Sea-Land Service, Inc. v. Sea-Land of PR, Inc.

• Decision Date: 27 May 1986
• Docket Number: Civ. No. 85-2048CC.
• Citation: 636 F. Supp. 750
• Parties: SEA-LAND SERVICE, INC., Plaintiff, v. SEA-LAND OF PUERTO RICO, INC., Defendant.
• Court: U.S. District Court — District of Puerto Rico

636 F. Supp. 750

SEA-LAND SERVICE, INC., Plaintiff, v. SEA-LAND OF PUERTO RICO, INC., Defendant.

Civ. No. 85-2048CC.

United States District Court, D. Puerto Rico.

May 27, 1986.

Nicolás Jiménez, Jiménez, Graffam & Lausell, San Juan, P.R., for plaintiff.

Fernando Castro, and Arturo Trias, Trias, Doval, Muñoz, Acevedo & Otero, San Juan, P.R., for defendant.

OPINION AND ORDER

CEREZO, District Judge.

This is a diversity action for declaratory and injunctive relief filed on September 30, 1985 by Sea-Land Service, Inc., a Delaware corporation engaged in the business of ocean transportation of goods, and defendant Sea-Land of Puerto Rico, Inc., a Puerto Rican corporation which was mainly engaged in the solicitation of freight on behalf of plaintiff. In essence, plaintiff seeks a declaration that the Sales Agreement with defendant is not subject to Puerto Rico's Dealers Law, P.R. Laws Ann., title 10 section 278, et seq. (Law 75), that the agreement be declared resolved and an accounting made, and that defendant be enjoined from seeking any further duty or right under the agreement. It also requested an order compelling arbitration, pursuant to the agreement's arbitration clause and that termination be found to be with just cause, if it were determined that the Dealer's Law is applicable. Defendant's response consisted mainly in asserting rights under the Dealer's Act and claiming that plaintiff had terminated a dealership in violation of that law, that the termination was a breach of contract actionable under the general provisions of the Civil Code, and that plaintiff tortiously interfered with defendant's communications facilities and business.¹ Plaintiff sought a temporary restraining order to enjoin defendant from any further solicitation efforts on its behalf. This provisional remedy was denied on September 30, 1985. On October 9, 1985 defendant filed a motion for the temporary pendente lite relief provided by Article 3A of the Dealer's Act and for a temporary restraining order. On November 13, 1985 the Court denied the request for a temporary restraining order and set for a hearing on February 18, 1986 the request for the Article 3A relief. The parties were to exchange documentary evidence and file simultaneous briefs. During a conference held on February 10, 1986 the attorneys for defendant informed that it was withdrawing the request for a pendente lite Article 3A injunction. The Court and the parties agreed that the request for arbitration would be considered before ruling on any dispositive pretrial motions.

With its petition for declaratory judgment, plaintiff filed a Motion Requesting Order Compelling Arbitration seeking stay of this action and arbitration pursuant to clause 16 of the Sales Agreement. It is argued that the agreement is a contract involving commerce and that arbitration clauses in contracts of this type should be enforced according to the Federal Arbitration Act. Defendant's position on the arbitration issue is stated in the memoranda of law in support of the temporary restraining order and of the preliminary injunction petitions and in its reply to plaintiff's supplemental memorandum. Defendant does not dispute that the contract affects commerce, within the meaning of the Federal Arbitration Act. It has not raised any specific issue of fact which would preclude resolving the arbitration issue without a hearing nor has it requested a hearing.² Its challenge to arbitration is twofold. It questions plaintiff's right to seek enforcement of the arbitration clause claiming that, by filing the instant action and canceling the agreement without first initiating arbitration, it waived any rights under the clause. Alternatively, it argues that the arbitration clause cannot be construed to include as arbitrable several of the claims because the language in the clause limits arbitration to disputes arising from breaches of the contract or its essential obligations. It contends that neither the issues of whether defendant is a "dealer" or whether the termination of the agreement violated the Dealer's Law nor the tort claim of interference with defendant's telephone communications can be submitted to arbitration for they are "clearly outside the realm of any breach of contract" question. Defendant's position, noticeably devoid of citations, is not supported by federal law.

The Federal Arbitration Act, 9 U.S.C. Section 1, et seq., applicable to the contract involved in this case, makes a written agreement to arbitrate "valid, irrevocable and enforceable, save for such grounds as exist at law or in equity for the revocation of contract." Id., at section 2. The Supreme Court has admonished that, since the Act evinces Congress' concern in enforcing private contractual arrangements to arbitrate, federal courts should "rigorously enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). So strong is the federal policy favoring arbitration³ of private contractual disputes so stipulated, that the Court has interpreted the Federal Arbitration Act to preempt contrary state law since the Act "withdrew the power of the States to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984). Even with respect to the law here in question, the Puerto Rico Dealer's Law, the Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., ___ U.S. ___, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), affirmed the First Circuit's ruling that the issues arising from the application of this special Puerto Rican law to the contract in question were arbitrable, notwithstanding the anti-arbitration provision of Law 75 and the absence of any specific reference to this law in the language of the arbitration clause. It is clear from these rulings that Law 75 provisions which rendered null and 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," P.R. Laws Ann., title 10 section 278b-2, is preempted by the Federal Arbitration Act. See Mitsubishi, 105 S.Ct. at 3351, n.8. Yet, more important to this case is the fact that in Mitsubishi the contention that Law 75 issues were beyond the scope of arbitration was also based on a restrictive interpretation of the language used in the arbitration clause as excluding all issues involving special laws not specifically included in the clause. In rejecting this strict, hermeneutic approach towards non-arbitration, the Court, citing from Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), reiterated the guiding principles of arbitration clause enforcement stating:

`questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.... The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'

citations ... as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.

Mitsubishi, 105 S.Ct. at 3354.

The arbitration clause here in question provides:

16. Arbitration

Any differences and disputes concerning the breach of essential obligations arising out of this Agreement shall be referred to the arbitration of a single arbitrator, if Carrier and Contractor shall agree upon one, or to the arbitration of two arbitrators, one each to be appointed by the Carrier and Contractor, and an Umpire to be appointed by the arbitrators so named. Such arbitration shall be subject to the provisions of the Rules of Arbitration of the International Chamber of Commerce as amended, and shall take place in Miami, Florida, U.S.A.

Defendant's attempt to distinguish this clause from the one in Mitsubishi because there the clause referred to "disputes, controversies or differences which may arise ... out of or in relation to Articles I-B through V ... or for breach thereof," whereas here the clause only mentions "differences and disputes concerning the breach of essential obligations arising out of this Agreement" represents a strained interpretation and a sophistical argument. Its conclusion that clause 16 limits arbitration only to breaches of contract is contrary to the clause's literal terms which refers to the arbitrator any differences or disputes regarding the breach of the "essential obligations arising out" of the Agreement. It is clear from this language that it is not necessary for the parties to breach the entire contract. It is also clear that the use of the word breach does not constitute the sine qua non prerequisite to arbitration that defendant claims for this is precisely what the arbitrator is called upon to determine: whether the dispute or difference on an essential obligation is or is not a breach of the agreement. Defendant's interpretation would nullify the arbitration clause for the dispute would have to be defined, possibly by judicial declaration, as a breach of contract before submitting it to the arbitrator. Not even regular principles of contract interpretation support this position. See P.R.Laws Ann., title 31 sections 3471-3479.

Its argument that Law 75 issues cannot be submitted to arbitration because they are unrelated to the agreement is equally unsound. It appears to be a clever reconstruction of the argument advanced by the Puerto Rican automobile dealer that was rejected by the federal appellate courts in Mitsubishi. A reading of defendant's counterclaim and of its Law 75 defenses reveals that...