Court Opinion

ID: 4114196
Source: CourtListenerOpinion
Date Created: 2017-01-09 21:00:35.457742+00
Date Added: 2024-06-11T07:46:02.641952
License: Public Domain

United States Court of Appeals
                       For the First Circuit
No. 16-1319

   FRANCISCO JOSÉ MASSÓ-TORRELLAS; CONJUGAL PARTNERSHIP MASSÓ-
  ESTÉVEZ; JOSÉ FRANCISCO MASSÓ-TORRELLAS; CONJUGAL PARTNERSHIP
            MASSÓ-MALDONADO; OSSAM CONSTRUCTION, INC.,

                       Plaintiffs, Appellants,

                                 v.

    MUNICIPALITY OF TOA ALTA; CLEMENTE AGOSTO-LUGARDO, in his
 official capacity as Mayor of the Municipality of Toa Alta and
   in his individual capacity; YARITZA ROSARIO-SOTO; CONJUGAL
                   PARTNERSHIP AGOSTO-ROSARIO,

                       Defendants, Appellees,

    INDETERMINED NUMBER OF UNNAMED MUNICIPAL POLICE OFFICERS;
 INDETERMINED NUMBER OF JANE DOES; CONJUGAL PARTNERSHIP; RICHARD
              DOE; JOHN DOE; ABC INSURANCE COMPANY,

                             Defendants.

            APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF PUERTO RICO

     [Hon. Pedro A. Delgado-Hernández, U.S. District Judge]

                               Before

                        Howard, Chief Judge,
                 Torruella and Dyk,* Circuit Judges.

            Roberto Busó-Aboy, for appellants.

     *   Of the Federal Circuit, sitting by designation.
          Eduardo A. Vera Ramírez, with whom Landrón Vera, LLC.,
Eileen Landron Guardiola, and Luis A. Rodríguez Muñoz were on
brief for appellees Municipality of Toa Alta and Clemente
Agosto-Lugardo, in his official capacity as Mayor.
          Margarita Mercado-Echegaray, Solicitor General, with
whom Susana I. Peñagarícano-Brown, Assistant Solicitor General,
was on brief for appellee Clemente Agosto-Lugardo, in his
individual capacity.

                        January 9, 2017
                DYK, Circuit Judge. Plaintiffs appeal from a district

court order dismissing their 42 U.S.C. § 1983 claim for lack of

subject         matter       jurisdiction,           and       declining          to      exercise

supplemental        jurisdiction         over       related       state      law     claims.     We

affirm the district court’s dismissal. The district court found

that it lacked subject matter jurisdiction because the parties

had failed to comply with the mediation/arbitration clause in

their contract. Although we conclude that the district court

erred by holding that the mediation/arbitration clause applied

to the § 1983 claim, we conclude that the § 1983 claim should be

dismissed pursuant to Fed. R. Civ. P. 12(b)(6) for failure to

state       a   claim.       Accordingly,       there       is    also       no    supplemental

jurisdiction over the state law claims.

                                               I.

                This dispute relates to contracts for the construction

of     a    municipal        transportation          terminal.          On     May     7,    2010,

defendant,        the     Municipality          of       Toa     Alta     (“Municipality”),

awarded a construction project to plaintiff, OSSAM Construction

Inc.       (“OSSAM”),     to     build   the     terminal         on    land      owned     by   the

Municipality.          The     parties    contemplated            that    the      construction

project would be undertaken in two phases, with two separately

executed        contracts.        The    Phase       I     contract       was      executed       on

September        10,     2010,    and    the     work       was    apparently          completed

                                            - 3 -
without incident within the 120 days provided in the contract.

The Phase II contract was executed on September 4, 2012. From

September       of    2014   and    continuing       through      December    of    2014,

disputes    arose       regarding     payments      for     the   work    performed    in

connection with the Phase II contract. On January 20, 2015,

OSSAM issued a notice of default against the Municipality due to

its alleged nonpayment for the completed construction work. On

February 4, 2015, the Municipality notified OSSAM by letter that

the   contract        between      OSSAM    and     the   Municipality       was    being

terminated      effective       immediately        “[d]ue    to   reasons    of    public

policy     in        connection      with     the     sound       administration       of

[municipal] funds.” JA 122. This letter was signed by Mayor

Clemente        Agosto-Lugardo         (“Agosto”)           on      behalf    of      the

Municipality. On the same day, municipal officials and police

officers took control of the construction site, which was on

municipal property.

             After      taking     control    of    the     site,   the   Municipality

initially       barred    OSSAM     from     removing       any   property    from    the

construction         site.   The     Municipality         alleges     that   this     was

necessary to fully inventory the on-site property and determine

the correct ownership pursuant to the contract. On February 5th

and 14th, OSSAM was permitted to retrieve some of its property

from the site. And on February 18th, OSSAM was finally permitted

                                           - 4 -
access      to   the    site    to    retrieve           “most”     of   its   property.

Appellants allege that at the time of filing the Complaint, the

Municipality       still       retained      security          barriers    and       fences

belonging to OSSAM.

             On May 4, 2015, OSSAM, its president José Francisco

Massó-Torrellas        and   his     wife    Sarina       Maldonado-Alfandari,          and

OSSAM’s vice-president Francisco José Massó-Torrellas and his

wife Rosa Julia Estévez-Datiz, filed a complaint in the District

Court of Puerto Rico, against the Municipality, Agosto in his

official capacity as mayor, Agosto and his wife Yaritza Rosario-

Soto in their personal capacities, an indeterminate number of

unnamed     Municipality       police       officers       and    officials    in     their

official and personal capacities, along with their spouses, and

any   “insurance       compan[ies]      that       may    be     responsible    to    [the]

Plaintiffs.” JA 12. The plaintiffs claimed that the defendants

violated 42 U.S.C. § 1983 when the defendants acted under color

of law to interfere with the plaintiffs’ Fourth, Fifth, and

Fourteenth       Amendment      rights       during        the      construction       site

takeover in February of 2014. The plaintiffs also claimed that

these actions constituted a breach of contract and “a violation

of    the   Constitution       and   laws     of    the     Commonwealth       of    Puerto

Rico.” JA 23.

                                          - 5 -
           The defendants moved to dismiss the § 1983 claim for

failure to state a claim, and also argued that “OSSAM has not

complied with the mandatory arbitration clause in the contract.”

JA 41.

           The Phase II construction contract between OSSAM and

the Municipality included clause 35, which we refer to as the

mediation/arbitration clause. It provided that

       [i]n the event that any controversy arises from the
       interpretation or of any other class among the parties
       with respect to any matter related to this contract,
       it shall be previously be [sic] required that before
       resorting to a judicial forum for the adjudication of
       their rights, that the parties exhaust a mediation
       procedure. The Municipality and [OSSAM] will at all
       times attempt to resolve their claims and disputes
       among themselves in [good] faith and if unable to
       arrive at an agreement[,] they bind themselves to
       resolving   the   controversy   or   dispute   through
       mediation.

JA 117-18 (emphases added). The Phase I contract included the

same   clause   with   an   additional    final   sentence   stating   that

“[t]he mediator’s decision will be final and firm.” Add. 2. This

sentence was not included in the Phase II contract.1

           The usual meaning of arbitration is that the dispute

resolution is binding and final. See Fit Tech, Inc. v. Bally

1 Although this final sentence was omitted in the original
Spanish language contract, the certified translation of the
Phase II contract erroneously contained this sentence, see JA
103, 118, when in fact, only the Phase I contract contains this
sentence in the original Spanish version, see JA 55, 73. The
district court correctly noted this error. Add. 2 n.4.
                                  - 6 -
Total Fitness Holding Corp., 374 F.3d 1, 7 (1st Cir. 2004).

Conversely, the usual meaning of mediation is that the dispute

resolution is non-binding. See In re Atlantic Pipe Corp., 304
F.3d 135, 141 (1st Cir. 2002). For purposes of resolving this

case, we need not decide whether clause 35 provides for non-

binding mediation or binding arbitration.

           Interpreting clause 35 as an arbitration clause, the

district   court     held    that   “the   parties   must      comply   with   the

obligation to mediate their claims before pursuing claims in a

judicial   forum,”     and    “dismissed     for   lack   of    subject   matter

jurisdiction.” Add. 4, 6.

           The plaintiffs appeal. We have jurisdiction under 28

U.S.C. § 1291. We review the district court’s dismissal for lack

of subject matter jurisdiction de novo. Viqueira v. First Bank,

140 F.3d 12, 16 (1st Cir. 1998). We review the district court’s

decision not to exercise supplemental jurisdiction over state

law   claims   for    abuse    of   discretion.      González-De-Blasini        v.

Family Dept., 377 F.3d 81, 89 (1st Cir. 2004).

                                      II.

           We first address whether the district court erred by

holding that the plaintiffs’ § 1983 claims must be mediated or

arbitrated before pursuing judicial action.

                                     - 7 -
              Here, the parties agree that the district court erred

in     concluding       that    the    mediation/arbitration             clause      covers

constitutional      claims.      This     agreement      is    consistent        with   the

plain text of the clause, which does not bring constitutional or

§ 1983     claims       within     its    scope.       Quite    the      opposite,      the

mediation/arbitration clause only encompasses “matter[s] related

to this contract.” JA 117. “[A] court may order arbitration of a

particular dispute only where the court is satisfied that the

parties agreed to arbitrate that dispute.” Granite Rock Co. v.

Int’l Bhd. of Teamsters, 561 U.S. 287, 297 (2010) (emphasis in

original). Here, there is no agreement between the parties to

arbitrate/mediate         the    § 1983      claim.     Therefore,         the    district

court    erred     by    holding      that   clause      35    of    the      construction

contract applied to the appellants’ § 1983 claim.2

                                          III.

              Even though the district court erred in dismissing for

lack     of   jurisdiction         because       of    the     mediation/arbitration

clause, “[w]e are not bound by the lower court’s rationale, but

may    [instead]    affirm       the     grant    of    dismissal        on    any   ground

supported     by    the    record.”       Gonzalez-Cancel           v.   Partido     Nuevo

2 We need not decide in this case whether a contractual agreement
to arbitrate § 1983 claims would be enforceable. See generally,
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 35 (1991);
McDonald v. City of West Branch, Mich., 466 U.S. 284, 290
(1984).
                                          - 8 -
Progresista, 696 F.3d 115, 118-19 (1st Cir. 2012). We conclude

that the § 1983 claim is without merit and should have been

dismissed for failure to state a claim.

             On    appeal,   the    plaintiffs       argue   several     different

constitutional claims, alleging violations of the First, Fourth,

Fifth, and Fourteenth Amendments. In none of these respects have

the plaintiffs stated a viable claim.

             First, there was no First Amendment claim pleaded in

the Complaint. See JA 21. “Appellants cannot raise an argument

on appeal that was not squarely and timely raised in the trial

court. [L]itigants must spell out their legal theories face-up

and squarely in the trial court . . . . [Otherwise,] that claim

ordinarily    is    deemed    unpreserved      for    purposes    of     appellate

review.” Thomas v. Rhode Island, 542 F.3d 944, 949 (1st Cir.

2008) (internal citations and quotation marks omitted).

             Second, there is no plausible constitutional claim for

Fourth   Amendment,     Fifth      Amendment,3     and   Fourteenth      Amendment

seizure and takings with respect to the individual plaintiffs.

The property allegedly seized or taken belonged to OSSAM, and

not   the    individual      plaintiffs.      In   their     Complaint    to   the

3 In determining the appellants’ claims here, we need not decide
whether Puerto Rico is a state under the Fourteenth Amendment or
a federal territory under the Fifth Amendment. See Examining
Board of Eng’r, Architects & Surveyors v. Flores de Otero, 426
U.S. 572, 600–01 (1976).
                                      - 9 -
district    court,    the    appellants    alleged       throughout      that   they

“encountered a seizure of . . . OSSAM’s property, equipment and

materials,” that the Municipality “ordered that OSSAM could not

take any of its property, equipment or materials from” the site,

that Municipality officers prevented access to “OSSAM’s property

and equipment,” and that they were told “removal of OSSAM’s

equipment and property was forbidden.” JA 15-16.

             On appeal, the appellants repeat these allegations,

claiming    that     “they   encountered      a   police      seizure    of     . . .

Ossam’s property, equipment and materials,” that “Municipality

officials, under color of law and pursuant to official authority

prevented    Ossam    personnel      to   remove       most   of   its   property,

equipment and materials,” and that a sub-contractor’s equipment

was permitted to be removed “but not Ossam’s property, equipment

and materials.” Appellant Br. 9, 11.

             Therefore, with respect to the individual plaintiffs,

there is no plausible Fourth Amendment, Fifth Amendment, and

Fourteenth    Amendment      claim   because      no    individual    plaintiff’s

property was alleged to have been taken.4

4 In their brief, the plaintiffs also appear to complain that the
defendants engaged in “illegal detention of Plaintiffs and their
employees.” Appellant Br. 1, 4. However, the Complaint itself
contains no allegations that the plaintiffs were actually
detained. See JA 15.
                                     - 10 -
              Third, with respect to OSSAM’s Fourth Amendment, Fifth

Amendment, and Fourteenth Amendment property seizure and takings

claims, we find that there is no plausible allegation in the

complaint that the Municipality engaged in action which would

implicate § 1983.

              Insofar as OSSAM alleges a taking or seizure of its

contract, or alleges that its contractual rights were violated

by   the    termination    of    the   contract   or   the   detention      of      its

property, these allegations do not state a constitutional claim.

In Redondo-Borges v. U.S. Dep’t of Housing, Urban Dev., 421 F.3d
1 (1st Cir. 2005), this court noted that as a general matter,

“[w]e have held with a regularity bordering on the echolalic

that    a    simple   breach     of    contract   does     not     amount      to     an

unconstitutional       deprivation      of   property.       .   .    .   To        hold

otherwise would run the risk of transmogrifying virtually every

dispute involving an alleged breach of contract by a state or a

state      agency   into   a    constitutional    case.”     Id.     at   10.       This

principle is well-established in other circuits as well.5 These

5 B & B Trucking, Inc. v. U.S. Postal Serv., 406 F.3d 766, 769
(6th Cir. 2005) (en banc) (holding that if the USPS abridged the
plaintiffs’ contract rights, “the proper recourse would be a
breach-of-contract claim, not a takings claim”); Hughes Commc’ns
Galaxy, Inc. v. United States, 271 F.3d 1060, 1070 (Fed. Cir.
2001) (holding that “[t]aking claims rarely arise under
government contracts because the Government acts in its
commercial or proprietary capacity in entering contracts, rather
than in its sovereign capacity. Accordingly, remedies arise from
                             - 11 -
cases appear to rest on either of two distinct propositions. In

the first category, some cases have held that not all contract

rights constitute property protected by the Constitution. See,

e.g., Linan-Faye Constr. Co. v. Hous. Auth. of Camden, 49 F.3d
915, 931–32 (3d Cir. 1995); Unger, 928 F.2d at 1399; Yatvin, 840
F.2d at 417. Other cases recognize that contract rights can be

property for constitutional purposes, and are protected against

government actions taken in the government’s sovereign capacity,

for   example,   by   a   statute   eliminating   certain   contractual

the contracts themselves, rather than from the constitutional
protection of private property rights.”); Unger v. Nat’l
Residents Matching Program, 928 F.2d 1392, 1398 (3d Cir. 1991)
(holding that “[i]t is neither workable nor within the intent of
section 1983 to convert every breach of contract claim against a
state into a federal claim.” (quoting San Bernardino Physician’s
Serv. Med. Grp. v. County of San Bernardino, 825 F.2d 1404, 1408
(9th Cir. 1987))); Yatvin v. Madison Metrop. Sch. Dist., 840
F.2d 412, 416 (7th Cir. 1988) (holding that “the Fifth and
Fourteenth Amendments do not entitle a person to a federal
remedy for every breach of contract by a state . . . . Thus,
unless every breach of every public contract is to be actionable
as a violation of constitutional rights, it is necessary to
distinguish between mere contract rights” and constitutional
property   rights  (internal   citations   and  quotation  marks
omitted)); Monolith Portland Midwest Co. v. Reconstruction Fin.
Corp., 282 F.2d 439, 447 (9th Cir. 1960) (holding that
“[t]ermination of the [government] contract . . . frustrated
[appellant] in obtaining anticipated profits and advantages
therefrom. But, . . . [f]rustration and appropriation are
essentially different things. There was here no taking of
[appellant’s] property which entitled the company to just
compensation under the Fifth Amendment” (citation omitted));
Brasier v. United States, 223 F.2d 762, 766 (8th Cir. 1955)
(holding that a termination of a government contract does not
constitute “a taking of the plaintiff’s property without just
compensation or without due process of law”).
                                - 12 -
rights. See, e.g., Cienega Gardens v. United States, 331 F.3d
1319,    1353     (Fed.    Cir.    2003)      (holding    that    the       enactment     of

ELIHPA and LIHPRHA, which eliminated some contractual rights, in

the     circumstances       of     that      case   “effect[ed]         a    compensable

taking”).

              A   second    category         of   cases   holds    that      even    if   a

private       party’s      contract       rights     constitute         property,        the

exercise of contractual rights by a governmental contracting-

party does not give rise to a constitutional claim. See, e.g., B

& B Trucking, 406 F.3d at 769; Hughes Commc’ns, 271 F.3d at

1070.

              Indeed, the Supreme Court has repeatedly recognized

that governments act in different capacities—as sovereigns and

as contracting parties—and that “[t]he two characters which the

government possesses as a contractor and as a sovereign cannot

be    . . .   fused;      nor    can   the    [government]       while      sued    in   one

character be made liable in damages for [its] acts done in the

other.”6 Horowitz v. United States, 267 U.S. 458, 461 (1925)

(quoting Jones v. United States, 1 Ct. Cl. 383, 384 (Ct. Cl.

1865)).    See    also     Perry   v.     United    States,      294 U.S. 330,     352

6 The enactment of a statute may, of course, sometimes lead to
governmental liability for breach of contract. See United States
v. Winstar Corp., 518 U.S. 839, 897 (1996) (holding that the
enactment of FIRREA breached certain government contracts).
                                          - 13 -
(1935) (“When the [government] . . . makes contracts, it has

rights    and      incurs          responsibilities           similar      to   those    of

individuals     who      are       parties    to       such    instruments.”);      United

States v. Bostwick, 94 U.S. 53, 66 (1876) (“The United States,

when they contract with their citizens, are controlled by the

same laws that govern the citizen in that behalf.”).

            Here,     we       need     not     resolve         the    exact    scope    of

constitutionally-protected contractual property rights, but may

instead   assume      that     OSSAM’s       contract         rights   could    constitute

property.    But    when       a    municipality        acts     in    a   contractual   or

proprietary capacity, actions such as contract termination or

detention of property under the contract that would constitute a

simple    breach    of    contract       when      a    non-governmental        entity   is

involved do not become a constitutional violation simply because

the contracting party is a municipality.7

7 We do not suggest here that a municipality in enforcing a
contract may not act under color of state law. For example, it
is well-established that a municipality may be liable for
employment discrimination under § 1983. See, e.g., Rodriguez v.
Municipality of San Juan, 659 F.3d 168, 181 (1st Cir. 2011)
(holding that discrimination against a municipal employee could
“trigger[] municipal liability under § 1983” through official
policy or custom). However, in such instances, the municipal
government is motivated by something other than contractual
rights. We note that OSSAM alleges that the Municipality
terminated the Phase II contract in retaliation for OSSAM’s
issuing a notice of default, but this is not an allegation of
extra-contractual motivation.
                                         - 14 -
             In Monell v. Dep’t of Social Services, 436 U.S. 658,

690 (1978), the Supreme Court taught that a “[l]ocal governing

bod[y] . . . can be sued directly under § 1983 . . . [when it]

unconstitutional[ly] implements or executes a policy statement,

ordinance,       regulation,       or    decision       officially      adopted     and

promulgated by that body’s officers.” However, the Court went on

to hold that

      the language of § 1983, read against the background of
      the . . . legislative history, compels the conclusion
      that Congress did not intend municipalities to be held
      liable unless action pursuant to official municipal
      policy of some nature caused a constitutional tort.
      . . . [I]t is when execution of a government’s policy
      or custom, whether made by its lawmakers or by those
      whose edicts or acts may fairly be said to represent
      official   policy,  inflicts   the   injury  that    the
      government as an entity is responsible under § 1983.

Id.   at   691–94      (emphasis     added).     Here,     the     record    does   not

contain    any       plausible    allegations     that     the   Municipality       was

acting     in    a     sovereign    capacity      pursuant       to    any   statute,

ordinance, regulation, or custom when it terminated the contract

and took over the construction site and temporarily detained

OSSAM’s property.

             There      is   no   allegation     in     the   Complaint      that   the

Municipality         acted    pursuant     to     a     statute,      ordinance,     or

regulation.      The     complaint      did     state    that    the    Municipality

implemented “customs and policies” which caused the plaintiffs’

injuries. JA 21. There was no further development of this bare
                                        - 15 -
assertion in the Complaint regarding any specific Municipality

actions    undertaken        pursuant         to    its    customs       and    policies.      In

Rosaura Building Corp. v. Municipality of Mayaguez, 778 F.3d 55

(1st   Cir.      2015),    this       court        affirmed       the     district       court’s

dismissal     of     “claims     against           the    municipal       government         under

Monell, after it found that Rosaura failed to plead a scintilla

of   facts    against      that       government          entity        . . .    [about      the]

execution of a government’s policy or custom.” Id. at 61-62, 69

(citation        omitted).       Here,       given        the    record,        we     similarly

conclude      that      there    is     no     sufficient          allegation         that     the

Municipality acted under color of law.

              In summary, for purposes of a motion to dismiss, we

conclude     that    the   source        of    the       Municipality’s         authority      to

secure     the     construction        site         stemmed       from    its        proprietary

capacity under the contract, and not its sovereign capacity.

Because the Municipality is not alleged to have engaged in a

sovereign act, there is no substantial constitutional claim that

would support a cause of action pursuant to § 1983. Thus, here,

the Municipality’s acts of terminating the construction contract

and temporarily detaining OSSAM’s property do not give rise to

constitutional claims cognizable under § 1983.

              Finally, to the extent that OSSAM complains about its

exclusion        from      the        construction              site,     OSSAM        had     no

                                             - 16 -
constitutional right to access the Municipality’s construction

site that would give rise to a § 1983 claim. The appellants do

not dispute that the construction site is “on the property of

the    Municipality.”       Appellee     Off.     Br.      3.    There      cannot    be   a

plausible      constitutional      claim       that     the      Municipality        cannot

secure its own property.

                                          IV.

               Because there is no substantial constitutional claim,

we also conclude that there is no federal jurisdiction over the

plaintiffs’ state law claims, as the remaining state law claims

were    only    argued    to    “be     allowed       to    proceed      . . .    [under]

supplemental      jurisdiction.”        Appellant          Br.   33.   “As    a   general

matter, a court will decline supplemental jurisdiction if the

underlying      [federal]      claims    are    dismissed        before      trial.”   13D

Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal

Practice and Procedure § 3567.3, at 429 (3d ed. 2007). Case law

from this circuit supports this “general principle [that] the

unfavorable disposition of a plaintiff’s federal claims at the

early stages of a suit . . . will trigger the dismissal . . . of

any    supplemental      state-law      claims.”        González-De-Blasini, 377
F.3d at 89 (quoting Rodríguez v. Doral Mortgage Corp., 57 F.3d
1168,    1177     (1st   Cir.     1995)).       Specifically,          in    Camelio       v.

American Fed., 137 F.3d 666 (1st Cir. 1998), this court held

                                        - 17 -
that after the district court had dismissed a suit’s federal

claims    for   failure   to   state   a   claim,   it   also   “should   have

refrained from exercising supplemental jurisdiction over [the]

state law claims and remanded them to state court.” Id. at 673.

            We review a district court’s decision not to exercise

supplemental jurisdiction for abuse of discretion. González-De-

Blasini, 377 F.3d at 89. We conclude that the district court did

not do so in dismissing the appellants’ supplemental state law

claims.

            AFFIRMED. Costs to appellees.

                                   - 18 -