouldfromajudgment  ofthedistrictcourt.I)2dxd0KS.SampleKX<6X9`(Courier NewKSY\  `&Times New RomanS0.Strong 8dl6TypewriterKX<6X9`(Courier NewKSY\  `&Times New RomanS42Variable: 8HTML MarkupB        T$X,XXX    2    _HydroStopraisesforthefirsttimeonappealanargumentthat  themagistrateshouldnothaveconsideredevidencepertainingto  thegeneralpracticeofthepartiesbecausesuchevidencewas \ extrinsicandbarredbythePuertoRicoParolEvidenceRule.Wedo 2 notaddressthisargumentbecause"[t]heoriesnotraisedinthe X districtcourtcannotberaisedforthefirsttimeonappeal." . Tobinv.LibertyMut.Ins.Co.,433F.3d100,105n.3(1stCir.   2005).2 0CommentB  #$%&'()* 35;AGMSY_11.1.1.1.1.1.1.1.<6X9`(Courier New\  `&Times New Roman%2A`Arial3#37=CIQYag1.a.i.(1)(a)(i)1)a)[i) d(J2T$ !X,XXX      0   !X,XXX  _XX,8,XXdd8  *!@  UnitedStatesCourtofAppeals  @ FortheFirstCircuit##       X,XAy) ` dE<C ` A D  No.051631    h      p      x   O @\ \ WATERPROOFINGSYSTEMS,INC.,   @<< Plaintiff,Appellee, W  @tt)v. S     `     h      p @"HYDROSTOP,INC.,   @ Defendant,Appellant. [ Ay) ` dE<` A - @ APPEALFROMTHEUNITEDSTATESDISTRICTCOURT  @ FORTHEDISTRICTOFPUERTORICO  @[Hon.CamilleVlezRiv,U.S.MagistrateJudge] D Ay) ` dE<` A @ @'Before % @Torruella,CircuitJudge,  @ Campbell,SeniorCircuitJudge, W @andLipez,CircuitJudge. -}  Ay) ` dE< ` A  )"     RafaelEscaleraRodrguez,withwhomThomasJ.Trebilcock !$ Horan,AlbertoR.L;pezRocafort,andReichard&Escalerawereon "% brief,forappellant. j#&   StuartA.WeinsteinBacal,withwhomLianaCol;nValentnand @$' WeinsteinBacal&Miller,P.S.C.wereonbrief,forappellee. %f ( Ay) ` dE<'` A '"+    @  @`  @  @  @h  @ March2,2006 }(#-  Ay) ` d E<(*` A  )*y%/B __  *!8,XXdXXd8*,X` XX* ` TORRUELLA,CircuitJudge. AppellantHydroStop,Inc.  ("HydroStop")appealsfromanordergrantingapreliminary x injunctioninfavorofAppelleeWaterproofingSystems,Inc. $t ("Waterproofing")underthePuertoRicoDealersAct,Law75of   June24,1964,10P.R.LawsAnn.278278d("Law75"),enjoining |  HydroStopfromterminatingtheirexclusivedistributionagreement ( x  ("DistributionAgreement"). $   ` OnNovember5,2004,Waterproofingfiledacomplaintin   theUnitedStatesDistrictCourtfortheDistrictofPuertoRico ,|  allegingthatHydroStop'sunilateralterminationoftheir ( DistributionAgreementviolatedLaw75becauseitwaswithout"just  cause,"andrequestingaTemporaryRestrainingOrder("TRO")to 0 compelthecontinuationoftheirbusinessrelationship. ,  ` Thedistrictcourtjudgereferredthecasetothe  magistratejudge,andthepartiesconsentedtothemagistrate's 4 jurisdictionoveranyandallproceedingsinaccordancewithRule 0 73oftheFederalRulesofCivilProcedure.M   1      ׀OnFebruary17,2005,   afterevidentiaryhearings,themagistrateenteredanOpinionand  OrdergrantingthepreliminaryinjunctiononthegroundthatHydro \ StophadterminatedtheDistributionAgreementwithoutjustcause. X OnMarch3,2005,HydroStopfiledaMotionRequesting   Reconsiderationand/ortoAlterorAmendJudgmentpursuanttoRule `  52(b)oftheFederalRulesofCivilProcedure.OnMarch8,the  \  magistratedeniedthemotion,andonMarch28,2005HydroStop   filedaNoticeofInterlocutoryAppealtothiscourt.After d  carefulconsideration,weaffirm. `  @tt) I.     ` Waterproofinghasbeeninthebusinessofdistributing  roofsealantsandwaterproofingproductsinPuertoRicosince1997. 0 In1999,WaterproofingbegantodistributeHydroStop'sproductsin , PuertoRicopursuanttoaverbalagreementbetweenthetwo  companies.OnJanuary1,2000,HydroStopandWaterproofing 4 enteredintotheDistributionAgreementwhichdesignated 0 WaterproofingasHydroStop'sexclusivedistributorinPuertoRico.    ` UntilHydroStopterminatedtheDistributionAgreementin 8!" March2004,WaterproofingwasresponsibleforallsalesofHydro "4$ StopproductsinPuertoRico.Waterproofingconsistentlyexceeded $& theannualsalesquotassetforthintheDistributionAgreement, <&!( andforthepastfiveyearsWaterproofinghashadhighersalesthan '8#* anyotherHydroStopdistributorintheworld.Duringthepast  fiveyears,HydroStophasearnedprofitsofatleast$1.5million \ fromWaterproofing'ssales. X  ` Aspartoftheirordinarybusinessrelationship,Hydro   StopnormallyextendedcredittoWaterproofingforthepurchaseof `  HydroStopproducts.WhenWaterproofing'sdebtreached$200,000in  \  2001,HydroStopadvisedthatitwouldextendnofurthercredit   untilthedebtwasrepaid.Inordertopaydownthedebt, d  Waterproofingagreedtopaya"premium"of$15perpailofHydro `  Stopproduct,andbyearly2003,theoutstandingdebthadbeen   reducedto$35,000.Inlate2002orearly2003,HydroStop h reinstatedthecreditlineavailabletoWaterproofing,uptoa d limitof$100,000.   ` AtameetingheldonoraboutNovember5,2003in l Charleston,SouthCarolina,HydroStopadvisedWaterproofingofits h intenttoabrogatetheexclusivityoftheDistributionAgreement  andtodistributeHydroStopproductsdirectlyinPuertoRico. p  Waterproofingobjected,butHydroStopbeganmakingdirectsalesof !l" itsproductsinPuertoRico,atdiscountedpricesandwithcredit "$ termsthatWaterproofingcouldnotmatch.HydroStop'sdirect t$& salesyieldednearlytwicethegrossprofitsasthoseinwhich  &p!( Waterproofingservedasintermediary. '#*  ` Inlate2003,whenWaterproofinghadreachedits$100,000 x)$, creditlimit,itadvisedHydroStopofaprofitableopportunityto $+t&. contractwithPromoExport,anagencyoftheGovernmentofPuerto  Rico("PromoExportProject").HydroStopwouldprovidethe \ materials,andWaterproofingwouldprovidethelabortocomplete X thejob.HydroStopadvancedWaterproofingatotalof$69,200.50   formaterialsnecessaryforPhasesIandIIofthethreephase `  project.ToguaranteethatHydroStopwouldberepaid,thethree  \  partiesenteredintoanagreement,pursuanttowhichPromoExport   wastoissuejointcheckspayabletobothWaterproofingandHydro d  StopfortheworkperformedforthePromoExportProject("Joint `  CheckAgreement").    ` OnoraboutMarch2,2004,uponthecompletionofPhase h I,PromoExportissuedthefirstcheck,payablejointlytoHydro d StopandWaterproofing,intheamountof$88,590.60.Waterproofing  PresidentLuisEstevesIV("Esteves")endorsedthecheckwith l Waterproofing'snameandHydroStop'snameanddepositeditin h Waterproofing'saccountinPuertoRico.OnMarch8,2004,Esteves  obtainedamanager'scheckfromWesternbankinPuertoRico,payable p  jointlytoHydroStopandWaterproofing,intheamountof !l" $66,442.95.EstevessentthechecktoHydroStopwithaletter, "$ datedMarch5,2004,authorizingHydroStoptocashthecheck. t$&  ` InaletterdatedMarch11,2004,HydroStopinformed  &p!( WaterproofingthatitwasterminatingtheDistributionAgreement '#*  becauseWaterproofinghad"misappropriated$22,147.65ofmoneythat x)$, rightfullybelongstoHydroStop,Inc.basedupon[the]jointcheck  agreementwithPromoExport." \  @88) II.  X  ` Wehavejurisdictiontohearinterlocutoryappealsof   preliminaryinjunctionordersunder28U.S.C.1291(a)(1).Inour |  reviewofpreliminaryinjunctions,"wescrutinizeabstractlegal ( x  mattersdenovo,findingsoffactforclearerror,andjudgment $  callswithconsiderabledeferencetothetrier."Re-Ace,Inc.v.   WheeledCoachIndus.,Inc.,363F.3d51,55(1stCir.2004) ,|  (internalcitationandquotationmarksomitted). ( @# A.JustCause    ` PuertoRicoLaw75wasenactedspecificallyto"remedy L theabusivepracticesofsupplierswhoarbitrarilyeliminated H distributorsaftertheyhadinvestedinthebusinessandhad  successfullyestablishedamarketinPuertoRicoforthesupplier's P productorservice."TriangleTradingCo.v.RobroyIndus,Inc., L 200F.3d1,2(1stCir.1999)(internalcitationandquotation   marksomitted).Accordingly,Law75providesthat"noprincipalor T!" grantormaydirectlyorindirectlyperformanyactdetrimentalto #P$ theestablishedrelationship...exceptforjustcause."10P.R. $& LawsAnn.278a. X&!(  ` ThecriticalissueinthiscaseiswhetherHydroStophad (T#* "justcause"toterminatetheDistributionAgreement.Law75 )%, providesthatjustcauseis \+&. 8 ` [n]onperformanceofanyoftheessential  obligationsofthedealer'scontract,onthe  partofthedealer,oranyactionoromission \ onhispartthatadverselyandsubstantially 2 affectstheinterestsoftheprincipalor X grantorinpromotingthemarketingor . distributionofthemerchandiseorservice. ` x` x .10P.R.Laws.Ann.278(d)(emphasisadded). `   ` HydroStopallegestwoseparategroundstosupportits  \  claimofjustcause:Waterproofing'sconsistentfailuretomake   timelypayments,andtheallegedfraudandbreachoftrustarising d  fromWaterproofing'sendorsementanddepositofthePromoExport `  check.Wewilldealwitheachinturn,bearinginmindthatthe   issueofjustcauseunderLaw75isaquestionoffactreviewable h forclearerror.SeeR.W.Int'lCorp.v.WelchFoods,Inc.,88 d F.3d49,51(1stCir.1996).   ` Duringthecourseoftheirbusinessrelationship, l WaterproofingwasoftenlateinitspaymentstoHydroStop,andthe h magistrateconcludedthatbecauseHydroStophadnotpreviously  terminatedtheDistributionAgreementbecauseoflatepayment,it p  couldnotsuddenlychangecoursewithoutviolatingtheprinciple !l" enshrinedinLaw75.Inshort,themagistrateheldthat"whatwas "$ notjustcausethenisnotjustcausenow."Wefindthis t$& conclusiontroubling.  &p!(  ` Thiscourthasheldthat"payingforgoodsontime '#* normallyisoneoftheessentialobligationsofthedealer's x)$, contract,"thenonfulfillmentofwhichcanconstitutejustcause $+t&. underLaw75.PPMChemicalCorp.ofPuertoRicov.Saskatoon  ChemicalLtd.,931F.2d138,139(1stCir.1991)(internalcitation \ andquotationmarksomitted).However,wehaverecognizedan X exceptioninthoseunusualcaseswhere"asupplierdoesnotcare   aboutlatepayments."Id.;seealsoBiomedicalInstrumentand `  Equip.Corp.v.CordisCorp.,797F.2d16,18(1stCir.1986).  \  Waterproofingallegesandthemagistrateseemstohaveagreed   thatHydroStopdidnotcareaboutWaterproofing'slatepayments, d  andthusthatthelatepaymentsdidnotconstitutejustcausefor `  terminationoftheDistributionAgreement.    ` Foritspart,HydroStopallegesthatWaterproofing's h persistentcashflowproblemsledtoapatternofcontinuouslylate d paymentsduringthecourseoftheirrelationship,andthatitwas  forcedtogotogreatlengthsinordertokeepWaterproofing l afloat,includingextendingcredit,creatingpaymentplans,and h grantingspecialconcessions.Atonepoint,HydroStopPresident  NicholasCausey("Causey")madeapersonalloanof$80,000to p  Waterproofing'svicepresidentsothatWaterproofingcouldpayoff !l" someofitsoutstandingdebt. "$  ` Theseeffortsindicatethatfarfrom"notcaring"about t$& thepaymentschedule,HydroStopwasinfactactivelyengagedwith  &p!( theprojectoftryingtoreduceWaterproofing'severgrowingdebt. '#* ItmaywellbethatHydroStopwaswillingtooverlooktheuntimely x)$, paymentsbecauseofWaterproofing'ssuccessfulsalesrecordsfor $+t&. thefirstfouryearsoftheirrelationship.However,wethinkit  quitepossiblethattherewasalimittothesupplier'spatience. \ InMarch2004,whenHydroStopunilaterallyterminatedthe X DistributionAgreement,WaterproofingowedHydroStopmorethan   $120,000.Despitethefactthatthepaymenttermwasthen60days, `  morethan$30,000hadbeenoutstandingforlongerthanthatperiod.  \  ThemagistratewouldhaveusholdthatwhileWaterproofing's   indebtednessinMarch2004mighthaveconstitutedjustcauseifit d  hadbeenthefirstsuchoccurrence,itcouldnotlegitimatelyhave `  beentheproverbialstrawtobreakthecamel'sback.Wedisagree.   ItiscontrarytotheprincipleenshrinedinLaw75torequirethat h suppliersterminatedistributionagreementsimmediatelyupon d distributors'failuretopaytimely,orriskbeingforeverbanned  fromsodoing.Sucharesultwoulddiscourageeffortsonthepart l ofsupplierstoreachcreativesolutionstoenablethesuccessof h longtermrelationshipswithdistributorsinPuertoRico.   ` Despiteourdisagreementwiththemagistrate'sdisposal p  ofHydroStop'sclaimofjustcauseonthebasisof !l" Waterproofing'sfailuretopaytimely,ourstandardofreviewis "$ forclearerror,whichwedonotfindhere.Althoughwecan t$& imagineasituationinwhichadistributordoesnottakeactionto  &p!( terminateitsrelationshipwithasupplierforlatepaymentsuntil '#* manysuchoccurrenceshavegenuinelyexhausteditspatience,there x)$, issufficientevidenceontherecordtosupportthemagistrate's $+t&. conclusionthatthiswasnotsuchasituation.DespiteHydro  Stop'sallegationstotheeffectthatWaterproofing"continuously" \ failedtomaketimelypaymentduringthecourseoftheirbusiness X relationship,inaletterdatedMarch2002,Causeycongratulated   Waterproofingonan"extraordinaryjob...[F]orthesecondyear `  inarowWaterproofingSystemsisatthetopofthelistofallour  \  distributorsintotalsales."Wefindnohintofdissatisfaction   inthosewords.AndinNovember2003,whenHydroStopfirst d  informedWaterproofingofitsintentiontoabrogatetheexclusivity `  oftheDistributionAgreementsothatitcoulddistributeHydro   StopproductsdirectlyinPuertoRico,Waterproofingwaswithinits h creditlimitandcurrentinitspayments.Inthatmonth,despite d Waterproofing'srejectionoftheproposedchangeandwithoutits  knowledge,HydroStopthroughitsownagentinPuertoRico l beganmakingdirectsalesofitsproductstoWaterproofing's h customers,atdiscountedpricesandwithcredittermsthat  Waterproofingcouldnotmatch.Furthermore,HydroStop'sagent p  advisedsomeofWaterproofing'scustomersthatWaterproofingwasno !l" longerHydroStop'sdistributorinPuertoRico.HydroStop's "$ incentivewasclearitsdirectsalesyieldeddoublethegross t$& profitsthatWaterproofing'ssalesbroughtin.Itwasinthis  &p!( contextthatWaterproofingfirstapproachedHydroStopwiththe '#* PromoExportProjectproposal.Afterhearingtestimonyfromboth x)$, parties,themagistratecreditedWaterproofing'stheorythatHydro $+t&. Stop'sclaimofjustcauseonthebasisoflatepaymentswasmerely  apretextforabrogatingtheDistributionAgreement.Wefindno \ reasontoupsetthelowercourt'sdetermination. X  ` HydroStopalsoallegesjustcausetoterminatethe   DistributionAgreementbecauseofWaterproofing'sendorsementand `  depositofthePromoExportcheck,andsubsequentretentionof  \  funds.Themagistratefoundthatitwascommonpracticebetween   thepartiesforWaterproofingtoacceptanddepositchecksissued d  tobothcompaniesandtoremitpaymenttoHydroStop,andthusthat `  suchactionwithregardtothePromoExportcheckwasnot   fraudulent.Onappeal,HydroStopcontendsthatthisfindingis h notsupportedbytherecordandconstitutes"clearerror."Hydro d Stop'sargumenttothisendproceedsinthreeparts:firstthat  Waterproofing'sendorsementanddepositofthePromoExportcheck l wasillegalunderPuertoRicoLaw;nextthatWaterproofing's h actionsbreachedtheJointCheckAgreement;andfinallythat  Waterproofing'sbreachoftheJointCheckAgreementwasinbad p  faith,thusconstitutingjustcauseforterminatingthe !l" DistributionAgreement. "$  ` HydroStopcontendsWaterproofing'sendorsementofthe t$& PromoExportcheckviolatedPuertoRicoLaw.UndertheLawof  &p!( NegotiableInstruments, '#* 8 ` Ifaninstrumentispayabletotwoormore x)$, personsalternatively,itispayabletoanyof N*%- themandmaybenegotiated,discharged,or $+t&. enforcedbyanyoralloftheminpossession +J'/ oftheinstrument.Ifaninstrumentis  payabletotwoormorepersonsnot  alternatively,itispayabletoallofthem \ andmaybenegotiated,discharged,orenforced 2 onlybyallofthem.Ifaninstrumentpayable X totwoormorepersonsisambiguousasto . whetheritispayabletothepersons   alternatively,theinstrumentispayableto   thepersonsalternatively.` ` x` x U19P.R.LawsAnn.510(d)(emphasisadded).HydroStopmaintains  \  that,undertheJointCheckAgreement,neitherpartycould   unilaterallyendorseanddepositthePromoExportcheck.However, d  HydroStopdoesnotallegethatthecheckitselfwaspayableto `  HydroStopandWaterproofing"notalternatively."Thus,wemust   concludethattheinstrumentwasambiguousastothispoint,andby h lawsuchaninstrument"maybenegotiated,discharged,orenforced d byanyoralloftheminpossessionoftheinstrument."Id.   ` HydroStopnextcontendsthatWaterproofingbreachedthe l JointCheckAgreementintwoseparateways!bothbyunilaterally h endorsinganddepositingthePromoExportcheck,andalsoby  retainingsomeofthefundsinitsownaccount.TheJointCheck p  Agreement,signedbyPromoExport,Waterproofing,andHydroStop, !l" providesthat, "$ 8 ` Assecurityforpaymentofamountsduefrom t$& WaterproofingSystemstoHydroStop,Inc. J% ' (Manufacturer),formaterialssuppliedto  &p!( WaterproofingSystemsandPromoExport &F") (Owner/Contractor)agreethatallpayments '#* fromPromoExport(Owner/Contractor)to (#+ WaterproofingSystemsinconnectionwith x)$, ProjectCentroMercantilInternacional,San N*%- Juan,PR,(Project)willbemadebycheck $+t&. issuedjointlypayabletoWaterproofing +J'/ SystemsandHydroStop,Inc.Waterproofing  SystemsandPromoExport(Owner/Contractor)  agreethatthetotalvalueofsuchpayments \ willbeatleast$246,085.00.Waterproofing 2 Systemsacknowledgesthatitremainsfully X liabletoHydroStopforpaymentformaterials . totheextentHydroStop,Inc.hasnot   receivedpaymentforthisagreement. ` x` x ] ` Onitsface,theJointCheckAgreementrequiresmerely 6   thatallchecksfromthePromoExportprojectbe"jointlypayable"  2  tobothparties.Itissilentastothequestionofwhethereither   partywasprohibitedfromunilaterallyendorsinganddepositing :  suchchecks.Themagistratelookedtothecustomarypracticeof 6 thepartiesandfound"credibleevidence"thatthisverysequence  ofeventshadbeenrepeatedatleastonehundredtimesduringthe > courseoftheirrelationship.U   2      ׀Themagistratefurtherfoundthat : "[HydroStop'spresident]nevervoicedanobjection[tothe  practice]aslongasHydroStopwaspaidbyWaterproofing."Itis B difficulttounderstandwhy,ifHydroStopwantedtoseeanendto > thispractice,itwasnotspecificallyaddressedintheJointCheck  Agreementoranotheragreementbetweentheparties. F !  ` HydroStopalsomaintainsthatWaterproofingviolatedthe !B# JointCheckAgreementbyretainingsomeofthefundsderivedfrom #% thePromoExportcheck.HydroStopinsiststhattheentiretyof  thedifferencebetweentheamountofthePromoExportcheckandthe \ amountoftheWesternbankmanager'scheck$22,147.65 X constitutedmisappropriatedfunds.Bycontrast,themagistrate   foundthattheamountofthemanager'scheckwasonly$2,757.55 `  lessthanthetotalamount$69,200.50Waterproofingowed  \  HydroStopformaterialsusedinbothPhaseIandIIdespitethe   factthatthePromoExportcheckwaspaymentforPhaseIonly.In d  otherwords,Waterproofingclaimsandthemagistrateagreed `  thatthemanager'scheckactuallyreflectedasevenmonthadvance   paymenttoHydroStopformaterialsusedinPhaseII.TheJoint h CheckAgreementprovidesonlythatWaterproofing"remainsfully d liabletoHydroStopforpaymentformaterials."Nowhereinthe  JointCheckagreementorinanyotherwrittenagreementbeforethis l Courtisthereanyprovisionastothepaymentscheduleforthe h remainderoftheproceedsfromthePromoExportproject.As  evidencethatWaterproofingmisappropriatedmorethan$20,000, p  HydroStopmerelydirectsourattentiontothetestimonyofCausey !l" andcoowner,RichardDaniel("Daniel"),whoattestedtoHydro "$ Stop'sinterpretationoftheJointCheckAgreement,accordingto t$& whichWaterproofingwasobligatedtosigneachcheckreceivedfrom  &p!( thePromoExportprojectandphysicallysendthesignedinstrument '#* toHydroStopfordepositinHydroStop'saccount.HydroStop x)$, failstodevelopanyargumentthatmightenableustofinderrorin $+t&. themagistrate'sdecisionwithregardtothealleged  misappropriation. \  ` HydroStopnextcontendsthatWaterproofing'sretention X offundsfromthePromoExportcheckwasinbadfaith.   3      ׀Under   PuertoRicolaw,thereisdolus,or"badfaith"whenapartyhas `  demonstrated"willfulandvoluntaryfailuretocomplywith[alegal  \  obligation]knowingthatheiscarryingoutanunfairact."   Canalesv.PanAmerican,No.R-81-12R-80-318,1982WL210645(P.R. d  Mar.18,1982)(trans).HydroStopallegesthatEstevesactedin `  badfaithwhenhe"unilaterallydecidedtofraudulentlyendorse"   thePromoExportcheckandthen"attempt[ed]toconceal"his h actions.Asevidence,HydroStoppointstoEsteves'sadmission d thatafterendorsinganddepositingthePromoExportcheck,he  purchasedamanager'scheckfromWesternbankinPuertoRico,made l payabletobothHydroStopandWaterproofing,whichhethen h endorsedandsenttoHydroStop.Fromthis,HydroStopconcludes  thatEsteveswillinglyandknowinglyviolatedhislegalobligation, p  contendingthat"[t]heintentwasobvious,topassoffWesternbank !l" Manager'sCheckasthePromoExportcheck."Thethresholdinquiry "$ indeterminingwhetherEstevesactedinbadfaithiswhetherhe t$& failedtocomplywithalegalobligation.Becausewefindthathe  &p!( wasneitherprohibitedfromendorsinganddepositingthechecknor '#* obligatedtoremitthetotalityoftheproceedstoHydroStop,we  findthathecouldnothaveactedinbadfaith. \ @  B.PreliminaryInjunction  X  ` Becausethisisadiversitycase,thesubstantivelawof   PuertoRicoapplies.DeMossv.KellyServices,Inc.,493F.2d |  1012,1015(1stCir.1974);seealsoErieR.R.Co.v.Tompkins,304 ( x  U.S.64,78(1938).UnderArticle3AofthePuertoRicoDealer's $  Act,inanycaseinvolvingtheterminationofa"dealer's   contract," ,|  8 ` thecourtmaygrant,duringthetimethe ( litigationispendingsolution,any  provisionalremedy...orderinganyofthe  parties,orboth,tocontinueinallits Z terms,therelationestablishedbythe 0 dealer'scontract,and/ortoabstainfrom V performinganyactoranyomissionin , prejudicethereof.Inanycaseinwhichthe  provisionalremedyhereinprovidedis  requested,thecourtshallconsiderthe ^ interestsofallpartiesconcernedandthe 4 purposesofthepublicpolicycontainedin  Z thischapter.0` x` x y10P.R.LawsAnn.278b1(emphasisadded).UnderLaw75,a   preliminaryinjunctionisavailabletoorderpartiestocontinue 8!" theirbusinessrelationshipsunderexistingdistributionagreements "4$ pendinglitigation.ReAce,363F.3dat5455.Apreliminary $& injunctionunderthisstatutoryprovision"isnottiedtoashowing <&!( ofirreparableinjuryortoprobabilityofsuccessinthecaseon '8#* themerits,butrathertothepoliciesoftheActinpromotingthe )$, continuationofdealershipagreementsandthestrictadherenceto @+&. theprovisionsofsuchagreements."DeMoss,493F.2dat1015;see  alsoLuisRosario,Inc.v.AmanaRefrigeration,Inc.,733F.2d172, \ 173(1stCir.1984). X  ` Thefundamental"publicpolicyoftheActistoprevent   dealerterminationwithoutjustcause."LuisRosario,733F.2dat `  173(internalcitationandquotationmarksomitted).Havingfound  \  thatpublicpolicyconsiderationsmilitateinfavorofthe   continuedoperationoftheDistributionAgreement,weturntothe d  interestsofthepartiestodeterminewhetherapreliminary `  injunctionisappropriate.HydroStopisaninternationalcompany   withannualrevenuesofmorethan$7.5millionannually,whose h revenueshavesteadilyincreasedsinceitenteredintothe d DistributionAgreementwithWaterproofing,inlargepartbecauseof  thelatter'ssuccessincreatingamarketforHydroStopproducts l inPuertoRico.Bycontrast,Waterproofingisasmall,closely h heldfamilybusinesswhichreliesalmostexclusivelyonitssaleof  HydroStopproducts.SinceHydroStopbegansellingitsproducts p  directlytoWaterproofingclientsinPuertoRico,Waterproofinghas !l" beenforcedtolayoff127employees.Themagistratefoundthat "$ HydroStop'sactionshavealreadyclearlyandunequivocallyharmed t$& Waterproofing'sreputationinPuertoRico.Weaccordconsiderable  &p!( deferencetothemagistrate'sjudgmentthatthebalanceofthe '#* parties'interestswithregardtoapreliminaryinjunctionfavors x)$, Waterproofing.Althoughthetraditionalcommonlawtestfora $+t&. preliminaryinjunctiondoesnotapplyhere,wehavefoundthat"the  court'sviewofthemeritswouldcertainlyaffectitsjudgmentof \ theweightoftheparties'interestsandoftheinjunction'seffect X onthestatutorypolicies."PanAm.ComputerCorp.v.DataGen.   Corp.,652F.2d215,217(1stCir.1981).Themagistratefound `  thattherewasa"substantiallikelihoodofsuccessonthemerits"  \  attrialtojustifyapreliminaryinjunctioninfavorof   Waterproofing,andwefindnofaultwiththatassessment. d  @( III.  `   ` Becausewehavefoundnoerrorinthemagistrate's ( determinationthatHydroStopterminatedtheDistributionAgreement  withoutjustcause,wefindthatthepreliminaryinjunctionwas 0 properlygranted. ,  `  Affirmed.