Masso-Torrellas v. Municipality of Toa Alta

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
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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
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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.
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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.
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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.
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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).
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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).
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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.
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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
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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”).
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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).
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(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.
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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
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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
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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
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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.
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