## Facts

- Puerto Rico distributors and Italian ceramic-tile manufacturers entered a distributorship relationship beginning in 1964, reduced to a written agreement on April 22, 1971.
- The agreement granted the Puerto Rico entities exclusive rights to distribute the manufacturers’ tiles in the Antilles.
- The contract contained an arbitration clause requiring that disputes about interpretation or application be submitted to an arbiter selected by the President of the Tribunal of Modena, Italy, with a final decision and minimal formalities.
- In March 1981, the distributors sued in the Superior Court of Puerto Rico, alleging unjustified termination of the distributorship and seeking damages under Puerto Rico’s Dealers Act (Law 75).
- The manufacturers removed the action to federal court under 9 U.S.C. § 205 and diversity-related removal provisions.
- The federal district court compelled arbitration pursuant to the contract clause and dismissed the complaint.
- The distributors appealed, arguing the arbitration clause was invalid under Puerto Rico public-order statutes protecting dealers and restricting arbitration outside Puerto Rico.

## Issues

1. Whether Chapter 2 of the Federal Arbitration Act, implementing the New York Convention, required enforcement of an international arbitration clause designating Italy notwithstanding Puerto Rico’s Law 75 and related public-order provisions.
2. Whether the arbitration clause was “null and void, inoperative or incapable of being performed” under Article II(3) of the New York Convention because Puerto Rico law treated dealers’ rights as non-waivable and disfavored arbitration outside Puerto Rico.

## Decision

- The First Circuit affirmed the district court’s order compelling arbitration and dismissing the action.
- The court held the arbitration agreement fell within the New York Convention and had to be enforced.
- The court concluded the clause was not “null and void” for Convention purposes merely because it conflicted with Puerto Rico’s statutory policy against foreign arbitration of Law 75 disputes.

## Legal Principles

- Under the New York Convention (as implemented by 9 U.S.C. §§ 201–208), courts must refer parties to arbitration unless the arbitration agreement is “null and void, inoperative or incapable of being performed.”
- The Convention’s “null and void” exception is construed narrowly to cover generally applicable contract defenses (e.g., fraud, mistake, duress, incapacity), not local rules that single out arbitration or foreign fora for disfavored treatment.
- Because the Convention is federal law, conflicting local law and local public-policy rules must yield under the Supremacy Clause when a qualifying international arbitration agreement is at issue.
- Protective local statutes creating substantive rights (such as restrictions on termination without just cause) do not, standing alone, defeat enforcement of an otherwise valid international arbitration clause at the referral-to-arbitration stage.

## Conclusion

The First Circuit enforced an Italy-seated arbitration clause under the New York Convention, holding that Puerto Rico’s dealer-protection policy and restrictions on foreign arbitration did not make the agreement “null and void” and could not block compelled arbitration.


Ledee v. Ceramiche Ragno, 684 F.2d 184 (1st Cir. 1982)