Masso-Torrellas v. Municipality of Toa Alta, 845 F.3d 461

Background

Municipality of Toa Alta awarded OSSAM Construction Phase I (2010) and Phase II (2012) contracts to build a municipal transportation terminal; disputes about Phase II payments arose in late 2014.
On Feb 4, 2015 the Municipality (via Mayor Agosto) terminated the Phase II contract citing public-policy/administration of funds and municipal officials/police took control of the municipal construction site.
OSSAM and its principals sued in Puerto Rico federal court asserting 42 U.S.C. § 1983 claims (Fourth, Fifth, Fourteenth Amendments) and related state-law claims for breach of contract and other torts; defendants moved to dismiss, arguing failure to state a § 1983 claim and that a contract mediation/arbitration clause required prior ADR.
The Phase II contract contained clause 35 requiring mediation (and possibly arbitration) for disputes “related to this contract”; Phase I had a similar clause plus a sentence making the mediator’s decision final (that sentence did not appear in the Phase II Spanish original).
The district court dismissed for lack of subject-matter jurisdiction, concluding the ADR clause barred judicial relief until ADR exhausted; plaintiffs appealed.
The First Circuit affirmed dismissal but on different grounds: it held the ADR clause did not cover § 1983 claims, but that plaintiffs failed to state a viable § 1983 claim and thus dismissal under Rule 12(b)(6) was appropriate; supplemental state-law claims were dismissed for lack of jurisdiction.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether contract's mediation/arbitration clause required ADR before suing under § 1983	Clause requires mediation/arbitration of contract-related disputes and thus bars suit until ADR	Clause applies and plaintiffs failed to comply with mandatory ADR	Court: Clause does not cover § 1983 claims (it only covers matters “related to this contract”); district court erred to the extent it dismissed for lack of jurisdiction on that basis
Whether plaintiffs stated a § 1983 claim based on alleged seizure/retention of property and contract termination	Plaintiffs: termination and site takeover by municipal officials amounted to constitutional seizure/taking and denial of access	Defendants: actions were proprietary/contractual (not sovereign); at most a breach of contract; no municipal policy/custom alleged to impose Monell liability	Court: § 1983 claim fails—municipality acted in proprietary/contractual capacity, not pursuant to an unconstitutional policy/custom; breach-of-contract-type conduct does not give rise to § 1983 relief
Whether individual plaintiffs stated personal Fourth/Fifth/Fourteenth Amendment property claims	Plaintiffs assert officers illegally detained plaintiffs and seized property	Defendants note seized property belonged to OSSAM, not individuals, and complaint lacks detention allegations	Court: Individual plaintiffs did not plausibly allege their own property was taken or that they were detained; no viable individual constitutional claims
Whether federal court should exercise supplemental jurisdiction over state-law claims after dismissal of federal claims	Plaintiffs sought to proceed with state-law claims under supplemental jurisdiction	Defendants argued dismissal of federal claims eliminated federal jurisdiction	Court: Declined supplemental jurisdiction and dismissed state-law claims (remand/dismissal appropriate when federal claims are dismissed early)

Key Cases Cited

Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1 (1st Cir.) (distinguishing arbitration as typically binding)
In re Atlantic Pipe Corp., 304 F.3d 135 (1st Cir.) (discussing mediation as typically nonbinding)
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (Sup. Ct.) (arbitration may be compelled only if parties agreed to arbitrate the particular dispute)
Monell v. Dep’t of Social Services, 436 U.S. 658 (Sup. Ct.) (municipal liability under § 1983 requires action pursuant to official policy or custom)
Redondo-Borges v. U.S. Dep’t of Housing, Urban Dev., 421 F.3d 1 (1st Cir.) (breach of contract does not ordinarily constitute a constitutional deprivation under § 1983)