Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. P.R.: Arbitration clause in representation agreement survives 'duress' challenge, (Dec 7, 2015)

By Michael Menzhuber, J.D., LL.M.

A motion to compel arbitration of a claim for damages, after a representation agreement was terminated, was granted by the federal district court in San Juan, Puerto Rico. In granting the motion, the court determined that the representative’s duress challenge was directed at the validity of the agreement, not the arbitration clause, and all of the representative’s claims were arbitrable (Francisco J. Ortiz & Co., Inc. v. Masco Corporation of Indiana, December 3, 2015, Besosa, F.).

Background. Francisco J. Ortiz & Co., Inc. (FJO) entered into a representation agreement with Masco Corporation of Indiana (MCI) to become a sales representative for MCI products. After several years, the parties signed a new agreement, which included two provisions that were not included in any of their previous written agreements. One of the provisions was an arbitration clause.

After MCI terminated the agreement, FJO filed suit, seeking damages under Puerto Rico’s Sales Representative Act (Law 21). MCI then moved to compel arbitration pursuant to the agreement’s arbitration clause. FJO opposed the motion on the basis that the agreement should be declared null and void because it signed the agreement “under duress and intimidation”.

Motion to compel arbitration. The court noted that there are two types of challenges to the validity of arbitration agreements: (1) a challenge to the validity of the specific agreement to arbitrate; and (2) a challenge to the validity of the whole contract containing the agreement to arbitrate. Challenges to the specific agreement to arbitrate are for the courts to consider before compelling arbitration. Challenges to the whole contract are for the arbitrator to decide.

Based on the arguments FJO made in support of its duress challenge, the court determined that the challenge was directed to the validity of the agreement and not the arbitration clause specifically. Because the contractual language in the arbitration clause was broad enough to include FJO’s Law 21 and duress challenge, and FJO presented no arguments to the contrary, the court granted MCI’s motion to compel arbitration.

Because the court found that all of FJO’s claims were arbitrable, the case was dismissed.

The case is No. 15-1500.

Attorneys: A. J. Bennazar (Bennezar, Garcia & Millan, CSP) and Jane A. Becker (Jane Becker Whitaker, PSC) for Francisco J. Ortiz & Co., Inc. Raul M. Arias (McConnell Valdes, LLC) for Masco Corp. of Indiana d/b/a The Delta Faucet Co.

Companies: Francisco J. Ortiz & Co., Inc.; Masco Corp. of Indiana

Cases: FranchisingDistribution PuertoRicoNews