Tuesday, July 14, 2009

Is the federal court a more favorable forum for principals in Law 75 or Law 21 cases? Federal court enforces choice of law and forum selection clauses

Despite the possible disadvantages to defendants of trial by jury in federal civil cases (there is no right to trial by jury for ordinary civil cases in local Puerto Rico courts), many defendants opt to file first in federal court or remove to federal court cases filed against them in the local courts. A perception may exist that federal courts are more receptive or uniform in the resolution of cases by summary judgment than the local courts. With Daubert's requirements for the admission of expert testimony, one could argue that federal courts are more rigorous in their gatekeeping function to limit or exclude expert testimony in commercial cases than the local courts in bench trials generally are. The U.S. District Court of Puerto Rico and the First Circuit have also developed over decades a body of jurisprudence settling many Law 75 and Law 21 issues raised in diversity cases. For these reasons, a defendant may have reason to think that the federal court is a more favorable forum even considering the risk of trial by jury.

One example is Rodriguez Barril v. Conbraco Industries, 2009 WL 1940424 (D.P.R. June 30, 2009)(Garcia-Gregory, J.), where a sales representative filed a termination action against the principal under Law 21 in the local court. After defendant removed the case on grounds of diversity jurisdiction, plaintiff attacked with a motion for a preliminary injunction. Defendant responded with a motion to dismiss to enforce a forum selection clause selecting the law and courts of North Carolina. The court referred the motions to a U.S. Magistrate Judge (Velez-Rive) who recommended a dismissal of the action. After de novo review, the court agreed with the Magistrate and dismissed the action without prejudice. The court concluded that federal law favored the enforcement of forum selection clauses, the clause in the agreement was mandatory not permissive, and Law 21 did not proscribe the enforcement of forum selection clauses. As to the choice of law clause of North Carolina, to the exclusion of Puerto Rico law, the court concluded that “Plaintiff knew that these provisions would be enforced in the event of an alleged breach.” Note that the court did not have before it a Law 75 claim and the outcome may not necessarily be the same in that situation.

Lesson learned: choose carefully where to file or defend a Law 75 or Law 21 case depending on the legal issues at stake as the forum may determine the outcome.