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LLC v. Ribeiro

United States District Court, D. Massachusetts

August 11, 2017

SYSTEM4, LLC
v.
LUIS RIBEIRO

          MEMORANDUM OF DECISION AND ORDER

          RYA W. ZOBEL, SENIOR UNITED STATES DISTRICT JUDGE

         System4, LLC (“System4”) petitions the court to vacate a February 16, 2017 final arbitration award and several “related findings and rulings.” Docket # 4, at 1. It further seeks attorneys' fees and costs. Respondent Luis Ribeiro moves to confirm the award. Docket # 11.

         I. Background

         The following facts are drawn from the arbitrator's findings of fact, which this court must accept. See Mercy Hospital, Inc. v. Mass. Nurses Ass'n, 429 F.3d 338, 344 (1st Cir. 2005) (“[A]n inquiring court is bound by the arbitrator's findings of fact.”) (citation omitted).

         A. Procedural History of Putative Class Action

         This arbitration arose against the backdrop of a complicated procedural history. In 2010, a putative class action suit[1] was filed in Norfolk Superior Court against System4 on behalf of cleaning workers who were unit franchisees and who claimed to have been misclassified as independent contractors by System4, the master franchisor, and NECCS, Inc., d/b/a System4 of Boston, LLC (“NECCS”), the master franchisee, in violation of the Massachusetts Wage Act, M.G.L. c. 149, § 148 (“Wage Act”). The case made its way to the Massachusetts Supreme Judicial Court (“SJC”) twice. Central to the issues here is the SJC's later decision, which addressed System4's motion to compel plaintiffs to individual arbitration under the Franchise Agreement (“Agreement”) that each plaintiff entered into with NECCS. The SJC held that System4 could compel the cleaning worker franchisees to bring their claims against System4 in individual arbitration. See Machado v. System4 LLC, 28 N.E.3d 401, 413 (Mass. 2015).

         B. Arbitration Proceedings

         Accordingly, following the court's decision in 2015, respondent Luis Ribeiro, who was a putative class member of the suit, filed a demand for arbitration against System4 with the American Arbitration Association (“AAA”) to challenge his employment status under the Wage Act. The AAA appointed arbitrator Jessica Block to oversee the proceedings, which concluded two years after Ribeiro filed his demand. At the outset of the arbitration, Ribeiro requested that the arbitrator make an initial determination that the proceedings should be governed by the AAA's Employment Rules rather than the AAA's Commercial Rules, and that the cost of the arbitration should be borne by System4. The arbitrator reviewed Ribeiro's request under a preliminary injunction analysis. On October 7, 2015, after receiving briefing by both parties, she issued a memorandum of decision and held that she would apply the AAA Employment Rules because Ribeiro was likely to succeed on the merits of his Wage Act claim, and ordered System4 to advance the cost of the arbitration proceedings. She noted, however, that because this was a preliminary ruling, she would be willing to hear additional argument from System4 “at a later stage of the proceedings, ” Docket # 1-3, at 12, that Ribeiro was in fact an independent contractor.

         On August 23, 2016, the arbitrator issued a memorandum of decision on the parties' cross-motions for summary judgment on liability. She found that Ribeiro was not barred by the statute of limitations because he was part of the putative class and the class action tolling doctrine applied to his arbitration demand. Accordingly, she found that the statute of limitations was tolled until April 13, 2015, when the SJC ruled in Machado that System4 could compel arbitration, and Ribeiro timely filed his demand for arbitration two months later on June 12, 2015. She also ultimately found that Ribeiro should have been classified as an employee-not an independent contractor-under the Wage Act. System4 filed a motion for reconsideration of the arbitrator's decision on liability, which she denied because it failed to meet the standard for reconsideration. Subsequently, System4 filed three additional motions relating to sanctions against Ribeiro's counsel for allegedly violating the confidentiality provision of the Agreement and motion for attorneys' fees and costs. The arbitrator denied each motion and issued separate decisions that set forth her reasons. On February 16, 2017, the arbitrator issued her final decision containing the award (the “Award”), which awarded Ribeiro damages in an amount stipulated to by the parties, as well as attorneys' fees and costs.

         System4 now moves under section 10 of the Federal Arbitration Act (“FAA”) to vacate the Award and the six related decisions discussed above. See Docket # 5, at 6-7.

         II. Standard of Review

         “[A] district court's review of arbitral awards must be ‘extremely narrow and exceedingly deferential.'” Bull HN Info. Sys., Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir. 2000) (quoting Wheelabrator Envirotech Operating Services Inc. v. Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43 (1st Cir. 1996)). “We have found arbitral awards ‘nearly impervious to judicial oversight' because both parties ‘have contracted to have disputes settled by an arbitrator' and therefore ‘it is the arbitrator's view of the facts and the meaning of the contract that they have agreed to accept.'” UMass Mem'l Med. Ctr., Inc. v. United Food and Commercial Workers Union, 527 F.3d 1, 5 (1st Cir. 2008) (quoting Teamsters Local Union No. 42 v. Supervalu, Inc., 212 F.3d 59, 61 (1st Cir. 2000); United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37-38 (1987)). The FAA, 9 U.S.C. § 1-16, provides four specific grounds for which federal courts can vacate an arbitration award, two of which are relevant to System4's motion: (1) “where there was evident partiality or corruption in the arbitrators, ” 9 U.S.C. § 10(a)(2); or (2) “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” Id. at § 10(a)(4).

         III. Discussion

         System4 moves the court to vacate the Award under sections 10(a)(2) and 10(a)(4) because, it alleges, there was evident partiality by the arbitrator and she exceeded her powers. “To obtain vacatur of an arbitration award, ‘[i]t is not enough for [a party] to show that the panel committed an error-or even a serious error.'” Raymond James Fin. Serv., Inc. v. Fenyk, 780 F.3d 59, 63 (1st Cir. 2015) (quoting Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671 (2010)). Rather, “[t]he challenging party has the burden to establish ‘substantially more than an erroneous conclusion of law or fact.'" ...


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