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Gonzalez v. Avatar Realty, Inc.: Forum Selection Clause in Real Estate Franchise Contract Enforced

A federal court has considered whether a forum selection clause contained in a franchise agreement allowed the real estate franchisor to move litigation from Puerto Rico to Florida.

In 1995, Carlos Miro Gonzalez ("Franchisee") entered into an "exclusive franchise sales contract" with Avatar Realty, Inc. ("Avatar") that gave the Franchisee exclusive sales representative rights for Avatar's real estate sales products in Puerto Rico for one year. The contract required the Franchisee to conduct marketing efforts to promote Avatar's products in Puerto Rico. The contract was renewed in 1996 and 1997, but Avatar cancelled the agreement for 1998. The Franchisee brought a lawsuit in Puerto Rico against Avatar, alleging that the cancellation of the contract violated the laws of Puerto Rico and also alleging that Avatar owed the Franchisee for unpaid commissions. Avatar filed a motion seeking to transfer the lawsuit to a federal court in southern Florida, based on a forum selection clause in the franchise agreement.

The United States District Court, District of Puerto Rico, granted Avatar's motion to transfer the case to Florida. The court first looked at the language found in the franchise agreement. The agreement contained a provision entitled "Florida Contract" which stated the following:

This Agreement shall be governed by the laws of Florida. In the event of any litigation upon any of the terms hereof, the parties agree to submit themselves and the subject matter to the jurisdiction of the State and/or Federal Court of Florida and any action shall be maintained in Miami, Florida. Consent to such jurisdiction is hereby given by the parties hereto. The prevailing party in any legal proceeding shall be entitled to costs, expenses and reasonable attorney's fees, at both trial and appellate levels.

The Franchisee argued that, based on judicial precedent, the forum selection clause only required the Franchisee to submit to the jurisdiction of Florida courts, not that all litigation between the parties must occur in Florida. The court rejected the Franchisee's interpretation of existing precedent, ruling that courts should enforce forum selection clauses as written. Here, the forum selection clause stated that "any action shall be maintained" in Florida. Thus, the court ruled that the forum selection clause mandated that the dispute must be litigated in Florida and so that is how the court should enforce the clause.

Next, the court looked at how court's generally treat forum selection clauses. Forum selection clauses are presumed valid and enforced by courts, unless a party challenging the enforceability of the clause can demonstrate one of the following: the contract was not freely negotiated or procured by fraud; the clause contradicts a strong public policy in the location where the lawsuit was originally filed; or a trial in the location specified by the contract would be so unreasonably difficult and inconvenient that it would interfere with a party's ability to receive a fair trial. Applying the three factors to the forum selection clause in franchise agreement, the court first found there was no dispute that the contract was freely negotiated. Next, there was nothing in the public policy of Puerto Rico which disallowed the enforcement of forum selection clauses. Finally, the court stated that it was too late for the Franchisee to argue that it was inconvenient to litigate this case in Florida. The Franchisee could have disputed the inclusion of this provision during the initial contract negotiations as well as during the two renewals. Therefore, the court ruled that the forum selection clause was enforceable and so the lawsuit was moved to Florida.

Gonzalez v. Avatar Realty, Inc., 177 F. Supp.2d 101 (D.P.R. 2001).