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Case Note: Grand Wireless, Inc. v. Verizon Wireless, Inc., 748 F.3d 1 (1st Cir. 2014)

by ~ Jonathan Mutch (Email) (Web Site)

A recent decision by the First Circuit, Grand Wireless, Inc. v. Verizon Wireless, Inc., construed both the scope of an arbitration clause and the extent to which the clause could be invoked by a party who was not a signatory to the arbitration agreement in question. Though the parties’ dispute itself was not reinsurance-related, the decision provides useful insight into the breadth with which arbitration clauses are interpreted in the First Circuit and the extent to which they may apply to non-signatories—concepts that certainly have relevance in a reinsurance arbitration setting.

Background Facts and Procedural History

Grand and Verizon entered into a contractual agreement allowing Grand rights to sell, install, and service Verizon products within a defined geographic area. The agreement defined relationships between Grand, Verizon, and customers and stated that “subscriber lists” of customers were the exclusive property of Verizon. Grand, 748 F.3d at 4.

The agreement between Grand and Verizon contained a dispute resolution and arbitration provision stating in relevant part:

“Except to the extent explicitly provided below, ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT . . . SHALL BE SETTLED BY ARBITRATION ADMINISTERED BY THE [AAA] . . . AND JUDGMENT ON THE AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.”

Grand, 748 F.3d at 4.

Grand and Verizon operated under the agreement for a number of years. Then, in October 2011, while the parties were terminating the agreement and Grand was in the process of negotiating to sell some stores and re-brand remaining stores under agreement with a different wireless carrier, Verizon and its employee Erin McCahill authorized a mailing to customers of the remaining stores claiming that those stores had closed and directing customers to a nearby competing Verizon store. Grand alleged this mailing contained false information and was sent in a deliberate effort to harm Grand’s ability to continue in business as an agent of another carrier.

Grand filed a Massachusetts state court action against Verizon and Ms. McCahill alleging that Ms. McCahill violated federal RICO statutes by “engaging in a fraudulent scheme that used the United States mails to transmit false representations . . . in violation of the federal mail fraud statute.” Grand also alleged that both Verizon and Ms. McCahill breached Massachusetts General Laws Chapter 93A and committed several torts against Grand. Grand, 748 F.3d at 5.

Verizon and Ms. McCahill removed to the United States District Court and moved to compel arbitration. Grand opposed, arguing that its claims were outside the scope of the arbitration agreement. Grand also argued that Ms. McCahill could not enforce the arbitration clause because she was not a party to the agreement between Grand and Verizon.

The District Court denied the motion to compel arbitration, but the First Circuit reversed. On the key issues, the First Circuit ruled that the agreement’s arbitration clause was sufficiently broad to include the disputes in question, and that Ms. McCahill could enforce the arbitration clause even though she was not a signatory to the agreement. Grand, 748 F.3d at 1 and 6.

Analysis

On the question of scope, Grand argued that the arbitration clause was “narrow” and limited to “battles over the agreement” – in other words, disputes requiring interpretation of the agreement’s terms, which it asserted was not the case for its RICO, M.G.L. c. 93A and tort claims. Grand also asserted that “narrow” arbitration provisions did not merit a presumption of enforceability.

Verizon countered by noting that the agreement’s broad terms mandated arbitration of “any controversy or claim arising out of or relating to” the agreement and that Grand’s claims “related to” the agreement. Verizon also argued that the dispute did involve interpretation of the agreement – for example, Verizon’s rights to subscriber lists as stated in the agreement. Grand, 748 F.3d at 6-7.

The First Circuit agreed with Verizon. The court observed that resolving the dispute would require determining matters that “relate to the terms of the agreement, or at a minimum, to the relationship established between Grand and Verizon under the Agreement,” including whether recipients of the mailing were customers of Verizon or Grand, and whether Grand’s stores were, in fact, closed. Grand, 748 F.3d at 7-8.

The First Circuit also relied heavily on the federal policy favoring arbitration, under which ambiguities as to the scope of the arbitration clause must be resolved in favor of arbitration. The court observed that this presumption of enforceability of arbitration provisions applied to the “broad” provision at issue, and that Grand failed to show “forceful evidence” to rebut the presumption.

Next, the First Circuit addressed whether the individual Verizon employee could enforce the (applicable) arbitration provision. The First Circuit began with a discussion of general principles, discussing case law holding that the Federal Arbitration Act does not require arbitration between parties who have not agreed to do so, and that, in general, contracts do not bind a non-party.

The First Circuit then considered whether exceptions to these general rules controlled the particular facts of this case. The First Circuit noted several times that Grand’s allegations against Ms. McCahill concerned actions taken by her entirely in her capacity as Verizon’s agent or employee and in furtherance of “company business.” Grand, 748 F.3d at 10.

The First Circuit noted that Grand made “but one” argument as to why the employee could not enforce the arbitration agreement, namely, that multiple sections of the agreement made explicit reference to “employees,” but the arbitration provision made no such reference. This, Grand argued, showed an intent that employees could not avail themselves of the arbitration agreement. Grand, 748 F.3d at 10.

The court, however, found no merit in this argument. Examining the agreement, the court found references to “employees” in areas where it was necessary, but found no reason to need or expect any reference to “employees” in the arbitration provision and thus did not view the absence of such a reference as evincing an intent to bar employees from the protection of the arbitration clause. Repeating its earlier finding that Grand and Verizon intended to arbitrate disputes such as these, and noting that companies like Verizon operate only through the actions of employees, the First Circuit observed that it would “have made little sense” to agree to arbitrate if employees could be “sued separately without regard to the arbitration clause.” Grand, 748 F.3d at 11.

The First Circuit then surveyed relevant case law. It found strong federal common law (a “federal rule”) supporting its interpretation that agents may invoke a principal’s arbitration provision. It noted that other Circuits examining this issue held that an agent may assert the principal’s arbitration clause when the claims are based on conduct as an agent. The court cited a First Circuit case, long pre-dating the agreement at issue, which expressed approval of the rule. Grand, 748 F.3d at 11, citing Hilti, Inc. v. Oldach, 392 F.2d 368, 369 n.2 (1st Cir. 1968). The First Circuit found that this federal rule supported the federal policy favoring arbitration and that any other rule would render arbitration clauses “meaningless” to corporations that must act through employees. Grand, 748 F.3d at 11.

Finally, the First Circuit cautioned that a United States Supreme Court decision held, as a general principle, that state law (not federal common law) ought to govern whether a non-party to an arbitration agreement can assert the protection of that agreement. Grand, 748 F.3d at 12, citing Arthur Anderson LLP v. Carlisle, 556 U.S. 624 (2009). But, the First Circuit found that the Carlisle case “leaves unclear” whether the Supreme Court intended to disturb the uniform body of precedent in the federal Circuit courts. In any event, noting that New York law controlled the agreement between Grand and Verizon, the First Circuit observed that Grand had not cited any New York law to the contrary.

Conclusion

Although the mailing sent by Verizon and its employee was not directly addressed by the terms of the agreement at issue, disputes concerning whether that mailing violated statutory and state common law “related to” the agreement and probably required an examination of terms of the agreement. For these reasons, the First Circuit found no difficulty in enforcing the agreement’s arbitration provision as to those disputes.

The Grand case also places First Circuit jurisprudence in line with other Circuits holding that a non-signatory employee may enforce an arbitration provision signed by her employer, at least so long as the claims asserted against the employee arise solely from actions taken as an employee in furtherance of company business.

The Grand case appears to leave some room for a party seeking to avoid this rule to argue that principles of state law impede this federal rule, but at least in the First Circuit, that argument awaits a later case.

Mr. Mutch is a Principal in the Boston office of Robins, Kaplan, Miller & Ciresi, L.L.P. He may be reached at jdmutch@rkmc.com.

© 2014 Robins, Kaplan, Miller & Ciresi, L.L.P. All rights reserved.


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