Removal of Law 75 case to federal court was outcome-determinative of the forum for litigation

It matters when a Puerto Rico distributor accepts a contract with arbitration and choice of law or forum in jurisdictions outside Puerto Rico. Most often, these clauses are negotiated, but the supplier holds the line and the distributor capitulates to acquire a potentially valuable line on the supplier’s take it or leave it terms or pass and give the new business to a competitor. It is obvious that the parties are not in equal bargaining positions because the supplier almost always has the leverage of adding incremental profit from the new business to the distributor. And, suppliers are mostly informed (not always correctly or well informed) of Law 75's principles. ADR provisions are a way to minimize what suppliers perceive is an exposure to risk from doing business in Puerto Rico. Then, years ahead, when the distributor creates a market and goodwill for the products it is left without an effective recourse if the supplier takes its rights away without compensation. The choice is to litigate or arbitrate in the supplier’s home court, which increases the costs of litigation to the distributor and gives the supplier a natural advantage. In AM Medical Technologies v. Candela Corporation, 2025 WL 2466273 (D.P.R. Aug. 27, 2025) (Arias, J.), a Puerto Rico distributor signed a dealer agreement with a supplier of medical devices with a Massachusetts choice of law clause and a mandatory choice of forum clause in that state. Distributor sued in PR state court for termination of the agreement under Law 75. Defendant removed the case to federal court and moved to dismiss under 12(b)(6) or transfer under 1404(a). Plaintiff correctly argued that the text of Law 75 expressly nullifies forum selection clauses outside PR. The court would not revisit this issue, holding that First Circuit caselaw requires a transfer or dismissal of Law 75 cases and the clause is prima facie valid under federal law. The court dismissed the case without prejudice. As I have written before, had the case remained in state court, the outcome would probably have been different. The PR Supreme Court had not decided the validity of a stateside or foreign choice of forum clause in Law 75 cases. Federal and state court decisions are in conflict on the enforcement of forum selection clauses in Law 75 cases.