Universal Ins. Co. v. Warrantech Consumer Prod. Servs., Inc.

• Decision Date: 28 March 2012
• Docket Number: Civil No. 11–1613 (SEC).
• Citation: 849 F.Supp.2d 227
• Parties: UNIVERSAL INSURANCE COMPANY, INC., Plaintiff, v. WARRANTECH CONSUMER PRODUCT SERVICES, INC., et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

849 F.Supp.2d 227

UNIVERSAL INSURANCE COMPANY, INC., Plaintiff,

v.WARRANTECH CONSUMER PRODUCT SERVICES, INC., et al., Defendants.

Civil No. 11–1613 (SEC).

United States District Court, D. Puerto Rico.

March 28, 2012.

Lady E. Cumpiano, Lee Sepulvado–Ramos, Sepulvado & Maldonado, PSC, San Juan, PR, for Plaintiff.

Salvador J. Antonetti–Stutts, Maria Ligia Giraldez–Rodriguez, O'Neill & Borges, San Juan, PR, for Defendants.

OPINION AND ORDER

SALVADOR E. CASELLAS, Senior District Judge.

Before the Court are defendants Warrantech Consumer Product Services, Warrantech International, and Warrantech Corporation's (collectively, “Warrantech”) motion to dismiss (Docket # 10), plaintiff Universal Insurance Company's (“Universal”) opposition thereto (Docket # 25), and Warrantech's reply (Docket # 18). Warrantech also filed an unopposed motion to confirm the arbitration award (Docket # 29). After reviewing the filings and the applicable law, Warrantech's motions are GRANTED.

Factual and Procedural Background

This diversity commercial dispute arose after Universal filed suit against Warrantech in the Court of First Instance of the Commonwealth of Puerto Rico, requesting the revocation or modification of an arbitration award (the “Award”). Docket # 1–2.¹ Specifically, Universal grounds its claims on the Puerto Rico Arbitration Act (“PRAA”), P.R. Laws Ann. tit. 32, § 3201 et seq., and alleges in essence, that the arbitration panel (the “Panel”) improperly rendered the Award.

Because the Court is ruling upon a motion to dismiss under Fed.R.Civ.P. 12(b)(6), it will relate Universal's well-pleaded facts as alleged in its complaint. Feliciano–Hernandez v. Pereira–Castillo, 663 F.3d 527, 529 (1st Cir.2011) (citation omitted), supplementing them with references to documents annexed to the complaint or fairly incorporated into it. Rederford v. U.S. Airways, Inc., 589 F.3d 30, 34 (1st Cir.2009) Accordingly, the facts are as follows.

At some point between 1997 and 1998, Universal, a Puerto Rico insurance company, decided to explore the “mechanical breakdown” coverage insurance side of the business. Docket # 1–2, ¶¶ 6 & 9.² To do so, it signed an Administrative Agreement and a Fee Agreement (collectively, the “Contracts”) with Warrantech, a Texas-based company with purported experience in handling this type of insurance. Id., ¶¶ 12–14. In pertinent part, the Contracts contained the following arbitration clause:

The [Panel] shall make an award with regard to the custom and usage of the insurance and reinsurance business. The [Panel] shall issue its award in writing based upon a hearing at which evidence may be introduced without following strict rules but in which cross-examination and rebuttal shall be allowed. The [Panel] shall make its award within sixty (60) days following the termination of the hearing unless the parties consent to an extension. A decision by the majority of the members of he board shall become binding upon parties to the proceedings.

Id., ¶ 18. As to the Panel's composition, Universal and Warrantech agreed that each would chose one arbitrator; the third “neutral” member of the Panel was in turn selected by the other two arbitrators. Id. The parties agreed that Puerto Rico's substantive law would govern the arbitration process. Id., ¶ 19.

Unfortunately, Universal and Warrantech's commercial relationship deteriorated to the point that the former unilaterally terminated their contractual relationship on October 16, 2003. Id., ¶ 49. Because Universal had prepaid Warrantech for services that the latter would not render, Universal contended, Warrantech should return such amounts. Warrantech refused. Id., ¶ 50. Thus, on December 15, 2008, Universal demanded arbitration, requesting the reimbursement for the prepaid services and alleging damages to its commercial reputation due to Warrantech's subpar contractual performance. Id., ¶ 51; Docket # 1–1, pp. 91–99.

Warrantech answered, counterclaimed, and also filed an independent complaint for arbitration against Universal. Id., ¶¶ 53–54; Docket # 1–1, pp. 100–116. Thereafter, the parties agreed to arbitrate before the Panel pursuant to the rules of the American Arbitration Association. Id., ¶ 55. After Universal amended its allegations, comprehensive discovery, including depositions, ensued. Id. The arbitration hearing commenced on March 18, 2010, and, after both sides presented extensive testimonial and documentary evidence, concluded eleven days later. Id., ¶ 57.

In an unanimous decision, the Panel determined, among other things, that Universal had paid Warrantech for services that the latter never rendered. Id., ¶¶ 64–68. It also found that the Contract's termination came by mutual agreement (and thus that Warrantech had not breached the contract, as alleged by Universal), and terminated the Contracts pursuant to certain provisions of the Civil Code of Puerto Rico. Id. The Panel tallied the breakdown of the Award as follows:

The total award to Universal is the amount of $831,115. The total award to Warrantech is the amount of $816,888. Warrantech is hereby ordered to pay Universal the difference in the amount of $14,227, plus post-award interest at the rate of six percent per annum from the date of the award until full payment thereof. No pre-award interest is granted. Each party is responsible for its costs and attorney's fees. Neither party shall be entitled to recover from the other the fees paid to the arbitrators.

Docket # 1–2, p. 58.

Undeterred, Universal moved the panel to reconsider the Award (Docket # 10–1, pp. 1–13), “[a]sking for ... a recomputation of the factors used to arrive at the figure awarded to Universal based on actual, objective data that existed and was presented to the Panel at that time....” Docket # 10–3, p. 2. The Panel nevertheless denied the motion. Docket # 10–4.

Still dissatisfied with the Award, Universal filed suit in state court, advancing three causes of action. The first one, predicated upon one of the grounds provided by the PRAA ( seeP.R. Laws Ann. tit. 32, § 3222(c)), requests the Award's invalidation. Docket # 1–2, p. 26. The second and third, attempt to modify the Award (pursuant to P.R. Laws Ann. tit. 32, § 3223(a)), based on an alleged computational error. According to Universal, the proper calculation of the Award yielded $2,082,742 after “[a]pplying the customs and usage established.” Docket # 1–2, p. 32.

Against this backdrop, Warrantech moves for dismissal, alleging that Universal's allegations fail to state a plausible entitlement to relief “under the very narrow grounds provided” by the Federal Arbitration Act (“FAA”). Docket # 10, p. 2. Warrantech vigorously contends that the FAA controls here insofar as it preempts contrary state law. Alternatively, Warrantech posits that Universal's contentions fail to pass muster even under the grounds provided by the PRAA. Universal opposes, arguing that (1) the FAA is inapplicable here; (2) the FAA does not preempt the PRAA; and (3) the allegations in its complaint survive dismissal. Docket # 25, pp. 2–12. The Court addresses each of the parties' contentions in turn.³

Standard of Review

To survive a Rule 12(b)(6) motion to dismiss, Plaintiffs' “well-pleaded facts must possess enough heft to show that [they are] entitled to relief.” Clark v. Boscher, 514 F.3d 107, 112 (1st Cir.2008). In evaluating whether Plaintiffs are entitled to relief, the court must accept as true all “well-pleaded facts [and indulge] all reasonable inferences” in plaintiffs' favor. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The First Circuit has held that “dismissal for failure to state a claim is appropriate if the complaint fails to set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory.” Nevertheless, in judging the sufficiency of a complaint, courts must “differentiate between well-pleaded facts, on the one hand, and ‘bald assertions, unsupportable conclusions, periphrastic circumlocution, and the like,’ on the other hand; the former must be credited, but the latter can safely be ignored.” LaChapelle v. Berkshire Life Ins., 142 F.3d 507, 508 (quoting Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir.1996)).Thus, Plaintiffs must rely on more than unsupported conclusions or interpretations of law, as these will be rejected. Berner v. Delahanty, 129 F.3d 20, 25 (1st Cir.1997) (citation omitted).

In Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Supreme Court reaffirmed Twombly and clarified that two underlying principles must guide a court's assessment of the adequacy of pleadings when evaluating whether a complaint can survive a Rule 12(b)(6) motion. See Iqbal, 129 S.Ct. at 1949–50. First, the court must identify any conclusory allegations in the complaint as such allegations are not entitled to an assumption of truth. Id. at 1949. Specifically, the court is not obligated to accept legal conclusions set forth as factual allegations in the complaint. Id.

Moreover, “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955);see also Peñalbert–Rosa v. Fortuño–Burset, 631 F.3d 592, 595 (1st Cir.2011). In other words, “[a] plaintiff is not entitled to ‘proceed perforce’ by virtue of allegations that merely parrot the elements of the cause of action.” Ocasio–Hernandez v. Fortuño–Burset, 640 F.3d 1, 12 (1st Cir.2011). Second, a complaint survives only if it states a plausible claim for relief. Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). Thus, any nonconclusory factual allegations in the complaint, accepted as true, must be sufficient to give the claim facial plausibility. Id. A claim has facial plausibility when the pleaded facts allow the court to reasonably infer that the defendant is liable for the specific...