Friday, June 12, 2009

Puerto Rico’s restrictions against arbitration contained in Law 75 come up short of being declared preempted under the Federal Arbitration Act.

In National Flour Mills and Supply v. Orlando Santiago, 2009 WL 790011 (D.P.R. Mar. 16, 2009), plaintiff filed a declaratory judgment action seeking a declaration that arbitration provisions in the agreement are enforceable and that Puerto Rico’s statutory restrictions in Law 75 against arbitration are preempted by federal law. Law 75 codifies that a court in Puerto Rico has jurisdiction to determine the validity of an arbitration provision in a distribution contract and that such a clause is presumptively treated as one of adhesion. The court held that the dispute was not ripe because defendant had not refused to arbitrate. It also held that the declaratory judgment action was “advisory” for lack of a case or controversy as no local law prohibited or hindered the ability to arbitrate claims in the circumstances of the case. The case was then dismissed for lack of subject matter jurisdiction.