Thursday, February 10, 2011
Federal Court enforces mandatory forum-selection clause in a distribution agreement despite Law 75’s provision that litigation outside of Puerto Rico violates public policy.
While Law 75 is a remedial law of public order, courts harmonize the interest to protect Puerto Rico distributors from unjustified terminations after they create a favorable market for the principal’s products and the competing interest behind the enforcement of forum-selection clauses that “increase convenience and predictability for business actors.” Marpor Corporation v. DFO, LLC and Denny’s Inc., No. 10-1312 (D.P.R. Dec. 2, 2010)(Perez-Gimenez, J.). In Marpor, Plaintiff, a Denny’s franchisee, brought an action to declare that the franchisor had terminated an exclusivity provision without just cause. The District Court noted that both federal and Puerto Rico courts generally enforce forum selection clauses in the absence of fraud, bad faith, or overreaching. The court found that the South Carolina forum selection clause in the agreement was mandatory, not permissive. Further, the court held that the legitimate interest of providing convenience and uniformity to business actors as to the locale for resolving their disputes outweighs Law 75’s express provision that dealer disputes must be litigated (and arbitrated) solely in Puerto Rico. Accordingly, the court granted Defendant’s Rule 12(b)(6) motion to dismiss.