Awuah v. Coverall N. Am., Inc.

703 F.3d 36

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.

Norman M. Leon, with whom Michael D. Vhay, Matthew J. Iverson, and DLA Piper LLP were on brief, for appellant.

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 litigation ¹ 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, Mass. Gen. Laws ch. 149, § 148.

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). Coverall has appealed this determination and the court's refusal to stay proceedings as to these plaintiff-appellees pending arbitration.

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”), 9 U.S.C. § 1, et seq., which requires courts to place such arbitral agreements upon the same footing as other contracts.

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 ¶ 1(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 ¶ 1(A) of this Consent, that Transferee shall likewise become personallyliable 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 Agreement—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:

1. 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 were in any other way informed about the existence of an arbitration clause.” Coverall responded that “[p]laintiffs' assertion that some specific level of notice is required before the Transferee–Owners may be bound by their agreements to arbitrate is contrary to settled law.”

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...