Awuah v. Coverall North America, Inc.
703 F.3d 36
| 1st Cir. | 2012Background
- This is an FAA-related appeal from Massachusetts where Unbound Owners seek to avoid arbitration despite transfer/guaranty documents.
- Many plaintiffs did not sign the Franchise Agreement containing an arbitration clause; some did not receive a copy of the Franchise Agreement.
- Transfer Agreements and Guaranties purportedly bind transferees/guarantors to all obligations under the Franchise Agreement, including arbitration.
- The district court held lack of notice to some transferees avoided arbitration; the court allowed class expansion for those transferees without copies.
- Massachusetts law governs contract formation; the district court adopted a heightened notice rule not supported by MA law and preempted FAA rules.
- The First Circuit reverses, holding that the Transfer Agreements and Guaranties sufficiently incorporated the arbitration clause, and FAA preempts any heightened notice requirement: stay pending arbitration for Unbound Owners would be proper upon remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Unbound Owners are bound to arbitrate. | Awuah II—no notice; not bound. | Transfer/Guaranty documents incorporate arbitration. | Yes, they are bound; district court erred. |
| Whether Massachusetts law allows incorporation by reference without explicit language. | MA law requires special notice for arbitration incorporation. | Arbitration clause incorporated by Transfer/Guaranty language. | Incorporation by reference valid; FAA preempts heightened notice. |
| Whether Guaranties bind transferees to arbitration. | Guaranties concern only monetary obligations; no arbitration clause. | Guaranties bind to all Franchise obligations including arbitration. | Guaranties bind to arbitration as they reference ‘responsibilities, duties, obligations.’ |
Key Cases Cited
- Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1 (1st Cir. 1999) (threshold question of arbitrability before arbitration)
- Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546 (1st Cir. 2005) (minimally sufficient notice under some statutes; not broadly applicable)
- McCarthy v. Azure, 22 F.3d 351 (1st Cir. 1994) (bare minimum showing of agreement to arbitrate some claims)
- First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (premise that gateway questions of arbitrability are for courts unless delegation explicit)
- AT&T Techs., Inc. v. Comm'ns Workers of Am., 475 U.S. 643 (1986) (courts decide questions of arbitrability absent explicit delegation)