based on a forum selection clause. The practical equivalent of a § 1404(a) transfer can occur in state court if the case is dismissed for forum non conveniens and then refiled in the contractually specified forum. Moreover, this dismissal will in practice carry with it a change in applicable law, for there is obviously no rule providing that the contractually specified forum will apply the law of the forum in which the case was first filed.
Accordingly, since the overwhelming majority of states enforce forum selection clauses,
and since a suit brought in an improper forum is subject to dismissal for forum non conveniens,3 in many cases a suit initially brought contrary to a forum selection clause in state court will be dismissed, refiled in the contractually specified forum, and then determined according to the laws of that forum. Rather than replicating this result in federal court, applying Van Dusen to forum selection clause transfers would achieve precisely the opposite result: the application of the transferor state's law rather than that of the contractually specified state. Thus, the applicable law would depend upon whether a party filed its case in federal or state court and, as is always the case when such discrepancies exist, an opportunity for forum shopping would be created. See Erie, 304 U.S. at 74-75; Hanna v. Plumer, 380 U.S. 460, 468, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965); see also Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941) (holding that conflicts principles are substantive law under Erie).
In short, the aim of Van Dusen was to observe Erie by providing that a transferee court will apply the law that the state courts of the transferor state would have applied had the case been brought in state court; but applying the transferor state's law to cases that these state courts would have dismissed would be to apply law that the state courts would therefore not have applied. This would violate Van Dusen's goal of ensuring that parties cannot "achieve a result in federal court which could not have been achieved in the courts of the State where the action was filed." Van Dusen, 376 U.S. at 638.
It is precisely this concern that has led to the development of an exception to the rule of Van Dusen in those instances in which the transferor court did not have personal jurisdiction over the defendant, though venue was proper. Such a transfer is best characterized as one pursuant to § 1404(a) since this section applies to transfers from one proper venue to another. 15 Charles A. Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure § 3827 (1976); see Ellis v. Great Southwestern Corp., 646 F.2d 1099, 1108 (5th Cir. 1981); Roofing & Sheet Metal Servs., Inc. v. La Quinta Motor Inns, 689 F.2d 982, 992 (11th Cir. 1982). However, courts have recognized that applying the rule of Van Dusen would permit a party to unfairly "capture" the law of the transferor forum by filing a suit in federal court though the absence of personal jurisdiction would have led to dismissal in state court. Viewing such a result as contrary to Erie, these courts have determined that the transferor state's law is not applicable when the transferor court lacked personal jurisdiction over the defendant. See Ellis at 1108, 1111; Roofing & Sheet Metal Serv. at 992; Wright, Miller & Cooper at § 3827.
There appears, then, to be as much to be said against applying the transferor state's law after a forum selection clause transfer as against applying the transferee state's law. Not only would applying Van Dusen violate Erie; in addition, it would lead to results contrary to the parties' intentions and would undermine their efforts to address the vicissitudes of the federal system by specifying their selected forum. Despite the clear support for such efforts expressed by the Supreme Court in Bremen in the international context, in the domestic context the federal courts would ironically not only come to lag behind the states, but would in fact provide a mechanism for evading the substantive law effects that result from state enforcement of forum selection clauses. No matter how unjustified a party's initiation of suit contrary to a forum selection clause, the party would capture the transferor state's law merely by the act of filing suit.
Thus, neither of the two possibilities considered hitherto appear satisfactory. A third, however, is suggested by Van Dusen itself. In laying down the general rule that the law of the transferor state should be applied subsequent to a § 1404(a) transfer, the Supreme Court noted that the rule might not be applicable in all instances and noted in particular two possible exceptions: "if a plaintiff sought transfer under § 1404(a) or if it was contended that the transferor State would simply have dismissed the action on the ground of forum non conveniens." Van Dusen, 376 U.S. at 640 (footnote omitted). The first of these possible exceptions was of course rejected in Ferens; the second, however, has never been addressed by the Court and suggests a rule of considerable appeal in the instant case. Pursuant to this rule, the law of the transferee state would be applicable if the state courts in the transferor state would have dismissed the case for forum non conveniens. This rule would thus mimic the result in state court, the application of the transferor state's law when the state courts of the transferor state would have kept the case, and the application of the transferee state's law when they would have dismissed the case.
Foremost among the virtues of this solution is its fidelity to the principles of Erie. The same substantive law will apply whether a party commences suit in federal or state court. The opportunities for forum shopping between state and federal court will thereby be eliminated. In addition, this solution is consistent with the concerns of Ferens and Stewart that a transfer pursuant to § 1404(a) should remain a "housekeeping measure" rather than a determination of substantive law; the applicable law will depend not on whether the case is transferred but on whether the state courts of the transferor state would have dismissed the case for forum non conveniens.5 Lastly, since most state courts enforce forum selection clauses, this solution will in large preserve the expectations of parties who agree to such clauses.
Finally, it bears observation that while the result reached herein may appear to be an exception to Van Dusen, it could as accurately be characterized as simply an extension of Van Dusen. Van Dusen instructs the transferee court to look to the choice of laws rules of the transferor state to determine the applicable law. The result herein also prescribes an inquiry under the laws of the transferor state: namely, whether the transferor state's courts would have dismissed the action for forum non conveniens. Thus, the transferor state's laws regarding forum non conveniens are treated by the transferee court as implicit choice of law rules.
Accordingly, this Court holds that when a case is transferred based on a forum selection clause, the transferee court shall apply the law of the state in which it sits if the state courts of the transferor state would have dismissed the action for forum non conveniens, but shall apply the law of the transferor state if the action would not have been dismissed.
Turning to the instant case, the question is whether the courts of the Commonwealth of Puerto Rico would have dismissed this case for forum non conveniens. It is clear that they would not have. Puerto Rico's Law 75, which is clearly applicable to the Distribution Agreement, provides that "any stipulation that obligates a dealer to . . . litigate any controversy that comes up regarding his dealer's contract outside of Puerto Rico, or under foreign law or rule of law, shall be . . . considered as violating the public policy set forth in this chapter and is therefore null and void." P.R. Laws Ann. tit. 10, § 278b-2 (Supp. 1989). Accordingly, the forum selection clause in the Distribution Agreement was clearly unenforceable under Law 75. Moreover, there is clearly no other basis upon which JVC could have obtained a dismissal for forum non conveniens since Puerto Rico would have been as convenient a forum as any other in which to litigate this suit.
Accordingly, the Court concludes that it should apply the choice of law rules of the transferor forum, Puerto Rico.
II. APPLICATION OF PUERTO RICO CHOICE OF LAW RULES
The Court must now apply Puerto Rico choice of law rules to determine whether New York or Puerto Rico law governs this dispute. The Distribution Agreement contains a choice of law clause specifying New York law. However, this clause is unenforceable because Law 75 provides that choice of law clauses in distribution agreements are contrary to public policy and must be regarded as a nullity. See P.R. Laws Ann. tit. 10, § 278b-2 (Supp. 1989); Walborg Corp. v. Tribunal Superior, 104 D.P.R. 184 (1975);
Pan Am. Computer Corp. v. Data Gen. Corp., 467 F. Supp. 969, 970 (D.P.R. 1979); see also Southern Int'l Sales Co. v. Potter & Brumfield Div. of AMF Inc., 410 F. Supp. 1339, 1342 (S.D.N.Y. 1976) (Weinfeld, J.) (applying New York choice of law rules, Law 75 held to govern despite choice of law clause specifying Indiana law). Accordingly, the Court will disregard the choice of law clause in determining the applicable law.
As a general matter, under Puerto Rican law "a contract claim is governed by the law of the state which had the dominant contacts with the contractual agreement." Weatherly v. International Paper Co., 648 F. Supp. 872, 874 (D.P.R. 1986). The relevant contacts include "the place of execution, the place of performance and the residence of the parties." Id. at 874. These contacts, however, are not to be merely mechanically counted, see Green Giant Co. v. Superior Court, 104 P.R.R. 489, 694 (P.R. 1975), but rather must be considered with reference to certain underlying judicial concerns, which include:
"a) predictability of results, b) maint[e]nance of interstate and international order, c) simplification of the judicial task, d) advancement of the forum's governmental interests and e) application of the better rule of law."
Arrieta Gimenez v. Arrieta Negron, 672 F. Supp. 46, 48 (D.P.R. 1987) (quoting Green Giant, 104 P.R.R. at 695).
In the instant case, the determinative consideration must be Puerto Rico's governmental interest in regulating the contractual relations of local distributors. This interest was clearly indicated in the Statement of Motives that accompanied Law 75, which declared that "reasonable stability in the distribution relationship in Puerto Rico is vital to the general economy of the country, to the public interest, and to the general welfare." Law No. 75 of June 24, 1964, at 231. Because of this public interest, Law 75 is a mandatory scheme of regulation:
The provisions of this chapter are of a public order and therefore the rights determined by such provisions cannot be waived. . . . In the adjudgment of the claims that may arise hereunder, the courts of justice shall recognize the right in favor of [distributors] notwithstanding the corporate or contractual structures or mechanisms that the principal or grantor may have created or imposed to conceal the real nature of the relationship established.