Opinion ID: 203914
Heading Depth: 1
Heading Rank: 2

Heading: Fernandez's Appeal

Text: We review the district court's decision to grant the motion to dismiss de novo, Gray, 544 F.3d at 324, and like the district court, we accept as true all of the appellants' well-pleaded facts and draw all reasonable inferences in the light most favorable to the non-moving party. Id. But to survive a motion to dismiss (or a motion for judgment on the pleadings), the complaint must plead facts that raise a right to relief above the speculative level, Dixon v. Shamrock Fin. Corp., 522 F.3d 76, 79 (1st Cir.2008), such that the entitlement to relief is plausible, Cook v. Gates, 528 F.3d 42, 48 (1st Cir.2008). Release is an affirmative defense, see Fed.R.Civ.P. 8(c), and such a defense will support a motion to dismiss only where it is (1) definitively ascertainable from the complaint and other sources of information that are reviewable at this stage, and (2) the facts establish the affirmative defense with certitude, Gray, 544 F.3d at 324. We begin with a brief reconnaissance of applicable Puerto Rico substantive law, which we apply in this diversity dispute. [6] See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Essex Ins. Co. v. BloomSouth Flooring Corp., 562 F.3d 399, 403 (1st Cir.2009). In Puerto Rico, a compromise is a particular species of contract used to resolve disputes involving litigation or the potential for litigation. P.R. Laws Ann. tit. 31, § 4821 (A compromise is a contract by which each of the parties in interest, by giving, promising, or retaining something, avoids the provocation of a suit, or terminates one that has already been instituted.). Where compromises are validly consummated, they bind the parties to the compromise in the same manner as the doctrine of res judicata. P.R. Laws Ann. tit. 31, § 4827. However, compromises procured as the result of error, deceit, violence, or forgery are void. P.R. Laws Ann. tit. 31, §§ 4828, 3404. With this background, we examine Fernandez's contentions. Though packaged in several legal theories, the primary thrust of Fernandez's complaint is that Smith Barney did not clearly and unambiguously clarify that the approximately $950,000 settlement was not calculated on the basis of the lower commission rates of ten and three cents per share on which he and Smith Barney agreed in mid-2003. According to Fernandez, this lack of clarity was further compounded by the circumstances surrounding his receipt of the working papers and the execution of the settlement agreement. In particular, Fernandez objects that Smith Barneyonly hours after providing the working papers sent to his office not only a draft of the settlement agreement, but also an attorney and a notary public with the expectation of executing the settlement that very day. Under these circumstances, Fernandez contends that Smith Barney's failure to articulate with particularity the scope of the settlement has the effect of invalidating the settlement under Puerto Rico law, or requires a reformation of the settlement such that it excludes his contract-based commission claims. Alternatively, Fernandez argues that the compromise is void because it was procured as the result of dolo, a form of contractual deceit that may arise from concealment. See Prado Alvarez v. R.J. Reynolds Tobacco Co., Inc., 405 F.3d 36, 44 (1st Cir.2005).
Under Puerto Rico law, a contract has three elements: consent, a definitive (and legal) object, and consideration. See P.R. Laws Ann. tit. 31, § 3391; Quiñones López v. Manzano Pozas, 141 D.P.R. 139, 1996 P.R.-Eng. 499244 (1996) (stating that three essential conditions of contract validity are consent, a definite object that may be the subject matter of a contract, and consideration). [7] Fernandez believed that the settlement agreement did not include all of Smith Barney's commission overcharges, in excess of contractually promised rates, and he argues that this mistaken belief is the sort of error that would void his consent. See P.R. Laws Ann. tit. 31, § 3404 (erroneous consent is void). Under Puerto Rico law, however, not all errors entitle one party to invalidate his consent (i.e. make a contract voidable); in order to invalidate consent, an error must refer to the substance or the object of the contract. P.R. Laws Ann. tit. 31, § 3405. Moreover, the Puerto Rico Supreme Court has noted the important social interest in holding parties to their contracts, and therefore the validity of [a] contract and of the consent is presumed, and in order for an error to annul consent, such error must be excusable. Capo Caballero v. Ramos, 83 D.P.R. 650, 1961 WL 13778 (1961) (emphasis in original). An error is not excusable when the ignorance of the true state of things is due to negligence or fault of the one who invokes it. Id. at 649. In Capo Caballero, the Puerto Rico Supreme Court applied the excusable requirement to find that the defendant Ramos could not invalidate his consent to a contract to purchase land from Cap Caballero. Id. at 653. Ramos intended to construct a T.V. antenna on a plateau at the top of a hill, which Ramos believed was owned by Cap Caballero. Ramos sent an attorney and an engineer to confirm that the desired location, which had already been identified, was indeed owned by Cap Caballero. Id. at 639. Because it was raining, the engineer did not complete the arduous climb to the top of the hill, but nevertheless informed Ramos that the desired location for the antenna was within Cap Caballero's fenced land. Id. at 639-40. On further review, it became clear that although Cap Caballero's land was high enough to permit construction of an antenna, the steep slope involved would make construction economically prohibitive and that the desired land was actually owned by another. Id. at 651-52. Nevertheless, the Puerto Rico Supreme Court held that any error on the part of Ramos did not refer to [] facts unknown to the defendant or which he could have found out by exercising some care; it was due to [Ramos's] negligence or fault and was not an excusable error. Id. at 652 ( citing Miro v. Comision Industrial De Puerto Rico, 57 D.P.R. 28, 33, 1940 WL 7948 (1940)). [8] From this authority Smith Barney argues that if there was any error in Fernandez's consent, it was not excusable and therefore cannot be used to invalidate Fernandez's consent and rescind the settlement, nor can the error support reformation of the settlement to exclude claims based on the contractual ten and three cent per share commission rates. The essence of Smith Barney's argument is that, as Fernandez concedes, he was in possession of the calculations used to derive the settlement amount before he assented to the settlement, and consequently, Fernandez was capable of determining precisely what commission rates were used to calculate the settlement. Thus, Fernandez's failure to discover that the contractual rates of three and ten cents per share were not used to calculate the settlement was not an excusable error that would serve to invalidate Fernandez's consent. Fernandez does not directly grapple with this authority, and instead relies on another case, Producciones Tommy Muniz, Inc. v. C.O.P.A.N., 113 D.P.R. 517, 13 P.R. Offic. Trans. 664 (1982), to suggest that no contract was formed between himself and Smith Barney. In C.O.P.A.N., the Puerto Rico Supreme Court held that the acceptance of a winning bid did not constitute a valid offer and acceptance (i.e. a contract) because a significant termthe size and complexity of the television center to be furnished in exchange for the exclusive right to broadcast the Pan-American Gameswas indefinite, and course of dealing evidence revealed that the parties subsequently traded seven drafts of a proposed contract. Fernandez argues that the inclusion of contractual commission overcharges in the settlement agreement amounted to essentially a latent ambiguity in a key term, as in C.O.P.A.N., and therefore his acceptance of the settlement agreement should not have created a legally binding contract. We disagree. Unlike the construction of a television center, which can involve many permutations of equipment quality and quantity, the settlement agreement did not fail for indefiniteness or contain the same level of ambiguity in a key term. The total amount of the settlement was precisely delineated, as were the calculations supporting the settlement. As the court made clear in C.O.P.A.N., it is not necessary for an offer to specify every detail, if such details can be ascertained from other sources, and the parties were clear about them. In the present case, the calculations, whose accuracy is not challenged, were supplied before the settlement was agreed upon, and they served the purpose of ensuring that the offer was definite. Moreover, in view of the Puerto Rico Supreme Court's insistence that errors vitiating consent must be excusable, it would be unfair and inappropriate to permit Fernandez to withdraw his consent from this contract, because all of the information necessary to ferret out any erroneous conception or misimpression under which he was operating with respect to the scope of the settlement was already in his possession.
Although the settlement agreement was a valid contract between the parties, there exists a further question whether it was a compromise under Puerto Rico law. The Supreme Court of Puerto Rico has identified three elements of a compromise: (i) an uncertain legal relationship, or conflicting intentions born out of a legally dubious question; (ii) an intent to eliminate the uncertainty, that is, the parties must intend to substitute the uncertain relationship for one that is for them certain and uncontrovertable; and (iii) the parties must make reciprocal concessions. Citibank, N.A. v. Dependable Ins. Co., 121 P.R. Dec. 503, 21 P.R. Offic. Trans. 496, 506 (1988); accord Cabán Hernández, 486 F.3d at 12. See also P.R. Laws Ann. tit. 31, § 4821. Fernandez does not contest this well-settled proposition. Rather, he asserts that the civil law principle of narrowly construing compromises and waivers of rights precludes the conclusion that, despite its plain terms, the settlement agreement compromised all commission-related disputes between the parties. Thus, he argues that the settlement compromised only the dispute over commission charges in excess of Smith Barney's standard charges, [9] leaving open any dispute over the difference between Smith Barney's actual charges and the lower commission rates that Smith Barney promised Fernandez. This contention is misplaced. We are aware of nothing in Puerto Rico law that hinders the most natural reading of the settlement agreement as settling all commission-related disputes between the parties as of the date of the agreement. As we read the authority Fernandez cites, it is in pitch-perfect harmony with our conclusion on this score. It is true that the civil law limits the scope of any compromise to objects specifically determined therein or which from a necessary inference from its words must be considered as included therein, P.R. Laws Ann. tit. 31, § 4826; see also Sucesion De Roman Febres v. Shelga Corp., 111 D.P.R. 782, 11 P.R. Offic. Trans. 988 (1982), and the civil law further cabins a renunciation of rights to only those [rights] relating to the question with regard to which compromise has been made. Id. Citing to this authority, Fernandez argues that the expansive language of the settlement should be limited to claims for only overcharges over Smith Barney's published rates. Although the civil law would almost certainly restrict the scope of the settlement agreement, Fernandez's proposed interpretation strikes us as dissonant with the general rules of contract construction in Puerto Rico, which remain applicable to compromises. See Roman Febres, 11 P.R. Offic. Trans. 988 (Of course, as far as they are not incompatible with this particular rule of construction, the general rules of interpretation of contracts are applicable....). Applying Puerto Rico's general rules of contract construction, we conclude, while keeping in mind the policy of construing renunciations of rights narrowly, that the best reading of the settlement agreement is that it settles all of the parties' commission-related disputes. The Puerto Rico Supreme Court has made clear that contracts are to be construed in good faith, and that contracts should be construed assuming that they were drawn faithfully and correctly, that is in the understanding that when they were drawn[,] the parties wished to express themselves as normally honest people do, not seeking circumlocutions, deliberate obfuscations or obscurity.... Citibank, 21 P.R. Offic. Trans. at 508 ( citing Ex Parte Negron Rivera y Bonilla, 120 P.R. Dec. 61, 20 P.R. Offic. Trans. 63, 77-78 (1987)). Under this standard, in Citibank the Puerto Rico Supreme Court turned aside Citibank's claim that, despite plain language in a stipulation and settlement, certain insurance claims should not have been dismissed with prejudice because they were not discussed during negotiations and Citibank was under the (mistaken) impression that such claims had been paid or were in the process of being paid. See id. at 503-04. The court found persuasive (and not contrary to the civil law) the settlement's plain language that the parties agreed to settle all the claims accrued or which may accrue from the Policy. Id. at 508. Fernandez nevertheless argues that the case sub judice more closely resembles another case, Roman Febres, in which the Puerto Rico Supreme Court made clear that a settlement with respect to one case would not be made applicable to other cases that were pending between the same parties, despite potentially broad language in the agreement. In that case, Romn Febres agreed to settle a dispute with Hampton Development Corporation involving the sale of property for development purposes. The settlement agreement included a term by which Romn Febres agreed to fully and completely release Hampton [Development Corporation] and its affiliates from any claims or causes of action that could have accrued or may accrue in the future in behalf of the former and against Hampton and its affiliates as a result of relations existing between the parties mentioned up to this day. Roman Febres, 11 P.R. Offic. Trans. 988. Relying on this language, Hampton argued that the settlement agreement encompassed three suits filed by Romn Febres seeking damages arising from three separate and unrelated construction contracts. The Puerto Rico Supreme Court began its analysis by noting that nothing in P.R. Laws Ann. tit. 31, § 4827 constrains the court's ability to interpret the scope and application of a compromise. Id. The court went on to conclude that the settlement agreement, despite the broad language cited above, should not be read to include the three suits at issue, which sought recovery for materials supplied and work previously performed in unrelated contracts. Id. The court grounded its decision on three related bases: first, the court noted that the broadly drafted settlement was ambiguous, particularly with respect to the phrase mentioned. Next, the court noted that if the parties to the release wished to extinguish then-filed and pending suits, it would be logical to think that they would have said so specifically and not as part of a general and indeterminate release, which the court concluded was an accessory to the main compromise settling the real estate dispute. Id. Finally, the court relied on the civil law notion that compromises should be narrowly construed to reinforce its independent reading of the settlement agreement as not reaching the other suits. Id. Fernandez argues that the dispute regarding his contractually-based fee claims are like the unrelated suits that the court found in Roman Febres were not included in the parties' broadly worded settlement agreement. In support of his contention, Fernandez argues that, at the time Smith Barney drafted the settlement agreement, it was not aware of the contractual commission fees of ten and three cents per share that it had (allegedly) agreed to in mid-2003. Further, Fernandez argues that the settlement agreement makes clear that by the settlement agreement's plain terms, the approximately $950,000 provided for in the agreement only reflects the variance between standard commissions and the actual commissions charged. Recognizing that this case does not fit comfortably within the paradigm of either Citibank or Roman Febres, we conclude that Smith Barney's proposed reading of the settlement agreement is the better one. Smith Barney argues that the parties wished to settle at a minimum all of their commission-related disputes, and that the settlement agreement should be read to effectuate its purpose of resolv[ing] all pending claims and differences [between Smith Barney and Fernandez]. It is true that the release was not arrived at with the lengthy drafting history or the specific terms described in Citibank, 21 P.R. Offic. Trans. at 502-03, (describing settlement and its terms with respect to several causes of action); see also id. at 506-07 (stating that Citibank negotiated settlement of ongoing controversy and that Citibank's counsel signed settlement after review to resolve all doubts surrounding the items and sums involved). Nevertheless, Smith Barney furnished Fernandez with all calculations necessary to determine an acceptable settlement of the commission-related disputes, and after an opportunity to review these calculations and the agreement itself, Fernandez agreed to the proposed settlement. And unlike Roman Febres, the claim that Fernandez wishes to exclude from the settlement arises from the same common nucleus of operative fact: Smith Barney's levying of excessive commissions charges, which were the impetus for the compromise at issue. Accordingly, we see no reason to refrain from enforcing the plain, if broad, terms of the agreement. This case just does not encompass the same level of ambiguity present in Roman Febres, and the compromise should be enforced. [10] Accord Cabán Hernández, 486 F.3d at 12 (noting that release was intended to eliminate all uncertainty surrounding plaintiffs' termination).
Notwithstanding our conclusion that the compromise between Fernandez and Smith Barney was valid and reaches all commission-related disputes, Fernandez argues that the presence of contractual deceit (dolus or dolo) nevertheless requires invalidation of the contract. Dolus or dolo is a form of contractual deceit that can serve to invalidate consent to an otherwise valid contract or compromise. See P.R. Laws Ann. tit. 31, § 4828 (providing that a compromise in which error, deceit, violence or forgery of documents is involved, shall be subject to section 3404 of this title). In turn, section 3404 provides that consent given by error, under violence, by intimidation or deceit shall be void. P.R. Laws Ann. tit. 31, § 3404. Nevertheless, the Puerto Rico Supreme Court has made clear that good faith on the part of contracting parties is always presumed, and one seeking to rely on dolo to invalidate a contract must rebut the presumption of good faith with evidence of intentional fault or bad faith. Citibank, 21 P.R. Offic. Trans. at 512 ( citing Canales v. Pan Am., 112 D.P.R. 329, 12 P.R. Offic. Trans. 411 (1982)); accord Cabán Hernández, 486 F.3d at 12. Moreover, in determining whether to permit invalidation of a contract on the basis of dolo, Puerto Rico courts place considerable weight on the education, social background, economic status, and business experience of the party seeking to avoid the contract. Cabán Hernández, 486 F.3d at 12 ( citing Miranda Soto v. Mena Ero, 109 P.R. Dec. 473, 9 P.R. Offic. Trans. 628, 634 (1980)). Applying these factors, we have declined to invalidate English-language releases signed by individuals, two of whom lacked fluency in English, and all of whom were educated at slightly beyond the high school level. Cabán Hernández, 486 F.3d at 9, 12. In the present case, of course, the party seeking to invalidate the contract was a wealthy and accomplished attorney experienced enough to have a portfolio that generated in excess of a million dollars in brokerage commissions. Fernandez's sophistication, coupled with his failure to allege sufficient, colorable bad faith on the part of Smith Barney, defeats any claimed dolo in this case. Recognizing this possibility, Fernandez maintains that the Puerto Rico Supreme Court has been expanding the law of dolo, and that it is increasingly viewing failures to speak during contract negotiations with a jaundiced eye, even when the party seeking to avoid a contract is sophisticated. In support of this proposition, Fernandez cites Ortiz Burnet v. El Mundo Broad. Corp., in which an equally divided Puerto Rico Supreme Court upheld a lower court's decision permitting a trial on the question of whether a party to lease negotiations had a duty to disclose to his commercially sophisticated counterparty a pre-existing agreement to sub-lease his space to third parties at a (possibly substantial) profit. 2006 T.S.P.R. 154, 2006 WL 3055516 (P.R. Oct. 18, 2006). It is not clear to us that either this case or Banco Popular v. Succession Talavera, 2008 T.S.P.R. 132, 2008 WL 3834118 (P.R. July 31, 2008), another case cited by Fernandez in support of his dolo argument, suggest a contrary outcome. In any event, English translations of these cases are not available in the bound volumes of the court's reporter, and Fernandez has not provided us with certified translations of these cases, as required our rules. See 1st Cir. Loc. R. 30(d). Consequently, these cases may not be used to support Fernandez's argument with respect to dolo. Lopez-Gonzalez v. Municipality of Comerio, 404 F.3d 548, 553 n. 4 (1st Cir.2005). Having determined that the counterclaim does not adequately raise a claim that the settlement was infected with dolo, we need not consider whether Article 1055 of the Puerto Rico Civil Code requires that the settlement agreement be set aside. Similarly, because we conclude that the district court correctly determined that the settlement agreement was a valid compromise reaching all commission-related claims between the parties we need not reach the question of whether the settlement agreement was a novation. Finally, we turn to Fernandez's argument based on agency law (mandato) principles. Fernandez argues that under general principles of agency law, Smith Barney was required to provide an accounting of its commission overcharges in order for any release to be valid. He further argues that the accounting of overcharges that Smith Barney prepared for his review was insufficient to satisfy its obligations under agency principles and their attendant fiduciary duties. Assuming arguendo that Smith Barney was required to render an accounting, [11] the detailed forty-plus page analysis of the overcharges satisfied Smith Barney's obligations on that score. Smith Barney's accounting detailed all transactions, commissions charged, and the amount of commission that Smith Barney believed should have been charged. We discern nothing in Puerto Rico agency law requiring anything more; if Fernandez believed he should have been charged a different commission, it was incumbent on him to engage in further negotiations. We have reviewed the remainder of Fernandez's contentions and find them without merit, and therefore affirm the district court's dismissal of Fernandez's counterclaim on the basis of release.