Tuesday, June 30, 2015

Federal district court invalidates forum selection clause in an agreement governed by Law 21

Law 21 protects an exclusive sales representative in Puerto Rico from an unjustified termination of the agency or brokerage agreement. Law 21 is the counterpart of Law 75 (protecting dealers). As of late, courts have been all over the map on whether forum selection clauses (providing for litigation in state courts not arbitration) in agreements governed by Laws 75 or 21 violate Puerto Rico’s public policy, and are therefore, unenforceable.

In Victory Management Solutions, Inc. v. Grohe America, Inc., 2015 WL 2183148 (D.P.R. May 11, 2015)(Fusté, J.), the supplier Grohe moved to dismiss on grounds of forum non conveniens (not for failure to state a claim under Rule 12(b)(6)). Grohe alleged that the Law 21 claim for alleged wrongful termination of contract fell under a mandatory forum selection clause providing for litigation in Illinois. The district court found many problems with the chosen venue which made the clause unreasonable and unenforceable under the Court’s Bremen analysis. The district court determined that the clause had no connection to the parties, the agreement, or the dispute. Grohe’s lease of a third party warehouse for storage, logistics, distribution and service support was insufficient and made it unfair for the agent to litigate in Illinois. The court also gave weight to the fact that an Illinois court would most probably apply Puerto Rico law despite a contrary choice of law clause in the agreement.

The court also held that the clause was not invalid under Law 21’s public policy. While this part of the court’s decision is dicta, it opines on an issue previously left unresolved by the First Circuit in the Rodríguez Barril case but is consistent with other decisions validating forum selection clauses in distribution agreements governed by Law 75.