January 14, 2013
First Circuit Rules that Janitor "Franchisees" Must Arbitrate Their Claims
Coverall North American (Coverall) contracts to provide janitorial clearning services to building owners or oeprators. The people who do the clearning, a/k/a janitors, are falled "franchisees." These franchisees sued Coverall alleging state law claims, including breach of contract. The case was before the First Circuit on the issue of which franchisees were subject to arbitration provisions in the Franchise Agreements. The District Court certified a class consisting of plaintiffs not subject to the arbitration provisions and then later expanded the class to include the plaintiffs in Awuah v. Corvall North America, Inc., (Awuah Plaintiffs) who were not party to the original Franchise Agreements containing the arbitration provisions but signed other agreements that incorporated those provisions by reference. The District Court found that the incorporation by reference did not give the Awuah Plaintiffs sufficient notice of their obligation to arbitrate to those plaintiffs who never were given a copy of the documents incorporated by reference.
The District Court's expansion of the class was predicated on its reading of First Circuit precedent providing that a party cannot be bound by an arbitration clause of which she has no notice, and the First Circuit reversed of the District Court's ruling because it disagreed with that reading of the case law. The District Court was correct in finding that, while the unconscionability of an arbitration clauses can be decided by an arbitrator, the question of whether there was an arbitration agreement at all must be decided by a court. However, the First Circuit concluded, while the District Court asked the right question, it provided the wrong answer.
Massachusetts law requires no magic language to effect an incorporation by reference so long as the intent to do so is clear, and the First Circuit found that the various agreements to which the Awuah Plaintiffs are parties all clearly incorporated the Franchise Agreements and their aribtration provisions. The District Court also erred in its reading of federal law, importing from the realm of employment law a general heightened notice requirement that it applied to all arbitration provisions. No such general requirement exists and even if some state law provision imposed a heightened notice rule, that rule would be pre-empted by the Federal Arbitration Act, according to both AT&T Mobility v. Concepcion and Nitro-Lift Tech. v. Howard.
The First Circuit reversed the District Court's expansion of the class to include teh Awuah Plaintiffs and ordered their claims stayed pending arbitration.
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