Medika Intern., Inc. v. Scanlan Intern., Inc., Civ. No. 92-2083 GG.

• Decision Date: 12 August 1993
• Docket Number: Civ. No. 92-2083 GG.
• Citation: 830 F. Supp. 81
• Parties: MEDIKA INTERNATIONAL, INC., Plaintiff, v. SCANLAN INTERNATIONAL, INC., Defendant.
• Court: U.S. District Court — District of Puerto Rico

830 F. Supp. 81

MEDIKA INTERNATIONAL, INC., Plaintiff, v. SCANLAN INTERNATIONAL, INC., Defendant.

Civ. No. 92-2083 GG.

United States District Court, D. Puerto Rico.

August 12, 1993.

COPYRIGHT MATERIAL OMITTED

Shapiro & Lugo, Anibal Lugo-Medina, Hato Rey, PR, for plaintiff.

McConnell Valdes, Jaime E. Toro Monserrate, San Juan, PR, for defendant.

OPINION AND ORDER

GIERBOLINI, Chief Judge.

I. Introduction and Facts

This case involves claims of unfair competition, violation of the Puerto Rico Dealers' Act, breach of contract, unjust enrichment, and defamation. In 1992, plaintiff and defendant executed a non-exclusive Distribution Agreement (hereafter "Agreement") whereby plaintiff would act as the distributor in Puerto Rico of defendant's surgical and medical related products. The Agreement includes a provision, requiring arbitration of all controversies arising from or relating to the Agreement. It also contains forum selection and choice-of-law clauses which state that arbitration will take place in St. Paul, Minnesota with the substantive laws of the State of Minnesota applying. The choice-of-law provision states that the Agreement will be deemed to have been executed and entered into in the State of Minnesota.

Plaintiff filed a Motion to Enjoin Arbitration, which asks the court to declare the arbitration, forum selection, and choice-of-law provisions invalid. If we hold arbitration to be valid, the plaintiff requests that we order it to take place in Puerto Rico with Puerto Rico law controlling. Defendant has filed a Motion to Dismiss in Favor of Arbitration.

Plaintiff also filed a Motion for a Preliminary and Permanent Injunction, requesting that we enjoin "Scanlan and all other persons working in concert with them from in any way importing, distributing, or selling Scanlan's surgical instruments and related products in Puerto Rico." In the alternative, the plaintiff has asked the court to grant it injunctive relief under the Puerto Rico Dealer's Act. Although the plaintiff incorrectly filed its motion to enjoin arbitration — it is on the same document as its memorandum of law in support of its motion for preliminary injunction — we will consider all the aforementioned motions in this opinion and order.

II. Arbitration

A. Validity of Arbitration Provision

Under the Federal Arbitration Act, 9 U.S.C. § 1 et seq., a written agreement to arbitrate a dispute arising out of a "transaction involving commerce" is judicially enforceable. 9 U.S.C. § 2. "Commerce" in this context is to be broadly construed. Societe Generale de Surveillance, S.A. v. Raytheon European Management & Systems Co., 643 F.2d 863, 867 (1st Cir.1981). We look to a contract to determine if it contains an arbitration clause. If such a clause exists, we determine whether the dispute arising under the contract falls within the scope of the arbitration clause. Cardona Tirado v. Shearson Lehman American Express, Inc., 634 F.Supp. 158, 159 (D.P.R.1986). If an arbitration clause exists and the controversy falls under the scope of the clause, then we will direct the parties to proceed to arbitration on the issues as to which the arbitration agreement was signed unless a ground for the revocation of the contractual agreement exists. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219, 105 S.Ct. 1238, 1241 (1985).

It is clear from the facts of this case and we so find that the termination of the dealership contract in this case involves a transaction in interstate commerce. We also find that the contract between the parties contains a valid arbitration clause, freely negotiated between and expressing the intentions of the parties. The plaintiff has not asserted fraud, duress or overreaching in the making of the arbitration agreement. Instead, the plaintiff bases its opposition to arbitration on the ground that the arbitration clause should be considered null and void as violating Puerto Rico public policy as embodied in § 278b-2 of the Puerto Rico Dealers' Act, 10 L.P.R.A. § 278 et seq.

This argument is groundless. The Federal Arbitration Act preempts the Puerto Rico Dealers' Act to the extent that it negates, as against public policy, arbitration clauses which provide for arbitration of controversies outside of Puerto Rico, or under foreign law or rule of law. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 723 F.2d 155, 158 (1st Cir.1983); Protane Gas Co. v. Sony Consumer Products Co., 613 F.Supp. 215, 217 (D.P.R.1985) (granting defendant's motion for stay of proceedings and compelling arbitration despite plaintiff's assertion that arbitration clause requiring resolution of controversies by arbitration in New York City violated Puerto Rico public policy under 10 L.P.R.A. § 278b-2). While protecting dealerships may be a justifiable state concern, it does not override the federal policy supporting agreements to arbitrate.

In a similar case, Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984), the Supreme Court held that the California Franchise Investment Law which required a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration violated the Federal Arbitration Act and the Supremacy Clause. The Court stated the following about the California law meant to provide special protection to franchisees:

JUSTICE STEVENS dissents in part on the ground that § 2 of the Arbitration Act permits a party to nullify an agreement to arbitrate on "such grounds as exist at law or in equity for the revocation of any contract." ... We conclude, however, that the defense to arbitration found in the California Franchise Investment Law is not a ground that exists at law or in equity "for the revocation of any contract" but merely a ground that exists for the revocation of arbitration provisions in contracts subject to the California Franchise Investment Law.

Southland Corp. v. Keating, 465 U.S. at 16-17 n. 11, 104 S.Ct. at 861 n. 11 (emphasis in the original). This statement is as true of the Puerto Rico Dealers' Act as it is of the California law in question in that case. The Puerto Rico Dealers' Act isolates dealership contracts and specifies that arbitration will not be permitted in that context. It is not a ground that exists at law or in equity for the revocation of any contract. Therefore, it is not a defense to arbitration. Mitsubishi, 723 F.2d at 158. Although the Supreme Court of Puerto Rico, in Walborg Corp. v. Tribunal Superior, 104 D.P.R. 184 (P.R.1975), previously held arbitration clauses to be invalid in dealership contracts, it has indicated that, to the extent that its holding prohibits arbitration clauses in dealership contracts and conflicts with the Federal Arbitration Act, Walborg is expressly overruled. World Films, Inc. v. Paramount Picture Corp., 90 J.T.S. 17 (1990).

B. Scope

If the arbitration clause covers the dispute, we will enter an order to arbitrate and stay the proceedings before this court or dismiss the complaint without prejudice. See Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 29, 103 S.Ct. 927, 944, 74 L.Ed.2d 765 (1982) (upholding Court of Appeals remand to District Court instructing it to enter an order to arbitrate); Protane Gas, 613 F.Supp. at 219 (staying proceedings); Sea-Land Service, Inc. v. Sea-Land of Puerto Rico, Inc., 636 F.Supp. 750, 758 (D.P.R.1986) (dismissing without prejudice); McCain Foods Ltd. v. Puerto Rico Supplies, Inc., 766 F.Supp. 58, 61 (D.P.R. 1991) (dismissing without prejudice). In determining whether the scope of the arbitration clause covers the dispute in question, we will not enter into the merits of the allegations. Warren Bros. Co. v. Cardi Corp., 471 F.2d 1304, 1307 (1st Cir.1973); Peerless Pressed Metal Corp. v. International Union of Electrical, etc., 451 F.2d 19, 20 (1st Cir. 1971).

We will resolve all doubts in favor of arbitration "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of America v. Warrior and Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960); Mitsubishi Motors, 723 F.2d at 159. Under the arbitration clause under consideration:

All disputes, differences, or questions arising out of or relating to this Agreement, or the validity, interpretation, breach, or violation or termination thereof, shall be finally and solely determined and settled by arbitration in St. Paul, Minnesota, U.S.A. in accordance with the rules of the American Arbitration Association. Said arbitration shall be conducted by a panel of three arbitrators and all proceedings shall be conducted in the English language. Judgment upon any arbitration award may be entered and enforced in any court of competent jurisdiction.

The First Circuit has interpreted broad language of this nature as covering contract-generated as well as contract-related disputes between the parties. That is, it has rejected the labeling of controversies arising out of or relating to the contract so as to exclude them from the scope of arbitration. Acevedo Maldonado v. PPG Indus. Inc., 514 F.2d 614, 616-17 (1st Cir.1975); Sea-Land Service, 636 F.Supp. at 755 (party may not avoid arbitration by splitting its action as one based on contract and one based on tort and then claim arbitration was not applicable to the tort portion of the claim); Protane Gas, 613 F.Supp. at 217.

Plaintiff's causes of action all arise from the termination of its non-exclusive distribution agreement with the defendant. Therefore all the causes of action fall within the scope of the arbitration agreement. We will not allow the plaintiff to split his action between contract and tort claims so as to frustrate the arbitration agreement. As in Sea-Land, the tort damages plaintiff alleges may be incidental consequences of defendant's decision to terminate the distribution agreement. That decision and...