Grand Wireless, Inc. v. Verizon Wireless, Inc. , 748 F.3d 1 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1149
GRAND WIRELESS, INC.,
Plaintiff, Appellee,
v.
VERIZON WIRELESS, INC.; ERIN McCAHILL,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]
Before
Torruella, Ripple* and Thompson,
Circuit Judges.
Philip R. Sellinger, with whom David G. Thomas, Zachary C.
Kleinsasser, Todd L. Schleifstein and Greenberg Traurig, LLP were
on brief, for appellants.
Samuel Perkins, with whom Brody, Hardoon, Perkins & Kesten,
LLP was on brief, for appellee.
March 19, 2014
*
Of the Seventh Circuit, sitting by designation.
RIPPLE, Circuit Judge. Grand Wireless, Inc. (“Grand”)
brought this action in Massachusetts state court against Verizon
Wireless, Inc. (“Verizon”) and Verizon employee Erin McCahill. It
alleged a violation of the federal Racketeer Influenced and Corrupt
Organizations Act (“RICO”) against Ms. McCahill, as well as several
state law claims against both Ms. McCahill and Verizon. The
defendants removed the case to the United States District Court for
the District of Massachusetts and moved for an order compelling
arbitration of Grand’s claims. Grand opposed the motion. It
contended that the arbitration clause should be interpreted
narrowly and that, because Ms. McCahill was not a signatory to the
contract containing the arbitration clause, the claim against her
could not be arbitrated in this case. Adopting Grand’s memorandum
in opposition to the motion, the district court denied the
defendants’ motion to compel and also denied their subsequent
request for reconsideration.
The defendants timely appealed. They submit that Grand’s
claims were within the scope of the parties’ arbitration agreement
and that arbitration of the claims against Ms. McCahill is not
barred despite her status as a non-signatory of the arbitration
agreement. We agree and therefore reverse the judgment of the
district court and remand the case for further proceedings.
-2-
I
BACKGROUND
A. Facts
In September 2002, Grand and Verizon entered into an
Exclusive Authorized Agency Agreement for Commercial Mobile Radio
Service (“Agreement”). The Agreement authorized Grand to act as a
Verizon sales agent within a defined geographic area. The
Agreement governed the business relationship between Grand and
Verizon. It required Grand to provide services exclusively for
Verizon by offering customers Verizon services, such as sales,
installation, warranty service and equipment maintenance. The
Agreement also addressed the relationship between Grand, Verizon
and subscribers who purchased products and services through Grand.
On this point, the Agreement provided that subscriber lists were
“the exclusive confidential property of Verizon Wireless.”1 The
Agreement provided for an initial term of five years; at that
point, the Agreement would continue on a month-to-month basis,
terminable by either party on thirty days’ written notice to the
other.
The Agreement contained a provision entitled, “DISPUTE
RESOLUTION AND ARBITRATION.” It stated, in pertinent part:
Except to the extent explicitly provided
below, ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY PRIOR OR
1
R.20-1 ¶ 3.3.
-3-
FUTURE AGREEMENT BETWEEN THE PARTIES, SHALL BE
SETTLED BY ARBITRATION ADMINISTERED BY THE
AMERICAN ARBITRATION ASSOCIATION (“AAA”) IN
ACCORDANCE WITH THE WIRELESS INDUSTRY
ASSOCIATION (“WIA”) RULES OF THE AAA, AS
MODIFIED BELOW, AND JUDGMENT ON THE AWARD
RENDERED BY THE ARBITRATORS MAY BE ENTERED IN
ANY COURT HAVING JURISDICTION.[2]
The subsequent paragraphs explicitly stated that the disputes not
covered included several intellectual property issues, as well as
“[s]eeking to compel arbitration”;3 “[s]eeking to confirm or
challenge any arbitral award”;4 seeking judicial relief for
breaches of sections 3.3 and 7 of the Agreement; and seeking
emergency injunctive relief pending the appointment of arbitrators.
Provisions followed addressing the procedural aspects of commencing
and conducting arbitration.
There is no dispute that, under the Agreement, Grand
operated retail locations for Verizon products and services
beginning in 2002 until the five-year term expired in September
2007. The parties then continued their relationship on
a month-to-month basis until July 19, 2011, when Verizon notified
Grand of its intent to terminate the relationship. Verizon submits
that at Grand’s request, Verizon extended the termination date to
October 31, 2011, in order to “g[i]ve Grand additional time to
2
Id. ¶ 15.
3
Id. ¶ 15.2.1.
4
Id. ¶ 15.2.2.
-4-
attempt to sell certain of its stores to another Verizon Wireless
agent.”5
In October 2011, according to Grand’s complaint:
[Verizon] mailed an oversized (6” by 11”)
color postcard, featuring the picture of an
attractive young woman, to the customers of
eight remaining Grand Wireless stores,
proclaiming that these Grand Wireless stores
had “CLOSED.” The mailing provided the
customers with the address of the nearest
competing Verizon Wireless store.[6]
Grand further alleged that Ms. McCahill had “authorized the mailing
and knew when the mailing went out that it was false.”7 Grand
stated that it was, at the time of the mailing, in negotiations
with another wireless provider, T-Mobile, to become an authorized
T-Mobile agent. Further, Grand alleged that Ms. McCahill knew that
the mailing “would deal a body blow to Grand Wireless’ ability [to]
continue in business as a T[-]Mobile outlet” and that the mailing
“was a deliberate attempt to eliminate Grand Wireless as a
competitor to nearby Verizon stores.”8 Grand alleged that its
T-Mobile venture failed and that it has since ceased operations.
5
Appellants’ Br. 7. Grand does not dispute this
representation. See Appellee’s Br. 2.
6
R.15 at 17, ¶ 11.
7
Id. at 17, ¶ 12.
8
Id. at 17, ¶ 13.
-5-
B. Procedural History
Grand initially filed the present action in Massachusetts
state court. Its complaint alleged that Ms. McCahill had violated
RICO, 18 U.S.C. §§ 1961 et seq., by “engag[ing] in a fraudulent
scheme that used the United States mails to transmit false
representations that ‘GRAND WIRELESS . . . HAS CLOSED,’ in
violation of the federal mail fraud statute, 18 U.S.C. § 1341.”9
It further alleged that both Ms. McCahill and Verizon had violated
a Massachusetts statute prohibiting unfair and deceptive trade
practices. Finally, Grand alleged that both Ms. McCahill and
Verizon had committed the torts of injurious falsehoods and
intentional interference with an advantageous relationship.
The defendants removed the case to the district court,
where Verizon and Ms. McCahill moved to compel Grand to arbitrate
its claims. Grand opposed the motion for arbitration. It
submitted that the motion to compel arbitration should be denied
for two reasons: (1) that its claims fell outside of the scope of
the arbitration clause; and (2) that Ms. McCahill could not enforce
the arbitration clause because she was not a party to the
Agreement.
Before the deadline had passed for the defendants to file
their reply brief, the district court denied the motion to compel.
In ruling, the district court did not issue a written opinion;
9
Id. at 18, ¶¶ 16-17 (Count I).
-6-
instead, it simply issued an order stating, “Motion is denied. The
court adopts Plaintiff’s Memorandum. So ordered.”10 The defendants
moved for reconsideration. The district court denied their motion
in another order, stating, “Court has reconsidered Defendants’
Motion to Compel Arbitration and to Dismiss Complaint or stay
action pending arbitration and again denies same. So Ordered.”11
The defendants then brought this timely appeal.12
II
DISCUSSION
We have jurisdiction to review an order denying a motion
under the Federal Arbitration Act to compel arbitration. See 9
U.S.C. § 16(a)(1)(C). Our review of such a denial is de novo
because whether a matter is arbitrable is a matter of contract
interpretation, and contract interpretation is a matter of law.
Combined Energies v. CCI, Inc., 514 F.3d 168, 171 (1st Cir. 2008).
To compel arbitration, the defendants “must demonstrate that a
valid agreement to arbitrate exists, that the[y are] entitled to
invoke the arbitration clause, that the other party is bound by
that clause, and that the claim asserted comes within the clause’s
scope.” Soto-Fonalledas v. Ritz-Carlton San Juan Hotel Spa &
10
R.26.
11
R.29.
12
The district court stayed the proceedings pending
resolution of this appeal.
-7-
Casino, 640 F.3d 471, 474 (1st Cir. 2011) (internal quotation marks
omitted). Furthermore, as we also noted in Soto-Fonalledas:
Under Section 2 of the FAA, a written
provision in a contract “to settle by
arbitration a controversy thereafter arising
out of such contract . . . shall be valid,
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2.
The Supreme Court has stated that “the FAA was
designed to promote arbitration,” and that
“Section 2 embodies the national policy
favoring arbitration and places arbitration
agreements on equal footing with all other
contracts.”
Id. (quoting AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1749
(2011); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443
(2006)).
Here, the parties do not dispute the validity of the
Agreement’s arbitration clause. Instead, they dispute: (1) whether
Grand’s claims are within the scope of the arbitration clause; and
(2) whether Ms. McCahill is entitled to invoke the arbitration
clause. We address each contention in turn.
A. Scope of the Arbitration Clause
We first address whether Grand’s claims are within the
scope of the arbitration clause. Grand and Verizon agreed to
arbitrate “any controversy or claim arising out of or relating to”
their Agreement.13
13
R.20-1 ¶ 15. (These words appear in capital letters in the
Agreement. We have employed regular typeface here and in later
(continued...)
-8-
As we have noted earlier, the district court simply
adopted Grand’s memorandum. Therefore, the district court
necessarily took that document’s view that the Agreement’s
arbitration clause was narrow. Such a construction, according to
that memorandum, would limit application of the arbitration clause
to “battles over the Agency Agreement,” i.e., to claims that
require interpretation of the Agreement’s terms.14 The memorandum
also asserted that narrow arbitration clauses are not entitled to
a presumption of arbitrability.
In this appeal, Grand takes the same position that it did
in the district court. The defendants contend, however, that
Grand’s claims “relate to” the Agreement because they involve
matters that occurred during the course of the agency relationship.
Specifically, Grand’s claims concern Verizon’s right to contact
freely its customers and Verizon’s termination of its relationship
with Grand. The defendants also submit that the language of the
arbitration clause is broad, and therefore the dispute is entitled
to a presumption of arbitrability.
“Unless the parties clearly and unmistakably provide
otherwise,” AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S.
643, 649 (1986), the court must resolve a disagreement among the
13
(...continued)
uses of this quotation for readability.)
14
R.23 at 5-6.
-9-
parties as to whether an arbitration clause applies to a particular
dispute, Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct.
2847, 2857-58 (2010). “[A] court may order arbitration of a
particular dispute only where the court is satisfied that the
parties agreed to arbitrate that dispute.” Id. at 2856. “When
deciding whether the parties agreed to arbitrate a certain matter
. . . courts generally . . . should apply ordinary state-law
principles that govern the formation of contracts.” First Options
of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). We conduct our
analysis with the federal policy in favor of arbitration in mind,
such that, “as with any other contract, the parties’ intentions
control, but those intentions are generously construed as to issues
of arbitrability.” Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 626 (1985). “At a minimum, this
policy requires that ‘ambiguities as to the scope of the
arbitration clause itself [must be] resolved in favor of
arbitration.’” PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 15
(1st Cir. 2010) (alteration in original) (quoting Volt Info. Scis.,
Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468,
475-76 (1989)). This presumption in favor of arbitration applies
unless the party opposing arbitration rebuts it. Dialysis Access
Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 379 (1st Cir. 2011);
Paul Revere Variable Annuity Ins. Co. v. Kirschhofer, 226 F.3d 15,
25 (1st Cir. 2000) (“It is true that, generally speaking, the
-10-
presumption in favor of arbitration applies to the resolution of
scope questions.”).
To determine whether Grand’s claims fall within the scope
of the arbitration clause, “we focus on the factual allegations
underlying [the] claims in the [c]omplaint.” Dialysis Access Ctr.,
LLC, 638 F.3d at 378. Grand alleged that Verizon’s “false and
deliberate misrepresentation to Grand Wireless customers that Grand
Wireless had ceased to do business” harmed Grand.15 Grand made
factual allegations regarding Verizon’s termination of its
relationship with Grand. The complaint described the customer
mailing and Grand’s belief that Verizon and Ms. McCahill knew that
the mailing contained false information yet authorized its
distribution in order to harm Grand in “a deliberate attempt to
eliminate Grand Wireless as a competitor.”16
Based on the allegations in Grand’s complaint, resolution
of this dispute will entail determining, at least, the status of
Grand and Verizon’s relationship as of October 2011, whether the
customers contacted by Verizon were customers of Grand, the extent
of Verizon’s knowledge regarding Grand’s transition of business to
T-Mobile, and whether Grand’s stores were, in fact, closed at the
time of Verizon’s mailing. These factual issues relate to the
terms of the Agreement or, at a minimum, to the relationship
15
R.15 at 13.
16
Id. at 17, ¶ 13.
-11-
established between Grand and Verizon under the Agreement. Grand’s
allegations about Verizon’s termination of their business
relationship may implicate extensive portions of the Agreement
concerning termination. Other allegations may require
consideration of the portions of the Agreement regarding Verizon’s
rights with respect to customers obtained by Grand. Given that a
number of factual disputes arising from Grand’s claims likely will
have to be resolved by reference to the Agreement, it is clear that
Grand’s claims “arise out of or relate to” the Agreement and
therefore fall within the scope of the arbitration clause.
Even were we less sure of the arbitration clause’s
applicability to Grand’s claims, we would apply the presumption of
arbitrability here. See Kirschhofer, 226 F.3d at 25 (holding that
the presumption of arbitrability is applied to scope questions that
arise “when the parties have a contract that provides for
arbitration of some issues and it is unclear whether a specific
dispute falls within that contract” (internal quotation marks
omitted)). This presumption is particularly appropriate where, as
here, the arbitration clause is broadly worded. AT&T Techs., 475
U.S. at 650; see also Granite Rock, 130 S. Ct. at 2858
(characterizing an arbitration clause that covered “[a]ny claim,
dispute, or controversy . . . arising from or relating to . . . the
validity, enforceability, or scope of . . . the entire Agreement”
as broad (emphasis added) (internal quotation marks omitted)). “An
-12-
order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers the
asserted dispute. Doubts should be resolved in favor of coverage.”
United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363
U.S. 574, 582-83 (1960). Thus, where the language of an
arbitration clause is broad and “‘[i]n the absence of any express
provision excluding a particular grievance from arbitration, we
think only the most forceful evidence of a purpose to exclude the
claim from arbitration can prevail.’” AT&T Techs., 475 U.S. at 650
(quoting Warrior & Gulf, 363 U.S. at 584-85).
Grand presents us with no such “forceful evidence” to
rebut the presumption of arbitration. Instead, it asks us to apply
“conventional contract interpretation.”17 In its view, the language
“arising out of or relating to this agreement . . . unambiguously
limits the scope of arbitrable claims to those [situations] which
depend for resolution on interpreting or applying some provision of
the Agency Agreement.”18 Because “no provision of the Agency
Agreement controls, is implicated, needs to be read or sheds any
light on the adjudication of Grand’s mail fraud claim,” Grand
17
Appellee’s Br. 14.
18
Id. at 4 (internal quotation marks omitted).
-13-
submits, its claims are not within the scope of the arbitration
clause.19
We cannot accept Grand’s view. As we discussed
previously, resolution of some of the issues raised by Grand’s
claims may well require resort to the Agreement. Moreover, Grand’s
attempt at rebutting the presumption of arbitrability needed to
show that the parties intended to exclude this type of dispute from
the scope of the arbitration clause, see AT&T Techs., 475 U.S. at
650, not merely that the arbitration clause lacked explicit
language covering Grand’s claims. Contrary to Grand’s view, where
arbitration clauses included broad language requiring arbitration
of disputes “arising out of or relating to” parties’ contracts,
courts have found arbitration appropriate on a variety of claims
similar to those presented here. See, e.g., Shearson/Am. Express,
Inc. v. McMahon, 482 U.S. 220, 223, 241-42 (1987) (holding that
parties could be compelled to arbitrate RICO claims relating to,
inter alia, making false statements and omitting material facts
where brokerage agreement stated, “any controversy arising out of
or relating to my accounts, to transactions with you for me or to
this agreement or the breach thereof, shall be settled by
arbitration” (internal quotation marks omitted)); cf., e.g.,
Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386,
387-88, 391 (1st Cir. 1993) (holding that defendant’s Massachusetts
19
Id. at 14.
-14-
unfair and deceptive trade practices counterclaim was subject to
arbitration where clause covered “[a]ll claims, disputes and other
matters in question arising out of, or relating to this Agreement
or the breach thereof”).
In sum, in adopting Grand’s memorandum in opposition to
the defendants’ motion to compel arbitration, the district court
approved Grand’s statement that “Verizon unambiguously restricted
the arbitration clause to battles over the Agency Agreement,” and,
therefore, the presumption of arbitrability would not enter into
play.20 This conclusion is unsupported by the case law and the
facts of this case. The broad language of the arbitration clause
presented here encompasses the dispute described in Grand’s
complaint.
B. Ms. McCahill’s Ability to Invoke the Arbitration Clause
The allegations against Ms. McCahill arise out of actions
that she allegedly took as part of her employment by Verizon. She
therefore wants to avail herself of the arbitration clause in the
Agreement signed by her employer, Verizon. The district court, by
adopting Grand’s memorandum, must be understood to have ruled that
the claims against Ms. McCahill are not covered by the arbitration
clause because she was not a party to the Agreement and because the
arbitration clause does not call specifically for arbitrating
disputes with individual employees. Verizon and Ms. McCahill now
20
R.23 at 5-6.
-15-
challenge this determination. They take the view that, because
Ms. McCahill was acting as an agent of Verizon and the claims
against her “relate solely to her performance as an employee,” she
is entitled to invoke the arbitration clause.21
In order to compel arbitration of the claims against her,
Ms. McCahill must establish that she is “entitled to invoke the
arbitration clause.” Soto-Fonalledas, 640 F.3d at 474 (internal
quotation marks omitted). “[T]he FAA does not require parties to
arbitrate when they have not agreed to do so . . . .” Volt Info.
Scis., 489 U.S. at 478. “[N]or does it prevent parties who do
agree to arbitrate from excluding certain claims from the scope of
their arbitration agreement.” Id. We recognize that, of course,
as a general proposition, a contract cannot bind a non-party. We
also recognize, however, that “there are exceptions allowing non-
signatories to compel arbitration” and that “[a] non-signatory may
be bound by or acquire rights under an arbitration agreement under
ordinary state-law principles of agency or contract.” Restoration
Pres. Masonry, Inc. v. Grove Eur. Ltd., 325 F.3d 54, 62 n.2 (1st
Cir. 2003).22
21
Appellants’ Br. 24.
22
Our decision in Restoration Preservation Masonry, Inc.
v. Grove Europe Ltd., 325 F.3d 54, 62 n.2 (1st Cir. 2003), cites
with approval cases from other circuits acknowledging that
non-signatories may have rights under an arbitration contract under
certain circumstances. See id. (citing Grigson v. Creative Artists
Agency, 210 F.3d 524, 527 (5th Cir. 2000); Sunkist Soft Drinks,
Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993),
-16-
Grand’s complaint makes clear that Ms. McCahill’s alleged
actions were taken in her capacity as Verizon’s agent or employee.
She allegedly mailed (or directed to have mailed) postcards to the
company’s customers while she was employed for the company and in
furtherance of company business. These allegations form the sole
basis of liability against Verizon and against Ms. McCahill.
Grand, in naming Ms. McCahill in its complaint, identified her as
“Director of Indirect Communication, Erin McCahill.”23 It further
suggested that it was suing Ms. McCahill in her capacity as a
Verizon agent when it stated that its claims were against
Ms. McCahill “and all other [Verizon] executives who aided and
abetted her in issuing the mailed announcements.”24
Grand puts forward but one argument as to why
Ms. McCahill cannot invoke the arbitration clause: that the mention
of employees in certain parts of the Agreement, combined with the
lack of mention of employees in the arbitration clause, makes clear
that the parties never agreed that claims against employees--even
abrogated by Lawson v. Life of the S. Ins. Co., 648 F.3d 1166, 1171
(11th Cir. 2011); Hughes Masonry Co. v. Greater Clark Cnty. Sch.
Bldg. Corp., 659 F.2d 836, 841 n.9 (7th Cir. 1981)). Additionally,
in Sourcing Unlimited, Inc. v. Asimco International, Inc., we noted
that “[c]ourts routinely recognize that arbitration agreements may
require arbitration even where all parties to the dispute did not
sign the arbitration agreement.” 526 F.3d 38, 46 n.8 (1st Cir.
2008) (citing Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d
682, 687 (7th Cir. 2005)).
23
R.15 at 13.
24
Id. at 18, ¶ 16.
-17-
those sued for actions taken within the scope of their
employment--could avail themselves of the arbitration agreement.
Evaluating Grand’s contentions requires us to apply New York State
law, which governs the interpretation of the contract. New York
State requires that the contract be construed according to its
plain meaning. MHR Capital Partners LP v. Presstek, Inc., 912
N.E.2d 43, 47 (N.Y. 2009). It permits the court to regard the
plain wording of the instrument as well as its structure to
ascertain that plain meaning. Niagara Frontier Transp. Auth. v.
Euro-United Corp., 757 N.Y.S.2d 174, 176 (App. Div. 2003).
We have examined the Agreement from stem to stern, both
with respect to its wording and with respect to its structure. We
see no basis for Grand’s assertion. In the contract, the parties
do refer to employees in other contexts, such as ensuring that
employees of Grand are not considered the employees of Verizon.
Given the nature of the relationship established by the contract
between the two companies, it is not at all surprising that this
consideration would be the focus of special attention in the text
of the agreement. The remaining references are likewise in areas
where specific reference to employees would be expected. We fail
to see how such references and the absence of an explicit reference
to employees in the arbitration clause in any way evince an intent
on the part of the parties to bar employees, acting in the scope of
-18-
their employment, from the protection of the arbitration clause
adopted by their employer.
Verizon and Grand certainly wished to have their disputes
settled by arbitration. Since Verizon could operate only through
the actions of its employees, it would have made little sense to
have agreed to arbitrate if the employees could be sued separately
without regard to the arbitration clause. Notably, contrary to
Grand’s assertion, the arbitration clause is written in broad
language to encompass “any controversy or claim arising out of or
relating to” the Agreement. Moreover, the parties entered into
this agreement knowing that the legal landscape recognized the
right of employees to seek the protection of their employers’
arbitration clauses.
Indeed, a number of our sister circuits have addressed
this issue, and all have held that an agent is entitled to the
protection of her principal’s arbitration clause when the claims
against her are based on her conduct as an agent.25 When the
non-signatory party is an employee of the signatory corporation and
the underlying action in the dispute was undertaken in the course
of the employee’s employment, these circuits have fashioned,
25
See, e.g., Pritzker v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 7 F.3d 1110, 1121 (3d Cir. 1993); Roby v. Corp. of
Lloyd’s, 996 F.2d 1353, 1360 (2d Cir. 1993); Arnold v. Arnold
Corp.-Printed Commc’ns for Bus., 920 F.2d 1269, 1281-82 (6th Cir.
1990); Letizia v. Prudential Bache Secs., Inc., 802 F.2d 1185,
1187-88 (9th Cir. 1986).
-19-
uniformly, a federal rule designed to protect the federal policy
favoring arbitration. That rule, founded on general state law
principles of agency, is that when “a principal is bound under the
terms of a valid arbitration clause, its agents, employees, and
representatives are also covered under the terms of such
agreements.” Pritzker v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 7 F.3d 1110, 1121 (3d Cir. 1993). Such a rule is necessary,
our sister circuits have reasoned, because a corporate entity or
other business can only operate through its employees and an
arbitration agreement would be a meaningless arrangement if its
terms did not extend to them. See id. at 1122. Any other rule, in
the view of these courts, would permit the party bringing the
complaint to avoid the practical consequences of having signed an
agreement to arbitrate; naming the other party’s officers,
directors or employees as defendants along with the corporation
would absolve the party of all obligations to arbitrate. See,
e.g., Arnold v. Arnold Corp.-Printed Commc’ns for Bus., 920 F.2d
1269, 1281 (6th Cir. 1990). Indeed, long before the signing of the
contract in this case, our circuit, although not elaborating the
rule or the reasons for it, had expressed its approval of the rule.
Hilti, Inc. v. Oldach, 392 F.2d 368, 369 n.2 (1st Cir. 1968) (“If
arbitration defenses could be foreclosed simply by adding as a
defendant a person not a party to an arbitration agreement, the
utility of such agreements would be seriously compromised.”).
-20-
Notably, the highest court of New York State, the state whose law
generally governs this contract in the absence of any federal
preemption, has taken the view that the need to respect the basic
policy of the FAA--the protection of the agreement to arbitrate--
requires the use of the federal rule articulated by these circuits.
See Hirschfeld Prods., Inc. v. Mirvish, 673 N.E.2d 1232, 1233 (N.Y.
1996).
The Supreme Court’s decision in Arthur Andersen LLP
v. Carlisle, 556 U.S. 624 (2009), calls into some question the
propriety of relying on a rule based on federal law in this
situation. In that case, Carlisle and his associates had consulted
with the accounting firm Arthur Andersen LLP about minimizing their
tax liability. Id. at 626. On the basis of that consultation,
Carlisle entered into management contracts with Bricolage Capital,
LLC. Id. These management contracts contained arbitration
clauses. Id. After the Internal Revenue Service determined that
the tax strategy was illegal, Carlisle and his associates filed a
diversity action against Arthur Andersen, Bricolage and others.
Id. at 626-27. Claiming that equitable estoppel required Carlisle
and his associates to arbitrate these claims under the agreements
with Bricolage, Arthur Andersen sought a stay of the diversity
action pending arbitration. Id. at 627. In the course of its
decision, the Supreme Court wrote:
Because “traditional principles” of state law
allow a contract to be enforced by or against
-21-
nonparties to the contract through
“assumption, piercing the corporate veil,
alter ego, incorporation by reference,
third-party beneficiary theories, waiver and
estoppel,” the Sixth Circuit’s holding that
nonparties to a contract are categorically
barred from § 3 relief was error.
Id. at 631 (emphasis added) (quoting 21 Richard A. Lord, Williston
on Contracts § 57:19, at 183 (4th ed. 2001)).
Carlisle holds that, at least as a general principle,
state law governs the inquiry as to whether a non-party to an
arbitration agreement can assert the protection of the agreement.26
See id. at 630-32; Lawson v. Life of the S. Ins. Co., 648 F.3d
1166, 1170-71 (11th Cir. 2011). Carlisle leaves unclear, however,
whether the Court intended to disturb the uniform body of precedent
in the courts of appeals, which we just have examined, holding that
a uniform federal rule is required with respect to the amenability
26
The text of Arthur Andersen LLP v. Carlisle, 556 U.S. 624
(2009), leaves somewhat unclear, however, whether, in determining
the amenability of a non-signatory party to an arbitration clause,
a court must consult general principles of state contract law or
the precise law of the state whose law governs the contract. As we
just have noted, the Court at one point speaks in terms of
traditional principles of contract law, id. at 631, but at another,
it speaks in terms of “the relevant state contract law,” id. at
632. We have chosen to interpret Carlisle as requiring reference
to the provisions of the applicable state law. See Awuah v.
Coverall N. Am., Inc., 703 F.3d 36, 42-43 (1st Cir. 2012) (applying
Massachusetts law). In this respect, we have viewed Carlisle as
simply following the general proposition that in “deciding whether
an agreement to arbitrate is to be enforced, we normally apply
ordinary state-law principles that govern the formation of
contracts, including validity, revocability, and enforceability of
contracts.” Bezio v. Draeger, 737 F.3d 819, 822-23 (1st Cir.
2013); see also First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, 944 (1995).
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of employees acting within the scope of their employment to the
arbitration clauses in their employers’ contracts. As we have
noted earlier, the cases requiring that the employees of a company
be bound by the arbitration agreements of their employers are based
on the specific rationale that such a rule is necessary to protect
the federal policy embodied in the FAA of favoring arbitration.
Without it, according to the rationale of those cases, a party
could frustrate an arbitration clause by simply naming employees as
party defendants along with the signatory company in a judicial
action. Nothing in Carlisle specifically disapproves the
fashioning of federal law to avoid this specific abuse. Notably,
at one point in Carlisle, the Court seemingly limited the scope of
its holding; it wrote:
We have said many times that federal law
requires that “questions of arbitrability
. . . be addressed with a healthy regard for
the federal policy favoring arbitration.”
Whatever the meaning of this vague
prescription, it cannot possibly require the
disregard of state law permitting arbitration
by or against nonparties to the written
arbitration agreement.
556 U.S. at 630 n.5 (quoting Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24–25 (1983)). Moreover, as we have
just noted, in Carlisle, the Court specifically noted that the
state law in that case permitted arbitration and was therefore
compatible with and, indeed, supportive of the federal policy
embodied in the FAA. See id.
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We need not decide definitively whether Carlisle has
abrogated this specific line of federal cases. Even if the Supreme
Court’s decision in Carlisle does signal the abrogation of the
principle that, as a matter of federal law, the employees of a
signatory of an arbitration agreement are protected by the
agreement, Grand has not suggested any principle of New York law
that impedes the interpretation of the agreement to protect the
employee under the contract.27 It relies solely on the text of the
contract--a text that does not support the illogical and
impractical vision that an employee who acts solely within the
scope of her employment is not protected by her employer’s
arbitration clause.
Conclusion
The district court incorrectly denied the motion by
Verizon and Ms. McCahill to compel Grand to arbitrate its claims
against them. Accordingly, we reverse and remand to the district
court for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
27
As we noted earlier, before the advent of Carlisle, the
courts of New York State had recognized, emphatically, the need for
a uniform federal rule to govern whether an agent is amenable to
the arbitration agreement of a principal. See Hirschfeld Prods.,
Inc. v. Mirvish, 673 N.E.2d 1232, 1233 (N.Y. 1996). There is no
indication, and Grand does not suggest, that New York State would
choose a different, and unique, rule to the contrary if it were to
determine, in the wake of Carlisle, that a federal rule was no
longer applicable.
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