932 F.3d 1
1st Cir.2019Background
- DAC (Puerto Rico LLC) and RMS (Delaware corp.) entered a 2007 Management Services Agreement (MSA) governing development and operation of a vascular access center; the MSA included a Puerto Rico choice-of-law clause and an AHLA arbitration clause.
- Prior appeal (Dialysis I) held the parties' disputes arbitrable and sent them to AHLA arbitration.
- The arbitrator issued a final award in 2013 in favor of RMS for about $1.97 million, including damages, prejudgment interest, costs, and attorneys’ fees.
- DAC moved in federal district court to vacate or modify the award, alleging arbitrator misconduct, excess of powers (fees, interest, damages), misapplication of parol evidence, and manifest disregard of Puerto Rico law (dolo).
- The magistrate judge recommended denying vacatur; the district court adopted the recommendation, applied the FAA standard, confirmed the award, and DAC appealed.
Issues
| Issue | Plaintiff's Argument (DAC) | Defendant's Argument (RMS) | Held |
|---|---|---|---|
| Whether the Puerto Rico Arbitration Act (PRAA) displaced the FAA standard of review | The MSA’s Puerto Rico choice-of-law provision shows the parties agreed to PRAA review, so district court should have used PRAA’s more searching review | Parties never explicitly agreed to displace the FAA; FAA applies; DAC waived/estopped from pressing PRAA | FAA governs; a generic choice-of-law clause does not explicitly displace the FAA, so FAA standard applies |
| Arbitrator misconduct by refusing to consider evidence (dolo, breach, novation) | Arbitrator ignored/refused evidence, depriving DAC of a fair hearing | Arbitrator heard/considered evidence; exclusion (if any) does not amount to bad faith or gross misconduct; FAA does not require consideration of every piece of evidence | No misconduct: record shows evidence was considered or its exclusion not so gross as to deprive DAC of a fair hearing |
| Arbitrator exceeded powers in awarding attorneys’ fees, prejudgment interest, and in damages calculation | Puerto Rico law forbids some awards; arbitrator thus exceeded authority in awarding fees/interest and in how damages were computed | MSA and AHLA rules authorize fees and interest; arbitrator acted within scope and even- if choice-of-law limited some remedies, arbitration rules govern procedural authority | Fees and interest upheld: harmonizing the choice-of-law clause and arbitration rules (per Mastrobuono) permits AHLA-authorized awards; damages challenges inadequately developed/waived |
| Manifest disregard of law (dolo) | Arbitrator ignored this Court’s Dialysis I guidance on dolo and thus manifestly disregarded applicable law | Dialysis I only decided arbitrability and did not prescribe substantive law application; arbitrator addressed DAC’s theories and rejected them | No manifest disregard: DAC failed to show arbitrator knew the correct law and willfully ignored it; Dialysis I did not bind arbitrator on substantive law |
Key Cases Cited
- Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367 (1st Cir. 2011) (prior appeal holding disputes arbitrable and directing arbitration)
- Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (2008) (parties may agree to different standards of judicial review, but must do so explicitly)
- Ortiz-Espinosa v. BBVA Sec. of P.R., Inc., 852 F.3d 36 (1st Cir. 2017) (FAA applies absent explicit agreement to displace it)
- P.R. Tel. Co. v. U.S. Phone Mfg. Corp., 427 F.3d 21 (1st Cir. 2005) (generic choice-of-law clause insufficient to require state standard of review for arbitration awards)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (harmonize choice-of-law and arbitration provisions so arbitration rules can govern arbitrator authority)
- Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990) (very limited review of arbitration awards; manifest-disregard standard explained)
- United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29 (1987) (courts may not reconsider merits of arbitration awards)