Municipality of San Juan v. Corporación Para El Fomento Económico De La Ciudad Capital

          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.




                                       -2-
     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."

                                    -3-
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

                                   -4-
     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."

                               -5-
     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

                                -6-
     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).

                                -7-
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,


                                         -8-
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.


                                         -9-
          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


                                -10-
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.

                                    -11-
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


                                   -12-
"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.




                               -13-