Derivative Sovereign Immunity Claim Fails in the First Circuit

By Sombrillaazul - Own work, CC BY-SA 3.0

In October, 2020, a group of au pairs sued Cultural Care, Inc. (Cultural Care), a company that places foreign nationals as au pairs with US host families. The allegations are about what you would expect -- violations of the Federal Labor Standards Act (FLSA), various state wage and overtime laws, and deceptive trade practices. Cultural Care responded that all claims against it are barred under the derivative sovereign immunity doctrine articulated in Yearsley v. W.A. Ross Construction Company, 309 U.S. 18 (1940). In that case, SCOTUS held that "there is no ground for holding [an] agent [of the Government] liable" for actions "authorized and directed" by the Government and taken "under" Government "authority" that has been "validly conferred." 

In August, 2021, the District Court rejected that argument, while dismissing some state law claims for lack of standing. Cultural Care brought an interlocutory appeal on the Yearsley issue and tried to bring others under pendant appellate jurisdiction. The resolution of the interlocutory appeal has turned out to be quite complicated, involving a request that the U.S. Department of State weigh in and two different First Circuit panels.

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In April 2023, Posada v. Cultural Care, Inc., the First Circuit affirmed the decision of the District Court as to Yearsley and found that it had no jurisdiction to hear anything else on an interlocutory appeal. Cultural Care's next move was a motion to compel arbitration.  Meanwhile, nearly 8000 individuals have joined the class making FLSA claims. The District Court denied that motion in February, 2024 on multiple grounds in Posada v. Cultural Care, Inc.

Some of Cultural Care's arguments seem to border on the frivolous. The arbitration agreement dates from 2023. None of the named plaintiffs signed it, and Cultural Care has submitted no evidence that any individuals who have opted into the suit have signed it. To the extent that Cultural Care moved to compel arbitration based on the 2023 agreement, its motion was denied without prejudice should Cultural Care be able to name individuals in the opt-in group to whom it would apply.

The District Court rejected more decisively Cultural Care's claim that plaintiffs were obligated to arbitrate in Switzerland because of a arbitration agreement they signed with a related company, International Care. Three years into the litigation, there is a strong presumption that Cultural Care has waived any right to arbitrate. Given that Cultural Care set out with gusto to have the case dismissed by a federal court, the District Court found the right to arbitrate waived. 

Even if that were not the case, Cultural Care is not a party to any arbitration agreement with plaintiffs. It argues either that it should have rights under the arbitration agreement between International Care and plaintiffs as a third party beneficiary or by reason of estoppel.  Under Massachusetts law, a third party beneficiary must present clear and definite evidence of the parties' intent that it benefit from the provision. Cultural Care could not meet that standard. 

The estoppel claim is once again borderline frivolous. Under Massachusetts law, "a nonsignatory may compel arbitration against a signatory where that signatory (1) “must rely on the terms of the written agreement in asserting its claims against the nonsignatory”; or (2) “raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more signatories to the contract.” Cultural Care relies on the first argument, but the contract with International Care does not set out the terms of plaintiffs' employment by Cultural Care. In any case, plaintiffs bring only statutory claims, so they are not relying "on the terms of the written agreement in asserting [their] claims against the nonsignatory."

Motion to compel denied. Cultural Care has appealed, and the appeal has not yet been decided.  Plaintiffs are going to be old enough to need their own au pairs by the time any court rules on the merits of their claims.  We are well into justice delayed is justice denied territory.  If some court eventually rules that plaintiffs are entitled to some recovery, I hope there is some entity still  in existence that can pay them, and not just the attorneys.