Tuesday, December 22, 2009

A first-filed case related to a Law 75 action stays in Texas with personal jurisdiction over the Puerto Rico franchisee

Case law reported during the past two years, including in Law 75 actions, proves that the party who wins the race to the courthouse normally stays in the chosen forum. The lesson to be learned is that in a contractual dispute under Law 75, unless the parties have agreed to negotiate and stay the filing of actions, the best adage is “sue first and talk later” especially in the absence of a choice of forum clause.

In Metromedia Steakhouses Company v. BMJ Foods Puerto Rico, 2008 WL 794533 (N.D.Tex. Mar. 26, 2008), a franchisor and operator of Ponderosa steakhouses in Puerto Rico sued a franchisee first in state court in Texas, and later transferred to federal court, for wrongful withholding of fees under the franchise agreement. The franchisee responded with a suit in Puerto Rico local court for breach of contract presumably under Law 75, a case later removed to federal court.

In defending a motion to transfer, the franchisee argued that the Texas case was not first-filed because the Texas court had not asserted jurisdiction over the action, an argument which the federal court in Texas rejected. The franchisee failed to offer any evidence to prove that relevant factors, such as the convenience of third-party witnesses, favored transferring the case to Puerto Rico. Despite Puerto Rico courts’ greater familiarity with Law 75, the court found that the balance of all the other factors weighed in favor of keeping the case in Texas.

The court also asserted specific personal jurisdiction over the Puerto Rico franchisee from negotiating the contracts in Texas, exchanging correspondence and maintaining a business relationship over 10 years with the Texas franchisor and from business visits to Texas.