## Facts

- A Puerto Rico corporation served as an exclusive sales representative for an Indiana-based manufacturer in Puerto Rico and adjacent U.S. islands under a 1969 written agreement.
- The agreement allowed either party to terminate “for any reason whatsoever” on 30 days’ notice.
- The agreement also stated it “shall be interpreted in accordance with the laws of the State of Indiana.”
- In December 1971, the manufacturer gave notice terminating the relationship effective February 1972.
- The dealer sued in federal court under diversity jurisdiction, alleging the termination violated Puerto Rico’s Dealers’ Contracts Act (Law 75), which restricts termination or nonrenewal absent “just cause” notwithstanding contractual at-will termination language.
- On stipulated facts, the parties cross-moved for summary judgment on the threshold choice-of-law question; the manufacturer argued Indiana law governed and would enforce the at-will termination clause.

## Issues

1. Whether, under New York choice-of-law rules, a contractual Indiana choice-of-law clause precludes application of Puerto Rico’s Dealers’ Contracts Act to a dealer relationship centered in Puerto Rico.
2. Whether Puerto Rico’s legislatively declared policy protecting dealers against termination without “just cause” is mandatory such that it cannot be avoided by private choice-of-law stipulation.

## Decision

- The court applied New York conflict-of-laws principles as the forum’s rules in a diversity case.
- The court held the Indiana choice-of-law clause was not effective to displace Puerto Rico’s Dealers’ Contracts Act.
- The court concluded Puerto Rico had the dominant governmental interest in regulating the dealer relationship and that Law 75 embodied a strong public policy that would be defeated by enforcing the Indiana choice-of-law clause.
- The manufacturer’s motion for summary judgment based on Indiana law and the at-will termination provision was denied; the case proceeded with Puerto Rico law governing, leaving any “just cause” dispute for later proceedings.

## Legal Principles

- In applying New York conflicts law, courts generally respect contractual choice-of-law provisions, but not where enforcement would contravene a fundamental public policy of a jurisdiction with a greater interest in the dispute.
- A jurisdiction’s mandatory protective statute directed at the specific relationship at issue may override contractual provisions permitting unilateral termination and may not be nullified by boilerplate choice-of-law language.
- For dealer relationships centered in Puerto Rico, Law 75’s restriction on termination absent “just cause” may apply despite an at-will termination clause and despite a contract clause selecting another jurisdiction’s law, when Puerto Rico’s interest and policy are superior.

## Conclusion

The court declined to enforce the parties’ Indiana choice-of-law clause because doing so would defeat Puerto Rico’s mandatory dealer-protection policy under Law 75, and it held that Puerto Rico law governed the termination dispute.


S. Int’l Sales Co. v. Potter & Brumfield Div. of AMF Inc., 410 F. Supp. 1339 (S.D.N.Y. 1976)