Tuesday, November 23, 2010

A complaint with a Law 21 claim was properly removed to federal court after satisfying the minimum jurisdictional amount for diversity jurisdiction.

I have witnessed a trend by franchisees, distributors, and sales representatives of doing everything in their means to avoid litigation in federal court of their claims brought under Laws 75 and 21. At first glance, the strategy seems perplexing particularly when there is a right to trial by jury in federal court (but not in local Puerto Rico courts); and generally, federal courts are quicker to judgment. Deep down, however, the issue of forum selection is more complex and the decision of where to sue is influenced by many factors. For example, local courts are more inclined to deny motions for summary judgment in part due to the Supreme Court of Puerto Rico’s procedurally stringent standard for summary disposition. By the same token, federal courts have developed over the years a body of jurisprudence in distribution cases that provide support for the granting of motions in limine to exclude or limit expert testimony and allow more readily summary judgment for principals in certain cases. Whether it is perception or reality the fact remains that Plaintiffs implement a number of tactics to avoid the federal court in these cases including the “fraudulent” joinder of a diversity-defeating co-defendant, a Puerto Rico distributor, or the subsequent filing of a similar action in local court when a “first-filed” case was pending in federal court against the same parties. And, suing for less than the jurisdictional amount may get a party out of federal court, too (or not!).

The case under discussion, Ramirez de Arellano v. Budenheim USA, Inc. 2010 WL 3810078 (D.P.R. Sept. 22, 2010)(Perez-Gimenez,J), presents the anomaly where the Plaintiff alleged that his damages were lower and the Defendant alleged that his actual economic damages were higher. There, Plaintiff, a sales representative in a case brought under Law 21, alleged on the face of the complaint less than the jurisdictional minimum of $75,000 when Law 21 would have allowed a claim for recovery of a greater amount of damages. Defendant removed the case to federal court. Plaintiff moved to remand alleging there was no subject matter jurisdiction. Defendant opposed the remand contending that, at relevant times, Plaintiff had a sales volume of $1.6 million and that Law 21 permitted recovery of 5% the total sales volume plus loss of goodwill and other damages.

Faced with conflicting allegations, the court determined that Plaintiff, who represented Defendant over a 20 year-relationship (presumably Law 21 would not have applied unless an extinctive novation occurred-an issue not addressed by the parties or the court at this time), would be entitled to potential recovery of at least $80,000. Since it is not a legal certainty that the claim involves less than the jurisdictional minimum, the court denied Plaintiff’s motion to remand and set a briefing schedule for Defendant’s motion to dismiss.

Wednesday, November 17, 2010

Another victory for principals: are forum selection clauses enforceable in Law 75 cases?

Not automatically, but almost always. Puerto Rico Surgical Technologies, Inc. v. Applied Medical Distribution Corp., 2010 WL 4237927 (D.P.R. Oct. 26, 2010)(Pieras, J.) is no exception. There, the parties executed a distribution agreement with a California choice of law clause and a mandatory forum selection clause vesting California federal and state courts with exclusive jurisdiction. Plaintiff filed an action for damages under Law 75 in local court, which was then removed to federal court. Finding no difficulty in enforcing the forum selection clause under federal or Puerto Rico law, the court granted a motion to dismiss the complaint without prejudice. Distinguishing the First Circuit’s Combraco decision as dicta (reported in my previous blog) suggesting that Law 75’s public policy disfavoring litigation outside Puerto Rico may outweigh the federal interest in enforcing a forum selection clause, the district court held that enforcement of the forum selection clause in this case did not contravene an important public policy of Puerto Rico, was negotiated freely, and was not otherwise unreasonable. At least where the parties and the facts underlying the claims have a sufficiently close nexus to California, the court will not invalidate a forum selection clause simply because of Plaintiff’s inconvenience in litigating outside Puerto Rico.