Ericka Richardson v. Coverall North America Inc

• Court: Court of Appeals for the Third Circuit
• Decided: April 28, 2020
• Docket: 18-3393
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

Nos. 18-3393, 18-3399 _____________

ERICKA RICHARDSON; LUIS A. SILVA, On behalf of themselves and all other similarly situated persons

v.

COVERALL NORTH AMERICA, INC.; SUJOL, LLC, DBA Coverall of Southern, NJ; ABC CORPS. 1-10; JANE & JOHN DOES 1-10

SUJOL, LLC, DBA Coverall of Southern, NJ, Appellant in Appeal No. 18-3393

COVERALL NORTH AMERICA, INC., Appellant in Appeal No. 18-3399 _______________

On Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 3:18-cv-00532) District Judge: Hon. Michael A. Shipp _______________

Argued: November 20, 2019

Before: CHAGARES, MATEY, and FUENTES, Circuit Judges.

(Filed: April 28, 2020)

Norman M. Leon [ARGUED] DLA Piper 444 West Lake Street, Suite 900 Chicago, Illinois 60606 David S. Sager Amanda L. Camelotto DLA Piper 51 John F. Kennedy Parkway, Suite 120 Short Hills, New Jersey 07078 Counsel for Appellant Coverall North America, Inc.

Justin D. Santagata [ARGUED] Kaufman Semeraro & Leibman Two Executive Drive, Suite 530 Fort Lee, NJ 07024 Counsel for Appellant Sujol, LLC, DBA Coverall of Southern, NJ

Ravi Sattiraju Anthony S. Almeida Sattiraju & Tharney 50 Millstone Road Building 300, Suite 202 East Windsor, NJ 08520

Shannon Liss-Riordan Adelaide Pagano [ARGUED] Lichten & Liss-Riordan, P.C. 729 Boylston Street, Suite 2000 Boston, MA 02116

Anthony L. Marchetti, Jr. Marchetti Law, P.C. 900 North Kings Highway, Suite 306 Cherry Hill, NJ 08034 Counsel for Appellees Ericka Richardson and Luis Silva, individually _______________

OPINION _______________

 This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent. 2 MATEY, Circuit Judge.

Ericka Richardson and Luis Silva each wanted to open a commercial cleaning

business. So each bought a franchise from Coverall North America, Inc. (CNA) through

Sujol, LLC d/b/a Coverall of Southern New Jersey (Sujol). But disagreements followed the

signed agreements, and Richardson and Silva filed a putative class action alleging they are

the Defendants’ employees, not independent contractors, under New Jersey law. We do not

address who has the better argument, because the contracts both delegate that authority to

an arbitrator. So we will reverse the District Court’s Order in part and vacate in part and

remand for further consideration.

I. BACKGROUND

A. The Agreements

CNA sells commercial cleaning services. It operates a franchise business system

through geographically designated territories. Sujol, known as a “master franchisee,” owns

one of these territories and entered into agreements with Richardson (in 2016) and Silva

(in 2005) to operate cleaning businesses. CNA is not a named party to either the Richardson

or Silva agreement (collectively “the Agreements”). Rather, CNA has an agreement with

Sujol allowing Sujol to sell franchises using CNA’s trademarks and operating system.

Problems arose in 2017, as Richardson and Silva began to question their relationship

with Sujol and, as a result, the fees due under the Agreements. So they filed a putative class

action in the Superior Court of Middlesex County, New Jersey, claiming that while the

3 Agreements label them as “independent contractors,” they are really employees under New

Jersey law. (App. at 38–48 (citing N.J. Stat. Ann. § 43:21-19(i)(6)).) Plaintiffs alleged that

Defendants had violated the New Jersey Wage Payment Law (NJWPL), N.J. Stat. Ann.

§ 34:11-4.1 et seq., by allegedly misclassifying them as independent contractors, charging

them for a job, and taking unlawful deductions from their wages. (App. at 38–48.) CNA

and Sujol removed the matter to federal court, and then moved under Section 3 of the

Federal Arbitration Act (FAA) to stay the proceedings in favor of arbitration. (App. at 7.)

B. The District Court’s Interpretation of the Agreements

The District Court considered both the who and the what: whether the parties agreed

to delegate questions of arbitrability to an arbitrator and, in Richardson’s case, whether

CNA could enforce the arbitration clause. First, the District Court found the incorporation

of the American Arbitration Association (AAA) Commercial Arbitration Rules in Silva’s

agreement did not satisfy the clarity needed for delegation, at least with an “unsophisticated

party.” Applying New Jersey law, the District Court also held that the arbitration agreement

did not cover Silva’s NJWPL claims. Second, the District Court found Richardson’s

agreement with Sujol delegated arbitrability questions to the arbitrator. But the court

determined that CNA could not invoke the arbitration clause. Timely appeals by Sujol and

CNA followed.1

II. JURISDICTION AND THE APPELLATE STANDARD OF REVIEW

1 After the District Court’s Order, Richardson dismissed her claim against Sujol, leaving only the three claims for which the Motion had been denied. As such, the part of the Order granting the Motion as to Richardson’s claim against Sujol is now moot. 4 The District Court had jurisdiction under 28 U.S.C. § 1332(d)(2), and we have

jurisdiction under 9 U.S.C. § 16(a)(1)(A) to consider an order refusing a stay pending

arbitration under 9 U.S.C. § 3. We largely review that decision de novo, except for

underlying findings of fact, which we review for clear error. See Morales v. Sun

Contractors, Inc., 541 F.3d 218, 221 (3d Cir. 2008).

III. ANALYSIS

We use a two-step process to evaluate an arbitration clause in a contract: 1) whether

there is a valid agreement to arbitrate; and 2) whether that agreement encompasses the

dispute at issue. Jaludi v. Citigroup, 933 F.3d 246, 254 (3d Cir. 2019). State law governs

both steps. See id. at 254–55; In re Remicade (Direct Purchaser) Antitrust Litig., 938 F.3d

515, 522 (3d Cir. 2019). And parties are free to assign the resolution of these issues to an

arbitrator. See Opalinski v. Robert Half Int’l Inc., 761 F.3d 326, 335 (3d Cir. 2014). But

that delegation requires “clea[r] and unmistakabl[e]” evidence of the parties’ intent. First

Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (alterations in original).

A. Arbitrability of Silva’s Claim Against Sujol

We start with who decides, as the Defendants argue that the incorporation of the

AAA Rules in Silva’s arbitration clause constitutes clear and unmistakable evidence that

the parties agreed to delegate arbitrability. We agree. Silva’s agreement provides that “all

controversies, disputes or claims between Coverall . . . and Franchisee . . . shall be

submitted promptly for arbitration” and that “[a]rbitration shall be subject to . . . the then

current Rules of the American Arbitration Association for Commercial Arbitration.” (App.

at 94.) Clearly and unmistakably then, the AAA Rules govern the arbitration of any dispute

5 between Silva and Sujol. And Rule 7(a) of the AAA Rules states that “[t]he arbitrator shall

have the power to rule on his or her own jurisdiction, including any objections with respect

to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any

claim or counterclaim.” American Arbitration Association, Commercial Arbitration Rules

and Mediation Procedures, Rule 7(a). That provision “is about as ‘clear and unmistakable’

as language can get.” Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 11 (1st Cir. 2009). Nor

is the rest of Silva’s contract so ambiguous or unclear that the meaning of the AAA Rules

becomes murky.2

Silva responds that relying on incorporated rules is unreasonable in agreements

involving “unsophisticated parties.”3 But that likely stretches too far and would disregard

the “clear and unmistakable” standard and ignore even the plainest of delegations. See

Brennan v. Opus Bank, 796 F.3d 1125, 1130–31 (9th Cir. 2015) (“Our holding today should

2 While “[v]irtually every circuit to have considered the issue has determined that incorporation of the [AAA] arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability,” we need not determine whether such a rule always applies. Chesapeake Appalachia, LLC v. Scout Petrol., LLC, 809 F.3d 746, 763–64 (3d Cir. 2016) (alterations in original) (quoting Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013)). Even where an agreement incorporates the AAA Rules, a contract might still otherwise muddy the clarity of the parties’ intent to delegate. For example, in Chesapeake Appalachia, we held that the mere incorporation of unspecified AAA rules did not demonstrate an intent to delegate arbitrability in a class action. We explained that finding clear and unmistakable evidence in that case required jumping from 1) the contract, to 2) the reference to unspecified AAA rules, to 3) the AAA Commercial Rules and, lastly, to 4) the AAA Supplementary rules, which ultimately vested an arbitrator with the authority to decide class arbitrability. 809 F.3d at 761. But Silva’s contract requires no such “daisy-chain” of inferences. Id. 3 Although it is not clear from the record that Silva lacks sophistication, we will assume as much. 6 not be interpreted to require that the contracting parties be sophisticated . . . before a court

may conclude that incorporation of the AAA rules constitutes ‘clear and unmistakable’

evidence of the parties’ intent [to delegate arbitrability].”); see also McGee v. Armstrong,

941 F.3d 859, 863, 865–66 (6th Cir. 2019); Arnold v. Homeaway, Inc., 890 F.3d 546, 548–

49, 551–52 (5th Cir. 2018); Green v. SuperShuttle Int’l, Inc., 653 F.3d 766, 767–69 (8th

Cir. 2011). Here, the clarity of Silva’s agreement shows the intent to delegate the

arbitrability. So we will reverse the District Court’s contrary conclusion and remand.

B. CNA’s Ability to Enforce the Arbitration Clauses

The District Court held that CNA could not enforce Richardson’s arbitration clause,

because it was not a third-party beneficiary of Richardson’s agreement with Sujol. CNA

advances several interpretive arguments, paired with pleas for equitable estoppel, all aimed

at allowing CNA to compel arbitration. Some of these issues arise for the first time on

appeal; others arose before the District Court only in a cursory manner. All are best fully

considered by the District Court in the first instance, a path that follows from our

conclusions on the Silva agreement. Because we hold that Silva and Sujol agreed to

delegate arbitrability, we likewise will vacate the District Court’s determination that

Silva’s arbitration clause does not encompass his claim against Sujol. That leaves

undecided whether CNA can also enforce Silva’s arbitration clause, an issue not raised in

this appeal. And since CNA’s rights in both the Silva and Richardson agreements may

benefit from discovery, see Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764,

774–76 (3d Cir. 2013), we will vacate the District Court’s Order regarding whether CNA

is a third-party beneficiary of the Richardson contract.