Johnny Rockets, Inc. v. DDR del Sol LLC, S.E.

Filing 95

OPINION AND ORDER granted 51 Motion to Dismiss 45 Third-Party Amended Complaint. Signed by Judge Carmen C. Cerezo on 1/31/2012. (mld)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
JOHNNY ROCKETS, INC.
Plaintiff
vs

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DDR DEL SOL LLC, S.E.
Defendant/Third-Party Plaintiff
vs
CARLOS A. GARCIA-PEREZ, JANE DOE
and the conjugal partnership constituted
between them
Third-Party Defendants

OPINION AND ORDER
Before the Court is third-party defendants Carlos A. García-Pérez (“García-Pérez”)
and the García-Baerga Conjugal Partnership’s motion to dismiss for lack of personal
jurisdiction (docket entry 51), defendant/third-party plaintiff DDR del Sol LLC, S.E.’s
(“DDR del Sol”) opposition thereto (docket entry 57), and a reply filed by García-Pérez and
the García-Baerga Conjugal Partnership (docket entry 75).
This case was originally filed by plaintiff Johnny Rockets of Puerto Rico, Inc. (“Johnny
Rockets”) against DDR del Sol before the Puerto Rico Commonwealth Court of First
Instance, Bayamón Division. DDR del Sol removed the case to this Court (docket entry 1)
and, after answering the complaint (docket entry 4), filed a Third-Party Complaint against
García-Pérez, Jane Doe, and the Conjugal Partnership García-Doe based upon an alleged
guaranty agreement executed by Mr. García-Pérez (docket entry 5). The Third-Party
Complaint was amended on September 15, 2011 to substitute Mrs. Gisela Baerga for Jane
Doe (docket entry 45). An order staying the proceedings in the original action between
Johnny Rockets and DDR del Sol was entered after Johnny Rockets filed a bankruptcy

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petition before the United States Bankruptcy Court for the District of Puerto Rico on
March 15, 2011 (docket entries 30 and 46).
In their motion to dismiss, García-Pérez and the García-Baerga Conjugal Partnership
contend that the parties to the guaranty agreement stipulated in it that the courts of Puerto
Rico would be the exclusive forum to enforce the terms of the guaranty contract, and now
request dismissal of the Third-Party Amended Complaint based on said stipulation. A copy
of the Guaranty Agreement was included with the motion to dismiss (docket entry 51). In
its opposition, however, DDR del Sol claims that the forum selection clause reference to the
"courts of Puerto Rico" should be read to include the United States District Court for the
District of Puerto Rico (docket entry 57).
I.

LEGAL STANDARD FOR A MOTION TO DISMISS BASED ON A FORUM
SELECTION CLAUSE
In the First Circuit, a request for dismissal based on a forum-selection clause is

analyzed using the firmly established Fed. R. Civ. P. 12(b)(6) standards and may be raised
at any time in the proceedings before disposition of the case. Silva v. Encyclopedia
Britannica, Inc., 235 F.3d 385, 388 (1st Cir. 2001); Rivera v. Centro Médico del Turabo, Inc.,
575 F.3d 10, 15 (1st Cir. 2009). When the document which contains the forum selection
clause is not included in the complaint and is first introduced in the motion to dismiss, the
Court can still consider the motion under Rule 12(b)(6) if the authenticity of the document
is not disputed by the parties. Rivera v. Centro Médico del Turabo, Inc., supra. In this case,
the parties have not raised any controversy regarding the authenticity of the guaranty
contract where the forum selection clause at issue is contained. The Third-Party Amended
Complaint, in fact, is strictly based on the enforcement of said guaranty contract entered into
between the third-party plaintiff and the third-party defendants. Consequently, although
copy of the Guaranty was first introduced by the third-party defendants in their motion to
dismiss, the Court may still consider said motion under the standards of Fed. Rule of Civil
Procedure 12(b)(6) and need not convert it into a summary judgment motion.

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Under Fed. Rule of Civil Procedure 12(b)(6), “the district court must accept as true
the well-pleaded factual allegations of the complaint, draw all reasonable inferences
therefrom in the plaintiff's favor, and determine whether the complaint, so read, limns facts
sufficient to justify recovery on any cognizable theory.” Rivera v. Centro Médico del Turabo,
Inc., supra (citing LaChapelle v. Berkshire Life Ins. Co., 142 F.3d 507, 508 (1st Cir. 1998)).
To survive a motion to dismiss, the plaintiff must allege in the complaint sufficient facts to
demonstrate a plausible entitlement to relief. Hill v. Gozani, 638 F.3d 40 (1st Cir. 2011).
II.

THE FORUM SELECTION CLAUSE
As noted above, the Third-Party Amended Complaint filed by DDR del Sol against the

third-party defendants is premised on a guaranty agreement executed on January 26, 2004
between Mr. Carlos A. García-Pérez and CPR del Sol, L.P., S.E. (the predecessor in interest
of DDR del Sol). The Guaranty was executed with the purpose of guaranteeing the
obligations of Johnny Rockets of Puerto Rico, Inc. under a lease agreement executed with
CPR del Sol, L.P., S.E. on February 3, 2004 to occupy certain premises within the Plaza del
Sol Shopping Center (docket entry 45).
With respect to the forum where disputes shall be dealt with, the guaranty agreement
specifically provides as follows:
The Lease and this Guaranty shall be governed by, interpreted under the laws
of, and enforced in the courts of Puerto Rico.
Because this suit was removed to this Court based on diversity of citizenship, it raises
the unsettled issue of whether to treat forum-selection clauses as substantive (and apply
state law) or procedural (and apply federal law) under Erie R.R. Co. v. Tompkins, 304 U.S.
64 (1938). However, since “there is no conflict between federal common law and Puerto
Rico law regarding the enforceability of forum-selection clauses,” federal common law can
be applied. Silva v. Encyclopedia Britannica, Inc., 239 F.3d 385, 387 n.1 (1st Cir. 2001).
See also Rafael Rodríguez Barril, Inc. v. Conbraco Indus., 619 F.3d 90, 92 (1st Cir. 2010);
Rivera v. Centro Médico del Turabo, Inc., supra.

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Under federal law, “the threshold question in interpreting a forum-selection clause is
whether the clause is permissive or mandatory.” Rivera v. Centro Médico del Turabo, supra.
In determining whether a forum selection clause is mandatory or permissive, the courts
analyze the particular language of the clause. “A permissive forum-selection clause, often
described as a ‘consent to jurisdiction’ clause, authorizes jurisdiction and venue in a
designated forum, but do[es] not prohibit litigation elsewhere . . . [i]n contrast, [a] mandatory
forum selection clause [...] contain[s] clear language indicating that jurisdiction and venue
are appropriate exclusively in the designated forum.” Id. Of course, even if a clause is
mandatory, it “merely constitutes a stipulation in which the parties join in asking the court to
give effect to their agreement by declining to exercise its jurisdiction.” Silva, 239 F.3d
at 388, n. 6. It does not, however, divest a court of jurisdiction that it otherwise retains. Id.
It has been held by the Court of Appeals for the First Circuit that “[t]he parties’ choice
of the word ‘will’ --a word commonly having the mandatory sense of ‘shall’ or ‘must’-demonstrates their exclusive commitment to the [...] named forums. Most succinctly, the
plain meaning of the phrase ‘will be submitted’ is that the course of action is required, not
discretionary.”

Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d 9, 12

(1st Cir. 2001) (holding that term in contract providing that parties "will submit" their dispute
to a specified forum implied the exclusion of all other forums). Similarly, in Silva, the First
Circuit Court of Appeals interpreted the following forum-selection clause: “This agreement
shall be governed by the laws of the State of Illinois and all actions involving this agreement
must be brought in the State of Illinois.” The Court found that the word “‘must’ expresse[d]
the parties intention to make the courts of Illinois the exclusive forum for disputes arising
under the contract,” id., at 389, and concluded that the forum-selection clause was
mandatory.
The contract in this case provides that the agreement “shall be governed by,
interpreted under the laws of, and enforced in the courts of Puerto Rico.” As in Silva, the

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forum selection clause in the guaranty contract is mandatory since by making reference to
parallel structures (governed by, interpreted under the laws of, and enforced in the courts
of Puerto Rico) following the word “shall,” the parties selected a language that demonstrates
their exclusive submission to the laws and the courts of the Commonwealth of Puerto Rico,
with the exclusion of all other forums. Hence, the Court holds that the forum selection
clause in the Guaranty is a mandatory clause. See also LFC Lessors v. Pacific Sewer
Maintenance Corp., 739 F.2d 4 (1st Cir. 1984) (holding that the language “shall be
interpreted, and the rights and liabilities of the parties hereto determined, in accordance with
the law, and in the courts, of the Commonwealth of Massachusetts” constituted a mandatory
forum selection clause); Nascone v. Spudnuts, Inc., 735 F.2d 763, 765 (3d Cir. 1984)
(holding that the language "venue for any proceeding . . . shall be Salt Lake County, State
of Utah," constituted a mandatory forum selection clause); Milk 'N' More, Inc. v. Beavert,
963 F.2d 1342, 1345-46 (10th Cir. 1992) (holding that the language “venue shall be proper
under this agreement in Johnson County, Kansas” constituted a mandatory forum selection
clause).
“A mandatory forum selection clause carries a ‘strong presumption of enforceability’.”
Rivera v. Centro Médico de Turabo, Inc., supra. “It is well established that forum selection
clauses are prima facie valid and should be enforced unless enforcement is shown by the
resisting party to be 'unreasonable' under the circumstances. More specifically, a forum
selection clause should be enforced unless the resisting party can show that enforcement
would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud
or overreaching . . . [or that] enforcement would contravene a strong public policy of the
forum in which suit is brought, whether declared by statute or by judicial decision.” Id. (citing
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)). DDR del Sol has not
challenged the validity of the forum selection clause in the guaranty contract, neither has it
made any argument to hold that its enforcement would be unreasonable and unjust, or that

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it contravenes public policy.

6
Hence, the forum selection clause should be enforced

according to its terms.
In opposing the motion to dismiss filed by García-Pérez and the García-Baerga
Conjugal Partnership, DDR del Sol avers that the phrase “courts of Puerto Rico” included
in the forum selection clause should be interpreted to include the United States District Court
sitting in Puerto Rico. This interpretation, however, runs contrary to the previous decisions
of the Court of Appeals for the First Circuit and to the majority view in the federal courts.
See LFC Lessors v. Pacific Sewer Maintenance Corp., supra. (“The phrase ‘courts of
Massachusetts’ . . . was intended to mean that all actions on [the] contract must be brought
in the Massachusetts state courts.”) See also Portfolio Management Group, LLC v. Bitach
Fund I, LLC, 2010 U.S. Dist. LEXIS 18698 (U.S.D.C. Minnesota 2010) (holding that the
phrase “courts of a particular state” “unambiguously refers only to that state's courts, not to
federal courts sitting within the boundaries of that state."); Am. Soda, LLP v. U.S. Filter
Wastewater Group, Inc., 428 F.3d 921, 926 (10th Cir. 2005) ("[T]he federal court located in
Colorado is not a court of the State of Colorado but rather a court of the United States of
America. "); Dixon v. TSE Int'l Inc., 330 F.3d 396, 398 (5th Cir. 2003) (per curiam) ("Federal
district courts may be in Texas, but they are not of Texas."); Piechur v. Redbox Automated
Retail, LLC, 2010 U.S. Dist. LEXIS 16324 (S.D. Ill. Feb. 24, 2010) ("[T]he exclusive
jurisdiction specified in Redbox's forum selection clause is the Illinois state court system,
which does not include the United States District Court for the Southern District of Illinois.
The Terms of Use provide for the exclusive jurisdiction of ‘the courts of the state of Illinois.'
This Court, while it may sit in the state of Illinois, is not a court of the state of Illinois . . .");
Huhtamaki Co. Mfg. v. CKF, Inc., 648 F. Supp. 2d 167, 180 (D. Me. 2009) ("[T]he reference
to the 'Courts of Maine' [in a forum-selection clause] is a literal and unambiguous reference
to the Maine state courts and does not reasonably extend to courts of the United States. The
distinction between the two jurisdictions is clear and of great significance in our federal

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system of government. A party drafting a forum-selection clause should immediately
recognize the shortcoming of language such as this if the intention is to include the federal
district court geographically situated in the state as an agreed-to forum, for the United States
District Court is not a court 'of Maine' even if it is geographically situated in Maine."); Mfg.
& Mktg. Concepts, Inc. v. S. Cal. Carbide, 920 F. Supp. 116, 119 (N.D. Ill. 1996) ("The court
finds that the term 'an Illinois court' [in a forum-selection clause] plainly means an Illinois
state court. The United States District Court for the Northern District of Illinois is not 'an
Illinois court;' it is a federal court.").
Finally, the Court notes and gives special attention to the fact that the language of the
forum selection clause in the case of LFC Lessors, where the Court of Appeals for the First
Circuit concluded that the reference to the state courts of Massachusetts did not include the
federal courts, was very similar to the language of the forum selection clause in the guaranty
contract in this case. In pertinent part, the clause in LFC Lessors provided as follows: “This
Agreement [...] shall be interpreted, and the rights and liabilities of the parties hereto
determined, in accordance with the law, and in the courts, of the Commonwealth of
Massachusetts.” LFC Lessors v. Pacific Sewer Maintenance Corp., supra, at page 4. As
the Court of Appeals did in LFC Lessors, we conclude that the phrase "courts of Puerto
Rico" in the Guaranty contract between García-Pérez and DDR del Sol refers only to the
courts of the Commonwealth of Puerto Rico, and not to this United States District Court
sitting within the boundaries of Puerto Rico. Since the parties to the guaranty contract
selected the courts of the Commonwealth of Puerto Rico as the exclusive forum to enforce
the terms of the Guaranty, excluding the United States District Court sitting in Puerto Rico,
their agreement should be enforced accordingly.

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III.

8

CONCLUSION
In conclusion, for the reasons stated herein, third-party defendants’ motion to dismiss

(docket entry 51) is GRANTED. Accordingly, the Court will enter Judgment dismissing
without prejudice the Third-Party Amended Complaint against the third-party defendants.
SO ORDERED.
At San Juan, Puerto Rico, on January 31, 2012.

S/CARMEN CONSUELO CEREZO
United States District Judge