Ouadani v. TF Final Mile LLC

United States Court of Appeals
For the First Circuit

No. 17-1583

DJAMEL OUADANI, on behalf of himself and all others similarly
situated,

Plaintiff, Appellee,

v.

TF FINAL MILE LLC, f/k/a Dynamex Operations East, LLC,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, U.S. District Judge]

Before

Lynch and Selya, Circuit Judges,
and Levy, District Judge.*

Diane M. Saunders, with whom Ogletree, Deakins, Nash, Smoak
& Stewart, P.C. was on brief, for appellant.
Stephen Churchill, with whom Hillary Schwab, Brant Casavant,
and Fair Work, P.C. were on brief, for appellee.

November 21, 2017

* Of the District of Maine, sitting by designation.
 LYNCH, Circuit Judge. Djamel Ouadani worked as a

delivery driver from March to August 2016, delivering products for

Dynamex Operations East, LLC ("Dynamex"), now known as TF Final

Mile LLC. As a condition of his employment, Ouadani was required

to associate with a vendor affiliated with Dynamex, named Selwyn

and Birtha Shipping LLC ("SBS"). Ouadani received his compensation

from SBS, which had a written contract with Dynamex. Ouadani did

not have a written contract either with Dynamex or with SBS.

In August 2016, Ouadani complained to Dynamex that he

lacked the independence of a contractor, and that he should be

paid as an employee if Dynamex continued to exert the same degree

of control over his work. He was terminated shortly after he

complained.

After his termination, Ouadani brought various wage-and-

hour claims against Dynamex in federal district court, styling his

action as a putative class action on his behalf and on behalf of

others similarly situated. Dynamex responded by filing a motion

to compel arbitration, pointing to an agreement between Dynamex

and SBS that contained a mandatory arbitration clause.

The district court denied Dynamex's motion, reasoning

that Ouadani had never signed the agreement containing the

arbitration clause and had no idea that the agreement even existed.

Ouadani v. Dynamex Operations E., LLC, No. 16-12036, 2017 WL

1948522, at *3-5 (D. Mass. May 10, 2017). On appeal, Dynamex

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argues that Ouadani should nonetheless be compelled to arbitrate

under federal common law principles of contract and agency.

Because these arguments are without merit, we affirm.

I. Background

A. Facts1

In early 2016, Ouadani applied to Dynamex for a job as

a delivery driver, transporting products ordered through Google

Express. After contacting Dynamex, Ouadani was invited to a

meeting at the Dynamex offices in Wilmington, Massachusetts. At

the meeting, Dynamex employees interviewed Ouadani and asked him

to complete a number of forms, including one indicating his

available days and hours. Dynamex also gave Ouadani a Dynamex

shirt, albeit one that he had to pay for; took his photograph for

a Dynamex identification badge; told him that he needed to pass a

drug test; and provided him with information about the services

the company provided for Google Express. Dynamex told Ouadani

1 The facts in this section are drawn from Ouadani's
complaint, exhibits to the complaint, and the Independent
Contractor Agreement between Dynamex and SBS. We accept these
facts, which Dynamex does not dispute for purposes of evaluating
its motion to compel arbitration, as true for purposes of this
appeal. We do not and need not reach the issue of whose employee
or independent contractor Ouadani was. This decision also does
not concern the separate issue of whether the arbitration agreement
between Dynamex and SBS is enforceable.

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that he would be paid eighteen dollars per hour, or seventy-two

dollars for a four-hour shift.

During the meeting at the Dynamex offices in Wilmington,

Dynamex also gave Ouadani the names and telephone numbers of three

Dynamex-affiliated vendors and told Ouadani that he would have to

"associate" with one of them. For aught that appears, the term

"associate" was never defined. Ouadani decided to associate with

SBS. SBS was owned and managed by another Dynamex delivery driver,

Edward Alwis, whom Ouadani had never met. Neither SBS nor Dynamex

classified Ouadani as an employee.

Unbeknownst to Ouadani, Dynamex and SBS had entered into

an "Independent Contractor Agreement for Transportation Services"

(the "Agreement") in January 2016, pursuant to which SBS agreed to

perform delivery services "brokered or subcontracted by Dynamex"

(the "Contracted Services"). SBS was permitted to hire employees

or subcontractors to perform some or all of the Contracted

Services. The Agreement included the following arbitration

provision:

In the event of a dispute between the parties,
the parties agree to resolve the dispute as
described in this Section (hereafter "the
Arbitration Provision"). This Arbitration
Provision is governed by the Federal
Arbitration Act, 9 U.S.C. § 1, et seq., and
applies to any dispute brought by either [SBS]
or Dynamex arising out of or related to this
Agreement, [SBS's] relationship with Dynamex
(including termination of the relationship),
or the service arrangement contemplated by

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 this Agreement, including cargo claims and
payment disputes, but excluding all claims
that may be adjudicated in small claims court.
The provisions of this Arbitration Provision
shall remain in force after the parties’
contractual relationship ends. BY AGREEING TO
ARBITRATE ALL SUCH DISPUTES, THE PARTIES TO
THIS AGREEMENT AGREE THAT ALL SUCH DISPUTES
WILL BE RESOLVED THROUGH BINDING ARBITRATION
BEORE AN ARBITRATOR AND NOT BY WAY OF A COURT
OR JURY TRIAL.

In a subsection entitled "Claims Covered By Arbitration

Provision," the Agreement stated that “[u]nless carved out below,

claims involving the following disputes shall be subject to

arbitration under this Arbitration Provision regardless of whether

brought by Contractor, Dynamex or any agent acting on behalf of

either . . . .” The arbitration provision expressly extended to

"disputes regarding any city, county, state or federal wage-hour

law."

The Agreement also contained a provision that required

SBS's subcontractors to "satisfy and comply with all the terms of

th[e] Agreement" and required SBS to provide Dynamex with a written

agreement from any subcontractor that SBS utilized attesting that

the subcontractor had agreed to comply with the terms of the

Agreement. SBS did not have Ouadani execute such a written

agreement.

After passing his drug test, shadowing another delivery

driver for a couple of days, receiving his Dynamex identification

badge, and obtaining a cell phone and scanner set up with Google

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Express's software, Ouadani began working as a delivery driver for

Dynamex. Dynamex required Ouadani to wear a Dynamex-issued shirt,

which was marked by a large Dynamex logo, and his Dynamex

identification badge when he delivered products for Dynamex.

Ouadani used a Dynamex-issued e-mail address to receive

communications and directions from Dynamex managers. Dynamex

provided Ouadani with his assigned shifts for each week, and gave

Ouadani specific instructions about his delivery schedules,

including delivery locations, the order of deliveries, and

delivery timeframes.

For each four-hour shift worked by Ouadani, Dynamex paid

SBS seventy-two dollars, from which Dynamex subtracted, as to

Ouadani, amounts related to insurance, use of cell phones and

scanners, technology charges, failure to work assigned shifts,

late log-ins, and damaged or stolen products. In addition to these

amounts, SBS deducted, as to Ouadani, 17.5 percent of the net

payment it received from Dynamex to pay for workers' compensation,

other insurance, and payroll expenses. SBS then provided the

remaining funds to Ouadani. To perform his duties, Ouadani used

his own car and paid for his own gas without reimbursement.

Ouadani calculates that, after mileage costs and the various

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deductions by Dynamex and SBS, his net pay for a four-hour shift

ranged from $1.35 to $8.10 per hour.

In August 2016, Ouadani complained to Dynamex that he

was not given the independence of a contractor, and that he would

need to be paid as an employee if Dynamex continued to exercise

the same degree of control over his work. Shortly after receiving

Ouadani's complaint, Dynamex permanently removed him from the

driver schedule, thereby effecting the termination of his

employment.

B. District Court Proceedings

On October 11, 2016, Ouadani filed a putative class

action complaint against Dynamex, asserting that Dynamex

misclassified him and other delivery drivers as independent

contractors in violation of state and federal wage-and-hour laws.

The complaint also alleged that the misclassification had unjustly

enriched Dynamex, and that Dynamex had improperly retaliated

against Ouadani in violation of Mass. Gen. L. ch. 149, § 148A.

Ouadani sought to recover unpaid wages, reimbursement of improper

deductions and unpaid travel expenses, and damages resulting from

Dynamex's retaliation.

On February 9, 2017, Dynamex filed a motion to compel

arbitration pursuant to the Federal Arbitration Act ("FAA"), 9

U.S.C. §§ 1-16. Ouadani opposed the motion. On May 10, 2017, the

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court entered a memorandum and order denying Dynamex's motion.

Dynamex timely appealed the order.

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. S. Bay Bos. Mgmt. v. Unite Here, Local 26,

587 F.3d 35, 42 (1st Cir. 2009).

The FAA provides that written arbitration agreements

concerning transactions in interstate commerce "shall be valid,

irrevocable, and enforceable, save upon such grounds as exist at

law or in equity for the revocation of any contract." 9 U.S.C. §

2; see also Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111-

12 (2001). The FAA embodies a "liberal federal policy favoring

arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,

460 U.S. 1, 24 (1983). That policy requires "ambiguities as to

the scope of the arbitration clause itself [to be] resolved in

favor of arbitration." Volt Info. Scis., Inc. v. Bd. of Trs. of

Leland Stanford Junior Univ., 489 U.S. 468, 476 (1989).

On the other hand, a "basic precept" underlying the FAA

is that "arbitration is a matter of consent, not coercion." Stolt-

Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 681 (2010)

(quoting Volt Info. Scis., 489 U.S. at 479). As such, "a party

cannot be required to submit to arbitration any dispute which he

has not agreed so to submit." AT&T Techs., Inc. v. Commc'ns

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Workers of Am., 475 U.S. 643, 648 (1986) (quoting United

Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S.

574, 582 (1960)). It is undisputed that Ouadani never signed the

Agreement containing the arbitration clause at issue, or even knew

about it. A party that seeks 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." InterGen N.V. v. Grina, 344 F.3d 134,

142 (1st Cir. 2003). The pertinent question on appeal concerns

the third prong: is Ouadani, a nonsignatory to the Agreement, bound

to arbitrate his claims against Dynamex?

To answer that question, we look to federal common law,

which incorporates "general principles of contract and agency

law." Id. at 144. Examples of such principles include

incorporation by reference, assumption, agency, alter ego,

estoppel, and third-party beneficiary. See id. at 146-50, Thomson-

CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir.

1995). The theories asserted by Dynamex on appeal include (1)

that Ouadani is bound to arbitrate inasmuch as he is an "agent" of

SBS, (2) that Ouadani should be equitably estopped from refusing

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to arbitrate, and (3) that Ouadani is bound by the arbitration

clause because he is a third-party beneficiary of the Agreement.

A. Agency

Dynamex asserts that Ouadani should be bound to

arbitrate because he is an "agent" of SBS. We disagree. Dynamex

notes that the arbitration clause in the Agreement reaches disputes

"brought by [SBS], Dynamex or any agent acting on behalf of

either." (emphasis added). But Ouadani is not, in this context,

bringing his wage-and-hour claims as an "agent acting on behalf"

of SBS. To the contrary, Ouadani is bringing his claims against

Dynamex on his own behalf and purportedly on behalf of other

similarly situated drivers. The alleged agency relationship

between Ouadani and SBS is irrelevant to the "legal obligation in

dispute." See InterGen, 344 F.3d at 148 (refusing to compel

arbitration against a parent corporation which was not a signatory

to an arbitration agreement, even though its subsidiary was a

signatory and acted as the parent's agent in certain other

contexts, because there was no evidence that the subsidiary acted

as the parent's agent when it committed the specific acts that

were the subject of the dispute).

Cases from other circuits which have found an agent to

be subject to a principal's arbitration agreement are

distinguishable. Those cases held that nonsignatory defendants

who are agents of a signatory corporation may compel arbitration

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against signatory plaintiffs. See Grand Wireless, Inc. v. Verizon

Wireless, Inc., 748 F.3d 1, 10-11 (1st Cir. 2014) (holding that a

nonsignatory employee of a signatory corporation may compel

arbitration against signatory plaintiffs); Pritzker v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1121-22 (3d Cir.

1993) (holding that a nonsignatory employee and a nonsignatory

corporate sister of a signatory corporation may compel arbitration

against signatory plaintiffs); Arnold v. Arnold Corp.-Printed

Commc'ns For Bus., 920 F.2d 1269, 1281-82 (6th Cir. 1990) (holding

that nonsignatory officers and directors of a signatory

corporation are entitled to compel arbitration against signatory

plaintiffs); Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185,

1187–88 (9th Cir. 1986) (holding that nonsignatory employees of a

signatory broker are entitled to compel arbitration against

signatory plaintiffs). These holdings were predicated on (1) the

fact that the claims of the signatory plaintiffs arose from the

nonsignatory agents' conduct on behalf of the signatory

principals, and (2) the signatory principals' intent to protect

their agents by means of the arbitration provisions. See Grand

Wireless, 748 F.3d at 10-11; Pritzker, 7 F.3d at 1122; Arnold, 920

F.2d at 1282; Letizia, 802 F.2d at 1188. These rationales are

inapposite here because Ouadani is a nonsignatory plaintiff who is

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trying to avoid arbitration, not a nonsignatory defendant seeking

to compel it.

B. Equitable Estoppel

Equitable 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.

Federal courts generally "have been willing to estop a signatory

from avoiding arbitration with a nonsignatory when the issues the

nonsignatory is seeking to resolve in arbitration are intertwined

with the agreement that the estopped party has signed." Id.

(quoting Thomson-CSF, 64 F.3d at 779). But courts have been

reluctant to estop a nonsignatory attempting to avoid arbitration.

Id. at 145-46. In the latter scenario, "estoppel has been limited

to 'cases [that] involve non-signatories who, during the life of

the contract, have embraced the contract despite their non-

signatory status but then, during litigation, attempt to repudiate

the arbitration clause in the contract.'" Id. at 146 (quoting

E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin

Intermediates, S.A.S., 269 F.3d 187, 200 (3d Cir. 2001)).

Dynamex claims that Ouadani knowingly sought and

obtained benefits from the Agreement because he performed the

"Contracted Services" pursuant to the Agreement for compensation.

It also argues that the Agreement would be "useless" without

drivers like Ouadani to perform the contemplated services. These

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arguments are unpersuasive because the benefits of the arbitration

clause of the Agreement accrue to the contracting signatories --

Dynamex and SBS -- not to Ouadani. Ouadani can hardly be said to

have "embraced" the Agreement when he was unaware of its existence.

Dynamex presses another, similar argument: Ouadani

"knowingly exploit[ed]" the Agreement by asserting claims that can

only be determined by reference to the Agreement. In particular,

Dynamex argues that Ouadani's claims "are premised on his position

that he performed the 'Contracted Services'" on behalf of SBS, and

that "such a relationship could only exist through the Agreement"

because Ouadani acknowledges that "he associated with [SBS] and

was paid directly by [SBS]."

To support this argument, Dynamex cites two

distinguishable California cases concerning an arbitration clause

involving SuperShuttle International ("SuperShuttle"), a provider

of door-to-door airport shuttling services. Dynamex first cites

Kairy v. Supershuttle International Inc., No. 08-CV-02993, 2012 WL

4343220 (N.D. Cal. Sept. 20, 2012), a case in which former

SuperShuttle franchisees who drove for SuperShuttle, as well as

nonsignatory secondary drivers who drove for SuperShuttle pursuant

to a relationship with the franchisees, brought wage-and-hour

claims against SuperShuttle. Id. at *1, *9. There, the district

court compelled arbitration against the secondary drivers, even

though they were not signatories to the relevant franchise

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agreements, because they "knowingly exploited the rights and

privileges granted under the [franchise] agreements" by

"participat[ing] actively and for compensation in the rights and

duties described in the [franchise agreements]." Id. at *9.

Notably, the secondary drivers' federal and state labor law claims

required the drivers to "specifically perform[] under the

[franchise agreements]." Id.

Dynamex also cites Supershuttle International, Inc. v.

Aysov, Nos. CIV 535204-08, 2015 WL 10388413 (Cal. Super. Dec. 23,

2015). In that case, a California state trial court compelled

arbitration against nonsignatory SuperShuttle drivers because they

were found to have received financial benefits from the franchise

agreement, which provided the only basis for their assertion of

state labor law claims against SuperShuttle. Id. at *2.

These cases are distinguishable. Unlike the secondary

SuperShuttle drivers, Ouadani did not "knowingly exploit[]" or

"participate actively and for compensation," Kairy, 2012 WL

4343220, at *9, in the rights described in the Agreement -- he did

not even know that the Agreement existed. And the Agreement does

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not provide the only basis for Ouadani's claims, which stem from

his arrangement with Dynamex.2

C. Third-Party Beneficiary

The third-party beneficiary doctrine, while similar in

some ways to estoppel, is a distinct ground for compelling a

nonsignatory to arbitrate. While a court considering the

application of equitable estoppel includes a focus on the parties'

conduct after the execution of the contract, a court analyzing

whether the third-party beneficiary doctrine applies looks to the

parties' intentions at the time the contract was executed. See

Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 362 (5th

Cir. 2003) (quoting DuPont, 269 F.3d at 200 n.7). The "critical

fact" that determines whether a nonsignatory is a third-party

beneficiary is whether the underlying agreement "manifest[s] an

intent to confer specific legal rights upon [the nonsignatory]."

2 Dynamex also cites Fluehmann v. Associates Financial
Services, No. Civ.A. 01-40076, 2002 WL 500564 (D. Mass. Mar. 29,
2002), to support his estoppel argument. That case can be
distinguished for similar reasons. The district court in Fluehmann
compelled arbitration, under an estoppel theory, against a
plaintiff who had cosigned a mortgage deed with her husband but
had not signed the accompanying loan agreement or the arbitration
agreement that was incorporated into the loan agreement. Id. at
*1-2. The court held that the plaintiff could not "have it both
ways" -- because her cause of action arose from the interdependence
of the loan agreement and the mortgage deed, she could not reap
the benefit of bringing a suit dependent on the loan agreement
without being subject to the accompanying burden of binding
arbitration. Id. at *7. Here, Ouadani's claims against Dynamex
do not require him to embrace the Agreement.

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InterGen, 344 F.3d at 147 (emphasis added). Here, the language of

the Agreement does not manifest any such intent.

In InterGen, we noted that the third-party beneficiary

theory should be approached "with care" because the law "requires

'special clarity' to support a finding 'that the contracting

parties intended to confer a benefit' on a third party." Id. at

146 (quoting McCarthy v. Azure, 22 F.3d 351, 362 (1st Cir. 1994)).

As such, a mere benefit to the nonsignatory resulting from a

signatory's exercise of its contractual rights is not enough. Id.

at 146-47.

Dynamex fails to identify any language in the Agreement

that can be read to provide Ouadani with "specific legal rights."

InterGen, 344 F.3d at 147. Dynamex points to the provision of the

Agreement stating that SBS's subcontractors "must satisfy and

comply with all the terms of th[e] Agreement" and requiring SBS to

provide Dynamex, at Dynamex's request, with a "written agreement"

from any subcontractor it chooses to utilize attesting that the

subcontractor has agreed to comply with the terms of the Agreement.

Even assuming, arguendo, that Ouadani is a subcontractor of SBS,

Dynamex's reliance on this provision is misplaced. The provision

describes SBS's obligations to Dynamex. It does not say that SBS's

subcontracted drivers are third-party beneficiaries of the

Agreement. Moreover, to the extent that the provision evinces an

intent to bind subcontractors to the Agreement's terms, it

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contemplates a specific mechanism for doing so: SBS must obtain

from the subcontractor a "written agreement" to comply with the

Agreement's terms, and provide the written agreement to Dynamex.

Dynamex's and SBS's failure to obtain a written agreement from

Ouadani cuts against Dynamex's argument that Ouadani should be

bound by the Agreement.

Dynamex attempts to escape this conclusion by citing the

SuperShuttle cases. In Kairy, the district court found that the

nonsignatory drivers were intended third-party beneficiaries of

the franchise agreements by virtue of the agreements' express

language, which "contemplated and permitted that the franchisees

could hire secondary drivers," and thus gave the secondary drivers

"the right to enforce the agreements." 2012 WL 4343220, at *9.

And in Aysov, the state trial court found the nonsignatory drivers

to be intended third-party beneficiaries because the drivers would

never have been hired in the absence of the franchise agreement.

2015 WL 10388413, at *1.

The SuperShuttle cases are inapposite because they

concern drivers who were hired by intermediary franchisees rather

than SuperShuttle itself. Here, Dynamex -- not SBS, the

intermediary -- screened, hired, supervised, and determined the

compensation of its drivers. Ouadani's mandated association with

SBS for payment purposes does not alter the fact that Dynamex

ultimately controlled the terms and conditions of Ouadani's work

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as a delivery driver. Ouadani's claims do not depend on the

existence of a right guaranteed in the Agreement between Dynamex

and SBS; they are grounded in Ouadani's relationship with Dynamex.

In short, Dynamex's failure to show that the parties to

the Agreement intended to provide any legal rights to Ouadani is

fatal to its third-party beneficiary claim.

III. Conclusion

We affirm the decision of the district court. Dynamex

is ordered to show cause by written response within fifteen days

as to why the court should not assess double costs for "needlessly

consuming the time of the court and opposing counsel." D'Angelo

v. N.H. Supreme Court, 740 F.3d 802, 808 (1st Cir. 2014) (citing

In re Simply Media, Inc., 566 F.3d 234, 236 (1st Cir. 2009)); see

also Fed. R. App. P. 38; 1st Cir. R. 38.0.

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