Machado, et al. v. System4 LLC, et al. (Lawyers Weekly No. 10-059-15)
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us SJC-11681 EDSON TELES MACHADO & others[1] vs. SYSTEM4 LLC & another.[2] Norfolk. December 4, 2014. – April 13, 2015. Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, & Hines, JJ. Massachusetts Wage Act. Contract, Franchise agreement, Arbitration. Arbitration, Damages, Arbitrable question. Civil action commenced in the Superior Court Department on March 24, 2010. Following review by this court, 465 Mass. 508 and 466 Mass. 1004 (2013), a motion for a ruling that an arbitration clause did not apply to certain claims was heard by Patrick F. Brady, J. The Supreme Judicial Court granted an application for direct appellate review. Eric H. Karp for the defendants. Shannon Liss-Riordan for the plaintiffs. CORDY, J. This case was filed in 2010 by a franchisee janitorial worker, on behalf of himself and other similarly situated individuals, against System4 LLC (System4), a “master franchisor,” and NECCS, Inc., doing business as System4 of Boston, LLC (NECCS), a regional “subfranchisor,” originally alleging, in relevant part, breach of contract, rescission of contract, and misclassification as independent contractors in their franchise agreements.[3] The franchise agreements are signed only by the plaintiffs and NECCS; however, the complaint as originally filed, and as subsequently amended, does not differentiate NECCS from System4 and alleges that the former is “the agent of” and “exists solely to conduct [the] business” of the latter. The agreements govern a franchisee’s right to customer account referrals and the use of System4′s proprietary information in operating commercial janitorial cleaning businesses. They also require the franchisee plaintiffs to arbitrate virtually all disputes. While the plaintiffs raise a number of arguments on appeal, of central importance is the question whether System4, a nonsignatory, can compel the franchisee plaintiffs to arbitrate their substantive claims in accord with the arbitration provision in the plaintiffs’ franchise agreements. We conclude that by reason of equitable estoppel they can do so in the circumstances of this case. Background. System4, an Ohio limited liability company, contracts with a regional subfranchisor in the Boston area, NECCS, who subsequently enters into franchise agreements with franchisees, such as the plaintiffs.[4] Although System4 is not a signatory to these agreements, the agreements provide the franchisees with access to System4′s marketing expertise, business practices, training, and use of trademarks, by way of a separate agreement between System4 and NECCS. […]