A panel of Puerto Rico’s intermediate appellate court invalidates choice of forum provision under Law 75

In Home Orthopedics Corp. v. Rikco International, 2020 WL 3455027 (TCA 2020), an exclusive distributor of orthopedic shoes sued both its principal for termination under Law 75 and KMart for tortious interference. The supply agreement had a mandatory and broad choice of forum clause providing for resolution of disputes in Wisconsin. The trial court dismissed the complaint with prejudice to enforce the forum selection clause, relying principally on federal caselaw. It is unclear from the opinion why it was a dismissal with prejudice when enforcement of the clause only had a jurisdictional effect, not on the merits of the claims. The appellate court reversed and remanded. First, the court held that the supply agreement had expired on its own terms and was not renewed in writing. Although the parties conducted business after its expiration date without a new agreement, the court held that the there was no valid and binding choice of forum clause. Second, assuming it was in effect, Law 75 invalidates a provision mandating litigation outside of Puerto Rico as a matter of public policy. There are three things to learn or remember from this case. One, for suppliers not to do business without a written contract and be vigilant to renew or negotiate the terms of a new agreement before the old one expires. Two, there is an actual conflict between federal courts and Puerto Rico’s intermediate appellate courts on the enforcement of mandatory choice of forum provisions in Law 75 contracts. Third, an arbitration agreement with a mandatory choice of forum clause outside Puerto Rico is binding and enforceable under the Federal Arbitration Act, that preempts Law 75 on this issue. A properly crafted arbitration clause would have solved the locale for dispute resolution in this case.