Conmed Corp. v. First Choice Prosthetic & Orthopedic Serv.

• Decision Date: 11 January 2023
• Docket Number: 6:21-cv-1245 (BKS)
• Court: U.S. District Court — Northern District of New York
• Parties: CONMED CORPORATION, Petitioner-Cross-Respondent, v. FIRST CHOICE PROSTHETIC & ORTHOPEDIC SERVICE, INC., Respondent-Cross-Petitioner.

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CONMED CORPORATION, Petitioner-Cross-Respondent, v. FIRST CHOICE PROSTHETIC & ORTHOPEDIC SERVICE, INC., Respondent-Cross-Petitioner.

No. 6:21-cv-1245 (BKS)

United States District Court, N.D. New York

January 11, 2023

For Petitioner-Cross-Respondent: John G. Powers Mary L D'Agostino Hancock Estabrook LLP Daniel S. Jonas, General Counsel Erica Visokey, Assistant General Counsel Conmed Corporation

For Respondent-Cross-Petitioner: Gabriel M. Nugent Barclay Damon LLP Luis A. Meléndez Albizu Luis A. Meléndez Albizu & Assoc., PSC

MEMORANDUM-DECISION AND ORDER

Hon Brenda K. Sannes, Chief United States District Judge

I. INTRODUCTION

On November 18, 2021, Petitioner and Cross-Respondent Conmed Corporation filed a verified petition pursuant to Section 10 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10, to partially vacate an arbitration award associated with an arbitration that occurred between Conmed and Respondent and Cross-Petitioner First Choice Prosthetic & Orthopedic Service, Inc. (“First Choice”). (Dkt. No. 1). First Choice filed an answer to Conmed's petition and a crosspetition pursuant to 9 U.S.C. § 9 to confirm the arbitration award on August 8, 2022. (Dkt. No. 43).^[1] The parties' petitions are fully briefed. (See Dkt. Nos. 44, 47, 52, 60). For the following reasons, the Court denies Conmed's petition to vacate and grants First Choice's cross-petition to confirm the arbitration award.

II. BACKGROUND^[2]

A. The Parties' Contractual Relationship

Conmed is a corporation “engaged in the manufacture, distribution and sale of a variety of medical devices” in the United States and abroad. (Dkt. No. 1, ¶ 1).^[3] First Choice is a Puerto Rican corporation engaged in the business of distributing and selling medical products in Puerto Rico. (Id. ¶ 2). On November 17, 2014, the parties entered into a sales authorization letter (the “2014 SAL”). (Dkt. No. 1-1). The 2014 SAL authorized First Choice to sell Conmed's “Sports Medicine, Power Arthroscopy and 2D Visualization Products” in Puerto Rico and stated that this authorization was valid for a one-year term. (Id.). Disputes between the parties arose, including about the exclusive or non-exclusive nature of First Choice's authorization, First Choice's failure to make payments or timely payments, and lack of adequate customer service. (See generally Dkt. No. 1-6 (arbitrator's final award)).^[4]

The parties subsequently executed another sales authorization letter effective December 20, 2018 through December 31, 2019 (the “2019 SAL”). (Dkt. No. 1-2). The 2019 SAL authorized First Choice the exclusive right to sell Conmed sports medicine products in Puerto Rico and the nonexclusive right to sell Conmed “Ortho Power” products in Puerto Rico. (Id. at 2). Given First Choice's arrearages, the 2019 SAL also provided that the “overall debt balance owed to Conmed after recent video adjustments is $325,000. This balance could be further reduced by ~$30K for the 4th outstanding video tower on consignment at Bella Vista Hospital.” (Id. at 4). First Choice agreed to pay Conmed “$6,000 on or before the 15^th day of each month beginning on January 15, 201[9]” until its balance was paid off. (Id.). The agreement set forth “reasonable purchase targets” and provided that First Choice's failure to achieve the purchase targets or make the $6,000 monthly payments allowed Conmed to terminate the agreement immediately. (Id. at 2-3). Either party was permitted to terminate the agreement “for any reason or for no reason, upon ninety (90) days written notice to the other party.” (Id. at 3).

The 2019 SAL contains an arbitration provision, which provides in relevant part:

Except for actions by CONMED for collection of monies or disputes involving intellectual property rights, all disputes, including disputes as to arbitrability, arising out of or relating to this Agreement or the rights and obligations of the parties shall be submitted to arbitration under the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) prevailing at the time (the Rules); provided, however, that in the event of a conflict between such Rules and this Agreement, the latter shall control. There shall be a single arbitrator, who shall be a resident of New York, NY....The place of arbitration shall be New York, NY. This Agreement and the rights and obligations of the parties hereunder shall in all respects be governed by and interpreted, construed, and enforced in accordance with, and any arbitration hereunder shall apply, the laws of the State of New York, without giving effect to conflicts of law principles.

(Id. at 3-4).^[5]

B. The Arbitration

1. The Arbitration Demand

On November 16, 2020, Conmed filed a demand for arbitration with the American Arbitration Association. (Dkt. No. 1-3). Conmed's demand complained of First Choice's alleged failure to meet its purchase targets and make required debt repayments. (Id. at 34). Conmed sought a declaration that “the merits of this arbitration, and the parties' rights and obligations under the Subject Agreements shall be determined under New York substantive law” and that “Conmed is entitled under the Subject Agreements to terminate the parties' contractual relationship immediately, without penalty,” as well as damages in the amount of $187,492.96 for unpaid amounts. (Id. at 35-36). First Choice responded to Conmed's demand. (Dkt. No. 1-4).

Attorney David C. Singer, an attorney based in New York, New York, was selected as the arbitrator. (Dkt. No. 1, ¶ 8; Dkt. No. 43-1, at 27-43).

2. The Choice-of-Law Decision

From the outset of the arbitration proceedings, the parties disputed which substantive law would apply, and they submitted the issue to the arbitrator. (See Dkt. Nos. 1-7, 1-8, 1-9, 1-11, 1-12, 1-13 (the parties' briefing on the choice-of-law issue)).

On June 30, 2021, the arbitrator issued an order regarding choice of law (the “Choice-of-Law Decision”). (Dkt. No. 1-5). After quoting the relevant provision from the 2019 SAL providing that “any arbitration hereunder shall apply, the laws of the State of New York, without giving effect to conflicts of law principles,” the arbitrator noted as an initial matter that the parties had requested that he decide whether New York or Puerto Rico law applied and “agree[d] that the Arbitrator has the authority to decide this issue.” (Id. at 2-3).

The arbitrator next rejected First Choice's argument that the 2019 SAL was a contract of adhesion and therefore that the choice-of-law provision was unenforceable. (Id. at 3). The arbitrator reasoned that both parties are “sophisticated corporate entities” and that there was no evidence presented to establish that the agreement “was not knowingly and freely entered into.” (Id.).

The arbitrator next considered Puerto Rico's Dealer's Act (known as “Law 75”) and its applicability to the parties' agreement. (Id. at 3-4). Law 75 applies to dealer's contracts, defined as a “[r]elationship established between a dealer and a principal or grantor whereby . . . the former actually and effectively takes charge of the distribution of a merchandise, or of the rendering of a service, by concession or franchise, on the market of Puerto Rico.” P.R. Laws Ann. tit. 10, § 278(b). Law 75 further provides:

The dealer's contracts referred to in this chapter shall be interpreted pursuant to and ruled by the laws of the Commonwealth of Puerto Rico, and any other stipulation to the contrary shall be void.

Any stipulation that obligates a dealer to adjust, arbitrate or 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 likewise considered as violating the public policy set forth by this chapter and is therefore null and void.

Id. § 278b-2. The law also states that its provisions “are of a public order and therefore the rights determined by such provisions cannot be waived.” Id. § 278c. The arbitrator held that it was “clear that Puerto Rico has a strong public policy that relates to the termination of [First Choice's] dealership, as evidenced by Law 75.” (Dkt. No. 1-5, at 3). By contrast, the arbitrator determined that New York “has no such public policy interest in this matter” and that New York's “contacts with this case are minimal.” (Id. at 3-4 (noting that Conmed was based in Florida during the relevant time period and that First Choice does no business in New York)). The arbitrator found Puerto Rico's contacts to be “extensive” and that Puerto Rico had a “more significant connection to the relationship between the parties and the facts relating to this case than New York.” (Id. at 4 (noting that Puerto Rico is where First Choice is located, orders were placed, delivery of products was made, and products were sold)). The arbitrator therefore determined that Puerto Rico law should apply, citing cases where “New York federal courts have directed the application of Puerto Rican law, specifically Law 75, in circumstances where New York or some other state law was expressly provided for in the operative agreement.” (Id. at 4-5 (citing Caribbean Wholesales & Serv. Corp. v. U.S. JVC Corp., 855 F.Supp. 627 (S.D.N.Y. 1994); Southern Int'l Sales Co. v. Potter & Brumfield Div. of AMF Inc., 410 F.Supp. 1339 (S.D.N.Y. 1976))).

Finally the arbitrator considered Conmed's argument that the FAA preempts Law 75 to the extent it requires application of Puerto Rico law to the parties' dispute. (Id. at 5). The arbitrator noted that the “purpose of the FAA is to ensure that agreements to conduct private arbitrations are enforced.” (Id.). He determined, however, that the “governing law provision of Law 75 does not disproportionately apply to arbitration agreements” and that a “party cannot insulate itself...