Hogan v. SPAR Group, Inc. ( 2019 )

United States Court of Appeals
For the First Circuit
No. 18-1286
PARADISE HOGAN,
on behalf of himself and all others similarly situated,
Plaintiff, Appellee,
v.
SPAR GROUP, INC.,
Defendant, Appellant,
SPAR BUSINESS SERVICES, INC.,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. District Judge]
Before
Torruella, Kayatta, and Barron,
Circuit Judges.
James M. Nicholas, with whom Jillian M. Collins and Foley &
Lardner LLP were on brief, for appellant.
Brook S. Lane, with whom Hillary Schwab and Fair Work, P.C.
were on brief, for appellee.
January 25, 2019
TORRUELLA, Circuit Judge. SPAR Group, Inc. ("SPAR")
appeals from the district court's denial of its motion to compel
arbitration. SPAR, a retail services provider, obtains most of
its personnel from a staffing company named SPAR Business Services,
Inc. ("SBS"). SBS engaged plaintiff-appellee Paradise Hogan
("Hogan") as an independent contractor and assigned him to perform
services for SPAR. Hogan and SBS entered into an "Independent
Contractor Master Agreement" to which SPAR was not a party.
Subsequently, Hogan sued SBS and SPAR, and both sought to compel
arbitration invoking an arbitration clause in the Independent
Contractor Master Agreement. The district court compelled
arbitration as to Hogan's claims against SBS, but found that SPAR
had no legal basis to compel Hogan to arbitration.
SPAR appealed, pressing two alternate theories for why
it can compel Hogan to arbitrate despite not being a party to the
agreement containing the arbitration clause. A review of the
facts here mandates the conclusion that "the obvious bar to
arbitrability is the abecedarian tenet that a party cannot be
forced to arbitrate if it has not agreed to do so." InterGen N.V.
v. Grina, 344 F.3d 134, 137 (1st Cir. 2003). We affirm.
I. Background
Because SPAR's request "to compel arbitration was made
in connection with a motion to dismiss or stay, we draw the
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relevant facts from the operative complaint and the documents
submitted to the district court in support of the motion to compel
arbitration." Cullinane v. Uber Techs., Inc., 893 F.3d 53, 55
(1st Cir. 2018).
A. Factual Background
SBS is a staffing company that provides personnel to
various retail services providers, including SPAR. SPAR executes
field merchandising, auditing, and assembly services for retailers
through personnel referred to as "Field Specialists,"
substantially all of whom are supplied by SBS. SBS is
"affiliate[d]" to SPAR "but is not a subsidiary of or controlled
by SPAR."1 SBS classifies the Field Specialists it provides to
SPAR as independent contractors.
Paradise Hogan entered into an "Independent Contractor
Master Agreement" (the "Master Agreement") with SBS, which SBS
requires all Field Specialists to sign.2 Paragraph twenty of the
1 The Amended Complaint does not specify the exact relationship
between SBS and Spar.
2 The Agreement reflects an "[e]lectronic [a]cceptance by
Independent Contractor" on April 19, 2016. Yet, the Amended
Complaint states that SBS assigned Hogan to work for Spar "in or
about May 2015" and that the Agreement was signed "[p]rior to
commencing his employment with SBS and SPAR." In any case, the
inconsistency is not material to the controversies at issue here.
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Master Agreement requires its parties to resolve disputes through
arbitration:
Any dispute between the Parties relating to this
Master Agreement or otherwise arising out of their
relationship under its terms, including but not
limited to any disputes over rights provided by
federal, state, or local statutes, regulations,
ordinances, and/or common law, shall be determined by
arbitration. . . . The Parties acknowledge the Master
Agreement evidences a transaction involving
interstate commerce, and the arbitration shall be
governed by the United States Federal Arbitration Act
(9 U.S.C., Sections 1-16) ("FAA").
Paragraph twenty of the Master Agreement also states that "[t]he
Parties agree that any claim shall be brought solely in the
individual capacity of SBS or the Independent Contractor, and not
as a representative of any other persons or any class." SPAR is
not a party to the Master Agreement.
In or about May 2015, SBS assigned Hogan to perform Field
Specialist duties for SPAR. Neither SBS nor SPAR reimbursed Hogan
or other Field Specialists for costs or expenses incurred in the
performance of their assignments. While SBS required Hogan and
other Field Specialists to acquire general liability and workers'
compensation insurance, neither SBS nor SPAR paid for or
contributed to these expenses. Hogan's regular hourly rate for
performing services as a Field Specialist was minimum wage.
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B. Procedural Background
On January 6, 2017, Hogan filed a putative class action
complaint against both SBS and SPAR essentially alleging that they
misclassified him and other Field Specialists as independent
contractors rather than employees, such that they avoid paying
mandated expenses and cause them to earn less than minimum wage.
Hogan asserted various causes of action, including breach of
contract, unjust enrichment, and violations to the Fair Labor
Standards Act and Massachusetts wage and hour statutes.
On May 2, 2017, after SBS and SPAR moved to compel
arbitration or dismiss for failure to state a claim, Hogan
requested to amend the complaint to "narrow the scope of his
claims." The district court allowed Hogan's request and denied
as moot defendants' motion to compel arbitration. On May 17,
2017, Hogan filed "Plaintiff's First Amended Class Action
Complaint and Demand for Jury Trial" (the "Amended Complaint"),
abandoning all but his claims pursuant to the Massachusetts Wage
Act, Mass. Gen. Laws ch. 149, §§ 148, 150, and the Massachusetts
Independent Contractor Statute, Mass. Gen. Laws ch. 149, § 148B.
In response, SBS and SPAR renewed their request to compel
arbitration. In essence, they argued that both were shielded by
the Master Agreement's arbitration provision (although SPAR was
not a signatory) and that Hogan's consent to waive class and
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representative actions was valid and enforceable. In the
alternative, they moved to dismiss the Amended Complaint under
Fed. R. Civ. P. 12(b)(6).
On March 12, 2018, the district court denied the motion
to compel arbitration as to SPAR, finding that it had no legal
basis to compel Hogan to arbitration. As to SBS, the district
court noted that Hogan was not contesting that his claims were
subject to arbitration, but rather that the court was barred from
enforcing the arbitration agreement pursuant to the National Labor
Relations Act because it precluded him from pursuing class remedies
in legal proceedings. Because a similar issue was before the U.S.
Supreme Court at the time, the district court stayed Hogan's case
as to SBS to await the ruling in Lewis v. Epic Sys. Corp., 823
F.3d 1147 (7th Cir. 2016), cert. granted, 137 S. Ct. 809 (2017).
Finally, the district court denied the Fed. R. Civ. P. 12(b)(6)
dismissal request. On April 4, 2018, SPAR filed a notice of appeal.3
After SPAR filed its notice of appeal, the Supreme Court
decided in Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1632 (2018),
that employees' arbitration agreements waiving class and
3 Although generally, interlocutory orders are not immediately
appealable, see 28 U.S.C. § 1291, the Federal Arbitration Act
creates an exception for orders denying petitions to compel
arbitration, see 9 U.S.C. § 16(a)(1)(B). Campbell v. Gen.
Dynamics Gov't Sys. Corp., 407 F.3d 546, 550 (1st Cir. 2005) (so
noting).
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collective action procedures are enforceable, as pertinent here.
In response, the district court dismissed Hogan's claims against
SBS, compelling arbitration of those claims.
II. Analysis
"We review de novo a district court's interpretation of
an arbitration agreement and its decision regarding whether or not
to compel arbitration." Ouadani v. TF Final Mile LLC, 876 F.3d
31, 36 (1st Cir. 2017) (citing S. Bay Bos. Mgmt. v. Unite Here,
Local 26, 587 F.3d 35, 42 (1st Cir. 2009)).
"[A]rbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which [it] has
not agreed so to submit." McCarthy v. Azure, 22 F.3d 351, 354
(1st Cir. 1994) (quoting AT&T Techs., Inc. v. Commc'ns Workers,
475 U.S. 643, 648 (1986)). Thus, a party that attempts to compel
arbitration "must show [1] that a valid agreement to arbitrate
exists, [2] that the movant is entitled to invoke the arbitration
clause, [3] that the other party is bound by that clause, and [4]
that the claim asserted comes within the clause's scope."
Ouadani, 876 F.3d at 36 (quoting InterGen, 344 F.3d at 142).
While SPAR invokes the "federal policy favoring
arbitration," such policy "presumes proof of a preexisting
agreement to arbitrate disputes arising between the protagonists."
McCarthy, 22 F.3d at 355. As this court has highlighted,
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"arbitration is a matter of consent, not coercion." Ouadani, 876
F.3d at 36 (quoting Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp.,
559 U.S. 662, 681 (2010)).
Here, SPAR faces a steep climb, as it concedes that it
is not a party to the Master Agreement it invokes. Indeed, the
Master Agreement's first sentence clearly establishes Hogan and
SBS (not SPAR) as the only parties: "[t]his Independent Contractor
Master Agreement ('Master Agreement') is entered into between
Hogan Paradise ('Independent Contractor') and SPAR Business
Services, Inc. ('SBS')." Most crucially, the Master Agreement's
arbitration clause specifically limits its applicability to "the
Parties." It states that: "[a]ny dispute between the Parties
relating to this Master Agreement or otherwise arising out of their
relationship under its terms . . . shall be determined by
arbitration." (Emphasis added).
Nonetheless, SPAR claims that despite not being a party
to the Master Agreement, it is "entitled to invoke the arbitration
clause." It posits that: (1) it is a third-party beneficiary of
the agreement between Hogan and SBS; and (2) Hogan is equitably
estopped from avoiding arbitration of his claims against SPAR.4
4 Hogan argues that Spar waived its equitable estoppel and third-
party beneficiary arguments because they were insufficiently
raised at the district court level. Because the district court
understood it had enough material to rule on those issues, we will
not deem them waived. See Rodríguez-López v. Triple-S Vida, Inc.,
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This Circuit has recognized that in certain exceptional
situations, a nonsignatory to an agreement may invoke an
arbitration clause. See Grand Wireless, Inc. v. Verizon Wireless,
Inc., 748 F.3d 1, 9-10 (1st Cir. 2014) (applying principles of
agency to find that employees, acting within the scope of their
employment, can invoke an arbitration provision adopted by their
employer). This is not such a case.5
A. SPAR is not a third-party beneficiary of the Independent
Contractor Master Agreement
"As is generally the case in matters of contract
interpretation, '[t]he crux in third-party beneficiary analysis
. . . is the intent of the parties.'" McCarthy, 22 F.3d at 362
(alterations in original) (quoting Mowbray v. Moseley, Hallgarten,
850 F.3d 14, 21 n.3 (1st Cir. 2017) ("We note that the district
court found Rodríguez had sufficiently preserved her . . .
argument, and we find so as well.").
5 The district court applied federal common law to evaluate
whether a non-signatory can invoke an arbitration provision,
"absent any contention from Hogan." On appeal, the parties do not
contest this. See Sourcing Unlimited, Inc. v. Asimco Int'l, Inc.,
526 F.3d 38, 46 (1st Cir. 2008) ("In the absence of any contention
from the parties to the contrary, we apply federal common law to
resolve the issues." (citing InterGen, 344 F.3d at 143)); see also
Ouadani, 876 F.3d at 37 (looking to "federal common law, which
incorporates 'general principles of contract and agency law,'" to
determine whether a nonsignatory to an arbitration agreement was
bound to arbitrate his claim (citing InterGen, 344 F.3d at 144)).
But see Grand Wireless, 748 F.3d at 11-12 (calling into question
the propriety of using federal law to determine whether a non-
party to an arbitration agreement can assert its protection).
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Estabrook & Weeden, 795 F.2d 1111, 1117 (1st Cir. 1986)). A third-
party beneficiary must demonstrate with "special clarity that the
contracting parties intended to confer a benefit on him,"
considering that such status is "an exception to the general rule
that a contract does not grant enforceable rights to
nonsignatories." Id. In evaluating whether such "special clarity"
exists, a court should focus on the "specific terms" of the
agreement at issue, being mindful that it "ought not to distort
the clear intention of contracting parties or reach conclusions at
odds with the unambiguous language of a contract." InterGen, 344
F.3d at 146 (citing EEOC v. Waffle House, Inc., 534 U.S. 279, 294
(2002)).
SPAR concedes that it is not named in the Master
Agreement, but essentially argues that it is a third-party
beneficiary because the Master Agreement confers upon it, "as a
customer of SBS," the right to dictate certain work requirements
to the independent contractor. We gather that SPAR refers to
paragraph nine of the Master Agreement, yet that clause merely
states that SBS would convey to Hogan scheduling and assignment
requirements, if any, that it received from its customers, which
include SPAR. At best, this is a tenuous grant of a vague benefit.
It does not come close to showing the requisite "special clarity."
Moreover, even if SPAR could be said to benefit from the clause,
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"a mere benefit to the nonsignatory resulting from a signatory's
exercise of its contractual rights is not enough." Ouadani, 876
F.3d at 39 (1st Cir. 2017) (citing InterGen, 344 F.3d at 146-47).
Rather, the contract must "mention [or] manifest an intent to
confer specific legal rights upon [SPAR]," and the contract
language that SPAR points us to does not make the cut. InterGen,
344 F.3d at 147.
Finally, even if SPAR could show an intent of the parties
to confer upon it some benefit unrelated to arbitration, the
language of the arbitration clause would still be dispositive. As
mentioned earlier, the arbitration clause limits its applicability
to the signatories by only covering disputes "between the Parties,"
so it is clear that it does not confer arbitration rights to SPAR
or any third party.
Our conclusion is reinforced by the fact that the Master
Agreement references SBS's "customers" in other sections, yet
omits that reference in the arbitration clause. SBS could have
easily modified the arbitration clause to make it applicable to
"[a]ny dispute between the Parties [and/or any SBS customer]
relating to this Master Agreement," but it did not. See Mowbray,
795 F.2d at 1118 (finding persuasive the appellants' argument that
given "the probable sophistication of the drafters of the
agreement, . . . the omission of defendants from the arbitration
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clause must be regarded as purposeful"); see also Cortés-Ramos v.
Martin-Morales, 894 F.3d 55, 59-60 (1st Cir. 2018) (holding that
nonsignatory singer, Ricky Martin, could not compel arbitration
based on an agreement that referenced him in certain provisions
but did not in its arbitration clause).
Finally, the Agreement has an integration clause that
reads:
This Master Agreement constitutes the complete,
integrated agreement of Independent Contractor and
SBS and supersedes all prior written and oral
agreements, negotiations, promises, and
representations, if any. Nothing contained in this
Master Agreement may be modified in any way except
through a written agreement signed by Independent
Contractor and Mr. Robert Brown of SBS.
This language accentuates the parties' intent to confine to its
signatories the right to invoke the Master Agreement's arbitration
clause. See McCarthy v. Azure, 22 F.3d 351, 358 (1st Cir. 1994)
(stating that "[t]he intent to limit arbitral rights to signatories
is also made manifest by the inclusion of an integration clause").
Thus, a review of the language of the Master Agreement,
and more particularly its arbitration clause, shows that SPAR was
not an intended third-party beneficiary of the signatories'
agreement to arbitrate. See InterGen, 344 F.3d at 146 (declining
to read into agreement "rights and obligations that the contracting
parties did not see fit to include").
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B. Hogan is not equitably estopped from avoiding arbitration of
his claims against SPAR
SPAR propounds that, even if it is not a signatory to
the Agreement, Hogan is nevertheless equitably estopped from
avoiding arbitration because his claims against SPAR are
"intertwined" with the Master Agreement and because SPAR and SBS,
which is a signatory to the Agreement, are "closely related."
SPAR primarily relies on Sourcing Unlimited, Inc. v. Asimco Int'l,
Inc., 526 F.3d 38 (1st Cir. 2008).
"[E]quitable estoppel precludes a party from enjoying
rights and benefits under a contract while at the same time
avoiding its burdens and obligations." InterGen, 344 F.3d at 145.
Generally, federal courts "have been willing to estop a signatory
from avoiding arbitration with a nonsignatory when the issues . . .
to resolve in arbitration are intertwined with the agreement that
the estopped party has signed." Ouadani, 876 F.3d at 38 (second
emphasis added) (quoting InterGen, 344 F.3d at 145).
In Sourcing Unlimited, 526 F.3d at 46-48, this court
applied equitable estoppel to hold that the plaintiff, a corporate
signatory to a partnership agreement, was compelled to arbitrate
its claims against a non-signatory defendant. The court found
that the plaintiff's claims were "sufficiently intertwined" with
the agreement that the plaintiff had signed with the defendant's
parent company. Id. at 47. Hence, it reversed and remanded with
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instructions to the district court to compel arbitration. Id. at
48.
We find Sourcing Unlimited distinguishable from the case
at hand. First, prior to considering the "intertwined"
requirement, we must step back and once again recur to the language
of the arbitration clauses. In Sourcing Unlimited, the "broadly-
worded" arbitration clause stated: "[a]ny action to enforce,
arising out of, or relating in any way to, any of the provisions
of this agreement shall be brought in front of a P.R. China
arbitration body." Id. at 41 (emphasis added). Having the
plaintiff consented to arbitrate any action "arising out of, or
relating in any way to" the agreement, the court applied the
equitable estoppel doctrine to enforce arbitration of claims that
fell within the scope of the arbitration clause and were
intertwined with the agreement but were brought against a non-
signatory subsidiary. Id. at 48.
Unlike Sourcing Unlimited, the arbitration provision
here cabins its scope to disputes "between the Parties" to the
Master Agreement, with the "Parties" unambiguously defined as SBS
and Hogan. While one could say that arbitrating a dispute relating
to the contract against an affiliated third-party was within the
scope of what the plaintiff consented to in Sourcing Unlimited,
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the same cannot be said here. Hogan clearly and unambiguously
consented to arbitrate only claims between him and SBS.6
And while SPAR alleges that its "close relationship"7
with SBS should bind Hogan, we need not delve into the nature of
6 Similarly, Spar cites Herrera-Gollo v. Seaborne Puerto Rico,
LLC, Civil No. 15-1771(JAG), 2017 WL 657430 (D.P.R. Feb. 17, 2017)
and Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115 (2d Cir.
2010) as persuasive authority. Irrespective of whether we agree
with their outcome and analysis, which we need not discuss now,
those cases are distinguishable due to the broad reach of the
arbitration clauses at issue therein.
In Herrera-Gollo, the plaintiff argued that defendant Seaborne
Puerto Rico could not invoke the arbitration clause because the
agreement was signed by Seaborne Virgin Islands, Inc., but the
arbitration provision covered "all claims, controversies, or
disputes . . . against the Company, its shareholders or subsidiary
or parent or affiliated companies . . . arising out of or in any
way relating to [plaintiff's] application for employment."
Herrera-Gollo, 2017 WL 657430, at *3 (emphasis added) (emphasis in
original omitted). The court concluded that "the language evinces
a broad intent that Plaintiff be required to arbitrate claims
against a variety of entities associated with Seaborne Virgin
Islands, not just that specific entity" and compelled plaintiff to
arbitrate his claims against Seaborne Puerto Rico even though it
had not signed the agreement. Id. at *7. The same intent is not
evidenced by the language of the Master Agreement.
In Ragone, the court compelled plaintiff Rita Ragone to arbitrate
her employment discrimination claims against her direct employer,
Atlantic Video ("AVI"), and ESPN, for whom she provided services
through AVI, finding that she was equitably estopped from avoiding
arbitration as to ESPN. Nevertheless, once again, the pertinent
arbitration clause there was broader, as she had agreed to
arbitrate "any and all claims or controversies arising out of [her]
employment or its termination." Ragone, 595 F.3d at 118.
Likewise, the other non-binding cases that Spar cites do not
persuade us to alter our reasoning here.
7 According to the Amended Complaint, "SBS is an affiliate of
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their relationship, as irrespective of it, SPAR has not shown any
intent on behalf of Hogan to arbitrate with any entity other than
SBS. See Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F.3d 354,
361–62 (2d Cir. 2008) (noting that any relationship among parties
must support the conclusion that the signatory "consented to extend
its agreement to arbitrate" to the nonsignatory). SBS and SPAR
are sophisticated commercial players that chose to conduct their
business as separate corporate structures, and we see no reason to
ignore the legal scheme that they constructed. Hence, SPAR has
not put forth any convincing argument or authority establishing
that the equitable estoppel doctrine is applicable when the
language of the contract is so clearly limiting, and we find no
legal basis for forcing Hogan to arbitrate his claims against SPAR
when he demonstrated no intent to do so.
In any case, a review of the facts here shows that SPAR
could not establish the "intertwined" requirement for purposes of
applying equitable estoppel. In Sourcing Unlimited the court
concluded that the plaintiff's claims were "sufficiently
intertwined" with the agreement because they "either directly or
indirectly invoke[d] the terms of the" agreement, id. at 47, and
they "ultimately derive[d] from benefits" the plaintiff alleged
SPAR but is not a subsidiary of or controlled by SPAR . . . ."
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were due under the agreement, id. at 48. Moreover, the court
noted that if the agreement were to become void, the plaintiff's
obligations under a side-contract with defendant "would be
meaningless." Id.
Here, Hogan's claims against SPAR are premised upon
Massachusetts wage and hour law, not the Master Agreement between
SBS and Hogan: he seeks a remedy for "unpaid wages and benefits"
which he alleges he has a right to pursuant to Massachusetts law.
Moreover, Hogan's claims would exist even if the Master Agreement
were declared void, as they are based on the nature of the services
that Hogan provided to SPAR. Finally, as the Amended Complaint
shows, Hogan does not claim any benefit or right from SPAR arising
from the Master Agreement. See Sourcing Unlimited, 526 F.3d at
47 ("The [signatory] plaintiff's actual dependence on the
underlying contract in making out the claim against the
nonsignatory defendant is therefore always the sine qua non of an
appropriate situation for applying equitable estoppel [against the
plaintiff]." (alteration in original) (quoting In re Humana Inc.
Managed Care Litig., 285 F.3d 971, 976 (11th Cir. 2002), rev'd on
other grounds sub nom. PacifiCare Health Sys., Inc. v. Book, 538
U.S. 401 (2003))). There is therefore no cognizable basis for
applying equitable estoppel here.
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III. Conclusion
We find no legal basis to compel Hogan to arbitration,
as the clear terms of the Master Agreement show that he did not
consent to arbitrate his claims against SPAR. The district
court's judgment is therefore affirmed.
Affirmed.
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