United States Court of Appeals
For the First Circuit
No. 04-2303
MUNICIPALITY OF SAN JUAN,
Plaintiff, Appellant,
v.
CORPORACIÓN PARA EL FOMENTO ECONÓMICO DE LA CIUDAD CAPITAL,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. Garcia-Gregory, U.S. District Judge]
Before
Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Howard, Circuit Judge.
Francisco J. Amundaray-Rodriguez with whom Mercado & Soto,
P.S.C. was on brief for appellant.
Roberto Abesada-Agüet with whom Harold D. Vicente and Vincente
& Cuebas were on brief for appellee.
July 14, 2005
COFFIN, Senior Circuit Judge. The Municipality of San Juan,
plaintiff-appellant in this action, contends that defendant-
appellee Corporación para el Fomento Económico de la Ciudad Capital
(COFECC) misused federal block grant funds the agency was assigned
to disburse, and the Municipality consequently seeks the return of
all remaining federal funds held by COFECC, damages, and
declaratory and injunctive relief establishing that the trustee
relationship between the two entities was properly terminated. The
district court granted COFECC's motion to compel arbitration of all
issues and dismissed the case without prejudice. After careful
review of the facts and relevant legal principles, we affirm.
I. Background
In July 1982, the Municipality and the Government Development
Bank of Puerto Rico executed a deed of trust ("Deed of Trust No. 5"
or "Deed of Trust") that designated the Bank, as trustee, to
administer funds granted to the Municipality by the United States
Department of Housing and Urban Development (HUD). The Deed of
Trust contains a broad arbitration clause requiring that disputes
that arise between the parties "with regard to their
responsibilities and obligations under this contract" shall be
resolved through arbitration. The Deed of Trust also provides that
the Municipality can terminate the contract upon sixty days' notice
and after appointment of a successor trustee.
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In 1983, COFECC succeeded the Bank as trustee, and the
transition was effectuated through a series of one-year delegation
contracts between the Municipality and COFECC that renewed
automatically unless written notice was given thirty days before
expiration. Deed of Trust No. 5 remained the governing document
for the trusteeship and was explicitly incorporated into the first
several delegation agreements. Annual contracts between the
Municipality and COFECC were executed through 1992, with the last
written agreement terminating on June 30, 1992.1 The parties
continued their relationship beyond that point, however, through
"tacit" extension of their contractual arrangement.2 In May 2003,
the Municipality sent a letter terminating the trustee agreement,
giving the sixty days notice required by the Deed of Trust and thus
1
The original agreement linking the parties was titled
"Contract for the Transfer of Funds" and was dated May 20, 1983,
with a June 30, 1984 expiration. That document states that Deed of
Trust No. 5 and Deed of Trust No. 6 (the former addressing
administration of the Municipality's "Capital Independent Fund" and
the latter addressing loans granted through the Fund) are enclosed
"as part of this contract." The next document, titled "Contract
for the Transfer and Administration of Funds and Programs," dated
August 23, 1984, explicitly appoints COFECC as successor
administrator of the Capital Fund, and it provides that COFECC
"assumes the obligations of the Bank" under Deeds No. 5 and 6.
This second contract ended on June 30, 1985, but would
automatically renew in the absence of thirty-day written notice of
non-renewal. A similar document dated September 12, 1985 continued
COFECC's appointment under the two deeds through June 1986. The
subsequent contracts, extending the relationship through June 1992,
did not reference the deeds of trust.
2
In its brief, the Municipality states that, after June 1992,
"the relationship between the parties was tacitly renovated as well
as the terms and conditions of the delegation agreement."
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intended to take effect on July 30, 2003. The Municipality asserts
that COFECC improperly used thousands of dollars of federal money
and failed to comply with regulatory requirements governing the use
of federal grant funds, including maintaining an adequate
accounting and auditing system. The Municipality sought return of
all unused funds.
COFECC disputed the termination of its trustee status and did
not turn over any funds to the Municipality. In August 2003, the
Municipality filed this action, seeking breach of contract damages,
the return of any remaining federal funds held by COFECC, and
injunctive and declaratory relief terminating both the parties'
relationship and COFECC's authority to use the federal monies.
COFECC argued that all of the issues were arbitrable, and the
district court ultimately agreed.3 On appeal, we review only the
court's ruling that the duration of the trusteeship – i.e., the
validity of the Municipality's attempt to terminate the
relationship – must be arbitrated. The arbitrability of the breach
of contract issues is not before us.4
3
In so concluding, the district court departed from the
recommendation of a magistrate judge, who held that issues relating
to the alleged unlawful use of funds must be arbitrated, but ruled
that the question of termination did not require arbitration.
4
The Municipality suggests in its brief that no part of its
dispute with COFECC is arbitrable because their relationship was
governed by the delegation contracts, which do not contain
arbitration provisions. The Municipality did not submit objections
to the magistrate judge's contrary recommendation on the contract
issue, however; indeed, it noted that the magistrate judge
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We briefly address a preliminary jurisdictional issue before
explaining why we conclude that the district court correctly
referred the termination issue to the arbitrator.
II. Discussion
A. Finality of a Dismissal Without Prejudice
COFECC argues that the district court's decision compelling
the parties to arbitrate, accompanied by dismissal of the case
without prejudice, resulted in a judgment that was not final and
appealable under the Federal Arbitration Act, 9 U.S.C. § 16(a)(3).5
COFECC's cursory argument is arguably insufficient to warrant our
full attention, see, e.g., Smilow v. Southwestern Bell Mobile Sys.,
Inc., 323 F.3d 32, 43 (1st Cir. 2003) ("Issues raised on appeal in
a perfunctory manner (or not at all) are waived."), but since we
view the agency's assertion as plainly without merit, we choose to
take the opportunity to state so explicitly.
"correctly held" that "the only issues that the parties have to
arbitrate . . . are the breach of contract and the resulting
damages, if any." See Opposition to Defendant's Objections to the
Magistrate Judge's Report and Recommendation." The Municipality
may not change course on appeal, see, e.g., Burke v. Town of
Walpole, 405 F.3d 66, 71 n.2 (1st Cir. 2005), and, like the
magistrate judge and district court, we therefore presume that Deed
of Trust No. 5 – including its arbitration provision – governed the
parties' relationship at least until the attempt to terminate the
agreement in May 2003. There is no dispute that the arbitration
provision substantively covers the breach of contract allegations.
5
Section 16(a)(3) provides that an appeal may be taken from
"a final decision with respect to an arbitration that is subject to
this title."
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In Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 86-
87 (2000), the Supreme Court held that a district court's order
directing arbitration and dismissing all of the claims before it
was "final" within the meaning of section 16(a)(3) and therefore
appealable. The action in Green Tree had been dismissed with
prejudice, and COFECC asserts that the Supreme Court's ruling
consequently is inapplicable to dismissals without prejudice. We
agree with the reasoning of other courts that have rejected this
distinction. See Hill v. Rent-A-Center, Inc., 398 F.3d 1286, 1288
(11th Cir. 2005); Blair v. Scott Specialty Gases, 283 F.3d 595, 602
(3d Cir. 2002); Salim Oleochemicals v. M/V Shropshire, 278 F.3d 90,
91 (2d Cir. 2002); Interactive Flight Techs., Inc. v. Swissair
Swiss Air Transp. Co., 249 F.3d 1177, 1179 (9th Cir. 2001). In
brief, these courts concluded that both types of dismissal are
equivalent with respect to the Supreme Court's rationale in Green
Tree – that the arbitration order "plainly disposed of the entire
case on the merits and left no part of it pending before the
court," 531 U.S. at 86. Cf. Mirpuri v. ACT Mfg., Inc., 212 F.3d
624, 628-29 (1st Cir. 2000) (a dismissal without prejudice that
entirely terminates the litigation is a final order). We therefore
hold that the Municipality's appeal is properly before us.6
6
Although not argued before us, COFECC earlier in the
litigation challenged the substantive basis for jurisdiction,
asserting that the Municipality's complaint did not state a federal
question. After the magistrate judge initially recommended
dismissal, the Municipality amended its complaint to draw a more
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B. Arbitrability of the Termination Dispute
We think it most helpful to begin this discussion by reviewing
several basic arbitration principles noted by the Supreme Court in
AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643 (1986),
and derived from prior case law. See id. at 648 (referring to the
Steelworkers Trilogy).7 First, "'arbitration is a matter of
contract and a party cannot be required to submit to arbitration
any dispute which he has not agreed so to submit.'" Id. at 648
(citation omitted). Second, "the question of arbitrability . . .
explicit link between its allegations and the federal interest in
ensuring compliance with the comprehensive framework of regulations
governing recipients of federal block grant funds. The magistrate
judge vacated his earlier ruling, relying on Supreme Court
precedent recognizing that traditional state law causes of action
may present a sufficiently important federal interest to warrant
federal jurisdiction. See Smith v. Kansas City Title & Trust Co.,
255 U.S. 180, 199 (1921); Templeton Bd. of Sewer Comm'rs v. Amer.
Tissue Mills of Mass., Inc., 352 F.3d 33, 36 (1st Cir. 2003);
Penobscot Nation v. Georgia-Pacific Corp., 254 F.3d 317, 321 (1st
Cir. 2001); Almond v. Capital Props., Inc., 212 F.3d 20, 22-24 (1st
Cir. 2000).
Because the propriety of COFECC's conduct turns entirely on
its adherence to the intricate and detailed set of federal
regulatory requirements, and the funds at issue are federal grant
monies, we agree with the magistrate judge and district court that
jurisdiction is proper. The Supreme Court recently affirmed the
continued viability of the Smith line of cases, albeit narrowly
drawn. See Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg.,
125 S. Ct. 2363, 2368 (2005) (upholding federal-question
jurisdiction where a state-law claim necessarily implicates a
federal issue, "actually disputed and substantial, which a federal
forum may entertain without disturbing any congressionally approved
balance of federal and state judicial responsibilities").
7
The Steelworkers Trilogy consisted of: Steelworkers v.
American Mfg. Co., 363 U.S. 564 (1960); Steelworkers v. Warrior &
Gulf Navigation Co., 363 U.S. 574 (1960); and Steelworkers v.
Enterprise Wheel & Car Corp., 363 U.S. 593 (1960).
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is undeniably an issue for judicial determination." Id. at 649.
Third, a court deciding whether the parties have agreed to submit
a particular grievance to arbitration is "not to rule on the
potential merits of the underlying claims." Id. And, finally,
when a contract contains an arbitration clause, "'[d]oubts should
be resolved in favor of coverage.'" Id. at 650 (citation omitted);
see also, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 944-45 (1995). In other words, "'[a]n order to arbitrate the
particular grievance should not be denied unless it may be said
with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted
dispute.'" AT&T Techs., 475 U.S. at 650 (citation omitted); see
also Mobil Oil Corp. v. Local 8-766, Oil, Chemical & Atomic Workers
Int'l Union, 600 F.2d 322, 328 (1st Cir. 1979) ("'In the absence of
any express provision excluding a particular grievance from
arbitration, we think only the most forceful evidence of a purpose
to exclude the claim from arbitration can prevail, particularly
where . . . the arbitration clause [is] quite broad.'" (quoting
United Steelworkers of Amer. v. Warrior & Gulf Navigation Co., 363
U.S. 574, 584-85 (1960))).
The middle two principles pose no difficulty here. Both
parties agree that the arbitrability question is for the court and
that the merits do not play a role in that determination. The
parties pit the first and fourth principles against each other,
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however – with the Municipality claiming that the termination issue
is outside the contractual arbitration provision and COFECC
maintaining that, in the absence of its explicit exclusion,
termination falls within the clause. Like the district court, we
conclude that COFECC has the better argument. Our review of the
court's decision is de novo. See Intergen N.V. v. Grina, 344 F.3d
134, 141 (1st Cir. 2003)
We first dispense with the Municipality's argument that this
case implicates Supreme Court precedent on the arbitrability of
post-termination disputes. See, e.g., Litton Fin. Printing Div. v.
N.L.R.B., 501 U.S. 190 (1991). The dispute here is not over
matters that arose following the acknowledged end of the parties'
agreement, but the issue is whether termination has, in fact,
properly occurred. Post-termination case law is simply inapposite
in this setting.
Our focus, rather, must be on whether the arbitration
provision in Deed of Trust No. 5 is reasonably construed to embrace
disputes over the termination of the trustee relationship. The
entire arbitration provision, section 702 of the Trust document,
states as follows:
In the event any controversy arises
between the parties with regard to their
responsibilities and obligations under this
contract, said differences shall be resolved
by arbitration. The parties should mutually
agree to consent to the designation of the
arbiter and shall be bound by his decision.
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The parties will equally share the costs of
the arbitration.
The "responsibilities and obligations" outlined in the contract
appear to include those related to the agreement's termination.
Under section 604, the Municipality is obliged to give at least
sixty days notice of its intent to end the relationship and to
appoint a successor administrator by the termination date. That
section goes on to state that, in the event of termination,
the Administrator of the Capital Fund shall be
responsible for transferring all the documents
and assets, and deliver to and on behalf of
the Municipality all the documents, moneys and
values received with regard to the loan funds
that might be in his possession, custody or
control, and the prerogatives and
responsibilities of the Administrator of the
Capital Fund and his right to compensation
shall terminate.
The parties here volley various assertions about whether the
Municipality accomplished a valid termination of the Deed of Trust
(as well as the subsidiary delegation agreements) and whether
COFECC is therefore presently obliged to turn over all federal
assets and related materials remaining in its possession. We think
it fairly clear that section 604's explicit reference to both the
requirements for termination and the administrator's
responsibilities upon termination places these matters squarely
within the arbitrator's domain as described in section 702. Even
if that proposition were debatable, however, we would be obliged to
reach the same outcome. We certainly could not say "with positive
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assurance" that the arbitration clause is not susceptible of being
so construed. Consequently, we think it manifest that the issue of
contract duration must be decided by the arbitrator. Cf. New York
News Inc. v. Newspaper Guild, 927 F.2d 82, 84 (2d Cir. 1991) (per
curiam) (narrow arbitration clause limited to "grievances" does not
apply to disputes over contract termination); but see Virginia
Carolina Tools, Inc. v. Int'l Tool Supply, Inc., 984 F.2d 113, 118
(4th Cir. 1993) (general presumption in favor of arbitrability
given "less force" on contract duration issues).8
In urging its contrary view, the Municipality relies most
heavily on Nat'l R.R. Passenger Corp. v. Boston and Maine Corp.,
850 F.2d 756 (D.C. Cir. 1988), arguing that the issue of
termination is not arbitrable here because Deed of Trust No. 5
specifies a "date certain" for expiration of the contract. In
National R.R. Passenger Corp., the D.C. Circuit reasoned that "the
presumption in favor of arbitrating disputes over contract duration
can be overcome by a clear showing that the parties intended for
the underlying contract to expire, or separately agreed to
terminate it, before the relevant dispute arose." Id. at 763.
8
We note that the contract at issue in Virginia Carolina
Tools had a more specific termination date than Deed of Trust No.
5: 60 days from the date of the execution of the agreement. See
984 F.2d at 115. The court relied on this "express termination
date provision" to support its view that the parties did not intend
to arbitrate the contract's duration, noting that there was "no
incipient issue of contract duration in the parties' memorialized
agreement, hence no built-in likelihood of dispute over its
duration." Id. at 118.
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Such a showing would be accomplished, the court explained, if the
contract clearly "provides that it will expire on a date certain."
Id.
Even under a "date certain" test, however, the Municipality's
position falters. The instant contract expires only after two
prerequisites are fulfilled: written notice given sixty days in
advance and substitution of a successor administrator. We need not
address now whether a conditional expiration provision could ever
be considered sufficiently "certain" to overcome the presumption in
favor of arbitrability; the touchstone, after all, is not the
language formula chosen but what the language reveals about the
particular parties' intent. See, e.g., PaineWebber Inc. v. Elahi,
87 F.3d 589, 599 (1st Cir. 1996) ("[T]he intent of the parties
always controls what is to be arbitrated."); Nat'l R.R. Passenger
Corp., 850 F.2d at 760 ("[O]ur task is to discern the choice of the
parties, not to make a choice of our own."); see also First
Options, 514 U.S. at 943 ("[A]rbitration is simply a matter of
contract between the parties[.]"). Here, the parties' debate
concerns both the efficacy of the notice given and whether notice
was necessary at all – matters that cloud the time of termination.
Without a fixed endpoint for the Deed of Trust, and otherwise
lacking "'forceful evidence of a purpose to exclude the
[termination] claim from arbitration,'" Mobil Oil Corp., 600 F.2d
at 328 (citation omitted), the Municipality is unable to make the
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"clear showing" of non-arbitrability required by the court in Nat'l
R.R. Passenger Corp. In sum, we see no basis for departing from
the general principle that all doubts be resolved in favor of
arbitration.
The judgment of the district court is therefore affirmed.
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