July 2026 | Client Alert
In Sierra Lugo v. Sunrun PR Operations, LLC, 2026 TSPR 76, Puerto Rico’s Supreme Court clarified who decides challenges to arbitration clauses governed by the Federal Arbitration Act (“FAA”). The Court held that, when the parties expressly agree that the arbitrator will decide disputes concerning the validity, enforceability, or scope of the arbitration agreement, those issues must be decided by the arbitrator—not the courts—even where the contract at issue may be characterized as one of adhesion. However, absent such an agreement, Puerto Rico courts continue to decide whether an arbitration agreement is valid and enforceable.
The Court also reaffirmed that, under the doctrine of separability, challenges directed to the contract as a whole are for the arbitrator to resolve. Only challenges directed specifically to the arbitration clause, or to the delegation provision itself, may be resolved by a court. Furthermore, the Court adopted the United States Supreme Court’s interpretation of Section 3 of the Federal Arbitration Act in Smith v. Spizzirri, 601 U.S. 472 (2024), holding that –when a dispute is subject to arbitration–, a court must stay the judicial proceedings upon a party’s request rather than dismiss the action.
In Sierra Lugo, the dispute arose from a residential solar energy agreement containing an arbitration clause. The agreement also included a delegation provision. That provision gave the arbitrator exclusive authority to resolve disputes concerning the interpretation, applicability, enforceability, formation, and validity of the arbitration agreement.
However, rather than proceed to arbitration, the plaintiff filed suit at the Puerto Rico Court of First Instance. She alleged that her consent to the agreement itself had been obtained through fraud. However, plaintiff did not challenge the arbitration clause in her complaint. Defendant moved to compel arbitration pursuant to the arbitration clause.
The Supreme Court first reaffirmed an established principle of Puerto Rico arbitration law. Ordinarily, courts decide whether a valid agreement to arbitrate exists and whether a particular dispute is subject to arbitration. The Court explained, however, that the parties may agree to a different procedure. When an arbitration agreement contains a clear delegation provision, the parties may assign those threshold questions of arbitrability to the arbitrator. In those circumstances, courts must enforce the parties’ agreement unless the delegation provision itself is specifically challenged.
The Court also discussed the doctrine of separability. Consistent with United States Supreme Court precedent, the Court explained that an arbitration clause is legally distinct from the underlying contract. Likewise, a delegation provision is distinct from the arbitration agreement itself. As a result, a challenge to the validity of the contract does not prevent enforcement of the delegation provision. Unless the delegation provision is specifically challenged, the arbitrator must decide disputes regarding the validity or enforceability of the arbitration agreement.
Finally, the Court adopted the United States Supreme Court’s decision in Smith v. Spizzirri. Going forward, when a dispute is subject to arbitration and a party requests a stay, Puerto Rico courts should stay the judicial proceedings pending arbitration rather than dismiss the action.
This decision further aligns Puerto Rico arbitration law with federal precedent. Notably, the Court’s opinion builds on Tucker v. Money Group, 2026 TSPR 9, 217 DPR ___ (2026), a case in which O’Neill & Borges prevailed earlier this year. Businesses should review their arbitration agreements to determine whether they contain a clear and unmistakable delegation provision. A properly drafted delegation clause may substantially limit judicial involvement in disputes over the enforceability of an arbitration agreement and require those issues to be decided by the arbitrator. In light of this ruling, we encourage businesses to review their existing arbitration and delegation provisions to ensure they reflect the parties’ intended dispute resolution framework. The attorneys at O’Neill & Borges are available to assist with that review.
For additional information or assistance, please contact your regular O’Neill & Borges attorney or write to info@oneillborges.com.
This O’Neill & Borges Client Alert is prepared for general information purposes only. It does not constitute legal advice or a legal opinion; nor does it establish an attorney-client relation with the recipient. For further information or to establish an attorney-client relation please contact us at info@oneillborges.com or your prime contact attorney at O&B.