Court Opinion

ID: 4362198
Source: CourtListenerOpinion
Date Created: 2019-01-25 22:00:15.997043+00
Date Added: 2024-06-11T11:49:24.369621
License: Public Domain

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

                                     -2-
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.

                                     -3-
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.

	

                                 -4-
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

                                       -5-
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).

                                   -6-
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,

                                        -7-
"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.,

                                     -8-
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).

                                         -9-
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,

                                        -10-
"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

                                      -11-
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").

                                     -12-
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

                                   -13-
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,

                                       -14-
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

                                -15-
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 . . . ."

                                      -16-
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.

	

                                    -17-
                        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.

                               -18-