Dialysis Access Center, LLC v. RMS Lifeline, Inc.
638 F.3d 367
| 1st Cir. | 2011Background
- Appellants DAC, González-Trápaga, and Roig-Flores challenge RMS Lifeline, Inc.'s management of a Puerto Rico vascular center under a Management Services Agreement (MSA).
- MSA, dated ~Aug 20, 2007, included a Puerto Rico law choice and an AHLA arbitration clause; FAA applies.
- Disputes over the MSA arose; RMS submitted them to AHLA arbitration on Mar 3, 2010; Appellants filed Puerto Rico court complaint Apr 13, 2010 seeking damages and nullification of the MSA based on alleged fraud.
- RMS removed to district court May 10, 2010; district court granted RMS’s motion to dismiss and compel arbitration, ordering arbitration under AHLA rules and dismissal of the case.
- Appellants appealed, arguing (i) the arbitration clause did not cover validity of the MSA, (ii) pre-arbitration ‘good faith negotiations’ were not satisfied, and (iii) the clause’s validity, separate from the MSA, was at issue.
- The First Circuit held the arbitration clause covers the fraud-in-the-inducement and MSA-validity dispute, the pre-condition issue is for the arbitrator, and the arbitration clause is severable under FAA §2.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of arbitration clause | Arbitration covers disputes arising under the MSA only, not its validity. | Arbitration clause is broad and covers disputes about the MSA’s validity. | Arbitration clause broadly encompasses the MSA validity dispute; presumption in favor of arbitrability applies. |
| Pre-condition to arbitration (good faith negotiations) | RMS failed to engage in the required good faith negotiations before arbitration. | Either party should have arbitrator decide whether pre-condition was met; court should not resolve it. | Whether pre-condition was fulfilled is an arbitrable issue for the arbitrator to decide. |
| Severability of Arbitration Clause | If MSA is voidable due to fraud, the arbitration clause cannot stand. | Prima Paint severability applies; arbitration clause remains enforceable even if MSA is challenged. | Arbitration clause is severable and enforceable under §2 of the FAA; the dispute is arbitrable. |
Key Cases Cited
- Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 64 (U.S. 2010) (presumption of arbitrability when clause is ambiguous)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (arbitration clause severable from contract despite fraud in inducement claim)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (arbitration clause severable from the contract; challenges to contract do not automatically void clause)
- Rent-A-Center, West, Inc. v. Jackson, 546 U.S. 177 (U.S. 2010) (arbitration enforceability and severability; policy favoring arbitration)
- Granite Rock Co. v. Int'l Bhd. of Teamsters (Granite Rock), 130 S. Ct. 2847 (2010) (scope of arbitration clause; Granite Rock analyzed existence vs. ambit of agreement)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 164 (U.S. 2002) (presumption on arbitrability; questions grow out of dispute reserved for arbitrator)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. 1985) (contract interpretation governs arbitrability; arbitration as matter of consent)
- AT&T Techs., Inc. v. Communications Workers of America, 475 U.S. 643 (U.S. 1986) (awareness of threshold questions for arbitrability; court may decide)