DIALYSIS ACCESS CENTER, LLC; JUSTO GONZÁLEZ-TRÁPAGA, M.D.; NANCY ROIG-FLORES, Plaintiffs, Appellants,
RMS LIFELINE, INC., Defendant, Appellee.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO [Hon. Pedro A. Delgado-Hernández, U.S.
Bámily López-Ortiz, with whom López Toro
and Lizabel M. Negrón-Vargas were on brief, for
José Luis González-Castañer, with whom
Roberto Ariel Fernández-Quiles and González
Castañer, PSC were on brief, for appellee.
Howard, Chief Judge, Torruella and Thompson, Circuit Judges.
THOMPSON, CIRCUIT JUDGE.
us once again are Dialysis Access Center (a Puerto Rico LLC)
("DAC"),  and RMS Lifeline, Inc. (a Delaware
corporation) ("RMS"), the central players in a
years-long and much-papered dispute. Having previously been sent
by this court to arbitrate their disputes, Dialysis
Access Ctr., LLC v. RMS Lifeline,
Inc., 638 F.3d 367, 371 (1st Cir. 2011) (Dialysis
I), DAC and RMS are back -- this time with DAC
contesting soup-to-nuts the arbitrator's decision in
RMS's favor and the district court's refusal to
vacate it. Finding no error, we conclude that the district
court was correct in rebuffing DAC's challenge, so we
out the basics pertinent to the latest installment of this
arbitration-fueled litigation. DAC is a Puerto Rico-based
company that focuses on providing vascular intervention and
access services to dialysis and kidney failure patients, and
RMS specializes in managing and operating centers like DAC.
In 2007, DAC and RMS entered into a management services
agreement (the "MSA") for the development,
building, management, and operation of a vascular access
center in Mayagüez, Puerto Rico.
MSA's provisions most relevant to this appeal are these:
section 12.1, "Termination by Either Party for
Cause" (laying out the procedure for terminating the
MSA, specifically, notice of a breach, an opportunity to cure
the breach, and, ultimately, termination of the MSA by the
non-breaching party if cure could not be effected within
sixty days of notice given); section 13.3, "Governing
Law" (the choice-of-law provision instructing that the
Commonwealth of Puerto Rico's substantive laws would
apply to the MSA); and section 13.9, "Dispute
Resolution/Arbitration" (requiring the parties'
exhibition of good faith in the resolution of any dispute
arising under the agreement, and, if no agreed upon
resolution could be reached, submission to binding
arbitration under the rules of the American Health Lawyers
Association (the "AHLA")).
the term of the MSA, the relationship between the parties
apparently soured, and numerous imbroglios arose between DAC
and RMS about their respective obligations under the
agreement. Those disputes set into motion this multi-year
litigation about, among other things, the parameters of the
that question brought these parties before this court nearly
a decade ago (in 2010). Dialysis I, 638 F.3d at
373-74. In that first go-round, we, like the district court,
found the disputes arbitrable and directed the parties to
arbitrate their beef before the AHLA. Id. at 383-84.
there, claims, counterclaims, and crossclaims abounded.
Everything from fraud in the inducement to fraud in the
performance to the ultimate breach of the MSA was put before
the arbitrator. After months of intermittent arbitration
sessions, in July of 2013, the arbitrator issued a final
decision in favor of RMS awarding it a grand total of $1,
969, 068.68, which covered damages, extra liability for
dolo exhibited by DAC,  prejudgment interest, costs,
attorneys' fees (from the arbitration and the
pre-arbitration litigation), as well as credits for the
settlements by the other two doctors. We'll discuss the
award more in due course as its many contested aspects come
up in the course of the parties' appellate contentions.
next turned to the federal district court in Puerto Rico,
where it filed a complaint (treated by the lower court as a
motion -- "[DAC] now move[s] the Court") seeking to
vacate or modify the arbitration award, primarily arguing
that the arbitrator exceeded his powers, misapplied the law
on parol evidence, engaged in misconduct in evaluating the
evidence (with respect to dolo in contract
formation, novation, and breach), and disregarded Puerto
Rico's law regarding damages. RMS opposed what it deemed
a "groundless" contestation of the arbitrator's
award in a motion and supporting brief requesting enforcement
of the award.
magistrate judge who handled the matter analyzed the
parties' claims under the Federal Arbitration Act (the
"FAA"), and found that not only did DAC fail to
demonstrate why the award should be vacated, but also, that
the arbitrator's thorough decision was both supportable
and well-reasoned. Therefore, with DAC not having evinced any
misconduct or manifest disregard of the law by the
arbitrator, or that his handling of the case exceeded his
powers, the magistrate judge recommended that DAC's
complaint be denied.
filed timely objections to the magistrate judge's report
and recommendation, taking a three-pronged aim at what DAC
says was error: her failure to hold a hearing as required by
the Puerto Rico Arbitration Act (the "PRAA"), her
use of the wrong standard of review, and her failure to
consider all of DAC's evidence and arguments. RMS,
unsurprisingly, opposed those objections. After reviewing the
written submissions, the district court sided with the
magistrate judge and rejected DAC's arguments -- no
hearing was required; the FAA applied to the controversy; and
the magistrate judge did, in fact, examine and evaluate each
of DAC's contentions. Therefore,
concluding that the magistrate judge's findings and
conclusion were well supported, the district court adopted
the magistrate judge's report and recommendation in full,
dismissed the complaint to vacate and/or modify the
arbitration award, and confirmed the award.
saga now continues as DAC asks us to upend the district
court's refusal to vacate the arbitrator's award.
us, DAC advances a variety of arguments to support its
position that the arbitrator's award should be
vacated.Regrettably, DAC's briefing is -- shall
we say -- not exactly a beacon of clarity. But, as best we
can distill, its arguments, as we understand them, fall
chiefly into two main baskets: (1) the PRAA, not the FAA
alone, should have governed the district court's standard
of review of the arbitration decision; and (2) three errors
compel the vacating of the award, specifically (a) the
arbitrator engaged in misconduct when he refused to consider,
or even allow certain evidence; (b) the arbitrator exceeded
his powers in his awards of attorneys' fees and
prejudgment interest, as well as in how he calculated
damages; and (c) the arbitrator manifestly disregarded the
law on dolo. RMS disagrees and we will lay out
RMS's responses to DAC's arguments section by section
review the district court's decision to confirm or vacate
an arbitration award de novo, Ortiz-Espinosa
v. BBVA Sec. of P.R., Inc., 852 F.3d 36, 47
(1st Cir. 2017) (citing Cytyc Corp. v. DEKA Prods. Ltd.
P'ship, 439 F.3d 27, 32 (1st Cir. 2006)), but in
undertaking that review, we are cognizant that "[a]
federal court's authority to defenestrate an arbitration
award is extremely limited," Mt. Valley Prop.,
Inc. v. Applied Risk Servs., Inc., 863
F.3d 90, 93 (1st Cir. 2017) (quoting First State Ins.
Co. v. Nat'l Cas. Co., 781 F.3d 7,
11 (1st Cir. 2015)).
The PRAA and the FAA
begin with the first issue DAC presents: whether the lower
court erred in applying only the FAA's more limited
standard of judicial review to this dispute. We note that the
FAA applies to "a contract evidencing a transaction
involving [interstate] commerce,"
Ortiz-Espinosa, 852 F.3d at 42 (quoting 9 U.S.C.
§ 2), and neither DAC nor RMS dispute that theirs was
such a transaction. That said, parties are free to contract
around the application of the FAA in favor of state
arbitration law, Hall St. Assocs. v.
Mattel, Inc., 552 U.S. 576, 590 (2008), such as the
PRAA, which we've described as providing a "more
searching" standard of review, see P.R. Tel.
Co. v. U.S. Phone Mfg. Corp., 427 F.3d
21, 29 (1st Cir. 2005), abrogated on other grounds by
Hall St., 552 U.S. at 583 n.5, 584. Indeed, the Hall
Street Court explained that "[t]he FAA is not the
only way into court for parties wanting review of arbitration
awards: they may contemplate enforcement under state
statutory or common law, for example, where judicial review
of different scope is arguable." 552 U.S. at 590.
"Parties are generally free to structure their
arbitration agreements as they see fit," and
"[j]ust as they may limit by contract the issues which
they will arbitrate, so too may they specify by contract the
rules under which that arbitration will be conducted."
Volt Info. Scis., Inc. v. Bd. of
Tr., 489 U.S. 468, 479 (1989) (citing Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 626 (1985)); see also
Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 57-58 (1995). However, in order to
effectuate FAA displacement, our circuit has been clear that
such can occur "only if the parties have so agreed
explicitly." Ortiz-Espinosa, 852 F.3d at 42
(citing Hall St., 552 U.S. at 590).
this court, DAC says that's precisely what happened here.
As DAC sees things, "the parties expressly agreed"
in the MSA that Puerto Rico law would control by including a
choice-of-law provision (section 13.3) which specifies the
MSA is to "be construed in accordance with the internal
substantive laws of the Commonwealth of Puerto Rico."
Therefore, according to DAC, this provision makes applicable
the PRAA's enforcement standards. DAC insists, then, that
the district court should have conducted its review of the
arbitrator's decision in the same way the Puerto Rico
Supreme Court allegedly would have done. Specifically, and
citing to Constructora Estelar v.
Autoridad de Edificios Publicos, 183 D.P.R. 1
(2011), DAC says the district court should have undertaken a
review more akin to a judicial review of an administrative
agency decision, which permits some greater scrutiny of the
merits of the award. Because that did not happen, DAC
contends that the district court committed legal error.
sees things differently. For one thing, because DAC advanced
this argument for the first time only after the magistrate
judge issued her report and recommendation, RMS says the
argument is waived. Even if waiver could be surmounted, RMS
posits that DAC should be judicially estopped from making
this PRAA argument because DAC previously argued before this
court in Dialysis I that the FAA governed the case.
And, in any event, RMS contends that the parties never
explicitly agreed to have the PRAA apply to the proceedings.
we can dispose of DAC's challenge based on our case law,
we need not get into RMS's waiver and judicial estoppel
arguments, instead assuming favorably to DAC that its
asseverations are properly before us. We find that the FAA
correctly was applied here. To prevail, DAC needed to show
that the parties explicitly agreed to have the PRAA displace
the FAA. See Ortiz-Espinosa, 852 F.3d at 42
(applying the FAA when claimants failed to demonstrate that
the parties had explicitly contemplated enforcement under the
PRAA). But as was the case in Ortiz-Espinosa, that
showing has not been made. Although DAC tries to win this
argument by pointing to the MSA's choice-of-law
provision, we have clearly instructed that such a general,
contractual provision is not enough. In Puerto Rico
Telephone Co., we framed the question before the court
like this: "At issue is whether and how parties can
contract for standards of judicial review of arbitration
awards other than those set forth in the Federal Arbitration
Act . . . ." 427 F.3d at 23. And our answer:
[T]he mere inclusion of a generic choice-of-law clause within
the arbitration agreement is not sufficient to require the
application of state law concerning the scope of review,
since there is a strong federal policy requiring limited
review . . . [A] generic choice-of-law clause, standing
alone, is insufficient to support a finding that contracting