638 F.3d 367 (1st Cir. 2011), 10-1872, Dialysis Access Center, LLC v. RMS Lifeline, Inc.

Docket Nº:10-1872.
Citation:638 F.3d 367
Opinion Judge:TORRUELLA, Circuit Judge.
Attorney:Juan Ram
Judge Panel:Before TORRUELLA, LEVAL,[*] and THOMPSON, Circuit Judges.
Case Date:March 30, 2011
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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638 F.3d 367 (1st Cir. 2011)

DIALYSIS ACCESS CENTER, LLC; Justo González-Trápaga; and his wife, Nancy Roig-Flores, Plaintiffs, Appellants,


RMS LIFELINE, INC., Defendant, Appellee.

No. 10-1872.

United States Court of Appeals, First Circuit.

March 30, 2011

Heard Nov. 1, 2010.

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[Copyrighted Material Omitted]

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Juan Ramón Rivas-Rivera, for appellants.

José Luis González-Castañer, with whom Cristina B. Martínez-Guzmán and González Castañer & Morales Cordero, C.S.P. were on brief, for appellee.

Before TORRUELLA, LEVAL,[*] and THOMPSON, Circuit Judges.

TORRUELLA, Circuit Judge.

In this appeal, appellants-plaintiffs Dialysis Access Center, LLC (" DAC" ), Justo González-Trápaga (" González-Trápaga" ) and his wife, Nancy Roig-Flores (" Roig-Flores" ) (collectively, " Appellants" ) challenge the district court's judgment dismissing all of their claims against appellee-defendant RMS Lifeline, Inc. (" RMS" ) and ordering the parties to arbitrate their claims as per the rules of the American Health Lawyers Association (" AHLA" ). Specifically, Appellants aver that the court and not an arbitrator should resolve their dispute with RMS over the validity of a certain management services agreement, which Appellants wish to have declared null because RMS allegedly committed fraud in the formation and performance of the contractual obligations set forth therein.

Appellants challenge both the scope and validity of their arbitration agreement with RMS. After careful consideration, we conclude

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that Appellants' claims are encompassed within the parties' arbitration agreement and that the agreement is valid, pursuant to Section 2 of the Federal Arbitration Act (the " FAA" ), 9 U.S.C. § 2. Accordingly, we affirm the district court's judgment dismissing this case and compelling arbitration.

I. Facts and Procedural History

Appellant DAC, whose president is appellant González-Trápaga,1 is a limited liability company organized under the laws of Puerto Rico dedicated to providing vascular intervention and access services to dialysis and kidney failure patients. Appellee RMS is a corporation created under the laws of Delaware that engages in the management and operation of medical centers providing access services. On or about August 20, 2007, appellants DAC and González-Trápaga entered into a management services agreement (the " MSA" ) with appellee RMS for the development, building, management and operation of a vascular access center in Mayagüez, Puerto Rico.2

Section 13.3 of the MSA contained a choice-of-law provision establishing that the MSA " shall be construed in accordance with the internal substantive laws of the Commonwealth of Puerto Rico." In addition, Section 13.9 of the MSA set forth an arbitration clause (hereinafter, the " Arbitration Clause" ) providing, in relevant part, as follows:

Dispute Resolution/Arbitration. Manager [RMS] and Medical Practice [DAC] shall use good faith negotiation to resolve any dispute that may arise under this Agreement [the MSA]. In the event Manager [RMS] and Medical Practice [DAC] cannot reach agreement on any issue, such issue will be settled by binding arbitration in accordance with the rules of arbitration of the American Health Lawyers Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

The parties agree that the Arbitration Clause is subject to the provisions of the FAA, 9 U.S.C. § 1 et seq.

During the term of the MSA, several disputes arose between the parties regarding their obligations under the MSA. On March 3, 2010, RMS submitted said disputes to arbitration before the AHLA. Subsequently, on April 13, 2010, Appellants filed a complaint (the " Complaint" ) in the Court of First Instance of the Commonwealth of Puerto Rico requesting both compensation for damages and a declaration that the MSA was null, allegedly because RMS fraudulently induced Appellants to enter into the MSA and then further committed fraud while performing the obligations set forth therein.

On May 10, 2010, RMS filed a notice removing Appellants' action to the district court on the ground of diversity of citizenship. That same day, RMS filed a motion to dismiss and compel arbitration alleging that the Arbitration Clause covered appellants DAC and González-Trápaga's claims and that appellant Roig-Flores had failed to state a claim upon which relief could be granted (because of lack of contractual privity). Accordingly, RMS requested that Roig-Flores' claims be dismissed, that court proceedings be stayed and that the

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court order the parties to arbitrate their claims. In the alternative, RMS averred that appellant Roig-Flores' claims also arose under the MSA and should also be submitted to binding arbitration. The district court gave Appellants until May 26, 2010 to oppose. Appellants failed to comply with this deadline, allegedly because the district court clerk failed to notify them of the deadline.

On May 27, 2010, the district court issued an order granting RMS' unopposed motion and entered judgment " dismissing th[e] case" and ordering the parties to arbitrate their claims as per the rules of the AHLA. On June 4, 2010, Appellants filed a motion to alter or amend judgment and an opposition to RMS' motion to dismiss and to compel arbitration (which included a request that the district court remand the case to state court).3 In addition, on June 28, 2010, Appellants filed a motion requesting that the district court stay the ongoing arbitration proceedings until the Court resolved the pending motions.

On June 29, 2010, the district court denied Appellants' motion to stay arbitration proceedings and their motion to alter or amend judgment. Appellants timely filed a notice of appeal with regards to the district court's (1) judgment dismissing the case and compelling arbitration, (2) order denying Appellants' motion to alter or amend said judgment, and (3) order denying Appellants' motion to stay arbitration proceedings.

II. Appellate Jurisdiction

As a preliminary matter, we begin by addressing RMS' argument that the district court's judgment compelling arbitration is not immediately appealable, and, consequently, that we do not have jurisdiction to hear an appeal of said judgment. RMS grounds this argument in the mistaken belief that the district court's judgment was an interlocutory decision that merely stayed the Court's proceedings. However, for the reasons stated below, we find that said judgment was a final decision immediately appealable before this court.

Although Section 16 of the FAA " limits the immediate appealability of most pro-arbitration interlocutory orders, it still permits appeals to be taken from ‘ a final decision with respect to an arbitration.’ " Braintree Labs., Inc. v. Citigroup Global Mkts. Inc., 622 F.3d 36, 43 (1st Cir.2010) (citing 9 U.S.C. § 16(a)(3)). " Whether an order compelling arbitration is interlocutory or final depends on whether the district court chooses to stay litigation pending arbitration or instead to dismiss the case entirely. If the district court stays litigation, parties wishing to challenge the case's arbitrability must normally wait until the arbitrator resolves the matter on the merits and the district court enters a final judgment." Id. (citing Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 87 n. 2, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000)). However, " [i]f ... the district court couples its order compelling arbitration not with a stay but with an outright dismissal, leaving nothing more for itself to do but execute the eventual judgment, then an appeal may be taken." Id. (citing Green Tree, 531 U.S. at 86-87, 121 S.Ct. 513). " Where one side is entitled to arbitration of a claim brought in court, in this circuit a district court can, in its discretion, choose to dismiss the law suit, if all claims asserted in the case are found arbitrable." Next Step Med. Co. v. Johnson & Johnson Int'l, 619 F.3d 67, 71 (1st Cir.2010) (emphasis omitted) (citing

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Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141, 156 & n. 21 (1st Cir.1998)). But see Lloyd v. HOVENSA, LLC, 369 F.3d 263, 268-269 (3d Cir.2004).

RMS alleges that, because the district court did not reach the merits of Appellants' claims, its judgment should be considered an interlocutory decision staying the Court's proceedings pending arbitration. However, RMS fails to realize that the district court's judgment not only compelled arbitration, but also stated that the Court was " dismissing th[e] case." The district court had the discretion to do so upon finding that all claims before it were arbitrable. Thus, we construe the district court's judgment as " a final decision with respect to an arbitration," which is immediately appealable under Section 16(a)(3) of the FAA.

On the other hand, we do not have jurisdiction to hear an appeal of the district court's June 29, 2010 order (denying Appellants' motion to stay arbitration proceedings), because the issue has become moot. See Cruz v. Farquharson, 252 F.3d 530, 533 (1st Cir.2001) (" When a case is moot-that is, when the issues presented are no longer live or when the parties lack a legally cognizable interest in the outcome-a case or controversy ceases to exist, and dismissal of the action is compulsory." ). The motion to stay, which was filed on June 28, 2010, noted that various motions were pending resolution by the district court and requested " a stay on the arbitration proceedings until final adjudication is entered regarding motions to alter and to remand to state court." Accordingly, the motion to stay became moot on June 29, 2010 when the district court entered its final decision on the motions to alter and to remand to state court.4 We, therefore, limit our review in this appeal to an analysis of the district court's...

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