Dialysis Access Center, LLC v. RMS Lifeline, Inc.

United States Court of Appeals
For the First Circuit

No. 10-1872

DIALYSIS ACCESS CENTER, LLC; JUSTO GONZÁLEZ-TRÁPAGA;
AND HIS WIFE, NANCY ROIG-FLORES,

Plaintiffs, Appellants,

v.

RMS LIFELINE, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

[Hon. Gustavo A. Gelpí, U.S. District Judge]

Before

Torruella, Leval,* and Thompson,
Circuit Judges.

Juan Ramón Rivas-Rivera, for appellants.
José Luis González-Castañer, with whom Cristina B. Martínez-
Guzmán and González Castañer & Morales Cordero, C.S.P. were on
brief, for appellee.

March 30, 2011

*
Of the Second Circuit, sitting by designation.
 TORRUELLA, Circuit Judge. In this appeal, appellants-

plaintiffs Dialysis Access Center, LLC ("DAC"), Justo González-

Trápaga ("González-Trápaga") and his wife, Nancy Roig-Flores

("Roig-Flores") (collectively, "Appellants") challenge the district

court's judgment dismissing all of their claims against appellee-

defendant RMS Lifeline, Inc. ("RMS") and ordering the parties to

arbitrate their claims as per the rules of the American Health

Lawyers Association ("AHLA"). Specifically, Appellants aver that

the court and not an arbitrator should resolve their dispute with

RMS over the validity of a certain management services agreement,

which Appellants wish to have declared null because RMS allegedly

committed fraud in the formation and performance of the contractual

obligations set forth therein.

Appellants challenge both the scope and validity of their

arbitration agreement with RMS. After careful consideration, we

conclude that Appellants' claims are encompassed within the

parties' arbitration agreement and that the agreement is valid,

pursuant to Section 2 of the Federal Arbitration Act (the "FAA"),

9 U.S.C. § 2. Accordingly, we affirm the district court's judgment

dismissing this case and compelling arbitration.

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 I. Facts and Procedural History

Appellant DAC, whose president is appellant González-

Trápaga,1 is a limited liability company organized under the laws

of Puerto Rico dedicated to providing vascular intervention and

access services to dialysis and kidney failure patients. Appellee

RMS is a corporation created under the laws of Delaware that

engages in the management and operation of medical centers

providing access services. On or about August 20, 2007, appellants

DAC and González-Trápaga entered into a management services

agreement (the "MSA") with appellee RMS for the development,

building, management and operation of a vascular access center in

Mayagüez, Puerto Rico.2

Section 13.3 of the MSA contained a choice-of-law

provision establishing that the MSA "shall be construed in

accordance with the internal substantive laws of the Commonwealth

of Puerto Rico." In addition, Section 13.9 of the MSA set forth an

arbitration clause (hereinafter, the "Arbitration Clause")

providing, in relevant part, as follows:

Dispute Resolution/Arbitration. Manager [RMS]
and Medical Practice [DAC] shall use good

1
Appellant González-Trápaga is a medical doctor specializing in
nephrology and authorized to practice the profession in Puerto
Rico.
2
For purposes of deciding the arbitration question in this case,
we rely upon the terms of the MSA and the facts in the district
court record. See Granite Rock Co. v. Int'l Bhd. of Teamsters, 130
S. Ct. 2847, 2853 n.1 (2010).

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 faith negotiation to resolve any dispute that
may arise under this Agreement [the MSA]. In
the event Manager [RMS] and Medical Practice
[DAC] cannot reach agreement on any issue,
such issue will be settled by binding
arbitration in accordance with the rules of
arbitration of the American Health Lawyers
Association, and judgment upon the award
rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof.

The parties agree that the Arbitration Clause is subject to the

provisions of the FAA, 9 U.S.C. § 1 et seq.

During the term of the MSA, several disputes arose

between the parties regarding their obligations under the MSA. On

March 3, 2010, RMS submitted said disputes to arbitration before

the AHLA. Subsequently, on April 13, 2010, Appellants filed a

complaint (the "Complaint") in the Court of First Instance of the

Commonwealth of Puerto Rico requesting both compensation for

damages and a declaration that the MSA was null, allegedly because

RMS fraudulently induced Appellants to enter into the MSA and then

further committed fraud while performing the obligations set forth

therein.

On May 10, 2010, RMS filed a notice removing Appellants'

action to the district court on the ground of diversity of

citizenship. That same day, RMS filed a motion to dismiss and

compel arbitration alleging that the Arbitration Clause covered

appellants DAC and González-Trápaga's claims and that appellant

Roig-Flores had failed to state a claim upon which relief could be

granted (because of lack of contractual privity). Accordingly, RMS

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requested that Roig-Flores' claims be dismissed, that court

proceedings be stayed and that the court order the parties to

arbitrate their claims. In the alterative, RMS averred that

appellant Roig-Flores' claims also arose under the MSA and should

also be submitted to binding arbitration. The district court gave

Appellants until May 26, 2010 to oppose. Appellants failed to

comply with this deadline, allegedly because the district court

clerk failed to notify them of the deadline.

On May 27, 2010, the district court issued an order

granting RMS' unopposed motion and entered judgment "dismissing

th[e] case" and ordering the parties to arbitrate their claims as

per the rules of the AHLA. On June 4, 2010, Appellants filed a

motion to alter or amend judgment and an opposition to RMS' motion

to dismiss and to compel arbitration (which included a request that

the district court remand the case to state court).3 In addition,

on June 28, 2010, Appellants filed a motion requesting that the

district court stay the ongoing arbitration proceedings until the

Court resolved the pending motions.

On June 29, 2010, the district court denied Appellants'

motion to stay arbitration proceedings and their motion to alter or

amend judgment. Appellants timely filed a notice of appeal with

regards to the district court's (1) judgment dismissing the case

3
On appeal, Appellants have not challenged the district court's
denial of their request to remand to state court. We limit our
analysis accordingly and do not address this issue.

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and compelling arbitration, (2) order denying Appellants' motion to

alter or amend said judgment, and (3) order denying Appellants'

motion to stay arbitration proceedings.

II. Appellate Jurisdiction

As a preliminary matter, we begin by addressing RMS'

argument that the district court's judgment compelling arbitration

is not immediately appealable, and, consequently, that we do not

have jurisdiction to hear an appeal of said judgment. RMS grounds

this argument in the mistaken belief that the district court's

judgment was an interlocutory decision that merely stayed the

Court's proceedings. However, for the reasons stated below, we

find that said judgment was a final decision immediately appealable

before this court.

Although Section 16 of the FAA "limits the immediate

appealability of most pro-arbitration interlocutory orders, it

still permits appeals to be taken from 'a final decision with

respect to an arbitration.'" Braintree Labs., Inc. v. Citigroup

Global Mkts. Inc., 622 F.3d 36, 43 (1st Cir. 2010) (citing 9 U.S.C.

§ 16(a)(3)). "Whether an order compelling arbitration is

interlocutory or final depends on whether the district court

chooses to stay litigation pending arbitration or instead to

dismiss the case entirely. If the district court stays litigation,

parties wishing to challenge the case's arbitrability must normally

wait until the arbitrator resolves the matter on the merits and the

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district court enters a final judgment." Id. (citing Green Tree

Fin. Corp. v. Randolph, 531 U.S. 79, 87 n.2 (2000)). However,

"[i]f . . . the district court couples its order compelling

arbitration not with a stay but with an outright dismissal, leaving

nothing more for itself to do but execute the eventual judgment,

then an appeal may be taken." Id. (citing Green Tree, 531 U.S. at

86-87). "Where one side is entitled to arbitration of a claim

brought in court, in this circuit a district court can, in its

discretion, choose to dismiss the law suit, if all claims asserted

in the case are found arbitrable." Next Step Med. Co. v. Johnson

& Johnson Int'l, 619 F.3d 67, 71 (1st Cir. 2010) (emphasis omitted)

(citing Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141, 156 & n.21

(1st Cir. 1998)). But see Lloyd v. HOVENSA, LLC, 369 F.3d 263,

268-269 (3d Cir. 2004).

RMS alleges that, because the district court did not

reach the merits of Appellants' claims, its judgment should be

considered an interlocutory decision staying the Court's

proceedings pending arbitration. However, RMS fails to realize

that the district court's judgment not only compelled arbitration,

but also stated that the Court was "dismissing th[e] case." The

district court had the discretion to do so upon finding that all

claims before it were arbitrable. Thus, we construe the district

court's judgment as "a final decision with respect to an

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arbitration," which is immediately appealable under Section

16(a)(3) of the FAA.

On the other hand, we do not have jurisdiction to hear an

appeal of the district court's June 29, 2010 order (denying

Appellants' motion to stay arbitration proceedings), because the

issue has become moot. See Cruz v. Farquharson, 252 F.3d 530, 533

(1st Cir. 2001) ("When a case is moot-that is, when the issues

presented are no longer live or when the parties lack a legally

cognizable interest in the outcome-a case or controversy ceases to

exist, and dismissal of the action is compulsory."). The motion to

stay, which was filed on June 28, 2010, noted that various motions

were pending resolution by the district court and requested "a stay

on the arbitration proceedings until final adjudication is entered

regarding motions to alter and to remand to state court."

Accordingly, the motion to stay became moot on June 29, 2010 when

the district court entered its final decision on the motions to

alter and to remand to state court.4 We, therefore, limit our

review in this appeal to an analysis of the district court's

judgment dismissing the case and compelling arbitration.

III. Standard of Review

"We review both the interpretation of arbitration

agreements and orders compelling arbitration de novo." South Bay

4
Appellants have not alleged that an exception to the mootness
doctrine applies in this case.

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Boston Mgmt., Inc. v. Unite Here, Local 26, 587 F.3d 35, 42 (1st

Cir. 2009).5

IV. Discussion

The parties do not contest that it was proper for the

district court to decide whether their underlying dispute --

regarding the validity of the MSA -- was arbitrable.6 Rather, they

5
As previously stated, RMS' motion to dismiss and to compel
arbitration was unopposed at the time that the district court
entered its judgment compelling arbitration (i.e., May 27, 2010).
Although Appellants were served with said motion on May 10, 2010
(by regular and electronic mail), they waited until June 4, 2010 to
oppose it. Nevertheless, in light of our conclusion in this appeal
that the district court's judgment withstands a de novo review --
which we reach after careful consideration of Appellants' opposing
arguments -- it is unnecessary for us to address, and we issue no
opinion, as to whether Appellants' delay in opposing RMS' motion to
compel arbitration should constitute a waiver of their right to
object. See Local Rule 7(b) of the United States District Court
for the District of Puerto Rico ("Unless within fourteen (14) days
after the service of a motion the opposing party files a written
objection to the motion, incorporating a memorandum of law, the
opposing party shall be deemed to have waived objection."); Fed. R.
Civ. P. 6(a)(1) (establishing that the day of service is not
included in calculating time, and every day is counted, including
intermediate Saturdays, Sundays, and legal holidays); Fed. R. Civ.
P. 6(d) (establishing that where, as here, a party is served by
regular or electronic mail, three days are added after the relevant
period would otherwise expire).
6
In its motion to dismiss and compel arbitration, RMS argued that
the Arbitration Clause encompassed all claims raised by Appellants
in their Complaint and requested that the district court compel the
parties to arbitrate said claims. At no point did RMS request that
the district court refer to arbitration the issue of who
(primarily) should decide arbitrability of the parties' disputes.
Cf. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45
(1995) (noting that where the question is "'who (primarily) should
decide arbitrability[,]' . . . the law reverses the presumption" in
favor of arbitration and establishes a presumption that said
question is for judicial determination unless there is clear and
unmistakable evidence to the contrary); Howsam v. Dean Witter

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disagree about whether the district court answered the question

correctly. Thus, we must determine whether the district court

erred in compelling the parties to arbitrate their claims. Namely,

Appellants claim in their Complaint that the MSA is invalid and

request both damages and a declaration that it is null, because RMS

allegedly committed fraud during the MSA's formation and in the

performance of the obligations set forth therein.

Appellants challenge the district court's judgment

compelling arbitration on three main grounds. First, they

challenge the Arbitration Clause's scope by alleging that the

parties did not agree to arbitrate the validity of the MSA.

Second, Appellants contend that, even if the parties agreed to

arbitrate the validity of the MSA, arbitration is not proper in

Reynolds, Inc., 537 U.S. 79, 83, (2002) ("The question whether the
parties have submitted a particular dispute to arbitration, i.e.,
the question of arbitrability, is an issue for judicial
determination unless the parties clearly and unmistakably provide
otherwise." (citation and internal quotation marks omitted)).
Therefore, although the district court did not provide any
reasoning behind its order granting RMS' unopposed motion to
dismiss and to compel arbitration, we construe the same as a
determination on the question of whether the parties' underlying
fraud dispute was arbitrable and not a determination on the "rather
arcane" question of who (primarily) should decide whether said
dispute was arbitrable. First Options, 514 U.S. at 944-45.
Neither party argues that an arbitrator, not a court, should
resolve their current disagreement about whether their underlying
fraud dispute is arbitrable. Accordingly, this appeal does not
implicate the aforementioned reversed presumption applied by the
Supreme Court in cases such as First Options. See Granite Rock Co.
v. Int'l Bhd. of Teamsters, 130 S. Ct. 2847, 2857 n.5 (2010)
(majority opinion); Granite Rock, 130 S. Ct. at 2866 n.1
(Sotomayor, J., concurring in part and dissenting in part).

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this case because RMS allegedly did not comply with the Arbitration

Clause's supposed requirement that good faith negotiations take

place prior to arbitration. Finally, Appellants maintain that,

even if the parties agreed to arbitrate the validity of the MSA,

the Arbitration Clause is not valid because the nullity of the MSA

causes the clauses contained therein to also be null.7

RMS contends, on the other hand, that, because Appellants

have not specifically challenged the validity of the Arbitration

Clause but rather have only challenged the validity of the MSA in

which the Arbitration Clause was included, the Supreme Court's

holdings in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.

395 (1967), and Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.

440 (2006), require that we compel arbitration regardless of

whether the language of the Arbitration Clause encompasses a

dispute over the validity of the MSA. As further explained below,

this argument misconstrues the Supreme Court's precedents and was

rejected by the Court in Granite Rock Co. v. Int'l Bhd. of

Teamsters. 130 S. Ct. 2847, 2858 (2010) (noting that the fact that

Buckeye and some prior cases did not discuss the requirement --

that the arbitration agreement covers the dispute in question --

7
We note that Appellants alleged at the district court level that
RMS was not entitled to invoke the Arbitration Clause because its
allegedly fraudulent conduct constituted a waiver of such right.
Nevertheless, because Appellants did not raise this issue on
appeal, it is deemed waived. See United States v. Rodríguez
Cortés, 949 F.2d 532, 542 (1st Cir. 1991).

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merely reflects the fact that in those cases such requirement was

"so obviously satisfied that no discussion was needed").

Nevertheless, RMS also alleges that, in any event, the Arbitration

Clause is sufficiently broad to encompass Appellants' claims.

For the reasons stated below, we find that (1) the

Arbitration Clause is sufficiently broad to encompass Appellants'

claims, (2) the determination as to whether RMS complied with the

Arbitration Clause's supposed "good faith negotiations" pre-

condition to arbitration is an issue presumptively for the

arbitrator to decide, and (3) given that Appellants have not

specifically challenged the validity of the Arbitration Clause and

have only challenged the validity of the MSA as a whole, the

Arbitration Clause is severable from the MSA and considered valid,

irrevocable, and enforceable under Section 2 of the FAA, 9 U.S.C.

§ 2, as interpreted by Prima Paint and its progeny. See, e.g.,

Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010);

Preston v. Ferrer, 552 U.S. 346 (2008); Buckeye, 546 U.S. at 447-

49; Prima Paint, 388 U.S. at 406. Accordingly, we affirm the

district court's judgment dismissing this case and compelling the

parties to arbitrate their claims.

We begin our analysis with an overview of the relevant

arbitration law.

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 A. Arbitration Law

A party seeking to compel arbitration under the FAA must

demonstrate "that a valid agreement to arbitrate exists, that the

movant is entitled to invoke the arbitration clause, that the other

party is bound by that clause, and that the claim asserted comes

within the clause's scope." InterGen N.V. v. Grina, 344 F.3d 134,

142 (1st Cir. 2003).

Whether or not a dispute is arbitrable is typically a

question for judicial determination. See Granite Rock, 130 S. Ct.

at 2855 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,

83 (2002)). Therefore, "except where the parties clearly and

unmistakably provide otherwise, it is the court's duty to interpret

the agreement and to determine whether the parties intended to

arbitrate grievances concerning a particular matter."8 Granite

Rock, 130 S. Ct at 2858 (internal citation and quotation marks

omitted); see also First Options of Chicago, Inc. v. Kaplan, 514

U.S. 938, 944-45 (1995).

On the other hand, "'"procedural" questions which grow

out of the dispute and bear on its final disposition' are

presumptively not for the judge, but for an arbitrator, to decide."

Howsam, 537 U.S. at 84 (quoting John Wiley & Sons, Inc. v.

8
As discussed in footnote six of this opinion, the parties do not
contest that it is the court who shall decide whether their
underlying fraud dispute is arbitrable. Thus, the present appeal
does not implicate the rule requiring clear and unmistakable
evidence of an agreement to arbitrate arbitrability.

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Livingston, 376 U.S. 543, 557 (1964)). In addition, it is also

presumed under federal law "that the arbitrator should decide

'allegation[s] of waiver, delay, or a like defense to

arbitrability.'" Id. (alteration in original) (quoting Moses H.

Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25

(1983)).

Whether or not the parties have agreed to submit a

certain dispute to arbitration "depends on contract interpretation,

which is a question of law." Combined Energies v. CCI, Inc., 514

F.3d 168, 171 (1st Cir. 2008) (citation and internal quotation

marks omitted). "The FAA reflects the fundamental principle that

arbitration is a matter of contract." Rent-A-Center, 130 S. Ct. at

2776. Therefore, the first principle that underscores all of the

Supreme Court's arbitration decisions is that "[a]rbitration is

strictly a matter of consent, and thus is a way to resolve those

disputes -- but only those disputes -- that the parties have agreed

to submit to arbitration." Granite Rock, 130 S. Ct. at 2857

(emphasis in original) (citations and internal quotation marks

omitted). While applying this principle, the Supreme Court has

stated that

courts should order arbitration of a dispute
only where the court is satisfied that neither
the formation of the parties' arbitration
agreement nor (absent a valid provision
specifically committing such disputes to an
arbitrator) its enforceability or
applicability to the dispute is in issue.

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 Where a party contests either or both matters,
"the court" must resolve the disagreement.

Id. at 2857-2858 (emphasis in original) (citations and internal

quotation marks omitted).

"When deciding whether the parties agreed to arbitrate a

certain matter . . . , courts generally . . . should apply ordinary

state-law principles that govern the formation of contracts."

First Options, 514 U.S. at 944. In carrying out this endeavor,

"'due regard must be given to the federal policy favoring

arbitration, and ambiguities as to the scope of the arbitration

clause itself resolved in favor of arbitration.'" Mastrobuono v.

Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (quoting Volt

Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,

489 U.S. 468, 476 (1989)). See also PowerShare, Inc. v. Syntel,

Inc., 597 F.3d 10, 15 (1st Cir. 2010) (noting that "federal law

undeniably includes a policy favoring arbitration" (citing Volt,

489 U.S. at 475-76)). As the Supreme Court recently clarified in

Granite Rock, courts "discharge this duty by: (1) applying the

presumption of arbitrability only where a validly formed and

enforceable arbitration agreement is ambiguous about whether it

covers the dispute at hand; and (2) adhering to the presumption and

ordering arbitration only where the presumption is not rebutted."

130 S. Ct. at 2858-59; see also IOM Corp. v. Brown Forman Corp.,

627 F.3d 440, 450 (1st Cir. 2010) ("In evaluating the scope of

. . . arbitration clauses, . . . arbitration will be ordered unless

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it may be said with positive assurance that the arbitration clause

is not susceptible of an interpretation that covers the asserted

dispute." (citation and internal quotation marks omitted)).

Thus, where the court is persuaded that "the parties'

arbitration agreement was validly formed and that it cover[s] the

dispute in question and [is] legally enforceable," Granite Rock,

130 S. Ct. at 2858 (emphasis added), and that the arbitration

agreement is not otherwise subject to revocation "upon such grounds

as exist at law or in equity for the revocation of any contract,"

9 U.S.C. § 2, Section 2 of the FAA requires that the court submit

the dispute in question to arbitration.

In Prima Paint, the Supreme Court addressed a situation

where, although the respective arbitration clause clearly

encompassed the dispute in question (i.e., whether a consulting

agreement was void because of fraud in the inducement) and thus the

scope of the arbitration clause was not at issue, a party

nevertheless refused to enforce the arbitration clause on the

ground that the nullity of the consulting agreement caused the

arbitration clause included therein to also be null. Prima Paint,

388 U.S. at 398. The Court applied the FAA and concluded that,

because the parties did not specifically challenge the validity of

the arbitration clause itself (e.g., no claim was advanced that the

arbitration clause itself was fraudulently induced), the

arbitration clause was severable from the consulting agreement and

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had to be enforced. The Supreme Court has subsequently reaffirmed

this severability requirement in various cases. See, e.g.,

Rent-A-Center, 130 S. Ct. at 2778, Preston, 552 U.S. at 353-54,

Buckeye, 546 U.S. at 447-49. More recently, the Court explained

that these cases

simply appl[y] the requirement in § 2 of the
FAA that courts treat an arbitration clause as
severable from the contract in which it
appears and enforce it according to its terms
unless the party resisting arbitration
specifically challenges the enforceability of
the arbitration clause itself, or claims that
the agreement to arbitrate was [n]ever
concluded.

Granite Rock, 130 S. Ct. at 2858 (second alternation in original)

(citation and internal quotation marks omitted); see also Buckeye,

546 U.S. at 448 (noting that the question of whether or not the

arbitration clause is severable does not depend on whether the

challenge at issue would render the contract as a whole voidable or

void).

B. Analysis

With the aforementioned legal framework in mind, we now

analyze the issues at hand in the present appeal. We divide our

analysis into three sections. First, we interpret the scope of the

Arbitration Clause and determine whether Appellants' claims are

encompassed therein. Second, we discuss the arbitrability of the

parties' dispute pertaining to whether RMS complied with the

Arbitration Clause's purported "good faith negotiations" pre-

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condition to arbitration. Third, we discuss whether the

Arbitration Clause is severable from the MSA, pursuant to Section

2 of the FAA.

1. Interpretation of Arbitration Clause's Scope

The parties agree that the Arbitration Clause requires

that they settle by binding arbitration "any dispute that may arise

under [the MSA]."9 (Emphasis added). Appellants allege that this

language is insufficient to encompass a dispute over the validity

of the MSA and that the parties never intended to arbitrate such a

dispute. To this effect, they argue that the use of the language

"arising under" (as opposed to, e.g., "arising under or relating

to") presupposes a valid agreement. Thus, they contend that the

parties did not agree to arbitrate their current dispute over the

validity of the MSA.

In determining whether Appellants' claims fall within the

scope of the Arbitration Clause, we focus on the factual

allegations underlying their claims in the Complaint. See

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S.

614, 622 n.9 (1985); see also Medtronic AVE, Inc. v. Advanced

9
Under the first sentence of Section 13.9 of the MSA, the parties
agreed to use negotiation to resolve any dispute "that may arise
under [the MSA]." Then, in the following sentence, the parties set
forth their agreement to submit to arbitration "any issue" upon
which they cannot agree. The parties agree that these sentences
should be interpreted jointly as setting forth their agreement to
arbitrate "any dispute that may arise under the MSA." Therefore,
we assume this interpretation for purposes of our analysis in this
appeal.

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Cardiovascular Systems, Inc., 247 F.3d 44, 55 (3d Cir. 2001). In

the Complaint, Appellants claimed, first, that RMS fraudulently

induced them to enter into the MSA by intentionally misleading them

with regards to the coverages and payment rates that insurance

companies paid in Puerto Rico. Appellants further claimed that RMS

also committed fraud during the performance of the MSA by, among

other things, purposefully breaching its obligations to provide

support to DAC in the negotiation of coverages with insurance

companies. This latter claim (i.e., fraud in the performance of

the MSA) easily falls within the scope of the Arbitration Clause's

"arising under" language and does not warrant further discussion.

Accordingly, we find that said claim is encompassed under the

Arbitration Clause. On the other hand, the former claim (i.e.,

fraud in the inducement of the MSA) deserves further analysis.

Under Puerto Rico law, the "consent of the contracting

parties" is one of the requisites for the existence of a contract.

31 P.R. Laws Ann. tit. 31, § 3391 (2008). Where consent is wholly

lacking, as in a simulated contract, no contract is deemed to have

existed. See Lummus Co. v. Commonwealth Oil Refining Co. 280 F.2d

915, 930 n.21 (1st Cir. 1960) (citing, inter alia, Guzmán v.

Guzmán, 78 P.R.R. 640, 78 D.P.R. 673 (1955)). On the other hand,

"if a contract contains the necessary effectuating requisites"

(including the consent of the contracting parties), "although

tainted with defect or vice, there is nonetheless a contract"

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because the defect may be cured. Id. (citation and internal

quotation marks omitted). An example of a situation where a

contract may exist despite being tainted with defect or vice is

when fraud is committed during its formation. See Colón v. Promo

Motor Imports, Inc., 144 D.P.R. 659, 668 (1997) (official

translation).10

Under Puerto Rico contract law, fraud is a type of

contractual deceit ("dolo" or "dolus"). See Márquez v. Torres

Campos, 11 P.R. Offic. Trans 1085, 111 D.P.R. 854, 863-64 (1982).

Puerto Rico law distinguishes between contractual deceit occurring

at the contracting stage (i.e., during the formation of the

contract) and contractual deceit occurring in the course of the

performance of the contract. See Colón, 144 D.P.R. at 668 (citing

Canales v. Pan American, 12 P.R. Offic. Trans. 411, 425, 112 D.P.R.

329, 340 (1982); Márquez, 11 P.R. Offic. Trans. at 1098, 111 D.P.R.

at 864). Contractual deceit that occurs during the formation of

the contract, if deemed serious, may give rise to the nullification

of the contract. Id. In this case, "although the executed

contract may not be deemed nonexistent, it is voidable, and the

period of limitations for bringing an action for annulment is four

years." Id.; see also 31 P.R. Laws Ann. tit. 31, § 3512 (2008).

On the other hand, "contractual deceit that arises not at the

10
The Puerto Rico Supreme Court provided an official translation
of an excerpt of its opinion in Colón.

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contracting stage, but in the course of the performance of the

contract," does not give rise to the nullification of the contract.

Colón, 144 D.P.R. at 668; see also Márquez, 11 P.R. Offic. Trans

1085, 111 D.P.R. at 863-64. Rather, "in such cases, the person who

engages in deceit shall be liable for the damage knowingly caused

by his or her nonfulfillment." Colón, 144 D.P.R. at 668; see also

31 P.R. Laws Ann. tit. 31, §§ 3018, 3019 and 3024 (2008).

After unpacking Appellants' allegations in the Complaint

and construing them in light of the applicable law, their story

becomes clear. Appellants factually allege that, although the MSA

exists, it is voidable and should be annulled, because RMS

allegedly committed fraud during its formation. Our task here is

not to resolve this dispute, but rather to determine whether it is

arbitrable under the Arbitration Clause. See Municipality of San

Juan v. Corporación Para El Fomento Económico De La Ciudad Capital,

415 F.3d 145, 149 (1st Cir. 2005) (citing AT&T Techs., Inc. v.

Commc'ns Workers of America, 475 U.S. 643, 649 (1986)).

As previously stated, the parties do not contest that the

Arbitration Clause is construed with reference to Puerto Rico law

and is subject to the FAA.11 Therefore, in construing the

Arbitration Clause, we are guided by the following principles. If

11
We take note of the fact that the definition of the term
"commerce" in the FAA includes "commerce . . . in any Territory of
the United States," which encompasses the subject matter of the
parties' current dispute. 9 U.S.C. § 1 (emphasis added).

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"the terms of [the Arbitration Clause], its conditions and

exclusions, are clear and specific, and leave no room for ambiguity

or for diverse interpretations, they should be thus applied."

Unisys Puerto Rico, Inc. v. Ramallo Bros. Printing, Inc., 1991 WL

735351 (P.R.), 128 D.P.R. 842, 852 (1991) (citing 31 P.R. Laws Ann.

tit. 31, § 3471). "If the words should appear contrary to the

evident intention of the contracting parties, the intention shall

prevail." 31 P.R. Laws Ann. tit. 31, § 3471 (2008). Furthermore,

consistent with the federal pro-arbitration policy, there is a

presumption that "'ambiguities as to the scope of the arbitration

clause itself [must be] resolved in favor of arbitration.'"

Powershare, 597 F.3d at 15 (alteration in original) (quoting Volt,

489 U.S. at 475-76). We apply this presumption in favor of

arbitrability only if the Arbitration Clause "is ambiguous about

whether it covers the dispute at hand; . . . adhering to the

presumption . . . only where the presumption is not rebutted."

Granite Rock, 130 S. Ct. at 2858-59.

Applying the aforementioned principles, we find that the

terms of the Arbitration Clause are not clear or specific and leave

room for reasonable diverse interpretations on the issue of whether

the parties agreed to arbitrate Appellants' fraudulent inducement

claim and the resulting dispute over the validity of the MSA.

Thus, we find that the Arbitration Clause is ambiguous on this

issue. Nevertheless, as discussed below, the strong federal pro-

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arbitration policy establishes a presumption (which Appellants fail

to rebut) that the Arbitration Clause's "arising under" language is

sufficiently broad to encompass Appellants' claims.

In Prima Paint, the Supreme Court found that the language

of the arbitration clause there at issue, which required

arbitration of controversies "arising out of or relating to" a

certain consulting agreement, was "easily broad enough to encompass

Prima Paint's claim" that the consulting agreement was procured by

fraud. Prima Paint, 388 U.S. at 406. Appellants attempt to

distinguish Prima Paint by arguing that the absence of the words

"relating to" from their Arbitration Clause should compel a

different result.

The federal courts of appeal have wrestled with the

interpretation of arbitration clauses similar to the one here in

question and have reached different results on the issue of whether

they encompass disputes pertaining to the validity of a contract of

which the respective arbitration clause forms a part. In an early

case, In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir. 1961), the

Second Circuit found that when an arbitration clause "refers to

disputes or controversies 'under' or 'arising out of' the

contract," arbitration is restricted to "disputes and controversies

relating to the interpretation of the contract and matters of

performance." The Court reasoned that the phrase "arising under"

is narrower in scope than the phrase "arising out of or relating

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to," the standard language recommended by the American Arbitration

Association. Id. Accordingly, the Court concluded that the

arbitration clause was not "sufficiently broad to encompass a

dispute or controversy about an alleged fraudulent inducement of

the contract" in which the arbitration clause was included. Id.

In Mediterranean Enterprises Inc. v. Ssangyong Corp., 708 F.2d

1458, 1464 (9th Cir. 1983), the Ninth Circuit explained that

"arising hereunder" was synonymous with "arising under" and,

relying on Kinoshita, found that the language "'arising hereunder'

is intended to cover . . . only [disputes] relating to the

interpretation and performance of the contract itself." The Ninth

Circuit has subsequently reaffirmed this narrow construction of the

"arising under" language. See Tracer Research Corp. v. Nat'l

Envtl. Servs. Co., 42 F.3d 1292, 1294-95 (9th Cir. 1994).

On the other hand, the Second Circuit has subsequently

changed course and, although not formally overruling Kinoshita, has

severely confined its holding to "its precise facts," noting that

Kinoshita is inconsistent with the federal policy favoring

arbitration.12 See ACE Capital Re Overseas Ltd. v. Cent. United

Life Ins. Co., 307 F.3d 24, 33 (2d Cir. 2002) ("As a result [of

12
We note, however, that the court in Kinoshita was not presented
with and did not explicitly rule on the question Granite Rock
instructs us to consider: whether the language of the arbitration
agreement is at least "ambiguous as to whether it covers the
dispute at hand," such that the rebuttable federal presumption in
favor of arbitrability is triggered. 130 S. Ct. at 2858-59.

-24-
later Second Circuit cases], the authority of Kinoshita is highly

questionable in [the Second] Circuit." (first alteration in

original) (citation and internal quotation marks omitted)); Louis

Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d

218, 225-26 (2d Cir. 2001) ("In In re Kinoshita & Co., . . . we

intimated that the use of the phrase 'arising under' an agreement,

in an arbitration clause, indicated that the parties intended the

clause be narrowly applied. We have, however, since limited this

holding to its facts, declaring that absent further limitation,

only the precise language in Kinoshita would evince a narrow

clause."); Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840,

854 n.6 (2d Cir. 1987) ("[W]e recognize, as did Samitri, that

Kinoshita is inconsistent with the federal policy favoring

arbitration . . . ."); S.A. Mineracao Da Trindade-Samitri v. Utah

Int'l, Inc., 745 F.2d 190, 194 (2d Cir. 1984) ("We decline to

overrule In re Kinoshita, despite its inconsistency with federal

policy favoring arbitration, particularly in international business

disputes, because we are concerned that contracting parties may

have (in theory at least) relied on that case in their formulation

of an arbitration provision.").

Accordingly, in these later cases, the Second Circuit

found that language similar (but not identical) to the language in

Kinoshita was sufficiently broad to encompass fraudulent inducement

claims. See, e.g., ACE Capital, 307 F.3d at 31-34 (noting that the

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language "any right of action hereunder" was, at least when paired

with other more expansive language in the arbitration agreement,

broad enough to include a contractual fraudulent inducement claim);

Genesco, Inc., 815 F.2d at 854 (noting that the language "all

claims . . . of whatever nature arising under this contract" was

sufficiently broad to encompass a claim of fraud in the

inducement); S.A. Mineracao Da Trindade-Samitri, 745 F.2d at 194-

195 (noting that the language "any question or dispute aris[ing] or

occur[ring] under" the agreement was sufficiently broad to cover

fraudulent inducement claim).

Other circuits have declined to follow Kinoshita because

of the strong federal policy in favor of arbitration. See, e.g.,

Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir. 2000) ("[W]hen

phrases such as 'arising under' and 'arising out of' appear in

arbitration provisions, they are normally given broad construction,

and are generally construed to encompass claims going to the

formation of the underlying agreements."); Gregory v. Electro-Mech.

Corp., 83 F.3d 382, 386 (11th Cir. 1996) (arbitration clause

covering "any dispute . . . which may arise hereunder" was

sufficiently broad to encompass a fraudulent inducement claim); see

also Highlands Wellmont Health Network v. John Deere Health Plan,

350 F.3d 568, 578 (6th Cir. 2003) (holding "that 'arising out of'

is broad enough to include a claim of fraudulent inducement of a

contract"); Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l,

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Ltd., 1 F.3d 639, 642 (7th Cir. 1993) (noting that "arising out of"

covers all disputes "having their origin or genesis in the

contract, whether or not they implicate interpretation or

performance of the contract per se"); Mar-Len of Louisiana, Inc. v.

Parsons-Gilbane, 773 F.2d 633, 637 (5th Cir. 1985) (recognizing

that Kinoshita is inconsistent with federal policy favoring

arbitration). The case law that we have examined suggests that the

Ninth Circuit is the only federal circuit that continues to

strictly adhere to the analysis in Kinoshita.

We agree with the majority of the federal circuits and

find that the analysis in Kinoshita is not consistent with the

strong federal pro-arbitration policy set forth by the FAA. Said

policy establishes a presumption in favor of arbitrability where,

as here, a validly formed and enforceable arbitration agreement is

ambiguous about whether it covers the dispute at hand.13 See

Granite Rock, 130 S. Ct. at 2858-59. The presumption requires that

such ambiguities be resolved in favor of arbitration. Mastrobuono,

514 U.S. at 62.

As we have stated, in the present case the Arbitration

Clause is ambiguous about whether it covers Appellants' fraudulent

13
As discussed in section "IV(B)(3)" of this opinion, Appellants
do not allege that their arbitration agreement with RMS -- which
was set forth in the Arbitration Clause -- was fraudulently induced
or otherwise invalid or unenforceable. Therefore, pursuant to
Section 2 of the FAA, the Arbitration Clause is severable from the
MSA and considered to be validly formed and enforceable.

-27-
inducement claim and the resulting dispute over the validity of the

MSA. Moreover, we find that it cannot be said with positive

assurance that the "arising under" language used in the Arbitration

Clause is not sufficient to encompass the current dispute over the

validity of the MSA (as opposed to a dispute over the existence of

the MSA). See AT&T Techs., 475 U.S. at 650; IOM Corp., 627 F.3d at

450. Appellants have not rebutted the presumption in favor of

arbitrability.14 See Granite Rock, 130 S. Ct. at 2858-59.

Accordingly, we conclude that Appellants' fraudulent inducement

claim and the resulting dispute over the validity of the MSA are

encompassed within the scope of the Arbitration Clause.

Furthermore, we note that the present case is materially

distinguishable from Granite Rock, where the Supreme Court analyzed

the scope of an arbitration clause with language similar to the one

here in question. In Granite Rock, the Supreme Court analyzed

whether an arbitration clause requiring that the parties submit to

arbitration "[a]ll disputes arising under th[e] [collective

14
Appellants cite Puerto Rico contract law in support of their
proposition that, because RMS drafted the Arbitration Clause,
ambiguities should be interpreted against RMS. See 31 P.R. Laws
Ann. tit. 31, § 3478 (2008). However, this argument fails.
Assuming arguendo that said state law tenet requires a result
different from the one at which we arrive today, we find that the
strong federal policy in favor of arbitration trumps the tenet.
See Kristian v. Comcast Corp., 446 F.3d 25, 35 (1st Cir. 2006)
("Where the federal policy favoring arbitration is in tension with
the tenet of contra proferentem for adhesion contracts, and there
is a scope question at issue, the federal policy favoring
arbitration trumps the state contract law tenet.").

-28-
bargaining agreement (CBA)]" was sufficiently broad to encompass a

dispute over the ratification date of said CBA. Granite Rock, 130

S. Ct. at 2862 (emphasis in original). The Court noted that,

because the CBA's arbitration clause pertained only to disputes

"arising under" the CBA, the arbitration clause "presuppose[d] the

CBA's existence." Granite Rock, 130 S. Ct. at 2860-61. The Court

then found as follows: "[W]e do not think the question whether the

CBA was validly ratified on July 2, 2004 - a question that concerns

the CBA's very existence - can fairly be said to 'arise under' the

CBA." Id. at 2862 (emphasis added). The Court concluded that the

dispute there at issue fell "outside the scope of the parties'

arbitration clause on grounds the presumption favoring arbitration

[could not] cure." Id. Thus, although the Court recognized the

presumption favoring arbitration, it ultimately determined that the

specific language of the arbitration clause there at issue (i.e.,

"arising under") could not be fairly construed as encompassing a

dispute over the existence of the CBA.

It is evident from the aforementioned discussion of

Appellants' factual allegations that, contrary to the situation in

Granite Rock, the parties here do not dispute the MSA's existence.

Rather, they dispute the validity of the MSA, which Appellants

challenge as voidable in light of their allegations that it was

fraudulently induced. Specifically, the parties dispute whether

Appellants have the right to request that the MSA be annulled, not

-29-
whether the MSA currently exists. Therefore, the Supreme Court's

finding in Granite Rock (i.e., that a question concerning the very

existence of the CBA cannot fairly be said to "arise under" the

CBA) does not counsel a result different from the one at which we

here arrive. As we have stated, we find that the Arbitration

Clause is ambiguous as to whether it encompasses the parties'

dispute over the validity of the MSA. Appellants have not rebutted

the presumption favoring arbitration of this dispute.

For the reasons stated, we find that the Arbitration

Clause's scope is sufficiently broad to encompass Appellants'

claims and the resulting dispute over the validity of the MSA.15

2. Arbitrability of Pre-condition to Arbitration

Appellants also allege that the parties' dispute over the

validity of the MSA cannot be submitted to Arbitration because RMS

did not comply with the Arbitration Clause's supposed pre-condition

that the parties engage in good faith negotiations prior to

arbitration. Furthermore, Appellants allege that the parties did

not agree to submit to an arbitrator their disagreement over

whether said pre-condition to arbitration was fulfilled.

15
Appellants also alleged at the district court level that
appellant Roig-Flores' claims were not arbitrable because her
claims against RMS were ex contractu and, therefore, not covered by
the Arbitration Clause. Nevertheless, because Appellants did not
raise this issue on appeal, it is deemed waived. See United States
v. Rodríguez Cortés, 949 F.2d 532, 542 (1st Cir. 1991).

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 The parties disagree over whether the Arbitration Clause

in fact establishes a condition precedent to arbitration requiring

that the parties engage in good faith negotiations. Nevertheless,

we do not have to resolve this disagreement because, assuming

arguendo that the Arbitration Clause establishes such a pre-

condition to arbitration, Appellants have not rebutted the

presumption that the arbitrator should decide whether the parties

complied with such a procedural pre-requisite to arbitration. See

Howsam, 537 U.S. at 84; John Wiley & Sons, Inc., 376 U.S. at 557-59

(holding that an arbitrator should decide whether the first steps

of a grievance procedure were completed, where these steps are pre-

requisites to arbitration).

Accordingly, we find that the parties' disagreement over

whether RMS complied with the MSA's alleged good faith negotiations

pre-requisite to arbitration is an issue for the arbitrator to

resolve in this case.

3. Validity of the Arbitration Clause

Appellants contend that their allegation that RMS did not

comply with the MSA's purported "good faith negotiations" pre-

condition to arbitration is a specific attack on the Arbitration

Clause that should preclude the application of the severability

requirement set forth in Section 2 of the FAA. However, this

argument fails, since it misconstrues the type of specific

challenge to an arbitration clause necessary to preclude the

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application of Section 2 of the FAA. As discussed in the preceding

section, the parties' dispute over compliance with the MSA's

alleged "good faith negotiations" pre-condition to arbitration is

for the arbitrator to resolve in this case. Furthermore, this

challenge does not question the validity or enforceability of the

Arbitration Clause, but rather merely questions the clause's

application (i.e., whether the clause requires arbitration in this

case). Appellants cannot rely on this challenge to preclude the

application of Section 2's severability requirement. See Granite

Rock, 130 S. Ct. at 2858.

Although Appellants have challenged the validity of the

MSA as a whole, they have not specifically challenged the validity

of the Arbitration Clause itself. For example, Appellants have not

alleged that the Arbitration Clause itself was fraudulently

induced. Therefore, under Prima Paint and its progeny, the

Arbitration Clause is severable from the MSA and must be enforced

in accordance with its terms, pursuant to Section 2 of the FAA.

Id.

V. Conclusion

For the reasons stated, we conclude that Appellants'

claims in the Complaint are arbitrable under the Arbitration

Clause, which is severable from the MSA and must be enforced

pursuant to Section 2 of the FAA. We, therefore, affirm the

-32-
district court's judgment dismissing this case and compelling the

parties to arbitrate their claims as per the rules of the AHLA.

Affirmed.

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