United States Court of Appeals For the First Circuit
No. 19-2248
AIR-CON, INC.,
Plaintiff, Appellant,
v.
DAIKIN APPLIED LATIN AMERICA, LLC,
Defendant, Appellee,
TECHNICAL DISTRIBUTORS, INC.,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, Jr., U.S. District Judge]
Before
Howard, Chief Judge, Lipez and Thompson, Circuit Judges.
Rafael M. Santiago-Rosa, with whom Vanessa Medina-Romero and Marichal, Hernandez, Santiago & Juarbe, LLC were on brief, for appellant. Mauricio Oscar Muñiz-Luciano, with whom Valerie Blay-Soler and Marini Pietrantoni Muñiz LLC were on brief, for appellee.
December 20, 2021 LIPEZ, Circuit Judge. In the lawsuit that initiated
these proceedings, appellant Air-Con, Inc. contends that appellee
Daikin Applied Latin America, LLC ("Daikin Applied") engaged in
practices that unlawfully impaired the parties' exclusive
distribution relationship. Daikin Applied moved to compel
arbitration under the Federal Arbitration Act based on the terms
of a written distribution agreement that Air-Con signed with Daikin
Applied's parent company, Daikin Industries, LTD. The district
court granted Daikin Applied's request and ordered the parties to
arbitrate their dispute. Air-Con appeals. We reverse, concluding
that the district court erred in compelling arbitration.
I.
We draw the relevant facts from the complaint and
exhibits attached to the complaint.1
A. Factual Background
Air-Con is a Puerto Rico corporation specializing in the
sale and distribution of air conditioners in Puerto Rico and the
Caribbean. Daikin Applied is a Miami-based wholesaler for its
parent company, Daikin Industries, LTD, a Japan-based company that
1 As we explain infra, the record for purposes of resolving a motion to compel arbitration generally includes the complaint and the record materials submitted in support of or opposition to the motion. In this case, however, neither party submitted record materials to support or oppose the motion to compel arbitration.
- 2 - "develop[s], manufacture[s], assembl[es,] and s[ells] . . .
various models of air conditioning and refrigeration equipment."
In January 2000, Air-Con signed a written distribution
agreement with Daikin Industries to be a "non-exclusive authorized
distributor," in Puerto Rico and the Virgin Islands, of "new and
unused air conditioning and refrigeration equipment manufactured
by or for [Daikin Industries]." Daikin Industries did not counter-
sign the written distribution agreement.
The written agreement contained an arbitration provision
that required the parties to arbitrate in Osaka, Japan, "[a]ny
dispute, controversy or difference which may arise between the
parties out of, in relation to or in connection with th[e
distribution agreement]." The agreement also contained a non-
assignability clause stating that the agreement "and all rights[,]
duties and obligations described [t]herein, are personal to each
party and may not be assigned or otherwise transferred in whole or
part without written consent of the other party." Any assignment
by one party not authorized by the other party in writing is "null
and void."
Air-Con also established in early 2000 a distribution
relationship with Daikin Applied, the appellee in this case. Air-
Con contends that its distribution relationship with Daikin
Applied was not governed by its distribution agreement with Daikin
Industries. Instead, Air-Con asserts that the parties entered
- 3 - into a separate distribution relationship, not memorialized by any
written document in the record, for "the exclusive sale and
distribution of air conditioners and related equipment marketed
under the Daikin brand for the territories of Puerto Rico and the
Caribbean."2 Second Am. Compl. ¶ 6.3
The distribution relationship between Air-Con and Daikin
Applied continued without incident until sometime in 2015. Then,
the relationship deteriorated. Air-Con contends that, despite
what it claims was an "exclusive" distribution relationship,
Daikin Applied sold Daikin products to other Puerto Rico-based
distributors and did so at a significantly lower price than it
offered to Air-Con. Some of those other distributors were also
allowed to re-brand Daikin products and sell them to their own
The precise nature of the parent-subsidiary relationship 2
between Daikin Applied and Daikin Industries is unclear, as are the specifics of each company's relationship with Air-Con. All that we can glean from the present record -- and all that is needed to decide the instant appeal -- is that Daikin Applied is a wholesaler for its parent company in the territories in which Air- Con sold Daikin products, and Air-Con alleges that it entered into a separate distribution agreement with each Daikin company: (1) a written non-exclusive distribution agreement with the parent, Daikin Industries; and (2) an exclusive distribution agreement with the subsidiary, Daikin Applied, not memorialized by any writing in the record. Like the district court, we use "Second Amended Complaint" 3
to refer to the certified translation of an amended complaint originally filed on October 12, 2018. This document is available at ECF No. 15-10. We note that a different certified translation (ECF No. 15-5) is also titled "Second Amended Complaint" and refers to an amended complaint originally filed on August 15, 2018.
- 4 - customers at a lower price. Air-Con further contends that Daikin
Applied arbitrarily raised prices for products sold to Air-Con by
twenty-five to twenty-eight percent without explanation or prior
notice. The price discrimination was apparently "so dramatic"
that other distributors were able to sell Daikin products at a
price lower than Air-Con was able to purchase those same products
from Daikin Applied.
Air-Con also claims that, around the same time, it began
experiencing serious problems with the delivery of inventory and
parts. Deliveries were suspended, the waiting period for
deliveries was increased by more than fifty percent, and Daikin
Applied was nonresponsive to inquiries and requests for technical
support. Air-Con also complains that Daikin Applied abruptly
stopped offering certain products to Air-Con without notice or
explanation.
B. Procedural History
In July 2018, Air-Con filed suit in the Commonwealth
Court of Puerto Rico against Daikin Applied, seeking injunctive
relief and damages under Puerto Rico's Dealer Protection Act, P.R.
Laws Ann. tit. 10, §§ 278-278e ("Law 75").4 Daikin Applied removed
4 Air-Con also sued five other defendants (Daikin North America, LLC, a/k/a Daikin Comfort; Technical Distributors, Inc.; ABC; Goodman Distribution; and McQuay Caribe, Inc.), but voluntarily dismissed all claims against those defendants before the case was removed to federal court.
- 5 - the case to federal court based on diversity of citizenship. See
28 U.S.C. § 1332(a).
Shortly after removal, Daikin Applied filed a motion to
compel arbitration,5 arguing that the written distribution
agreement between Air-Con and Daikin Industries governed Daikin
Applied's distribution relationship with Air-Con and, pursuant to
that agreement, the parties were bound to arbitrate Air-Con's
claims. Alternatively, Daikin Applied argued that even if the
written agreement is inapplicable or unenforceable, Air-Con still
agreed to arbitrate all claims relating to the purchase and
distribution of Daikin products in Puerto Rico by signing several
purchase and sale agreements for specific shipments.
Air-Con opposed arbitration, arguing that the written
agreement it signed was only a draft, not a final contract, as
evidenced by Daikin Industries' failure to counter-sign the
document. But even if the distribution agreement is deemed a final
contract, Air-Con argued, it binds only Air-Con and Daikin
Industries, not Daikin Applied. Invoking the agreement's non-
assignability clause, Air-Con also argued that any purported
5 Daikin Applied filed a single motion styled as a "Motion to Dismiss to Compel Arbitration" and invoked the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, and the parties' alleged arbitration agreement as the basis for dismissal. We treat a motion to dismiss to compel arbitration as a motion to compel arbitration under the FAA when the moving party clearly invokes an arbitration agreement as the basis for its request. Soto v. State Indus. Prods., Inc., 642 F.3d 67, 70 n.1 (1st Cir. 2011).
- 6 - assignment of the agreement from Daikin Industries to Daikin
Applied without Air-Con's written consent is null and void. Thus,
according to Air-Con, because Daikin Applied was neither a party
to the written agreement nor a proper assignee, Daikin Applied has
no right to invoke the arbitration clause.
The district court agreed with Daikin Applied. It held
that the distribution agreement was an enforceable contract
between Air-Con and Daikin Applied. Without getting into the
assignability issue, the court found that Daikin Applied and Air-
Con had been operating pursuant to the terms of that agreement
since the inception of their distribution relationship during the
same year that the written agreement was signed. Moreover, the
district court read allegations in Air-Con's complaint as
admitting that the written agreement governed its relationship
with Daikin Applied. Applying the terms of that agreement, the
district court concluded that Air-Con's claims were within the
scope of the arbitration clause and, on that basis, granted Daikin
Applied's motion to compel arbitration.
Air-Con moved unsuccessfully to alter or amend the
judgment pursuant to Federal Rule of Civil Procedure 59(e). It
then timely appealed.
II.
While our precedent makes clear that the party seeking
to compel arbitration bears the burden of proving "that a valid
- 7 - agreement to arbitrate exists," Rivera-Colón v. AT&T Mobility
P.R., Inc., 913 F.3d 200, 207 (1st Cir. 2019) (quoting Soto-
Fonalledas v. Ritz-Carlton San Juan Hotel Spa & Casino, 640 F.3d
471, 474 (1st Cir. 2011)), we have not clarified what evidence, if
any, the parties may submit in support of or opposition to a motion
to compel arbitration. Nor have we affirmatively stated the
standard of review that the trial court applies to the resolution
of such a motion.6
We take this opportunity to resolve these open questions
to aid future consideration by the district courts. To facilitate
our discussion, we briefly summarize the relevant details of the
FAA.
A. The Federal Arbitration Act
The FAA provides that a "written provision in . . . a
contract . . . to settle by arbitration a controversy thereafter
arising out of such contract . . . shall be valid, irrevocable,
and enforceable." 9 U.S.C. § 2. The FAA reflects Congress's
intent to create a "liberal federal policy favoring arbitration."
Air-Con notes this gap in our law in its opening brief and 6
argues that the district court should have applied the summary judgment standard to Daikin Applied's motion. Although Daikin Applied contends that Air-Con waived this argument by failing to raise it below, we think that both parties treated Daikin Applied's motion like a motion to dismiss and proceeded accordingly. Moreover, as we explain, one of the district court's errors in this case involved the misapplication of the motion to dismiss standard, not the summary judgment standard.
- 8 - AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 346 (2011) (quoting
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983)). In passing the FAA, Congress sought to "place arbitration
agreements 'upon the same footing as other contracts.'" Scherk v.
Alberto-Culver Co., 417 U.S. 506, 511 (1974) (quoting H.R. Rep.
No. 68-96, at 1 (1924)). Hence, the FAA requires courts to treat
arbitration as "a matter of contract" and enforce agreements to
arbitrate "according to their terms." Henry Schein, Inc. v. Archer
& White Sales, Inc., 139 S. Ct. 524, 529 (2019); see also 9 U.S.C.
§ 4 (authorizing a party aggrieved by another party's
noncompliance with a written arbitration agreement to petition in
federal court for an order compelling arbitration).
As a consequence of the FAA's contract-based philosophy,
its liberal policy favoring arbitration "is only triggered when
the parties actually agreed to arbitrate." Rivera-Colón, 913 F.3d
at 207. The court's first step in determining whether to compel
arbitration is to identify a valid and enforceable agreement to
arbitrate between the parties. Id. at 207; Nat'l Fed. of the Blind
v. The Container Store, Inc., 904 F. 3d 70, 80 (1st Cir. 2018).
The party seeking to compel arbitration bears the burden of
demonstrating "that a valid agreement to arbitrate exists, that
the movant is entitled to invoke the arbitration clause, that the
other party is bound by that clause, and that the claim asserted
comes within the clause's scope." Soto-Fonalledas, 640 F.3d at 474
- 9 - (quoting Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d
367, 375 (1st Cir. 2011)). Courts apply state contract law to
determine whether a valid arbitration agreement exists. Rivera-
Colón, 913 F.3d at 207.
B. Reviewing Motions to Compel Arbitration
Section 4 of the FAA prescribes the basis for court
review of motions to compel arbitration:
The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. . . . If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.
9 U.S.C. § 4 (emphases added). Most other circuits apply the
summary judgment standard to motions under § 4. See, e.g., Meyer
v. Uber Techs., Inc., 868 F.3d 66, 74 (2d Cir. 2017); Guidotti v.
Legal Helpers Debt Resol., L.L.C., 716 F.3d 764, 774-75 (3d Cir.
2013); Galloway v. Santander Consumer USA, Inc., 819 F.3d 79, 85
n.3 (4th Cir. 2016); Boykin v. Fam. Dollar Stores of Mich., LLC,
3 F.4th 832, 838 (6th Cir. 2021); Tinder v. Pinkerton Sec.,
305 F.3d 728, 735 (7th Cir. 2002); City of Benkelman v. Baseline
Eng'g Corp., 867 F.3d 875, 881-82 (8th Cir. 2017); Hansen v. LMB
Mortg. Servs., Inc., 1 F.4th 667, 670 (9th Cir. 2021); Ragab v.
Howard, 841 F.3d 1134, 1139 (10th Cir. 2016); Hearn v. Comcast
- 10 - Cable Commc'ns, LLC, 992 F.3d 1209, 1215 n.3 (11th Cir. 2021);
Aliron Int'l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863,
865 (D.C. Cir. 2008).7 For the following reasons, we join our
sister circuits in concluding that district courts should apply
the summary judgment standard to evaluate motions to compel
arbitration under the FAA.
Section 4's command to "hear the parties" appears to
contemplate the submission and consideration of evidentiary
materials -- including materials beyond those attached to the
pleadings -- in support of and opposition to a motion to compel
arbitration. See Moses H. Cone, 460 U.S. at 22 (noting that § 4
calls for some degree of "inquiry into factual issues"). The
summary judgment standard, which evaluates the evidentiary
supportability of claims, is more appropriate than Rule 12's
plausibility standard, which is limited to a facial analysis of
the pleadings, for evaluating whether a moving party has met its
burden of demonstrating that arbitrability is not "in issue."
7The Third and Eighth Circuits apply the summary judgment standard when the resolution of a motion to compel arbitration depends on materials outside the pleadings. City of Benkelman, 867 F.3d at 881-82; Guidotti, 716 F.3d at 774-75. Their precedent contemplates the resolution of such motions under the Rule 12(b)(6) standard, rather than the Rule 56 standard, when the arbitrability of a claim is apparent from the face of the pleadings. City of Benkelman, 867 F.3d at 881-82; Guidotti, 716 F.3d at 774-75. The Fifth Circuit has not opined on this issue, but district courts in the Fifth Circuit have applied the summary judgment standard. E.g., Jackson v. Royal Caribbean Cruises, Ltd., 389 F. Supp. 3d 431, 443 (N.D. Tex. 2019).
- 11 - Similarly, interpreting the FAA's "in issue" standard as analogous
to the "genuine dispute of material fact" standard under Federal
Rule of Civil Procedure 56 reinforces the FAA's dual goals of
respecting private agreements and providing a mechanism for the
swift resolution of disputes by requiring the party opposing
arbitration to provide prompt notice of "whatever claims they may
have in opposition to arbitration and the evidentiary basis of
such claims." Oppenheimer & Co. v. Neidhardt, 56 F.3d 352, 358
(2d Cir. 1995) (quoting Manning v. Energy Conversion Devices, Inc.,
833 F.2d 1096, 1103 (2d Cir. 1987)); see also Guidotti, 716 F.3d
at 773.
Pursuant to the summary judgment standard, the court
must construe the record in the light most favorable to the non-
moving party and draw all reasonable inferences in its favor.
Taite v. Bridgewater State Univ., Bd. of Trs., 999 F.3d 86, 92
(1st Cir. 2021); Tinder, 305 F.3d at 735. If the non-moving party
puts forward materials that create a genuine issue of fact about
a dispute's arbitrability,8 the district court "shall proceed
summarily" to trial to resolve that question. 9 U.S.C. § 4; see
8 The non-moving party "cannot avoid compelled arbitration by generally denying the facts upon which the right to arbitration rests; the party must identify specific evidence in the record demonstrating a material factual dispute for trial." Soto, 642 F.3d at 72 n.2 (quoting Tinder, 305 F.3d at 735).
- 12 - Neb. Mach. Co., Inc. v. Cargotec Sols., LLC, 762 F.3d 737, 744
(8th Cir. 2014).
Section 4's directive to proceed "summarily" requires
that the district court limit the focus of the "expeditious and
summary" § 4 trial to the question of whether the parties agreed
to arbitrate. Moses H. Cone, 460 U.S. at 22; Boykin, 3 F.4th at
844; see also Hansen, 1 F.4th at 672 (defining "summarily" as "done
or occurring without delay or formality: quickly executed"
(quoting Webster's Third New International Dictionary 2289
(2002))). Although a party may seek limited discovery to support
or oppose a motion to compel arbitration, Moses H. Cone, 460 U.S.
at 22, the discovery -- like the trial -- must be "targeted" to
the "disputed contract-formation questions," Boykin, 3 F.4th at
844; see also Guidotti, 716 F.3d at 774; Deputy v. Lehman Bros.,
Inc., 345 F.3d 494, 511 (7th Cir. 2003). "[R]ound after round" of
discovery is inappropriate for a § 4 proceeding. Howard v.
Ferrellgas Partners, L.P., 748 F.3d 975, 978 (10th Cir. 2014).
Like the other courts of appeals to consider the question, we
decline to mandate specific procedures and leave the conduct of
the § 4 trial to the discretion of the district court. See
Berkeley Cnty. Sch. Dist. v. Hub Int'l Ltd., 944 F.3d 225, 242
(4th Cir. 2019). We note, however, that the district court should
not rule on the motion to compel arbitration until it resolves any
factual disputes that require resolution before it can be
- 13 - determined whether the parties agreed to arbitrate. See Hansen,
1 F.4th at 672; Jin v. Parsons Corp., 966 F.3d 821, 828 (D.C. Cir.
2020).
Given that the district court should evaluate a motion
to compel arbitration against the summary judgment standard to
determine whether a genuine dispute of fact exists regarding the
parties' agreement to arbitrate, we would review such a legal
conclusion de novo. Rivera-Colón, 913 F.3d at 206.
III.
Applying Puerto Rico law, the district court concluded
that Air-Con had entered into an enforceable contract with Daikin
Applied even though the contract identified Daikin Industries
-- Daikin Applied's parent -- as the contracting party and was
counter-signed by neither Daikin Industries nor Daikin Applied.
Even assuming that this written agreement constituted a final,
valid, and enforceable distribution agreement between Air-Con and
Daikin Industries -- the named, contracting party -- Daikin Applied
is an entity separate and distinct from its parent company. See
Negron-Torres v. Verizon Commc'ns, Inc., 478 F.3d 19, 27 (1st Cir.
2007) ("There is a presumption of corporate separateness that must
be overcome by clear evidence that the parent in fact controls the
activities of the subsidiary." (quoting Escude Cruz v. Ortho Pharm.
- 14 - Corp., 619 F.2d 902, 905 (1st Cir. 1980))).9 In concluding that
the written agreement between Air-Con and Daikin Industries
governed the distribution relationship between Air-Con and Daikin
Applied, the district court committed two legal errors.
First, the court impermissibly put the burden of
disproving the existence of a valid arbitration agreement on Air-
Con, the non-moving party. The court ruled that Air-Con "failed
to show" that the agreement between Air-Con and Daikin Industries
did not bind Air-Con and Daikin Applied. Air-Con, Inc. v. Daikin
Applied Latin Am., LLC, 2019 WL 2606881, at *3 (D.P.R. June 25,
2019). But the substantive law on the enforceability of
arbitration agreements puts the burden on the party moving to
compel arbitration to show that it is entitled to that outcome.
See Rivera-Colón, 913 F.3d at 207. Thus, the relevant issue was
not whether Air-Con "failed to show" the absence of an agreement.
Rather, Daikin Applied had to affirmatively demonstrate the
existence of a binding agreement to arbitrate.
Second, the court construed the following allegations in
the complaint as an admission that "Air-Con and Daikin Applied
9Daikin Applied does not argue that Daikin Industries has such a "degree of control over [it] as to render [Daikin Applied] a mere shell" for Daikin Industries, such that the presumption of corporate separateness should be disregarded. Escude Cruz, 619 F.2d at 905. Hence, any argument to that effect is waived. See United States v. Freitas, 904 F.3d 11, 23 (1st Cir. 2018).
- 15 - operated under the guidelines of the [w]ritten [a]greement"
between Air-Con and Daikin Industries:
6. Early in the year 2000, Air-Con established a distribution relationship with what is now Daikin Applied for the exclusive sale and distribution of air conditioners and related equipment marketed under the Daikin brand for the territories of Puerto Rico and the Caribbean.
7. According to the distribution relationship established, since the year 2000 until approximately the year 2013-2014, Air-Con had been the sole distributor of the Daikin products in Puerto Rico.
Second Am. Compl. The court interpreted these allegations as
acknowledging that "Air-Con and Daikin Applied kept renewing their
relationship pursuant to the terms agreed upon [i]n the [w]ritten
[a]greement. Thus, . . . the contract was valid and remained
valid." Air-Con, 2019 WL 2606881, at *2. In so ruling, the
district court did not consider the competing narrative that Air-
Con attributes to these allegations: namely, that Air-Con's
relationships with Daikin Industries and Daikin Applied are
governed by separate distribution agreements -- the former by the
written agreement between Air-Con and Daikin Industries and the
latter by an unwritten agreement. Although a plaintiff generally
cannot rely on allegations in its complaint to defeat a well-
supported motion for summary judgment, Fed. R. Civ. P. 56(e), the
non-moving party's burden "to offer evidence supporting its own
case" does not arise "unless the moving party meets its initial
- 16 - burden" of production, Carmona v. Toledo, 215 F.3d 124, 133 (1st
Cir. 2000) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 160
(1970)). Where a movant supports a motion for summary judgment
with only uncontroverted allegations from the complaint, as Daikin
Applied did here, the court reviews the motion like a motion to
dismiss. See Garcia v. De Batista, 642 F.2d 11, 14 (1st Cir.
1981).10 By interpreting the complaint's allegations in a fashion
favorable to Daikin Applied, the district court did not comply
with the requirement to draw all reasonable inferences in favor of
the non-moving party. See Zenon, 924 F.3d at 615.
10The court rejected Air-Con's argument that the phrase "what is now Daikin Applied" in ¶ 6 referred to Daikin Applied's name change from Daikin U.S. Corporation to Daikin Applied instead of being a concession that Air-Con's contract with Daikin Industries also governed its relationship Daikin Applied. Although the district court did not have to credit Air-Con's explanation for ¶ 6 -- which was presented in briefing rather than in evidentiary materials that the court may properly consider under the summary judgment standard, see Bellone v. Southwick-Tolland Reg'l Sch. Dist., 748 F.3d 418, 424 (1st Cir. 2014) -- the district court still had to construe the allegations in the complaint in Air- Con's favor when they were not directly contravened by record evidence put forward by Daikin Applied. Garcia, 642 F.2d at 14. More generally, although we believe that the summary judgment standard is best suited to resolving motions to compel arbitration under the FAA, we acknowledge that in exceptional cases, such as this one, the parties may treat a motion to compel arbitration as a motion to dismiss by forgoing the submission of record materials and relying solely on the pleadings to support or oppose the motion. In these exceptional cases, the district court should evaluate the motion to compel arbitration pursuant to the Rule 12(b)(6) standard, by accepting the complaint's non-conclusory factual allegations as true and drawing all reasonable inferences in favor of the non-moving party. Zenon v. Guzman, 924 F.3d 611, 615 (1st Cir. 2019).
- 17 - Without the district court's misallocation of the burden
of proof and improper construal of the complaint's allegations
against Air-Con, there is no basis for concluding that the
relationship between Air-Con and Daikin Applied was controlled by
the written agreement between Air-Con and Daikin Industries.
Instead, we are left with the language of that agreement, which
names Air-Con and Daikin Industries as the contracting parties.
And that agreement contains a non-assignability clause that reads,
in full:
This Agreement, and all rights[,] duties[,] and obligations described herein, are personal to each party and may not be assigned or otherwise transferred in whole or part without written consent of the other party. Any such assignment or transfer of this Agreement or any part hereof shall be null and void.
(Emphases added.) The agreement also expressly states that "[n]o
revision, modification[,] or amendment of this Agreement or any
provision contained herein shall be effective unless agreed in
writing signed by the parties." (Emphasis added.) The record
contains no evidence of a written assignment of the agreement from
Daikin Industries to Daikin Applied. Hence, Daikin Applied failed
to meet its burden of demonstrating that the written agreement
constituted a valid and enforceable agreement to arbitrate with
Air-Con.11
In the absence of any effective assignment of the written 11
agreement from Daikin Industries to Daikin Applied, we leave it to
- 18 - Daikin Applied has an alternative argument. It contends
that, even if it may not obtain arbitration based on the written
agreement between Air-Con and Daikin Industries, Air-Con agreed to
arbitration when it accepted deliveries from Daikin Applied of
Daikin products. Each time Air-Con received a delivery from Daikin
Applied, one of Air-Con's representatives signed a "Daikin Sales
Contract." And each of those sales contracts contains an
arbitration clause that reads in full:
This Contract and these Terms and Conditions constitute the entire agreement between Company [Daikin Applied] and Buyer [Air-Con] and all claims, disputes, and controversies arising out of or relating to this Contract or the breach thereof, shall, in lieu of court action, be submitted to the International Court of Arbitration ("ICC"), according to their rules and held in Miami, Florida.
The parties do not dispute that each sales contract constitutes an
enforceable agreement between Air-Con and Daikin Applied, and that
the above quoted arbitration provision contained in each agreement
may be invoked by either party. The only remaining question, then,
is whether Air-Con's claims in this case fall within the scope of
the arbitration clause in the various sales contracts. See
InterGen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003) ("A party
who attempts to compel arbitration must show . . . that the claim
asserted comes within the clause's scope.").
the district court on remand to determine the terms of the distribution relationship between Air-Con and Daikin Applied.
- 19 - The plain language of the arbitration provision in each
sales contract provides that it covers claims "arising out of or
relating to this Contract."12 In other words, the arbitration
provision of any one sales contract governs only disputes relating
to the particular sale authorized by that contract. Here, Air-
Con does not challenge any one sale or shipment of products from
Daikin Applied. Instead, Air-Con argues that Daikin Applied has
impaired its distribution rights without just cause. The alleged
impairment does include some sale-specific issues such as price
increases, delays in honoring purchase orders, and suspension of
shipments. But those issues are cited by Air-Con as examples of
the alleged pattern of unfair practices by Daikin Applied that
have substantially impaired its distribution relationship with
Air-Con. Thus, the claims alleged in the complaint are not
governed by the individual arbitration clauses in each sales
contract.
IV.
The district court erred in concluding that Air-Con
agreed to arbitrate the claims at issue in this case. Thus, we
reverse the grant of the motion to compel arbitration and remand
12Under Puerto Rico law, which both parties assume applies, "[i]f the terms of a contract are clear and leave no doubt as to the intentions of the contracting parties, the literal sense of its stipulations shall be observed." P.R. Laws Ann. tit. 31, § 3471; see also Perea v. Ed. Cultural, Inc., 13 F.4th 43, 54 (1st Cir. 2021).
- 20 - for further proceedings before the district court. Costs to Air-
Con. So ordered.
- 21 -