Escobar-Noble v. Ritz-Carlton Hotel

United States Court of Appeals
For the First Circuit

No. 11-1506

TOMÁS ESCOBAR-NOBLE,

Plaintiff, Appellant,

v.

LUXURY HOTELS INTERNATIONAL OF PUERTO RICO, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Aida M. Delgado-Colón, U.S. District Judge]

Before

Lynch, Chief Judge,
Selya and Lipez, Circuit Judges.

Enrique J. Mendoza Mendez and Mendoza Law Offices on brief for
appellant.
Radamés A. Torruella, Jan Carlos Bonilla-Silva, and McConnell
Valdés LLC on brief for appellee.

May 24, 2012
 SELYA, Circuit Judge. The outcome of this appeal depends

on whether a court or an arbitrator should decide a claim that an

otherwise applicable arbitration clause is unenforceable. We hold

that, in the circumstances of this case, the task is for the

arbitrator.

Defendant-appellee Luxury Hotels International of Puerto

Rico, Inc. (the Hotel) operates the Ritz-Carlton Hotel & Casino in

San Juan, Puerto Rico. In 2001, the Hotel hired plaintiff-

appellant Tomás Escobar-Noble as a casino worker.

Approximately six years into his employment, the

appellant — for reasons not reflected in the record — filed a

charge of sex and age discrimination with the Equal Employment

Opportunity Commission (EEOC).

In his complaint in this case, the appellant alleges

that, shortly after he made these filings, his supervisors embarked

on a pattern of retaliation ultimately resulting in his dismissal

on November 11, 2008. He filed a retaliation charge with the EEOC,

which issued a right-to-sue letter on January 8, 2010. Armed with

this letter, he sued his quondam employer in the federal district

court. His complaint alleged retaliation in violation of Title

VII, 42 U.S.C. § 2000e-3(a), and the Age Discrimination in

Employment Act, 29 U.S.C. § 623(d), as well as supplemental causes

of action under a gallimaufry of Puerto Rico statutes, pertinently

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including P.R. Laws Ann. tit. 29, § 185a (Law 80) and P.R. Laws

Ann. tit. 29, § 194a (Law 115).

Citing two separate agreements signed by the appellant,

each of which contained an arbitration clause, the Hotel moved to

compel arbitration and stay or dismiss the court case. See 9

U.S.C. §§ 2-4. The appellant opposed the motion, challenging the

validity of the arbitration clauses. He asserted, among other

things, that the agreements he had signed impermissibly shorten the

applicable limitations period, impede public enforcement of anti-

discrimination laws, and unduly burden workers' rights.

Ruling on the papers, the district court determined that

the arbitration clauses were valid and enforceable. It proceeded

to dismiss the case without prejudice for want of subject matter

jurisdiction. This timely appeal followed. We have jurisdiction

under 28 U.S.C. § 1291.

Given the posture of this appeal, "we focus only on the

threshold issue of arbitrability; we do not rule on the merits of

the underlying claims." Unite Here Local 217 v. Sage Hospitality

Res., 642 F.3d 255, 259 (1st Cir. 2011). Our review of the

district court's order is de novo. Soto-Fonalledas v. Ritz-Carlton

San Juan Hotel Spa & Casino, 640 F.3d 471, 474 (1st Cir. 2011);

Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 551 (1st

Cir. 2005). Although we do not agree with the district court's

reasoning, we may affirm its disposition of the case on any

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independent ground made apparent by the record. See InterGen N.V.

v. Grina, 344 F.3d 134, 141 (1st Cir. 2003).

Our starting point is the Federal Arbitration Act (FAA),

9 U.S.C. §§ 1-16. "Congress passed the FAA to overcome a history

of judicial hostility to arbitration agreements." Campbell, 407

F.3d at 551 (citing Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20, 24 (1991)). The FAA pays homage to the fundamental

principle that an agreement to arbitrate is a matter of contract,

Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776 (2010),

and such an agreement should be placed "upon the same footing as

other contracts," Allied-Bruce Terminix Cos. v. Dobson, 513 U.S.

265, 271 (1995) (internal quotation marks omitted).

Section 2 of the FAA states that "an agreement in writing

to submit to arbitration an existing controversy . . . shall be

valid, irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract." 9

U.S.C. § 2. To the extent that an agreement satisfies the

imperatives of section 2, the FAA empowers an inquiring court to

stay a judicial proceeding filed by a resisting party. See id.

§ 3. Should the resisting party remain recalcitrant, the court may

compel arbitration. See id. § 4.

Although sections 3 and 4 of the FAA are designed to

operate independently, parties desiring to arbitrate commonly will

file a single motion seeking the simultaneous benefit of both

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provisions. See Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 871

(7th Cir. 1985). Here, the Hotel filed just such a motion.

The federal policy favoring arbitration is strong. See

KPMG LLP v. Cocchi, 132 S. Ct. 23, 25 (2011) (per curiam). Even

strong policies, however, have boundaries. A court may order

parties to arbitrate a given dispute only if they have agreed to

submit such a dispute to arbitration. See Granite Rock Co. v.

Int'l Bhd. of Teamsters, 130 S. Ct. 2847, 2856 (2010). It follows

that a court should not compel arbitration unless and until it

determines that the parties entered into a validly formed and

legally enforceable agreement covering the underlying claim(s).

Id. at 2857-58; Dialysis Access Ctr., LLC v. RMS Lifeline, Inc.,

638 F.3d 367, 376 (1st Cir. 2011). Once such a determination has

been made, the court must direct the parties to arbitrate all

"issues as to which an arbitration agreement has been signed."

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).

The appellant signed not one but two agreements that

contained arbitration clauses — the first in 2001 and the second in

2005. For purposes of this appeal, any variation in the language

of these agreements is immaterial. For ease in exposition,

therefore, we limit our discussion to the more recent agreement.

The 2005 agreement provides in pertinent part: "I must

request Arbitration if I wish to challenge my termination for any

reason or for management decisions that I believe are

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discriminatory or retaliatory." Our review, which centers on the

factual allegations of the complaint, see Dialysis Access Ctr., 638

F.3d at 378, indicates that the alleged acts of retaliation and the

supplemental causes of action fall within the scope of the

arbitration agreement. Indeed, the appellant has made no assertion

to the contrary.

Despite the fact that his claims fall within the four

corners of the arbitration clause, the appellant originally

challenged the enforceability of that clause on a multitude of

grounds. In this venue, however, he has narrowed his attack; he

argues only that enforcement should be denied because the agreement

that contains the arbitration clause imposes a one-year limitations

period. To be specific, he posits that the arbitration clause is

invalid because the provision for a one-year limitations period ("I

may request an Arbitration hearing within one year of the

management decision I wish to appeal") impermissibly truncates the

three-year statutory limitations period applicable to his claims

under Laws 80 and 115.1 This claim was preserved below.

The appellant's argument is straightforward. Each of the

two statutes that he cites is subject to a three-year statutory

limitations period. See P.R. Laws Ann. tit. 29, §§ 185l, 194a(b).

1
Law 80 creates a right of action in favor of an employee who
is fired without just cause. P.R. Laws Ann. tit. 29, § 185a. Law
115 proscribes retaliation against employees who provide testimony
"before a legislative, administrative or judicial forum." Id.
§ 194a(a).

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Shortening this period, the appellant says, deprives him of

substantive rights afforded by Puerto Rico statutory law. Because

statutes of limitations are deemed substantive in Puerto Rico, his

thesis runs, limitations periods incorporated in labor legislation

cannot, as a matter of public policy, be waived. See P.R. Laws

Ann. tit. 31, § 3372 ("[C]ontracting parties may make the agreement

and establish the clauses and conditions which they may deem

advisable, provided they are not in contravention of law, morals,

or public order.").

This argument triggers a threshold question as to whether

it should be resolved by the court or by an arbitrator. As a

general rule, and in the absence of an express agreement to the

contrary, courts decide questions of arbitrability, that is,

questions about whether the parties have agreed to submit a given

dispute to arbitration. Howsam v. Dean Witter Reynolds, Inc., 537

U.S. 79, 83 (2002); AT&T Techs., Inc. v. Commc'ns Workers of Am.,

475 U.S. 643, 649 (1986). Whether a question is one of

arbitrability within the meaning of this doctrine is not always

cut-and-dried. See, e.g., Kristian v. Comcast Corp., 446 F.3d 25,

37-42 (1st Cir. 2006). There is a gray area, and confusion

sometimes arises because "[l]inguistically speaking, one might call

any potentially dispositive gateway question a 'question of

arbitrability,' for its answer will determine whether the

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underlying controversy will proceed to arbitration on the merits."

Howsam, 537 U.S. at 83.

The Supreme Court has provided some guidance in this

area. It has admonished that controversies underlying an

arbitration agreement should be construed as questions of

arbitrability in only narrow circumstances. See id. at 83-84. We

have identified two categories in which issues typically involve

arbitrability: "(1) disputes about whether the parties are bound by

a given arbitration clause; and (2) disputes about whether an

arbitration clause in a concededly binding contract applies to a

particular type of controversy." Kristian, 446 F.3d at 42 (citing

Howsam, 537 U.S. at 84). Disputes falling into the first category

include, for example, whether a person who is not a party to a

contract is bound by the contract's arbitration clause. See, e.g.,

John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 544-48 (1964).

Disputes falling into the second category include, for example,

whether a particular grievance comes within the compass of an

arbitration clause. See, e.g., AT&T Techs., 475 U.S. at 651-52.

The dispute here does not fall neatly into either of

these two categories. The appellant does not argue that any of his

claims outstrip the scope of the arbitration agreement. He says

only that the contractual limitations period prevents him from

fully vindicating certain of the statutory rights conferred by

local law.

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 The fact that neither of the Howsam categories

encompasses this dispute does not end our inquiry. The Supreme

Court has more broadly stated that the issue of arbitrability

depends, at least to some extent and in some contexts, on whether

"the prospective litigant effectively may vindicate [his] statutory

cause of action in the arbitral forum." Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985). With this

in mind, we have stated that "[o]ne of the 'narrow circumstances'

that might raise a question of arbitrability involves an allegation

. . . that some of the terms in an arbitration agreement conflict

with a [state] statutory right that is not waivable by contract."

Anderson v. Comcast Corp., 500 F.3d 66, 71 (1st Cir. 2007). In

such an event, "the court will have to decide whether the conflict

precludes enforcement of the arbitration agreement." Id.

The appellant takes dead aim at the Anderson exception

and mounts a "vindication of statutory rights" argument. When, as

now, such an argument centers on a statutory limitations period, an

inquiring court must start with the premise that decisions

regarding the enforceability and effect of contractual limitations

periods are most often for the arbitrator. See Marie v. Allied

Home Mortg. Corp., 402 F.3d 1, 11 & n.8 (1st Cir. 2005). But this

is not always the case, and each dispute must stand on its own

bottom. See Kristian, 446 F.3d at 43. The appropriate triage is

composed of two steps. The court first must determine whether

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there is a direct conflict between the limitations period

delineated in the arbitration agreement and the state statute of

limitations. Anderson, 500 F.3d at 75-76; see also Kristian, 446

F.3d at 45-46 & n.15 (citing PacifiCare Health Sys., Inc. v. Book,

538 U.S. 401, 403-07 (2003)). In the absence of such a direct

conflict, the inquiry ends. If, however, the court discerns a

direct conflict, it must proceed to determine "whether there is

ambiguity on the question whether the statute of limitations can be

contractually shortened." Anderson, 500 F.3d at 75. The existence

of such an ambiguity consigns any lingering question about the

validity of the contractual limitations period to the arbitrator.

Id.

In the case at hand, the appellant's complaint alleges

that he was retaliated against from early 2007 until he was

cashiered on November 11, 2008. He did not sue, however, until

February 17, 2010 — more than one year but less than three years

after the adverse employment action (his firing). We therefore

assume, favorably to the appellant, that the contrast between the

one-year contractual limitations period and the three-year

statutory limitations period presents a direct conflict.2

2
We phrase this as an assumption, not as a finding of fact,
because the district court opined that the filing of a charge with
the EEOC tolled the statute of limitations. Escobar-Noble v. Ritz-
Carlton Hotel & Casino, No. 10-1121, slip op. at 9-10 (D.P.R. Mar.
31, 2011). If so, the limitations period for the statutory claims
would have begun to run anew on January 8, 2010, see, e.g.,
Valentín-Almeyda v. Municipality of Aguadilla, 447 F.3d 85, 101-02

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 This gets the appellant only halfway home. To succeed on

his "vindication of statutory rights" claim, he must show both that

a direct conflict exists and that the conflict, without doubt, must

be resolved in his favor. See, e.g., id. If an ambiguity exists,

the arbitrator — not the court — must decide the question of

whether the limitations period can be shortened by contract. See

id. at 75-76. Only if the answer is clear does the conflict

between the arbitration clause and the statute of limitations raise

a question of arbitrability for the court. See id. at 76.

The appellant posits that individuals may not enter into

contracts that run contrary to, or waive rights afforded by, Puerto

Rico labor legislation. See Beauchamp v. Dorado Beach Hotel, 98

P.R. 622, 624-25 (1970); Compañía Popular de Transporte, Inc. v.

Unión de Empleados de Transporte, 69 P.R. 167, 179 (1948); Compañía

Popular de Transporte v. Dist. Court of Bayamón, 63 P.R. 116, 121-

23 (1944). Relatedly, he posits that statutes of limitations,

sometimes called prescriptive statutes, see FDIC v. Consol. Mortg.

& Fin. Corp., 805 F.2d 14, 18 (1st Cir. 1986), are substantive in

nature. Olmo v. Young & Rubicam of P.R., Inc., 10 P.R. Offic.

Trans. 965, 969 (1981); Febo Ortega v. Superior Court, 2 P.R.

& n.20 (1st Cir. 2006), and the suit would have been commenced
within one year thereafter. But this outcome is far from clear
and, in all events, the crucial administrative filing — the charge
of retaliation — is not part of the record that was before the
district court. Assuming the existence of a direct conflict
obviates any need to pass upon either the applicability of tolling
or its effect on the existence of a direct conflict.

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Offic. Trans. 506, 509 (1974). He insists that these precedents,

taken collectively, signify that limitations periods applicable to

the enforcement of labor laws cannot be abbreviated by contract.

The Hotel fights tooth and nail against every aspect of this

argument.

Notwithstanding the parties' vehement disagreement about

whether statutes of limitations can be contractually shortened in

the labor law context, they fail to identify any Puerto Rico

Supreme Court decision directly on point. In the absence of on-

point authority, both parties repair to a provision of the Civil

Code, which states that "[p]ersons with the capacity to alienate

may renounce the prescription acquired, but not the right to

prescription in the future." P.R. Laws Ann. tit. 31, § 5246

(Article 1835). Although each party spins this language to support

a different answer to the question before us, the language is

tenebrous, and the Puerto Rico Supreme Court has not yet clarified

it.3

The muddiness of the language of Article 1835 and the

dearth of relevant authority lead us to the commentators. Because

Puerto Rico is a civil-law jurisdiction, rather than a common-law

3
Federal courts have construed Article 1835 to mean only that
parties cannot contractually waive a future right to assert a
statute of limitations defense. See, e.g., Consol. Mortg., 805
F.2d at 21-22; FDIC v. Barrera, 595 F. Supp. 894, 901-02 (D.P.R.
1984). On this view, the language becomes more clear — but not in
a way that helps the appellant.

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jurisdiction, the most relevant commentary is likely to arise in

other civil-law jurisdictions. See Jones v. Pettingill, 245 F.

269, 276 (1st Cir. 1917).

Article 1935 of Spain's Civil Code is a counterpart of

Article 1835 of Puerto Rico's Civil Code. FDIC v. Barrera, 595 F.

Supp. 894, 902 (D.P.R. 1984). Several Spanish commentators

discussing Article 1935 have agreed that contractually shortening

a limitations period does not contravene either civil law or public

policy. See, e.g., Luis Díez Picazo, La Prescripción en el Código

Civil 63-66 (Bosch ed. 1964); José Puig Brutau, Fundamentos de

Derecho Civil 857-59, T.I, Vol.I(2) (Bosch ed. 1979); José Castán

Tobeñas, Derecho Civil Español, Común y Foral 982-84, T.I, Vol.II

(Reus ed. 1987). The court below, relying on one such commentary,

concluded that the appellant's proposed interpretation of Article

1835 was incorrect. Escobar-Noble v. Ritz-Carlton Hotel & Casino,

No. 10-1121, slip op. at 6-9 (D.P.R. Mar. 31, 2011).

To be sure, the Spanish commentators discuss the

lawfulness of truncating limitations periods in commercial

contexts. They do not directly address statutes that involve the

vindication of workers' rights. But this observation cuts both

ways: Article 1835 falls under a portion of Puerto Rico's civil

code that sets out a framework of laws regulating commercial

interactions in general, see P.R. Laws Ann. tit. 31, §§ 1-5305,

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whereas labor laws fall into a different category, see P.R. Laws

Ann. tit. 29, §§ 1-3004.

A close review of Puerto Rico's labor laws reveals that

the legislature has crafted specific limitations periods for

several laws designed to vindicate workers' rights. See, e.g., id.

§ 155m (establishing one-year limitations period for sexual

harassment claims); id. § 250j (establishing three-year limitations

period for minimum-wage law); id. § 279 (establishing one-year

limitations period for overtime pay claim); id. § 688 (establishing

one-year limitations period for certain benefit claims). While it

can be argued that these statutes evince the legislature's overall

intent to assign specific temporal parameters to claims arising

under Puerto Rico's labor laws, the Puerto Rico Supreme Court has

repeatedly stated that the principal purpose behind statutes of

limitations is to encourage the swift resolution of legal disputes.

Cintrón v. Commonwealth, 127 P.R. Dec. 582, 588-90 (1990) [P.R.

Offic. slip trans. at 3-5]. In a similar vein, it has lauded the

benefits of shorter limitations periods. See Olmo, 10 P.R. Offic.

Trans. at 973-74 (applying one-year limitations period in

employment discrimination case and explaining that "it is

convenient that . . . actions for the violation of human rights be

speedily filed and decided" because of the "vital public interest

in that these actions be duly and rapidly aired in the furtherance

of the collective well-being"). This viewpoint strongly suggests

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that the court would not consider bargaining for a one-year

limitations period in lieu of a three-year limitations period an

affront to public policy.4

When all is said and done, there appears to be no clear

answer to the question of whether Puerto Rico law permits or

prohibits contractual abbreviation of limitations periods where

workers' statutory rights are implicated. It therefore remains

uncertain (and perforce ambiguous) whether the limitations period

for the appellant's Law 80 and Law 115 claims can be validly

shortened by an arms-length agreement between employer and

employee. The resolution of this ambiguity is for the arbitrator,

not the court.

Although this disposes of the principal issue on appeal,

a loose end remains. The court below apparently assumed that the

Hotel aspired to have the court case dismissed for want of subject

matter jurisdiction. Escobar-Noble, No. 10-1121, slip op. at 1, 3-

4. If this were so, the Hotel might have run a risk of waiving any

right to arbitrate the dispute. See Tyco Int'l Ltd. v. Swartz (In

re Tyco Int'l Ltd. Sec. Litig.), 422 F.3d 41, 44 & n.2 (1st Cir.

2005) (explaining that delay in seeking to compel arbitration and

substantially engaging the litigation machinery may give rise to

4
We note in passing that the legislature itself has exhibited
no distaste for relatively short limitations periods in cases
involving workers' rights. See, e.g., P.R. Laws Ann. tit. 29,
§ 155m (fixing one-year limitations period for sexual harassment
claims).

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waiver of arbitral rights). The Hotel's motion, however, is to the

contrary: the primary relief sought is to compel arbitration.

We think that substance must trump form. The essence of

the district court's ruling was to grant the Hotel the bargained-

for protection provided by the arbitration clause. The court

should, therefore, have entered an order compelling arbitration and

either staying or dismissing the action. See 9 U.S.C. §§ 3-4; see

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

(1st Cir. 1998).

We need go no further. For the reasons elucidated above,

we vacate the order appealed from and remand to the district court

with instructions to enter an order compelling arbitration of the

claims sub judice and, as the district court may elect, either

staying or dismissing the pending case. Each party shall bear his

or its own costs on appeal.

So Ordered.

— Concurring Opinion Follows —

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 LYNCH, Chief Judge (Concurring). I agree with my

colleagues that the district court did not err in enforcing the

arbitration clause and declining to stay arbitration. However, I

reach this conclusion through other means. The analysis in the

majority opinion is based on arguments not made by plaintiff, not

briefed by either party, and not necessary to resolve the case. I

also have considerable reservations about it.

The argument plaintiff did make was that the arbitration

agreement violated some Puerto Rico "public policy." This argument

depends on its legal speculation that the Puerto Rico courts would

someday hold that Article 1835 of the Puerto Rico Civil Code does

not in employment matters permit arbitration agreements to shorten

a statute of limitations, otherwise set by statute, which had not

started to run.

The district court rejected the argument for two succinct

reasons. First, it held that under Puerto Rico law, the limitation

period has been tolled, thus there was no time bar issue presented

in the case.5 That alone justified sending the case to

5
Under Article 1873 of the Puerto Rico Civil Code, claims
filed with the EEOC are extrajudicial claims that toll any
applicable statutes of limitations. See Rodríguez-García v.
Municipality of Caguas, 354 F.3d 91, 99 (1st Cir. 2004) (citing
Matos Molero v. Roche Prods., Inc., 132 P.R. Dec. 29, 1993 WL
839826 (1993)). The plaintiff filed two claims with the EEOC: the
first on March 29, 2007, alleging sex and age discrimination, and
the second on July 8, 2008, claiming that his supervisors engaged
in a pattern of retaliation against him for filing a claim with the
EEOC. The EEOC administrative proceedings continued until January
8, 2010, when the EEOC issued to the plaintiff a Notice of Right to

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arbitration. Plaintiff accepted and never contested, either in the

district court or on appeal, the dates of the administrative

filings on which the tolling ruling rests. While there was no

reason to doubt the facts on which the analysis rests, if there

were, that also would have been reason to send the issue to

arbitration. See Kristian v. Comcast Corp., 446 F.3d 25, 44 (1st

Cir. 2006).

Secondly, the district court analyzed the pure issue of

law of interpretation of Article 1835 under rules of interpretation

adopted by the Puerto Rico courts and concluded that plaintiff's

proffered construction was wrong. Therefore, there was no public

policy conflict, and so that possible challenge to arbitrability

did not exist in this case.

Especially given the lack of briefing6 and the complexity

and evolving nature of the case law on the determination of issues

of arbitrability, we ought say no more than needed.

Sue. The one-year statute of limitations therefore began to run on
January 8, 2010 and ended on January 8, 2011. The plaintiff filed
his complaint in district court on February 17, 2010, well before
the one-year statute of limitations would have expired.
6
No party has addressed what effect, if any, recent Supreme
Court jurisprudence, including the Court's decision in AT&T
Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), may have on
public policy based objections to arbitration and the proper method
of analysis. In any event, in my view, even under the doctrines of
Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006), and
Anderson v. Comcast, Corp., 500 F.3d 66 (1st Cir. 2007), the
district court correctly construed Puerto Rico law and held that no
conflict existed, and so the inquiry would end at that point.

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