Sunday, November 18, 2018

The FAA preempts Law 75 if applied to void an arbitration agreement

In Cooper Tire & Rubber Company v. Premium Tire & Parts Corp., 2018 WL 3047747 (D.P.R. June 18, 2018) (DRD), the principal sued the dealer and the individual guarantors for breach of contract and collection of monies of $736,000. The dealer counterclaimed for impairment and de facto termination of the dealer’s contract for alleged price discrimination and other unfavorable business terms and for “insidious machinations” to void the personal guarantees.

A stumbling block for the dealer’s suit in federal court was that the contract had a broad and mandatory provision compelling arbitration for arising out of or related to claims and disputes. To no avail, the dealer argued that the arbitration agreement did not apply to post-termination claims and disputes and that Law 75 rendered the arbitration agreement unenforceable.

After dissecting well-established precedent of the Supreme Court and the First Circuit, the court held that the Law 75 claims were arbitrable, the obligation to arbitrate survived termination of the dealer’s contract, and that the FAA preempted Law 75 to the extent that it nullified the arbitration agreement. Finding that it would avoid inconsistent determinations, the court stayed the claims pending arbitration against the guarantors as they were not bound by the arbitration agreement. See also Apindo Corporation v. Toschi Vignola, 2018 WL 718437 (D.P.R. January 31, 2018)(PAD)(enforcing arbitration agreement of Law 75 claim and also discussing issues of service of process and personal jurisdiction); Johnson & Johnson v. PRHS, 322 F.R.D. 439 (D.P.R. 2017)(denying principal's motion to reconsider order compelling arbitration and staying case).

What this case underscores is that, by now, a written arbitration agreement should be virtually fool-proof unless there is proof of fraud in the inducement of the arbitration agreement itself or the forum-selection provision is unreasonable as to make it unconscionable to arbitrate in a distant forum, usually in a foreign jurisdiction with little to no connection to the parties or the disputes. Even clauses compelling litigation or ADR in civilized or developed foreign countries are generally enforceable, unless the foreign state does not recognize the validity of the claim or does not provide adequate remedies (countries like Iran come to mind).