First Circuit Finds Fraudulent Inducement Claims Arbitrable By Virtue Of The 'Ambiguity' Of 'Arising Under' Language — Despite Granite Rock

Dialysis Access Center, LLC, et al. (DAC) v. RMS Lifeline, Inc. (RMS), No. 10-1872 (1st Cir. Mar. 2011), includes a step-by-step refresher of the current state of the law on when in international litigation an arbitration clause can force a party to present validity and enforceability issues to the arbitrator rather than to a court. The case contains a hair-splitting ruling of interest to corporate lawyers drafting arbitration provisions and so deserves an extended summary here. See generally our discussion of the issue of who decides what in the arbitration-litigation context in our e-book, International Practice: Topics and Trends

DAC and RMS entered into a management services agreement (MSA) for the development, building, management, and operation of a vascular access center in Puerto Rico. The contract included a Puerto Rico choice of law provision and an arbitration clause containing an obligation to use good faith to resolve a dispute and a binding arbitration provision for any "dispute that may arise under this Agreement". DAC alleged that the formation of the MSA was infected with fraud and that it was fraudulently induced to enter into the MSA.

The First Circuit handled this fairly typical fact pattern as follows:

First, because the District Court not only ruled that the fraudulent inducement claims were arbitrable but also dismissed (rather than stayed) the case, the Court of Appeals found that it had appellate jurisdiction under Section 16 of the Federal Arbitration Act for "final decisions".

Second, the Court of Appeals followed the U.S. Supreme Court's decision in Granite Rock Co. v. Int'l Bhd. of Teamsters, 130 S.Ct. 2847 (2010), that "except where the parties clearly and unmistakably provide otherwise, it is the court's duty to interpret the agreement and to determine whether the parties intended to arbitrate grievances concerning a particular matter".

Third, the Court of Appeals followed the U.S. Supreme Court's decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), that "procedural" questions which grow out of the dispute and bear on its final disposition' are presumptively not for the judge, but for an arbitrator, to decide". All this is known and settled.

Fourth, the First Circuit then grappled with the role of presumptions, or the "federal policy favoring arbitration", as to which the Supreme Court has stated that "due regard must be given to the federal policy favoring arbitration, and ambiguities as to...