Pius AWUAH; Denisse Pineda; Jai Prem; Richard Barrientos; Anthony Graffeo; Manuel Da Silva; and all others similarly situated, Plaintiffs, Appellees, Aldivar Brandao; Nilton Dos Santos; Geraldo Correia; Phillip Beitz; Marian Lewis; Stanley Stewart; Benecira Cavalcante, Plaintiffs, v. COVERALL NORTH AMERICA, INC., Defendant, Appellant.
No. 12-1301
United States Court of Appeals, First Circuit
Dec. 27, 2012
Conclusion
For the foregoing reasons, we affirm the district court’s order of specific performance of the purchase option.
AFFIRMED.
Hillary Schwab, with whom Shannon Liss-Riordan, Claret Vargas, and Lichten & Liss-Riordan, P.C. were on brief, for appellees.
Before LYNCH, Chief Judge, SELYA and HOWARD, Circuit Judges.
LYNCH, Chief Judge.
This appeal is the latest development in long-running litigation1 between Coverall North America, Inc., a company which contracts to provide commercial janitorial cleaning services to building owners or operators in the United States, and its “franchisees,” who do the cleaning. Proceeding under federal diversity jurisdiction, the franchisees assert a variety of state-law claims against Coverall. The plaintiffs assert claims for breach of contract, misrepresentation, deceptive and unfair business practices, misclassification as independent contractors, and failure to pay wages due to them under, inter alia,
Which of the various plaintiffs are subject to the arbitration provisions of the Franchise Agreement has been a continuing source of dispute. See, e.g., Awuah v. Coverall N. Am., Inc. (Awuah I), 554 F.3d 7, 11-13 (1st Cir.2009) (where plaintiffs signed franchise agreements containing arbitration clauses, unconscionability of arbitration agreement should be decided by an arbitrator, but whether arbitration remedy is illusory should be decided by court). A class has been certified of franchisees who were not subject to arbitration, a portion of the much larger group of plaintiffs.
Appellees, who have been referred to as “Unbound Owners,”2 are a subgroup of the plaintiffs who became Coverall franchisees by signing Consent to Transfer Agreements, or Guaranties to Coverall Janitorial Franchise Agreements, which did not themselves contain arbitration clauses, but which by reference incorporated obligations under Franchise Agreements that did contain such clauses. These appellees never received copies of the Franchise Agreement, but there is no suggestion in the record that they ever asked for copies or were denied copies of this agreement.
On February 10, 2012, the district court determined, in the course of ruling on a motion to expand the class of plaintiffs who could proceed in district court, that these plaintiff-appellees did not have to arbitrate their claims against Coverall. That was because, in its view, as a matter of contract construction, they did not have adequate notice of the arbitration clauses contained in the Franchise Agreements and so were not obligated to arbitrate. See Awuah v. Coverall N. Am., Inc. (Awuah II), 843 F.Supp.2d 172 (D.Mass.2012).
We conclude that the district court erred. Massachusetts law, which governs this dispute, does not impose any such special notice requirement upon these commercial contractual provisions. Such a requirement, in any event, would be preempted by the Federal Arbitration Act (“FAA”),
I.
A. Agreements Between Coverall and the Plaintiffs
Many (but not all) of the plaintiffs signed Franchise Agreements with Coverall providing that, with certain exceptions not implicated here,
all controversies, disputes or claims between Coverall, its officers, directors, agents and/or employees (in their respective capacities) and Franchisee (and Franchisee’s owners, officers, directors and/or any guarantors of this Agreement) arising out of or related to the relationship of the parties, this Agreement, any related agreement between the parties, and/or any specification, standard or operating procedure of Coverall, including those set forth in the Coverall Policy and Procedure Manual, which controversies, disputes or claims are not resolved in accordance with Paragraph 20 [concerning informal dispute resolution], shall be submitted promptly for arbitration.
Thirty-one other plaintiffs, including the appellees here, became Coverall franchisees either by signing Consent to Transfer Agreements (“Transfer Agreements”) and Guaranties to Coverall Janitorial Franchise Agreements (“Guaranties”), or by signing only the latter Guaranties. The Franchise Agreements permitted franchisees to “assign this Agreement to a person (‘the assignee’) meeting the qualifications then established by Coverall for granting new franchises, provided: . . . (ii) the assignee enters into the franchise agreement then used by Coverall for granting new franchises[.]” These thirty-one plaintiffs, however, did not sign the Franchise Agreements. Moreover, sixteen of these plaintiff-appellees, the Unbound Owners, never received a copy of the Franchise Agreement, but did execute the Transfer Agreements and/or the Guaranties.
The Transfer Agreements were each signed by Coverall, the (prior) franchisee, and the transferee. The terms of the Transfer Agreements, by which these plaintiffs became franchisees, varied. Of the fifteen plaintiffs who signed Transfer Agreements but did not receive copies of the Franchise Agreement, four plaintiffs—Porfirio Aguilar, Marcelo Cardoso, Jose Santos, and Raimundo Lima—signed Transfer Agreements stating that
Transferee acknowledges that upon execution of the Guaranty as required by ¶ 11(A) of this Consent that Transferee shall become personally liable to Coverall for the amount stated in ¶ [7 or 9] of this Consent, and shall succeed to all of Franchisee’s rights and obligations under Franchisee’s Janitorial Franchise Agreement.
Another Unbound Owner, Givaldo Maltaroli, signed a Transfer Agreement which transferred to him only a 50% interest in a Coverall franchise, and provided that
Transferee further acknowledges that upon execution of the Guarantee as required by ¶ 11(A) of this Consent, that Transferee shall likewise become per-
sonally liable to Coverall for the amount stated in ¶ 6(C) of this Consent, and shall become liable with the Franchisee for all of the obligations imposed by the Janitorial Franchise Agreement.
Ten other Unbound Owners signed Transfer Agreements stating that
Transferee acknowledges that upon execution of the Guaranty as required by ¶ 1(A) of this Consent that Transferee shall become personally liable to Coverall for the amount stated in ¶ [6 or 8] of this Consent.
All sixteen plaintiffs who did not receive copies of the Franchise Agreement—including Marildo Eloi, who did not sign a Transfer Agreement or a Franchise Agreement3—signed Guaranties providing in part that
In consideration of, and as an inducement to Coverall North America, Inc. dba Coverall of . . . (“Coverall”), entering into a Janitorial Franchise Agreement (“the Agreement”) dated . . . with [plaintiff] (“Franchisee”), the undersigned (“the Guarantor(s)”) does hereby unconditionally guaranty, personally, the obligations of the Franchisee under the Agreement, as follows:
- Guarantor(s) jointly, severally and unconditionally guaranties to Coverall performance of all responsibilities, duties, indebtedness and obligations of the Franchisee under the Agreement, including, but not limited to (a) payment of any fees due under the Agreement, including, but not limited to, initial fee, royalties, management fees, assignment fees, interest or late fees, training fees (if any) and fees for products, supplies or services furnished by Coverall to Franchisee; (b) obligations to hold harmless, defend and indemnify Coverall and related parties; and (c) any and all advances, debts, obligations, notes and liabilities of the Franchisee incurred in connection with or as a result of the Agreement, previously, now, or hereafter made, incurred, or created, voluntary or involuntary and, however arising.
B. The District Court’s Certification of a Class
On September 22, 2011, the district court certified a class consisting of “all individuals who have owned a Coverall franchise and performed work for Coverall customers in Massachusetts at any time since February 15, 2004, who have not signed an arbitration agreement or had their claims previously adjudicated.” See Awuah II, 843 F.Supp.2d at 174. The effect of this was to separate out those franchisees who were not subject to arbitration “for the purposes of calculating the . . . damages for members of the class.” Status Conf. Tr. 3 (D. Mass. Sep. 22, 2011) (Civ. No. 07-10287).
On November 29, 2011, plaintiffs filed a motion for a court ruling on the scope of the class, arguing that “those who purchased their Coverall franchises through certain ‘Consent to Transfer’ agreements[3] that do not contain arbitration clauses” should be added to the class. Citing to federal cases brought under federal employment statutes, plaintiffs argued that “it is black-letter law in the First Circuit that an individual may not be bound to an arbitration clause if he does not have notice of it,” and that “Coverall . . . has not produced any evidence that the transferees were ever themselves shown the transferors’ franchise agreements or that they
On February 10, 2012, the district court granted plaintiffs’ motion in part and denied it in part. See Awuah II, 843 F.Supp.2d at 181-82. The court stated that “[t]he First Circuit has repeatedly held that an individual may not be bound to an arbitration clause if he does not have notice of it.” Id. at 179. As we discuss later, the cases that the court cited do not support that broad proposition. The court found that some of the transferee plaintiffs had received copies of the Franchise Agreement and therefore had notice of the arbitration clause. Id. at 180-81. With respect to “Transferees who signed the Consent to Transfer Agreements[4] and did not obtain a copy of Coverall’s Franchise Offering Circular,” the court concluded that “Coverall did not give the Transferees information sufficient to put a reasonably prudent employee on adequate notice of the agreement to arbitrate.” Id. at 180. The court expanded the class to include these new plaintiffs who had not been given copies of the Franchise Agreement, referred to in the documents they did receive. Id. at 181-82.
On February 23, 2012, Coverall filed a motion to stay proceedings as to the new class members pending arbitration pursuant to
II.
The FAA provides that “[a]n appeal may be taken from . . . an order . . . refusing a stay of any action under section 3 of this title[.]”
A. The Threshold Question of Arbitrability
The FAA provides that “upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.”
This case is different from the prior appeal to us in Awuah I, where a different group of plaintiffs conceded that they “had franchise agreements containing arbitration clauses,” and those arbitration clauses incorporated by reference rules delegating certain issues to the arbitrator. 554 F.3d at 9. In Awuah I, we held that the arbitrator should decide whether the arbitration clause was unconscionable, id. at 12, but that the court should determine whether the arbitration remedy in this case was illusory. Id. at 13. Here the district court was correct, as to this different group of plaintiffs, to address the “predecessor question of whether there was an agreement at all to arbitrate.” Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 19 (1st Cir.1999); see also Fantastic Sams Franchise Corp. v. FSRO Ass’n Ltd., 683 F.3d 18, 25 (1st Cir.2012) (“There is no dispute here that the district court, quite appropriately, first looked for whether there was a valid, contractual agreement to arbitrate.”). The question of whether the Unbound Owners assumed obligations under the arbitration clause of the Franchise Agreements is for the court. See McCarthy v. Azure, 22 F.3d 351, 354-55 (1st Cir.1994) (“[A] party seeking to substitute an arbitral forum for a judicial forum must show, at a bare minimum, that the protagonists have agreed to arbitrate some claims. . . . The federal policy presumes proof of a preexisting agreement to arbitrate disputes arising between the protagonists.”) (emphasis omitted). Nonetheless, the district court got the answer to the question wrong, as a matter of both state and federal law.
B. Incorporation by Reference of the Arbitration Clause
“When deciding whether the parties agreed under the FAA to arbitrate a certain matter, courts ‘generally . . . should apply ordinary state-law principles that govern the formation of contracts.’” Rosenberg, 170 F.3d at 19 (alteration in original) (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The district court determined, and the parties do not dispute, that Massachusetts law governs this controversy. See Awuah II, 843 F.Supp.2d at 175.
“‘[T]raditional principles’ of state law allow a contract to be enforced by or against nonparties to the contract through ‘assumption,5 piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel[6]. . . .’” Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009) (quoting 21 R. Lord, Williston on Con-
The Transfer Agreements, as we have described, do not all use the traditional language of “incorporating by reference” the arbitration clause of the Franchise Agreement. But no such magic terms are required. For some Transfer Agreements at issue, other language in the agreements clearly communicated the purpose of incorporating the arbitration clause. These agreements7 provided that the transferees “succeed to all of Franchisee’s rights and obligations under Franchisee’s Janitorial Franchise Agreement,” or “become liable with the Franchisee for all of the obligations imposed by the Janitorial Franchise Agreement.” Since the arbitration clause of the Franchise Agreement creates a right and an obligation to submit “all controversies, disputes or claims between Coverall . . . and Franchisee” for arbitration, these Transfer Agreements sufficiently incorporated by reference the arbitration clause.
Moreover, the Transfer Agreements are not the only pertinent documents executed by the parties. All of the Unbound Owners also signed Guaranties under which they “jointly, severally and unconditionally guarantie[d] to Coverall performance of all responsibilities, duties, indebtedness and obligations of the Franchisee under the [Franchise] Agreement” (emphasis added). By like reasoning, they incorporate the responsibilities, duties, and obligations with respect to arbitration.
Appellees argue, to the contrary, that:
This provision, which does not mention the arbitration clause, cannot suffice to bind these workers to arbitrate their claims with Coverall. Indeed, it is clear from the examples that the Guaranty provides of what these “responsibilities, duties, indebtedness and obligations” are that they all relate to the workers’ substantive obligations to pay money and/or otherwise be financially indebted to Coverall in exchange for cleaning work.
We disagree. “‘“All” means “all,” or if that is not clear, all, when used before a plural noun . . . means “[t]he entire or unabated amount or quantity of, the whole extent, substance, or compass of, the whole.”’” Instrument Indus. Trust ex rel. Roach v. Danaher Corp., No. 033960BLS, 2005 WL 3670416, at *6 (Mass.Super.Nov. 28, 2005) (quoting Hollinger, Inc. v. Hollinger Int’l, Inc., 858 A.2d 342, 377 (Del.Ch.2004)). Moreover, the Guaranties’ explicit references to “responsibilities,” “duties,” and “obligations” undercut appellees’ claim that the Guaranties only concerned “obligations to pay money.” Massachusetts case law leads to this result. See, e.g., Mass. Org. of State Eng’rs & Scientists v. Labor Relations Comm’n, 389 Mass. 920, 452 N.E.2d 1117, 1122 (1983) (discussing “duty to arbitrate”) (emphasis added); Norton v. Mass. Bay Transp. Auth., 369 Mass. 1, 336 N.E.2d 854, 855 (1975) (discussing “obligation to arbitrate”) (emphasis added). The Guaranties
At oral argument, appellees belatedly raised a new argument, citing Black’s Law Dictionary to support the proposition that “what the Guaranty says is, the franchisee has to do these things, but if the franchisee doesn’t do it, you’re on the hook.” This is too late, so the argument is waived, see United States v. Santiago-Pérez, 666 F.3d 57, 60 n. 6 (1st Cir.2012), but beyond that, it does not work. The Guaranties expressly identify the transferees as both the “Franchisees” and the “Guarantors.” Plaintiff-appellees are not just guarantors, they are also franchisees. They are like the other franchisees who signed the Franchise Agreement directly and it would be odd in these circumstances to treat the two groups differently. The Guaranties do not merely impose responsibilities upon transferees for the obligations of other persons.
C. The District Court’s Erroneous Adoption of a Special Heightened Notice Requirement for Such Commercial Arbitration Clauses
The district court’s reasoning essentially adopted the view that arbitration clauses cannot be enforced unless there is heightened notice to the party sought to be bound. It did not purport to find this heightened notice requirement in state law, but rather in a series of cases from this court, cases where the underlying claim was based, unlike here, on special provisions in federal employment statutes.
Appellees argue not only that they did not enter into the arbitration clause in the Franchise Agreement, but that “it would be unconscionable to bind [them] to an arbitration clause that they never even saw,” citing Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir.2007). Skirchak is clearly distinguishable from this case, since in Skirchak “the parties . . . affirmatively stated their intention that the court decide the unconscionability question[].” Id. at 56. There is no such agreement between the parties here. Instead, since we conclude that the Unbound Owners effectively entered into an arbitration agreement with Coverall, any claim of the unconscionability of this agreement is for the arbitrator, as in Awuah I. See 554 F.3d at 12.
In Massachusetts courts, it has long been the rule that “[t]ypically, one who signs a written agreement is bound by its terms whether he reads and understands them or not.” St. Fleur v. WPI Cable Sys./Mutron, 450 Mass. 345, 879 N.E.2d 27, 35 (2008); see also Haufler v. Zotos, 446 Mass. 489, 845 N.E.2d 322, 333 (2006); Cohen v. Santoianni, 330 Mass. 187, 112 N.E.2d 267, 271 (1953); Wilkisius v. Sheehan, 258 Mass. 240, 155 N.E. 5, 6 (1927); Atlas Shoe Co. v. Bloom, 209 Mass. 563, 95 N.E. 952, 953 (1911); Rice v. Dwight Mfg. Co., 56 Mass. 80, 2 Cush. 80, 87 (1848). Massachusetts law is explicit that it does not impose a special notice requirement upon agreements containing arbitration clauses. See St. Fleur, 879 N.E.2d at 34-35 (error to conclude that party “bore the risk of [counter-party’s] ignorance of the nature and contents of the arbitration agreement”).
Moreover, the FAA provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
In addition, the cases from which the district court purported to find a special notice requirement for these contracts do not impose such a requirement. To begin, the district court erred in consulting cases arising under federal law rather than Massachusetts law, which governs here. State law imposes no such heightened notice requirement upon contracts, including arbitration agreements. Moreover, two of the three cases from this court that the district court cited—McCarthy, 22 F.3d at 354-55, and Brennan v. King, 139 F.3d 258, 264 (1st Cir.1998)—stood not for the proposition that a special notice requirement applied to arbitration agreements, but only for the unremarkable principle that “a party seeking to substitute an arbitral forum for a judicial forum must show, at a bare minimum, that the protagonists have agreed to arbitrate some claims.” McCarthy, 22 F.3d at 354-55 (emphasis omitted); see also Brennan, 139 F.3d at 264 (quoting McCarthy, 22 F.3d at 354-55).
The district court also cited Campbell v. Gen. Dynamics Gov’t Sys. Corp., 407 F.3d 546 (1st Cir.2005), which involved claims of violation of federal statutes whose terms and language provide particular protections for claimants. Campbell concerns language in the ADA which provides that “[w]here appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including . . . arbitration, is encouraged to resolve disputes arising under this chapter.”
The Supreme Court Judicial Court of Massachusetts has reached the same conclusion that we do. It has stated that “[t]he Rosenberg court explicitly limited its holding to claims brought under Federal civil rights laws” and held that “the Rosenberg holding does not apply” in the absence of “the precise wording of Federal civil rights statutes.” St. Fleur, 879 N.E.2d at 35.
III.
We reverse the district court’s February 10, 2012 order granting plaintiffs’ motion for ruling on scope of class to the extent it expanded the class certified on September 22, 2011 to include the Unbound Owners, and its February 24, 2012 order denying Coverall’s motion to stay proceedings pending arbitration. We remand for further proceedings consistent with this opinion, including issuance of a stay of the Unbound Owners’ claims pending arbitration.
So ordered. No costs are awarded.