Sunday, November 18, 2018
Mandatory forum selection clause in the Netherlands is held valid and enforceable to litigate Law 75 claims
In MD Distributors, Corp. v. Dutch Ophthalmic Research Center, 322 F. Supp. 3d 272 (D.P.R. 2018) (FAB), a Puerto Rico dealer sued a Dutch medical devices manufacturer in local court for termination of the dealer’s contract and damages under Law 75. The manufacturer removed the case to federal court and moved to dismiss under FRCP 12(b)(6) to enforce a forum selection clause providing for litigation in the Netherlands. After canvassing applicable federal jurisprudence and rejecting every conceivable argument that the dealer could make to escape litigation in the Netherlands, the court held that the dealer had failed to meet the “exceedingly high threshold” to invalidate the forum selection clause. Basically, the Netherlands provided an adequate forum to seek redress for the Law 75 claim. It was unlike Iran or South Korea that did not provide an adequate forum or did not recognize the validity of the claim.
The court also followed precedent in federal district court cases holding that the forum selection clause providing for litigation in a foreign country or in the States for that matter (with a connection to one of the parties or to the claims) was valid and enforceable despite Law 75’s express mandate for litigation in Puerto Rico. This aspect of the court’s ruling is more controversial as there is some authority in the Puerto Rico appellate courts invalidating a forum selection clause providing for litigation of Law 75 claims in a State (as there would be no FAA preemption issue concerning forum selection clauses within an arbitration agreement). This issue was not raised in this case and it may come up in a timely request for certification to PR’s Supreme Court.
Dealers beware! The forum selection clause in this case became part of an amended contract to the dealer's agreement. Seldom do dealers have a choice or leverage to negotiate amendments like this and face a difficult choice between a subtle or direct threat of termination or a refusal to deal if the amendment is not accepted. It should be clear by now that arbitration and forum selection clauses are amongst the few valid legal options available for manufacturers to minimize any Law 75 liability. But signing the agreement proves no solace to a dealer that eventually faces a termination and is forced to litigate its claims in a distant forum at a great cost and expense and before judges or arbitrators who have no clue about Law 75. Biting the bullet and refusing to accept a mandatory non-Puerto Rico litigation clause may be worth the business risk since that is the only real option to preserve litigation of a Law 75 claim in the local courts. This is particularly true when the manufacturer seeks to add the forum selection clause by an amendment to the established relationship. On the other hand, for the manufacturer, demanding arbitration and forum selection clauses as conditions to do business should be the standard protocol since the federal courts are more hospitable than ever to enforce the arbitration and forum selection provisions as written.