Landry v. Transworld Systems Inc.

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SJC-12813
PHILIP LANDRY1 vs. TRANSWORLD SYSTEMS INC.
Worcester. December 6, 2019. - July 28, 2020.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
Consumer Protection Act, Arbitration. Debt. Arbitration,
Consumer Protection Act, Arbitrable question. Federal
Arbitration Act. Agency, Independent contractor.
Contract, Arbitration, Third party beneficiary.
Civil action commenced in the Superior Court Department on
September 21, 2018.
A motion to compel arbitration was heard by William J.
Ritter, J.
The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.
Bryan C. Shartle, of Louisiana, for the defendant.
Sergei Lemberg for the plaintiff.
Angela Laughlin Brown, of Texas, & John C. La Liberte, for
ACA International, amicus curiae, submitted a brief.
Maura Healey, Attorney General, & Max Weinstein, Assistant
Attorney General, for the Commonwealth, amicus curiae, submitted
a brief.
1 On behalf of himself and all others similarly situated.
2
LENK, J. The plaintiff, Philip Landry, purportedly owes a
debt to Enterprise Rent-A-Car Company of Boston, LLC
(Enterprise), for damage to a rental vehicle that he has
declined to pay.2 Enterprise assigned this debt to the
defendant, Transworld Systems Inc. (Transworld), for collection.
Landry subsequently filed a class action complaint against the
defendant in the Superior Court; he claimed that Transworld, by
virtue of its too frequent telephone contact with him and other
debtors, had engaged in improper debt collection practices in
violation of the Massachusetts consumer protection act, G. L.
c. 93A, § 2, and debt collection regulations, 940 Code Mass.
Regs. §§ 7.00 (2012). Although Transworld is not a party to the
rental contract between Landry and Enterprise, and although
Landry's G. L. c. 93A claim against Transworld is unrelated to
that rental contract, Transworld nonetheless sought to compel
arbitration of Landry's claims pursuant to that contract.
Transworld appeals from the denial of its motion to compel. We
affirm.3
2 Enterprise is not a party to this litigation, and whether
a debt is owed to Enterprise is not an issue before this court.
3 We acknowledge the amicus briefs submitted by the
Commonwealth and ACA International (the Association of Credit
and Collection Professionals).
3
1. Background. The facts are drawn from Landry's
complaint and from Transworld's motion to compel arbitration.
In February of 2018, Landry rented a vehicle from Enterprise,
which Enterprise asserts that he returned in a damaged
condition. Enterprise repaired the vehicle and billed Landry
for the repairs. After Landry failed to make any payment,
Enterprise assigned the debt to Transworld, a company that
Enterprise had engaged to provide it debt collection services.4
In September of 2018, Landry filed a class action complaint
against Transworld in the Superior Court. The complaint
asserted that Transworld had called Landry's cellular telephone
eight times within a seven-day period, in violation of the
limits established under the Massachusetts consumer protection
act, G. L. c. 93A, § 2, and debt collection regulations, 940
Code Mass. Regs. § 7.04(1)(f).5 Landry seeks to represent all
Massachusetts consumers who have received more than two
4 Pursuant to a service agreement between Enterprise and
Transworld, Enterprise assigns unpaid debts to Transworld for
collection. Transworld "process[es]" collections files referred
to it in return for a "collection fee" when a claim is paid.
Under the terms of the service agreement, Transworld is
described as an independent contractor and is expressly
prohibited from referring to itself as an agent of Enterprise.
Transworld also is required to comply with all applicable
Federal and State debt collection laws.
5 The Massachusetts debt collection regulations state that
"[i]t shall constitute an unfair or deceptive act or practice"
to contact a debtor more than two times in a seven-day period.
See 940 Code Mass. Regs. § 7.04(1)(f).
4
collection calls from Transworld in a seven-day period in the
four years immediately prior to the filing of his complaint.
Transworld moved to compel arbitration pursuant to the
Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. In support of
its motion, Transworld cited a binding arbitration provision
contained in Landry's rental contract with Enterprise. In order
to rent a vehicle from Enterprise, Landry signed a form lease
contract, which contains the following language:
"25. Mandatory Arbitration Agreement: RENTER AND OWNER
[(i.e., Enterprise)] EACH WAIVE THEIR RIGHT TO A JURY TRIAL
OR TO PARTICIPATE IN A CLASS ACTION PURSUANT TO THE
FOLLOWING TERMS. RENTER AND OWNER AGREE TO ARBITRATE ANY
AND ALL CLAIMS, CONTROVERSIES OR DISPUTES OF ANY KIND
("CLAIMS") AGAINST EACH OTHER, INCLUDING BUT NOT LIMITED TO
CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR
OWNERS'S . . . CHARGES . . . . This Arbitration Agreement
is to be broadly interpreted and applies to all claims
based in contract, tort, statute, or any other legal
theory; all claims that arose prior to or after termination
of the Rental Agreement; all claims Renter may bring
against Owner's employees, agents, affiliates or
representatives; and all claims that Owner may bring
against Renter. . . .
"(1) Procedure. A party must send a written Notice of
Dispute . . . to the other party. . . . If Owner and
Renter do not resolve the claim . . . a party may [demand
arbitration] . . . .
". . .
"(4) Governing Law and Enforcement: The [Federal
Arbitration Act] applies to this Arbitration Agreement and
governs whether a claim is subject to arbitration."
The Superior Court judge denied Transworld's motion to compel
arbitration. He reasoned that Transworld, as a nonsignatory,
5
was required to present "clear and unmistakable" evidence that
Landry had agreed to arbitrate his claims against Transworld,
and that Transworld had failed to do so. Transworld sought an
interlocutory appeal in the Appeals Court, as was its right
pursuant to G. L. c. 251, § 18, of the denial of its motion to
compel arbitration. We transferred the case to this court on
our own motion.
2. Discussion. We review the denial of a motion to compel
arbitration de novo. See Machado v. System4 LLC, 471 Mass. 204,
208 (2015). In interpreting arbitration provisions, we "seek a
balance between the statutory policy favoring arbitration as an
expeditious and efficient means for resolving disputes and the
courts' role as the guardian of the parties' right to submit to
arbitration only those disputes that the parties intended."
Massachusetts Highway Dep't v. Perini Corp., 444 Mass 366, 374
(2005) (Perini Corp.). Our interpretation of the arbitration
provision in question is guided by decisions interpreting the
Federal Arbitration Act, and by State contract law pertaining to
enforcement of a contract by nonsignatories.
a. The Federal Arbitration Act. Under the terms of the
arbitration provision in this case, we must apply the Federal
Arbitration Act when determining whether a claim is subject to
6
arbitration. The Federal Arbitration Act, 9 U.S.C. § 2,6
provides:
"A written provision in any maritime transaction or a
contract evidencing a transaction involving commerce to
settle by arbitration a controversy thereafter arising out
of such contract or transaction, or the refusal to perform
the whole or any part thereof, or an agreement in writing
to submit to arbitration an existing controversy arising
out of such a contract, transaction, or refusal, shall be
valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract."
The Federal Arbitration Act has been interpreted to require
courts to "place arbitration agreements on an equal footing with
other contracts." See AT&T Mobility v. Concepcion, 563 U.S.
333, 339 (2011). Indeed, the Federal Arbitration Act preempts
any "[S]tate law [that] prohibits outright the arbitration of a
particular type of claim." See id. at 341. Where there is a
valid and enforceable arbitration agreement between two parties,
"any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration" (emphasis added). See
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 626 (1985), quoting Moses H. Cone Memorial Hosp. v.
6 The Massachusetts Arbitration Act contains a very similar
requirement. See G. L. c. 251, § 1. Because the arbitration
provision at issue states explicitly that it is to be governed
by the Federal Arbitration Act, and because of the similarities
between the relevant provisions of the Federal and State
arbitration statutes, we need not discuss separately the
application of the Massachusetts Arbitration Act to this case.
7
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). See also
Commonwealth v. Philip Morris Inc., 448 Mass 836, 844 (2007).
In the present case, however, the question is not whether
the subject matter of a particular claim falls within the scope
of the arbitration provision, but, rather, whether there is an
enforceable arbitration agreement between Transworld and Landry.
"[B]efore the [Federal Arbitration] Act's heavy hand in favor of
arbitration swings into play, the parties themselves must agree
to have their disputes arbitrated." Howard v. Ferrellgas
Partners, L.P., 748 F.3d 975, 977 (10th Cir. 2014). "[I]t
remains a 'fundamental principle' that 'arbitration is a matter
of contract,' not something to be foisted on the parties at all
costs." See id., quoting Concepcion, 563 U.S. at 339. See also
Granite Rock Co. v. International Bhd. of Teamsters, 561 U.S.
287, 302-303 (2010) ("[W]e have never held that this
[presumption of arbitrability] overrides the principle that a
court may submit to arbitration 'only those disputes . . . that
the parties have agreed to submit.' . . . Nor have we held that
courts may use policy considerations as a substitute for party
agreement" [citation omitted]). Unless the parties "clearly and
unmistakably provide otherwise," whether an agreement creates a
duty to arbitrate is "undeniably an issue for judicial
determination" (citation omitted). See Perini Corp., 444 Mass.
at 374. As arbitration is a matter of contract, the
8
interpretation of an arbitration provision itself "is generally
a matter of [S]tate law." See Stolt-Nielsen S.A. v. AnimalFeeds
Corp., 559 U.S. 662, 681 (2010). See also Arthur Andersen LLP
v. Carlisle, 556 U.S. 624, 630-631 (2009) (Federal Arbitration
Act does not displace "background principles of [S]tate contract
law").
We therefore apply Massachusetts contract law to determine
whether Transworld can enforce the arbitration provision in
question. In making this determination, we rely only on
generally applicable principles of contract law, rather than on
"defenses that apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at
issue." See Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1622
(2018), quoting Concepcion, 563 U.S. at 339.
b. Enforcement of a contract by a nonsignatory. The sole
issue before us is whether Transworld may enforce the
arbitration provision in a contract to which it is not a
signatory. Hence, we look to State law principles of contract
law pertaining to such enforcement.
This court has acknowledged six theories under which a
nonsignatory may enforce a contract, such as an arbitration
agreement, against a signatory: "(1) incorporation by
reference; (2) assumption; (3) agency; (4) veil-piercing/alter
ego; (5) equitable estoppel, and (6) third-party beneficiary"
9
(footnotes omitted).7 See Machado, 471 Mass. at 209-210. These
theories ordinarily are applied to resolve a different question
from the question at issue here -- whether a signatory to a
contract could enforce the contract against a nonsignatory.
Nonetheless, the theories also have been used where a
nonsignatory seeks to enforce a contract against a signatory.
See id. at 209.
As the United States Supreme Court has emphasized, however,
a nonsignatory may rely on such theories only where and to the
extent that they are enforceable under a particular State's law
of contract. See Arthur Andersen LLP, 556 U.S. at 631
(nonsignatory can enforce arbitration agreement where "written
arbitration provision is made enforceable against [or for the
benefit of] a third party under [S]tate contract law"). In
Machado, 471 Mass. at 209-210, while acknowledging the existence
of these six theories, the only theory we identified as at issue
there was the theory of equitable estoppel, which we held to be
7 The United States Supreme Court has recognized the
existence of several "traditional principles" of State law by
which a nonsignatory may be able to enforce a contract against a
signatory, including most of those recognized in Machado v.
System4 LLC, 471 Mass. 204, 209-210 (2015), but has explained
that a nonsignatory may rely on those principles only to the
extent that they are recognized by that State's law of contract.
See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009).
10
enforceable in that case.8 See id. ("The theory with clearest
application to the facts of this case is equitable
estoppel . . ."). That theory is not at issue in Transworld's
claims.
c. Whether Transworld may enforce the arbitration
provision. Transworld contends that two of the theories
discussed in Machado apply here. First, Transworld asserts that
it may enforce the arbitration provision in Enterprise's
contract with Landry under the "agency" theory. Second,
Transworld argues that it may enforce the arbitration provision
as a third-party beneficiary. We conclude that, on these facts,
neither theory is applicable.
i. Agency theory. Transworld argues that it is entitled
to enforce Enterprise's arbitration provision because it acted
as Enterprise's agent for debt collection purposes. Assuming,
without deciding, that Transworld was acting as Enterprise's
8 The United States Supreme Court identified a similar list
of possible State law theories, including "assumption, piercing
the corporate veil, alter ego, incorporation by reference,
third-party beneficiary theories, waiver, and estoppel." See
Arthur Andersen LLP, 556 U.S. at 631. This list includes a
"waiver" theory that has not yet been recognized in
Massachusetts, but does not include the theory of "agency,"
which Massachusetts has recognized. See Machado, 471 Mass. at
209-210.
11
agent,9 we nonetheless conclude that, given the facts at issue,
Transworld cannot rely upon the "agency" theory in its effort to
enforce Enterprise's arbitration provision with Landry.
We do not agree with Transworld's assertion that the agency
theory would permit a nonsignatory agent to enforce an
arbitration provision in a contract signed by its principal
solely by virtue of its status as an agent of the signatory.
"Typically, agents do not obtain rights . . . from contracts
entered into by their principals. . . ."10 Constantino v.
Frechette, 73 Mass. App. Ct. 352, 358 (2008).
9 Landry concedes in his brief that Transworld was acting as
Enterprise's agent. We observe, however, that Enterprise's
contract with Transworld states that Transworld is an
"independent contractor," and expressly prohibits Transworld
from describing itself to debtors as an agent of Enterprise.
10 Numerous courts in other jurisdictions also have held
that a nonsignatory agent cannot enforce an arbitration
provision signed by its principal solely by virtue of the fact
that it is an agent of the principal. See, e.g., Westmoreland
v. Sadoux, 299 F.3d 462, 466 (5th Cir. 2002) ("we agree with the
First and Ninth Circuits that a nonsignatory cannot compel
arbitration merely because he [or she] is an agent of one of the
signatories"); McCarthy v. Azure, 22 F.3d 351, 356-357 (1st Cir.
1994) (declining to allow enforcement by nonsignatory based
solely upon agency status); Britton v. Co-op Banking Group, 4
F.3d 742, 747-748 (9th Cir. 1993) (declining to allow
nonsignatory agent to enforce arbitration provision where claim
did not "relate to or arise out of" contract containing
arbitration provision). But see Pritzker v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3d Cir. 1993)
(nonsignatory agent may enforce arbitration agreement entered
into by its principal "[w]here the parties . . . unmistakably
intend to arbitrate all controversies which might arise between
them").
12
In Machado, 471 Mass. at 210 n.11, we explained that the
agency theory indeed could permit a nonsignatory agent to
enforce an arbitration provision in a contract signed by its
principal, but only in the limited circumstance where the claim
against the agent arose "under the contract in question." In
such cases, the nonsignatory would be relying not only upon its
status as an agent, but also on the fact that the claim against
it arose under the contract containing the arbitration
provision. Relatedly, in Bridas S.A.P.I.C v. Government of
Turkmenistan, 345 F.3d 347, 356-358 (5th Cir. 2003), cert.
denied, 541 U.S. 937 (2004) (cited by Machado, 471 Mass. at
210 n.11), the issue was not whether a nonsignatory agent could
enforce an arbitration provision signed by its principal, but
whether a nonsignatory principal could be bound by an
arbitration provision that an agent had signed on the
principal's behalf. Thus, neither this court's description of
the agency theory in Machado, supra, nor the example cited in
that case as an application of such theory, states that a
nonsignatory to an arbitration provision can enforce the
provision solely because it is an agent of a signatory.11
11In the same vein, the Appeals Court also has held that a
nonsignatory agent seeking to enforce an arbitration provision
signed by its principal could do so where there is "language in
the agreement that manifests a clear intent to benefit [the
nonsignatory agents]." Constantino v. Frechette, 73 Mass. App.
13
Here, Transworld asserts that, by virtue of its status as
an agent of Enterprise, it can enforce the arbitration provision
contained in Enterprise's rental contract with Landry. As
discussed, generally this would be impermissible under the
agency theory. Moreover, the exception to the general rule
articulated in Machado -- allowing enforcement by a nonsignatory
agent where the claim against the agent arises under the
contract containing the arbitration provision -- plainly is
inapplicable here. Landry is not claiming that Enterprise
committed a breach of its rental contract with him, nor
asserting misconduct of any sort by Enterprise. He also does
not claim any breach of the rental contract by Transworld. His
sole claim is that Transworld engaged in unlawful debt
collection practices. Such practices are not mentioned anywhere
in Landry's rental contract with Enterprise.
Transworld's reliance upon Grand Wireless, Inc. v. Verizon
Wireless, Inc., 748 F.3d 1, 8-11 (1st Cir. 2014), as an example
of a case where a nonsignatory agent was permitted to enforce an
arbitration provision signed by her employer, is misplaced. In
Ct. 352, 358 (2008), citing McCarthy, 22 F.3d at 357. In
effect, the "clear intent" requirement means that, to enforce an
arbitration provision signed by its principal, a nonsignatory
agent must demonstrate that it is an intended third-party
beneficiary of the provision. Under this reading, as in
Machado, 471 Mass. at 210 n.11, agency status alone is
insufficient to allow a nonsignatory to enforce an arbitration
agreement.
14
that case, the plaintiff sued Verizon Wireless, Inc. (Verizon),
with which it had an arbitration agreement, and named a Verizon
employee as a codefendant. See id. at 3. The court concluded
that the employee could enforce the arbitration agreement
because the suit alleged misconduct by her undertaken within the
scope of her employment, see id. at 11, and because the
plaintiff's claims were "relate[d] to the terms of the
[contract]" with Verizon, see id. at 8. The court further
reasoned that, because the plaintiff's claim was, in effect, an
allegation of misconduct by Verizon acting through its employee,
allowing the plaintiff to circumvent the arbitration provision
by naming an individual employee as a defendant would render the
arbitration provision meaningless. See id. at 11.
As discussed supra, Landry has no dispute with Enterprise,
and Landry's claims are not related to his rental contract with
Enterprise. Moreover, if Transworld had engaged in the untoward
debt collection practices alleged, it would not have been acting
within the scope of the work Enterprise hired it to perform.
The service agreement between Enterprise and Transworld
expressly prohibits debt collection by any means that violate
applicable Federal and State law.
ii. Third-party beneficiary theory. Transworld argues as
well that it may enforce the arbitration provision as a third-
party beneficiary. Transworld contends that, because the
15
arbitration provision "is to be broadly interpreted and applies
to . . . all claims Renter may bring against [Enterprise's]
employees, agents, affiliates or representatives," the contract
must be read to require Landry to arbitrate his claim against
Transworld.
Under Massachusetts law, a nonsignatory seeking to enforce
an arbitration agreement as a third-party beneficiary must point
to "clear[] and definite[]" evidence of the parties' intent that
it benefit from the provision. See Constantino, 73 Mass. App.
Ct. at 356. See Anderson v. Fox Hill Village Homeowners Corp.,
424 Mass. 365, 366-367 (1997). Transworld contends that it is
either an "agent" or a "representative" of Enterprise, and that
these categorical references provide "clear and definite"
evidence of the intent that Transworld could enforce the
arbitration provision. We do not discern any such clarity.
For evidence of intent to include Transworld as a third-
party beneficiary to be considered "clear and definite," there
must, at a minimum, be no ambiguity in the arbitration provision
as to whether Transworld could enforce it. "Contractual
language is ambiguous 'if it is susceptible of more than one
meaning and reasonably intelligent persons would differ as to
which meaning is the proper one'" (citation omitted). James B.
Nutter & Co. v. Estate of Murphy, 478 Mass. 664, 669 (2018). We
look to the arbitration provision in question to determine
16
whether reasonable minds could differ as to whether the
provision is applicable to claims brought against Transworld.
The arbitration provision in question contains competing
language regarding the parties who may enforce it. The second
sentence of the arbitration provision states that the "Renter
and [Enterprise] agree to arbitrate any and all claims . . .
against each other" (emphasis supplied). This language suggests
that the only claims that are subject to arbitration are those
brought by a renter, such as Landry, against Enterprise, or vice
versa. As Transworld notes, however, a subsequent sentence in
the arbitration provision seemingly contradicts this position by
stating that all claims brought against Enterprise's "employees,
agents, affiliates or representatives" also are subject to
arbitration. A third section of the arbitration provision goes
on to state that arbitration may occur "if [Enterprise] and
[the] Renter" fail to resolve the dispute within thirty days.
This section similarly provides for an allocation of arbitration
costs between Enterprise and the renter, with no mention of
third parties. Thus, notwithstanding an isolated reference in
the arbitration provision to claims against "employees, agents,
affiliates or representatives," multiple sections of the
arbitration provision suggest that only claims between a renter
and Enterprise are subject to arbitration.
17
In light of these competing provisions, reasonable minds
surely could differ as to whether the arbitration provision is
applicable to claims brought against Transworld. Even assuming,
without deciding, that Transworld's interpretation of the
arbitration provision -- that the categorical reference to
"agents" or "representatives" necessarily includes a third-party
debt collector -- is reasonable, it is by no means the only
reasonable interpretation.12
Another reasonable interpretation of these competing
provisions might be that the arbitration provision only applies
to claims where a renter alleges misconduct by Enterprise. Such
a claim could be brought either against Enterprise itself or,
alternatively, against the "employees, agents, affiliates or
representatives" who actually carried out the misconduct. Under
this interpretation of the arbitration provision, Landry's claim
against Transworld would not be subject to arbitration, since,
12Transworld's reliance on language in McCarthy, 22 F.3d at
362, and Constantino, 73 Mass. App. Ct. at 357, suggesting that
a "categorical reference" (e.g., to "agents" or
"representatives") in an arbitration provision might be
sufficient to allow any agent or representative to enforce the
provision, is unavailing. In both of those cases, unlike here,
the claims were squarely rooted in the transaction that was the
subject of the underlying contract, and thus were directly
related to a dispute with the signatory. See McCarthy, supra at
354 n.2 (complaint included claim of breach of contract);
Constantino, supra at 353 (claim sought damages for personal
injuries and wrongful death of patient in nursing home, where
arbitration provision was part of contract executed between
patient and nursing home).
18
as discussed, Landry has not alleged any misconduct by
Enterprise. Instead, Landry asserts that Transworld alone
engaged in unlawful debt collection practices.
The language in the arbitration provision is susceptible of
multiple interpretations; the arbitration provision is, at a
minimum, ambiguous as to whether Transworld can enforce it.
Transworld accordingly has not put forth the "clear and
definite" evidence of intent that it must if it were to be
entitled to enforce the arbitration provision as a third-party
beneficiary.
In sum, there was no error in the denial of Transworld's
motion to compel arbitration.
Order denying motion to
compel arbitration
affirmed.