Johnson & Johnson International et al v. Puerto Rico Hospital Supply, Inc. et al
Filing
53
OPINION AND ORDER re 19 Motion to Dismiss. The Court DENIES defendant Customed's motion to compel arbitration, GRANTS PRHS's motion to compel arbitration in regards to the 2005 Agreement, and GRANTS PRHS and Customed's motion to stay proceedings pending completion of arbitration. Signed by Judge Francisco A. Besosa on 07/10/2017. (brc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
JOHNSON & JOHNSON
INTERNATIONAL, et al.,
Plaintiffs,
v.
Civil No. 17-1405 (FAB)
PUERTO RICO HOSPITAL SUPPLY,
INC., et al.,
Defendants.
OPINION AND ORDER 1
BESOSA, District Judge.
Before the Court is defendants Puerto Rico Hospital Supply,
Inc.
(“PRHS”)’s
and
Customed,
Inc.
(“Customed”)’s
motion
to
dismiss or stay proceedings and compel arbitration pursuant to the
Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 3 and 4.
For the
reasons set forth below, the Court GRANTS IN PART and DENIES IN
PART defendants’ motion to compel arbitration and stays all claims
pending the completion of arbitration.
I.
Plaintiffs
BACKGROUND AND PROCEDURAL HISTORY
Johnson
&
Johnson
International
(“J&JI”)
and
Ethicon, Inc. (“Ethicon”) are wholly owned subsidiaries of Johnson
&
1
Johnson,
a
US-based
multinational
supplier
of
healthcare
Audrey Mulholland, a second-year law student at American
University Washington College of Law, assisted in the preparation
of this Opinion and Order.
Civil No. 17-1405 (FAB)
2
products, medical devices, and consumer goods.
pp.
2-3.)
Defendants
PRHS
and
Customed
(Docket No. 1 at
are
Puerto
Rico
corporations that distribute J&JI and Ethicon branded products on
an exclusive and non-exclusive basis in Puerto Rico and the U.S.
Virgin Islands.
Id. at pp. 4-5.
The parties have a number of
distribution agreements between them.
Defendant
PRHS
and
its
Id.
corporate
predecessors
distributing Ethicon-branded products since 1958.
have
been
Id. at p. 4.
PRHS has been an exclusive distributor of the Ethicon Endo-Surgery
product line since the 1980s without a written agreement.
April
1987,
summarizing
Ethicon
the
and
exclusive
closure product line.
PRHS
signed
distribution
Id.
a
statement
of
the
Id.
of
In
policy
Ethicon
wound
In December 1990, Johnson & Johnson
Medical, Inc., 2 an affiliate of Johnson & Johnson, signed an
exclusive
written
distribution
of
disinfectants,
drainages. 3
distribution
a
limited
topical
Id.
agreement
category
absorbable
of
with
PRHS
products
hemostats,
and
for
the
including
closed
wound
PRHS has also distributed on a non-exclusive
2
Johnson & Johnson Medical, Inc. ceased to exist on December 29,
1997, with Ethicon becoming its successor in interest. (Docket
No. 1 at p. 4.)
3
On April 14, 1998, PRHS and J&JI settled a Law 75 dispute. Id.
at p. 4; P.R. Hosp. Supply, Inc. v. Johnson & Johnson, Civil Case
No. 97-1201 (Perez-Gimenez, J.).
The settlement agreement
provides that PRHS’s payment term is 90 days and that J&JI is the
entity that administers all commercial relationships between the
parties. Id. at p. 5.
Civil No. 17-1405 (FAB)
3
basis, hemostatic products from the Biosurgery line without a
written agreement.
and
J&JI
Id.
entered
into
More recently, in September 2005, PRHS
a
non-exclusive
distribution
agreement
regarding a limited selection of Ethicon, Ethicon Endo-Surgery,
LifeScan, and Codman branded products which J&JI and Ethicon
contend is not part of the present litigation.
2005
Non-Exclusive
Distribution
Agreement
Id. at p. 5.
(“2005
The
Agreement”)
contains an arbitration clause, the scope of which is in dispute.
Customed
is
a
Puerto
Rico
corporation
that
manufactures
healthcare products and assembles customized healthcare packs with
products from various suppliers.
share common ownership.
Id.
Id. at p. 3.
PRHS and Customed
Customed has been purchasing Ethicon
Endo-Surgery products and Women’s Health and Urology products from
J&JI for the past several years.
Id. at p. 5.
executed a distribution agreement with Customed.
J&JI has never
Id.
On March 28, 2017, J&JI and Ethicon filed a complaint alleging
PRHS and Customed breached their payment obligations. Id. at p. 1.
Plaintiffs contend that both PRHS and Customed have failed to pay
invoices in full since the beginning of 2016.
worked with
defendants
to
develop
a
payment
Id.
Plaintiffs
plan,
September 2, 2016, to bring the accounts current.
signed
on
Id. at p. 6.
PRHS and Customed agreed to bring their accounts current by January
2017 through a series of payments made throughout the year.
at p. 7.
Id.
Defendants did not meet the payment plan, whereupon J&JI
Civil No. 17-1405 (FAB)
4
notified them of the contractual breach, canceled the payment plan,
accelerated
the
amount
due
by
requesting
full
payment
on
December 6, 2016, and issued a warning that the material breach
could result in termination of the distribution relationship.
Id.
As of the filing of the complaint, J&JI and Ethicon contend
that defendants owe a total of $4,244,725.81 for products sold and
delivered. 4
Id.
They also obtained copies of PRHS’ 2014 and 2015
financial statements which reveal PRHS made cash advances to
Customed totaling over $9 million.
Id. at p. 8.
J&JI and Ethicon
assert that according to Customed’s most recent audited financial
statement, their cash balance at the end of 2015 was only $350
despite the multiple cash advances.
Id.
Plaintiffs continue to
communicate with PRHS and Customed directing them to pay the total
amount due as soon as possible.
Id.
at 7.
As a result of the contractual breach, J&JI and Ethicon
request a declaratory judgment that (1) orders PRHS and Customed
to
pay
immediately
the
amounts
owed
plus
legal
interests,
(2) declares that J&JI and Ethicon have just cause to terminate
all commercial relationships with PRHS and Customed pursuant to
4
According
to
J&JI,
PRHS
owes
the
following
amounts:
$1,524,884.17 plus legal interest for the Ethicon wound closure
product line; $1,633,920.31 plus legal interest for products under
the Ethicon Endo-Surgery product line; $239,914.04 plus legal
interest for products covered under the 1990 agreement; and
$287,707.42 plus legal interest for Biosurgery hemostatic
products. (Docket No. 1 at pp. 9-10.) Customed owes $558,299.86
plus legal interests for all products. Id. at p. 10.
Civil No. 17-1405 (FAB)
5
Puerto Rico Civil Code and Law 75, (3) declares that PRHS and
Customed have acted with bad faith by dissipating assets to pay
their debts, (4) grants injunctive relief requiring defendants to
cease and desist from using trademarks and corporate logos or
promoting themselves as representatives of J&JI, and (5) grants
attorneys’ fees and costs.
Id. at pp. 14-15.
On April 20, 2017, defendants PRHS and Customed filed a motion
to dismiss or stay the action and compel arbitration pursuant to
Section 3 and 4 of the FAA.
(Docket No. 19.)
Defendants contend
that the 2005 Agreement requires that all claims brought forth by
plaintiffs must first be submitted to arbitration.
J&JI
and
Ethicon
responded
on
May
18,
Id. at p. 1.
2017
contesting
arbitration and re-emphasizing that the 2005 Agreement is not a
part of their current litigation and that the arbitration clause
does not apply retroactively to the agreements and commercial
relationship between the parties predating 2005.
(Docket No. 39.)
They attached a copy of the 2005 Agreement with an updated and
detailed exhibit of the product list covered by it. 5
(Docket
No. 39-1.)
of
For
the
purpose
of
evaluating
the
scope
the
arbitration clause the Court will be using this updated copy of
the 2005 Agreement.
5
The product list covered by the 2005 Agreement was amended and
expanded in July 2010. (Docket No. 39-1 at p. 22.)
Civil No. 17-1405 (FAB)
II.
6
STANDARD OF REVIEW
Defendants PRHS and Customed have moved to compel arbitration
pursuant to either Federal Rules of Civil Procedure 12(b)(6) (“Rule
12(b)(6)”) or 56 (“Rule 56”), favoring the Rule 56 standard.
(Docket No. 19 at p. 6.)
Plaintiffs J&JI and Ethicon assert that
a Rule 12(b)(6) standard of review is appropriate.
at p. 3.)
(Docket No. 39
The First Circuit Court of Appeals has yet to address
the precise standard of review for a motion to compel arbitration.
See, Pla-Fit Franchise, LLC v. Patricko, Inc., No. 13-cv-489-PB,
2014 WL 2106555, at *3 (D.N.H. May 20, 2014); Boulet v. Bangor
Sec. Inc., 324 F. Supp. 2d 120, 123 (D. Me 2004).
Other circuits
have discussed whether to apply a Rule 12(b)(6) motion to dismiss
standard or a Rule 56 summary judgment standard when reviewing a
motion to compel arbitration. When it is apparent on the face of
the complaint that certain claims are subject to arbitration the
court should generally apply a Rule 12(b)(6) standard. See Nicosia
v. Amazon.com, Inc., 834 F.3d 220, 231 (2d Cir. 2016); Guidotti v.
Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 776 (3d Cir.
2013).
If courts are required, however, to consult extrinsic
evidence when determining whether certain claims are arbitrable,
then summary judgment is the appropriate guiding standard.
See
Nicosia, 834 F.3d at 231; Guidotti, 716 F.3d at 776; Pla-Fit
Franchise, LLC, 2014 WL 2106555, at *3.
Civil No. 17-1405 (FAB)
7
Both parties have relied extensively upon exhibits filed in
the
record
outside
of
the
complaint.
The
Court
intends
to
reference these materials and look beyond the complaint when
assessing the scope of the arbitration clause and will therefore
resolve the motion using the summary judgment standard.
Fit Franchise, LLC, 2014 WL 2106555, at *3.
See Pla-
Although summary
judgment requires notice to the parties to allow further discovery,
the court “finds no need to mechanically enforce the requirement
of express notice . . . when the opposing party has received
movant’s motion and materials and has had a reasonable opportunity
to respond.”
(D.P.R.
Nutrasweet Co. v. Venrod Corp., 982 F. Supp. 98, 99
1997)
(Fusté,
J.)
(citing
Chaparro-Febus
v.
Int’l
Longshoremen Ass’n, Local 1575, 983 F.2d 325, 332 (1st Cir. 1992)).
The extensive filings of both parties, gave constructive notice
that the Court would look beyond the pleadings when ruling on the
motion to compel arbitration and thus no further discovery is
required.
III. DISCUSSION
A.
Legal Standard for Order Compelling Arbitration
The
FAA
establishes
the
written arbitration agreements.
validity
and
enforceability
of
The FAA provides that a written
arbitration agreement is “valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the
revocation of any contract.”
9 U.S.C. § 2.
The FAA expresses a
Civil No. 17-1405 (FAB)
Congressional
policy
8
in
favor
of
arbitration,
and
places
arbitration agreements on an equal footing with other contracts.
9 U.S.C. § 2; Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440, 443 (2006).
The FAA mandates district courts to compel
arbitration when the parties have signed a valid arbitration
agreement governing the issues in dispute, removing the district
courts’ discretion over whether to compel arbitration or provide
a judicial remedy to the parties.
9 U.S.C. § 4; Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).
The existence
of a valid arbitration agreement is based on the consent of the
parties to arbitrate at least some of their claims and to forgo a
judicial remedy for those claims.
McCarthy v. Azure, 22 F.3d 351,
354-55 (1st Cir. 1994) (internal citations omitted).
Therefore,
a party cannot be required to submit to arbitration any dispute
which he or she or it has not agreed to submit.
AT&T Techs., Inc.
v. Commc’ns. Workers of Am., 475 U.S. 643, 648 (1986) (quoting
United Steelworkers v. Warrior & Gulf Navig. Co., 363 U.S. 574,
583 (1960)).
Based on the above principles, the United States Court of
Appeals for the First Circuit has set forth four requirements that
must
be
satisfied
for
a
court
to
grant
a
motion
to
compel
arbitration: (1) a valid arbitration agreement must exist; (2) the
moving party must be entitled to invoke the arbitration clause;
(3) the other party must be bound by the clause; and (4) the claim
Civil No. 17-1405 (FAB)
9
must fall within the scope of the arbitration clause.
N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003).
InterGen
The Court will
address each requirement in turn.
B.
Analysis
1.
Valid Arbitration Agreement
The
parties
do
not
contest
arbitration agreement between them.
that
there
is
a
valid
A dispute resolution and
arbitration provision in the 2005 Agreement provides:
If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if the dispute cannot be
settled through negotiation, the Parties agree first to
try in good faith to settle the dispute by mediation
. . . if the dispute cannot be resolved by mediation
. . . then the dispute will be finally resolved by
binding arbitration.
(Docket No. 39-1 at p. 17.)
J&JI and Ethicon acknowledge in their complaint that they “have
agreed to submit themselves to mandatory mediation and arbitration
to address disputes” arising from the 2005 Agreement.
No. 1 at p. 5.)
(Docket
PRHS and Customed’s motion to compel arbitration
invokes the arbitration clause of the 2005 Agreement as evidence
that
all
plaintiffs’
arbitration.”
claims
are
(Docket No. 19 at p. 1.)
subject
to
“compulsory
At the least, the parties
have agreed to submit some disputes between them to arbitration
pursuant to the 2005 Agreement.
Thus a valid arbitration clause
currently exists between the parties.
Civil No. 17-1405 (FAB)
2.
10
Moving Party Must Be Entitled to Invoke Arbitration
Clause
The second requirement is that the parties moving to
compel arbitration be entitled to invoke the arbitration clause.
This requirement is satisfied where the movants are signatories or
parties to the agreement containing the arbitration provision.
Torres-Rosario v. Mariott Int’l, 872 F. Supp. 2d 149, 153 (D.P.R.
2012) (Besosa, J.).
the
arbitration
Nonsignatories may also be entitled to invoke
clause
as
third-party
beneficiaries
contract or under the principle of equitable estoppel.
of
the
Third-
party beneficiaries are those that the contracting parties intend
to confer a benefit upon and who are subject to and can invoke
clauses in the contract.
146
(1st
Cir.
2003).
InterGen N.V. v. Grina, 344 F.3d 134,
Equitable
estoppel
on
the
other
hand
“precludes a party from enjoying rights and benefits under a
contract
while
obligations.”
at
the
same
time
avoiding
its
burdens
and
Sourcing Unlimited, Inc. v. Asimco Int’l, Inc., 526
F.3d 38, 47 (1st Cir. 2008) (quoting InterGen N.V., 344 F.3d at
145) (internal quotation marks omitted).
Thus a signatory can be
estopped from avoiding arbitration with a nonsignatory when the
dispute is “intertwined with the agreement the estopped party has
signed.”
Id.
Claims are intertwined with an agreement when they
directly or indirectly invoke the terms of that agreement or when
Civil No. 17-1405 (FAB)
11
the agreement must be referenced when resolving the dispute.
See
Sourcing Unlimited, 526 F.3d at 47.
Defendants
PRHS
and
Customed
arbitration clause in the 2005 Agreement.
are
invoking
the
PRHS is a signatory of
the 2005 Agreement and thus is entitled to invoke the arbitration
clause provided within the Agreement.
(Docket No. 39-1 at p. 18.)
Defendants contend that Customed, as an affiliate of PRHS, is
either a party to the agreement or a third-party beneficiary with
standing to invoke the arbitration clause.
p. 14.)
(Docket No. 19 at
They also contend that J&JI and Ethicon, by virtue of
equitable estoppel, cannot avoid arbitration invoked by Customed.
Id.
The Court disagrees.
Customed is not a party to, nor a third-
party beneficiary of, the 2005 Agreement.
Although defendants
correctly assert that Customed is an affiliate of PRHS as defined
in the contract, 6 no benefits are intentionally conferred on them
within the Contract. Although as an affiliate Customed may benefit
from
PRHS’s
exercise
of
contractual
rights,
distinct from a third-party beneficiary.
this
benefit
is
See InterGen N.V., 344
F.3d at 147.
6
The 2005 Agreement defines affiliate as “any entity that directly
or indirectly controls or is controlled by or is under common
control with another entity and shall include, without limitation,
any direct or indirect parent, subsidiary, and affiliated
corporations.” (Docket No. 39-1 at p. 1.) Customed shares common
ownership with PRHS and is thus an affiliate.
Civil No. 17-1405 (FAB)
12
Furthermore, the principle of equitable estoppel is not
applicable because the claims brought against Customed are not
intertwined with the 2005 Agreement.
The Court can consider J&JI
and Ethicon’s breach of contract claims against Customed entirely
separate
from
Customed
has
and
without
different
reference
payment
to
terms,
the
2005
distributes
Agreement.
different
products, and does not have a written distribution agreement with
J&JI. (Docket No. 1 at p. 5.) Plaintiffs’ commercial relationship
with Customed is not implicated by the 2005 Agreement.
The Court
therefore holds that PRHS is entitled to invoke the arbitration
clause within the 2005 Agreement while Customed is not. Customed’s
motion to compel arbitration is DENIED.
3.
Other Party Must Be Bound by Clause
There is no dispute between the parties on whether J&JI
and Ethicon are bound by the arbitration clause in the 2005
Agreement.
Parties are bound to the contracts they sign.
Rosario, 872 F. Supp. 2d at 154.
Torres-
Johnson & Johnson Medical
Caribbean signed the contract as a division of J&JI regarding the
distribution of certain Ethicon products.
(Docket No. 39-1.)
Ethicon, although not a direct signatory on the agreement, is a
party to it through manufacturing and supplying the contract
products.
(Docket No. 39-1 at p. 22.)
Thus both J&JI and Ethicon
are bound by the arbitration clause in the 2005 Agreement.
Civil No. 17-1405 (FAB)
4.
13
Claims Must Fall Within the Scope of the Arbitration
Clause
J&JI and Ethicon contend that any dispute related to the
2005 Agreement is not the subject of their current litigation and
that their claims do not fall within the scope of the arbitration
clause.
PRHS avers that all the claims in the complaint “arise
out of or are related to” the 2005 Agreement and are thus subject
to mandatory arbitration.
The Court will first address the intent
of the parties and scope of the arbitration clause before assessing
whether J&JI and Ethicon’s claims fall within that scope.
It
has
long
been
affirmed
that
any
disagreement
regarding the scope of an arbitration clause is to be resolved by
a court.
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S.
287, 296 (2010) (quoting Howsam v. Dean Witter Reynolds, Inc., 537
U.S. 79, 83 (2002)); Grand Wireless, Inc. v. Verizon Wireless,
Inc., 748 F.3d 1, 7 (1st Cir. 2014).
In interpreting the parties’
intentions to arbitrate, a court must apply state-law principles
of contract formation.
Dialysis Access Ctr., LLC v. RMS Lifeline,
Inc., 638 F.3d 367, 376 (1st Cir. 2011).
Pursuant to Puerto Rico
law, 7 the intention of the contracting parties prevails and the
court must read contract provisions in relation to one another,
considering the contract in full when giving meaning to ambiguous
7
The 2005 Agreement is governed by the laws of the Commonwealth
of Puerto Rico. (Docket No. 39-1 at p. 18.)
Civil No. 17-1405 (FAB)
clauses.
14
See P.R. Laws Ann. tit. 31 §§ 3471, 3475.
Furthermore,
ambiguities regarding the scope of the arbitration clause should
be resolved in favor of arbitration.
First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 945 (1995); Grand Wireless, Inc.,
748 F.3d at 7; IOM Corp. v. Brown Forman Corp., 627 F.3d 440, 450
(1st Cir. 2010).
A motion to compel arbitration should not be
denied “unless it may be said with positive assurance that the
arbitration clause is not susceptible of an interpretation that
covers the asserted dispute.”
Caguas Satellite Corp. v. EchoStar
Satellite LLC, 824 F. Supp. 2d 309, 314 (D.P.R. 2011) (Besosa, J.)
(quoting AT&T Techs., Inc., 475 U.S. at 650).
J&JI and Ethicon contend that the arbitration clause in
the 2005 Agreement clearly manifests the intent of the parties to
narrows
its
Agreement.
out
of
or
scope
to
disputes
strictly
related
to
the
2005
PRHS in contrast argues that the broad wording “arises
relates
unlimited reach.
to”
grants
the
arbitration
clause
nearly
The Court finds the intention of the parties and
scope of the arbitration clause to fall somewhere in between these
two extremes.
The arbitration clause’s language is naturally
ambiguous and susceptible to a number of interpretations yet is
not
a
catch-all
for
every
dispute
between
the
parties.
In
determining the actual intent of the contracting parties, the Court
looks beyond the arbitration clause.
Civil No. 17-1405 (FAB)
15
A reading of the arbitration clause in light of the other
provisions in the 2005 Agreement and the parties overall commercial
relationship
narrows
its
scope.
The
character
of
the
2005
Agreement as a non-exclusive distribution agreement distinguishes
it from other “exclusive” agreements between the parties.
An
integration clause in the 2005 Agreement also explicitly states
that “this Agreement will not interfere in any way with existing
commercial relationships that the Distributor may have with other
affiliates of the Company.”
(Docket No. 39-1 at p. 16.)
The
subject matter of the 2005 Agreement is furthermore limited to the
“Contract Products” defined as “only the products included in the
list attached” to the contract as Exhibit A.
Id. at p. 1.
The
combination of these factors manifests an intention of the parties
to limit the reach of the contractual provisions including the
arbitration clause.
In
similar
supplier-distributor
relationships
where
parties have a number of valid contracts between them, courts have
held that arbitration clauses in latter contracts do not signify
that the parties ever intended retroactive application. See Choice
Security Sys., Inc. v. AT&T Corp., No. 97-1774, 1998 WL 153254, at
*1 (1st Cir. 1998) (unpublished); Security Watch, Inc. v. Sentinel
Sys., Inc., 176 F.3d 369, 374 (6th Cir. 1999) (“Had the parties
intended to apply the new ADR processes to disputes arising under
the
previous
contracts,
we
believe
they
would
have
done
so
Civil No. 17-1405 (FAB)
explicitly.”). 8
16
The Court finds the parties did not intend the
arbitration clause in the 2005 Agreement to have retroactive
application to disputes arising under previous agreements.
This
conclusion, however, is not dispositive of the issue at hand.
The Court’s second task is to determine whether the
claims, as J&JI and Ethicon have pled them, fall within the scope
of the arbitration clause.
In determining whether the plaintiffs’
claims fall within the scope of the arbitration clause, a court
must “focus on the factual allegations underlying their claims in
the Complaint.”
Dialysis Access Ctr., LLC, 638 F.3d at 378.
Courts have determined that arbitration clauses using the language
“arising from or relating to” have broad application.
Wireless, Inc., 748 F.3d at 8.
See Grand
The First Circuit Court of Appeals
has held that factual disputes arising from claims that must be
resolved by reference to an agreement, “arise out of” and “relate
to” that agreement and therefore fall within the purview of the
arbitration clause.
Id.
J&JI and Ethicon emphatically contend that the 2005
Agreement is not a part of their complaint and litigation before
8
Although the language of the arbitration clause in both of these
cases required the parties to arbitrate “all disputes . . . arising
out of or relating to the products furnished pursuant to this
Agreement” as opposed to simply “all disputes arising out of or
relating to this Agreement”, the 2005 Agreement’s continuous
reference to “contract products” has a similar effect. Choice
Security Sys., Inc., 1998 WL 153254, at *1; Security Watch, Inc.,
176 F.3d at 372 (emphasis added).
Civil No. 17-1405 (FAB)
the Court.
17
In a conclusory statement in the complaint, they
acknowledge the existence of the 2005 Agreement and the validity
of the arbitration clause and assert that it is “not part of this
litigation.”
the
Court
(Docket No. 1 at p. 5.)
that
their
entire
dispute
implicating the 2005 Agreement.
They attempt to convince
can
be
resolved
without
J&JI and Ethicon cannot avoid
arbitration, however, by “dint of artful pleading alone.” Combined
Energies v. CCI, Inc., 514 F.3d 168, 172 (1st Cir. 2008).
When
distilling
the
complaint
down
to
the
factual
allegations, the Court concludes that plaintiffs’ main cause of
action stems from PRHS and Customed’s breach of contract as a
result of failing to pay product invoices, including invoices
related to the 2005 Agreement. 9
Plaintiffs contend the failure to
pay constitutes a material breach of contract that triggers Puerto
Rico Law 75 justifying the dissolution of all their commercial
relationships with PRHS and Customed.
While plaintiffs attempt to
clarify in their sur-reply that the prayer for relief only seeks
to terminate “all the commercial relationships that are covered in
the
Verified
Complaint,”
the
language
used
complaint consistently contradicts this statement.
9
throughout
the
(Docket No. 45
Plaintiffs do not include the amount PRHS owes pursuant to the
2005 Agreement in their complaint or include a request for
collection of monies. They acknowledge, however, in their reply
to the motion to dismiss, that PRHS has an outstanding debt of
$71,849.22 in regards to the products covered under the 2005
Agreement. (Docket No. 39 at p. 7.)
Civil No. 17-1405 (FAB)
at p. 3.)
18
J&JI and Ethicon request the court on a number of
occasions to grant them just cause to terminate all commercial
relationships between the parties and find that PRHS and Customed
have acted in bad faith.
(Docket No. 1 at pp. 2,7,9,12, and 14.)
This claim squarely implicates and relates to the 2005 Agreement
as a part of the overall commercial relationship between the
parties.
Plaintiffs
also
request
injunctive
relief
ordering
defendants to “cease and desist from promoting themselves as
representatives,
agents,
or
distributors
of
J&JI
and
from
attempting to conduct business as such in Puerto Rico and the U.S.
Virgin Islands.”
(Docket No. 1 at p. 14.)
They also request that
the Court order defendants to “discontinue using any and all
Johnson & Johnson, Ethicon, Ethicon Endo, Advanced Sterilization
Products, LifeScan, and Codman trademarks, trade names, corporate
logos, and marketing materials.”
Id.
The 2005 Agreement covers
contract products under the Ethicon, Ethicon Endo, LifeScan, and
Codman brands, again providing evidence that the dispute between
plaintiffs and PRHS partially arises out of and relates to the
2005 Agreement.
The resolution of a number of these claims and
requests for relief will at the least require reference to the
2005 Agreement.
Keeping
in
mind
both
the
federal
policy
favoring
arbitration and the maxim that parties are not required to submit
Civil No. 17-1405 (FAB)
19
to arbitration any dispute they have not agreed to submit, the
Court finds that some of the claims brought forth by J&JI and
Ethicon must be submitted to arbitration.
Furthermore, letters
between the parties reveal that J&JI and Ethicon have already
agreed to mediate PRHS’s failure to pay for products sold under
the 2005 Agreement.
(Docket No. 45-2.)
The Court finds that the
parties must mediate or arbitrate the following:
(1) collection
of monies related to PRHS’s failure to pay for products under the
2005 Agreement; (2) whether PRHS acted in bad faith in breaching
the payment terms of the 2005 Agreement; and (3) whether J&JI and
Ethicon have just cause to terminate the 2005 Agreement.
C.
Dismissal or Stay of Proceedings Pending Arbitration
The final inquiry for the Court is to determine whether to
dismiss or stay J&JI and Ethicon’s claims pending the completion
of arbitration.
Under the FAA, if a suit brought in any United
States court encompasses an issue referable to arbitration, the
Court should stay the action upon application of one of the parties
until arbitration has concluded.
9 U.S.C. § 3.
“Where a court
determines that all claims raised by plaintiff are subject to
arbitration, the court may dismiss the entire action, rather than
staying it.”
Caguas Satellite Corp., 824 F. Supp. 2d at 316
(citing Bercovitch v. Baldwin Sch., Inc., 133 F. 3d 141, 156 n. 21
(1st
Cir.
1998)).
Where
only
some
claims
are
subject
to
arbitration, the court has discretion to stay litigation pending
Civil No. 17-1405 (FAB)
20
the outcome of arbitration in the “interest of maximizing judicial
economy and avoiding piecemeal litigation.”
Santa Cruz v. Banco
Santander P.R., Civil No. 08-1225, 2008 WL 5192347, at * 2 (D.P.R.
Dec. 10, 2008) (Fusté, J.).
The
Court
finds
that
only
J&JI
and
implicating the 2005 Agreement are arbitrable.
Ethicon’s
claims
Considering that
the resolution of some claims in arbitration may shed light on the
remaining
nonarbitrable
issues
and
to
avoid
inconsistent
judgments, it is in the interest of justice to stay all claims
pending arbitration.
Thus the Court will stay the entire case
pending completion of arbitration regarding the 2005 Agreement.
IV.
CONCLUSION
For the reasons discussed above, the Court DENIES defendant
Customed’s motion to compel arbitration, GRANTS PRHS’s motion to
compel arbitration in regards to the 2005 Agreement, and GRANTS
PRHS and Customed’s motion to stay proceedings pending completion
of arbitration.
IT IS SO ORDERED.
San Juan, Puerto Rico, July 10, 2017.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE
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