Awuah v. Coverall North America, Inc. ( 2013 )

United States Court of Appeals
For the First Circuit
No. 12-2495
PIUS AWUAH, ET AL.,
and all others similarly situated,
Plaintiffs, Appellees,
v.
COVERALL NORTH AMERICA, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Howard, Selya and Thompson,
Circuit Judges.
Norman M. Leon, with whom Matthew Iverson, DLA Piper LLP (US),
Michael D. Vhay and Ferriter Scobbo & Rodophele, PC were on brief
for appellant.
Shannon Liss-Riordan with whom Hillary Schwab, Claret Vargas
and Lichten & Liss-Riordan, P.C. were on brief for appellees.
August 30, 2013
HOWARD, Circuit Judge. Coverall appeals the denial of
its motion to reconsider and to stay proceedings pending
arbitration. That motion sought relief from the district court's
decision to sanction Coverall by admitting to an ongoing class
action certain individuals who had been pursuing their claims
against Coverall in arbitration. The sanction issued upon the
court's determination that Coverall had violated an order
requiring it to obtain judicial permission before making any
motion to delay or prevent arbitration proceedings. We conclude
that this determination was an abuse of discretion. Without this
improper determination there was no basis for the sanction, which
interfered with the arbitration proceedings, and thus Coverall's
motion to stay should have been granted.1
I. Background
This appeal is the latest development in the litigation
between Coverall North America, Inc., a franchisor providing
cleaning services, and its franchisees, who do the cleaning.2 The
franchisees ("Plaintiffs") sued Coverall in the District of
Massachusetts, asserting multiple claims. The district court
1
We need not address the denial of the motion to reconsider
the sanction, because the grant of that motion would have produced
the same result as the grant of the motion to stay--namely, the
continued arbitration of certain claims.
2
See Awuah v. Coverall N. Am., Inc., 703 F.3d 36, 38 n.1 (1st
Cir. 2012), for a collection of the opinions documenting this
case's history.
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certified a class, excluding those franchisees whose agreements
with Coverall contained clauses expressly requiring arbitration
under the rules of the American Arbitration Association ("AAA").
Those franchisees ("the AAA Claimants") pursued arbitration.
While arbitration proceedings were underway, the
district court issued a ruling that threatened to expand the
class. At the request of Coverall, which wanted to research its
options to appeal this ruling, the arbitrator imposed a sixty-day
stay of the arbitrations of ten of the AAA Claimants ("the Ten
Claimants"), who are Appellees in this case.
In July 2012, while this stay was in effect, the
district court issued a bench order ("the July Order"), ruling
that "[a]ny motion to delay, prevent the actual arbitration of
these matters must first be presented to the Court." The July
Order did not mention the existing sixty-day stay.
Plaintiffs emailed the arbitrator a copy of the July
Order. The email read:
I've attached a transcript of yesterday's
conference in federal court in which the
judge made some rulings pertinent to the
arbitration cases we have filed. Among other
things, the judge ruled that all cases that
we have filed, . . . must go forward without
any further delay; Claimants therefore
request that the AAA proceed with the cases
that it has stayed.
In response, Coverall sent the arbitrator the following email:
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That is not what the court said. . . . The
court said that the parties shall proceed in
accordance with the directions of the AAA
(which we have done) and that further motions
to delay or prevent the arbitrations must
first be presented to the court. Nowhere did
the court lift the temporary stay that the
AAA granted to allow Coverall to try [to]
resolve the various problems associated with
the court's prior . . . arbitration related
rulings.
After Coverall sent this email, Plaintiffs filed a "Notice to
Court Regarding Coverall's Ongoing Obstruction of AAA
Arbitrations." The notice characterized Coverall's email as a
"request for a delay" and argued that, pursuant to the July Order,
such a request should have first been presented to the court.
Though Plaintiffs' notice did not request any relief,
the district court--concluding that Coverall's email had violated
the July Order "by seeking to continue a stay of arbitration for
ten arbitration claimants"--sua sponte sanctioned Coverall by
admitting to the class the Ten Claimants, relieving them of their
obligations to arbitrate. Thereafter, Coverall filed a motion to
reconsider the sanction and, under section 3 of the Federal
Arbitration Act ("FAA"),3 to stay the Ten Claimants' judicial
proceedings pending arbitration. The district court summarily
denied this motion, and Coverall appealed.
3
9 U.S.C. §§ 1-16.
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II. Discussion
The FAA confers jurisdiction on this court to hear
Coverall's appeal from the denial of its section 3 motion to stay.
See 9 U.S.C. § 16(a)(1)(A).4 The motion was summarily denied, so
we review the determinations on which that denial was based. See,
e.g., Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d
386, 386-90 (1st Cir. 1993) (analyzing determinations that led
district court to summarily deny motion to stay). The denial was
based on the district court's determination that Coverall had
violated the July Order, for this determination led the court to
sanction Coverall by interfering with the Ten Claimants'
arbitration proceedings. The determination that Coverall had
violated the July Order is reviewed for abuse of discretion. See,
e.g., Santiago-Díaz v. Laboratorio Clínico Y De Referencia Del
Este And Sara López, M.D., 456 F.3d 272, 275 (1st Cir. 2006). Of
course, a material error of law is always an abuse of discretion.
See United States v. Snyder, 136 F.3d 65, 67 (1st Cir. 1998).
By its terms, the July Order demanded that any motion to
delay or prevent arbitration be approved by the district court.
The AAA rules, in all relevant respects, use the term "request"
4
Appellees claim that we lack jurisdiction. They
characterize the sanction itself as, in effect, the denial of a
motion to stay, and argue that Coverall missed the thirty-day
window in which to appeal that denial. But Coverall could not have
appealed the sanction itself under the FAA, because it was not, in
fact, the denial of a motion to stay.
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instead of "motion." See generally Am. Arbitration Ass'n, Commercial
Arbitration Rules and Mediation Procedures (2009), available
athttp://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTG_004103&revision=la
testreleased; Am. Arbitration Ass'n, Employment Arbitration Rules and
Mediation Procedures (2009), available at
http://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTG_004362&revision=late
streleased. Coverall's email to the arbitrator neither moved for nor
requested anything. Rather, it responded to Plaintiffs' claim
that the July Order required lifting the arbitrator's temporary
stay, when, in fact, the July Order did not mention that stay.
If the district court had intended to prohibit Coverall
from responding to assertions made by Plaintiffs, that prohibition
should have appeared in the July Order in unambiguous terms. Cf.
Project B.A.S.I.C. v. Kemp, 947 F.2d 11, 17 (1st Cir. 1991) ("For
a party to be held in contempt, it must have violated a clear and
unambiguous order that left no reasonable doubt as to what
behavior was expected . . . ."); see also Velázquez Linares v.
United States, 546 F.3d 710, 711 (1st Cir. 2008) ("'[L]itigants
have an unflagging duty to comply with clearly communicated
case-management orders' . . . ." (quoting Rosario-Díaz v.
González, 140 F.3d 312, 315 (1st Cir. 1998)). Since the July
Order did not prohibit Coverall's conduct, the district court's
determination that Coverall violated that order was an abuse of
discretion. Without this improper determination, there was no
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legitimate basis for the sanction interfering with the Ten
Claimants' arbitral proceedings, and thus Coverall's motion to
stay the Ten Claimants' judicial proceedings pending arbitration
should have been granted.5
III. Conclusion
The denial of Coverall's motion to stay is reversed and
the case is remanded for further proceedings consistent with this
opinion.
5
To conclude that the district court abused its discretion in
determining that Coverall had violated the July Order, we assume
the order's validity, and thus do not address Coverall's assertions
that (i) no class member had standing to pursue the order, and (ii)
the order violated the FAA. Nor need we reach Coverall's arguments
that (i) it received inadequate notice and opportunity to be heard
before being sanctioned, and (ii) the district court abused its
discretion in the severity of the sanction imposed.
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