Banco Popular de Puerto Rico v. Airborne Group PLC, Civ. No. 92-1471CCC.

• Decision Date: 26 April 1995
• Docket Number: Civ. No. 92-1471CCC.
• Citation: 882 F. Supp. 1212
• Parties: BANCO POPULAR DE PUERTO RICO, Plaintiff, v. AIRBORNE GROUP PLC; Airborne Industries, Ltd; Thunder and Colt, Ltd; Skyrider Airships, Inc.; and ABC Insurance Company, Defendants.
• Court: U.S. District Court — District of Puerto Rico

882 F. Supp. 1212

BANCO POPULAR DE PUERTO RICO, Plaintiff, v. AIRBORNE GROUP PLC; Airborne Industries, Ltd; Thunder and Colt, Ltd; Skyrider Airships, Inc.; and ABC Insurance Company, Defendants.

Civ. No. 92-1471CCC.

United States District Court, D. Puerto Rico.

April 26, 1995.

Arturo J. García-Solá, Manuel Fernández-Bared, Hato Rey, PR, for plaintiff.

Pedro J. Santa-Sánchez, Jorge I. Peirats, Jacabed Rodríguez-Coss, Hato Rey, PR, Carlos E. Jiménez, Old San Juan, PR, for defendants.

OPINION AND ORDER

CEREZO, Chief Judge.

Plaintiff Banco Popular de Puerto Rico (Popular) contracted to purchase an airship from defendant Thunder & Colt, LTD (Thunder). This device, known as a blimp, is a helium-filled, aerial apparatus designed to attract attention to the company whose logo and name adorns its side. Plaintiff purchased the airship for promotional and advertising purposes. Unhappy with the results of the contract, plaintiff filed a complaint.

Defendants Thunder, Airborne Industries (A. Industries), Airborne Group (Airborne), and Skyrider have moved to dismiss that complaint (docket entries 7 & 16) on the grounds that the contract between Popular and Thunder contained a forum selection clause, England being the chosen forum, which must be enforced, and that the District Court of Puerto Rico has no personal jurisdiction over them. The court need address only one of these grounds, that relating to the forum selection clause, which all defendants, even those which were not parties to the contract, have claimed the right to invoke, as it is dispositive.

BACKGROUND

Airborne manufactures airships, lighter than air contraptions designed for, among other purposes, promotional uses. "With its ability to hold station, or circle over a chosen audience the airship provides the ultimate billboard certain to attract the eye, wherever it flies." (Thunder's Sales Brochure, docket entry 21, Ex. 1). A. Industries manufactures the envelope of the airship, and Thunder manufactures and sells the finished device that is the subject of the dispute, known as the GA-42 Airship. All of these corporations are citizens of England. Skyrider is the exclusive distributor of Thunder's products in the United States. It is a citizen of the state of Colorado.

In August of 1990 Popular directed José Colón-Fradera, President of International Balloons, Inc., to contact Frank Rider, Skyrider's President, to express Popular's interest in purchasing an airship for promotional purposes. (Complaint, ¶ 7).¹ Based on these contacts and on talks between the various principals, Popular executed a sales contract with Thunder on October 8, 1990 for a GA-42 model airship (docket entry 12, Ex. 1A (hereinafter Purchase Agreement or Agreement)).

Article 15 of the Agreement contained several warranties pertaining to the conditions of sale, the period of the warranty, and the operation and maintenance of the airship. Article 22 states, in its entirety, that "this Agreement shall be governed by and construed in accordance with the laws of England and disputes hereunder or as to the construction of this Agreement shall be resolved in the Courts of England." Article 29 declared that the "Agreement shall form the entire agreement between the parties hereto."

In November of 1990, the unassembled airship arrived in Puerto Rico where a team under Thunder's direction assembled it and prepared it for flight pursuant to Article 28 of the Agreement. Popular then proceeded to publicize its ownership of the Airship.

According to plaintiff's allegation, the airship proved slower than expected, causing delays in public appearances. Further deflating plaintiff's hopes, it appears that a test flight and inspection scheduled on April 8, 1991, for renewal of the airship's airworthiness certificate, ended badly. Notwithstanding the advice of the ground crew that adverse weather conditions argued against a test flight, Popular claims that the airship was negligently piloted, resulting in severe damage to its envelope when gusty winds slammed it against a parked plane.

In late April or early May of 1991, the blimp's envelope was shipped to England for repairs. Thunder invoiced Popular for these repairs, which Popular maintained were the sole responsibility of Thunder. To help resolve this billing dispute the parties met in Miami, Florida, in June of 1991. According to Popular, during this meeting defendants repeated their prior representations that the airship was new when sold and that any hours flown prior to Popular's purchase were solely for the purpose of certification of the airship. The dispute was not resolved, and in consequence, it is alleged that defendants caused the deregistration of the airship, thereby grounding it. Plaintiff also claims that on October 19, 1991, the airship suffered a catastrophic structural failure — a vast, 29 foot rupture of its envelope while on mast.

Popular avers that subsequent investigations and laboratory tests revealed that the fabrics comprising the envelope had tensile strengths and tear resistances well under industry minimum safety standards. Thus, it claims, the airship was exposed not to have been new at the time of purchase.

Based essentially on these facts, plaintiff filed its complaint containing six claims for relief. The first alleges that the codefendants jointly and severally made false misrepresentations to induce plaintiff to enter into the Purchase Agreement. The second claim seeks nullification of the purchase agreement alleging that defendants jointly and severally misrepresented the age, condition, capabilities and other characteristics of the airship. The third claim for relief asserts breach of the warranties of the Agreement. The fourth claim is for the negligent manufacture and maintenance of the airship against defendants Airborne, A. Industries, and Thunder. The fifth claim for relief requests consequential damages for breach of contract. The sixth and last claim is against defendants' unidentified insurance company.

I. ENFORCEABILITY OF THE FORUM SELECTION CLAUSE

The question presented deals with the effect of the forum selection clause in the contract: its validity, effect, and scope.

The forum selection clause is clear and unambiguous. "This Agreement shall be governed by and construed in accordance with the laws of England and disputes hereunder or as to the construction of this Agreement shall be resolved in the Courts of England." (Emphasis supplied.)

Plaintiff's principal contention is that enforcement of the forum selection clause would be unfair and unreasonable. A forum selection clause must be enforced unless (1) it was not freely negotiated or was the result of overweening bargaining power or fraud, (2) when it contravenes a strong public policy of the forum where suit is brought, or (3) in a case involving a freely negotiated international commercial agreement, when the party challenging its enforceability shows "that trial in the contractual forum will be so gravely difficult and inconvenient that he will, for all practical purposes, be deprived of his day in court." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18, 92 S.Ct. 1907, 1917, 32 L.Ed.2d 513 (1972).

The Court in Bremen criticized the hostile reception historically given to forum-selection clauses by American courts, reminding lower courts that such attitude "has little place in an era when ... businesses once essentially local now operate in world markets." Bremen, at 12, 92 S.Ct. at 1914. It emphasized that the courts' main concern should be to give effect to the legitimate expectation of the parties, as manifested in their freely negotiated agreements, by specifically enforcing the forum clauses. Id. The Court observed that "in the light of present-day commercial realities and expanding international trade ... the forum selection clause should control absent a strong showing that it should be set aside." Bremen, at 15, 92 S.Ct. at 1916. It is the party challenging the application of the clause who has the burden to prove that its enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching. Id. See also, Royal Bed & Spring Co. v. Famossul Industria, 906 F.2d 45, 49 (1st Cir.1990).

The enforcement by the courts of a freely negotiated forum selection clause also serves to avoid disputes concerning the law applicable to the resolution of conflicts arising out of the contract. As explained by the Court in Scherk v. Alberto-Culver Company, 417 U.S. 506, 516, 94 S.Ct. 2449, 2455, 41 L.Ed.2d 270 (1974), "a contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved."

The Puerto Rico Supreme Court has similarly held that forum selection clauses are presumptively valid under Puerto Rican law, and that an opponent thereto bears an extremely heavy burden. Unisys P.R. Inc. v. Ramallo Bros. Printing Inc., 129 D.P.R. ___, 91 J.T.S. 69 (1991). As, in so holding, the Puerto Rico Supreme Court "has fully adopted the federal jurisprudence on forum-selection clauses and established a doctrinal approach that is in complete accord with federal law," Caribe BMW, Inc. v. Bayerische Motoren Werke, 821 F.Supp. 802, 817 (D.P.R.1993), we need not face the issue whether forum selection clauses are to be treated as substantive or procedural for Erie purposes. Id., see also Lambert v. Kysar, 983 F.2d 1110, 1116 (1st Cir.1993).

In this case, the record shows that the clause in question was freely bargained for between Popular and Thunder. The parties held continuous conversations...